HL Deb 11 October 1999 vol 605 cc136-41

(" .—(1) The Income Support (General) Regulations 1987 shall be amended as follows.

(2) At the beginning of regulation 45 (capital limit) there is inserted "Subject to regulation 45A".

(3) After regulation 45 there is inserted— 45A. For the purposes of section 22(6) of the Social Security Act 1986 as it applies to income support (no entitlement to benefit if capital exceeds prescribed amount), the prescribed amount for persons of pensionable age is £16,000."").

The noble Lord said: My Lords, it will be convenient to consider also Amendments Nos. 46 to 48. The amendments are best grouped in two pairs, taking Amendments Nos. 45 and 46 together and Amendments Nos. 47 and 48 together. I shall not burden your Lordships at this hour by reading out the terms of the amendments but simply explain them.

The difference between the two sets of amendments is that Amendments Nos. 47 and 48 include a provision for uprating the capital allowances, to which I shall refer in a moment, in line each with inflation, whereas Amendments Nos. 45 and 46 do not. On reflection, at the present level of inflation, Amendments Nos. 47 and 48 are probably not necessary and l shall therefore concentrate on Amendments Nos. 45 and 46.

These amendments are important for this reason. It is now well recognised that the capital limits which determine whether pensioners are entitled to income support are long overdue for increase. This legislation gives us an opportunity, which may not arise for some considerable time, to provide that increase.

At the moment, individual pensioners on income support are "allowed" £3,000 capital before their income support is reduced. When that capital reaches £8,000 they lose their entitlement to income support altogether. For reasons I shall put forward in a moment, those figures are long overdue for amendment. The situation with regard to housing and council tax benefit is somewhat similar. Nothing happens up to £3,000, but after £16,000 the housing and tax benefits are effectively eliminated.

I am slightly puzzled by a document I received from the Department of Social Security which says that higher limits apply in relation to the top end of the scale for income support and jobseeker's allowance "for people in nursing homes". I am puzzled as to how people in nursing homes may be entitled to jobseeker's allowance, but I leave that matter on one side; there may be some reason for it.

At all events, it is clear that there is an assumption that these limits are imposed because they are likely to generate an income which will be useful to the individual concerned instead of income support. In fact, the department's document suggests that that is not so. It says in terms that: These graduated reductions are not intended to represent any return that could be obtained from investing capital. The system provides a straightforward method of calculating the weekly contribution which people with capital in excess of £3,000 are expected to make from those resources to help meet their normal living expenses". I find that to be total gobbledegook and do not understand what the department is seeking to say. The common-sense approach is that limits are supposed to be imposed on the basis that if the individual holds this amount of capital, then he derived from it an income which is a substitute for income support. If that is so, one must consider whether the limits are now appropriate in line with what such sums of capital are likely to produce.

There are some differences in limits between different social security benefits. But what prompted me to table the amendments were the discussions we had on a previous Bill with regard to the limits for working families' tax credit where people would receive some benefit if they had an income of, in some cases, over £20,000 a year. If they have an income of £20,000 a year some contribution is made to their expenses by the Inland Revenue, but if they have capital as small as £3,000—and certainly by £8,000—the system makes no provision for them whatever at the higher limit and it is tapered between the two. Therefore, these amendments seek to raise the limit and to alter the taper in line with the argument that I am putting forward.

There is, of course, a traditional Treasury argument on the matter—I forget how many letters I may have signed pointing this out—which is that the first £3,000 of capital is ignored. Consequently, the implicit rate of interest on capital of, say, £3,250 is very low: indeed, I believe that the department calculates that 1.6 per cent would be the equivalent rate of interest. However, by the time you get up to £8,000, the equivalent rate of interest is 13 per cent.

I looked through the Sunday newspapers in order to consider where one might reasonably invest this meagre amount of capital so as to get an income which would justify one's social security benefits being reduced but had some difficulty in finding anything yielding more than 6 per cent. It seems quite clear to us on this side of the House that an increase is long overdue. The figures that we have selected for these amendments are arbitrary to some extent, but there are considerable cost implications involved. Therefore, it would be helpful if the Minister could give us some indication of the likely cost of such changes. We could then consider before Third Reading the exact way in which we should proceed on the matter.

For years on constituency interview nights on a Friday evening I had elderly ladies coming to see me and saying, "I have £5,000 capital and my income support will be chopped back. If I have £8,000 it will be eliminated altogether". In their hearts they feel that this is somehow their last remaining barrier against any unforeseen disaster which may befall them. Therefore, it is important for us to take that aspect into account. As I say, week after week that argument was put to one and one was tempted to say, "Well, the best thing you can do is to go on a world cruise and then come back and claim income support". But, alas, the legislation makes provision for that and, should it happen, they will be clobbered anyway.

I hope that the Minister will respond sympathetically and give us some idea of what the appropriate figures might be. As this Bill will probably be the last opportunity for some time to do something about this situation, we could then decide by Third Reading what is an appropriate change to make. I beg to move.

Earl Russell

My Lords, I should like to thank the noble Lord, Lord Higgins, for drawing our attention to the case of people in nursing homes receiving jobseeker's allowance. It reminds me of the conditions imposed when women were first allowed to join the Northern Irish Civil Service: they were allowed three children, but were not allowed to be married.

I strongly agree with the overall thrust of these amendments. In fact, it is a point that I have been making on uprating statements since long before either of the other two noble Lords who have spoken were Members of this House. However, the noble Lord, Lord Higgins, made one point with which I disagree. He said that Amendments Nos. 47 and 48 were not particularly urgent at the moment because the present rate of inflation is low. I agree with the maxim that the time to mend the roof is when the sun is shining. If we are to introduce regular uprates—and that is what I am after here—the sensible moment to do so is when there is a low rate of inflation and the immediate first step upwards is not as expensive as it might otherwise be.

When you get a long delay in uprating any particular benefit, you face the danger of the worth of the thing in effect becoming nugatory. The Minister will remember what happened in the Parliament before last to child benefit. So that it is clear I am not making a purely party point, I refer also to the prime ministership of Harold Wilson and to what happened to dog licences. They had not been uprated for so long that the cost of uprating them reached a level which would have been absolutely prohibitory. The only thing that they could do then was to abolish them.

These capital limits may or may not have been rightly fixed in 1988. They were perhaps a little ungenerous even in 1988. But what was a little ungenerous in 1988 is extremely ungenerous now. We have been going 11 years without any uprating of these capital limits. Every year that it is put off the change becomes more expensive when it is introduced. I hope that in this window of low inflation the Minister will grasp the nettle while the stings are not particularly painful. It will only be worse afterwards!

11 p.m.

Baroness Hollis of Heigham

My Lords, I have heard some compelling arguments that the measure will only be worse afterwards as it comes near the top of the tree!

As we have heard, these amendments would have the effect of increasing the capital limits in income support. The current lower limit of £3,000 below which all is ignored for benefit purposes would become £8,000, and the upper limit, the cut off, would become £16,000. The noble Lord goes still further by proposing that these new rates should be increased each year to match inflation. I have every sympathy with the noble Lord's desire, belated as it may be, to tackle the problems outlined in our Green Paper Partnerships in Pensions published in December 1998.

As noble Lords have said tonight, and as government certainly recognise, the way that the rules of benefit work can be unfair to those who have saved. As the Green Paper made clear, people resent the fact that savings can disqualify them from benefit while non-savers get support. The noble Lord, Lord Higgins, was concerned about the taper of £3,000 to £8,000 and the putative rate of return, the £1 for every £2.50. It is perhaps worth mentioning that as far as we can tell, approximately two-thirds of pensioner households have capital of £8,000 or less, although usually pensioners do not like to tell us these things. But certainly most pensioners come within the existing rules. It is clear too that they are out of date.

We had some fun as regards the entitlement to JSA. Like the noble Lord, I was trying to think under what circumstances it might apply. People under pension age would be entitled to residential care and nursing home allowances where, for example, they were receiving drug rehabilitation treatment. However, that is fairly uncommon and it did not occur to any Members of your Lordships' House even in the wildest flight of imagination that that might be the explanation. Someone in a nursing home is much more likely to receive IB or IS on grounds of sickness or disability, as the noble Lord thought.

As I say, the Government share the view that the present rules of benefit seem unfair to those who have saved. It is particularly difficult for people who are on the margins; that is, the £3,000 or £8,000 figures. Wherever the line is drawn that will be a problem. As regards income other than from capital, we have already taken action. Our minimum income guarantee paid through income support is set to rise over time with earnings. Therefore I believe that that matter has been addressed. But the same is not true of capital. To restore the value of the capital limits in today's terms—we should remember that the lower figure was introduced in 1988 and the upper figure in 1990—would cost around £100 million. Revalued rates would produce a lower band of around £4,500, with an upper band of £11,000. I refer to the RPI in this connection. To go a step further, the cost of these amendments would be double that—around £200 million, to apply between the £8,000 to £16,000 figure.

Our priority is to maintain the minimum income guarantee. However, our research on pensioner take-up which we publish this week shows that the reasons pensioners do not take up their entitlement to income support are complex. They include a reluctance to go inside a benefits office. Some pensioners do not realise that they do not have to go inside a benefits office at all; that it can all be done by post and phone. We need to get the message across that the minimum income guarantee is an entitlement by right and not by some kind of default. As I said, some pensioners have very modest savings but are, none the less, reluctant to draw on them and keep them for their funeral. They therefore live on an income which is below MIG by virtue of the capital rules.

Like Members opposite and my noble friends behind me, we favour increases to the capital limits. Processing these matters is not easy. We welcome the Opposition's belated conversion to this policy, they having done nothing for seven years. I am intrigued that the noble Lord opposite is now a convert. Indeed, I am even more intrigued since Mr Willetts made his speech at the Conservative Party conference entirely on the basis that he would cut social security expenditure. So far noble Lords opposite are adding multi-millions to social security expenditure. I am happy to see that he reasserts his traditional independence from the other place on behalf of the poor, the sick and the elderly.

The Government are determined to reward thrift, particularly in those who save for old age. The capital limits on income support have been in place since 1988 and 1990 and have not been increased since then. We recognise that those rules appear to be unfair to those who have saved. They are unfair. There is a range of options for reform, from increasing the amount of savings that people can hold before entitlement is reduced or extinguished to introducing some kind of disregard on pensioners' income. We are listening to views and we will bring forward proposals later in this parliament. With that assurance, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Higgins

My Lords, I thank the Minister for that reply. In particular it was helpful to have the figures for the cost of simply uprating the capital limits from the last time that a change was made. As I understand it, the cost is £100 million a year. If the amendments that. I have tabled were accepted, the figure would be £200 million a year. In comparison with many of the other figures that we have debated on this Bill and on the Working Families' Tax Credit Bill, I hesitate to say that the figures are not as large as I expected them to be. It is helpful to have that information.

I note what the Minister said about action. The question is whether one should delay for as long as was stated. Her words were a little imprecise; if I understood her correctly she said "during the course of this Parliament". She did not advance any particular reason why, since we are all agreed, it could not be done comparatively rapidly. I fully accept that there was a delay under the previous Government and a further delay under this Government. There ought to be some change made. I am grateful to the Minister for her informative reply. We shall consider whether we should return to the matter at Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 46 to 50 not moved.]

Baroness Strange moved Amendment No. 51: After Clause 18, insert the following new clause—