§ SUPPLEMENTARY BENEFITS
§ CHILD BENEFIT AND SOCIAL
SECURITY (FIXING AND
ADJUSTMENT OF RATES)
§ FAMILY INCOME SUPPLEMENTS
(COMPUTATION) (NO. 2)
§ CHILD BENEFIT AND
SOCIAL SECURITY (FIXING AND
ADJUSTMENT OF RATES)
AMENDMENT NO. 2)
§ 12.17 p.m.
§ Lord WELLS-PESTELL
My Lords, I beg to move that the Social Security Benefits Up-rating Order 1977, which was 639 laid before your Lordships' House on 13th July, be approved, and I hope it will be for the convenience of your Lordships if I deal more with the other four also. I am not unmindful of the fact that there is a good deal of business to come in relation to the Housing (Homeless Persons) Bill. If it is with your Lordships' agreement, I will move all five Motions and at the same time endeavour to be as brief as I can. I am not unmindful that these regulations and orders are complicated. It is extremely difficult to deal with them simply, and, in trying to do so, I could, I suppose, add to the confusion.
The order and the Supplementary Benefits Regulations together provide for most of the increases in social security benefits. The Family Income Supplements Regulations provide for the prescribed amounts, which were increased under an earlier Instrument with effect from this present week, to go up again from the same week in November as the social security up-rating takes effect, and also provide for increases in the maximum weekly payments from the same week. The first of the child Benefit Amendment Regulations is technical, in that it revokes earlier deductions from the rates of national insurance dependency increases for children which are now taken account of in the schedule to the Up-rating Order. The Second Child Benefit Amendment Regulations (they are numbered No. 2) are much more significant. They provide for the substantial increase in child benefit rates from April 1978 which the Chancellor announced on 15th July, as part of the second stage of phasing-in the full child benefit scheme.
It will be helpful to your Lordships if take in order the four separate schemes under which benefits are up-rated by the instruments before us. Let me start with the social security up-rating order and the national insurance and industrial injuries benefits which it covers. A list of the principal benefit rates, both as they are now and as the order proposes to increase them, can be found in Appendix 1 to the Government Actuary's Report (Cmnd 6848). The most significant increases—both socially and financially—are those in the rates of retirement pension. These will be raised in November from £15.30 to £17.50 for a single pensioner, and from £24.50 to 640 £28 a week for a married couple. The new figures involve increases of about 14½ per cent. and it is proposed that other long-term benefits should go up in proportion. The standard rate of sickness and unemployment benefit will rise from £12.90 to £14.70 for a single person, and from £20.90 to £23.80 for a married couple. These are increases of around 14 per cent. and other short-term benefits will rise by corresponding amounts.
Pensioners will, for the first time, benefit from the recent change in the law which links the operation of the earnings rule with the general level of earnings. The amount that a person can earn before his pension is reduced will go up in November from £35 to £40. a week This increase relates to the rise in earnings which is expected to take place between April 1976, the date when the current figure of £35 came into effect, and this November. The change is made by Article 4 of the up-rating order.
I know that many of your Lordships have a very special concern about and interest in the welfare of the disabled and will be pleased to know that the mobility allowance is to be increased from its present £5 to £7 a week. There are also increases in attendance allowance, which will rise from £12.20 a week to £14 at the higher rate and, for people entitled to the lower rate of the allowance, from £8.15 to £9.30 a week. Both non-contributory invalidity pension and invalid care allowance will go up from £9.20 to £10.50 a week. The therapeutic earnings limit, which is applicable to all the incapacity benefits, will also rise from £9 to £10 a week—though this is not in the order. It will be effected by concurrent up-rating regulations, which, as your Lordships know, are negative, and are therefore not before your Lordships today.
The up-rating order fulfils the statutory duty of my right honourable friend the Secretary of State under Section 125 of the Social Security Act to raise benefits by the amout he expects to be necessary—on this occasion—to match price inflation. After reviewing the state of the economy and the likely trends within it, he has forecast that the annual rate of inflation will have fallen to around 13 per cent in November 1977. There may be a very real measure of disagreement between some noble Lords and the Government 641 on this matter, but that is his judgment and, if I may say so with the greatest respect, only time will tell. Since that forecast was made, it has been reinforced by many positive indications that the worst of this year's inflation is over: it is significant that one month's increase in prices between March and April-2.6 per cent.—was followed by a rise of less than 2 per cent. in the two months from April to June. As I have said, this is a judgment; it could be wrong and we shall just have to wait to see what happens.
I now turn to the draft regulations which provide for increases in the supplementary benefit scale rates laid down in Schedule 1 to the Supplementary Benefits Act 1976. The increases that are proposed are comparable to the national insurance increases to which I have just referred, and will come into force at the same time. We propose that the long-term scale rates which apply to supplementary pensioners and to people, other than the unemployed, who have received supplementary allowance continuously for two years, should be increased from £15.70 a week to 17.90 for the single householder, and from £24.85 a week to £28.35 for a married couple. The rates where a supplementary pensioner or his wife is over 80 years of age will continue to be 25p higher at each point. The ordinary scale rates, which apply to the unemployed and to people who have received a supplementary allowance for less than two years, will be increased by £1.80 to £14.50 for a single householder and by £2.90 to £23.35 for a married couple.
Scale rates for other adults and for children are also being raised. The special rates which apply to the blind will go up by the same amounts as the corresponding rates for sighted persons, so that the special preference which they have had for a good long time will continue. Regulation No. 2 proposes that the amounts added for attendance requirements in assessing supplementary benefit for a person who receives attendance allowance should be increased. I should also like to mention two other changes which, though not provided for by the regulations, are an important element in the up-rating. Your Lordships will be pleased to learn that the Supplementary Benefits Commission have again decided to increase by substantial amounts both the discretionary additions for extra heating and 642 the standard additions for special diets. These changes will also take effect from 14th November.
I now come to Family Income Supplement. The object of the supplement is to help poor families where the breadwinner is in full-time work. Where income is below the prescribed amount for the size of the family concerned, half the difference is payable as Family Income Supplement. This very week, regulations which your Lordships and the other place approved earlier in the year came into force, raising the prescribed amount for a one-child family to £41.50, with this amount increasing by £3.50 for each subsequent child. On 15th November, the figure of £41.50 will rise to £43.80, and the addition for each other child will go up from £3.50 to £4. In addition, the draft Family Income Supplement Regulations now before your Lordships propose increases in the maximum weekly amounts of supplement payable. The basic maximum for a one-child family will rise by £1 from £8.50 to £9.50; and the step for each additional child will go up by 50 pence to £1.
I think that one can say that these increases are generous by any standards in a scheme which involves a minimum of administrative checks and under which, as your Lordships know, the award once made, continues for 52 weeks, regardless of what may happen. Thus, for example, a family with four children living on an income of less than £31 a week from full time work would receive a weekly cash supplement of £12.50 for 12 months in addition to a range of other benefits—such as free school meals—to which all Family Income Supplement families are automatically entitled.
Taking into account the child benefit which these families receive and which, unlike child interim benefit and family allowances, is wholy disregarded as income for Family Income Supplement purposes, these increases are more than sufficient to maintain the relativity between the incomes of the low-paid and the rest of the earning population which was restored by the large Family Income Supplement uprating in July last year. The changes that we have made to Family Income Supplement this year—disregarding child benefit in April, the interim uprating of the prescribed amounts in July and the 643 proposed increases in the prescribed amounts in November—mean that the number of families receiving Family Income Supplement will, we estimate, increase from nearly 83,000 in March to somewhere in the region of 95,000 this November. The cost of Family Income Supplement has gone up from £18 million in 1976–77 to £24 million in 1977–78. To the extent that this may represent an improved take-up of the Family Income Supplement, we can only applaud this trend and wish that people would take it up if they are entitled to it.
Let me now come to increases in child benefit. My right honourable friend the Secretary of State has reviewed the rate of child benefit under Section 5(5) of the Child Benefit Act 1975. He has decided that, with effect from 3rd April 1978, the rate should be increased to £2.30 per week for each child. There will be an extra £1 for the first child for those one-parent families which now get the 50p per week increase. I am sure that noble Lords on all sides of the House will unreservedly welcome these increases. They give more money to the generality of families with children, which have been particularly feeling the squeeze on real incomes. They put first children on the same level of benefit as other children, as we had always intended. And they represent a second stage in the phasing-in of the full child benefit scheme, under which child tax allowances are gradually being converted into child benefit.
For child benefit does not, of course, stand alone; it is one-half of an exorcise, of which the phasing-out of child tax allowances is the other half. Just over one-half of the cost of next year's increase in child benefit will be met from the withdrawal of a part of the child tax allowances. But the rest, which amounts to more than £300 million, will be additional money newly devoted to family support. If we take together the effect on the husband paying basic rate tax and the wife who draws the child benefit, there will be a gain to the one-child family of 67p a week and to a four-child family of £1.69.
For people with incomes too low to allow them to make full use of their tax allowances, and for lone parents drawing the £1 increase, the gains will be significantly 644 higher. And, of course, within the family, support is being shifted from the husband—who usually gets the tax allowances—to the wife, who will get the benefit. As your Lordships know, last year the mother with a one-child family got no benefit at all. This year she draws £1 a week; next year she will have £2.30. That means that, for the four-child family, the corresponding figures will be as follows: the £4.50 benefit, which was made up of three allowances of £1.50 per week, will go up to £5.50, which will be made up of the for the first child plus £1.50 for each of the other three children; and next year the mother will receive £2.30 for each child, which, for a four-child family, will be £9.20 a week.
Before leaving provision for children, I should say a few words about national insurance dependency increases, as these are dealt with in no less than three of the Instruments which your Lordships have before you. As the money which is channelled to families through child benefit is available during unemployment or sickness or widowhood just as much as during employment, the dependency increases which are payable with the national insurance benefits for these various contingencies are being modified to take account of the child benefit. Thus, the present rates of dependency increase —£3.05 a week for the first child of an unemployment or sickness beneficiary and £2.55 for each subsequent child, or £6.45 and £5.95 respectively for a long-term beneficiary's children—are arrived at by applying a deduction to take account of the present rates of child benefit.
That deduction will not, however, be needed after November, as the up-rating order contains in its Schedule the actual increases which beneficiaries will then receive. Hence the Fixing and Adjustment of Rates Amendment Regulations—that is simply what it means. When the new Schedule takes effect, the short-term rates which I have mentioned will rise to the levels which are spelt out in the up-rating order. Next April, however, the increases in child benefit which I have just outlined to your Lordships will means that a further deduction will become appropriate. Under the terms of the relevant parts of the No. 2 Regulations—I have been talking about the No. 1 Regulations—the amount payable for the children of 645 National Insurance short-term beneficiaries will come down to a standard rate of £2.20 a child, and that for the children of long-term beneficiaries to £6.10 a child.
I am afraid that this is far from being straightforward. I always find some difficulty in understanding all this and am never ashamed to say so. Although it should be reasonably clear to me, I am quite certain that, when listening to it like this, it must be frightfully confusing. But I only hope that, if noble Lords read the Official Report, some of the things that I have said will fall into place and will have some meaning after all.
I do not think that I should take up any more time, but I should like to say a few words about the costs of these increases in benefits and the way in which they will be paid for. The various improvements that I have described, net of the saving from the reduction in the child tax allowances for those who get child benefit, will cost about £1.8 billion in a full year. Over half a billion pounds of this will be met by the Exchequer and about 1¼ billion will fall on the National Insurance Fund. However, there is no question of any alteration in national insurance contribution levels before April 1978. The contributions which came into force last April are adequate—I think that the noble Lord, Lord Banks, will say more than adequate—to cover the first four months' costs of the higher benefits between this November and next April.
Turning to the contribution levels which will be needed from April 1978 for the 1978–79 income tax year, these will depend not only on the anticipated cost of benefits but on such variables as the level of earnings and the level of unemployment which are then expected. It is too early yet to make firm predictions about these matters. Indeed, a further complicating factor is the introduction in April of next year of the new pensions scheme under the Social Security Pensions Act 1975. This will mean one level of contribution rates for the majority of employees, who will then begin to earn an earnings-related addition to their basic pension, and a lower contribution rate for employees who will be contracted out because they are members of good occupational pension schemes.
646 All those factors will be taken into account by my right honourable friend in his annual review of contributions in the autumn, when more up-to-date information will be available. Your Lordships will receive a further report from the Government Actuary showing the effect of these changes already legislated for and of any new proposals arising out of the review. Any new rates of contributions would, as I have said, operate from April 1978 and, of course, would be subject to the approval of both Houses of Parliament. I hope that it is not necessary for me to say anything more at this stage. I am sorry to have been so long and to have put forward such a complicated business, but I hope that your Lordships will give approval to the five orders in due course.
§ Moved, That the draft Social Security Benefits Up-rating Order 1977, laid before the House on 13th July, be approved.
§ That the draft Supplementary Benefits (Determination of Requirements) Regulations 1977, laid before the House on 20th June, be approved.
§ That the draft Child Benefit and Social Security (Fixing and Adjustment of Rates) Amendment Regulations 1977, laid before the House on 15th June, he approved.
§ That the draft Family Income Supplements (Computation) (No. 2) Regulations 1977, laid before the House on 15th July, be approved.
§ That the draft Child Benefit and Social Security (Fixing and Adjustment of Rates) Amendment (No. 2) Regulations 1977, laid before the House on 15th July, he approved.—(Lord Wells-Pestell.)
§ 12.40 p.m.
§ Baroness YOUNG
My Lords, I should like to thank the noble Lord, Lord Wells-Pestell, for explaining these five orders. I am, for the reasons that he has given, glad to take them together. He has given us an enormous amount of detailed and complicated information. For those of us who try and follow these matters it is unsatisfactory that there really is not time available this morning to discuss them with the thoroughness that I am sure we would all wish. I know that the noble Lord himself is not responsible for the delay in the House 647 receiving these orders, but nevertheless it is unfortunate that they have turned up on this Friday.
In view of the time there are only two points that I should like to raise. The first one is concerned with the increases in pensions and benefits which are supposed to be in line with the rate of inflation. The noble Lord, Lord Wells-Pestell, indicated that the increases in retirement pensions and other pensions are of an order of 14 per cent., to cover the year from November 1977 to November 1978. As he will be aware, it was in April 1976 that the basis on which the increases were calculated was altered and, for the first time, instead of having the historic rate of inflation as the basis for increase in benefits it was the expected rate of inflation; that is to say, in 1976, instead of having the rate of inflation from March 1975 to March 1976, the increase in benefit was based on the expected rate of inflation from November 1976 to November 1977. This was given at 15 per cent. instead of the historic rate of 21 per cent. It so happens that the Government seem to have been fortunate that it will probably work out at something like that rate. Nevertheless, we cannot be sure that that is going to be so, and the Government are now expecting that the rate of inflation will in fact have fallen to 13 per cent., if I have understood the noble Lord's figures correctly.
What I should like to ask the noble Lord is what the Government expect to do if their calculations are wrong and the rate of inflation is higher in November. As I understand it, there cannot be any further up-rating for at least six months. This would be until April. If there has to be an up-rating will it be back-dated to November? If the noble Lord has not got the answers to these questions before him perhaps he would be kind enough to write to me on the point because I believe it to be an important matter indeed, and I should have thought that although there was a case pending on what happened last year it would certainly be in breach of the law if there was not a benefit based on the true rate of inflation in the year rather than the expected rate. I think that this is important because, although the increase is 14½ per cent., the rate of inflation at the end of June was given as 10.9 per cent., and it therefore assumes a very low rate of 648 inflation for the following five months of the year.
The second point concerns the child benefit scheme. I think it must be taken in relation as well to the Statement by the Chancellor last week. The general effect of all these benefits is that the child benefit scheme would give an increased child benefit to the mother next April, and it would take away from the father the tax allowances. I had made a note of the actual gain to the family. We had calculated that the average family with two children would probably be a pound a week better off. When all this is added up and the increase to the family of the price of school meals is added in, it has the effect that the family is approximately in the same situation as it is now. It is not, in any real meaning of the word, better off at all.
We on this side of the House are not critical of the general principle of the price increase of school meals; indeed, we have long argued that there should be far more selectivity in social benefits which this particular extension of the free school meal service implies. But it seems to me, on first looking at all these net gains and losses, that it underlines the need for there to be a lobby in the country looking after the interests of the family as a whole. I have stressed this point before, and I stress it again now, because I think that at the end of the day the average family will in fact be no better off than in fact it is now. I do not wish to be critical in this matter because I believe that in general it is a step in the right direction, but it is unfortunate that the Government are not in a position to do any more to help support the family as a whole.
§ 12.46 p.m.
§ Lord BANKS
My Lords, I should like to join too in thanking the noble Lord, Lord Wells-Pestell, for so thoroughly and so clearly explaining these orders to us. The Social Security Benefits Up-rating Order, as he explained, is the regular up-rating order to cope with increases in prices or in earnings, whichever is the greater, and this year again prices are dominant. Nevertheless, as he pointed out, increased revenue from increased earnings goes far to offset the increase, and indeed a surplus of £698 million is 649 forecast for this year in the Government Actuary's report. The noble Lord, Lord Wells-Pestell, was a little upset on the occasion when these increases were first announced on 25th May, and we questioned whether the inflation rate would prove to be 13 per cent. between last November and next, as the Government predict. I must say that I agree with the noble Baroness, Lady Young, in casting some doubt as to whether that prediction is going to be fulfilled and, like her, I should be interested to know what will happen if it is not. I think the fact that we pose this question underlines how unsatisfactory it is to have a reference period half in the past and half in the future.
The cost for a full year of these increases in this order, according to the Government Actuary's report, is £1,234 million. Last year's increase was estimated to cost £1,158 million in a full year, so that allowing for the decline in the value of money this year's extra cost, met by the same percentage contribution rates as last year, appears to be less than last year's extra cost. I must repeat that the mobility allowance increase from £5 to £7 per week, though welcome, is still far from adequate. The supplementary benefit increase follows the increase in social security, and again is designed to match inflation.
I welcome the increase in the Family Income Supplement. This particular benefit of course is means-tested. It is cheap, £24 million now, and I am glad that the take-up is improving. That has been one of the problems with it. But it would be much more satisfactory if we could get rid of the Family Income Supplement and replace it with something like child benefit. To do so would cost £5,000 million, and when one weighs that against the £24 million which is at present spent on Family Income Supplement, one realises that in present circumstances this is a benefit which has to be continued in spite of its drawbacks in connection with the poverty trap.
I should like to say a word about child benefit and the increases announced. The second order, as the noble Lord explained, covers the recently announced increases in child benefit. We on these Benches have been urging that there should be an increase in child benefit as a means of tackling the poverty trap, and as a 650 first step on the road to a tax credit system, or perhaps a second step, since the existence of child benefit is a first step. Your Lordships may recall that it was one of the points made to the Prime Minister by my right honourable friend Mr. David Steel, following the week-end meeting recently at St. Ermin's Hotel, and I therefore welcome the increase and congratulate the Government on it.
The increase will be paid partly by the already planned withdrawal of a further part of the income tax children's allowances and partly, as the noble Lord pointed out, by additional expenditure of about £300 million. I am glad the Government have been prepared to find this extra money. There will be a further reduction in child tax allowances in the following year, and my one regret is that this could not have been completed in 1978 so that we could have had an even larger increase in this coming year.
In the discussions about child benefit which I have had with Ministers in the context of the current arrangement between the Government and the Liberal Party, I have strongly urged that when increasing child benefit the Government should not abandon the additional payment for the first child of one-parent families. I am particularly pleased therefore that the Government have felt able to go along with that view, and not only to maintain but to double, from 50p to £1, the additional benefit. I do not think child benefit is the ideal means of dealing with the total problem of one-parent families; something separate and more extensive is necessary. But until that is provided I welcome the extension of the present arrangement. With the reservations expressed about the up-rating order and the level of inflation, we are happy that the House should approve these orders.
§ 12.52 p.m.
§ Lord WELLS-PESTELL
My Lords, I am grateful to the noble Baroness, Lady Young, and the noble Lord. Lord Banks, for their contributions. I know I have said it before, but I assure them that we enjoy and find their contributions on matters of this kind of great value. It is only a week or so ago that my right honourable friend the Secretary of State held a conference to which he invited all organisations and all shades of opinion, 651 and we had the benefit of Lady Young's right honourable friend from another place, Mr. Patrick Jenkin, who made a valuable contribution, as did Lord Banks. The noble Lord knows that we attach considerable importance to the views of experts outside our own Party, and I think he will agree that we have given a fair amount of time in discussing these matters with various individuals.
To return to the two points raised by Lady Young, with regard to what is going to happen if we are wrong in our supposition that inflation is going to fall, I can only say that I too have asked the same question, and quite recently. I must be perfectly frank and say that at the moment I do not have an answer, not because I have not got an answer but because there is no answer, and I do not think it would be helpful if I tried to hazard a guess. To be frank, I do not think that if I sat down and wrote for several hours I could say anything intelligent in my letter to her. This matter is in the forefront in the minds of my right honourable friend and other Ministers, but as yet no decision has been taken. I can only leave the noble Baroness with the thought that we are aware of the possibilities and that we are aware that if we are wrong there are bound to be repercussions, but beyond that none of us can go at this stage.
Baroness Young mentioned the question of school meals. Your Lordships will know that the Chancellor of the Exchequer recently made a Statement to the effect that he was raising the limit below which parents would be required to pay for school meals. My understanding, from the inquiries we have been able to make so far—that Statement having been made only recently—is that it will mean that upwards of one-quarter of all school children taking school meals will not have to pay for their school meals. I do not think I can take the matter beyond that.
I take the point Lord Banks made in regard to the way in which we have dealt with child benefit. He has been consistent about this all along the line, and said not long ago that he could see no reason why we did not bring the whole lot in in one fell swoop. Of course he is right and we could have done so; but there were other considerations, and I see no reason why I should not say what those other 652 considerations were. We advocate a three-year phasing out to stagger the drop in take-home pay. The Government and the Labour Party, as your Lordships know, had detailed discussions with the trade union Working Party and this was part of an agreement. If we had brought this in in one fell swoop it would have meant that the take-home pay of the husband, the father, would have been substantially reduced, and to be frank it was not the right climate in which to do that. The only way we could do it is the way we have done it.
It means that under phase two of the child tax allowance, which will come into force in April 1978, a man with two children will have a reduction in his take-home pay of £1.09 a week, while a man with four children will suffer a reduction of about £2.01. It will not be easily accepted by some people, and if we had tried to do it in one fell swoop I think there would have been a good deal of difficulty, which by doing it this way I think we shall overcome.
§ On Question, Motions agreed to.