Social Security

The Secretary of State for Social Security (Mr. Peter Lilley)

I beg to move, That the draft Social Security Benefits Up-rating Order 1997, which was laid before this House on 31st January, be approved.

Madam Speaker

I understand that with this, it will be convenient to discuss the following motions: That the draft Social Security (Contributions) (Re-rating and National Insurance Fund Payments) Order 1997, which was laid before this House on 31st January, be approved. That the draft Social Security (Contributions) Amendment Regulations 1997, which were laid before this House on 10th February, be approved. That the draft Guaranteed Minimum Pensions Increase Order 1997, which was laid before this House on 31st January, be approved. That the draft Social Security (Incapacity for Work) (General) Amendment Regulations 1997, which were laid before this House on 31st January, be approved.

Mr. Lilley

The main order uprates nearly all benefits in line with inflation. It is the biggest spending decision that we take in the Department every year. Even with inflation at only just over 2 per cent., uprating benefits will cost £1.7 billion in the coming year. It is right and proper to uprate benefits, because that meets our commitment to the neediest in society.

I am proud that, despite the pressures on public spending, all basic benefits have been uprated every year since I have held office. Of course, it was not always so. Under the previous Labour Government, benefits were not uprated fully in 1976 for past inflation, and pensioners were robbed of £1 billion in today's money. Pensioners may therefore find a recent statement by the shadow Chancellor somewhat disturbing. In a speech last month, in which he spelled out his new, macho approach to public spending, he said: We will keep a tough grip on the cash totals of departmental spending … there cannot be an assumption that totals will be automatically adjusted upwards in the event of changes in inflation. I wonder whether the hon. Member for Peckham (Ms Harman) can reassure pensioners and others about whether their benefits would be automatically adjusted upwards in the event of changes in inflation. I am happy to give her the opportunity to do so. Perhaps she will do so later, although I am not sure what value pensioners would put on an assurance from the hon. Lady, because she has changed her mind on everything, and her party's track record is not good. We shall wait and see.

The fall in unemployment since the previous election is another source of pride. Unemployment is down by more than a million since April 1992, and is now declining even faster. Expenditure on benefits for the unemployed is therefore falling, and is set to fall further. Expenditure on other groups has risen, but three quarters of the growth in spending in this Parliament has been on people who are elderly or disabled, or the long-term sick. Spending has grown on the elderly, because people who reach retirement age can now expect to live for two years longer than people who reached retirement age in 1979. People live longer under the Conservatives.

931 Spending on disabled and long-term sick people has grown because we give more generous benefits. We are proud of the fact that we give four times more help to disabled and long-term sick people than did the previous Labour Government.

The two sides of the House have had their disagreements on analyses of past social security spending, but we can now both agree about future spending levels. In his speech on 20 January, the right hon. Member for Dunfermline, East (Mr. Brown) committed the Labour party to our planned expenditure levels, Department by Department and year by year. It was an amazing tribute to my right hon. Friend the Chief Secretary to the Treasury that the Opposition clearly believed that his figures were right to the last penny. It means that we can have a rational debate about how we should keep within those budgets, on which both sides of the House agree, and we can both be measured against the same yardstick.

I shall spell out the measures that we intend to take to keep within the published targets for my Department. It will be up to the Opposition to say whether they would implement those measures, or what other measures they would introduce to achieve the same savings. In total, the measures which I announced in the Budget debate just before Christmas, but for which we must legislate, will save nearly £300 million in the second year of the spending round, rising to £1 billion in the longer term. So either the hon. Member for Peckham must enact £1 billion-worth of my savings measures, every one of which she has condemned, or she must replace them with alternative measures that save as much. I think that she will find that, when the shadow Chancellor told her to keep within my budget, he was handing her a live grenade with the pin pulled out. We shall wait to see how she deals with it.

The largest of the changes that I announced was the proposal to equalise benefits for lone parents with those available to married couples. It will apply to new claimants only, who will receive the same family premiums and child benefit rate as couples. Existing lone parents will keep their present higher rates unchanged in cash terms. That equalisation is fair and, ultimately, it will save £500 million a year. It requires legislation, which we shall introduce early in the new Session.

I have written three times to the hon. Member for Peckham asking her a simple question: would she implement those changes to equalise benefits for lone parents with those for married couples? If she will not, and if she decides to pay £500 million more to lone parents than we plan, she can get it only by reducing benefits for married couples, for single people without children, for the disabled or the elderly, because they are the only other categories who receive benefits under our budget.

Let us have no pretence from the hon. Lady that she can conjure up £500 million of savings from expensive schemes designed to get lone parents back into work. It is socially desirable to get them back to work, especially from their point of view, and I welcome the fact that the Labour party has copied some aspects of our Parent Plus scheme. Imitation is the sincerest form of flattery, but we are frank enough to admit that it will probably cost money. We have budgeted some £20 million for the scheme.

We have studied similar schemes worldwide and know of no scheme that saves more money than it costs, including the Australian scheme, JET, which the Labour 932 party claims as its inspiration. That scheme has been going since 1989 and has cost £40 million more than it has saved. That is calculated on the basis that everyone leaving the scheme for a job is counted as a saving in benefit terms, although similar schemes in New Zealand and elsewhere suggest that as many as 80 per cent. might have got jobs anyway. It is therefore simply cynical of the Opposition to pretend that they can bank on savings from that source.

We can all agree that the ideal way to curb social security spending is to get people out of unemployment and into jobs. Here, Britain's record over this Parliament has been outstandingly better than that of any major country in Europe. We have created more jobs than all the other major countries of Europe put together.

Mr. Roger Berry (Kingswood)

Will the Secretary of State give way?

Mr. Lilley

I shall give the hon. Gentleman a chance to listen to a bit more before he takes part in the debate.

We have created more jobs than all the other major countries of Europe put together. We have a higher percentage of our population in work, and that is rising. We have a lower level of unemployment, and that is falling. So, for the best of reasons, expenditure on benefits for the unemployed is now falling in this country, and set to go on falling.

We have achieved that relative success by following a clear strategy—by creating a flexible labour market, deregulating, reducing taxes and cutting social costs on employers, so that our social on-costs add £15 to every £100 in pay, whereas in France on-costs are twice as high, at £31 for every £100 on the payroll, and in Germany they add £41 to every £100 on the payroll.

We are making work worth while, by paying in-work benefits to those with families and high rents to pay. Those policies are working. They are creating jobs, attracting inward investment and winning plaudits from foreign firms moving here. They are securing the ringing endorsement of objective bodies such as the Organisation for Economic Co-operation and Development and the International Monetary Fund.

In contrast, the Opposition's approach is clearly incredible. It is riven with glaring contradictions. Let me mention two. The Saturday before last, the Leader of the Opposition told his local government conference that a Labour Government would spend more on education, which he claimed would be financed by savings on social security achieved by Labour's scheme to get a quarter of a million young people into work.

Yet a week later the shadow Chancellor, in an interview in the Evening Standard, said in the clearest possible terms that, far from saving money, the scheme would cost a net £3 billion—[HON. MEMBERS: "No."] I shall quote his words: I estimate"— [Interruption.] These are the words of the right hon. Member for Dunfermline, East, and Opposition Members would do well to listen to them: I estimate that to meet a commitment to create 250,000 jobs for young people will, over the course of a parliament, cost a minimum of £3 billion … I do not think anybody is in any doubt that a windfall levy will raise that sum of money. 933 Either the scheme would save money or it would cost money. Either it would help the Leader of the Opposition pay for more spending on schools, or a minimum of a £3 billion tax on the utilities would be required to pay for it, as the shadow Chancellor admits. They cannot both be right. Which of the two does the hon. Member for Peckham support—her leader or her shadow Chancellor? Will the scheme save money or cost money?

It is no good suggesting that the £3 billion cost cited by the shadow Chancellor is a gross cost that would be offset by savings. If the savings exceeded the cost, there would be no need for an extra tax to finance the scheme. In connection with the Budget proposals that the Chancellor announced before Christmas, I negotiated with the Treasury a "spend to save" programme of anti-fraud measures that will save more than it costs—so we shall not need any extra taxes. It will help us in our task of bringing taxes down.

The simple truth is that the shadow Chancellor is, in that respect, right. The costs of such schemes invariably far exceed the benefit savings. The reason is simple. There is a large dead-weight cost. Last year, half of all those who would have been eligible for his £1,500 subsidy to help them back into work got jobs anyway. So the money spent subsidising them would be wasted.

Then there is a large substitution and displacement cost. Many employers would take on people eligible for the subsidy instead of others whom they might otherwise have taken on, and people in that second group would therefore find themselves unemployed and drawing benefit.

There is also a recycling cost: employers might not keep their subsidised recruits once the subsidy has run out, after only six months, so the net number of additional jobs is likely to be only a small fraction of those who receive the subsidy. I wish that that were not the case and that such schemes were cost-effective but, alas, all the evidence suggests that only narrowly targeted schemes create any extra jobs and that few, if any, result in net savings to the taxpayer.

Mr. Michael Stephen (Shoreham)

If the money for those makework schemes is to be raised by a windfall tax, what is the likely effect on employment in the utilities to which the tax would apply?

Mr. Lilley

My hon. Friend makes a good point, which it is for the Opposition rather than for me to answer. I venture to suggest, however, that the effect would be negative and that there would be an adverse effect on employment in those industries, to add to the problems that I have already mentioned.

The Opposition's proposals have a second and equally glaring internal contradiction. They claim that reducing the cost of employment by giving employers a temporary £60-a-week subsidy would create extra jobs; yet they simultaneously claim that increasing the cost of employment, by the national minimum wage, not to mention European social costs, would not destroy jobs.

Either employers are sensitive to the costs of employing people, in which case the national minimum wage would be a disaster, or they are not, in which case the hope of reducing unemployment by job subsidy is an illusion. The Opposition cannot have it both ways.

934 I am happy to come down on one side of the horns of the dilemma: the truth is that employers are indeed affected by the cost of employing people and that a national minimum wage, which would permanently raise costs and affect millions of people, would be bound to destroy far more jobs than could possibly be created by a temporary job subsidy of £60 a week that ends completely after six months and covers only a few hundred thousand people.

The more Labour claims that its job subsidies are likely to be effective, the more alarmed we should all be about the far greater impact of the minimum wage, the social chapter, the European social model and trade union power, which it proposes to restore.

The largest element in my budget is not expenditure on unemployment, but the cost of state pensions. We have taken steps to contain the future growth of state pensions and, equally important, we have successfully encouraged the bulk of people of working age to opt for occupational and personal pensions. Today, I have published the latest estimate of the value of United Kingdom pension funds, which has reached a record-breaking £650 billion.

That may be denigrated and sneered at by the Opposition, but it is something that Government Members are proud of. The assets held in pension funds rose by a massive £50 billion in 1995. That increase in a single year is more than the entire year's spending on health and social services. Only because we have encouraged people to save and invest in private pensions is the additional potency of private investment brought to bear in financing future pension needs in this country.

Mr. Jeremy Corbyn (Islington, North)

Before the Secretary of State gets totally carried away on the subject of the privatisation of the pensions system, will he tell us what studies have been done by his Department into the amount that is being paid into private pension schemes by people in work, compared with the amount that they would have paid into a national insurance system if the state pension had been uprated properly in line with earnings, as it should have been, instead of the Government stealing so much money from pensioners?

Mr. Lilley

There are two aspects to that question. On whether state pensions should have been uprated in line with earnings, Labour Front Benchers—latecomers though they may be—agree that they should not; we welcome that agreement, although we understand that the bulk of Labour Back Benchers do not share in it. It would have cost the best part of £8.5 billion to uprate in line with earnings had we not changed the system.

The trouble with comparing the costs of the state system with those of private provision is that the state system does not involve any investment—and does not, therefore, receive the fruits of investment growth—whereas the private sector does. That is why it is advantageous, where possible, to get people to save and invest and to enjoy the fruits of investment. That is why we are proud of our success in encouraging the bulk of people to do so. Pension and life assurance assets now account for more than one third of net personal wealth in this country.

Mr. Bernard Jenkin (Colchester, North)

Is my right hon. Friend aware that, over the past two days, the Select 935 Committee on Social Security has been hosting a Europewide conference on the comparison between funded and unfunded pension systems, which has looked at the hidden liabilities in European pension funds? It is evident—as all the other European parliamentarians attending the conference acknowledge—that the choices that we took during the 1980s, and those that we have taken since, to balance our hidden liabilities into the future, are choices that the others will have to make to stop their public finances falling into crisis.

Mr. Corbyn

On a point of order, Madam Speaker. Is it in order for the hon. Member for Colchester, North (Mr. Jenkin) to make an intervention on private pensions without saying that he is, or was, an adviser to the insurance company, Legal and General?

Madam Speaker

The Chair does not rule on interventions. If the hon. Gentleman were to rise to make a speech, I would expect him to declare an interest at the beginning, but I cannot rule that he has to make such a declaration on an intervention.

Mr. Jenkin

Further to that point of order, Madam Speaker. May I point out to the House that I have had no connection with Legal and General for more than a year?

Madam Speaker

I am obliged.

Mr. Lilley

I do not know whether the hon. Member for Islington, North (Mr. Corbyn) wants to intervene to apologise. The House will note his ungracious attempt to slur one of my hon. Friends, and I shall think twice about giving way to him in the future. [HON. MEMBERS: "Oh."] Opposition Front Benchers apparently approve of such behaviour, which tells us something about them.

Mr. Robert G. Hughes (Harrow, West)

Is there not collusion between Opposition Front Benchers on these matters? In the corresponding debate last year, my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) suggested that Labour would abandon its commitment to uprate pensions in line with earnings. When he did so, he was accused of peddling wild rumours from central office. We all know who was right.

Mr. Lilley

To respond to the important point raised by my hon. Friend the Member for Colchester, North (Mr. Jenkin), I welcome the Select Committee's conference, which I saw was attended by an impressive array of continental experts and parliamentarians. Officials from my Department, and other Departments, have been to the conference and will report to me on the views expressed, which could be very interesting. I know from the Franco-British Council conference on the subject of funded pensions that there is great interest and considerable admiration on the continent for our success in building up private pension provision on the back of solid state-guaranteed pensions for the future.

Britain's strong position was confirmed recently by a new report from the International Monetary Fund, which highlights our enviable position compared with other European pension systems. The IMF estimates that the ratio of public pension liabilities to gross domestic product is 5 per cent. in Britain, compared with 76 per cent. in Italy, 111 per cent. in Germany and 114 per cent. 936 in France. The value of assets held in UK pension funds exceeds those of all other EU member states put together. We believe that we are better placed to provide decent pensions for our pensioners in the future.

Only 43 per cent. of those who retired in 1979 were in receipt of occupational pensions. Now, the figure is 63 per cent., and it is even higher among those who have retired recently. Some 5.6 million people are holders of appropriate personal pensions. Seventy-three per cent. of pensioners have income from investments and savings, compared with 62 per cent. in 1979, and their average total net incomes have gone up by 60 per cent. more than inflation since then. That is a track record of which we can be proud.

I must mention two other issues before drawing to a conclusion. First, I refer to a recent misleading statement made by the Leader of the Opposition, the shadow Chancellor and the hon. Member for Peckham, who is the shadow spokesman on social security. All of them have said that it is regrettable that we spend less on education than on unemployment. Where they get those figures, I do not know.

The Parliamentary Under-Secretary of State for Social Security (Mr. Andrew Mitchell)

They make them up.

Mr. Lilley

Yes, they must do. I want to put the actual figures on the record. We spend £36 billion a year on education. The cost of all benefits to unemployed people is some £9 billion and falling. I hope that those hon. Members will correct the misleading statements that they have made when they come before the House.

Since the welfare state was established, the cost of social security has grown twice as fast as the economy. It has taken a rising share of national income and has been the main factor in driving up taxes and in the changes and burdens on business. Because of the reforms that we have introduced, it is now set to take a declining share of national income, leaving scope for lower taxes and setting us on a virtuous circle of lower taxes, a more dynamic economy, generating jobs and getting people off welfare and thus further reducing taxes. We have achieved that because our reforms are focusing help on those in need, cutting out fraud, getting people off welfare and into work and helping to drive up private pension provision for the future. Those are achievements of which we Conservatives can be proud.

By contrast, the Opposition have attacked virtually every reform that we have introduced and every proposal that they have made involves spending more. The simple truth is that the Opposition cannot be trusted to reform the welfare state, because they believe that they have a vested interest in the votes of those who depend on the money from the welfare state. The Opposition tried to do an about-turn on the issue and to pretend that they can both spend more and save at the same time. As a result, they are riven by the internal contradictions that I have spelt out. They claim that they will live within our budget, but refuse to implement or replace the £1 billion of savings that we have announced.

We shall want to hear from the hon. Member for Peckham whether she will implement the changes that we have announced but have yet to legislate for on lone parents, housing benefit, backdating and so forth, totalling the best part of £8 billion.

937 The Opposition claim that their subsidies for employers will create jobs, and then deny that the burdens of the minimum wage, European social costs and restored union power will destroy jobs. They claim that their schemes will save money, but then admit that they will require £3 billion in extra taxation to finance them. Rarely has a party demonstrated as comprehensively as the Opposition its complete unfitness to govern. Let us make sure that it remains on the Opposition Benches and leaves the Conservative party to continue with the most successful reforms of the welfare state in Europe.

Ms Harriet Harman (Peckham)

I will begin by setting out our position on today's business. I shall advise my right hon. and hon. Friends not to vote against the general uprating order, because, as the Secretary of State has said, it contains upratings in line with inflation, which are important to those who depend on benefits.

There are many aspects of the Government's approach, however, with which we profoundly disagree. The Government have delivered a double whammy—higher costs for the taxpayer and lower benefits for the claimant. Their failure is clear from their record on social security. Perhaps that is why the Secretary of State was so defensive today and spent nearly all his speech attacking our plans. Clearly, our plans are the only plans that he feels are worth discussing.

The Secretary of State is so defensive about his record that he dare not put it before the House. The fact is that the cost to the public purse is up, and life for those on benefits is harder. The Tories are hitting the taxpayer and hitting the poor. They have failed on welfare because they have failed on work. One in five households of people of working age, not including pensioner households, have no one in work. In our divided Britain, there is poverty from the cradle to the grave: one in three are born into poverty; one in five pensioners die in it.

As this Parliament draws to a close, this debate provides a good opportunity to review the Secretary of State's record. At the last general election, the Tories posed as the party that would cut taxes; this afternoon, Secretary of State said that they had cut taxes. Could he have been referring to the Government's 22 tax increases? They posed as the party that would cut taxes, but instead put them up. They also posed as the party that would cut the social security budget, but instead they increased it. Since he became Secretary of State, the social security budget has risen. It is £15 billion a year more than it was in 1992, and takes one pound in three of all Government spending.

When the Secretary of State is in the mood to admit the increased spending, he blames the elderly. Like the Under-Secretary of State, the hon. Member for Hertfordshire, North (Mr. Heald), he says that it is all the fault of our pensioners and that it is the Government's generosity: they are generous to a fault; the problem is demography, the aging population, more people with disabilities.

The right hon. Gentleman claims that it is generosity to the sick, the elderly and the disabled that has driven up the social security Bill, but it is not. More than half the increase, £8 billion extra a year, is a direct result of 938 the growth of poverty and unemployment, which has led to the growth of income-related benefits. That is the price of Tory economic and social failure. It is not the elderly who push up the social security budget, but poverty.

Mr. Lilley

The hon. Lady keeps making that point. The problem is that she does not understand the figures. Her predecessors, the hon. Member for Islington, South and Finsbury (Mr. Smith) and the right hon. Member for Glasgow, Garscadden (Mr. Dewar), did their home work, discussed issues with my officials and got their facts right. I have great respect for them. If she wishes to be informed, I would be glad to help. Indeed, I am happy to give her a table with a breakdown of the £8 billion extra expenditure on income-related benefits that she equates with extra expenditure on unemployment.

Of that £8 billion, precisely £600 million goes on the unemployed. The rest goes on the elderly, the long-term sick and families. It goes, for example, on family credit and extra help for lone parents. The figures are all there; she can study them. The money does not go on the unemployed, and it is grossly misleading for her to suggest it. In particular, she does not seem to realise that people who get disability living allowance are automatically passported on to improved income-related benefits. They get £12.90 extra on the new lower rate of DLA, and that entitles them to an extra £20 a week of income-related benefits.

Ms Harman

That was the longest intervention on record. I am well aware of the Secretary of State's figures. He placed similar figures in the Library after Social Security questions.

The point at issue is clear. The Secretary of State tries to categorise, for example, the £10 billion of income support for lone mothers as a good thing because it is a family benefit. The Opposition say that £10 billion of income support for lone mothers, most of whom want to work, is not a sign of success, but of failure. It is why the social security budget has gone up. It has risen because of income support, housing benefit, council tax benefit and the economic inactivity of the one in five households of people of working age who are not in work. It is not acceptable for the Secretary of State to say that the increase in his budget is due to the growing number of elderly or the Government's generosity towards the elderly. That is an unrecognisable description.

Of the £14.8 billion by which the Secretary of State has increased the social security budget since 1992, only £1.6 billion of the extra is accounted for by pensions. It is not good enough for the Secretary of State to rely on patronising, sexist assertions that assume that women cannot understand figures. It is absolutely clear that there is an extra £8 billion in his budget as a direct result of the growth in poverty and unemployment.

It is not the elderly who are pushing up the social security budget, but poverty. It is not the disabled who are pushing up the social security budget, but unemployment—the one in five households of people of working age who are without work. They live on the breadline, and the taxpayer has to pick up the bill for those one in five households, which is why the taxpayer has seen his tax bill increase by the equivalent of 4p on the basic rate of income tax. It is to pay for poverty and unemployment which have increased since the right hon. Gentleman became Secretary of State.

939 The more the Secretary of State spends on benefits for people who should be working, the less the Government invest in the future and in education. His failure has caused the social security budget to increase and its spending to crowd out the sort of public investment that people want. The £8 billion extra that he is spending on poverty and unemployment could have paid for more nursery places, more after-school clubs, more teachers, more books and more computers.

Mr. Matthew Banks (Southport)

With no discourtesy to the hon. Lady, may I ask her about one point that she raised on the subject of war pensioners? Many of those who have war pensions, and who are young like me, get fed up with her crocodile tears. One reason the social security budget has blossomed is that the Government have encouraged so many people to apply for war pensions. If I had had £1 for every senior citizen in my constituency for whom I had got a war pension, I would be a wealthy young man.

Ms Harman

The bill for social security in this country has not blossomed, as the hon. Gentleman suggests, owing to the Government's generosity to war pensioners. In fact, the Government, behind the backs of war pensioners, tried to cut their pension and deny it to them.

The social security budget has risen owing to the one in five households of people of working age who are not working—the tax bill of the other four families has therefore risen. There is an extra £15 billion on the social security budget this year compared to when the right hon. Gentleman took over as Secretary of State; only £1.6 billion of that increase is accounted for by pensioners. I hope that he will not claim that the extra numbers of pensioners taking up income support is a sign of success, not poverty.

I have looked through the figures that the Secretary of State put in the Library after I first raised the issue. The various allocations that he has made to try to smear over the issue conceals everything and confuses no one.

Mr. Lilley

I am sure that the hon. Lady would not want to mislead the House. She has just said that only £1.6 billion of extra spending is on the elderly: in fact, £3.3 billion of the total £14.6 spending is on the elderly, and £7.5 billion is on the long-term sick and disabled. That gives a total of £10.8 billion, so three quarters of the total increase is spent on the elderly, the long-term sick and the disabled.

Ms Harman

I shall simply state the figures as they are once more. There is a total of £15 billion extra every year in the right hon. Gentleman's blossoming budget, comprising £0.7 billion extra on child benefit; £1.6 billion extra on pensions; £4.3 billion extra on incapacity and disablement; and the remaining £8.2 billion going on income support, unemployment benefit and all those people of working age who are not in work.

To be without work—to be in one of the one in five households where no one is working—is not only to be without a decent standing of living, but to live on the margins of our society. That sows the seeds of disillusion and despair. To be unemployed when young is to feel that one has been thrown on the scrap heap before one has even begun. The Government have failed the young 940 unemployed: 500,000 people under 25 are unemployed, which is one in six of that age group. In some inner-city estates, half the people under 25 are out of work. In London, where my own constituency of Peckham is situated, 50 per cent. of young black men are officially registered as unemployed. That is why we say that there must be a windfall levy—a tax on the unfair and excess profits of the privatised utilities. We can use the money to break the vicious circle and get 250,000 young people who have been without work for six months off benefit and into proper work or training. When they reject that windfall levy, the Government reject all hope for the young unemployed.

We know that, the longer a person is out of work, the harder it is to get a job. The Government have failed the long-term unemployed—400,000 people have been jobless for more than two years and it costs the public purse £9,000 a year to keep someone trapped in unemployment. That is why we have argued for extra help for the long-term unemployed to get them into work—for a £75 a week national insurance holiday for employers who take on people who have been unemployed for more than two years; for a relaxation of the 16-hour rule to help the long-term unemployed to get the skills or educational qualifications they need to get the jobs that are available; and for a national minimum wage to help make work pay and enable people to move off benefit and into work.

Mr. David Shaw (Dover)

Will the hon. Lady give way?

Ms Harman

I shall give way in a minute, but I must press on because the Secretary of State made a long intervention that was half as long again as his speech.

The real map of poverty and unemployment stretches far beyond the official unemployment statistics, which have been fiddled more than 30 times by the Government. Among the poorest families in Britain today are those who are hidden from view because they are not on the official unemployment statistics, especially lone mothers. There are I million lone mothers who are trapped on income support, living on around £100 a week. Two million children in families headed by lone mothers are being brought up on the breadline. They face life on benefit for years, and the taxpayer now faces a bill that has risen to £10 billion a year to support lone mothers and their children.

In the Secretary of State's accounts, that is a success—a blossoming of the social security budget—and he calls it family benefits. We call it those mothers who want to work being trapped on benefit at public expense—a sign of the Government's policy failure. In the uprating debate in February last year, the Secretary of State said that there were three steps he would take to halt the rising number of lone mothers on income support. He has failed on all three of those steps, and there are more lone mothers on income support, not fewer.

The Secretary of State has failed to get lone mothers off income support by making absent fathers pay. He has failed to help lone mothers into work. Although he has cut lone mothers' benefit, that has failed to reduce the divorce rate. The Secretary of State is absolutely right in his determination to make fathers pay for their children.

Every child has a right to receive the emotional and financial support of both parents, irrespective of where they live. However, the latest figures from the Child 941 Support Agency show that it has failed: in the past three months, only 15 per cent. of absent fathers paid the full amount awarded. The Child Support Agency has been so badly administered that it has caused real hardship to some, and to many more it has provided an excuse to abdicate responsibility for their children.

Experience from around the world shows that it is difficult to make absent fathers pay under any system. It is an uphill battle. It is not a task from which we should shrink—far from it—but we must be realistic: we cannot leave the children of lone mothers in poverty and allow the benefits bill to increase every year while we wait for absent fathers to wake up to their responsibilities. It is vital that lone mothers are able to work to support themselves and their children.

Here, too, the Government have failed. While more married women are going out to work, fewer lone mothers are in the work force—yet they are the ones who most want and need to work. Lone mothers in Britain are less likely to be in work and more likely to be dependent on benefit than lone mothers anywhere else in Europe. In France, 82 per cent. of lone mothers are in work compared with only 41 per cent.—half as many—in Britain.

The problem is not just financial, with children being brought up on the breadline and the taxpayer facing a growing benefits bill. There is the deeper problem of children being brought up without seeing the world of work, and growing up with the expectation that life is about receiving benefit rather than going out to work.

Lone mothers want to work—especially when their youngest child begins full-time schooling. That is the time when most married women start to look for work. For the past 17 years, this Government—and this Secretary of State for the past five years—have told lone mothers, "Here's your income support. I'll send it to you every week, and come back when your youngest child is 16." That has been the Government's policy for the past 17 years.

Lone mothers do not want to depend on benefit, and it should not have to be like that. I recently conducted a small survey of lone mothers in my constituency, which backed up the national findings. For example, Sheryl is 29. She has two children, aged eight and three, she lives on her own and the children's father pays nothing. Before she had her children, she worked as an administrative assistant. She has been bringing up her children on income support for the past three years. She wants to work, but she cannot because she is unable to match working hours with school hours. She said: My youngest child starts full-time school in January and, once she's settled, I would like to go back to work. But I can't because of all the problems of after-school care, school holidays and teacher training days. The story is the same throughout the country: lone mothers want to work not in spite of the fact that they are mothers, but because they are mothers. Like all mothers, they are driven to give their children a better life.

The Secretary of State does not understand that problem, and he has no policies to address it. Labour in government would take action to break down the barriers that prevent lone mothers moving off benefit and into work. We will invite lone mothers whose youngest child is in the second term of full-time education into job 942 centres to receive advice on jobsearch and on training and child care. We will introduce a national child care strategy, with a network of after-school clubs to help lone mothers match school hours with working hours and make work pay.

Mr. Andrew Mitchell

We have done that.

Ms Harman

Only one child in 80 have an after-school place, and the waiting lists are enormous. [HON. MEMBERS: "Where will the money come from?"] The Minister claims that the Government have provided those places, but Conservative Members ask where the money will come from. Clearly, they are split on that issue.

Mr. Mitchell

rose—

Ms Harman

I shall anticipate the hon. Gentleman's question, and he shall see whether I answer it correctly.

We have said that more money needs to be spent on after-school clubs. They can be financed through a combination of measures: the lottery, public-private partnerships, benefit transfers, and by charging mothers who can afford to pay. After-school clubs are important for lone mothers and are popular with all parents. What has been lacking is a glimmer of understanding on the Government's part that they should provide such a service.

We will use benefit transfer schemes as a springboard for lone mothers out of dependency and into work. We will have targets for training and enterprise councils to train lone mothers, especially on term-time courses.

We will have one-stop shops like that pioneered by my hon. Friend the Member for Cambridge (Mrs. Campbell), who was in her place earlier. Information technology and the Internet are used to bring all the information that lone mothers need on to an easy-to-use computer with a touch surface. The user touches the screen for information about local jobs, child care and training and how her benefits will be affected. All that information is pulled together to provide a one-stop service, so that lone mothers can be helped to get off benefit, get into work and find their way through the maze of conflicting information.

Mr. Hartley Booth (Finchley)

Are we to understand that it is official Labour policy for the lottery to fund social services?

Ms Harman

The hon. Gentleman does not understand. After-school clubs are not a social service. There is a big demand for them from parents. It is difficult for children to play out if they do not have a safe environment. Many mothers want to, and have to, work. After-school clubs are important for children to do homework, and possibly engage in other activities that have been squeezed out of the national curriculum, such as more music, art, drama and sport.

The lottery is well designed to provide resources for that, but it is not our only suggestion for financing. We have said that extra after-school club places can be financed through a combination of measures, which I set out. That has been supported by the Kids' Club Network. Until we raised the issue, it was not on the political agenda. When I mentioned after-school clubs, the 943 Secretary of State did not even know what they were, and had to run off to the Secretary of State for Education and Employment to ask about them.

Mr. Andrew Mitchell

The hon. Lady is talking consummate nonsense. She knows perfectly well that there is nothing between the two sides of the House on after-school kiddies' clubs. The difference is that, over the past three years, we have created 80,000 places. We are committed to the scheme. In his Budget, my right hon. and learned Friend the Chancellor of the Exchequer put £24 million on the table to develop kiddies' clubs. How much money will the hon. Lady put on the table? Let us have a figure, instead of the re-announcement of Government policies and waffle that we get from the Opposition Front Bench.

Ms Harman

I welcome the signs that the Government have moved firmly on to our territory. They have recognised that they cannot defend a situation in which 1 million lone mothers are on income support, and the sole Government policy was to write to them from the Department of Social Security once every three years saying, "Are you still at that address? Are you still getting your income support okay?"

That was the Government's sole strategy for lone mothers. That is why 1 million of them are on benefit, 2 million children are on the breadline, and the taxpayer is picking up a bill for £10 billion every year. That is why we said that something must be done, and that we need a welfare-to-work approach. We offered a number of proposals, which I am outlining.

If the Government had ever recognised that lone mothers needed to work, they would not have simply have said, "Go away and come back when your youngest child is 16." If they understood the role that after-school clubs can play in helping lone mothers, we would not be faced with a situation in which only one in 80 children have access to an after-school club. If the Under-Secretary of State wants to assure me that he agrees with me about the policies that we have espoused and on which he has failed to act, he should vote Labour at the next election.

We will measure and report our progress with monthly figures. What the Government do is present the unemployment figures and say that unemployment is tumbling; what they never do is present monthly income support figures, showing that the number of people of working age who are not working is rising. The truth is that, in all his years as Secretary of State, all that the right hon. Gentleman has ever done is criticise lone mothers, and, of course, cut their benefits.

That brings me to the Secretary of State's third failed plan to reduce the number of lone mothers. Of course he has criticised lone mothers. Do we not all remember what he said at the Tory party conference? Of course he has cut lone mothers' benefits: that is evident. I hope that he will not even seek to deny that.

The Parliamentary Under-Secretary of State for Social Security (Mr. Oliver Heald)

What did he say at the Tory party conference?

Ms Harman

We remember the Secretary of State's "little list." He stigmatised lone mothers and their children, saying, "There is something wrong with your 944 family, so there must be something wrong with you," to the 2 million children of lone mothers. He has changed his tune, and to some extent I welcome that, but it does not change his record, as everyone knows.

Part of the Secretary of State's record is benefit cuts. Cuts in lone mothers' benefits make the poorest families poorer. In this uprating and in the further measures that the right hon. Gentleman proposes, he plans to cut lone mothers' income by £572 a year. He is not giving them any help so that they can obtain work; instead, they must suffer cuts in benefit.

The Secretary of State must know that, when women cease to be part of a couple and become lone mothers, they become worse off, not better off. Lone mothers are not advantaged; they are disadvantaged. They do not have their partners' income, or their partners' time. The Secretary of State's justification for cutting lone mothers' benefits, and making the poorest families poorer, is that it will deter couples from divorcing or separating; but benefit cuts for lone mothers do not make any couples stay together. Lone mothers are already worse off than married women, yet the divorce rate continues to rise.

Mr. David Willetts (Havant)

If the hon. Lady does not support the Government's measures on benefit for single parents, and given that the shadow Chancellor has made it clear that, if she were in office, she would be obliged to stick to the Government's totals for social security expenditure, what other cuts does she propose?

Ms Harman

We have said that the way in which to stop what the hon. Member for Southport (Mr. Banks) described as the blossoming of the social security budget, and hence the increased burden on taxpayers, is not to shave the benefits of the poorest families year by year. It has been said that, although the hon. Gentleman has no common sense, he has two brains, so he will know that lone-mother families are the poorest. He clearly agrees with that.

We cannot deal with the problem of the rising social security bill simply by reducing the standard of living of the poorest families. What we must do is go with the grain of what they want to do—what married women are doing—which is to go out to work. That is why it is so shameful that the Government of whom the hon. Gentleman has been a part have adopted a policy of saying "Here is your income support. Collect it weekly, and go away until your youngest child is 16."

Our approach will not be to cut the social security budget by making the poorest poorer. We will employ a welfare-to-work strategy to ensure that those people can obtain work, so that we no longer see an increase, year after year, in the number of lone mothers who are on benefit because they cannot work.

The Minister for Social Security and Disabled People (Mr. Alistair Burt)

Will the hon. Lady give way?

Ms Harman

No, I will not. I have answered the question.

The problem is that the Government have put the social security budget up. My right hon. Friend the Member for Dunfermline, East (Mr. Brown), the shadow Chancellor, is right to recognise the appalling state of public finances, 945 to recognise that people have been hit by 22 Tory tax increases and to say that our priorities and our approach are different from those of the Government. Our approach is, as I have said, to employ a welfare-to-work strategy. That is why, as I said earlier, we will break the vicious circle by a windfall levy on the privatised utilities to fund a £3 billion welfare-to-work programme for the long-term and young unemployed.

In the debate on social security a year ago, the Secretary of State said that there were three ways in which he would stop the increase in income support for lone mothers. First, he would make fathers pay. He has failed. Secondly, he would get lone mothers to work. He has failed. Thirdly, he would deter people from becoming lone mothers, by ensuring that couples stay happily together by reducing the benefits for lone mothers. He reduced the benefits, but benefit cuts for lone mothers do not make couples stay together. Lone mothers are already worse off than married women, yet the divorce rate continues to rise.

Relationship breakdown is far more complex than a simple financial issue. Does the Secretary of State really think that couples will say to themselves, "Good heavens! The Secretary of State for Social Security has cut lone parent premium and one-parent benefit. Let's not break up. Let's stay together"? The world is not like that. That is why his strategy to reduce the number of lone mothers on income support has failed. Much as he may like to, he cannot regulate from Whitehall the relationships of men and women. What he could do but has failed to do is help lone mothers to do what they want to do—work.

After 17 years of criticism of benefit cuts, the Secretary of State has produced a leaflet, which he sent to all lone mothers on income support. I can see that he is leafing through his file, and that he has the second to latest version. I have the latest one. The most important thing that it does not say is where to go to find a job. The Government simply cannot understand that a maze of obstacles confronts women on income support who want to go to work. A one-stop-shop approach is needed, not one set of advice on benefits, another on work, another on training, and another on child care.

Undeterred, this afternoon I rang the hotline number on the leaflet, and spoke to Lee. He was courteous and polite, but explained that he cannot give any advice about an individual case. He certainly cannot give any advice about availability of jobs, training or child care, as that is nothing to do with the Department. However, he offered further leaflets on benefits.

If the Government's back-to-work strategy for lone mothers is to send them a leaflet and then have a hotline that offers them further leaflets, it will not succeed. It is very expensive. It cost £750,000 to get three columns in the Daily Mail to defend the Government's lamentable record. That is the wrong use of public money.

With our welfare-to-work strategy, we will, as my right hon. Friend the Leader of the Opposition set out, spend less on unemployment—mopping up the cost of Government failure. Then we will be able to spend more on education, investing in the future for success. The failure to get people off benefit and into work forces the benefits bill up, and the Government squeeze benefits: 946 cuts in benefits for asylum seekers, cuts in benefits for war pensions, cuts in benefits for people who are not well enough to work, and cuts in housing benefit.

The Conservatives used to say, "Let the housing benefit bill take the strain." Now they have cut it. They also used to say that unemployment was a price worth paying. From October 1997, they propose that single people under 60, including widows who have lived all their lives with their husbands, will be forced to go into shared accommodation to claim housing benefit. How can the Secretary of State justify that? For the third year running, the Government have cut housing benefit for parents whose grown-up children still live with them. It is not always easy for an adult to live with his or her parents, particularly if he or she is without work. That cut simply makes it more difficult. How can the Secretary of State justify that?

One important way to curb the spiralling housing benefit bill would have been to take the tough action that Labour proposed on the Social Security Administration (Fraud) Bill. The Select Committee on Social Security estimates that one in every five pounds spent on housing benefit are wasted on fraud, but the Secretary of State refuses to implement our proposals for tougher measures.

We must at all times remain vigilant in the battle against fraud on the public purse, no matter where it is committed. Every pound wasted on fraud is a waste of taxpayers' money, which could go to those in need, and a waste of public support for the welfare state. Labour defends the welfare state, and we want to see it better defended against the abuse of fraud.

The changes in the uprating order fail to help our poorest pensioners. It is a scandal that, after a lifetime of work or caring for their family, pensioners are some of the poorest people in Britain today. Pensioners have been hit hard by the Government's policies. The Tories broke their promise and put VAT on gas and electricity. Up and down the country this winter, pensioners are having to choose between heating and eating. That is one reason why we will cut VAT on fuel to 5 per cent.

Almost 1 million pensioners fall through the net altogether. They are entitled to income support, but they do not claim it.

Mr. Matthew Banks

What about the environment?

Ms Harman

One of the shadow Chancellor's proposals for the windfall levy to help the young unemployed is an environment task force. One of its jobs could be to insulate the homes of elderly people. At one and the same time, that would give useful work to young people who are wasting on the dole, would cut pensioners' heating bills and would improve the environment.

Almost 1 million pensioners fall through the net altogether.

Sir Norman Fowler (Sutton Coldfield)

I am sorry to interrupt the hon. Lady's flow. Will she tell us what Labour's policy is on uprating the basic pension, because Opposition Front-Bench Members declined to do so the last time we debated this subject? Is it true, and can it be confirmed, that the Labour party has now abandoned its long-standing pledge to uprate pensions in line with earnings?

Ms Harman

We have set out our policies clearly in our document "Security in Retirement", which was passed 947 by our conference. We have said that pensioners are fed up with a Government who made promises that they did not keep, and who promised not to put VAT on gas and electricity and did so. We recognise that the public finances are in a very bad state due to the Government's incompetence.

We will only make promises that we can keep, which is why we have told pensioners that we will cut their fuel bills by reducing VAT on gas and electricity. We have said that we will keep the basic state pension as it is now, not means-tested, and that we will uprate it at least in line with prices. We have had to say that we will not promise to finance a commitment to increase it in line with earnings, not least because the Government have destroyed the public finances. We set that out very clearly in our document "Security in Retirement".

Almost 1 million pensioners fall through the net altogether. They are entitled to income support, but they do not claim it, and lose £14 a week on average. Of those pensioners, 800,000 are women living on their own. They have no state earnings related pension, no occupational pension and no savings: they have nothing.

The Government are making matters worse. The existing 35-page income support form is part of the reason why 1 million pensioners are deterred from claiming their entitlement. Under the misleading title, "Simplification of Procedures"—a document that was sneaked out at the time of the Budget—the Secretary of State announced that yet more obstacles will be put in the way of people who intend to claim income support, including pensioners. The Government are putting more responsibility on claimants for the correct completion of the form, and are requiring more evidence to support claims. The Secretary of State's proposals will deter thousands more pensioners from claiming the money to which they are entitled.

The Secretary of State says that the poorest pensioners do not claim the money to which they are entitled because they choose not to do so: they do not want it. The idea that 1 million pensioners choose to be on average £700 a year worse off is ridiculous. The truth is very different. The message to pensioners from the Government has been clear: "If you claim benefit, you are a scrounger; if you are a pensioner, you are a burden." One million proud pensioners have got that message loud and clear, do not claim their benefit, and suffer hardship as a result.

We argue that the proposals in the Government's Social Security Administration (Fraud) Bill for cross-matching local government and Government data between Departments should be used to get help to pensioners who do not claim their entitlement, yet the Government have refused to accept that. They are prepared to cross-match data to combat fraud, and we support that, but not to help the poorest-paid pensioners who are losing out.

Not only are the 1 million pensioners who do not receive the income support to which they are entitled worse off, but the Government have imposed VAT on fuel, cut in half the value of the state earnings-related pension scheme, and put pensioners in fear of having to sell their homes to pay for long-term care.

The Secretary of State has boasted again about second-tier pensions and occupational pensions, but the fact remains that 12 million people at work today have no occupational pension. Many of the 6 million people whom the Government encouraged to take out personal pensions, especially those on modest incomes, have found that such 948 pensions eat up up to a third of their savings in charges. Many of those who came out of occupational schemes at the Government's urging have found that they are very much worse off, and have been missold personal pensions. Millions of people at work today face poverty in retirement.

The Secretary of State should spend less time lording it over everybody else in Europe, and a little more worrying about people at work today who do not have a proper second-tier pension, and who will therefore fall back on means-tested benefit and have a very low standard of living when they retire. That is why we need a new framework of value-for-money second-tier pensions that fits the changing world of work, where more women are working and there are more part-time workers and small employers. That is why we are proposing a new form of funded second-tier pensions for those who do not have access to an occupational pension, through our plans for a stakeholder pension.

We are also proposing to extend choice through our plans for a flexible decade of retirement. Over the past few years, the pattern of work has changed, and many people now want to retire early. If, at no cost to the public purse and without recourse to it later, people can draw their state pension early because they have shown that they have sufficient savings or an occupational pension, greater flexibility and choice can be provided. We must end the "one size fits all" approach to the welfare state.

The welfare state has an important role to play as part of an efficient economy and a just society. There have been huge social and economic changes since Beveridge created the welfare state in 1945, and they present great challenges. The welfare state can meet those challenges, but it needs to be modernised. It needs to move ahead of social and economic change, not lag behind it as the Government have allowed it to do, with lone mothers, for example; become flexible to respond to the diversity of people's lives, with regard to the age of retirement, for example; work alongside a dynamic economy, because the welfare state cannot ever be an alternative to work; be a force for social cohesion in our divided society; and provide a new balance of rights and responsibilities between individuals and the state. It needs a Labour Government, and the sooner the better.

Mr. David Willetts (Havant)

I should like to begin by citing some more figures on the balance of social security expenditure—the crucial point on which there have already been exchanges between my right hon. Friend the Secretary of State and his shadow, the hon. Member for Peckham (Ms Harman)—because the figures bear out absolutely what my right hon. Friend was saying.

Of the total social security budget, 44 per cent., £40 billion, goes on benefits for elderly people; 25 per cent., £23 billion, goes on benefits for sick and disabled people; and 19 per cent., £18 billion, goes on benefits to families. Benefits to unemployed people are a relatively modest £8.6 billion. Even adding in the further £4 billion of expenditure for which the Department for Education and Employment is responsible, expenditure on assistance for unemployment people is still overshadowed by all the other programmes that are central to the welfare state.

The Opposition are claiming that there is gold at the bottom of the garden in the form of some extraordinarily high level of benefits paid to unemployed people, out of 949 which they can finance every expenditure programme that passes through their mind. No matter how successful we are in bringing down unemployment, the money spent on benefits for the unemployed, running at 9 per cent. of the social security budget, could not finance every pet programme that an Opposition spokesman wanted to introduce.

The other mechanism for financing the Opposition's pet programmes—the windfall tax—would be equally damaging to the economy. Sometimes, the situation is unclear—we are told on the one hand that measures will be self-financing and then on the other that they will be financed from the windfall tax. That is confusing. I would welcome an intervention from someone on the Opposition Front Bench to explain that confusion.

Mr. David Shaw

My hon. Friend has been complimented in the past on perhaps having more than one brain. Does it not require only one brain, or even perhaps half a brain, to understand—although Labour is not admitting this—that, if employers are to be subsidised to take on 250,000 young workers and encouraged to reduce their employment costs, they will, in all probability, get rid of 250,000 older people?

Mr. Willetts

I agree with my hon. Friend. That is what the Americans would call a no-brainer. That would be one of the effects.

I should like to contrast the range of measures that the Government have in place to help unemployed people into work with the measures advocated by the Opposition. There are two ways of helping unemployed people into work. One is by straightforward incentives. We have made massive improvements in incentives since 1979. The gap between the average incomes that someone could expect in work and out of work is now such that we can be confident that just about every family would be better off in work. That is a massive improvement on the mess of the social security system in 1979.

I welcome the ingenuity of the Department of Social Security in perpetually seeking further ways of ensuring that incentive effects work. We have helped people to carry on with some entitlement to housing benefit for a few days or weeks when they first get back to work. The back-to-work bonus is an incentive worth up to £1,000 for unemployed people getting back into work. There is a national insurance holiday for employers who take on someone who has been long-term unemployed. All those incentives are the right way to go with the grain of the labour market and help unemployed people back to work.

The second way—I am afraid that this is a rather cumbersome expression—is by much more active management of unemployed people. That means not ignoring them and simply allowing them to sign on every two or three weeks and leaving them alone in the interim, but actively managing and encouraging them, boosting their morale and helping them actively to seek work. That is what job clubs are about. They are extremely cost-effective. That is what restart interviews are for and one of the reasons why the pilots of project work in Medway and Humberside are already showing such good results. I welcome the fact that we are going to extend project work to 100,000 unemployed claimants.

950 Training is oversold as a way of helping unemployed people back to work. Of course training is good if it increases what economists call the human capital of people who have been unemployed or in low-paid work, but it is not a panacea for unemployment. Training is often best deployed with people who are already in work—perhaps low-paid work. As the employer gets to know an employee's aptitudes, he can invest more money in raising their skills and helping them into better-paid employment with that firm.

Too often, training schemes aimed solely at the unemployed play a cruel trick on them. There is sad evidence from research that training schemes can increase an unemployed person's perception of the wage that he should command by more than they increase his skills and qualifications. Paradoxically, they can set him back in seeking work. That is one reason why Labour's much-vaunted attempts to expand training programmes to help unemployed people into work could well have perverse effects.

We recognise that sometimes, when unemployed people find their first jobs, they may be relatively low-paid. That is where family credit comes in. I am delighted to see my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) in his place, because family credit was brought in when he was Secretary of State for Social Services. Family credit addresses directly the problem of people in low-paid jobs whose family responsibilities are such that we cannot expect them to keep their families to a standard of living to be expected in a civilised society on their basic pay. Family credit, which now amounts to almost £2 billion a year, tops up their incomes.

One of the most depressing aspects of the Labour party's feeble attempts to defend its minimum wage policy is the way in which it systematically rubbishes family credit.

Ms Harman

We do not.

Mr. Willetts

The hon. Lady says that they do not, but Opposition spokesmen and the recent report from the Institute of Public Policy Research have said that family credit is an indiscriminate wage subsidy that unscrupulous employers use to hold down wages below the level at which they would otherwise be. We are told that the minimum wage will somehow achieve benefit savings by stopping that abuse of the benefit system by employers. That is one of the ways in which Labour claims that the minimum wage will save money.

The research shows how false that charge is. It shows that only 9 per cent. of employers are aware of the exact status of their employees and whether they would be able to claim family credit. We know that only 12 per cent. of those on family credit claim it for more than a year. Family credit is not an indiscriminate wage subsidy. It helps people starting back into work, perhaps in relatively low-paid jobs, who then move up to better-paid work. It goes with the grain of the labour market and is a much more effective way of helping people than the minimum wage.

Have Labour Members justified the minimum wage? They seem to imagine that employers will not mind paying the extra costs of employing someone with a minimum wage of £4 or £4.26 an hour. If employers will pay the higher wage, why does the Labour party also 951 advocate a £75-a-week tax rebate for employers who take unemployed people into work? Presumably Labour Members believe that pricing people into work is effective in those circumstances. That is why they advocate the rebate. If the rebate helps to price people into work, why will the minimum wage not price people out of work? They cannot have it both ways.

Mr. Bernard Jenkin

I invite my hon. Friend to shed a little further light on the exchanges between my right hon. Friend the Secretary of State and the hon. Member for Peckham (Ms Harman) on the distribution of the increase of social security between unemployment-related poverty and other programmes. Is it not evident that the hon. Member for Peckham is including any growth in family credit as a negative factor—as part of the unemployment-related problem—rather than as a positive programme which is helping people back into the jobs market?

Mr. Willetts

My hon. Friend makes a very good point. To regard family credit, which supports people in work, as a cost of unemployment is perverse, even by the extraordinary accounting conventions that the Labour party seems to use.

We know from research done by the Institute for Fiscal Studies how badly targeted a minimum wage would be. Many of the people who would benefit from the minimum wage live in relatively affluent households. According to the IFS research, the most affluent third of households would gain bigger increases in their incomes from the minimum wage than the poorest third. The Labour party complains about growing divisions in the country, but it advocates a minimum wage that would benefit the most affluent households more than the poorest households. That is extraordinary and perverse.

Mr. David Shaw

I can give my hon. Friend an example of how the minimum wage creates jobs. Calais, which is just 22 miles from Dover, has a minimum wage, and unemployment there is so bad—it is double the Dover level—that French people rush across the English channel to get jobs.

Mr. Willetts

My hon. Friend is right. The Labour party's policies—the minimum wage and the social chapter—derive from its belief that such issues are better managed on the continent, but the evidence shows that exactly the opposite is true. The Labour party wants to copy policies that have delivered 4.5 million unemployed in Germany, more than 3 million unemployed in France and more than 2 million unemployed in Italy. In this country, with Conservative policies, we have fewer than 2 million unemployed, and falling. The Labour party's policy would be an extraordinary trick to play on the British people.

Mr. Berry

Can the hon. Gentleman name a year since 1979 in which unemployment, on the claimant count, has been lower than the level inherited by the Conservative Government?

Mr. Willetts

I cannot remember every year's unemployment figures since 1979 off the top of my head. It is the trend that is important, and we have a downward trend in unemployment. Our labour market reforms have made the falls possible and the policies that the Labour party advocates are driving up unemployment on the continent, so the message is clear.

952 The Labour party says that it believes in the importance of education and training. It claims that the windfall tax will be used to finance measures to invest more in education and training. However, its policies would have the opposite effect. If the minimum wage were introduced at £4 or £4.26 an hour, what would happen to someone who has worked hard for an NVQ, some GCSEs or an A-level and who earns £4.50 an hour, such as a senior cook in an hotel? Alongside such a person, the assistant might earn £3 an hour.

The minimum wage would have one of two effects. One is that the unskilled worker in the kitchen would receive the same pay and the skilled cook would want the differential reinstated—that is a good old-fashioned expression from the 1970s that would come back if we ever had a Labour Government. The restoration of differentials would lead to an old-fashioned increase in wage costs that would drive up unemployment. That is why a minimum wage would cost 800,000 jobs at £4 an hour and more than 1 million jobs at £4.26 an hour.

Mr. Keith Mans (Wyre)

My hon. Friend has given an excellent example of the effect of a minimum wage. It is relevant to the north-west, especially in Fylde where the tourism industry is strong. The introduction of a minimum wage would cause huge unemployment, because the newly trained would not get jobs. There would be fewer jobs because the tourism industry would be less viable. The young—for example, university students in Lancaster—would not be able to get jobs and learn a trade.

Mr. Willetts

My hon. Friend is right. Important British industries, such as the tourism industry, would be significantly threatened by a minimum wage.

Mr. Booth

Will my hon. Friend give way?

Mr. Willetts

I shall give way in a moment. I first wish to impale the Labour party on the twin horns of a dilemma. The first horn is the restoration of differentials, which would cause a significant increase in unemployment—

Mr. David Shaw

And in strikes.

Mr. Willetts

Yes, strikes would increase as people demanded their differentials. However, if the Labour party claims that the minimum wage would not cause wage increases, it would be telling people not to bother to obtain qualifications or to stay on at college to be trained, because they would not get any more money if they did so. That is the second horn of the dilemma, and it is extraordinary hypocrisy for the Labour party to talk about its support for education and training.

Mr. Booth

Before my hon. Friend leaves the subject of the minimum wage, I remind him that the chairman of the Confederation of British Industry recently gave specific examples of factories in the north-east in which at least 50 per cent. of the work force would have to be put out of work, if the minimum wage were introduced at the levels proposed by the Labour party, because the work would be done in the far east.

Mr. Willetts

I agree with my hon. Friend. The gains that have made us a paradise for inward investment, as Jacques Delors put it, would be lost if we imposed the same social costs as they have on the continent.

953 Strangely, the hon. Member for Peckham did not mention another Labour party policy that has implications for education and training, even though it is one of its few specific policies on social security. I refer to the means testing of child benefit for 16 to 18-year-olds, which would be an attack on people staying on at school to get an extra qualification. The electorate are entitled to know the details of the means test for child benefit for those children.

We are all familiar with the arguments about the Princess of Wales and other rich people getting child benefit, but the Labour party faces a practical problem: either it uses the means tests that already exist—the income support means test, for example—or it introduces a new one. In the first case, many families with modest incomes, for whom the decision of a child to stay on at school is financially significant, would lose child benefit. In the second case, the Labour party would have to spend large sums on a new means test, with a new administrative structure and new computer programmes, to take child benefit away from a relatively small section of the population. That is another policy that would do nothing to encourage education and training: it would have the opposite effect.

I accept that, when people get a job after a period of unemployment, or for the first time, they receive low pay; people do not necessarily start work on a high income. It is important to have an open and mobile society so that people can reasonably hope that, if they stick at their work, turn up at work punctually and get an extra qualification, they can look forward to promotion and rising income. All the evidence is that Great Britain is one of Europe's most successful societies in delivering rising incomes to people once they have their first foothold in the labour market.

According to a study by the Organisation for Economic Co-operation and Development, in Sweden, which is one of the models that the Labour party is supposed to admire, only 39 per cent. of under-25s enjoyed a significant increase in their incomes over a five-year period, whereas in Great Britain 62 per cent. of the same group enjoyed an increase in income. The poorest 10 per cent. in 1991 enjoyed, on average, a 25 per cent. increase in income in the following year.

Thanks to research commissioned by my right hon. Friend the Secretary of State for Social Security, we know that people who were in the bottom fifth of the earnings scale in 1979 enjoyed, over the following 15 years, an increase in their earnings of 42 per cent., much better than the 33 per cent. increase in incomes enjoyed by people in the top fifth of the earnings scale; thus, those who started in 1979 at the bottom of the earnings scale did better than average over the following 15 years.

All that paints a picture of a mobile and enterprising society. It is not a continental stakeholder society that believes in standardisation and regulation; it is a flexible labour market in which we aim to help people to get their first toehold in the labour market and, once they are there, through education, training and investment in their futures by their employers, to look forward to their incomes rising.

This country is seeing a transformation of the pensions regime. One change to which my right hon. Friend the Secretary of State referred—I cannot improve on what he 954 said—is the shift towards funded provision and the extraordinary boom—which, we hear today, has reached £650 billion—in funded pensions. What a contrast with the unfunded pensions liabilities that will hold down the public finances and the balance sheets of private companies on the continent.

Another change is happening in the world of pensions. It is a change from defined benefit pensions to defined contribution pensions. Old-style, defined benefit occupational pensions may have been fine in the days when one joined a company and stayed in the same firm for 40 years, but with a more mobile economy and a flexible labour market, fewer people live that sort of life. Once people moved and started shifting around, those occupational pensions often treated people extremely roughly. That is why many more people instead want defined contribution schemes, which allow them to see a pot of funding accumulating in proportion to and in accordance with the contributions being made.

I am aware that, for some people, the administrative costs of taking out a personal pension on its own have been too great, which is why it is important to encourage good personal pensions that are a sensible compromise between traditional, occupational defined benefit schemes and completely individualised personal pensions.

I welcome the fact that, only the other week, we had a further announcement of more liberalisation of the regime for group personal pensions. I hope that what we heard is not the end of the matter, because the biggest obstacle to encouraging the private provision in which all Conservative Members believe—private provision for pensions and private insurance against the vagaries of life—is the regulatory burden faced by people trying to provide such financial services. If we are serious about wanting more people to take out more insurance cover and personal pension cover, saving for their retirement or for a rainy day, we must make it possible for people in the City of London and our other great financial centres to market those products effectively.

There is nothing more depressing than talking to a banker who says that the bank has an extraordinary amount of money sitting in interest-bearing deposit accounts because it does not believe that its customers know or are confident about what financial instrument, savings package or insurance product they should buy. I am afraid that regulation in the City of London has got out of hand. We are in danger, through over-regulation, of making it excessively difficult for the people whom we want to encourage to sell financial services around the country to do so effectively. To have a company like the Prudential, for which I have the greatest respect, being fined by City regulators seems to send out exactly the wrong signal. No useful purpose is served by such excessive and heavy-handed regulation.

We can be sure, however, that the way forward is by encouraging personal saving, personal pensions and personal insurance, not by the route to which the hon. Member for Peckham briefly referred when she, somewhat hesitantly, talked about a stakeholder pension scheme. I wanted to hear more about stakeholder pensions. We know where those exist—in Australia, where they are industrywide and involve representatives of the trade unions and employers' bodies, who run them along old-style, corporatist lines.

955 If we are to have a modern economy for the 21st century, I should like to hear the Labour party define those industries. How are we to define an industry within which everybody is supposed to have an industrywide pension scheme? How would Richard Branson's business be defined if it were to participate in such a scheme? Will the Labour party go down the route recommended by the Chairman of the Social Security Select Committee, the hon. Member for Birkenhead (Mr. Field), who sadly is not with us today, but who has clearly advocated in the past that trade union representatives should sit on so-called "stakeholder corporations" to manage those pension funds? If I were an elector thinking about the future of my pension and I had a choice between backing funded pensions that had already accumulated £650 billion of savings or, alternatively, backing a stakeholder pension in an industrywide scheme, partly managed by trade union bosses, I know what I would want for my future. I would know how my pension would be most secure. When it comes to both jobs and pensions, the Conservative party clearly has the agenda for the 21st century.

Mr. Jeremy Corbyn (Islington, North)

I suppose that this debate is an annual discussion of the issues surrounding the welfare state and its funding. The Secretary of State seems to take great pride in announcing inflation-level increases in benefits and assuming that everything is all right. Clearly, when he is driven here in his chauffeur-driven car, he does not see people begging around tube stations in London. Nor does he see people waking up under soggy blankets alongside the Thames, or broken-down people desperate to find enough money from somebody to buy themselves a cup of tea during the day.

Since 1979, the Government have presided over an enormous shift of wealth from the poor to the rich, and over the degradation of many people in our society. Poverty blights the lives of about a quarter of this country's population. The latest figures show that between 13 million and 14 million people in Britain live in poverty. That is a sixth of Europe's poor—24 per cent. of the population. Worse still, 4.3 million children are living in poverty—and they call this a Government of success. In 1979, 1.4 million children were living in poverty. That figure was not good, but it is less than one third of the present level.

The wealth of the poorest tenth of the population has been reduced by about 18 per cent., whereas the richest tenth are roughly two thirds better off than when the Tory Government were elected. We are now presiding over a massive shift of wealth from the very poor to the very rich. People in the middle have not felt more insecure or unhappy since before the second world war, because they see the destruction of services all around them. Taxes have regularly been reduced to make the rich better off, so services for the rest of the population have had to be severely cut.

If the 1978–79 income tax regime were in place today, a further £31.4 billion would be available. The top 10 per cent. of taxpayers have enjoyed a reduction in their 956 income tax; indeed, they have received 48 per cent. of total tax cuts. We must seriously examine the issue of distribution between rich and poor within our society.

Mr. Patrick Nicholls (Teignbridge)

I am grateful to the hon. Gentleman for having the courage to bring socialism into the Chamber, when it has become so profoundly unpopular. How does he explain the fact that, despite his belief that there would be much more money available if the rich were taxed more—based, presumably, on the assumption that they would simply stay around to be taxed more—Treasury figures, which were first asked for by the hon. Member for Birkenhead (Mr. Field), show conclusively that, when we decrease tax rates on the rich, the rich as a whole end up paying more to the total tax take, therefore making a bigger contribution to helping the people whom the hon. Gentleman wants to help? Is not his problem the fact that he wants to hurt the rich more than he wants to help the poor?

Mr. Corbyn

I am not sure from which university one graduates with a degree in gobbledegook economics; perhaps the hon. Gentleman will tell us later. The simple fact is that his party, his Government and his philosophy aim to increase the power of the rich by reducing their tax burden. The knock-on effect is to cut public expenditure for the rest of society. That is why no houses are being built, hospitals are being closed, class sizes have increased and people are begging on the streets.

Visitors to this country who have not been here for 10 or 15 years find the situation shocking. They ask me, "Whatever has happened in London? Why are all these people homeless? Where have all these beggars come from?"

Mr. David Shaw

From Paris, via Eurotunnel.

Mr. Corbyn

Witty remarks by people such as the hon. Member for Dover (Mr. Shaw), who could not give a fig for the poor anyway, merely discredit him and his party even more, and show them up as what people know them to be and what they have always been—the party of division between rich and poor.