Steve Webb spoke to SLF Council member and pensions expert Janice Turner, before many of Steve’s pensions reforms – supported by the Social Liberal Forum – were announced in last week’s Queen’s Speech.
Being a minister at the Department for Work and Pensions must be a tough gig at the best of times, and never more so in the midst of this unprecedented economic climate. Many of the benefits changes that have been introduced over the last two years, and those in the pipeline, have been the subject of a lot of soul-searching and criticism among SLF members.
But Steve Webb has lasted the course – in fact he’s the longest serving pensions minister since the job was invented – and I caught up with him to discuss how it’s been for the man whose other badge of honour is that he was one of the founders of the Social Liberal Forum.
I asked him why he got involved in setting up the SLF in the first place.
“The original thinking behind the SLF was that we would not necessarily be a membership organisation, but we had felt at the time that the economic liberals had all the best tunes, even though there were plenty in the party who would regard themselves as social liberals rather than economic liberals.”
“There was a strong feeling that the party was a bit too keen to be written up well in The Times. Anyone who talked about valuing teachers, doctors and nurses or about the public service ethos was branded as defending “producer interests, whereas if you wanted to introduce competition and markets you could get a good headline.
“We felt that the social liberal forum should give a voice to that strand of the party – I prefer to call it a strand rather than a faction. This strand had not had a voice as much as it should have done. It was about balance.”
How does Steve define social liberalism?
“There are common principles that liberals as a whole sign up to: concern for the environment; a suspicion of the centralised state. The big difference is that social liberals are also acutely aware of the limitations of market-based outcomes.”
So how has it been in government for a member of a party that is inherently suspicious of them? “There are things only governments can do; redistribution is one thing. Taxing income at source out of pay packets.
“Take the state pension reforms – there is a whole group of people who the market hasn’t provided for and won’t provide for, so the state has to provide for these people. Markets tend to reinforce inequalities so part of the role of government is to counteract these inequalities.”
Only a few days earlier Steve Webb had won a standing ovation at the party’s spring conference for his speech on the theme of fairness in government. “One of the things I mentioned in my speech was about age discrimination. When we came to power it was legal to sack someone at 65 no matter how good they were at their job. We ended that.”
However, it hasn’t been easy in government and he has had to make some tough choices.
“We agreed at the outset across the two parties about the deficit reduction. The growth of public spending had been huge: the government was spending £200-billion on benefits, pensions and tax credits.
“It was clear in 2010 that whoever got into office would have to take some very hard decisions about public spending. It was inconceivable that we wouldn’t make hard decisions in some areas. Working age benefits, tax credits, these were difficult areas.”
So Steve Webb framed his decisions with an overriding concern for the most vulnerable.
“For example, when a time limit of a year was imposed on the employment support allowance what did we decide to do? We’d protect the sickest and the poorest. If you aren’t going to work again, due to illness, you’re protected. And if you’re among the poorest, in that you qualify for means-tested benefits, that isn’t time limited either. So only those with some other means of support were affected.”
I was talking to Steve in a week that various aspects of housing benefit were dominating the news. Many Liberals, particularly social liberals, find this housing benefit cap really hard to accept. I suggested that the thought of our party being associated with the eviction of thousands of people, or them being moved to other parts of the country, hundreds of miles away – is an appalling prospect for many of us.
“First, I entirely agree that there is not enough affordable housing,” he said. “But to have take-home pay of £500 per week (the level of the cap) you would need to be earning a wage of around £34,000 a year. It is quite hard to say to someone in a low-paid job on £10,000 or £15,000 that other people who are not working can have the standard of living of someone earning £34,000 a year.
“But one of the interesting things about the overall benefit cap of £500 per week is that many thousands of those who were originally expected to be affected are now no longer going to be affected, in many cases because they are now in work.
“Also, the benefit cap doesn’t affect those in public sector accommodation. Whole swathes of London are on council estates and council rents are so much lower than private sector tenants, so it’s only really going to affect those renting in the private sector.”
If you weren’t in government with the Tories, I asked, if this was a Liberal government, would you support rent controls? They have rent controls in the US and Germany and I’d say that Germany has a very different attitude to renting and property ownership than we do – maybe this is one of the reasons. If you had the choice of either uprooting thousands of people from their homes, or inconveniencing some people who already have more than one property, which is the greater sin?
“You mean if I ruled the world what would I do? I would look at this definitely. Though I know there are some pretty strong arguments against – how much rented accommodation we might lose if landlords decided to sell up instead of continuing to rent out their property. But I would certainly look at it.”
Another issue was the proposed direct payment of housing benefit to the individual instead of to the landlord. A pilot in Wales was suggesting a substantial number of tenants would fall into arrears.
“It’s been generally recognised that the best way out of poverty is to get a job,” said Steve. “At the moment when people are on benefits their money tends to be handled for them – their rent is paid direct to the landlord, there is very little budgeting. There’s also no need for IT skills. When they enter the world of work there’s a strong chance that they’ll get a monthly payment, and 90% of jobs require IT literacy. If we treat people like kids it’s such a culture shock when they enter the world of work because they don’t have the budgeting skills to cope with a monthly wage . With a bit of help they could budget, but they can’t on the current system.
“The more humane thing is getting people doing stuff on-line where they can. That’s what the pilots are testing. In Southwark half their tenants are now on direct debit. The evidence is they’re still getting 90% of the rent. Perhaps we’re being overly pessimistic about this. Of course part of this is about saving money, but you can also see that this is about financial inclusion, financial literacy, IT literacy.”
He added that for those who really couldn’t handle this there would be a safety net, and in these cases rent could still be paid direct to the landlord.
Spare room subsidy
Turning to the spare room subsidy, in a week in which DWP Secretary of State Iain Duncan Smith had announced that foster carers and people whose teenage children were in the army would be excluded from it, he said that it had been clear from day one that the government’s intention was that they wouldn’t be affected by this. The government had made money available to local councils to make discretionary payments to these people.
“However we discovered politically it didn’t work. Foster carers had received letters from councils saying they were cutting their benefits but the councils were also saying they weren’t even going to assess it for months. Do you give councils a pot of money and the power to make a decision case by case to help people? What we found was that councils were being really slow to communicate about discretionary housing payments. So we decided to make it more simple and take them out of it altogether.”
But isn’t this bedroom tax rather extreme? Suddenly reducing people’s housing benefit just because they’ve got an extra room?
He said firmly:
“As a social liberal we should be worried about the quarter of a million households that are overcrowded and would love a family home, bursting at the seams and desperately in need of a family house. There are 5 million men, women and children on housing waiting lists in this country. Both these figures are about meeting housing need.
“So what do we do about it? One, we build lots of houses. Two, we already don’t allow a spare room to those who rent privately. A million people are already not allowed a spare bedroom on housing benefit.”
Some people might make up the £2 a day difference while others might take in a lodger or move a family member in. Others will exchange their property with someone else who is overcrowded.
“Housing associations are looking at their tenants in a different way,” he added. “Twenty housing associations on Merseyside have got together and pooled their housing stock so they can match housing need. Many schemes in London are also doing this. Six properties moved between six people recently. But we’re also making sure that vulnerable households remain protected with an extra room – those for example where a child has disabilities and cannot share.
“Over 800,000 spare bedrooms are being paid for on housing benefit,” he added. “That’s a vast amount.”
Vince Cable has been calling for the government to put a lot more investment into infrastructure and house building. Do you share his view?
“Yes I do. He’s influenced by the lessons of the 1930s – house building is labour intensive and you can see why it’s a good thing. One of the difficulties is there’s plenty of planning permission but the building isn’t happening.”
Isn’t part of this that the developers think they’ll make more money if they wait?
“Yes, part of it may be this but developers are arguing that a lot of planning permission was given with strings attached – such as that you have to build a primary school as well – and the developers are arguing that they can’t build it with all the social strings attached.
“What we have to do is build houses that will be used. In Scotland they often just built three bedroom houses and now they’re finding that there are too many of those, there are many single people who need smaller properties and they are in short supply.”
We turned to pensions, an extremely important issue for SLF which, with Steve’s support, pushed through a motion on private sector pensions at last year’s spring conference. I lead for SLF on this issue.
The party’s new policy expresses great concern that the current methods used to evaluate defined benefit (ie final salary and career average) pensions have been unable to cope with these unprecedented market conditions, and this, coupled with over-regulation on the part of the Pensions Regulator, had produced wildly volatile deficits which no-one could predict – wholly unsatisfactory for schemes that have to plan over half a century.
This has been taken forward: in early February the DWP announced a lightning consultation – which closed recently – on whether to change the valuation method and/or to give the Pensions Regulator an additional statutory objective to have regard to the employer’s ability to pay when faced with a deficit as a result of the current under-valuation of pension funds. A few days after this interview Chancellor George Osborne announced changes unnoticed outside the pensions industry press which implement SLF policy to the great benefit of the 1.8-million people still building a pension in DB schemes. The changes will give pension fund trustees greater flexibility than they were hitherto allowed to choose the basis on which contribution levels and valuations are calculated. For those who are not pension fund trustees like myself, the bottom line is that this is a lifeline for DB schemes, and it was Steve Webb who succeeded in getting this into the Budget.
On the other key aspect of SLF’s pensions policy – on how to improve pensions for the millions of workers in the private sector who are not in defined benefit schemes – Steve and the DWP have taken action on this as well. Over the last few months working groups have been set up to look at different models of what Steve calls ‘defined ambition’ pension schemes.
“We are moving forward with this,” he says. “The current problem with the current defined contribution (ie money purchase) offering is that we are exposing individuals to too much market risk. We are now developing models for risk sharing, taking to the employers about what they want.”
He’s also pushed ahead with single tier pensions, as the state pension was desperately in need of reform:
“for women, whose state pensions reflect a post-war model that treated them as housewives and dependants rather than people in their own right; for part-time workers who were often excluded from pension schemes altogether, and for carers whose time looking after others was simply not valued and led to poverty in retirement. Trying to come up with a pension reform that cost no additional money but which addressed long-standing injustices was a bit of a challenge. But I believe that is exactly what we have done and it’s our party that did it.”
“Once the new system is in place, the rules will be simple. Someone starting work will have to contribute for 35 years to get a full pension of around £144 per week in today’s money. That could be 35 years of paid work but it could also include time spent bringing up young children or caring for an elderly relative. For the first time, a year spent caring for someone else will be valued as much as a year earning millions as a City high-flyer. That is Liberal Democrat fairness in action.
“The rate of the pension will be set so that you are clear of the basic level of means-tested benefits. That means that if you work hard and save hard you will be better off than if you hadn’t. All too often at present older people tell me they wonder why they bothered to save because they feel no better off as a result. Fairness demanded that we had to change that situation, so we have.”
Pensions are never the most exciting item on the political agenda but they are a vital part of a civilised society. Previous Conservative and Labour governments have created serious problems, particularly for the millions in the private sector workforce, and it takes real political courage and conviction to take them on and bring about positive change.
Steve’s determination in instituting such a vast programme of social liberal change in such a short time, particularly if he succeeds with the ‘defined ambition’ proposals, will improve the lives of millions not just of our generation but also of the next.
One of the most refreshing things about Steve Webb is that unlike many politicians he is welcoming of the opinions of others and is always willing to listen to new arguments and take them forward if he sees the sense in them. A case in point was his recent success in reversing some of the benefit cuts that would have badly affected people with disabilities.
“I hadn’t been involved in working on them so the first I knew that there was a problem was when I had a text from a member of the Lib Dem Disability Association.” he said. “I looked into the issue and quickly saw the problem. My concerns were shared by my colleague Stephen Lloyd who is our representative on the DWP select committee and by our colleagues in the Lords, Celia Thomas and Mike German. So we talked to the LDDA and the disability organisations and came up with a proposal to change the regulations which I then promoted with the Department. Soon afterwards, the Government laid amending regulations to deal with the problem. We can be proud of the way that we used our voice inside Government to get things done for disabled people that simply wouldn’t have been possible from the opposition benches.”
So Steve’s guiding light in his work as a minister has been fairness and a concern for the least well-off in society. The Universal Credit plan, he says,
“will lift over half a million men, women and children out of poverty. It lets people keep more of their own wages, especially if they are a low earner. And it does away with many of the strange rules in the present system such as if you work 15 hours you are on one system but if you work 16 hours you are on another one.
“Of course no new system will be perfect and the very gradual roll out of the Universal Credit will give time to iron out some of the rough edges. But it is both Liberal and fair to break down the barriers that get in the way of people who want to get a job, and we were right to have supported the principles of this new Universal Credit system.
Big structural reforms of pensions and benefits take time to introduce and at the same time as working on these plans we have also had to look at ways of reducing the growth in the overall benefits bill as a contribution to deficit reduction. At every turn, my priority has been to make sure that where savings do have to be made that we did it in a fair way, protecting the most vulnerable.”
I believe him.