§ The Minister for Welfare Reform (Mr. Frank Field)
I beg to move,That the draft Social Security Benefits Up-rating Order 1998, which was laid before this House on 5th February, 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 1998, which was laid before this House on 5th February, be approved.That the draft Guaranteed Minimum Pensions Increase Order 1998, which was laid before this House on 5th February, be approved.That the draft Social Security (Incapacity for Work) (General) Amendment Regulations 1998, which were laid before this House on 5th February, be approved.
§ Mr. Field
The main uprating order increases social security expenditure by £2.5 billion. In these uprating debates, it is a tradition that we are able to look at social security in the round rather than discuss the detail of the uprating orders, and I wish to follow that tradition today.
There are a number of reasons for celebration. It is the first uprating for nearly 20 years that a Labour Government have introduced to the House. This year also celebrates the 400th anniversary of this nation taking national action to combat destitution. It is also the 50th anniversary of the implementation of the Beveridge system. Therefore, on a number of counts, it is appropriate that we are holding this debate and that it should be wide-ranging.
However, the uprating order uprates benefits that are, in the main, of a pre-Beveridge structure. Although there has been a tenfold real-terms increase in social security expenditure, and although the proportion of gross domestic product spent on social security has increased from a little under 4 per cent, to well over 12 per cent, of GDP, we are operating under a system that owes its origin to the pre-Beveridge age.
I want to develop that point briefly to the House, and in so doing to present information on how much of our social security uprating and the total bill is today determined by a structure of benefits that operated before the Beveridge scheme came into existence. That shows in this area, as in many areas of government, how the dead hand of the past influences not only the present, but the future.
Some hon. Members may be as surprised as I am to learn that £5 in every £8 that we spend in the current year on social security is spent on a benefit structure that pre-dates Beveridge. In other words, only £3 in every £8 we spend results from the legislation that followed the Beveridge report, or subsequent social security legislation following 1948. That is one of the background reasons why the Government are undertaking such a thorough review of welfare provision in this country.
We therefore have a social security budget approaching £100 billion, which shows a growth in expenditure of £43 billion since the previous Labour Government left office. If we are not merely concerned with the extent to which the dead hand of the past continues to operate on how that huge budget is spent, it is important for the 1100 House to consider how the claimant roles have changed, for that also makes a case for the welfare reforms that the Government will shortly introduce.
If we now regard 1948 as a dividing point, when both the national insurance scheme that Beveridge advocated and the National Assistance Act 1948 came into force, we find that, then, two thirds of people drawing benefit were retired and, obviously, a third were below retirement age.
Of those claiming benefit then, there were few single parents, and few who could be deemed to be long-term sick and disabled. Today, more than two thirds of those who claim benefit are below retirement age. That fact lays the basis for the Government's programme of a modern, active service, which the Under-Secretary of State for Social Security, my hon. Friend the Member for Manchester, Withington (Mr. Bradley), has done so much to promote energetically since last year's general election when Labour took office.
It also provides the rationale and the basis for many of the programmes that the Chancellor of the Exchequer has announced. For example, the welfare-to-work programme ensures that those aged between 18 and 25 have opportunities to re-enter the labour market. It also underpins the reason why we have introduced pilot projects to increase the contact that lone parents have with the labour market, and why we seek bids from groups that promote the interests of the long-term sick and disabled as to the sort of projects that they wish the Government to back at this stage of our welfare reform.
An issue that we wish to register in the debate is the effect of the dead hand of the past on current expenditure. As I said, about £5 in every £8 that we spend on social security each year is determined by a benefit structure that predates Beveridge and his report—let alone the legislation passed by the House following the publication of that report. That is part of the background to the major welfare reform that the Government are undertaking.
It is also important to comment on how the world has changed since Beveridge wrote his report and this House debated it, as that is pertinent to the current reform of welfare. I shall mention five major changes.
First, when Beveridge published his report, there was unanimity that the state should extend welfare coverage. The Government plan to reform and extend welfare, but I believe that consensus now favours a mixed economy of welfare. Although the state plays a crucial role in provision, it will also play other welfare roles, particularly in the area of regulation. In the future, the state will look increasingly to ensuring that individuals can make choices fairly. That role will be combined with the state's historic role of providing benefits.
Secondly, while we shall aim to increase welfare expenditure, we shall aim also to decrease the proportion of the budget that is covered by taxpayers through benefits guaranteed by the Government. That is a marked change from when Beveridge presented his original report. At that time, the unanimous view was that there would be an increase and that it would be run by the Government— or the state, as some said then.
§ Mr. Steve Webb (Northavon)
I seek some clarification. Is the Minister saying that there will be an increase in total welfare expenditure, but that it will not 1101 all be public welfare? Does he envisage an absolute decline in state social security spending—not merely in spending as a share of national income?
§ Mr. Field
I am grateful for that intervention from my hon. Friend—that is what I call him. We are speaking relatively. Therefore, we are talking about which shares will be spent faster than others. The Government's aim is to slow down the rate of increase of social security expenditure, so that some of the budget may be shifted from welfare payments to educational and health opportunities. I was happy to give way to my hon. Friend, who has also made my next point: that there is a difference between the Government's proposals and those that Beveridge advanced.
I hope that it is becoming clear to the House and the country that there are four stages of welfare development in this country. I said earlier that we were celebrating the 400th anniversary of this nation's intent to deal with destitution. For a large part of those 400 years, welfare policy was about dealing with destitution. In this century, most decades have dealt with how to relieve poverty.
Under some of the actions of the previous Government, but particularly under this Government, we have moved to a third stage of welfare, which is how to prevent poverty in the first place. The fourth stage is how we move even beyond that, to provide a range of benefits and opportunities so that individuals can fulfd their full potential.
The question posed by my hon. Friend from the Liberal Benches was relevant, for, if we are thinking of welfare in terms of the third stage—preventing poverty in the first place—and the fourth stage—moving to a situation in which individuals can fulfil their potential—we are less concerned with paying benefits, although that is a crucial function for those who need them, and we are increasingly interested in using public funds—taxpayers' money—to create those opportunities.
§ Mrs. Teresa Gorman (Billericay)
If I understand correctly that the right hon. Gentleman and his Government intend to encourage a more mixed economy in welfare, which I take to mean that people should be able to make their own arrangements, is it not imperative that those who have been saving particularly for their old age should be given every encouragement? Is that not the antithesis of what the Government have so far done in raiding pension funds?
§ Mr. Field
I am always happy to give way to the hon. Lady. Ever since she has been in the House, she has tried to show that there is some major difference between her point and mine. Both of us are agreed on the fundamental point that those who have funds invested for future pension provision will rely on the health of the economy to pay rich dividends when they retire.
It is therefore important for the hon. Lady not to try to make a cheap debating point against the Treasury Bench, but to take the longer-term view that she usually brings to issues in the House, and to realise that the long-term health of the economy will pay the dividends to pay those pensions. She should not be obsessed, as she wants to appear today, with short-term changes. I beg her to take 1102 her usual longer-term view of the future of the country, rather than the short-term debating point that she makes in that intervention, although of course I was happy to give way to her and will be happy to give way to her later in the debate, if she wishes to catch my eye.
§ Mr. Winterton
I am grateful to the Minister for what he has just said. May I project us into the future, following up my hon. Friend's point?
Does the Minister believe that, for those who may be well enough off today but may not be in the future, there should be fiscal encouragement, which clearly involves the Chancellor of the Exchequer and his Treasury Ministers? Does he not believe that there should be fiscal encouragement in the mixed economy that we all support? I am delighted that his speech is constructive and philosophical in that respect. Should not fiscal encouragement be given as part of the package that he is announcing to the House this afternoon?
§ Mr. Field
My hon. Friend knows full well that that is a question for my right hon. Friend the Chancellor of the Exchequer, not for me. It is an important issue, and the Government are clear about it.
When Beveridge published his report, he hardly mentioned occupational pensions. Large numbers of pensioners are not poor today, thanks to occupational pension schemes. It is important to nurture and spread success, and for politicians to be aware that sometimes the framework in which they view developments can be so limited that they fail to see where the advances are coming from that will deliver the rich rewards from which most of those in occupational pension schemes are reaping the benefits today. I congratulate my hon. Friend, as I have referred to him, on a good try in suggesting that I should answer a question that would be appropriately answered by my right hon. Friend the Chancellor of the Exchequer. I am sure that my hon. Friend, as I have called him, will have an opportunity to put the question to my right hon. Friend in the near future.
As this is the last uprating debate before the publication of the Green Paper, I want to conclude my remarks by making a comparison—
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
Before the Minister concludes, does he recall the statement made by his right hon. Friend the Secretary of State for Social Security the other week during social security questions—I notice that the right hon. Lady is not in her place today—to the effect that the Government had taken the advice of the Government Actuary and had 1103 acted properly on it? The reality is that the Government have not fully adopted and accepted the advice of the actuary.
Will the right hon. Gentleman explain what the Secretary of State meant? Will he also explain why the Government have not accepted in full the actuary's advice on rebates to private pension funds and to money purchase schemes?
§ Mr. Field
The Government have accepted in the main the recommendations made by the Government Actuary. In the round, I believe that we have fulfilled what is required of us, given that we asked for and received a report.
The hon. Gentleman has noted that my right hon. Friend the Secretary of State is not in the Chamber. The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), who sits on the Government Front Bench, has tried to make something of that during the day. As departmental Ministers, we are happy to present ourselves as a team. I am happy to underscore the point that my right hon. Friend has been generous enough to allow me the opportunity of presenting the orders. My hon. Friend the Under-Secretary of State will reply.
It is interesting that, if I am not speaking, the hon. Member for Chingford and Woodford Green says that I am being gagged. If I am speaking, he says that my right hon. Friend should be undertaking the debate.
I said before the last helpful intervention that I wanted to end my contribution to the debate by making a comparison between what Beveridge tried to achieve in his report and what we shall be aiming to achieve in the Green Paper when it is published shortly. It is clear from reading the Beveridge report that he thought that, by extending state provision, he would be achieving what he called a big-bang approach. That is not the approach that the Government have been following or will follow, or that will be detailed in the Green Paper.
I hope that right hon. and hon. Members will find set out in the Green Paper a clear idea of the society that Labour hopes that the country wishes to join in building. It will be a contrast with the big-bang approach to which Beveridge gave such emphasis.
The Green Paper will contrast in another sense with the Beveridge report, in that Beveridge was keen on producing a shopping list of policies. In contrast, the Green Paper will give a description of the sort of society that we hope the country will be supporting 15 years hence, as a result of the reform programme that will start following the publication of the Green Paper.
Beveridge was keen on detailing different benefit rates, but that will not be the preserve of the Green Paper. Instead, we shall be setting out clearly the objectives that the Government will hope to achieve by their reform programme. Again, in contrast to the Beveridge report, instead of giving chapter and verse to the genesis of each benefit rate, we shall be presenting in the Green Paper a series of success measurements by which we wish to be held accountable in trying to achieve the objectives that we shall be setting out.
Beveridge thought that his report was the end of the debate. We hope that the publication of the Green Paper will be the beginning of the debate in earnest about 1104 welfare reform in this country. The Green Paper will be followed by a series of proposals on pensions, counter-fraud strategy, and the Child Support Agency.
§ Mr. David Rendel (Newbury)
The Minister just told us that the Green Paper will be the beginning of the debate. What is the road show about?
§ Mr. Field
I am sorry that the hon. Gentleman did not pay more attention to the road shows, which have been fairly well covered. I thought that he would have read about them. The road shows were about establishing the need for reform, which has been—and is being— successfully done. Hon. Members even on the Liberal Democrat Benches seem to be generally in favour of the proposed reforms.
This is the last uprating debate before the publication of the Green Paper, and the measures that will follow from it. I have considerable pleasure in commending the draft measures to the House.
§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
I suspect that this will be a fairly quiet debate.
I welcome the Minister of State to his position. It is not the case that I am critical when he is not here and critical when he is. I welcome him and the Under-Secretary of State for Social Security, the hon. Member for Manchester, Withington (Mr. Bradley). One could not ask for a more generous and reasonable pair on the Treasury Bench to lead the debate for the Government.
My point first—I want to get it out of the way—is not a small, political point but a very real point. The Secretary of State for Social Security and Minister for Women is the first Secretary of State since 1978 not to have made the announcement on uprating, which was made in December, or to outline the position at the start of this debate. As the right hon. Gentleman knows, before 1978, there was a slightly different structure but the Secretary of State still came to the Dispatch Box. It is not that the right hon. Gentleman is not welcome; it is that the Secretary of State is not here. The uprating announcement is the biggest thing that happens to social security every year. As he said, it is an opportunity to debate the round, to debate what has been happening in the past year, and how it will affect us.
The Secretary of State's absence seems very much in keeping with the behaviour of her colleague, the Minister of Agriculture, Fisheries and Food, who was not present during a huge debate on beef on the bone and spent his time in the Smoking Room. If I did not know about the Secretary of State's habits, I would, perhaps, ask my colleagues to check the Smoking Room to ensure that she is not also there. I gather that the Secretary of State for International Development also was not at the Dispatch Box this morning to hear a rather important debate.
With respect to the Minister of State, this place matters. This is where the power to pass orders comes from. This is where the debate should be held, and the Secretary of State should be held to account. I am not being churlish. I hope that the point is taken and that it is made clear to her that the House is concerned that she is not here. I certainly thought that she would be.
§ Ms Gisela Stuart (Birmingham, Edgbaston)
Should I draw any conclusions from the fact that, for the first 1105 time, the uprating orders have been signed by the deputy Actuary, not the Actuary? I understand that the Actuary was not there on that day. I ask the hon. Gentleman for guidance on that.
§ Mr. Duncan Smith
With respect to the hon. Lady, who is a new Member, silly little tricks such as that are a waste of time. If she cares to look at the Order Paper—
§ Mr. Duncan Smith
Hold on In the Order Paper, there is one name against each of the draft measures—that of the Secretary of State. If her name is there to move the draft measures, she could at least have respect for the House and be here. That is the answer. I have made a simple point and will now move on. What has happened is in keeping with the way in which the Government constantly treat the House.
As the Minister of State said, the annual uprating order is an opportunity to talk about the detail of this matter. Clearly, it is a straightforward and traditional uplift in line with two measures of inflation, and it would therefore be wrong for anybody in the House to try to block it. It deals with those in need, and it is only fair that those payments should be made at the earliest opportunity. I therefore welcome the order and make no bones about it.
I wish to make one or two small points before going on to deal with the wider subject of social security. When the Conservatives were announcing the uprating in 1995, the hon. Member for Withington said that the freezing of capital and earnings disregards was a problem. There seems to have been a slight change in his position since then, and I hope that, when he winds up the debate, he will explain why. He might like to check Hansard on that.
I suspect that the same logic exists in the general debate on welfare, where there have been a number of changed positions. Before the election statements were made on lone parents; the Government have certainly changed their position on that subject since coming to power. They changed their mind on freezing lone parent benefit. In opposition, the right hon. Member for Islington, South and Finsbury (Mr. Smith)—now the Secretary of State for Culture, Media and Sport—said that the move would save only £5 million out of a budget of £90 billion. He said that there must besome really important objective to include such a tiny measure within those proposals".—[Official Report, 20 February 1996; Vol. 272, c. 204.]If it is such a small measure in relation to the overall budget, why are the Government doing it now? Is it purely for reasons of cost, or is it on principle? Do the Government support the underlying principle?
I wish to discuss two specific areas. The first is pensions, which form the largest part of the welfare budget. Too often in these debates people discuss benefits but miss the point that pensions constitute a growing and sizeable chunk—nearly 40 per cent.—of the overall welfare bill and therefore should be dealt with. Last July, the Government announced a consultation process, which was supposed to be the start of a comprehensive reform of existing pensions arrangements.
1106 However, before the consultation process was properly under way, the Chancellor drastically changed the parameters of the pensions debate. The Minister for Welfare Reform has already spoken about that in response to an intervention. However, by abolishing the advance corporation dividend tax credit, the Chancellor took a significant chunk—some £20 billion—off the funds held by occupational pension funds, and changed the whole pension debate.
In the pensions debate of 9 July, I said that the abolition of the ACT credit would create a massive problem for SERPS because it would, in essence, devalue the rebate. The Minister of State, who is smiling, knows that only too well; indeed, it was clear to those of us who know about pensions the moment the announcement was made in the Budget. I said that we should waste no more time and called for an immediate out-of-sequence review because those who had opted out of SERPS would be in difficulty and would be confused about their position, and those who were thinking about opting out would also have difficulties.
The Under-Secretary of State for Social Security, the hon. Member for Southampton, Itchen (Mr. Denham), who is responsible for pensions, said that those were "arguments of convenience", yet in December the Government began to realise that the decision to abolish the ACT dividend tax credit had done exactly what I and others had predicted, and sent for the Government Actuary to review the matter. That was logical and reasonable, except that it took until December for the Government to get round to doing it. As was predicted back in July, the Government Actuary returned with some sizeable recommendations.
My point today is that that has taken time and created confusion for those in both personal and occupational pension schemes.
Having announced the changes to the rebates, the Government proceeded to implement only part of the recommendation in the Government Actuary's Department report. The Minister said that, in the round, they did the right thing, but I disagree. I think that they have interfered in the process and have tilted the balance against occupational pensions at a time when the Government have legitimately said that occupational pension provision was the right route for many people, as it was a serious and supportive way to provide for their future.
Calculations by the National Association of Pension Funds, Pensions Week and others show that it will cost taxpayers up to £0.5 billion to uprate the rebate for personal pensions to correct the mistake made by the Chancellor in the Budget. By lowering the rebate by more than the Government Actuary recommended, the Government have hammered contracted-out money-purchase occupational pension schemes, and by freezing final salary schemes and not following the Actuary's recommendation that the rebate should be raised, they have also put those schemes under pressure.
An examination of the calculations brings us to the rather cynical conclusion that the taxpayer will pay the cost of correcting the Government's mistake on personal pensions. By not doing what the Actuary recommended, the Government are throwing the problem back on to occupational pensioners. They are asking them to bear the burden of their failure to follow the Actuary's 1107 recommendation. People will be in doubt about what to do about their pensions. They will have to decide whether to go back into SERPS and change what they have been doing for some years, or to stay out and bear the extra cost, which is estimated to be close to what it will cost taxpayers to bail out personal pensions as a result of the changes.
This is the same Government who said:We must continue to value the contribution that employers can make to their employees' security in retirement."—[Official Report, 9 July 1997; Vol. 297, c. 1037.]They were strong on occupational pensions, and were critical about the administration of personal pensions, but when it came to making the corrections, they did the opposite. They have had to rob Peter to pay Paul to get out of the hole that the Chancellor got them into when he made changes in the Budget in haste, and did not listen to what the Treasury was telling him about the effect of the calculations.
There is a further serious problem. As I said in July, even if the Government undertake the out-of-sequence review, it will not be implemented until April 1999. People in occupational pension schemes, and even those in personal pension schemes, will have to wait for the next year and a half wondering whether to go back into SERPS or to stay out. Even if the rebate is altered in their favour, they will still have to bear the cost in the meantime. That proposal comes from a Government who have been talking decisively about pensions.
The Minister did not touch on the present review of pensions in his interesting comments about welfare reform. The Chancellor's moves in this area have had a bigger effect than simply cost. The Department has been boxed in, because the key to the resolution of the problem of unfunded pension liability is to deal with SERPS by phasing it out in due course and ensuring that pension provision is funded.
I applauded the Minister for his comments before he came into government. I heartily agreed with him, and I still agree with him. The trouble is that the changes that have been made to the rebate have driven a coach and horses through the possibility of a proper review of pensions. There was one big review and, by the end of the autumn, 2,000 responses had been received from various companies and individuals. That first review told the Government clearly that SERPS had to be phased out, but they could not do that because they had begun to enhance it. So they had to have a second review. There were 191 submissions—quite a difference from the 2,000 that were received the first time.
The reason became clear when companies were consulted. Companies are sick and tired of the review process: they are fed up with it. Having made their submissions the first time, they were asked again to try to get the Government off the hook.
The Chancellor's hand is on this. He has boxed in those at the Department. If it is possible to feel sorry for them, I do. Given that—as I said earlier—pensions constitute about 40 per cent, of the welfare budget, they are a big issue. Arguably, a Government who tackle that—we made serious inroads into it, but the present Government now face the challenge—tackle the greatest part of the problem that accompanies the unending provision of payments from that budget. The challenge and the opportunity are there.
1108 Another aspect is the constant leaking and rowing about what will happen to the basic state pension. The Government have said on a number of occasions that the issue is not for review, and that it is not in the equation; but the real point is the persistent comments about means-testing the pension. As the Minister of State knows better than anyone else, when we are dealing with that issue we need to be cautious in our choice of language and in our delivery of that language.
I am concerned about the fact that so many people seem to have taken the opportunity to comment in speeches. For instance, the other day the Secretary of State for Health was able to comment at one of those roadshows on what would happen to the state pension. I understand that he made clear his view that means testing was definitely on the agenda, and that there would be a complete overhaul of that aspect of pension provision.
We have heard half-denials and acceptances, but, out there, a group of people who currently receive pensions are legitimately beginning to wonder what the position will be. I understand that a Government must govern and must make decisions, and I do not seek to block the Government's route to decisions and review; but I believe that pensioners have a contract to continue to be paid the pensions that they believe they were contracted to receive. I ask the Minister of State, or the Under-Secretary who is to wind up the debate, to take this opportunity to dispel the unnecessary fear that has been generated throughout the country by comments such as those by the Secretary of State for Health.
As I have said, this is a big issue. Perhaps only those receiving disability benefits are as scared as the people affected by it. I urge the Minister to clarify the matter. If he wants to intervene now, I shall be more than happy to give way, but I sense that he does not want to intervene.
§ Mr. Nicholas Winterton (Macclesfield)
My hon. Friend made an interesting point in challenging Ministers to give an assurance in respect of the state retirement pension. Will he now give an assurance that the Conservative and Unionist party has no intention of means-testing the state retirement pension? I am thinking not only of those who are over retirement age and are drawing the pension, but of those who, like me, are about to reach the age of 60. I have been contributing national insurance and tax payments in the belief that, when I reach the state retirement age, I shall be entitled as of right to a state retirement pension, whatever the amount may be at the time—although that pension will be subject to taxation. Will my hon. Friend give a commitment that the Conservative party will not means-test it?
§ Mr. Duncan Smith
I have no problem in giving my hon. Friend that undertaking. It was the Minister of State who opened the debate about means testing and he made it clear that he opposes its extension across the board. It is for him to say how that squares with the affluence test or means test that has been suggested by the Secretary of State for Health, and the Secretary of State for Social Security who, around Christmas, I gather, entertained the concept of affluence testing and was probably urged to do so by the Chancellor. When the Prime Minister returned from Japan, the right hon. Lady was told to stop talking about affluence testing, and we have heard nothing since. I suspect that the Minister of State is rather pleased at that because he does not have to try to redefine the concepts of affluence testing and means testing.
§ Mr. Michael Jabez Foster (Hastings and Rye)
Is that Conservative commitment by the hon. Gentleman of the same nature as the one that was given in 1979 when pensioners were promised a continuance of the basic pension? Shortly afterwards the earnings-related element was abolished and, as a result, single pensioners in my constituency are now £18 worse off. Married couples have lost more than that.
§ Mr. Duncan Smith
When we were in government we maintained the purchasing power of the basic state pension. The hon. Gentleman can check any record that he likes. Is he suggesting that the Government are about to re-link the basic state pension to earnings? Does he have interesting information about that? The Member for Doncaster, North (Mr. Hughes) who corrals him through the Lobby and pages him to tell him what to say may have got the message wrong. I shall give way to the hon. Gentleman if he wishes to say that his Government will re-link pensions to earnings.
§ Mr. Foster
I cannot make a commitment on behalf of the Government, but I understand that they have said that the poorest pensioners will be protected. My constituents were not protected over 18 years when the previous Government were in office.
§ Mr. Duncan Smith
There we go again: a Back Bencher is unable to make yet another commitment on behalf of a party which promised that it would not change lone parent payments and promptly changed them when in government. We do not need any lessons from such a Government.
I have dealt with pensions, and I hope that the Minister will address the issues that I have raised. I should like to move to the issue of the review. The Minister made an interesting, almost philosophical speech about where the Government should and could go. I listened with great interest and agreed with much of what he said, as I often do. He invited us to be positive, as we have been because we have laid down our criteria on the matter. I said that on welfare reform in general there must be a structured programme: otherwise, there are merely leaks and innuendo and nothing about which to be positive.
I was fascinated by the intervention of the hon. Member for Newbury (Mr. Rendel) who speaks for the Liberal Democrats on these matters. He mentioned the roadshow. If the Government are keen to sell the concept of welfare reform, the opposition parties would be happy to help them. The problem arises when we try to define what we are selling. What is the structure? No wonder there is fear.
The more the Government cannot answer questions the more people fear that benefits will be squeezed, changed or abolished. What is the purpose of a roadshow that is presented only to a restricted part of the Labour party? It is absurd. We have to learn, as do the public, from snippets that are given to friendly journalists about what was said at a roadshow. That is not the right way to go about a reform programme, and I shall later deal with that in detail.
The debate on reform is important, but without a clear understanding of the framework we shall not be able to move off. The Minister of State is honest and honourable, and I am sure that he would be happy to let the House and the world know his thinking on what the Green Paper 1110 should contain. He had time before his party came to government to think the matter through, and has written and spoken much about it. In government, it should not have taken him long to formulate a structure, although I admit that there would be problems.
I wrote to the Prime Minister after he answered a question in the House in September and asked him when the Green Paper would be published. He had obviously spoken to his Minister of State because he said in early November that the Green Paper would be published at the "turn of the year". The document obviously had structure and was close to being published, or the Prime Minister would not have made that statement.
In January, I again wrote to the Prime Minister, drawing his attention to the delay and asking when the Green paper would be published, because there were reports about the matter in the newspapers. There was no response, so I sent another letter and eventually the Prime Minister replied. The correspondence states that the Green Paper will be published "when it is ready." Every hon. Member will accept that nothing can be published until it is ready: the Prime Minister's reply was a truism.
The question of publication remains, because for all the Minister of State's fine words in opening the debate we are no farther forward. The Government have been in office for some months and we are engaged in a serious debate on matters that do not even have an initial structure. Who is in control of the process and battling to change it completely? It is clear that the Green Paper will not be published until the Budget or after it. The Budget will be the focus and lead for all welfare change—call it reform if you will—and that has led to a series of stupid interventions by the Chancellor's press spokesman or Downing street about exactly what will be in the Budget and who was right and who was wrong.
The Prime Minister's press spokesman said that the Chancellor was psychologically flawed. Irrespective of whether I agree with that—and there is a great temptation to endorse the view of the Prime Minister's office on it— it shows the frustration of Downing street about whether the Chancellor has seriously gripped the issue.
Without the Green Paper it is not possible to focus on how the welfare reform programme will move. More important, I cannot recall a time when the Department of Social Security has not taken the lead in welfare reform. The Minister of State knows that, for many years before Labour came to government, the then Secretary of State for Social Security, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), led the debate throughout.
Many of the changes were accepted, even welcomed, by the Minister of State and some of his colleagues. They may have wanted other changes, but they accepted that reform had started and that my right hon. Friend had made a huge effort on the process. Under my right hon. Friend's direction, that Department, which is responsible for the welfare budget, led the debate. There were no noises off from Ministers who were pitching in to try to claim that they controlled some of the debate about a section of that budget.
Such a crucial reform programme cannot be tackled in such a piecemeal way. Everybody in the Cabinet seems to be able to speak almost at will, saying one thing one week and being contradicted the next. That creates problems and confusion for people out there who need to 1111 know what is going on. I say again that the confusion is so great that it is beginning to be felt even among people who the Minister of State and his right hon. and hon. Friends would consider to be their natural allies in the general debate.
The other day, after the Prime Minister spoke about welfare as being the big issue, The Big Issue said: "If you're poor, vote Tory. They would do more for you than Blair". All I say to the Minister of State and his right hon. and hon. Friends is that that highlights to some degree the confusion out there as to exactly what is going on and the fear that has been engendered.
§ Mr. Duncan Smith
I paid for one; it is just here. That is why The Big Issue wrote that headline, I expect.
§ Mr. Duncan Smith
I look forward to many of the hon. Gentleman's colleagues assisting some of those selling it in four years' time.
§ Mr. Patrick McLoughlin (West Derbyshire)
If my hon. Friend is right to say that the Chancellor is the person who leads on this matter, does that not mean that, instead of getting consultation on these welfare reforms, we shall get no consultation? Is that perhaps the plan? The party in government is so afraid of its Back Benchers that it wants no consultation on the issue at all.
§ Mr. Duncan Smith
I do not think that the Government are particularly interested in consulting more widely; otherwise, these roadshows would have been public roadshows. The Liberal Democrats have hit the nail on the head. The desire is not to engage the public but to engage Labour Back Benchers. It occurs to me that one reason why the Secretary of State is not here may be that we saw her pulled from the roadshow in Wales, after the Chancellor said that the people attending his roadshow were a bunch of Trots or Conservatives. The mind boggles at the thought. I must admit that I did not get my ticket or invitation, but next time I will try harder; perhaps the hon. Member for Northavon (Mr. Webb) should try harder, too.
The Chancellor then said that we needed tighter security and a greater vetting of invitations: not greater public debate, but tighter security. I will not be tempted down that road, but I saw the boots growing on his feet even as we looked. The point is that it was not a public debate. My hon. Friend the Member for West Derbyshire (Mr. McLoughlin) is right about that. The Chancellor is clear about that. It seems that the Minister of State is not clear about it. I genuinely believe that he would like an open debate, and I respect him for that.
§ Mr. Edward Leigh (Gainsborough)
Is my hon. Friend aware that the Secretary of State for Social Security 1112 and the Minister for Welfare Reform distrust each other so much that they will not allow each other to appear separately in front of the Select Committee? We have waited nine months to have the pleasure of the company of the Minister of State, someone whom we knew very well in the previous Parliament: he turned up every week. However, he has not been allowed to appear on his own before the Select Committee for nine months. He has been allowed off the leash only to the extent that the Secretary of State sits beside him like a minder. Is that not extraordinary? Has it happened before?
§ Mr. Duncan Smith
I am guided by my hon. Friend on this because, to be honest, there is no one whom I would less like to think of as distrustful than the Minister of State. He is genuinely someone who would be prepared to trust people and to take everyone at their own measure. Whether the same applies to the Secretary of State is another matter. Perhaps she has recognised that she still is in charge of the Department and attends with the Minister of State to find out exactly what is going on in relation to the Green Paper. I do not know; perhaps they do not talk.
We are talking about a huge uplift in Department of Social Security payments. This is a massively important time. Huge, unanswered questions remain about the Department, the Secretary of State and the reform and review process. The Government seem to have put their Department into a state of drift. It is rudderless. It is sitting almost becalmed while every other Department of State manoeuvres around it, pulling pieces off it as though it were a piece of flotsam, and viewing its budget as something to be grabbed.
It is clear that the Chancellor views the Department of Social Security as part of his package of redistribution. He views the next Budget and the last one as a means of raiding the Departments and people who have put money aside for their future. He wants to redistribute the money into other areas of Government spending, which he will then spend in the run-up to the next election.
We heard that slip from the hon. Member for Bolsover (Mr. Skinner) when he made a point to the Prime Minister about special provisions for an election. We know that that is true. It is out of the bag from an hon. Member who has been around long enough to know these things. He has been here long enough to recognise the cynicism of what is happening.
The Government intend to redistribute the money from the Department of Social Security—that is all there is to it. It appears that that is what the reform is all about. The money will be spent in an attempt to buy votes in the run-up to the next election. I say to the Minister of State, a man whom I have consistently respected, who still deserves respect and whose integrity should be driving this review: if the Department and the Secretary of State for Social Security do not get a grip and seriously start to insist that the Department's view on the matter must prevail, we will end up with a review of cuts, with no purpose other than the saving of money.
If the review is a top-down levelling, it will achieve nothing but the displacement and continual growth of this sector of Government expenditure. Reform that changes the structure and delivers more focused benefit to people in need is what matters, but that is not the Chancellor's priority. I say to the Minister of State and to his colleagues: "Get a grip before you lose it."
§ Mr. Malcolm Wicks (Croydon, North)
I thank my right hon. Friend the Minister for Welfare Reform for the way in which he has introduced this important debate. It may be a quiet debate, but it is about a big and potentially noisy issue.
The upratings debate is an opportunity, particularly at this time in the reform process, to ask some fundamental questions. Perhaps the most important question of all is: what is social security for? What are the objectives? Many people rush to give a seemingly simple and clear answer to that question, saying that it is simply about the attack on poverty.
Historically, that was always the answer. Like my right hon. Friend, I have noted that, 400 years ago, Parliament was discussing this very subject of poverty relief, leading to the Poor Relief Act 1601 and the Elizabethan poor laws, as we now call them. However, in modem times, although poverty relief and the attack on poverty are clearly major—perhaps the major—objectives, social security has other objectives too. Our debate would be poorer if we forgot those other objectives.
I know that my right hon. Friend now has to leave the House to give the Beveridge memorial lecture. I hope that the House agrees that that is the perfect excuse for his absence, and we wish him well.
In modern times, we have realised that there are other social security objectives apart from poverty relief. All citizens during their lifetime face needs and risks. They include the risk that, in work, a person may become injured, need some income support or become sick. There is also the risk, if that is the word for it, that we may need an income when we reach retirement age. I agree with the hon. Member for Macclesfield (Mr. Winterton), and hope that that is a non-means-tested income in old age. It is too soon to wish the hon. Gentleman well in his retirement, but in many years' time I hope that that goes well for him. Therefore, there is an issue about how we insure, either publicly or privately, against the risks and needs that we face during our lifetime. That is the second objective.
The third objective is to support children. We often refer in debates such as this to the founding fathers of the welfare state, but let me refer to a founding mother—a former distinguished Member of the House, Eleanor Rathbone. Eleanor Rathbone's campaign attracted much support across parties and across society and led to the family allowance system, introduced by the coalition Government shortly before the 1945 general election.
What Eleanor Rathbone said in one of her books on the subject is worth repeating:Children are not simply a private luxury. They are an asset to the community, and the community can no longer afford to leave the provision of their welfare solely to the accident of individual income.That led to the family allowance and, when that was merged in the late 1970s with the child tax allowance, to what we now call the child benefit scheme.
There are other objectives, but I have highlighted three—the attack on poverty, the need to insure people for the risks that they face during their lifetimes, and the important objective of supporting families with children. I want to reflect on some of the issues that we now need to face in modern times in relation to all three.
First, there is poverty. What we call the safety net, and what William Beveridge intended to be a safety net for the few, has now become a major system of income support, 1114 supporting almost 10 million citizens, those drawing the benefit and their dependants, including 3 million children. Before the last election, I asked a parliamentary question and was shocked to find that one in three of babies bom in Britain are born to parents on either income support or family credit—in a sense, bom into poverty. If we share the ambition to create a young country, that is the worst possible indicator that, in the recent past, we have not succeeded—a safety net for 10 million, intended for the few now supporting the many.
The two powerful recruiting sergeants for income support are economic recession and family breakdown and insecurity. That system of income support, allied to other means-tested benefits, such as housing benefit, free school meals and the rest, represents not an attack on poverty but its institutionalisation. It is associated with complexity, stigma, poverty and unemployment traps, disincentives and, yes, for a minority, it leads to a culture of dishonesty and fraud, which we need to recognise.
Any anti-poverty strategy is, first and foremost, about the Government's welfare-to-work strategy; about the new deal. I do not want to say too much about that, but we have perhaps a year or two to get that right. We do not look forward to a recession in the future, but the business cycle is the business cycle, and a time when employment is increasing is the right time to try the new deal and to work out how to get it right. When more difficult times come, as they will, we need to have the experience. It will be far more difficult to get our young people and our longer-term unemployed, some with disabilities and learning difficulties, into work, so I wish that vital project well.
Secondly, there is child maintenance. We debated the Child Support Agency recently. I simply say, briefly, that the more that we can do to crush the culture whereby more and more fathers, following a marriage breakdown or other circumstances, are not maintaining their children financially, the better. Yes, the CSA has messed up the lives of some men, but that should not camouflage the mass of irresponsible fathers who do not support their children. The numbers paying child maintenance may be as low as 20 per cent, and certainly not much more than 30 per cent.
§ Mrs. Gorman
I agree with what the hon. Gentleman has just said. Behind every lone mother there is an even more lonely father who is not contributing properly to the upkeep of his children, leaving it to the state. Will the hon. Gentleman therefore press his Government to ensure that any reform of the CSA—something about which they are now talking—does not end up with the burden being dumped back on to the general taxpayer?
§ Mr. Wicks
Yes, we must re-establish the principle that, whether one is a mother or a father, a baby is for life and, certainly during the childhood and youth of that child, both parents have a financial obligation to support it. It is a simple and obvious point but, sadly, we need to restate it loudly and clearly in these more difficult times.
Thirdly, we must get the tax benefit system right. I welcome the Chancellor's proposals for a working family tax credit, which he will announce in more detail in the Budget. We need to put incentives into work. We need to be able to tell poor families, perhaps on income support, that it is worth their while working. The tax credit is a useful device, but it is important that we match that with a concern about families and children.
1115 Therefore, what we call the purse-to-wallet issue— policies that end social security benefits that go to mothers and give the benefit through the tax system, often to fathers—is one about which we must be cautious. All the signs are that the Chancellor recognises that point and that the new working family tax credit will offer a choice— have it either as a fiscal benefit or, as now, as a cash benefit. It may interfere with the purity of the system, but I am convinced that that choice is important to the welfare of our children.
§ Mr. Webb
On that specific point, does the hon. Gentleman think it satisfactory that the way in which the Chancellor has got out of the problem is to give a choice whereby the woman in a couple can elect to have the benefit? Might that not be a problem if, in the sort of families about whom we might be worried, who are not very good at sharing, there is pressure from the father to require the mother not to tick the box and so to get the money himself? Is that a concern of the hon. Gentleman?
§ Mr. Wicks
Yes, the hon. Gentleman raises an important concern. The Select Committee on Social Security is considering that very issue and will be producing a report shortly. I think that I can assure the hon. Gentleman that that matter will be dealt with in the report. I see the Select Committee Chairman agreeing that that will be a feature of the report.
§ Mr. Nicholas Winterton
The hon. Gentleman is making an extremely good and thoughtful speech, which is helpful to the debate. Does he agree that, if there is an unwillingness for child benefit to be paid to the wife of a millionaire or someone who is extremely wealthy, the way to deal with that is through a fiscal process of taxing child benefit? Is the hon. Gentleman in favour of that? I believe fervently in child benefit and want to see it paid to the mother for the benefit of the child, but, if a family is pretty well off, I am happy for that child benefit to be taxed, so that there is more money in the pond to help those in genuine need.
§ Mr. Wicks
The hon. Gentleman raises an important point. I was trying to make as brief a speech as possible, but I am tempted into a dissertation on an important but rather complex question. Independent taxation is a major complication here. For example, if one tried to cream off all or some of the child benefit for those paying the higher rate of tax, and if, as I think the hon. Gentleman believes, and as we have always thought, child benefit is an income for mothers, the logic would be to tax the mothers, and no Government want to introduce a new tax on mothers. If that technicality is ignored and the higher-paid person—often the father—is taxed, the issue of independent taxation is breached.
I am open minded on that. Although a universalist on these matters, if we could find a simple and clean technical way of creaming off some child benefit from the really quite well-off and using it for nursery education or whatever, I should be happy with that. I am yet to be persuaded that technically it is as simple as some suggest. A little later I want to say something more about child benefit.
My fourth point in relation to an anti-poverty strategy concerns child care. I welcome the Government trying to find more resources for after-school clubs and nursery 1116 education and, I hope, mainstream child care, too. Governments and Parliament should be wary, when it comes to those with children under five, of implying that the only way in which a mother can properly look after her child is to go out and find a job, often a rather low-waged job. When it comes to children under five, mother knows best. If anything, I should like a premium in our child benefit system for children under five. Much family poverty is concentrated among families with younger children because there may be only one breadwinner, or perhaps no breadwinner.
§ Mr. Howard Flight (Arundel and South Downs)
Does the hon. Gentleman share my concern that some of the changes seem fiscally to encourage the idea that it is better for a child minder to look after a child than a mother? Does he agree that more in-depth thinking is required, because I cannot believe that that is the intent of the Government?
§ Mr. Wicks
Choice is important—it should be a choice for the family. I feel passionately about that in terms of the youngest children. I make no judgment; it is a judgment for the family whether a mother should go out to work and find substitute care or whether she should stay at home to look after her child. We have all been involved in such decisions. It is a choice for families, and not for the state. We should, if anything, load the benefits system in favour of under-fives.
Having spoken about poverty, I shall speak about finding a modern way to enable citizens to insure themselves over their life cycle against the needs and risks they face. We have the national insurance scheme and a range of private provisions, principally the occupational pensions sector. The question now is, as Beveridge asked—probably my right hon. Friend the Minister is reminding his audience of it even now—what risks do people face over their life cycle and how are they met?
One of the modern risks is that, in our very old age, we might become frail and need not hospital care, but nursing home care or intensive domiciliary care in our own homes. If Beveridge were here today—I sometimes think it would be a good thing if he were—he would say that that is one risk we need to insure against. That raises colossal issues about the future of national insurance.
Why do we not discuss national insurance more? It is extraordinary. Its big sister, income tax, raises £77 billion, but national insurance raises £50 billion. It is big business, and it looks after many people—not least through retirement pensions. There are those who say that it is unsound actuarially and that we should come clean and merge it with income tax. I am in the opposite camp. I think we need a renaissance of ideas about national insurance. National insurance recognises the balance between rights and responsibilities. We put into the community chest of the nation when we can, and we draw out when we need to. There is a need for a reinvigoration and a relaunch of national insurance.
§ Mr. Simon Burns (West Chelmsford)
The hon. Gentleman has been talking, in effect, about a contract. In that context, does he think that the Government should allow out-of-school child care to be means-tested?
§ Mr. Wicks
I have not thought that through adequately enough to know. I have implied that, instinctively, I am anti-means test. I think the welfare state is blocked up with means tests. It is not unreasonable that some fee should be paid for out-of-school care when a parent is in work and earning money. However, those earning low wages—or, perhaps, parents not in work who need care for the sake of the child—may have to be means-tested. I am in the peculiar position in this House of having an open mind on the subject.
§ Mr. Burns
The hon. Gentleman will be aware that funding for the new out-of-school care is coming from the windfall tax, the out-of-school child care initiative and the new opportunities fund. Is he aware that the Under-Secretary of State for Education and Employment, the hon, Member for Newport, East (Mr. Howarth) believes that those schemes should be means-tested if the people operating them wish it?
§ Mr. Wicks
I had not heard that view, but it is not unreasonable. We must look carefully at that matter, but the appropriate thing would be to do a run on it with the aid of a computer to see how it would affect the poverty trap and the willingness of parents to send their children to care, as opposed to alternative methods of care, which often may be more about neglect than care.
I have talked about the life cycle, and the needs and risks that we face. I am struck by the fact that a number of proposals relate to how we meet costs over the life cycle. Higher education is becoming more expensive and tuition fees and loans have been introduced. Many young people will start off in life by having to pay back considerable amounts of money. I support the policy, but I worry about some of its implications.
Ideas are proposed on pensions which essentially mean persuading people in their 20s, 30s, 40s and after to pay higher contributions than they are paying now. We have other proposals about individual savings accounts and others—from the royal commission in a year or so—about how we fund long-term care. Meanwhile, people are trying to buy homes. Some of the proposals are from the Department for Education and Employment, others are from the Department of Health, the Department of Social Security, or the Treasury. Is it naive to suggest that we should look at these matters together? It might make sense to offer people—either through the public or private sector—a hybrid, or a life cycle account.
§ Mrs. Gorman
Although it is not my place to commit the Opposition Front Bench, my right hon. and hon. Friends have made it clear that we are willing to co-operate with the Government in remedying the flaws in the welfare state. Much of what the hon. Gentleman has said this afternoon, I have found congenial. However, the hon. Gentleman's problem is with his Back Benchers, who will not allow the Government to bring in sensible reforms which follow in the footsteps of measures put in place by the previous Government to encourage people to make their own provision, particularly for their old age.
1118 His Back Benchers—who are conspicuous by their absence—will create merry hell, as they have done at the roadshows, which they have positively wrecked.
§ Mr. Wicks
That would help enormously. It is useful that the hon. Member for Billericay (Mrs. Gorman) is interested in my thoughts.
I often worry that, in these debates, children are the forgotten army. The debates are often about adults— working mothers and fathers, taxpayers. Let us think more about children. In an old-fashioned way, I should like to say that I support the child benefit scheme. If we find civilised ways of targeting it a bit, we should do so, but we must avoid the means test. Child benefit is universal. It avoids the complexities of the means test. Far from adding to poverty traps, it is a good welfare-to-work measure. One has it when on income support, and takes it when one goes into work. In addition, it is an income for mothers—that is absolutely crucial. I believe that a premium for those with children under five might be appropriate.
I have referred to the two major recruiting sergeants for poverty and insecurity as economic recession and family breakdown. Although this goes wider than the debate, it follows that the best social security programmes of all have little to do with the Department of Social Security and everything to do with a strong economy and strong families. Within this, the reform of state benefits is vital.
I wish my ministerial colleagues well, because they are dealing with a more complex system than confronted Beveridge, and with a more complex society and economy than those confronting the reformers of 50 years ago. This is an important subject, and I wish everyone taking part in the debate well in grappling with its complexities.
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
The absence of the right hon. Member for Camberwell and Peckham (Ms Harman) shows not just the absence of the Secretary of State on an important date in the social security calendar but an absence of leadership in the welfare reform process—at least so far as the Department for Social Security is concerned. It shows an absence of any policy on welfare reform, which was meant to be at the heart of the new Labour Government's policy. Indeed, it was meant to fill the gaping hole in their promises of extra spending on education. They said that they would reform the welfare state and channel the extra billions into education.
Where are those radical welfare reforms that we were promised? Where is the great Nixon-in-China, only-Labour-can-do-it end to the dependency culture? When will the Green Paper, which has been promised and delayed, promised and delayed again, be published? Review after review has been announced. There is the child benefit review, the welfare-to-work task force, the tax and benefits task force, the social exclusion unit, 1119 the family policy committee, the pensions review, the long-term welfare review, the disability benefits review, the royal commission on long-term care and the comprehensive spending review. They are all very worthy, but where is the policy? The agenda is in chaos.
Even the reviews that are about to report will bring forth nothing but tinkering and hype. The tax and benefits task force is a classic example. When it was set up in May, it was heralded by triumphalist press spinning. It was to be headed by Martin Taylor, a chief executive of Barclays bank. The Financial Times reported on 20 May that it was told by Labour sources that the task force would lead tothe full scale merger of the tax and benefit system.The Sunday Times was told that the Prime Minister had agreed thatBrown should consider all options for reform, including ultimately merging the separate tax and benefit operations into a new streamlined system.Nine months later, when Martin Taylor appeared before the Social Security Committee, he said:I think that the arguments against full-blown integration are well known, well rehearsed, and I accept them.So there was to be no tax and benefits integration from the Taylor task force.
What about reducing the high marginal withdrawal rates as people come off benefit and start paying income tax? Surely the Taylor task force would be able to do something about those. The response from Martin Taylor was:I would counsel you against believing that there is anything magical you can do with tapers which changes the world.The lesson is not to expect radical reform proposals from the tax and benefits task force or any of the numerous reviews, committees and units that have been set up. There is no leadership in the DSS. Those seeking to lead are being crushed by internal dispute and internecine warfare with the Chancellor of the Exchequer.
That brings me to the Treasury: the source of the problem. There is not just a turf war. The Treasury's tax and proposals so far have been incompetent, ill thought out and extremely damaging, and have impacted on what the DSS has been trying to do. The Treasury's incompetence starts like a pebble thrown into a still pond, which sends out ripple after ripple until the whole pond is no longer still but a cacophony of waves. The pebble was the 2 July Budget and the decision to end the repayment of dividend tax credits on dividends paid to non-taxpayers, especially to pension funds. That raised £5 billion a year for the Chancellor, but its consequences were not foreseen.
In order to avoid companies having to pay large amounts of tax on foreign income dividends, foreign income dividends had to be abolished. Such unforeseen consequences caused an outcry from companies which had large amounts of overseas interests. So, four months later, the Treasury had to deal with that problem by abolishing advance corporation tax and introducing quarterly corporation tax payments for companies. That, in turn, is causing enormous concern in the corporate sector as companies are trying to find £2 billion a year in extra corporation tax payments. That, too, will have to be changed in the March Budget. So the mess and the ripples continue.
Ending dividend tax credits also affected pensions. Private pensions lost 11 per cent, of their income as a result of the measure, so contributors had to increase their 1120 payments to secure the same pension. Consequently, the state earnings-related pension scheme became more attractive relative to private schemes—unless rebates were increased. Associations such as the Association of British Insurers said that its insurance company members would have to recommend that their customers opted back into SERPS unless national insurance rebates for opting out were increased. Five months after the July Budget, a whole swathe of extra rebates for private pensions were announced.
That announcement totally contradicts the Treasury claim that ending dividend tax credits would not reduce the value of private pension funds. The Treasury said that ending dividend tax credits would help companies retain investment funds, which would lead to a healthier economy and higher share prices, and thus increase the value of private pension fund investments. It is a pity that neither the pension fund industry nor the DSS believes that. They have both taken the correct view that, if £5 billion a year is taken out of industry through tax, investment is reduced by £5 billion a year.
On 22 December, the last day before the Christmas recess, the uprating of the rebates was announced in a written answer—but the rebates are not enough. That is because the Government increased some by less than the amount recommended by the Government Actuary and reduced others by more than that recommended. The Government Actuary's report recommended a 2.4 per cent, rebate for the youngest age group in contracted-out money purchase schemes. The Government announced a 2.2 per cent, rebate. The Government Actuary recommended a 7.3 per cent, rebate for a 47-year-old. The Government announced a 7.1 per cent, rebate. So the ripple continues.
The pensions marketing manager of Britannia Life Ltd. said of the Government's decision on rebates for COMPs:I cannot see why anybody would want to stay in a COMP.The head of the research at the AON consulting firm said:It's getting difficult to believe what the Government says.It is difficult for us in the House to believe what the Government say.
In January, the Social Security Secretary said in response to a question from my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) that the Governmentconsidered the Government Actuary's advice and we changed the rebates.That answer was very carefully worded and designed to leave us with the impression that the rebate changes were purely a matter for the Actuary and that the Government followed his advice. As we know, the Government did not follow his advice.
Subsequently, the Secretary of State went too far when she said:We sought that advice and acted properly on it."—[Official Report, 26 January 1998; Vol. 305, c. 5.]Will the Minister tell us what the Secretary of State meant? Why did she say what she did when it is clear that the Government did not follow the Government Actuary's advice? Why did not the Government follow that advice? Why will members of contracted-out money purchase schemes have to pay, according to Pensions Week, an extra £200 a year as a result of the decision?
1121 All those problems have arisen from that one decision on 2 July to abolish dividend tax credits on dividends paid to pension funds—one wrong decision leading to a ripple effect of highly damaging and unforeseen consequences. There is pure incompetence and chaos. Coupled with an absence of policy and leadership, that chaos is causing damage in the community. Policy is being developed by informed leak—kite flying. Labour suggests taxing child benefit, so someone in the Treasury leaks it to see what the reaction will be. Labour suggests trying a means-tested disability living allowance or taxing it. They think that that would be a good wheeze to raise a few hundred million pounds, so someone in the Treasury leaks it.
Those messages are read by people who need such allowances—decent, vulnerable people who rely on the money; independent people who would cease to be independent if DLA were means tested or taxed. That is best expressed by a Mr. Tim Armstrong, a 17-year-old disabled student who lives in my constituency. He wrote to me this week with his concerns about the Government's leaked proposals. He said: "Dear Mr. Gibb,I understand that the Chancellor of the Exchequer may be considering imposing income tax on the receipt of Disability Living Allowance. It would be unfair to tax this Social Security benefit as it is intended to help disabled people meet the increased costs which arise as a direct result of their disability. These costs are the same for both those liable to tax and those who do not pay tax. Few disabled people would not be taxpayers if DLA becomes taxable. The tax I would have to pay might mean that I could not afford to have a car under the Mobility scheme and would lose the independence that DLA gives me.Please explain to the Chancellor of the Exchequer that to make DLA taxable would be to tax disability and make disabled people much more dependent. I would like to know what his response is.So would I. He continued:I also understand that the Secretary of State for Social Security is considering the possibilities of means testing DLA and of transferring this benefit to local authority Social Services departments. Both these steps would be damaging to disabled people like myself. Means testing would have a similar impact to making this vital benefit taxable. Handing over control to local councils would almost certainly mean the end of the superb Motability scheme and the freedom of choice that disabled people enjoy in arranging their mobility needs.Please explain to the Secretary of State for Social Security that to make DLA a means tested benefit would be very damaging to many of your constituents.… Again I should like to know what her response is.So would I, but unfortunately she cannot be bothered to be here, or dare not be here. Whatever it is, it is not acceptable, and neither is the lack of progress that the Department of Social Security and the ministerial team have made in almost 10 months since the Government came to office.
§ 6.1 pm
§ Ms Gisela Stuart (Birmingham, Edgbaston)
The uprating debate covers a number of benefits that have direct relevance to women. People often see women as drawing benefits. They do not accept the vital role that women play in the work force. I wish to draw the attention of the House to the fact that simply uprating assumes an acceptance of the status quo. I look forward to 1122 considerable change to the benefits system. Unlike Opposition Members, I would rather wait for a Green Paper that gets it right than have things rushed through. We accept that this is a unique opportunity to reform a system that has been salami-sliced for many years, to get the structure right. We need to get it right for the next generation as well as this one. I would rather hold back and get it right.
§ Mr. Richard Livsey (Brecon and Radnorshire)
I wonder whether the hon. Lady thinks that the issue of lone parents should also have been left until the Green Paper.
§ Ms Stuart
My view on the lone parents issue was that we were implementing the previous Government's policies. We shall all have to wait to find out how the new benefits system will affect all such issues.
I always find it extraordinary that people accuse us of not providing reform proposals, and in the same breath draw conclusions about what the reforms will be. The Taylor review is dismissed as not producing anything worth having and at the same time it is criticised for not having produced a report. We cannot have it both ways.
I welcome the Government's policies on women. Two issues are stated clearly. We want equality of opportunity for everyone, and that means that women continue to take their rightful place in the work force, but we also support the many carers of children, who are often women. Throughout the world, women are now the main breadwinners in about 30 per cent, of households. By 2010, some 80 per cent, of the female work force in industrial societies will be of child-bearing age. Any reforms of the welfare system have to take account of women, children and the implications for families.
Women have been failed badly by the previous Government. The Employment Service did not recognise the need to return to the work force. The benefits system assumed that women relied on men. Child care did not catch up with the changed role of women. The pensions system failed women miserably. The one issue on which I should like to focus today is the benefits system's failure to recognise the significance of caring for children. That should be recognised within the benefits system.
I welcome the tax and benefit reforms. I welcome the fact that a number of benefits will be delivered through the wage packet. I welcome the national child care strategy and the money put into child care, but—I endorse what my hon. Friend the Member for Croydon, North (Mr. Wicks) said—who speaks for the children? Children are the next generation. They are our future. It worries me that the debate on welfare is a discussion among adults in which we do not recognise children's needs.
Families are getting smaller. On average, families now have 1.7 children. There is a tremendous growth in single households; 28 per cent, of all households are now one person. Fewer people are getting married. At the same time, one in five children live in households in which there is no adult earning—that is, 21 per cent.
We need to reform the welfare state. We accept that children who grow up in households in which someone is earning fare better; that money that comes into a family via the wage packet is of greater benefit than that which comes via the benefit cheque. We need to introduce family-centred policies, but we should not overlook our 1123 responsibility especially to the very youngest of children. We need to have a debate. We should not simply assume that children have the same needs at every age.
Those of us who went to America saw in Wisconsin one extreme. It was deemed that mothers should go back to work once their children were 12 weeks old. In Britain, we send out a signal that a mother should not be expected to go back to work until the child is 16 years old. That is clearly outdated and wrong. We need a debate about the appropriate age. When the new deal for lone parents is rolled out nationally, it will begin to strike the right balance. It will require mothers of five-year-olds to attend an interview.
§ Mr. Duncan Smith
I am sure that the hon. Lady would not want to mislead the House inadvertently, but the new deal does not do that. It simply invites them in to an interview. That is one of the weaknesses of the policy. We are wondering what the Secretary of State plans to do. She has a return rate of 6 per cent, on letters inviting women to an interview. Will the hon. Lady make it clear that the policy does not require them to attend, but simply invites them to an interview?
§ Mr. Duncan Smith
The hon. Lady says, "As I understand it". Does that mean that someone on the Front Bench has instructed her to say that compulsion will be part of the system? It is a fascinating point. Will she tell us that?
§ Mr. Duncan Smith
I thought that the hon. Lady was making a statement on behalf of the Front-Bench team.
§ Mr. Burns
I shall help the hon. Lady by changing the subject slightly. She has spoken on a number of occasions about failure. She will be aware that a week last Friday, the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) accused her and some of her hon. Friends of being failures. Why and how does she think that her hon. Friend is wrong?
§ Ms Stuart
I will not rise to challenges that are not worth rising to. I will move on to the subject of our responsibility to families, women and children and to mothers and fathers.
The way forward is to ensure that, as often as possible, families are supported by working adults and that children grow up in families in which someone earns. In the case of under-fives, there has to be choice—my hon. Friend the Member for Croydon, North used the phrase "mother knows best", which is a phrase with which I have a little difficulty, but there must be a recognition of the special needs of that generation.
1124 I mentioned Wisconsin, which has a cut-off of 12 weeks old, whereas ours is five years old. In Norway, there has been a tremendous extension of maternity leave and even compulsory paternity leave, whereby the mother will have difficulty drawing all her benefits unless the father takes off four weeks to look after his baby.
We have to accept that there is a range of options, but there must be a strong emphasis on striking the right balance. I urge Ministers to accept in the review that the right balance when smaller children are a factor will, at times, involve increased part-time work. It is not necessarily my idea of progress for mothers of very young children to have to work full time for low pay and put their children in state nurseries. We need an element of choice and a recognition that the right balance for families and children has to be struck. We need to hear the voice of children.
§ Mr. Mark Oaten (Winchester)
I greatly enjoyed the opening remarks of the Minister for Welfare Reform, who has now left. His canter through history was illuminating and although we were obviously the audience for his warm-up act or rehearsal for his Beveridge lecture later, I welcomed it all the same.
I also welcomed the right hon. Gentleman's rather teasing statements about what would be announced in the Green Paper—frustrating though they were. However, I am concerned about some of the remarks made about the timing of the Green Paper's publication. When I hear that it will come out at the time of the Budget or after the Budget, I think, somewhat cynically, that the announcement might be made at the same time as the Budget. I hope that when the Under-Secretary of State winds up the debate, he will give assurances that such an important statement—we have been waiting for the Green Paper for some time—will not simply be pushed out on Budget day and lost among other announcements.
I cannot share the right hon. Gentleman's enthusiasm for today's orders, and I certainly cannot join him in celebrating the first orders for so many years to be laid under a Labour Government. I regret that he did not use today's debate to clear up some of the misunderstandings that have arisen about the direction being taken by the Government's welfare reforms. Of the few errors in judgment made by the Government since entering office in May, the manner in which welfare reforms have been handled and the Government's failure to deliver have been among the biggest.
Since May, the debate on welfare reform and benefit levels outside the House has been somewhat controversial and, at worst and in many cases, insensitive and alarmist—although today's debate in the House has been friendly, despite one rather unwelcome intervention. The climate of rumour and misinformation over the past few months has left many of the charities to which I have spoken feeling bemused and angry. Perhaps more important, it has left those who are on benefits and who read the newspapers feeling both rejected and confused.
That is why it is a shame that the Minister of State did not do three things that might improve the climate and why I hope that the Under-Secretary will do them instead. First, he could make a statement that the Government intend to overturn the freezing of benefits to lone parents. Secondly, he could have the courage to review the
1125 increases in pensions for those above the age of 80. Thirdly, he could give an absolute assurance to disabled people that the Government will not attack their benefits and will introduce a proper review of the current benefits integrity programme.
The world has moved on since we first debated these benefit cuts and proposals in December last year. There have been two developments that should encourage the Government to think again. First, we know far more about the economic circumstances that this country is facing and we know that they are getting better by the day. We know that the Chancellor has more room for manoeuvre than any Chancellor has had in the past five years. If it is true that there may be £1 billion, £2 billion, or even £3 billion available, how can we turn round to lone parents and tell them there are not the resources available to maintain their benefits? If it is true that those extra resources are available, how can we turn round to the over-80s and justify the level of pension that they receive? It is time for the Government to turn what they currently call the Chancellor's war chest into a war on want and use those resources to tackle some of the unfairness in the system.
The second development is growing evidence that many of people who receive the benefits that we are debating will suffer a double whammy this April. In addition to the rumours about cuts at a national level, there is a second, local whammy in the shape of cuts in local authority social services budgets up and down the country. I have heard of social services departments facing huge cuts, and many of those cuts will be achieved by cutting services to individuals receiving the benefits before us today. What we are giving today at national level will, for some, be taken away at local level in April. The net impact is that many people will be worse off come April.
Let me illustrate that point. In Hampshire, the current social services budget, which provides essential support for the most frail and needy in the county, is facing cuts of £3 million. What does that mean in reality for a pensioner? One announcement is that the cut means that charges for meals on wheels will have to be increased by 21 per cent., or £2 per day. If we take into account the effect of today's orders and the settlement whereby we are giving pensioners a percentage increase in line with inflation, we can see that a pensioner who receives meals on wheels will be worse off.
That situation will be repeated up and down the country in respect of the old, the disabled or those who are in receive of local social services. Let us take the example of a disabled person on incapacity benefit who, after today's announcement, will receive an increase of £2.25 per week in his allowance. However, in Hampshire, that person faces charges on equipment that he gets for his house and possibly the end of schemes to provide help in the home. The net impact on that individual, despite our debate today, may be that he will be worse off come April.
§ The Parliamentary Under-Secretary of State for Social Security (Mr. Keith Bradley)
So that I am clear about the case that the hon. Gentleman is making, may 1126 I ask whether he is arguing that the amount of the benefit uprating should be further increased to compensate for those charges; and, if so, by how much?
§ Mr. Oaten
I am arguing that, although we may take comfort in the inflation-linked increases in the orders, at the end of the day, people in need care little about whether their benefits are set by the House or by local authorities; what they have to live with is the reality of how much money is in their pocket at the end of the week. I am attempting to demonstrate that, because of the effect of the double whammy, the net impact on many people might be that they receive less overall. That comes against the backdrop of disabled people in particular reading in the press that cuts to their benefits might be introduced. That is the point that I want the House to take into account.
The picture is worrying for many individuals and for the groups that will be most affected—the old, lone parents and the disabled. Let me say a few words about pensioners. How can it be right that, for almost the past quarter century, no party has done anything to address radically the additional sum paid when a pensioner turns 80? Today, as we pass these orders, we add another year to that period of non-action, and I know how let down many pensioners feel about that.
Because of the rather unusual circumstances in Winchester, where the people seem to like fighting elections, I spent most of last year on the campaign trail, out and about talking to people, many of whom live in residential homes and old people's homes. Perhaps if Mr. Malone had done more of that sort of thing, the result would have been different.
I detected an interesting shift of opinion over the period of those elections. In the run-up to the May election, there was enthusiasm and a mood of optimism among pensioners, who looked forward to the prospect of having a Labour Government. However, when I spoke to the same people during the November campaign, the mood had shifted. They were disillusioned, not necessarily only with the Labour Government, but with politicians in general—I hope that that was not a reflection on my six months as their Member of Parliament.
§ Ms Stuart
Does the hon. Gentleman accept that 80 is an arbitrary age, and that we should consider the wider issue of the long-term health care of the aging population? We should take note of the royal commission on long-term health care, rather than focus only on uprating at a particular, but not necessarily appropriate, age.
§ Mr. Oaten
My evidence from speaking to many people last year, including those over 80, is that they cannot wait for reviews; they want action now. They felt insulted by and angry about the suggestion of a 25p increase, which was the figure that was cited time and again. As economic benefits begin to appear, surely the Chancellor of the Exchequer should allow the Secretary of State for Social Security and her ministerial colleagues to do something about the proposed 25p increase, and offer a decent amount of money for those over 80.
I offer a personal view—I am not now speaking for my party—about the resources that we give to pensioners. I found it frustrating not to be able to answer many of the questions that pensioners asked me, such as why they did not receive a decent pension.
1127 I know that politicians are not supposed to highlight problems for which they do not have quick, smart solutions. I do not have solutions to these problems, but I made a commitment to those individuals that I would raise their concerns. All politicians should try to ensure that pensioners receive a decent pension. I recognise the Government's attempts to ensure that people of my generation receive one, but I believe that we need to deal with the problems of today's pensioners.
Lone parents are another key Liberal Democrat concern. Liberal Democrats strongly oppose the proposed benefit freeze for 1.5 million lone parents. It has been said that as many as half of those lone parents will not be able to take up welfare to work. For them, the freeze represents lost benefits; today, the House will reaffirm a decision that could mean a real cut in lone parents' living standards.
Why are the Government hitting lone parents in that way? I should have thought that lone parents would agree to welfare to work, but would also expect flexibility and a caring approach from the Government. I have a lively, 20-month-old daughter, and I am beginning to realise the traumas and joys of bringing up children. I marvel at how many lone parents can bring up children on their own, and I recognise that they face additional costs.
I am not alone in that recognition. In November 1996, the Secretary of State, who was then Opposition spokesman, said:Lone parents are some of the poorest people in Britain. They face additional costs in bringing up their children… Lone mothers not only do not have their partners' income; they do not have their partners' time."—[Official Report, 28 November 1996; Vol. 286, c. 501.]Let us hear today that the Government will change and compromise on this measure and at least increase in line with inflation current benefits for lone parents.
I am surprised that disability issues have not yet been mentioned in the debate. I urge the Minister to send a strong signal of support to disabled groups, to reassure them about their current and future benefits. We must debate the changes to disability benefits, which is why the Green Paper must contain the details. We have been playing a cat-and-mouse media game of speculation and counter-speculation. Stories have been flying around in the right-wing press, half-portraying some disabled people as fraudsters.
According to a parliamentary answer given in another place, however, no cases of fraud have yet been unveiled by the benefits integrity project. I do not dismiss the possibility that there is fraud—indeed, Liberal Democrats take the matter seriously—but I do not believe that it is healthy to create a climate of mistrust as a prelude to a much needed discussion on the reform of disability benefits. Moreover, we should not constantly talk about errors in the system and misconstrue them as examples of claimant fraud.
Worryingly, the figures derive from the Government's own statistics, the release of which has been carefully timed. Do those figures paint a bleaker picture than the reality of future changes will be? If so, the Government are prolonging in the worst possible way the undeniable anxiety that disabled people feel about their payments, which in many cases are the mainstay of their livelihoods.
In the past week, we have heard that cases in which benefit has been cut under the integrity programme will be independently assessed. Although I welcome that, 1128 I have no doubt that the need for it has been highlighted by a number of shocking cases in which disabled people had their benefits cut when they should not have been. The Government's announcement smacks of reacting to events, rather than pre-empting them.
Earlier this week, the Government were giving mixed signals; the Prime Minister and the Secretary of State seemed to be at odds on the suspension of the benefits integrity programme. The Prime Minister seemed to say that the Government had agreed to reflect on the matter, whereas the Secretary of State had apparently ruled that out in an earlier meeting with Lord Ashley. Is it not time to halt the review, reset its parameters, retrain its assessors and reassure those being assessed?
We must clear the air soon. We need to examine the realism behind some of the Government's proposals for disabled people's benefits. No one wants to deny disabled people the right to work if they want to, but, equally, no one wants people with disabilities forced into work that they cannot do. Moreover, how many disabled people are likely to be able to take up work? Will there be 500,000 or 1 million, and will there really be jobs for them?
Today is the Government's last chance to show that they listen to the voices of those in need. Liberal Democrats want to make it clear to the Minister that, although we support the Government's review of the benefits system and will work with them, we urge you today to unfreeze lone parents' benefits, act now for a fair pension for those over 80 and reassure the disabled about their benefits. By doing so, you could show that the Labour Government do not want to be judged only by the iron Chancellor—
§ Mr. Deputy Speaker (Mr. Michael Lord)
Order. The hon. Gentleman keeps using the word "you". The Chair is not responsible for these matters. Will he try to use the correct form of address?
§ Mr. Howard Flight (Arundel and South Downs)
I think that the country believed at the general election that it would be much easier for a Labour Government than a Conservative Government to reform the welfare arrangements. That was one of the main reasons why the Government were elected.
Conservative Members are concerned that so many things have already been done that may prejudice the rational across-the-board reform that the Green Paper envisages. We have expressed our full support for the thinking of the Minister for Welfare Reform, and, within the parameters that we have described, for the Government's proposed thorough reform of welfare.
If we step back, however, we see that different parts of the Government have different agendas. The left, right and centre are all fairly disillusioned about the measures that have already been taken, and the public have the perception of a shambles—they do not understand where welfare reforms are going and how the big issues will be tackled.
1129 The first of those issues is the poverty trap, which has caused the dependency society. The solutions lie in taxation as much, if not more, as in social security. They are self-evident: we should raise the level at which income tax applies, and we should consider more generous child benefit arrangements. I cite the example of Canada, where an unsatisfactory family tax credit arrangement, which is similar to the one that the Government are considering, has been rejected.
The second big issue that has been mentioned in the debate is: should we continue with a national insurance system? Many politicians regard national insurance as just another form of taxation. The public do not; they continue to believe that their benefits are linked to their national insurance payments. If any of those benefits were means-tested, the public would, rightly, be outraged.
However, if there is to be a major change—if, in future generations, the principle of national insurance is to be abandoned—that needs to be made absolutely clear. Similarly, there need to be attractive tax incentives for people to take out their own private arrangements. I believe that many hon. Members are mistaken in not realising that the majority of the population believe that they are paying for their benefits on an insurance basis.
The third big issue—which is pretty obvious—is that it is no good having fancy slogans about welfare to work if there is no work in the communities. By far the most important thing is to follow policies that will lead to work opportunities in the areas of deprivation. Make-work schemes with the state add little, and will not solve deprivation in the long term.
There is a big issue of principle concerning whether we should continue with rights, and rights that are subject to tribunals and legal proceedings, or focus on the way in which much is done in Europe, which is based more on the principle of administered schemes.
The Social Security Bill takes almost a halfway house approach; there is some attempt to cut the complications and costs of the various adjudication and tribunal processes involved in the concept of welfare rights, but the result is likely to leave many injustices, and cause us to think radically about the European system. To my mind, so many welfare situations require case officers to assess what is fair for that situation that it may be better to have that assessment and deal with it than to have the expense and complication of fighting legal rights.
We must bite the bullet on fraud. Should we have identity cards? Should we use the Inland Revenue for intelligence? Incidentally, should we use Inland Revenue data to tackle some of the major Child Support Agency problems?
There are the big issues of the family unit, and tax incentives for the family unit. One hopes that both main parties will compete in making proposals to strengthen the family unit.
It must be wrong for one person keeping four, five or six people to be paying roughly the same tax as one person keeping one person, or one person keeping two people. Quite often, two people earning a similar amount, keeping just two people, pay less tax than one person keeping four people on the same income. That must be wrong. Therefore, 1 view the whole area of tax arrangements for the family as part of the territory to be addressed.
1130 Why are we worried that the process of rational consideration of reform is going off the rails? As others have commented, we have seen the dangerous business of the Government testing things—I do not know whether they are testing public reaction or trying to sell ideas. The concept of means testing has been tested and withdrawn. The concept of taxing disability benefits has been aired, as has that of means-testing old-age pensions. In my opinion, that only creates confusion and worry among those most in need. Instead of testing public political opinion, we should decide the right way to proceed.
The welfare-to-work programme, although desirable in principle, is in danger of disappointing greatly. There is an element of stick and carrot. The stick sometimes falls on the wrong people, and the carrot will not work if there are not enough jobs. I perceive that, in future, people in their forties and fifties are more likely than the young to have difficulty in obtaining employment.
What are the several agendas? The Treasury has a specific agenda of cutting costs—a revenue agenda: hence the means-testing ideas and the taxation of benefits. The Chancellor has a redistribution agenda, concerned with ways in which the middle classes will suffer more taxation to make it possible for the Government to spend more, in due course, on health and education.
In the pensions area, we have not focused on principles such as those operating behind the "40IK" arrangements in America, which pull together all aspects of saving. We have changed personal equity plans and tax-exempt special savings accounts—largely for revenue reasons, not reasons of principle. We had the advance corporation tax arrangements, which messed up the state earnings-related pension scheme situation and are relevant to the subsequent stakeholder pension reforms.
As my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) said, we believe that the danger is that the territory has already been boxed up, limiting the scope for the right sort of stakeholder pension proposals. We await the family tax credit, but I fear that we may be falling into the trap of the Canadian failures, and I suggest that the simpler arrangement of more generous child benefits may be more effective in achieving its objectives.
On single parents, it is my belief that the community differentiates between women who have been abandoned by their husbands and have children to bring up, and the other side of the coin. The community at large would wish to be generous and supportive to the former, and would often believe that it is better for those mothers to stay at home and bring up their children, at least when they are young. By contrast, the community wants to discourage young people from having children by themselves at the taxpayer's expense.
Those are two quite different cases within the single parent area, where I suggest that a single approach to welfare and tax misses the point. The disincentives will bear too hard on genuine cases needing support. All parties need to think more about that.
The CSA is not achieving its objectives. Last week, we had a valuable debate on the subject. The married woman who has been abandoned by her spouse is not receiving support from the husband in 80 per cent, of cases, and now, if that married spouse wants to work during term and be at home with her children in the holidays, the new 1131 arrangements will be a direct disincentive to her doing so, because, if she stops working, she loses her income support, and then her overall take is lower when she is out of work.
In summary, I suggest that the view of the country would be that, if one means-tests what people regard as insured benefits, deep misunderstanding and unpopularity will result. People do want the system to be tightened up, to stop it being milked. There is huge sympathy for supporting those in real need, and the methods by which dependency communities could be ended need to be more economically oriented than welfare oriented.
I hope that the chance for radical and constructive reform, which we all hoped would be led by the Minister for Welfare Reform, has not been lost as a result of the morass and competition within the Government, among Cabinet Ministers, that has already happened. The population at large perceive that that has happened.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I am very pleased to be able to make a short contribution to this interesting annual debate. While witnessing the mutual love-in when the Minister of State was in the Chamber—I am not being facetious—it occurred to me that the Under-Secretary might usefully report back to his colleagues in government on the Opposition's offer to co-operate on some of the work.
I have been involved in the social security area since my election in 1983, and I remember the days when the present Minister for the Environment, the right hon. Member for Oldham, West and Royton (Mr. Meacher), used to knock spots off the right hon. Member for Sutton Coldfield (Sir N. Fowler). It was argument by half brick in terms of a meeting of minds.
If the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), the Minister and my hon. Friend the Member for Newbury (Mr. Rendel) were to sit around the table, there would be a chance—I put it no stronger than that—of isolating some areas of agreement. Perhaps that course of action should be considered. I preface my remarks with that suggestion, which I believe is worthy of exploration.
§ Mr. Kirkwood
The Under-Secretary could write the minutes—the one who writes the minutes is often the most important member of the committee.
The hon. Member for Arundel and South Downs (Mr. Flight) referred to the morass that he believes surrounds these issues. I crossed swords with the hon. Member for Chingford and Woodford Green early in the Parliament, when he claimed that there was confusion across the Government regarding the progress of their reforms. I said then that I supported the view that fundamental reform could not be driven only by Benefits Agency Ministers. I cleave to that view, but I am becoming concerned that I may lose the argument.
There are nine or so reviews under way, and even those who share my view are beginning to wonder whether the Government's overall steer is coherent and thought through. Although I cleave to the view that the review should be conducted outside the Benefits Agency— 1132 Treasury involvement is very important also—concern is beginning to be expressed about whether the Government know where they are going. I appreciate that one cannot always believe what one reads in the papers, but that is all that some of us have to go on.
The Minister and the Secretary of State have willingly agreed to appear before the Social Security Select Committee next week. That is a very important appearance. If they do not convince people like me, who are willing to give them the benefit of the doubt in terms of the Government's intentions, it will be even more difficult for the Government to persuade people that they know what they are doing in the long term.
When I participated in these debates as spokesman for my party, I would always point out that 20 sides of uprating details represent unreasonable complexity. I talk regularly to Benefits Agency staff, and, in the main, they are committed to their work. They work hard, and they deserve more credit than they sometimes receive for operating a system that they believe is so complicated as to be almost impossible. It is very difficult to deliver "right first time" results consistently. We must not forget that.
We make piecemeal changes to the system all the time, and there is much detail in these pages. No objective observer would start from this point—not in a month of Sundays. In the long term—such things cannot be done quickly—the Government should look at the totality of benefits. The last time that I discussed the matter with some quite senior staff in the Benefits Agency, a long argument ensued about how many benefits there were. I do not criticise those senior managers, because the system is complicated. We should bear that in mind.
We have a complicated raft of benefits, levels, provisions, discretions and exemptions. We also have interaction between the tax and benefit systems. That is getting worse as tax comes down the income scale and benefit goes up. It is perversely difficult to get the overlap period right, because of the unintended consequences of changes and so on. Interaction of benefit is almost as important as the level of benefit. That leads to all sorts of confusion, until the system becomes unworkable. If the Government introduced proposals to solve those problems, I am sure that they would receive support from all sides of the House.
I listened with interest to the speech by my hon. Friend the Member for Winchester (Mr. Oaten). There is a worrying level of concern about the disability living allowance. I advise the House that my colleagues on the Select Committee and I agreed this morning to produce a short report on disability living allowance and the role that it will play in future benefits.
The review will not be pejorative: we will take evidence, and, if we think that the Government should do things differently, we shall say so openly, and without anti-Government prejudice. The review is designed to reassure those who represent disabled people, and particularly those Government officials responsible for the integrity programme, that they will have a chance to clear up the confusions and misconceptions that may have arisen as a result of recent press reports.
I am always puzzled by the fact that we uprate benefit levels annually but never examine the capital limits. I think that the capital limits are £3,000 and £8,000. I may be wrong, but I think that the last time they were 1133 increased was in the 1986 legislation, at the time of the Fowler reports. We cannot disregard the impact of leaving the capital limits at that level for so long. If we are to continue to have annual uprating debates, capital limits should form an integral part of our considerations. Perhaps the Government will reflect on that point for the future.
The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) referred to tapers, and the fact that Martin Taylor said in his evidence that tapers were too difficult. Something must be done about tapers. I do not doubt that it is difficult, but the rates of withdrawal of benefit are almost as important as the rates of benefit. Debates such as this should consider how tapers may be dealt with and improved, and what consequences taper changes will have.
The hon. Member for Bognor Regis and Littlehampton gets very excited in Select Committee meetings—where he is a distinguished and valued colleague—when people talk about poverty levels in this country. He makes the genuine point—I agree with him—that measures such as 40 per cent, of average earnings or some other rather notional measures produce figures that are not very meaningful.
Some of our European sister nations are better at this than we are. When the Select Committee visited America, we were told that there is an American poverty line that derives from some of the original Rowntree work. It uses levels that are applied and accepted by everyone who participates in debates as givens, around which discussions may take place.
There is no point in taking 40 per cent, of average earnings, because that is a simplistic and pretty meaningless figure. If we looked at assets, debts and housing conditions, we might end up with a figure that was acceptable to all those who take part in debates. That would help to inform the process. The figure needs to be set at a realistic level to be meaningful. I am not encouraging the Government to undertake any more reviews, as they have enough on their plate already—
§ Mr. Kirkwood
One hundred and forty-eight reviews, I am helpfully reminded from the Opposition Front Bench.
We need some grasp of what constitutes an adequate benefit. I do not believe that it is possible to live on income support rates. It may be possible for a few short months, but in the longer term, income support rates and the like are not sustainable.
According to press reports today, NatWest has produced an index in an attempt to identify an adequate pension level. The finding was that an adequate level was £179 a week. For pensioners in my constituency, that is a king's ransom. That index may or may not be useful, but it is at least a contribution to the debate. It contrasts starkly with what people can expect to get from a basic state pension plus SERPS and any additional income from income support or pensioner premiums.
I also noticed today an interesting report in the press— I think it was in the Daily Express—about the problems faced by women who are getting monthly pensions of 1134 32p because they were encouraged to pay national insurance contributions at the married women's reduced rate. There was a serious problem with that in bygone days. That has left them in severely distressed financial circumstances.
In his wonderful speech, my hon. Friend the Member for Bognor Regis and Littlehampton spoke about SERPS. I am extremely concerned about the contracting-out rates for SERPS. I spoke about that earlier in the Parliament, when we discussed social security, and I remain very sceptical about the level at which the rebates have been set. I am sure that, in the fulness of time people will opt back into SERPS in large numbers. It is too early to say what is happening, but I believe that the trend will get worse. The Government will have to examine the problem and take positive action.
The level of take-up is an important element of the levels of benefit that we are setting today. When the Government were in opposition, they made great play— rightly—of the level of take-up of some means-tested benefits. They now have it in their power by imposing a duty on the Benefits Agency to maximise benefit entitlement. They could do that at a stroke. It would entail more work for Benefits Agency staff, but it would get money quickly to the people who need it most.
I do not know what assessments have been done of the scope for additional take-up, but it is a scandal that we allow so many of our most impoverished households to face price increases that outstrip the increase in the retail prices index. My constituents are facing huge increases in water charges, for example. After the Budget, they may have to deal with a considerable increase in transportation costs because of the excessive increases which, it is rumoured in the press, we should anticipate in the upcoming Budget. My hon. Friend the Member for Winchester (Mr. Oaten) referred to increased charges from social services departments for services such as meals on wheels, alarm systems and so on.
Those are increases, over and above inflation, of 5 or 10 per cent, and sometimes more. That makes it extremely difficult for retired people, particularly those—usually women—who are living on their own on the basic state pension plus income support premiums.
The Select Committee has made comment to Governments about the position of overseas pensioners who do not have access to any uprating in certain countries with which we do not have reciprocal agreements. The Minister will know that Governments of both complexions in the recent past have considered the matter and said that they would not uprate the pensions available to overseas pensioners.
That is not a sustainable position in the longer term. The problem will have to be addressed, preferably to bring some equity into the situation soon. I know that a large sum of money is involved and that there are competing priorities, but I ask the Government to examine the situation carefully.
The orders, and the debate, are extremely important. We wait with keen anticipation to see what the Government will introduce. With the best will in the world, it will be the year 2000 and beyond before there can be any substantial legislative changes. The main point that I would emphasise from the debate this evening is that there are households in this country where children and old-age pensioners are suffering now.
1135 Of course the future must be addressed and we must get matters right, I hope on an agreed basis, with consensus across the entire House. In the short term, however, we must do the best we can to do better for the poorest, most disadvantaged members of our society now.
§ Mr. Oliver Letwin (West Dorset)
The debate has been extremely interesting, and many hon. Members have made interesting contributions. If I may single out one, the contribution of the hon. Member for Birmingham, Edgbaston (Ms Stuart) made me think in a way that I had not thought previously about the vital question of the age at which a single mother should be considered best suited to an opportunity for work, and the age at which a single mother is better thought of as being at home. That is a critical matter that needs to be addressed.
The debate as a whole has demonstrated what the Chairman of the Select Committee, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) said a moment ago: there is an opportunity for a remarkable cross-party consensus. Many of the contributions from both sides have shown that.
I must make an admission that may lead to my achieving a severe black mark with my Whips. Most of what I understand and believe about the social security system comes from a long acquaintance with the works of the Minister for Welfare Reform, who is by any account the most profound analyst of what went wrong with our social security system, and who has produced in his work—gradually evolving, not a constant pattern across time—the most coherent explanation of the direction in which we as a country might move to remove the twin evils that he identifies: the evil of a system that inclines people towards vice rather than virtue, and the evil of a system that inclines people towards dependency rather than self-help.
That is now the common currency of political debate, across the political spectrum. That in itself constitutes a remarkable achievement, but, beyond that, the right hon. Gentleman has proposed in his various works an amalgam of measures which, taken together, constitute a radical revision of the basis of social security provision in this country.
We are all familiar with the elements, and I do not intend to bore the House by reciting each one, but they include the elimination of means tests, the elimination of SERPS, the creation of a properly funded pension scheme for all, the creation of some form of savings account that carries one through a lifetime, and the redirection of social security towards incentives to build rather than to destroy families.
Those are elements which, as my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) has illustrated admirably in a set of speeches, could command support from all parts of the House. There is therefore a golden, and in the post-war period perhaps a unique, opportunity for the reform of the system—a reform on which the economy and probably the social cohesion of this country over the next 50 or 100 years heavily depends. That is no light matter.
It is a matter of profound regret to me—I hope that this does not sound too pious—that there are so few of us in the Chamber debating an issue of the deepest social and economic significance.
1136 We have a golden opportunity before us, and I fear that this opportunity is binary. It is remarkable in that respect. In most areas of government it is possible to reform in a patchwork manner, with one element or another being changed gradually, but that is not so with social security. In many other areas, a favourable circle exists, which means that a reform can be introduced that is beneficial for a secondary reason, while saving money in the short term. As I have said, that is not so with social security.
To achieve the reforms that the Minister of State so admirably set out that could command cross-party support, two things must be accepted by the Government. First, there is the need for the whole to be considered on a global basis, so that there might be radical action. Secondly, there must be the acceptance that, in the short term, some elements will involve extra expenditure, and certainly will not save money. These are critical elements that my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) began to admit in his tenure of office. Alas, we see the signs of these critical elements being rejected, by, one suspects, the Treasury.
As soon as these two elements—the drive to radicalism and the acceptance of some short-term costs—are lost sight of, we are no longer in the territory of radical reform that will command cross-party support—the revision of a system that currently distorts the economy within society. On the contrary, we fall back, surprisingly, on no change whatsoever. We may tamper with a particular element that, in the absence of radicalism as directed to the whole, and in the absence of a willingness to spend some money in the early stages, will achieve nothing.
I wish briefly to allude to one element of that— earned income tax credit. I suspect that many Members on both sides of the House would have a great deal to say in favour of a radical system of earned income tax credit. Many of us believe that that is at the root of trying to resolve elements of the poverty and unemployment traps.
However, if the system of earned income tax credit, by a process of attrition and by the removal of elements of radicalism, is watered down into a working family tax credit, with opt-outs and arrangements for ticks in the box and a re-amalgamation with social security to solve the wallet-purse problem, so that the system becomes unrecognisably different from—that is, entirely similar to—the family credit system, we are left with no change.
It may be argued that that is not the worst thing that a Government can do—create no change. If the system were a working system and the Labour Government were merely trying to put their stamp on a working system, there would be nothing to which we could object.
However, the Minister of State has correctly analysed that the social security system does not work now in social or economic terms. To make changes that are not changes because they change nothing about the way in which people behave, because the Treasury has intervened and removed radicalism and the willingness to spend money up front, so as to end up with the same creaking system but with some further patchwork 1137 and, I fear, some further complexity—not integration and radicalism but disintegration and lack of radicalism—is a terrible and tragic waste.
Alas, here we are in a Chamber that is almost desolate, with a Minister of great importance but not the Secretary of State. For reasons we understand, the Minister of State is not present at the moment. We sit in the absence of Treasury Ministers, the Minister without Portfolio and many others. That being so, I hope that, by making these remarks, I shall not suddenly transform the Government's attitude.
However, I hope that the Minister, who we know from experience in Committee is especially clear-minded, will take back the message that has been adequately conveyed in many other speeches, and especially admirably by my hon. Friend the Member for Chingford and Woodford Green. Let the Minister take back the message that there are Members on both sides of the House who have the good will, if necessary, to enable the Department of Social Security to carry forward a genuinely radical programme.
There is a prize open to the Government in political terms—alas, from the Opposition's point of view. However, the prize is of sufficient worth for the country as a whole to make it possible for us, the Opposition, to accept that it should be given to the Government. That is a remarkable state of affairs. It will be genuinely a tragedy for the country if the prize were lost as a result of the Department not being able to get the Minister of State's vision—perhaps uniquely for a politician, worked out by himself and set down in writing—into an Act and into a structure that will serve the country well in future.
§ 7.4 pm
§ Mr. Steve Webb (Northavon)
I must admit that, as a new Member, I was rather taken aback when the Minister of State said at the beginning of the debate that the custom of the House on days such as this was not to talk about the orders before it. That rather threw me, as I had prepared a speech about the orders. With the indulgence of the House, I shall make a brief, fleeting reference to them.
I have in my hand a small, gummed, perforated piece of paper. It is a humble first-class stamp. Yet this stamp is more valuable than one of the social security benefits that we are talking about. My hon. Friend the Member for Winchester (Mr. Oaten) rather gave the game away, but I forgive him.
On page 14 of the order we find listed under the heading "Non-contributory Periodical Benefits" a description that reads:Age addition (to a pension of any category".The rate of benefit is 25p. I was about to say that it was the smallest social security benefit in the system. It dawned on me, however, that in terms of weekly amount there is a smaller one.
The rate of benefit of 25p will be the same in 1998 as it was in 1997. Indeed, it will be the same as it was in October 1972, when it was last increased. It will be recalled that those were the days when five shillings really were five shillings. The benefit is paid to about 2.4 million pensioners, at an annual cost to the Exchequer of about £30 million gross.
1138 I wish to assure the Government Whips that I do not propose to call a Division on the non-uprating of the age addition. However, its presence within the benefits system produces an odd result. On someone's 100th birthday, he or she will receive a telegram from the Queen. On someone's 80th birthday, he or she will receive an insult from the Department of Social Security.
What should happen to the humble 25p age addition? Well, it could be abolished. Its abolition would save the Government a little money. Apparently the DSS needs that money, although no one else seems to. The addition would be scarcely missed by the recipients. The alternative would be to make the addition a worthwhile sum—for example, a fiver.
§ Mr. Webb
From a sedentary position, the hon. Gentleman suggests £5 a week. I suspect that he is sympathetic to the proposal, so he has prompted me. Let us say £5 a week for starters. We could build on that.
Basically, the State pension increases with age. The hon. Member for Birmingham, Edgbaston (Ms Stuart) perceptively said that there is nothing magical about the age of 80. As she said, it is merely a threshold in the existing system. However, the State pension could be tiered more generally to increase with age.
What about cost? As a Liberal Democrat, I am always acutely aware of the costs of our proposals. The net cost, after savings, from income-related benefits and income tax, would be £310 million. Would this money be well spent? I hope that the House will remember the figure of £310 million, because I shall return to it.
In my view, the money would be well spent. Why? First, the oldest pensioners are the poorest pensioners. I studied the Government's figures on pensioners' incomes for official verification. The Government take account of the recently retired—those five years after retirement—and those who are more than 75 years of age. I would be more interested in the over-80s, but let us take the over-75s.
The latest figures show that the recently retired single pensioner, which is the relevant comparator of the over-80s, for obvious reasons, has an average median income—I am not trying to exaggerate in any sense— after meeting housing costs, of £93 a week. That is the figure for a typically recently retired single pensioner. The typical over-75 pensioner has £77 a week. The figure for the over-80s would probably be lower than that—perhaps not a great deal, but a little lower.
There is a £16 gap between the recently retired single pensioner and the older single pensioner, and that gap is growing. Since 1979, the recently retired figure has increased by 52 per cent., while for the older pensioner it has increased by only 40 per cent.
There are two fundamental reasons why the gap is growing between the recently retired and the elderly pensioner. Elderly pensioners are more likely to be women—two thirds of the over-80s are women. Low lifetime earnings, which feed through into low earnings-related pensions, and the period spent out of the labour market, particularly before protection was built into the benefits system, mean that elderly pensioners 1139 receive lower state pensions. My hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) has already said that some people are getting 32p a month.
An increasing number of the women are divorced. They had assumed that they would get a share of their husband's pension rights in old age, but divorce has suddenly done away with that. I hope that the Government will soon introduce proposals to rectify that injustice. As women, and because of the jobs they did, they may not have been entitled to join their employer's occupational pension scheme. For all those reasons, women tend to be poorer in old age.
There is another reason why the over-80s tend to be poor. It is something with which my incisive brain has wrestled, but I noticed that they retired a long time ago. Why is that significant? Inflation has eroded the value of their pensions. Even the best pensions are typically price-indexed only up to 5 per cent. We have had double-digit inflation since they retired, and many pensions are not indexed to that extent. They have poor pensions because of inadequate indexation.
Almost all the over-80s will have retired before the state earnings-related pension scheme became a possibility. They are possibly getting a graduated pension, but not SERPS. Assuming that the economy continued to grow, newly retired pensioners will have had another 15 or 20 years of economic growth, and their pensions, pegged to their pre-retirement earnings, will have grown in real terms much faster than inflation, which is the best that the older pensioners can hope for. So the gap between the newly retired and the very elderly is likely to remain with us.
§ Mr. Wicks
I am interested in the idea of giving a higher pension to the very elderly, but there are two difficulties with that. First, a large number of people in poverty in old age are among the younger pensioner group. How would we justify the proposal to them? Secondly, is there not a problem that, in 10 or 20 years' time, the over-80s may be richer because they are getting SERPS, and perhaps are benefiting from occupational pensions? If we had that proposal, would it need to be phased out at some stage? What would be the political and social implications?
§ Mr. Webb
The hon. Gentleman makes two perfectly fair points. I am arguing for a tiered pension that rises gradually with age, not necessarily at the magic figure of 80. Younger pensioners would not necessarily feel aggrieved, because they would expect to be 75 or 80 one day. I would be surprised if recently retired pensioners have a particularly high incidence of poverty. I simply do not believe that. There will always need to be a means-tested safety net. The less people have to rely on means-tested top-ups, as the hon. Gentleman said earlier, the better.
Just as there is a quinquennial review of national insurance contribution rates, so there might be a quinquennial review of the differentials between older and younger pensioners. If the trends are changing, the pension system might be adjusted to reflect that, although, in the past 15 years, the trend has, if anything, gone the other way. I recognise the point that the hon. Gentleman makes, but I think that the differential is likely to remain.
The proposal is attractive, first, because it is well targeted on the poorest pensioners, without means testing, and, secondly, because old people take up their pensions.
1140 Take-up of the basic state pension is almost 100 per cent. The Government are acting on the fact that take-up of income support is poor. Their own figures suggest that 390,000 people over the age of 80 fail to take up their income support. How much does that cost? Interestingly enough, £310 million.
I was flicking through the Labour party manifesto this morning—as one does—and came across the extensive section where Labour promises more money to poor people. I have underlined the five lines. It says:We will examine means of delivering more automatic help to the poorest pensioners—one million of whom do not even receive the Income Support which is their present entitlement.One of my various roles in life is to be constructive towards the Government and to offer them a means of delivering their manifesto commitments. We saw earlier that the ones on the little cards are a bit shaky, so let me help them with this one.
If the Government were to accept my suggestion and add £5 a week to the pension of the over-80s, that would guarantee that the poorest pensioners in the land—the elderly who are entitled to but do not claim their income support—would get the money. The manifesto uses the word "automatic". One cannot get much more automatic than adding it to their pension.
The Government have promised pilots in April, so I asked the Secretary of State what they would do to help elderly pensioners to claim their income support. The answer several days later was that they would let me have such information as is available in due course. They did not seem to know what was going to happen in April, or could not give me a summary of it. That rather worried me. As £15 million had been set aside for these pilots, the Government should know what it was going to be spent on. I offer the Government a chance, even at this late stage, to alter the uprating order to help to fulfil their manifesto commitments.
The third attraction of the mechanism to help elderly pensioners is something of an anorak's point, but I hope that the House will indulge me for a moment. State pensions are linked to contributions—those who have poor contribution records get low state pensions—but the age addition is not. Whether one gets lp or £60 a week of state pension, one gets the same age addition of 25p.
If I were to put the Government's £300 million into the age addition, it would go to women with poor contribution records just as much as to people with full contribution records. It would be a much more progressive way to help pensioners than any addition to the basic state pension, as that would be reduced for those with poor contribution records. My final observation is that, if pursued over a number of years, this proposal would restore to the basic state pension its historic role.
The Minister for Welfare Reform is no longer with us—he is off to talk about Beveridge and the history of pensions. In 1908, the pension was for the over-70s, at a time when a male born in that year could expect to live to 51. In 1998, the pension is for the over-65s, and a male can expect to live to 77. In other words, we have gone from a system that was insurance against living too long to something that gives an inadequate flat-rate benefit to 10 million people for the last 20 years of their lives.
With the Deputy Prime Minister, I am a great believer in traditional values in a modern setting. Therefore, we should restore to the pension its role as an insurance 1141 against poverty in extreme old age. The recently retired can, by and large, cope. The very elderly often cannot. They Miss out on all sorts of things—the extra winter fuel payment from the Government, for example. They were given £20, not £50, because they were not claiming their income support. They would not miss out on this £5. It would be action today for some of the poorest pensioners in the land. I commend it to the House.
§ Mr. David Rendel (Newbury)
I shall, if I may, ask a question that has not yet been raised. The Minister will remember that, in his social security uprating statement on 2 December, he made the point that they do not intendto increase the earnings for the three lower rates of employers' contributions.He may also remember that I asked him a brief question about that, because I felt, and made the point at the time, that that meant that there would be a real-terms increase for businesses. He replied simply:No employer will pay more on existing payrolls as a result of the freezing of the bands."—[Official Report, 2 December 1997; Vol. 301, c. 176–84.]—thus presumably expecting that employers would not raise their own salaries or those of their employees in line with inflation.
Indeed, the explanatory note on this order goes on to say:This Order does not impose any new costs on business. Certain contribution rates, thresholds and limits"—willincrease broadly in line with the rise in price inflation.If those brackets had also risen in line with inflation, there would not be any real-terms increase for businesses.
What estimate has the Minister made of how much more businesses will pay in employers' contributions to national insurance than they would have paid if the earnings brackets had been increased in line with inflation?
§ Mr. Simon Burns (West Chelmsford)
Like last week's debate on the Child Support Agency, this debate has been interesting and intelligent by House of Commons standards. It is always a joy to listen to the Minister for Welfare Reform, the right hon. Member for Birkenhead (Mr. Field), and today was no exception. Given his knowledge of the background to the welfare state and his thinking the unthinkable, it is well worth listening to him, although I was somewhat puzzled that, when he went through his litany of anniversaries celebrated this year, he failed—perhaps for obvious reasons—to mention that this is the 67th anniversary of a Labour Prime Minister, Ramsay MacDonald, cutting benefit levels, particularly unemployment benefit, which brought back the national Government of 1931. This is a slight parallel to that, given the fear and confusion in the country at this time among disabled people about what might happen under this Government to disability living allowance and other disability benefits. I hope that, during his wind-up speech, the Minister will give a categorical assurance about that if he can.
1142 We were extremely fortunate to have the customary thoughtful speech by the hon. Member for Croydon, North (Mr. Wicks). His contributions to these debates are always worth listening to, and we are indebted to him for what he had to say today in a perfectly calm and reasonable, rather than party political, way, which was the hallmark of this debate.
I pay tribute to my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), who made a powerful speech on pensions and the impact of the Government's raid on pension funds in last July's Budget, by abolishing ACT credit dividends. In a relatively short time in this House, my hon. Friend has made his mark as an expert on social security matters and has done sterling work on the Social Security Select Committee. Although it is all the vogue to have coalition politics, with the Prime Minister inviting the Leader of the Liberal Democrats to be on a Cabinet Sub-Committee, I seriously began to worry on behalf of my hon. Friend when the Chairman of the Select Committee kept calling him his hon. Friend. Out of kindness to my hon. Friend, I shall ask the Conservative Whip on duty to disregard that, so that my hon. Friend's career is not blighted.
My hon. Friend the Member for Arundel and South Downs (Mr. Flight) made an interesting speech and analysis of how he felt welfare reform should move forward. He made an interesting point about the future of national insurance and said that, if one was to have a genuine and positive reform of the welfare system, the national insurance part of which has now become confused in people's minds, there is a good case for considering replacing it with an alternative system. That is not only thought provoking but worth considering further during this series of reviews.
In a fascinating and thought-provoking thesis, my hon. Friend the Member for West Dorset (Mr. Letwin) gave us the benefit of his views on where welfare reform could and should be moving and put forward the case for replacing the family credit system through earned income tax credit. It was an important contribution to this debate.
As always, we benefited from a speech by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), the Chairman of the Select Committee. Our debates on these issues would be amiss without an interesting speech from him.
As my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) said, it is ironic that, only nine months after the election of a Labour Government, one should be able to buy magazines like The Big Issue with the headline, "If you're poor vote Tory. They would do more for you than Blair, says Iain MacWhirter". That shows the confusion and fear—and betrayal to a point—especially on the issue of lone parents, which features in the uprating orders before us, that is felt outside. If there is ever a warning to a political party, it should be that, if it promises all things to all men before an election and then immediately does the exact opposite on election, it will cause grave disenchantment. The 48 Labour Members who failed to support their Government in the crucial vote last December showed that some of them are still prepared to keep the faith.
A number of important issues arose from the debate and I hope that the Government will deal with them. I trust that, in replying to the debate, the Minister will answer the questions that remain unanswered or need 1143 clarification. I am afraid to have to tell him that there are a number of outstanding questions which I asked on 2 December following the uprating statement in the House. The Minister, gently and courteously, totally ignored the questions, as he used to do during debates in the Social Security Bill Committee upstairs. I know that the Minister is genuinely decent and honourable—I hope that that will not harm his prospects in a Labour Government—and I understand the difficulties that he has had to grapple with on contentious issues such as lone parent benefit, family premiums, and child benefit extra payments, but we would appreciate it today if he answered the questions that we have asked.
The Government have dug themselves into a hole over their handling of pensions, as my hon. Friend the Member for Chingford and Woodford Green said in his opening speech. The July Budget caused untold damage to the pension industry, which will not even be put partially right until at least April 1999 when the re-rating of the rebate for contracted-out pensions will come into effect. That change to the rebate was made in extremis after an emergency consultation with the Government Actuary, as my hon. Friends the Members for Chingford and Woodford Green and for Bognor Regis and Littlehampton said. Even then, the changes that the Government made were not what the Government Actuary had advised.
The damage to pensions has cost the taxpayer; and the change to the rebate system will cost the taxpayer anything up to half a billion pounds over the next five years. The Minister will no doubt say that that is all being considered in the two pension reviews currently under way, but the main review is set to report with an initial framework by 30 June and the pensions problems need to be addressed now with increasing urgency.
The uprating order shows that the basic state retirement pension has been increased in line with the inflation rate of 3.6 per cent. However, as my hon. Friend the Member for Chingford and Woodford Green said, we have heard in the press—it has now been spelt out by the Secretary of State for Health, the right hon. Member for Holborn and St. Pancras (Mr. Dobson) in his speech as part of the road show—that the Government are contemplating means testing the basic state pension. That is not only a fundamental departure from precedent and the way the state pension has operated since its introduction, but it is totally at variance with what the Labour party said before the last general election.
The Minister must clarify this issue tonight and say unequivocally whether the Government intend to means test the basic state pension. The Minister has not intervened either to confirm or indignantly refute that, so if he does not completely rule it out in his winding-up speech, we can reasonably assume that the Government are seriously considering it, and that the Secretary of State for Health has let the cat out of the bag. I urge the Minister to deal with that point.
Furthermore, I am slightly surprised that the Minister of State and the hon. Members for Birmingham, Edgbaston (Ms Stuart) and for Croydon, North did not mention VAT on fuel, because that issue is usually raised in debates on social security benefits and payments. The Under-Secretary has never responded to the point that I made during the uprating statement. Everyone will benefit from the reduction in VAT from 8 per cent, to 5 per cent, by 3p in the pound on fuel bills. That will 1144 particularly help pensioners, even if it is—I choose my words carefully so that they cannot be misconstrued—a relatively small amount of money.
If the Government had introduced this change on 1 October instead of on 1 September, pensioners would have benefited more. Inflation was 3.6 per cent, in September, and 3.7 per cent, in October. If the change had been introduced on 1 October, pensioners would have had £6 a year more in their pension, so they are now £6 a year worse off, although I accept that they benefit from the reduction in VAT.
I shall now deal with the position of lone parents, which is a prickly issue for the Government. I again want to ask a question that has still not been properly answered by the Government in previous debates or at the time of the uprating statement. What principles lie behind the Government's case for freezing lone parent benefits? We all know the reasons why the previous Government announced that they wanted to equalise the benefits system between lone parents and couples with children. The House will be relieved to know that I shall not rehearse the arguments, but that was vigorously denounced by the Secretary of State and, I suspect, by every Labour Member in the run-up to the election. Now 419 of them minus 48 have forgotten the pre-election rhetoric.
What is the principle behind the Government's decision to freeze the premium for existing lone parent claimants who will continue to receive payments after April and after the orders on child benefit have been passed? When the uprating was announced, for obvious political reasons nothing was made of the fact that the Government had frozen the premiums or lone parents. I congratulate the Under-Secretary on his deft handling of that question during the uprating statement. In the nicest possible way, he parroted an answer about the amount that the Government were making available to lone parents from April this year. He was factually 100 per cent, correct, but he avoided answering the question 100 per cent. He did not confirm that the Government had frozen premiums. I congratulate him on his impressive sleight of hand.
The Government have ensured that payments to existing lone parents in receipt of child benefit are frozen.
§ Mr. Deputy Speaker (Mr. Michael J. Martin)
Order. I do not think that the hon. Member for West Chelmsford (Mr. Burns) should pursue that intervention.
§ Mr. Burns
I shall abide by your ruling, Mr. Deputy Speaker, although, if I am not pushing you too much, I should like genuinely to say that it is a pleasure to see the right hon. Lady.
From April, payments to lone parents with child benefit will be frozen at £17.10 a week. To the best of my knowledge, the Government have never admitted that they have narrowed the differential between what lone parents and non-lone parents receive. The differentiation was £6.05 a week, and it will now be £5.65 a week.
1145 As the Under-Secretary said on 2 December, the rate for family premium will be £15.75 from April. He failed to point out that that is what lone parents were receiving last April, so it has been frozen. The differential was to be reduced from £4.95 to £4.70. The Government are not only freezing payments to existing lone parents who, by not reading the small print of the announcement, were led to believe that they would still receive the extra money. They never assumed that payments would be frozen, and that the margin between couples with children and lone parents would narrow and would wither on the vine. I have no doubt that, in the coming years, the Government will continue with this policy, so that benefits will wither into insignificance.
§ Mr. Rendel
Is the hon. Gentleman aware of what the current Secretary of State said in the equivalent debate this time last year? She said:We have said that the way in which to stop… 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."—[Official Report, 19 February 1997; Vol. 290, c. 944.]Does he agree with me that what he is describing is precisely a shaving of the benefits of the poorest families year by year?
§ Mr. Burns
I am grateful to the hon. Gentleman for quoting back at me a quote that I used in numerous speeches in the Committee considering the Social Security Bill, of which he was a member, and in the crucial debate on Report when we had that contentious vote.
Child care was included in the uprating orders and is also in the orders before us tonight. The Minister failed to answer the straightforward question about whether the Government intended to means-test child care costs. He did not even attempt to answer. However, I have an interesting answer that the Under-Secretary of State for Education and Employment, the hon. Member for Newport, East (Mr. Howarth), gave to a written question about whether the Government plan to means-test places for after-school clubs. He replied:Funding to establish new out of school childcare provision will come from the receipts of the Windfall Tax, the Out of School Childcare Initiative and the New Opportunities Fund totalling £300 million over five years from 1998 and 2003. Schemes will be free to determine their own fees. Many existing schemes already adjust fees according to the family's circumstances"—many schemes already operate a means test—and we expect that new schemes will wish to consider doing the same."—[Official Report, 30 January 1998; Vol. 305, c. 438.]That means—unless I am wrong—that the Under-Secretary of State for Education and Employment is confirming what Ministers at the Department of Social Security have been reluctant to confirm: that child care costs that have been paid for with public money, through the windfall tax and so forth, will be subject to means testing. I hope that the Minister will confirm that when he winds up.
For a long time, we have been promised a Green Paper on welfare reform. The issue has featured largely during the last three hours. My hon. Friend the Member for Chingford and Woodford Green described, with some eloquence, the background and the problems that 1146 the Government have encountered since May. When the Government came to power then, they announced that they had a Minister at the Department of Social Security whose remit was to think the unthinkable in regard to welfare reform—whose reputation, indeed, was to that effect. As a consolation prize, that Minister was given the Prime Minister's telephone number, so that at any point he could telephone the Prime Minister to share his thoughts on the unthinkable. Unfortunately, however, life did not work out quite like that.
We are all aware of the tensions there have been in the Department of Social Security. We are aware of the heavy hand of the Chancellor of the Exchequer, who is far more interested in a Treasury-driven cost-cutting welfare reform than in some high-falutin' intellectual review of welfare reform. For the last six months or so, the country has had to put up with the leaking, the counter-leaking, the arguing and the scrapping, as each person fights his corner—and who are the innocent victims in that free-for-all among Ministers? The innocent victims are disabled people, who are terrified and utterly confused about what may well be happening.
§ Mr. Burns
There is no point in the junior Government Whip saying that. Having been in the House for 10 years, and having listened to the scaremongering of the Labour party, I think it takes a bit of gall for him to sit there and say it.
The Minister for Welfare Reform—whom I am delighted to welcome back to the Front Bench—was given the remit of coming up with an intellectually based, wide-ranging review of the welfare state. As 1 said earlier, his mandate was to think the unthinkable, and to come up with radical solutions.
§ Mr. Burns
We hoped that even the present Government would come up with a review that was workable—as well as, possibly, unthinkable. The right hon. Gentleman tempts me to stray. Perhaps the problem was that we did not use a broad brush; we did it bit by bit.
As my hon. Friend the Member for Chingford and Woodford Green said earlier, pressing the Minister, we need to know when the Green Paper will be published. The Prime Minister has replied, unsatisfactorily, to my hon. Friend's correspondence. The hon. Member for Northavon (Mr. Webb) made the valid point that we fear that the Government will seek to squeeze it out into the public domain on the same day as the Budget in the hope that its impact will be minimised. Conservative Members hope that that is not what the Government seek to do, because we believe that such action would do a great disservice to the future of welfare reform, and would question the Government's commitment to a welfare reform programme that radically addresses the problems of welfare standing and the welfare state rather than being merely a cosmetic exercise imposed by the Chancellor for cost-cutting purposes.
The DSS is intimately involved—no doubt driven by the Treasury, in this respect for fairly valid reasons—in the question of the proposed earned income tax credit.
1147 That is being trumpeted as a radical welfare reform, but many have suggested that it will be no more than a more expensive version of family credit that will be more difficult to administer. My hon. Friend the Member for West Dorset dealt with that very well.
Whatever the details, however, there should be a unified approach to the welfare system: I cannot impress that enough on Ministers. Individual measures such as the EITC could help, but, in an intellectually rational review, that should only be part of a package that seeks to address the problems that the Minister of State has identified so eloquently not only in the past but—as I said earlier—at the beginning of his speech today.
We do not want a cost-cutting Treasury-driven exercise. That would be a wasted opportunity, given that we now have within our grasp the chance to come up with a sensible and radical reform process.
Uprating is clearly fundamental to maintaining benefits in line with inflation, and my hon. Friends and I certainly do not oppose the orders. However, I believe that a number of questions, which I have identified, need and deserve answers. I hope that, just for once—if only to humour me—the Minister will answer the questions that we have posed.
§ The Parliamentary Under-Secretary of State for Social Security (Mr. Keith Bradley)
Let me begin by reflecting on many of the sentiments that have been expressed in today's thoughtful and wide-ranging debate. My right hon. Friend the Minister of State set the constructive and philosophical basis on which many of the speeches have been built. Clearly hon. Members on both sides of the House see the need for welfare reform, and the need for a debate both inside and outside the House. The public need to be involved in that debate, and today we have tried to take it forward. Although the immediate subject is the new benefit rates that will be introduced in April and the consequential changes to national insurance, all the issues that have been raised show the importance of the welfare debate. Labour Members welcome that.
I thank my right hon. Friend the Minister of State for his kind remarks about my enthusiasm for the delivery of social security services—what we call active modern service. I do not think enough attention has been devoted tonight to the importance of ensuring that, whatever reforms come along and whatever changes are made, customers—our constituents; the people in the country— deserve the best service possible. As the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) said, we ought to recognise and value our staff in agencies throughout the country.
Only this morning, I was speaking to staff at a conference in Brighton. They spoke of the difficulties that they experienced because of the complexities of the current system, and the lack of modern information technology and computers to allow them to do the job that we are asking them to do. I accept that part of the welfare reform agenda is to have a modern, customer-focused service that recognises people's needs.
§ Mr. Bradley
We are trying to have a sensible debate, and the hon. Gentleman is lowering the tone. I was wrong to allow the intervention, and I shall not take any more.
The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) made an important contribution when he spoke about pensions. I shall read his comments and, in the spirit of co-operation, refer them to my fellow Under-Secretary, my hon. Friend the Member for Southampton, Itchen (Mr. Denham), who has responsibility for pensions. The hon. Gentleman alluded to my earlier comments in the House about the problems of capital and disregards. The hon. Member for Roxburgh and Berwickshirealso spoke on those matters.
I have not had a chance to look at my comments in Hansard, but I do not dissent from the view that there are problems with capital and disregards. In our review of benefits and the general review of the welfare state, capital and disregards will have to be considered, because they are part of the impediments, disincentives or complications in the tax and benefits system.
I commend, as I always do, the speech by my hon. Friend the Member for Croydon, North (Mr. Wicks) and his three-pronged approach to welfare reform—the attack on poverty, insurance against risk, and the needs of the family. He clearly set out the principles that we must recognise as the welfare reform programme unfolds. We welcome his major contribution.
My hon. Friend the Member for Birmingham, Edgbaston (Ms Smart) rightly highlighted the needs of children and spoke about the importance of a child care strategy. The hon. Member for West Chelmsford (Mr. Burns) also spoke about child care and about how the new arrangements will be put in place. We have made it clear that child care clubs throughout the country can organise themselves and charge for services in many different ways. We are not trying to impose a blueprint or a set of constraints on the development of those clubs. It will be up to them to look at local circumstances and needs and see how they can best address them by the provision of quality child care within the framework of our national child care strategy. I hope that the hon. Gentleman recognises the value of such a strategy in complementing welfare reform.
The hon. Member for Newbury (Mr. Rendel) spoke about pensions and poor pensioners, and the hon. Member for Northavon (Mr. Webb) also made an important contribution to that debate. I know that, as we review pensions, my hon. Friend the Member for Itchen will read their suggestions to see how their ideas, if they are considered sensible within the overall pensions review, can be progressed. We must not forget how much the Government have already done to help poor pensioners. We have recognised that the poorest pensioners are those who are not claiming the benefits, especially income support, to which they are entitled. We shall introduce pilot projects to see how we can improve take-up.
The hon. Member for West Chelmsford spoke about VAT on fuel. In spite of Conservative opposition, we reduced VAT on fuel, and that benefits pensioners 1149 throughout the country. In addition, we gave an extra £50 and £20 to pensioner households this winter for fuel bills, and that will be followed through next winter. No one should pretend that nothing is being done to help the poorest pensioners. Such help is an important item on the Government's agenda, and it will continue to exercise our minds as the general pensions review unfolds.
The hon. Member for Newbury asked a specific question about national insurance contributions. I hope that I can give him a satisfactory reply, but if he requires further clarification I shall ensure that he gets it from my hon. Friend the Member for Itchen. No employer will pay more on existing payrolls as a result of our freezing the bands. If each band were to be increased by, say, £5, employers would pay £130 million less in contributions in 1998–99. A higher Treasury grant would have to make good that reduction in the national insurance fund income. I hope that that answers the hon. Gentleman's question, but if he wishes to write to me on the matter I shall be pleased to respond to him.
Everyone who has contributed to the debate is awaiting the Green Paper with bated breath. That is understandable because it is the next stage in the debate, in the House and outside it, on welfare reform. My right hon. Friend made it clear that the Green Paper will be published before the next uprating statement. I can confirm that. Every day is a day fewer to wait, and I am sure that the Green Paper will be welcomed by all hon. Members.
§ Mr. Bradley
The hon. Gentleman presses too hard. I have made the position plain: it will be published before the next uprating statement.
1150 Hon. Members spoke about disability benefits. My right hon. Friend the Secretary of State for Social Security, who I am pleased to see in her place, has already introduced extra safeguards to improve the quality of decisions that reduce or remove entitlements as part of the benefit integrity project. When my right hon. Friends the Prime Minister and the Secretary of State met disability benefits consortia, they assured them that we will continue to review the operations of the project because we want benefit payments to be right and decisions to be fair and to be seen to be fair. Groups of and for disabled people have been involved in the project from its early stages, and we shall continue to work closely with them. That exercise is completely separate from the welfare reforms that are being considered.
It must be right to ensure that, throughout the benefits system, payments are right and decisions are fair. I repeat the Prime Minister's assurance that no decisions have been made about the reform of sickness and disability benefits. When options are available for discussion we shall consult disabled people's organisations and others who have an interest in these matters.
We have had a wide-ranging and interesting debate that has shown cross-party concern for the need for welfare reform. The Green Paper will be the new focus for that debate, and I commend the orders to the House.
§ Question put and agreed to.
§ That the draft Social Security Benefits Up-rating Order 1998, which was laid before this House on 5th February, be approved.
§ That the draft Social Security (Contributions) (Re-rating and National Insurance Fund Payments) Order 1998, which was laid before this House on 5th February, be approved.
§ That the draft Guaranteed Minimum Pensions Increase Order 1998, which was laid before this House on 5th February, be approved.
§ That the draft Social Security (Incapacity for Work) (General) Amendment Regulations 1998, which were laid before this House on 5th February, be approved.—[Mr. Kevin Hughes.]