§ 11.8 a.m.
§ Miss Mervyn Pike (Melton)
I beg to move Amendment No. 2 in page 1, line 8, at the end to insert:'except in the case of employees whose family income is below the supplementary benefit level, in which case the provisions set out in Schedule 1 of the Insurance Act shall continue to apply'.In this Amendment we are asking for minimum humanity and elementary justice. We are asking only that the 2s. increase shall not be payable where the income is below the supplementary benefit level and cannot be made up to that level because the wage earner is at work.
The Committee will recognise that in effect this is primarily a probing Amendment. No doubt the drafting is wrong and the Amendment may not even be in the most suitable place, but we wish to draw attention to the problem of the low wage earner in the context of the Bill. We want also to give the Minister an opportunity to let us know what she is prepared to do to meet this problem. We all recognise—and I think that the right hon. Lady herself is very conscious of this—that there has been a dramatic rise in the cost of the stamp. In this instance the extra and quite disproportionate burden is upon the low wage earner.
Since the present Government came to office there will have been an increase of 4s. a week on the stamp. There has been inflation and prices have risen by about l0.7 per cent. and are still rising. There has been a wage freeze and, as we all recognise, the low wage earner has probably been hardest hit and is still at a great disadvantage compared with other sections of the community. There has been what is known as an 2171 industrial shakeout and this again has hit the low wage earner hardest, because there has been less overtime, less part-time work and fewer opportunities for these people to augment their wages in any way.
Who are the people in this category? The largest body of them are unskilled workers and a very large proportion of those unskilled workers work in industries like the nationalised industries where there is no hope of getting the sort of productivity agreements and bonus incentives and overtime which would give them any hope of being able to see any fundamental increase in their wages in future.
There is very little hope of overtime for them. With the lower profit margins in industry and continuing difficulties there, it seems as if they will remain at the bottom of the queue. I am conscious of this fact because I am connected with industry in the West Country, and the hon. Member for Plymouth, Sutton (Dr. David Owen) probably has some of his constituents working for my firm. Quite recently we have been engaged in wage negotiations and, to our great sorrow, it is the lowest paid wage-earners for whom we have been unable to get an increase whereas the higher paid, highly skilled people, have had theirs.
Industry as a whole is facing this problem, and no matter how hard we who have responsibiliity for wage negotiations work these people are still at the bottom. They are probably the greatest proportion. Many are partially handicapped, some through physical disability, some through poor health, inadequacy, intellectual or personal, and they find it very difficult to compete in a highly competitive labour market.
Many are women. Perhaps the largest proportion in this category are women. They would be helped particularly by this Amendment, because women in full-time and low-paid employment are finding times very difficult. Poverty is not just a question of large families, as sometimes it has been thought and argued, inside and outside of this House. The Minister's recent survey into family circumstances has shown that the biggest single cause of poverty is, without doubt, low wage earnings aggravated by the harsh working of the wages stop.
2172 The Minister has been very coy about this survey. We had a debate on the Second Reading of this Bill on Tuesday and then, without any fanfare or publicity, as we would have expected, out comes this very important survey, a very difficult one to digest. It came out as quietly as a mouse. The right hon. Lady may have read The Guardian of yesterday which says:You might think that a Ministry of Social Security report revealing that over a million children are living in poverty—double the most gloomy unofficial estimates—would have got a lot of Press attention. The "Guardian" had a story yesterday; so did the "Sun". No other paper so much as mentioned it, and not without some excuse. The Ministry gave no advance warning it was coming. No explanatory Press conference (a stock Whitehall procedure in such cases) was held. No extra copies were available. The 160-page report went out to newspapers on a late delivery run, so that the "Guardian" didn't get a copy until 6.45—too late to raise specific questions with the MSS. The official Press notes attached were a masterpiece of tangled medium. It was highly difficult, in the time available, to see the essential story, never mind do it full justice.The right hon. Lady is not normally coy about getting publicity for these important documents, and I hope that in future she will see that such important documents not only comes out in time for us to study before an important debate such as we have on Tuesday, but that it gets the greatest possible publicity. I am sure that she wants everyone to recognise what the real problem is. New Society puts this very well. It says:… it is not so much the general picture as the break-down which is really significant. Of the 345,000 below-scale families, 125,000 had fathers in full-time jobs. Some 60,000 families had sick fathers at the time of the survey, 40,000 had fathers unemployed, and about 75,000 were fatherless. The remainder included some 20,000 with fathers on holiday. … Of the 135,000 families receiving national assistance last June and July, 15,000 did not receive full allowances because of the wages stop and about 70,000 could not be paid assistance at all because the fathers were in full-time work.These are the people whom we are trying to help in this Amendment. We want to know what does the hon. Lady think about it? We all know what she said in Opposition. I will not bore her or the Committee with any more extracts, of what she said, but I can summarise it by saying that she thought that the incidence of the contribution was savage poll-tax on the low wage-earner and the 2173 wage stop should be abandoned. I am not at all sure that she still does not hold these views now but she has greater difficulty in trying to find ways in which to make that possible. We are trying to help here.
This is what we propose: the 2s. increase should not be payable where the income is below the supplementary level. There is no easy solution to this and we recognise this. That is why I said at the beginning that we did not pretend that this was the ideal solution, or any more than a probing Amendment. It is not an easy solution, but it is the Government's responsibility, if they persist in bringing in measures which aggravate an already difficult situation. They cannot dodge their responsibility for finding a solution to the problems that they have caused.
§ Mr. James Griffiths (Llanelly)
The benefits provided by this Bill call for this contribution. If it is to be reduced for people in low income groups, how does she propose to make up the difference, from the Treasury or from the public?
§ Miss Pike
My own view is that this could come out of Exchequer contributions, because this is a point of selectivity to which I would subscribe. This word "selectivity" is being bandied about just now. It is not my responsibility, but the Government's to find out how to do this, and to find the most just way to obtain the money. I am not advocating that the already savage increase in contribution should in any way be increased.
In this difficult situation we can ask the Government to find the solution which will bring justice to this particular category of low wage-earners. We cannot necessarily help them by increasing child allowance because, as the Report has pointed out, many of these families have only two children, some only one. In some cases the increase in child allowance would not necessarily bring any relief at all.
How would this proposal work? The onus would be on the wage-earners to satisfy the Commission that their wages are insufficient to bring them up to the level of the supplementary benefit. In these circumstances, there would be the 2174 need for a massive publicity campaign, to ensure that the rights of the people were known to them. None of us would have any hesitation about that, because the more we publicise these low incomes, the more hope there is that something can be done about them.
One of the great difficulties would be the difficulty of fluctuating earnings. I do not think that this would necessarily be so insurmountable because there would be comparatively few people involved at each local office. The Ministry has managed to overcome difficulties of this type before and to operate a complicated earnings rule on pensions, without the administrative machine falling apart. There is no need for there to be any difficulty on this score.
There may be those who say that this is a new principle which should not be embarked upon in what is a stop-gap emergency—at least we hope that it is. However this is not a new principle. The principle that contributions should take account of earnings is one which is, to some extent, already accepted. We have lower contributions for those under the age of 18. For those over 18 there is a special low contribution where the earnings fall below £5 a week. This would be bringing help to those in need without breaching any principle.
I have acknowledged that this is probably not the best way of dealing with the problem. The best way would be to recast the whole system, but I obviously cannot suggest that now. This is a stop-gap suggestion for a stop-gap Bill. While the right hon. Lady is thinking of these things, and the Cabinet arguing about how best to do something, this would be a means of making certain that we do not put any extra burden on this category of people. To a great extent the Government have brought this problem upon themselves. I do not say that the problem of the low wage earner is not something which the Government have inherited. All of us want to do something about it as quickly as possible. But the problem has been aggravated substantially over the past two or three years by the measures which the Government have taken.
Therefore, while the Government are thinking of ways of getting us out of the difficulties, they should, first, tell us 2175 what their plans are and, secondly, accept an Amendment such as this which would, in the short term, help these people.
§ Mr. James Griffiths
I listened with great interest to what the hon. Lady the Member for Melton (Miss Pike) said. I intervene to say a few words about the problem of contributions.
§ Mr. Douglas Houghton (Sowerby)
On a point of order. I apologise to my right hon. Friend the Member for Llanelly (Mr. James Griffiths) for interrupting him, but I am anxious about the scope of the debate on the Amendment. I hope to catch your eye, Mr. Irving, to deal with the wider question of the level of flat rate contributions, but not in the narrow context of the Amendment, which seeks only to exempt certain classes of people below the supplementary benefit level of income from paying the increased contribution.
If we are to have a wider discussion on the contribution level generally and the possibility of alternatives, I fear that I may seek to catch your eye after the main debate is over, which would be only wasting the Committee's time. May I ask when I should seek to catch your eye on the wider question of the contribution level? I proposed to do so on the Question, "That the Clause stand part of the Bill", but if it is suitable to do that in this debate I shall be guided accordingly.
§ The Deputy Chairman (Mr. Sydney Irving)
I was tempted on one occasion to intervene in the speech of the hon. Lady the Member for Melton (Miss Pike) when she went a little wide of the Amendment. It would be more appropriate if the wider questions were left until later. I hope that hon. Members will deal with the Amendment, which concerns the supplementary benefit level in relation to contributions.
§ Mr. Griffiths
If the Committee would permit a personal reference, it is 21 years ago this month since the National Insurance Act, 1946, received the Royal Assent. I express amazement that it has stood as a social benefit structure for 21 years without fundamental amendment. It was my job to translate the Beveridge Report into an Act. Beveridge recommended, from all the evidence 2176 available to him and on the basis of his wide experience, that what the people wanted was a comprehensive scheme which brought in everybody and which was based on flat rate contributions and flat rate benefits.
Eventually I had to fix the weekly contribution. The first decision which I made was that I would treat every man and woman of 18 years of age and over as an adult. It was the first Act to recognise that people of 18 years of age were adults. I hope that in the not too distant future we shall be dealing with that age in another context. I made up my mind that the maximum flat rate contribution which could be fixed, having regard to the varying incomes in the country, was 5s. a week. It was 4s. 11d. for the first two or three years and 5s. 3d. for a time afterwards. Ever since, the contribution has been increased at various times.
What the hon. Lady asks for in the Amendment is that those with an income below a certain level should be exempted from paying the extra 2s. I intervened in her speech to ask how she proposed that the difference should be made up. I gather that she would make up the amount of the lost contributions which would be required to pay the benefits by taking it from the Exchequer.
§ Mr. Griffiths
It is right that the Committee should be clear about the Amendment so that we know its consequences. If we were to accept the Amendment, could the hon. Lady give us an estimate of the number of men and women who would be exempted? That would give us an idea of the amount of money involved and how much would have to come from the Treasury. That amount would have to be made up in the next year's Budget by taxation.
I think that the time is overdue for us to go over to wage-related contributions and benefits. I still accept the principle of from each of according to his ability to pay and to each according to his need. I should like the country to have such a developed social consciousness 2177 that contributions would be paid in accordance with a person's ability to pay and that benefits would be paid in accordance with need. Unfortunately, we are not ready for this. When we go over to a wage-related pension scheme, contributions will be related to wages and salaries, and so will benefits. This is a question of transferring the class structure of industry to our social services. People who are sick will get benefits related to their incomes. My own party is committed to this. My right hon. Friend, for whom I have a deep regard—and, on this 21st anniversary, may I say what a very good Minister she is—is committed to it.
Reference has been made to the report which I hope we shall discuss later. As a trade unionist, may I say that the interesting thing about all these reports is the number of people who are still being paid low wages. If there are hundreds of thousands of families in which the breadwinner is not earning enough to sustain his family, I hope that we shall not confine our attention to consider the relationship of that matter to the social services but that we shall consider it in relation to the wage structure.
The whole trend is towards what is called selectivity. That is a lovely word. We had a debate in the House in which we talked about selectivity. I said, "What is meant by 'selectivity'? Who will select?" The hon. Lady said that, if the Amendment were carried, the onus to prove that the contributor was justified in getting exemption from paying the extra contribution would be put on him or her. If the Amendment were carried, to whom would a low paid worker have to apply? To his employer?
§ Mr. Griffiths
That means that if the Amendment were carried a man at work in a pit, in a factory, or in industry would he able to say, "This 2s. increase is more than I can bear. By an Amendment proposed by the Conservative Party in Committee. I am entitled to go to the Commission and say that I cannot pay the 2s. increase". This is introducing a means test into contributions. I say to my young colleagues: watch this tendency. 2178 This leads us back to the means test. By using nice terms about selectivity, that is what hon. Members opposite mean.
Later when we discuss the social insurance scheme as a whole, including family allowances, there may be some kinds of selectivity to which I would agree. Some were mentioned by my hon. Friend the Member for Bedwellty (Mr. Finch), who speaks with great experience in this matter, but they do not include selectivity based on means. This is not the way to tackle this problem. We should realise that all our economic difficulties these problems did not first arise in 1967. They had pressed upon us for many years, and will do so for a long time to come. I am sure that the hon. Lady the Member for Melton will not say that there were no low-paid workers when her Government were in office.
One thing which worries me as an old trade unionist is that the disparity between the lowest- and the highest-paid is getting greater all the time, but this Amendment would not be the way to deal with that problem. It is a polite way of introducing a means test into the Bill. I welcome the Bill and I thank my right hon. Friend for it, as I am sure the people of the country will also. I hope that in the course of this Parliament—probably my last—we shall go on to recast the scheme in such a way as to leave the essential condition that in whatever form contributions are made benefits will be paid as of right and will satisfy, not only the need, but the dignity of those concerned.
§ Mr. Marcus Worsley (Chelsea)
I support the Amendment. I congratulate the right hon. Member for Llanelly (Mr. James Griffiths) on his "twenty-first birthday". The fact that the Scheme as he devised it has lasted for so long is a tribute to his legislative ability, but I think he will agree that it has lasted for too long. Perhaps it should have reached 16 years of age, the school leaving age, and then been replaced. One of my regrets is that the course of affairs under the present Government shows their extraordinary tardiness in tackling this problem and replacing the scheme.
Heavy weather has been made about the proposition which my hon. Friend the Member for Melton (Miss Pike) described 2179 as a probing Amendment, and the details have been gone into in a heavy-handed way. This Government seem to have no idea of the problems created over a very wide field by the steeply rising rate of direct poll tax. If they had any idea of these problems they would not have introduced the Selective Employment Tax, which has aggravated the problems in an extraordinary form. It is up to this Government to look at the problem presented by the poll tax and to produce a better solution, if they can, than that put forward by my hon. Friend. Merely to criticise what she said and do nothing about it is not good enough.
I wonder if hon. Members really appreciate the difficulties caused in the employment of the elderly, in part-time employment at any age, and in employment of the younger wage-earner, by this extremely heavy poll tax element in the stamp plus S.E.T. It is easy enough to poke holes in this proposition, but the Government must come forward with a clear statement that they realise the difficulties caused in employment of elderly and part-time workers and that as a result they intend seriously to tackle the problems of the direct poll tax.
I understand that the right hon. Member for Sowerby (Mr. Houghton) intends to catch your eye, Mr. Irving, to describe in detail how he would tackle the problem. I shall listen with great interest to him, but I want first to hear from the Government what ideas they have.
§ The Minister of Social Security (Miss Margaret Herbison)
I want to deal with a number of points which have been raised by the hon. Lady the Member for Melton (Miss Pike), who moved the Amendment. Before doing so I wish to congratulate my right hon. Friend the Member for Llanelly (Mr. James Griffiths). His name is revered throughout the whole of Britain for the work he did between 1945 and 1950 in our first Labour Government with a real majority. I also thank him for the kind things he said about me.
§ Miss Herbison
The hon. Lady drew attention to the survey which was published earlier this week. She said that I had been very coy about it. I assure 2180 her that I had no intention of doing a disservice either to this House or to the Press in the manner in which the survey was published. The facts about the number of poor families and the number of children involved were given to the House many months ago. There is a great deal of further information in this report which I think will help us to deal, not only with cash payments for families for which I am responsible, but also with many of the other problems with which low-wage earning families are faced.
The hon. Lady will accept that this is not something new in our nation. We have always had poor families. Perhaps at least the Opposition will pay some credit to the Government for doing the research which was necessary to find exactly how large the problem is. The hon. Lady said that in general our policies have made matters worse. I look to my country, Scotland. We have fewer unemployed today—many thousands fewer, and they are the people who would be hit by the wage stop—than we had during the crisis when her party was in power. She called this a stop-gap Bill, but it is the same kind of Bill, an ordinary uprating Bill, as we have had during the 21 years since the Act was first put on the Statute Book. It is the same kind of Bill as we had during the 13 years when her party formed the Government.
The hon. Lady said that I spoke of the savage poll tax of the flat-rate contribution. I have not changed my mind one whit about the savage nature of that poll tax. When I raised the matter in Opposition my words, and the words of many of my hon. Friends, fell on stony ground. This is the second of the Bills dealing with this matter that I have brought forward. In each of them I have tried to ease just a little—I put it no higher than that—the burden that falls on the low wage earner. Previously, one decided what the combined contribution must be, and then that combined contribution was divided equally between the employer and the employee. Under the 1965 Act the combined contribution was 5s. 3d. We decided that the employer should pay 3s. 3d. and the employee 2s. The combined contribution this time is 4s. 3d. We decided 2s. 3d. for the employer and 2s. for the employee.
I am still extremely worried about the effect that even these increases—and I 2181 think they are big increases—will have on the low-wage earner. But at least we have tried to ease it a little—till our scheme of earnings-related pensions is ready to bring before the House, and we have promised to do it within the lifetime of this Parliament. When we bring that before the House, then indeed we will have a chance of getting rid completely of this savage poll tax.
We might have been able to ease this burden if we had used the power which the previous Government left behind, the power under the 1959 Act. We could have raised more money. That was the intention of the Act of the hon. Lady's Government. We could have raised more money from the graduated pension scheme without any return in improved benefits from it. We think that the graduated pension scheme at present is a bad scheme, and we had no intention of taking more out of it than we could help. For these reasons what we have done is just ease a little and no more.
The hon. Lady said this was a probing Amendment. She seemed to think that all the man would have to do would be to go to the local social security office and say, "I am earning so much. I should only have to pay a contribution of 2s. less than the others." I agree very much with what my right hon. Friend said about this, and the indignity that would attach to that man and his family, when the payment of contributions is the responsibility of the employer. It is the employer who gets the stamps and sees that they are attached to the employee's card, and, of course, he takes the employee's share of the contribution from his wages. If the rate of contribution were payable according to the individual circumstances of the employee's family the employer would have either to ascertain week by week what the circumstances were or be told whether he could pay a lower contribution or not. Even if it were considered proper for employers to make the necessary inquiries—and I think there would be a great deal of criticism on this side of the Committee if it were considered proper—the extra work for the employers would be considerable, and inquiries of this sort would be bound to be very properly resented by the employees.
Supplementary benefit levels vary according to families' needs and the 2182 employer could not decide the level appropriate to a particular employee, without knowing his other income, including his wife's earnings, besides his family's circumstances, and their ages—because in supplementary benefits the amount paid for children is paid according to age—and the rent payable. All these things are taken into account when we are dealing with what a family should have in supplementary benefit.
I do not want to labour this because I think I have said sufficient to show that, whether the onus could be put on the man himself—and it cannot, because the stamp is paid by the employer—or the employer should do, what I would consider an indignity, the probing into a man's circumstances, finding out also what his wife was earning, together with going to the supplementary benefit office to get rid of his 2s., but no other benefits involved, the whole of it so ludicrous that I am sure the hon. Lady was right when she said that this could be only a probing Amendment.
We have a further Clause here, a Clause about which the Opposition is most critical, Clause 5, and we will deal with the criticism of that Clause when we come to it, but we have said that before the recess we will announce our full plans for family endowment. We shall not have been a Government for three years till this October, and if we are able before then to announce, as we intend to do, our plans for easing the burden of these families, I do not think any sensible person, taking into account all the other major changes which we have made in these two and a half years, will be as critical as the Opposition at the present time seems to be. We are deeply concerned about these families, and we intend at the earliest moment possible to help them.
I hope that what I have said will make the hon. Lady realise how impossible it would be for the Government to accept this Amendment, and perhaps now she will be ready to withdraw it.
§ Mr. Paul Dean (Somerset, North)
I shall not detain the Committee for more than a few seconds. The right hon. Lady has spent much of her time pointing out the difficulties which, we acknowledge, arise from this Amendment, but 2183 she has not spent anything like so much time dealing with the very real problem to which this Amendment draws attention.
I admit that we have had the general picture before in this book, "Circumstances of Families", but only in the last day or two have we had the detailed figures. From what I can see in the very short time we have had to study them, there are something like 125,000 families in full-time work whose earnings are below the supplementary benefit level. So this is the number of families who are going to pay this increased contribution, but should they become entitled, should they go sick, or anything like that, they will get no benefit whatever for which they are paying an additional 2s. per week, but in many instances they will not get any additional supplementary benefit. Surely this is an example of selectivity in reverse so far as contributions are concerned.
The right hon. Gentleman the Member for Llanelly (Mr. James Griffiths) asked how this is to paid for. If we look at the Government Actuary's Report, we see that the increase in contributions which is being taken in this Bill is more than enough to meet the increase in benefit during the first few years, that this increase is partly going to meet a deficit on the National Insurance Scheme as a whole. So not only are these people paying something extra for an additional benefit which they are not going to get, but they are also helping to finance the deficit on the National Insurance Scheme as a whole. I am bound to say that this really is very rough and very unfair on these people.
The right hon. Gentleman said that what this Amendment really amounts to is the introducing of a means test into contributions. I think that we all accept that if one is to have a graduated contribution, the same position will Apply—
§ Mr. James Griffiths
The hon. Gentleman will have heard the questions which I put to my right hon. Friend. I gather from what she said that the way in which the other Amendment would work would be that a lower-paid worker would seek exemption from the payments because of his low wages. That is what I mean by 2184 a means test. It is entirely different from a wage-related scheme.
§ Mr. Dean
Obviously I misunderstood the right hon. Gentleman. However, the point is still valid. If one is to have a graduated contribution as opposed to a flat-rate contribution, someone has to look at the earnings of each individual to decide what the contribution shall be.
I do not wish to detain the Committee any longer. We are disappointed with the right hon. Lady's reply. She has told us that she will be making a further announcement on the problem before the summer is out, so, with those words, I beg to ask leave to withdraw the Amendment.
§ The Deputy Chairman
The hon. Lady who moved the Amendment must ask the leave of the Committee to withdraw it.
§ Miss Pike
Mr. Irving, as I said at the beginning, this is a probing Amendment and is meant to do nothing more than give an opportunity to the right hon. Lady to meet this point. As my hon. Friend the Member for Somerset, North (Mr. Dean) has said, in view of her assurance that before the House rises for the Summer Recess we shall have a full explanation of the Government's plans, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Question proposed, That the Clause stand part of the Bill.
§ Mr. Houghton
I intervene with some hesitation, because I know that a number of my hon. Friends wish to speak in this very short debate. If the Chancellor of the Exchequer had come to the Committee to say that he was proposing to increase taxation by £200 million a year with a view to the redistribution of income, the Committee would have been crowded and we should have debated it for a week. As it is, we had three hours the other evening, the two Front Bench speeches took over an hour, one other Privy Councillor spoke, which seemed quite enough, so I kept out of it.
I feel profoundly that nothing like enough discussion is taking place, at present about where we are going on social security. Minds have got into a groove. 2185 The whole subject seems to have bored everyone, except the continual protest, which we all understand, of the 6½million people on retirement pension who say that it is not enough.
I regret one feature of my own activities in the Government in the last 2½years, and it is that we did not appoint an outside body before which this problem could have been ventilated so that we could know what people were thinking and what various organisations had to say about the future of social security. As it is, too much is going on behind closed doors. Far too little outside discussion is taking place. I regard my present function as the stimulator of discussion. I will throw anything into discussion which will start people talking, because we are in serious danger of deluding ourselves that, when the Government scheme comes out it will be generally acceptable and we shall proceed smoothly to legislation and the introduction of a new scheme. However, I predict that violent arguments will take place when the scheme appears, whereas they should be taking place now. That is the great drawback of present circumstances.
With that introduction. I want to say one thing about paragraph (e) of Clause 1. Here again, we have a problem of great importance, and it is the conditions under which people may postpone retirement.
The Government Actuary draws attention in his Report to the increasing trend towards retirement on reaching retirement age. This will have important social and economic consequences to the country in years to come. I have already reminded hon. Members of what the Government Actuary said about the demographic problems which confront us. He says that, by the year 1990, there will be 10 million people in this country over retirement age. What are we to do with them? We are to have a debate on Tuesday on the care of the elderly. By 1990, we shall be caring for a very substantial proportion of the population. The dependency factor will rise. The number of productive workers will not rise in proportion to the increase in the number of dependents, both old and young. This will impose a very heavy burden on those 2186 who will have to find the resources necessary to maintain dependent persons.
Paragraph (e) offers a very slight encouragement to people to postpone retirement. Instead of getting 1s. extra for 12 extra contributions, they will get it for an extra 9 contributions. It is a pity that 9 is not easily divisible into 12, because a lot of people extend their working lives by a year at a time, and in many cases there is a compulsory retirement age. Factors of that kind may have an adverse effect upon whether 9 is the right figure or whether it should be, let us say, 6.
There are two reasons why people are retiring early. One is because the bonus for postponing it is not attractive enough. The other is because the opportunities for work after retirement age are gradually closing against both men and women. This is a most serious development socially and economically.
The question of the bonus is, after all, the only point dealt with in the Clause. Many people feel when they come to retirement age that, if they stay on at work, they give up the pension to which they are entitled while at the same time they have to continue to pay contributions and, when they do retire, the benefit for postponing retirement will not compensate them for having given up the pensions which they could have drawn. Against that it may be said that such a person will be in full-time work earning more than the pension, and that his the standard of living will be related to his earning capacity. He will not need the pension, and he will not have lost it. In reply, he will argue that he has lost it and is entitled to it now. People feel that they cannot forgo the pensions to which they are entitled, even if by staying at work they can earn more money. We have to cope with that sort of reasoning.
The inducements to remain at work should be improved dramatically in present circumstances, because it is most important that the encouragement to remain at work should be there. As a separate matter, not within the Clause, we should deal with problems of working after retirement age, compulsory retirement ages, conditions of occupational pension schemes, the impact on working life after pension age of modern production methods, and so on.
§ Mr. James Griffiths
My right hon. Friend has put forward a number of interesting suggestions. However, there are one or two questions which I should like to put to him. Does he think that his analysis leads to the conclusion that we ought to consider whether the retirement age should be raised, as it has been in Sweden? Alternatively, when he says that the inducements to stay at work must be increased dramatically, can he give an indication of what his drama would be like?
§ The Deputy Chairman
Order. The right hon. Member for Sowerby (Mr. Houghton) would be out of order if he pursued that line of debate.
§ Mr. Houghton
My right hon. Friend is very provocative on his birthday. I should like to respond to his challenge, but, as you point out, Mr. Irving, this would widen the debate far beyond the Clause. I am prepared to meet his question about the age of retirement, but at the moment I am afraid that I cannot give any illustration of the sort of dramatic improvement which I would wish to see made in the inducements to remain at work. I think that the figures would have to be gone into, but I would want to make it much more worth while than the Clause provides.
What I have to say now will be no criticism of the Minister, obviously not. I have the greatest admiration for her efficiency, her pertinacity, and her compassion for all those with whom her Ministry deals. Nor shall I make any party points. I think that this discussion is getting bedevilled with party political points. It needs to be discussed rationally.
I do not think that at the moment the Conservative Party has a contribution to make to the discussion so long as hon. Members opposite stick to the concept of flat rate contributions, and allow the private occupational schemes to take care of the rest. Under the Conservative proposals the flat rate contribution and the flat rate benefit would remain integral parts of the State scheme.
§ Mr. Houghton
I have studied it carefully, and I thought that I has got it right. I do not want to continue a discussion with the Conservatives, because I have something much more important to say, but I understood that the occupational scheme was to play a much more important part in social security than hitherto, and indeed that private employers were to be required to provide occupational schemes. I understood that the main substance of social security would rest upon a flat rate scheme.
§ Mr. Houghton
The hon. Lady says "No" and some hon. Gentlemen opposite are shaking their heads. Perhaps we will have it explained more lucidly and fully some other time. If there is a contribution which can be made to the discussion on the lines on which I am proceeding, I shall welcome it.
The Minister has already replied to me, so I am not asking her to reply to me either, as will be clear from what I have to say.
Flat rate contributions are going up under the Bill. Why are they going up? One reason is that the Government do not propose to tap further the existing graduated scheme to provide more money to subsidise the flat rate scheme. The Minister made this clear a few moments ago, and it is on this theme that I shall address the Committee for a few moments.
I think everyone will agree that the Conservative graduated scheme was chiefly a financial enterprise. It was not a measure of social policy, so much as a device to meet the emerging deficit in the flat rate scheme by the introduction of a graduated scheme which provided substantial additional revenue, which was immediately swallowed up in financing the flat rate scheme. It exploited the concept of extra graduated benefits based on extra graduated contributions to finance the emerging deficit on the flat rate scheme. I think that during 1965–66 the graduated contributions yielded about £300 million more than was required to pay out graduated benefits, and indeed up to now, since the graduated scheme 2189 started, £1,139 million has been collected in graduated contributions, which have almost wholly been used to finance the flat rate scheme.
By imposing the additional contribution on those getting over £9 a week, lower paid workers were spared the increase in flat rate contributions which would otherwise have been necessary to finance the increased flat rate pensions. There were many harsh things said about the scheme when it came in, and some of the legends about it are still being repeated, but in a sense it was a measure of payment according to ability to pay to mitigate the hardship of what was called the savage poll tax. I will concede that to the graduated scheme.
While it gave the graduated contributor less than value for money for his graduated contribution, it satisfied at least one standard of social justice by financing flat rate benefits out of contributions graduated according to earnings, and was therefore based on an assumption of ability to pay. But now, in the last two increases introduced by the Government, we have felt inhibited—and I say "we" because I was a party to the first of these two National Insurance Bills—from further exploiting this source of revenue.
With what result? The result is that the flat rate contribution is going up by more than it need have done had we been willing to continue the exploitation of the graduated contributions. We rejected the expedient of raising more money from the Tory swindle, and had perforce to make the savage poll tax more savage than before. I find this very worrying—2s. on the stamp, 4s. altogether, in two measures.
There is on the Notice Paper an Amendment on the Prices and Incomes Bill in the names of some of my hon. Friends to exempt from the conditions of the prices and incomes legislation increases related to the increases in National Insurance contributions. I think that this is the problem. The graduated contribution has remained the same. It is tainted money, but we cannot do without it at the moment, and we refuse to collect more of it. What we are really saying to the lower paid worker is, "You must pay more because we have scruples against swindling the higher-paid workers still more". I 2190 think that this is the dilemma of the present situation.
Are we to continue to raise the flat rate contribution on orthodox lines, leaving the part played in the financial operations of the graduated scheme exactly where it is now? It is this issue which I pose to the Committee. We did it once in 1965. We are repeating it in 1967. Are we going to repeat it again? My prediction is that we shall. I believe that another measure of improvement in benefits on traditional lines will be necessary before a new and comprehensive graduated scheme can come into operation, and we are therefore going to steepen the poll tax because we shrink from tapping the graduated scheme for more.
I see no escape from this in present circumstances, unless we are prepared, as I think we should be, to recast the structure of contributions, even while we continue flat rate benefits. I think that the Government should consider, as an urgent matter a policy, switching over from flat rate contributions to graduated contributions as an interim measure to arrest the hardship of the ever-increasing flat rate contributions.
The question arises, "Do I mean the introduction of graduated contributions for flat rate benefits"? The answer is, "Yes, I do." At one time this would have been completely unacceptable to the trade union movement, but I do not believe that it would be today. This should be put to the unions as the only alternative to worsening the position of the lower-paid workers. It is not fair to them that we should go on like this.
§ The Deputy Chairman
Order. The right hon. Member is now getting to a Second Reading speech on the recasting of the whole social security system. That is wide of the terms of the Clause.
§ Mr. Houghton
I shall try to keep within the rules of order, Mr. Irving. I was very uneasy when I found that the scope of the Amendment was going rather wider than I had hoped. I hope to keep within order by saying that we are dealing with flat rate contributions, and are proposing to increase them. I am suggesting some means of meeting what we are all so worried about—the impact of the higher flat rate contribution on the lower-paid worker.
2191 It is now 15s. 8d. a week for the male worker not contracted out. The measure of the transfer from the graduated contribution to the flat rate contribution is to be seen in what we charge the contracted-out man for the privilege of not being in the graduated scheme—not being there to be milked in order to finance flat-rate benefits. We charge him 2s. 5d. a week more than anybody else for the same flat rate benefit, because that is the premium he must pay for being exempted from the graduated contribution.
The compulsory levies go through three phases. First, they are small and uniform in amount; so small as not to justify differentiation or graduation. This is the universal flat rate contribution phase. That is how it began. That is how Income Tax began when it was 4d. in the £. The next phase arises because the contribution gets so high as to cause hardship to those with lower incomes, so that there is a switch to a proportionate basis of levy in scale with earnings, but not so high a proportion as to call for differential taxation according to family responsibilities. Then we come to the progressive tax—Income Tax—where this has got so high that it cannot be a flat rate and it cannot even be proportionate. It must be graduated and it must be progressive.
The Income Tax system has reached the stage where the proportionate tax is too heavy on the lower incomes and too light on the higher incomes. That is where we bring the graduated and progressive tax together. At the moment we are getting the worst of both worlds. We have a flat rate contribution and a proportionate contribution and, taking the two together, at some levels of income, they are now getting dangerously near to a breach of the fundamental principle of taxation, which is ability to pay.
This is what I am challenging. The truth is that we are prisoners of the National Insurance mythology. We cannot seem to break out of it. This is all being left for the major review. When that day dawns all will be put right, but until then a great deal will remain wrong.
§ Mr. Gwilym Roberts (Bedfordshire, South)
Does not my right hon. Friend 2192 agree that the great need is for more public discussion before this review eventually emerges? We keep being told, "This is being considered." Does not my right hon. Friend agree that there might be room for a Select Committee to go into the whole problem of social security, so that there could be more public discussion of this issue?
§ Mr. Houghton
I hope that my hon. Friend will forgive me; I touched on that aspect at the beginning of my speech, and I do not think that I should reopen it. I want to come to a conclusion.
The National Health Service is largely financed out of taxation, and a good deal of the money for the service is found from progressive taxation. There is little or no association between the benefits received under the National Health Service and the meagre and quite unfair flat rate National Health Service contribution. Only £163 million of the cost of the National Health Service is borne out of National Health Service contributions. Cash benefits—and here is where we come to minds in grooves—are no more based on the insurance principle than a positively grotesque relationship between the number of contributions and the title to benefit. Benefits are supposed to he what we have paid for directly by virtue of contributions.
This is nothing but a state of mind. We are bewitched by nomenclatures, and the ease with which the Chancellor of the Exchequer can levy this form of taxation by flat rate contribution is one of the miracles of fiscal policy.
When are we to get away from a concept which, if its inequities were translated into P.A.Y.E., would be denounced as grossly unfair, and would cause threats of a general strike? No Chancellor of the Exchequer could get away with what the Minister of Social Security can get away with in this mystique of contributions.
That is the end of the lecture. I am content to leave it there. What I have said may be noticed outside the Committee. It may be that discussion can go on, and that the trade union movement will examine the question. If I could see an early end to this situation I would not be so worried, but it will be three years at least, if not longer, before a new scheme can be brought into operation. In those circumstances I believe 2193 that what I have drawn attention to is of great interim importance.
§ 12.15 p.m.
§ Mr. Maurice Macmillan (Farnham)
The right hon. Member for Sowerby (Mr. Houghton) said that he wished to stimulate discussion. I agree that no better stimulator could be found than he, and I also agree that there is need for discussion on the lines suggested by him. I have only one complaint to make of his speech—he said practically everything that I wanted to say, and rather better. This means that I shall not delay the Committee for more than a few minutes.
The right hon. Gentleman's key point was that this last increase in the flat rate contribution has brought it home to hon. Members and to the country that this contribution is not an insurance contribution in any true sense of the word; it is another method of raising taxation. It should therefore be considered with the care for its social and economic consequences that we give to more normal methods of raising taxation in the Budget. It has escaped that searching examination through having the entirely fictitious name of an insurance contribution. I hasten to add that I am in no way trying to lessen or denigrate the great achievement of the right hon. Member for Llanelly (Mr. James Griffiths). I add my congratulations to him on his baby's coming of age.
It was only to be expected that with the change of circumstances and the rapid growth of technological advances that have taken place in the last 21 years a method which was quite satisfactory at the beginning has recently tended to put too heavy a burden on those in the lower income groups. The right hon. Gentleman showed part of our dilemma when he rightly abhorred the means test in the system which I cannot remember but he can, but suggested that our social legislation should be based on the principle, from each according to his ability, to each according to his needs. I am sure that this is what we all mean by that over-used word "selectivity".
My hon. Friend the Member for Melton (Miss Pike) pointed to the confusion which is brought in by these insurance contributions which have become bogus by producing a curious result of a wage-related system by which one pays more and gets more the better off one is. The 2194 right hon. Member for Sowerby suggested that one should pay more if better off, but not necessarily get more, and I think that we would certainly agree with that.
This argument is the more urgent because, without trying to attribute blame or make a party political point, it is clear that the economy's natural growth will not allow us to finance considerable social expenditure increases without increases in taxation. Mr. Peter Jay's articles have made this fairly clear. Therefore, the form of the taxation and contribution becomes more important.
Both the weakness of the Tory graduated scheme—despite the right hon. Gentleman's acknowledgments—and this Government's reluctance to use it stemmed from this dilemma. Unless something is done urgently, there will be an inescapable need for a higher flat rate contribution, inevitably going up as benefits rise. My only real difference with the right hon. Gentleman is that, where he agrees in principle to a graduated contribution producing a flat-rate benefit, I would prefer to go the whole hog and call it a social security tax. The Committee should be grateful for the way in which he raised this very important point.
§ Dr. David Owen (Plymouth, Sutton)
My interest in this matter resulted from a study of the Government Actuary's Report. I agree with a great deal of what my right hon. Friend the Member for Sowerby (Mr. Houghton) said, but I will concentrate on the Report. The Report assumes a long-term unemployment rate of 2 per cent., but has this always been the case in such reports? It assumes also that earnings will be constant from the end of October 1967 to the financial year 2005. The former assumption could be pessimistic, but financially prudent, but I certainly hope that a 2 per cent. unemployment level will not be maintained until then, but the latter is sheer nonsense. The Actuary's table showing the income and outgoings of the scheme for the next four decades is therefore totally meaningless. If we are to debate this rationally, we should have figures which mean something.
It could be argued that in a "pay-as-you-go" scheme, increase in earnings would lead automatically to increases 2195 in contributions and benefits, so that the balance of income and expenditure would not be affected, but I hope that the Minister will not argue that. When the National Insurance Scheme was purely flat-rate, this was probably broadly true, but, with graduated contributions and benefits, it is no longer true.
There is no reason to suppose that graduated contribution increments will rise pari passu with earnings. This depends on the relevant band of income. Expenditure on graduated contributions, moreover, cannot rise in line with earnings because under the Tory scheme the balance of benefits already earned can never be adjusted to take into account inflation or the real increase in earnings. Thus, these long-term estimates are pure fiction. But this is not so important as the short-term estimates, which determine the proposed increases in flat-rate contributions for this year. No hon. Member on this side does not bitterly regret the level of flat-rate contributions and believes that they have reached the highest tolerable level.
In the financial circumstances of the last few years, with considerable income restraint, examination of the flat-rate contribution becomes even more important. If unemployment falls, by how much can we expect the Fund to benefit? It will already be in surplus of £1 million for 1967–68 and £17 million for 1968–69. In answer to a Question about estimates of an increase in earnings which we must all accept will occur, on the basis of a 5 per cent. increase in the years 1967–68 and 1968–69, the Minister said that there would be an estimated increase of £2 million and £20 million respectively, which must be an estimate of increases almost certainly of £3 million and £38 million. This totals £41 million over two years, and these are serious figures when the contribution is as high as it is.
When one adds on what I hope will be a dramatic fall in unemployment, one sees that the flat-rate contributions are being fixed unnecessarily high because of what one hopes is a temporary unemployment level. These are technical financial questions which the Minister may not he able to answer immediately, but we are concerned that the flat-rate contribution is fixed so high in present circumstances and 2196 that figures are based on these suppositions. I know that it can be argued that the Fund goes into deficit in later years, but these long-term considerations are, as I have shown, based on nonsense. I hope that the Committee will be given some illumination of this extraordinary Report.
§ Mr. John Pardoe (Cornwall, North)
I am grateful to the right hon. Gentleman for Sowerby (Mr. Houghton) for having mentioned something which I have been hammering for some time, the iniquity of the whole tax structure. An Amendment of mine to the Clause put forward the alternative proposal of a social security tax, which I mentioned on Second Reading but had little time to develop. We must reorganise the financial structure of how we derive the income for these and other benefits. How best can we raise such a tax?
The simplest way is a straightforward payroll tax as a percentage of a firm's payroll, which would be levied by the employer, in deductions from his salary bill. An answer from the Chancellor of the Exchequer to me in the last three days said that, to pay for all the benefits listed in Appendix 1 of Cmnd. Paper 3320, which is about the whole list which we are discussing, would require a payroll tax of 10 per cent. This is the kind of figure which we are therefore discussing.
On the average wage of an adult man in industry, it would amount to about £2 a week—
§ The Deputy Chairman
Order. Particularly in view of the shortness of the Second Reading debate, I have allowed this debate to go a little wider than it probably should, but the hon. Gentleman is now seeking to raise the subject matter of an Amendment, which is out of order. One thing which he cannot do on this Question is deal with a payroll tax.
§ 12.30 p.m.
§ Mr. Pardoe
I should be grateful for some enlightenment. The Clause deals with amendments to the contributions under the National Insurance Act, and I must admit that in my ignorance I imagined that any discussion of contributions would be in order. I should be grateful for some ruling.
§ The Deputy Chairman
I am not saying that the discussion of contributions as 2197 they are in the Clause is not in order. It is perfectly in order. But the hon. Member is talking about a payroll tax, which I understand to be entirely different from the form of contribution which is part of the Clause. He may make a brief reference to it. I certainly allowed the right hon. Member for Sowerby (Mr. Houghton) some latitude in that respect, but the hon. Member for Cornwall, North (Mr. Pardoe) is now going into some detail about the payroll tax.
§ Mr. Pardoe
I fully understand, Mr. Irving, and I will be brief. I was pointing out that I was not simply asking the Government to think about doing something different; I was proposing something specific. But I agree that we must not go into great detail, and I accept your Ruling. Perhaps I have already said enough to get across to the House the main lines of my argument.
May I follow the right hon. Member for Sowerby in his remarks about graduated contributions and a flat rate pension? I entirely agree with him about flat rate pensions. I see no argument at all for relating State pensions to incomes. The State should keep out of this field. It is trying to create tailor-made pensions, bespoke pension schemes. My view is that the State should content itself with providing a basic level which is adequate for the person to live on.
§ Mr. Houghton
The hon. Member misunderstands what I said. I was dealing with the contributions and the need to get rid of the hardship of the flat rate contribution. I was not advocating the retention of flat-rate benefits as a permanent feature of the scheme. This is an interim Measure to resolve our financial dilemma.
§ Mr. Pardoe
In that case I will not claim the right hon. Gentleman in support of my attitude. In my view there should not be a flat-rate contribution, because that is a poll tax, but the pensions should be flat rate and should be related generally to average earnings. I will deal with that in an Amendment which has been selected for later debate. It would be as well to remind the Committee that the National Insurance budget in 1964 amounted to £1,600 million whereas the total amount of money spent in contributions to voluntary schemes and 2198 occupational schemes was £2,600 million. That is an enormously important field which we should wholeheartedly encourage.
§ Mr. Terence L. Higgins (Worthing)
I intervene briefly but by way of a paving statement in anticipation of a new Clause which we shall debate later.
I was glad to hear at any rate part of the speech of the right hon. Member for Sowerby (Mr. Houghton), and I am sorry that I missed the beginning of it, for clearly it was a speech of great distinction. It seemed to strike at the whole flaw in the present basis on which we organise the pensions system. He described the present system of contributions as a miracle of fiscal policy. It is surely clear to anyone who has given only the most superficial examination to the subject, let alone those who have studied it in detail, that the whole idea that the system is on an actuarial basis is complete and utter nonsense. The sooner that the Minister and her colleagues can say that clearly and without shame, the more likely we are to find a real solution to these social problems.
Until that is done, we shall find the mythology of the contributions principle arising time and again—the idea that because one was fortunate enough to be allowed to contribute a specified number of contributions, one shall receive any future benefit which the State decides to give out of general taxation and other fees and out of levies which are imposed by the Clause on people who have not yet been able to obtain benefit. I am, therefore, sure that the House was grateful for the great authority which the right hon. Member brought to the argument.
The fact is that these contributions are extremely regressive. That is common ground and is obvious to any hon. Member. Certainly it is contrary to the principles which many hon. Members opposite have put forward in the past. These contributions hit very heavily the old-age non-pensioners, who are to make contributions to those who in many cases are better off than they are themselves. I shall return to this point later, but I hope that we shall have some clarification from the Minister of her views about what she thinks will happen in respect of the lowest-paid workers who may be subject to the prices and incomes policy.
2199 During the Committee stage of the present Prices and Incomes Bill we had no clear statement from the First Secretary of State about what is the position of passing on these contributions. It is not in the least clear, if a wage claim is put in by the lowest paid workers to cover the increase in contributions, whether that is contrary to the prices and incomes policy. The nearest we came to a decision from the First Secretary of State was that it would be contrary to the policy if it were simply a claim covering the contribution, but he had not made up his mind about what the position would be in respect of those claims which were put in partly on account of these contributions. I therefore hope that the Minister will give some idea whether she feels that a wage claim from lowest-paid workers would be justified to cover the regressive element of this tax.
What the Government are doing is failing to control inflation—if we take the entire period from last July to two years hence, this will be even more apparent—and they are imposing this kind of regressive tax in order to compensate the pensioners. The right thing to do is to take every step possible to stop inflation. It is true that under Conservative Government pensions were raised not just to compensate for the cost of living but in line with earnings, but at the same time the general burden of taxation, including this type of contribution, was reduced in that period. It is right, therefore, when considering the contribution proposed in the Bill, that we should regard it as a tax. That is what it is.
§ Mr. J. J. Mendelson (Penistone)
The hon. Member must not go too far in making these party claims. While he and his hon. Friends are criticising this aspect of the new contributions, his right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), on behalf of his party, is putting forward schemes of tax reform which would shift the burden much more away from those who have high incomes to those who have not.
§ Mr. Higgins
I should be out of order if I pursued that point in too much detail, but under the previous Conservative Government not only were pen- 2200 sions raised more satisfactorily than under the present Government but at the same time, because we achieved a higher level of economic growth, the general burden of taxation was reduced. That is not a party point but a question of fact.
Once we regard it as a tax increase, which it clearly is—and almost more appropriate to a Finance Bill—then we need to consider what the Prime Minister said on 20th June when he recorded a broadcast on the "State of the Nation". He was answering a question from Mr. Arthur Cockfield, Chairman of Boots, who said that all taxes had gone up. The question was, "Is it really the Government's intention to go on increasing taxes?" The Prime Minister replied, "I think that is a very fair question. The answer to that is no." And yet between the date when that broadcast was recorded and its transmission we had this increase in contributions introduced. This shows what credence one can put on the kind of assurance which we get from the Prime Minister. This should be regarded as a tax increase, and when considering the Clause we should consider what is involved in this increase in contributions.
§ Mrs. Lena Jeger (Holborn and St. Pancras, South)
Obviously this wider discussion of the principles involved is the more interesting aspect of the debate. However, I wish to limit my remarks to some of the more actuarial aspects. If one accepts, as one must at present, the actuarial mythology to which my right hon. Friend the Member for Sowerby (Mr. Houghton) referred, then even within that mythology I cannot understand the calculations leading to the necessity for an increase of the size we are discussing.
In a Written Answer on 3rd July last, my right hon. Friend the Minister indicated that there had been an under estimate of about £20 million in the yield from graduated contributions, presuming a rise in earnings of 5 per cent. per annum. The idea that the Government actuary has worked on the instruction that earnings would remain constant fills me with anxiety. This would seem to rule out, for example, any progress towards equal pay for women workers. Is there to be no progress made towards a minimum wage, a concept for which 2201 many of our friends in the trade union movement have been working for some time?
On the basis of a 5 per cent. increase in earnings—which I consider a modest expansion indeed—we are able to collect an additional £20 million. One can add to that the amount that would be saved by getting unemployment down to 2 per cent.—what I would regard, even then, as an unacceptably high level. I am modest about mathematics, but I estimate a saving of £13 million in terms of the benefits that would not have to be paid. If one goes on to add the admitted surplus of £17 million, one arrives at a total of about £50 million. These three items alone amount to about one quarter of the proposed increase in flat-rate contributions. For this reason I tabled an Amendment—which, unfortunately, has not been selected—designed to reduce the contributions by 1s. per head.
Other aspects of the Actuary's Report worry me. For example, we are told, on the basis of the estimates, that the trend towards increasing sickness has continued and that an allowance has been made for an addition of 3 per cent. This may be mathematically true, but the assumption should not go by default. We should take ourselves by the scruff of the neck and question the acceptability of a continuing 3 per cent. rise in sickness. What is making us more sickly? Can we tackle the causes, or is this estimate just an over-insurance about the future ill-health of the nation?
The Actuary then goes on to assume that the trend towards earlier retirement will continue. I was interested to hear the remarks of my right hon. Friend the Member for Sowerby about this because it is an element in the calculations which should not be accepted as immutable and Holy Writ. It should be challenged and questioned.
There is then the extraordinary assumption that while the mortality rate of pensioners has been lower in recent years than had been estimated, this feature is assumed to be only a temporary one. This can only mean that the mortality rate of pensioners is likely to increase in future. I would regret that very much, although I appreciate, from the actuarial point of view, that if pensioners do not live as long and therefore do not 2202 draw their pensions for as long less money will be taken out of the Fund.
The whole basis on which we are asking men and women workers in Britain to pay extra contributions is questionable, not only from the point of view of social and fiscal policy but even from the point of view of the framework of the arithmetic on which Parliament is being asked to approve this change. I would appreciate guidance from the Minister about how these mathematical calculations are arrived at. Without this guidance I will find it difficult to explain to railway and other workers in my constituency how the Government can justify this increase.
§ 12.45 p.m.
§ Mr. R. B. Cant (Stoke-on-Trent, Central)
People who have studied actuarial estimates since the period immediately after the Second World War know that they were originally based on the assumption that unemployment would be 8 per cent.—an assumption that did not turn out to be true. This yielded a magnificent National Insurance Reserve Fund balance. The money was available to finance the mechanisation of the coal mines and so on, but not to reduce National Insurance contributions or similar payments.
Having begun on that rather cynical note, I wish to make it clear that I support the Clause, although the Government are in slight disarray. We heard a magnificent speech from my right hon. Friend the Member for Sowerby (Mr. Houghton), and on my way here in the train this morning I read the pamphlet which he wrote. However, he has left the Government service. I understand that a Minister has been appointed at Cabinet rank with overall responsibility for the future of social security. I noticed that Minister pop into the Chamber for 15 minutes or so during the Second Reading debate, but then he vanished. I only hope that our long-term thinking about this problem has not also vanished.
My main reason for supporting the Clause—and I promise to be brief; indeed, I have been instructed to be brief [Laughter.]—and particularly the flat-rate contributions and benefits is because it is designed to be a temporary measure. As a temporary provision, it has been suggested that the graduated contributions should be increased. Perhaps this makes 2203 sense, but it would be difficult for the Government, having attached to graduated pensions something of a stigma, then to use this as a basis even for an interim reform.
We as a Government or as politicians, when governing this country, sometimes bewilder the people with the rate of change in our regulations, institutions and so on. At any rate, we pass legislation which suggests that we want to make a number of rapid changes on a number of fronts all at the same time. I suspect that the electors find this bewildering. They prefer the great sheet anchors of democracy and I regard the flat-rate contribution and benefit as being among those essential principles. These great sheet anchors have been described as regressive, but the people understand them. As for the assertions that are made about the actuarial basis of the National Insurance Fund, everybody knows that this is a nonsense. We would have to look very hard indeed to discover the people who have paid contributions which would finance the benefits payable during the normal expectation of life. Even so, the electorate have great faith in this and attach great importance to it, and we will change it only at our cost, because the Fund is based on another principle that has not yet been mentioned, and that is the contractual principle.
The average contributor pays into the Fund in the honest expectation that at the end of his period of work he will receive an amount of money as of right. In a sense, he believes that some sort of legal contract exists which does not exist in the case of some items that are budgetary and do not come within the Fund—family allowances, for example. We would throw over that principle at our peril. Many things can be said against it—that it is regressive, and so forth—
§ Mr. Higgins
How can one call something a contractual principle when a relationship between what one pays in and what one pays out is totally unknown?
§ Mr. Higgins
With respect, not at all. We know that we put it in and then get paid out on the basis of ac- 2204 tuarial expectations which can be statistically verified.
§ Mr. Cant
Only in the narrow sense. There are very few young people who have paid in sufficient contributions to finance their expectations of the retirement pension. People regard these principles as being important, and we would be doing a great disservice if we threw them over.
If we are to increase benefits we must increase taxes. It is interesting to note that the only taxes where we pay a lower percentage as a proportion of the gross national product than, for example, the Common Market countries, are our social security taxes. Those are the only taxes we can increase without getting ourselves out of line with any particular Common Market country. To some of us that is significant, and the Government must take it into account.
The other aspect of the tax problem is reflation and the precise effect of the levying of tax. I am convinced that if we are to alter our taxes at the moment we must, to some extent, make them reflationary. Although no one has worked out what happens in this context in terms of how much is spent, how much is taxed and how much is saved, I suspect that it will have a gently reflationary influence later.
§ Miss Herbison
We have had a first-rate Second Reading debate. We have roamed not only over matters affecting the Bill but over the whole economic position of the nation, prices and incomes, and so on. I do not take great objection to that, because they may be bound up very closely with the provisions of the Bill, but I do not intend to cover all the subjects that have been raised. Some of them I dealt with fairly fully on Second Reading. I do, however, want to take up one or two of the points made by my right hon. Friend the Member for Sowerby (Mr. Houghton) in his most interesting speech.
I was rather surprised to hear him so vehemently support the idea of some outside body. He must know the amount of work that has been done. There have been many discussions, and before the scheme ever gets to the Statute Book we intend to publish a White Paper which, 2205 I hope, will result in the kind of discussion, not only inside this House but outside it, that will prove of great value for whatever scheme the Government decide to adopt.
Another question is the retirement age. I paid a very short visit to Sweden to look at the scheme there, and found that the retirement age for both men and women is 67. One wonders whether that would be tolerated here. Are we moving, as I think many people would want us to move, towards the same retiring age for men and for women? Are married women to opt out, or are they to be in the insurance scheme when they are working? We are giving the most serious thought to all such matters in the review we are at present carrying out.
My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) is, like myself and everyone else, worried about the poll tax, particularly as it affects the low wage earner. It has been suggested that, perhaps as an interim scheme, we might bring in another scheme of graduated contributions for flat-rate benefits. I must tell my hon. Friend, from my almost three years' experience of this Department dealing with a highly complex and highly technical matter like this, that if I were to have landed on my plate on top of it all some other scheme that would have to be worked out, heaven only knows when we would finally get the new scheme. We have the present graduated scheme which gives a little return but, as my hon. Friend will agree, it is almost a graduated scheme for flat-rate benefits. It has been interesting to hear his point of view on the matter, and I hope to hear other views.
My hon. Friends the Members for Plymouth, Sutton (Dr. David Owen) and for Holborn and St. Pancras, South (Mrs. Lena Jeger) have certainly done their homework on the Actuary's Report, and I shall not go into details. I merely say that the Actuary this time has, as the Actuaries on all previous occasions have, had to make certain assumptions. One of them, that unemployment is 2 per cent. he has to get from the Government. I do not think that any body is better placed than the Government to get the figure below 2 per cent., which is what I want and what the Government want.
2206 I was asked what was being done about the 3 per cent. increase in sickness benefit experience, but that is not a question for me. Were I to do all the things that it is suggested I should do, I do not know when we in the Department would ever finish any job. But between the last Report of the Actuary and this one we find an increase in claims for sickness benefit over and above what the Actuary had expected for 1965. One cannot take a risk—if the trend continues one has to provide for it.
§ Mrs. Jeger
I realise the limits of my right hon. Friends responsibilities, but is any consultation going on with her right hon. Friend the Minister of Health or other Ministers about the acceptability of this continuing increase in sickness?
§ 1.0 p.m.
§ Miss Herbison
As my hon. Friend will know, there is constant discussion about these matters among the Departments. We discuss them with the Ministry of Health, for instance. Inside my Ministry we have certain disciplines, some of them involving inter-Departmental consultation.
My right hon. Friend the Member for Sowerby spoke about providing some worth-while inducements to people to make them stay in work. I did not expect him to be able to say what that inducement should be. In these matters the Government Actuary has to take into account what is happening under the present schemes and what is likely to be the number retiring by the time we ask for another report from him.
My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) stressed the importance of the fact that our insurance scheme was a "pay-as-you-go" scheme. This is something which I stressed on Second Reading. This is not the kind of scheme to be found in private insurance. I shall not repeat again what I said on Second Reading, but there was a great deal in what my hon. Friend had to say.
The Government are as well aware as anyone that this flat rate contribution is a very great burden and in our new scheme we are giving great consideration to how we can deal with it.
§ Question put and agreed to.
§ Clause ordered to stand part of the Bill.