HC Deb 09 May 1951 vol 487 cc1965-73

3.54 p.m.

Mr. W. S. Morrison (Cirencester and Tewkesbury)

I beg to move, in page 1, line 5, to leave out "October," and to insert "April."

This Amendment is moved for the purpose of explaining why it was put down. This Clause deals with the Exchequer contribution to the Insurance Fund and the purpose of putting down this Amendment was to follow certain lines of argument used by my right hon. Friend the Member for Leeds, North (Mr. Peake) on Second Reading and to elucidate further the precise machinery which would be employed in ascertaining the amount and period of the Exchequer contribution. Since it was put down there appeared on the Order Paper the Amendments in the name of the right hon. Lady the Minister, and we are anxious to hear what she has to say on this subject. Having moved the Amendment and explained why it was put down, in view of the subsequent Amendments on the Order Paper, I beg to ask leave to withdraw it.

Amendment, by leave, withdrawn.

The Financial Secretary to the Treasury (Mr. Douglas Jay)

I beg to move, in page 2, to leave out lines 6 to 22, and to insert: for each contribution as an employed, self-employed or non-employed person paid by a person of any description set out in the first column of Part V of the said First Schedule, and for each employer's contribution paid in respect of a person of any such description, the sum (hereafter in this Act referred to as 'the Exchequer supplement') respectively set out in the said Part V in relation to a contribution of that class and a person of that description. I am glad not to have to interrupt the remarkable harmony we have enjoyed for the last 10 minutes by having to reject the previous Amendment. In moving this Amendment I suggest that the two Government Amendments which follow might be considered at the same time.

These Amendments relate to the Exchequer contribution to the National Insurance Fund over the next three-and-a-half years. The Committee will recall that, owing to our success in keeping the level of unemployment down to 1½ per cent. against the 8½ per cent. originally forecast, the Government first proposed a variation by which the Exchequer proportionate grant would be reduced from about £96 million a year to £27 million a year, but the block grant, after coming down this year, would then rise steeply.

We thought that was, on the whole, financially and actuarially sound, for the reasons which I gave during the Second Reading debate. But my hon. Friend the Member for Sowerby (Mr. Houghton), and the right hon. Gentleman the Member for Leeds, North (Mr. Peake) put the case for an alternative scheme, by which the proportionate grant would be much larger—and the block grant would come down to nothing for the three-and-a-half years and then rise very steeply, mainly because of the increasing number of old people. I promised in the Second Reading to consider some scheme on these lines, because various alternatives were possible, and because we wished to take account of views expressed by hon. Members, and to avoid all risk of misunderstanding or misrepresentation. We have accordingly adopted the alternative on the Order Paper in the name of my right hon. Friend, which is substantially what my hon. Friend the Member for Sowerby, and the right hon. Member for Leeds, North, proposed.

The effect of the Amendments is to abolish the block grant altogether and to substitute, for the £27 million proportionate grant included in the original Bill an annual sum of £62 million. That would be the new Exchequer proportionate contribution to the Fund, and would be, in fact, between one-sixth and one-seventh of the total contribution from employers, employees and the Exchequer together. It will be expressed, as in the revised Part V of the First Schedule set out on the Order Paper, as a contribution per employed person, by the Exchequer of 8d. for men, 6d. for women, and so on. That means. of course, 8d. per man as a supplement to the employee's contribution and a further 8d. supplement to the employer's contribution, making 1s. 4d.

4.0 p.m.

The effect of this plan will be, we estimate, that instead of the total in the Fund remaining constant over the 3½-year period, as in our original plan, it should rise from the present figure by £25 million by March, 1955. That is on the assumption of the improved benefits as now provided by the Bill. If any further improvements were given, either today or subsequently, that £25 million increase would dwindle or vanish. It is also on the assumptions of the higher permanent rates of contribution that come into force on 1st October this year under the original National Insurance Act, and of unemployment at 1½ per cent. from now until March, 1954, which we think is a reasonably prudent estimate, and at 2½ per cent. from March, 1954 to March, 1955.

I should like to emphasise again the two warnings that I gave on Second Reading. First, Parliament should realise that if, in this way, it strikes out the block grant altogether from now until 1955, it will have to reinstate it at a high and rising figure from then on, as the number of old people rapidly increases. The Government Actuary estimates that the block grant required in the financial year 1955–56 will be £80 million, and that it will rise each year thereafter to over £400 million in 1977. That is on the basis of existing rates of benefit. The Government of the time will, of course, have to ask Parliament before March, 1955, under this arrangement that we are now proposing, to reinstate the grant. Second, as I said before, these arrangements are all provisional, pending the 1954 general review of the working of the National Insurance Schemes.

I hope that the House will agree that we have here made a considerable effort to meet the views put forward, and that this arrangement will be fair, and will also be seen to be fair, to the contributors, to those receiving benefit, and to the Exchequer—which means, let us remember, the general taxpayer—alike.

Mr. Osbert Peake (Leeds, North)

I am grateful to the Financial Secretary for having taken such careful note of and giving consideration to the views which I expressed first in the Budget debate and again on the Second Reading of the Bill. It has seemed of vital importance to me that a regular and a substantial Exchequer contribution to the Fund should continue which would be proportionate to the contributions of employees and their employers. While holding that view very strongly, I shared the doubts of the Chancellor of the Exchequer whether it was wise to allow this Fund to continue to increase annually as it has done in recent years through unemployment having fallen so far below the level anticipated when the White Paper of 1944 on employment policy was published, and when the National Insurance Act, 1946, was passed.

The proposals tabled by the Minister will satisfy these two conditions, that is to maintain a substantial Exchequer contribution to the Fund, and at the same time for the next four years to get rid of the annual growth in the Fund. The deficiency payments were inserted into the Act of 1946 in order to meet anticipated deficiencies in the Fund. Those deficiencies have not occurred, and so far as the deficiency grants are concerned I have no objection to their disappearing until they become necessary once more in four or five years' time. It is of course true, as the Financial Secretary said, that the deficiency payments will rise, in the course of the next 25 years, to the enormous figure of at least £400 million a year. That is bound to give future Chancellors of the Exchequer a very severe headache. At the present time there can be no objection to the disappearance, for the time being, of the deficiency payments.

It is proposed that in place of the present Exchequer contribution, proportionate to the ordinary contributions of the other parties, of 2s. 1d., should be 1s. 4d. That will form approximately one-seventh of the total contribution as against one-fifth hitherto. In 1944, I secured general agreement, on the Industrial Injuries Insurance Scheme, to a contribution by the Exchequer of one-sixth. I do not regard the ratios between the Exchequer and other contributions fixed in 1946 for the National Insurance Act as being necessarily sacrosanct. The figure adopted was a compound of the old one-sixth for health and pensions and the old one-third for unemployment. I always thought that the Exchequer contribution to the Unemployment Fund was high. In view of experience of unemployment over the last 10 years there is, to my mind, a justification for reducing the Exchequer contribution to the Fund.

It may be argued by some purists in this matter that if there is scope over the next four years for a reduction in the regular contributions, that reduction ought to be shared equally by all contributors. In point of fact there will be found, in Section 3 of the 1946 Act, the principle that if contributions have to be raised or lowered they should rise or fall in the proportions fixed by that Act. Section 3 is the one which enables contributions to be raised or lowered in order to maintain a stable level of employment. It is the relict of the late Lord Keynes's contribution to the White Paper on employment policy which has been embalmed in legislative form. That section provides that if contributions are either raised or lowered for that purpose the existing ratio must be maintained.

I think that there is justification for some reduction in the regular Exchequer contribution, which was fixed on the high side in 1946. It would obviously be contrary to the Chancellor's general financial policy to increase purchasing power by an all-round reduction in contributions at present. Having pressed this matter from the moment the Budget was known, and having followed it up, and, after much persevering effort, having been met, as I think to a very reasonable degree by the Government, I am prepared to invite my hon. Friends to accept the Amendment.

Mr. Douglas Houghton (Sowerby)

I should like to thank my right hon. Friend for proposing this change in the method of adjusting the Exchequer contribution to the National Insurance Fund. The new proposal has the merit of being simple; we can all understand it a little better than the proposed adjustments of a dual character in the Bill. It seems to satisfy the principle, which we all acknowledge, that the Exchequer contributions are tied to the contributions made by insured persons and their employers.

The Financial Secretary said that during the next four years, on the assumption of the proposed improvements in retirement pensions in the Bill, but without regard to any increased expenditure which might flow from other proposals, the Insurance Fund would increase by about £25 million. What he did not give, and what he could perhaps spare a moment to give, for comparison, is the figure of what the annual contribution to the National Insurance Fund will be under this modified proposal. He may have given the figure but if so it escaped my notice.

In the year from 1st April, 1949, to 31st March, 1950, the combination of the two Exchequer contributions, the supplements to contributions, or the proportionate sums, and the additional sums, or as we have colloquially called them, the block grant, amounted to £135 million. I was wondering how the new proposals will compare in amount with that total from the two sources in 1949–50.

Mr. Jay

The total of the Exchequer payments up to March, 1955, will under the new plan of these amendments be £217 million against £195 million under the Bill as printed, and £140 million in the 1950–51 financial year.

Mr. Houghton

I thank my hon. Friend for that. It enables us to get a better comparison, in terms of annual amounts.

As regards the future, I would not commit myself to everything which the right hon. Member for Leeds, North (Mr. Peake), said. But just now, at all events, the Minister of National Insurance and the Chancellor of the Exchequer are justified in asking that the Exchequer shall have the benefit of the favourable experience which we have had during the last four years, due largely to the very low rate of unemployment. The Exchequer did, after all, assume heavy additional responsibilities at the time of the 1946 Act, in order to provide a cushion for the additional level of expenditure due to the higher rate of retirement pensions for persons who had not contributed to the Fund under the new conditions and had, therefore, not made any contribution to the additional expenditure which their own higher retirement pensions were bound to incur.

The Exchequer is entitled, at this juncture at all events, to reap the benefit of that, and not to share it with the contributors, whether employees or employers. As to whether, in the future, the principle envisaged at the time of the 1946 Act of sharing any beneficial experience of the scheme proportionately among the three parties—the employees, the employers and the Exchequer should be adhered to—is a matter which may need consideration as time goes on.

I do not think that we on these benches at least should dissent from the general principle that the contributions to a Fund of this kind are really a most important factor. And as the Exchequer obligations grow in size, and the anxieties of the successive Chancellors to find the money for the exceptionally high Exchequer contributions increased, it would not be possible always to share any favourable experience such as we have had over the last four years; but that is a matter for the future. There is no doubt that the Government are right to make the proposals they have done and this modified way of meeting the purpose of the Chancellor will, I think, meet with general approval.

4.15 p.m.

Mr. Turton (Thirsk and Malton)

To reduce the Exchequer contribution from 2s. 1d. to 1s. 4d. is, to my mind, a preferable alternative to the original proposition of the Government to reduce it from 2s. 1d. to 6d. But I would ask the Committee to think rather more deeply on this matter. I come in the category, which my right hon. Friend has laid down, of a purist—if to object to the breaking, without good reason, of a contract entered into by my constituents is to be regarded as a type of purism.

What happened in 1946 was that our constituents entered into a contract with the Government under which certain defined rates of contribution were laid down. In that contract it was not possible for any Government to change the relation until the five-year review, which has not taken place. It is true, as my right hon. Friend said, that Clause 3 was the "Keynes Clause" which enabled contributions to be reviewed, provided that they were scaled up and down in the same proportion as laid down in the original Act. What is now the supervening cause which has made the Government try to wriggle out of its financial responsibility? It is that there has not been the unemployment which was expected, and in fact, on sickness, the Fund has made £11 million. That is the reason for the large surplus.

I remember well in the 1946 Parliament the present Parliamentary Secretary to the Ministry of Local Government and Planning, who was then Parliamentary Secretary to the Ministry of National Insurance, laying down categorically that the Unemployment Insurance Fund was financed by equal thirds from the Exchequer, the employer and the employed person. Today that is being torn up with no good explanation. If this surplus comes from the fact that unemployment benefit has not had to be paid in the anticipated amount, surely it is only just that the 10d. contribution from the employer, the employee and the Exchequer equally should be diminished in the same proportion.

It is quite wrong to muddle up the Exchequer contributions, which are the premium on certain defined risks, with what the Economic Secretary to the Treasury described as the block grants, which are the Treasury's contribution to pay for the fact that they took into this insurance people who were not of the age of 16, but were older. That was a defined risk and I believe it very wrong to mix up these two elements.

What is the real reason? I read with care the Budget speech of the Chancellor. He said: 'This surplus of income in the Fund is, of course, a very necessary addition to the nation's savings…. He goes on to say: It is desirable, in my view, to eliminate this. I therefore propose to reduce the Exchequer contribution to an amount which will leave the Fund at about its present level."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 853.] So far as I can understand it, nobody has argued that the contract should be broken. It has been mentioned that it would be a terribly inflationary thing to make the contribution of the workers drop by the 8d. I have suggested. But would it? In the last six months, the purchasing power of the wages received by wage earners in my constituency has dropped by far more than 8d. through the rising cost of living. This would, in fact, be a very great help to the low paid workers in the country, if instead of paying 4s. 11d. per week they had to pay only 4s. 3d. There is no party difference about this and I would ask the Committee to re-examine the whole matter. I believe that we in Parliament have a duty to see that contracts which our constituents are forced, to enter into by Parliament are honoured by the legislature. I do not believe that that is happening at present.

Finally, I would ask that we look at this matter from the point of view of future contributions which are to be levied on the employers and the workers in October. I remember the present Colonial Secretary, when he discussed that matter in 1946 saying—he was talking about the additional 4d. which was to be levied— The addition is required to relieve the Exchequer of some part of the heavy increase in expenditure…"—[OFFICIAL REPORT, 6th February, 1946; Vol. 418, c. 1752.] Surely the Minister can no longer maintain that. Here in this Bill she is relieving the Exchequer of a very heavy

PART V
Exchequer Supplement
Amount of Supplement
Description of person by or in respect of whom contribution is paid For contribution as employed person For employer's contribution For contribution as self-employed person For contribution as non-employed person
d. d. d. d.
Men over the age of 18 … … 8 8 8 8
Women over the age of 18 … … 6 6 6 6
Boys under the age of 18 … … 4 4 4 4
Girls under the age of 18 … … 3 3 3 3
—[Dr. Summerskill.]

Clause, as amended, ordered to stand part of the Bill.