HC Deb 10 June 1969 vol 784 cc1238-50
The Secretary of State for Social Services (Mr. Richard Crossman)

With permission, Mr. Speaker, I will make a statement about improvements in national insurance and industrial injuries benefits, supplementary benefits and war pensions and about increases in the contributions of the insurance schemes.

I have presented today a Bill to increase benefits and contributions under the national insurance and industrial injuries schemes. A Financial Memorandum is attached to the Bill. An explanatory White Paper and a report by the Government Actuary will be available later this afternoon.

The House already knows that the Government proposes to increase the main standard benefit rates of the national insurance scheme by 10s. a week for a single person and 16s. for a married couple. This will restore to the flat-rate benefits the value lost because of the rise in prices in the two years since the last increase in October, 1967. The cost of the total increase, including industrial injuries, will be about £247 million in the first full year. It is proposed that the new rates of benefit should come into effect at the beginning of November.

The levels of supplementary benefits will be increased at the same time. For the two main categories—the single householder and the married couple—increases of 5s. and 8s. are proposed. Taking into account the first instalment they have been receiving since October. 1968, they will then have had increases of 10s. and 16s. respectively since October, 1967—the same increases as are now proposed in the standard rates of national insurance benefits, which have remained unchanged since that date.

Supplementary benefit levels for other categories, including children, will also be increased. Draft regulations to provide for all these changes will be laid for approval by the House in due course.

There will also be increases in war pensions.

I will, with permission, circulate a list of the principal proposals for supplementary benefits and changes in war pensions in the OFFICIAL REPORT.

I now turn to contributions which need to be increased not only because of higher benefits, but owing to two other factors: the greatly increased number of pensioners and the higher cost of short-term benefits.

As the House already knows, the total required in a full year is about £430 million. With the Exchequer contribution remaining at 18 per cent., i.e. £70 million, this leaves about £360 million to be found from increased contributions. The traditional way of raising this sum would have been by putting the whole burden on the flat-rate contribution. This would have meant an increase of 3s. 4d. each for employer and employee.

The Government rejected this as an intolerable imposition on the lower-paid worker. Instead, we thought it right to move towards the new scheme of national superannuation by raising most of the additional contribution on an earnings related basis. The flat-rate increase for an employed man, including industrial injuries, has been held down to 1s. a week and for an employed woman to 11d., whereas the present ½ per cent. graduated contribution on earnings between £18 and £30 a week will be raised by 2¾ per cent.

The biggest increase—for a man earning £30 or more a week—will be 7s. 7d. a week, made up of 1s. flat-rate contribution and 6s. 7d. graduated contribution. On the other hand, about 6 million employees who earn less than £18 a week will have only the 1s. flat-rate increase to pay.

I now turn to the benefits which employees will receive from these increased contributions. Let me emphasise that these additional graduated contributions, which will apply all across the board, both those in the State scheme and those contracted-out, will earn additional pension rights. But the greatest weakness of the graduated scheme introduced by our predecessors in 1961 was that it included no device for making these graduated pensions inflation-proof. Indeed, ever since 1961 their value has been shrinking year by year.

The Government have, therefore, decided that from 1972, when the new scheme comes into operation, the biennial review will guarantee the value not only of new scheme earnings-related pensions and the present flat-rate pensions as indicated in the White Paper, but also of the small graduated element in the present scheme which is earned by all those who pay graduated contributions. This will apply not only to pension entitlement earned in the three years between now and 1972, but also to the pension earned in the last eight years.

I should warn the House that this decision may cause problems to some employers and contracted-out workers. I should make it clear, however, that contracted out employers will not be required to revalue the equivalent pension benefits for employees who have left or may leave their employment before retiring age. But it will be for the employer to decide whether any improvement should be made in the light of all the circumstances and, since the decision will not take effect until after 1972, this will leave ample time for further consultations on this complex issue.

On the other hand, the decision to revalue the 1961 graduated element of the present pensions scheme will, I am sure, be welcomed by all those whose graduated pension rights have been frozen by the previous Government's legislation. Now they will be able, for the first time, to look forward in their retirement to graduated pensions that will be revealed in the light of changes in the value of money and the level of earnings.

Lord Balniel

Is the right hon. Gentleman aware that the whole House will welcome the fact that at long last the long saga of evasion is coming to an end, and that the public will soon be aware of the full implications of the Budget speech?

First on the level of benefits, is the right hon. Gentleman aware that the £4 10s. pension of October, 1967, has declined in value by 9s., so that the 10s. increase, even if it came into operation straight away, would only just restore the value to the 1967 level? Is it not clear that by the time seven months have elapsed, and the present trend of price increases has continued, the 10s. increase in the benefit will hardly raise it to the 1967 level? Therefore, this vast increase in contribution will only just compensate for the rapid erosion of the pension which is occurring today.

Second, am I right in thinking that a man with average earnings of £23 a week will have to pay an extra 3s. 8d. a week—1s. flat rate, and 2s. 8d. graduated contribution?

Third, is the right hon. Gentleman aware that this is the fourth measure since October, 1967, to correct a miscalculated deficit in the National Insurance Fund, and that with such major short-term miscalculations we can have no confidence at all in the honesty of the long-term projects included in the right hon. Gentleman's earnings-related pension scheme?

Mr. Crossman

The hon. Gentleman is correct in what he says about the level of benefits. We are restoring the value to that of October, 1967, and next November, when we pay the first pension, we shall be paying a pension 20 per cent. higher in real terms than the pension paid by the Tories when they were in power.

Second, my calculation of the increase to be paid by the average wage-earner—the figures are in the White Paper in detail—and I have only the group between £18 and £21, is that it will be a total of between 2s. 10d. and 3s.

The hon. Gentleman's third question related to what he called the miscalculated deficit. He is right in saying that the amount to be spent was under-calculated. The major factor was a demographic miscalculation, and perhaps I might give the House the figures, because they are remarkable. Twelve years ago there were 4¾ million pensioners; now there are more than 7 million. Between March, 1967, and the end of 1968, a period of 21 months, the number of pensioners increased by more than half a million, from 6.49 million to 7 million. It is true that a great miscalculation was made about the longevity of people. The major cause of the increased cost is the increased number of pensioners.

Mrs. Lena Jeger

My right hon. Friend has referred to increases for the war disabled and industrially injured. Is he saying that there will be nothing in the Bill to help the thousands of civilian disabled, particularly disabled housewives, who have been in touch with him on many occasions to ask for the help that seems to be their due?

Mr. Crossman

I think that I explain in the White Paper, and I explain to my hon. Friend, that the new constant attend ance allowance for the totally disabled housewife is part of our new scheme and cannot be introduced until that scheme is introduced.

Mr. Boyd-Carpenter

Will the right hon. Gentleman clarify the position in respect of those workers who are contracted out of the 1959 Act scheme? Are they to pay graduated contributions on top of the contributions they pay to their employers' scheme? Are they also to get graduated benefits on top of the benefits of that scheme? If so, has the right hon. Gentleman worked out the effect on the private schemes? Second, is the income tax allowance for employees to be increased in view of the substantial increase which they are making in contributions?

Mr. Crossman

The answer to the second question is that there is no change. The answer to the first question, about contracted-out employees, is that we are taking the ½ per cent. which they are paying at present for sickness and unemployment and increasing it by 2¾ per cent. In return, as on the ½ per cent., they will receive their full pension entitlement. Everybody will get a pension entitlement for the increased graduated contribution, whether they are inside or outside the scheme.

Mr. Orme

Will my right hon. Friend say what the extra amount would have been if supplementary benefits had been increased by the same amount as the pension? As I think my right hon. Friend knows, this is a source of great irritation and criticism, and I think we are entitled to some explanation about it.

As regards the graduated scheme, many of us support this basis of graduating the amount, but is my right hon. Friend aware that it is not fair for the £20 to £30 a week worker necessarily indefinitely to carry the lower-paid worker because—

Mr. Speaker

Order. Questions should be reasonably brief. Long questions mean fewer questions.

Mr. Orme

Mr. Speaker, I appreciate that, but I am thinking of the payment of family allowances, and I should like to ask my right hon. Friend whether he has not set the figure too low in saying that the middle income group is £20 to £30 a week?

Mr. Crossman

If my right hon. Friend reads my statement he will see that I have given a careful explanation about supplementary benefits. The explanation is that those on supplementary benefit received the first instalment of their increase, namely, 5s., last year when national insurance rates were not increased. Therefore, to make the two equal, they take the second part of their instalment this year when the national insurance beneficiary gets the total 10s.

I am surprised at my hon. Friend's attitude about higher paid workers. I thought that there was agreement on our side that the flat-rate imposition was intolerable, that for the last 10 years we had steadily increased the proportion of the income paid by the lower-paid worker, and that the higher-paid worker had not paid his share. We had sought to do what we can to see that the benefits under the present graduated scheme are made more real than they were under previous Governments. Under the new scheme a worker receiving less than £30 a week will, in return for increased contributions, get substantially improved benefits.

Mr. Pardoe

Is the right hon. Gentleman aware that we on the Liberal Bench agree that the flat-rate contribution is intolerable? In view of that, why does he not scrap it and go over to an earnings-related contribution?

Second, will the right hon. Gentleman set up an inquiry into the reasons for earlier retirement and increased sickness absenteeism to see whether there is a way to combat social tension?

Mr. Crossman

On the first question, all I can say is that that is the precise purpose of the major scheme of national superannuation which we shall be introducing in our big Bill next Session. That will totally abolish all flat-rate contributions and the stamp, but we cannot do that this time. This is an up-rating in which we are seeking to move towards an earnings-related scheme as far as we can within the existing framework.

I am glad that the hon. Gentleman mentioned the figures for sickness. I think that we all ought to look at these figures with great care. During the last two years there has been a considerable increase in sickness benefit, and special inquiries are now under way. We must all take seriously an increase of that kind.

Mr. Gwilym Roberts

Will my right hon. Friend consider carefully again the points made by my hon. Friend the Member for Salford, West (Mr. Orme) about the effect on supplementary benefit recipients, in that apparently they are only receiving half the increase? We accept my right hon. Friend's argument that the instalment system gives them over a period the full increase, but as this is the sector of greatest need, will he consider perhaps on this occasion giving them the full increase?

Mr. Crossman

This is a very difficult question. We have a choice. Either we bring the two rates together over 24 months, in which case leap-frogging does not occur, or—and I find this preferable—we conduct, in the cases of greatest need, virtually an annual review to ensure that those hardest hit do not suffer through increases in the cost of living. The disadvantage of the annual supplementary review and the biennial national insurance review is apparently the leap-frogging.

Sir Hamar Nicholls

Does the right hon. Gentleman envisage new contributions from the self-employed? As he is guaranteeing values, does he envisage that the Exchequer contribution percentage will go up every year?

Mr. Crossman

There is no change in the method of contribution paid by the self-employed or in the Exchequer contribution which is 18 per cent. of the total including the graduated element and not only the flat-rate.

Mr. Marks

Is my right hon. Friend aware that whatever the Government's decision on the method of raising money to meet this necessary increase sections of the House would have found fault? His decision to keep the flat-rate increase down to 1s, will be welcomed by several million people who earn less than £18 a week and by all of those who are concerned for their particular problems. Will he take the opportunity in the Bill to make a further easement in the earnings rule for retirement pensioners?

Mr. Crossman

We intend to arrange that the first £7 10s. of earnings will not lead to any reduction of pension. That is a considerable improvement.

I am grateful to my hon. Friend for what he said about the lower-paid workers. The figures here are encouraging. Six million workers earning under £18 a week will only pay 1s. a week extra and another 2 million will only be paying 2s. 6d. a week extra. Thus 8 million workers will be paying 2s. 6d. a week extra or less. We have succeeded here in taking the burden off the backs of those who have borne it for too long.

Mr. Fortescue

The right hon. Gentleman has said remarkably little about the employers' contributions. How great an additional burden on industry will the Bill place? Secondly, when making his inquiry into the dramatic increase in sickness benefit over the last two years, will he make a similar inquiry into the dramatic increase in unemployment benefit?

Mr. Crossman

The employers' contributions will be 50–50 with the employees' contributions, as my right hon. Friend the Chancellor of the Exchequer announced. They will be exactly the same rates. The hon. Gentleman will find them all in the White Paper. I am prepared to institute an inquiry into unemployment as well, but it is not as grave or mysterious a problem as that of sickness benefit.

Mr. Alfred Morris

In view of the animus injected into these exchanges by the hon. Member for Hertford (Lord Balniel), has my right hon. Friend been able to discover how the Opposition would be able to pay for the increased benefits? Indeed, can he tell us whether, as far as he knows, the Opposition are in favour of these increased benefits or whether their interest is merely cynical?

Mr. Crossman

My hon. Friend can draw his own conclusions from the Opposition's attitude. It is a big assumption to believe that the increases we made in 1964–65 would have been made by the Opposition; and, secondly, that they would also have made the move to earnings-related unemployment and sickness benefit, which has added substantially to the bill. It is because of these factors that we are paying an increased burden, but we are getting better value for money than has ever been paid in the history of the British people.

Mr. Kenneth Baker

Does not the right hon. Gentleman agree that this important change to graduated contributions is, in effect, a form of income tax and ought to be called such? Does not he also agree that the cost of these benefits, which hon. Members on both sides find inadequate in many cases, is so high that we should move from the system of giving flat-rate increases of this sort to giving more substantial increases to those who really need them?

Mr. Crossman

Such questions are often put to me at Question Time and hardly relate to the uprating today. It is a great mistake, however, to assume that this is equivalent to an increase in income tax. To confirm that, the hon. Gentleman should ask the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), who first introduced graduated contributions and certainly did not regard them as income tax, nor, indeed, the benefit as unimportant.

Mr. Heffer

Will my right hon. Friend look again at the point raised by my hon. Friend the Member for Salford, West (Mr. Orme)? This is a very important question. Many old-age pensioners, while welcoming the scheme, as we do, nevertheless feel cheated. I ask my right hon. Friend to have another look at the question of supplementary benefit, which is a very important one for these people.

Mr. Crossman

Of course I will consider it, but my hon. Friend must face the fact that the choice is between keeping the rates going regularly and altering them only once in two years. If we alter the supplementary benefit rate before we alter the national insurance rate and keep on moving it ahead, the net result will be an ever wider gap between supplementary benefit and the national insurance pension.

Mr. Younger

What is the estimate of the total cost of the employers' contributions to industry? How much of this will be passed on to the public in the form of increased prices?

Mr. Crossman

Hon. Members must make their own estimates about increased prices. One of the reasons I was against putting the burden on the employers as against making it equal between employers and employees was that I did not want to see an increase in prices.

Mr. Hooley

Will the Bill include provision for death grant in respect of handicapped and other people who cannot qualify under normal contribution arrangements?

Mr. Crossman

I am glad to say that we have been able to make one minor modification with regard to death grant. In future, it will be paid, on the insurance of close relatives, for handicapped people who have never been able to support themselves. This is a cause which many of my right hon. and hon. Friends

Present Weekly Rate Proposed Weekly Rate
£ s. d. £ s. d.
Ordinary Scale
(a) Husband and wife 7 9 0 7 17 0
(b) Single householder 4 11 0 4 16 0
(c) Any other person aged:—
(i) not less than 21 years 3 14 0 3 17 0
(ii) less than 21 but not less than 18 years 3 1 0 3 4 0
(iii) less than 18 but not less than 16 years 2 13 0 2 16 0
(iv) less than 16 but not less than 13 years 2 1 0 2 4 0
(v) less than 13 but not less than 11 years 1 19 0 2 1 0
(vi) less than 11 but not less than 5 years 1 12 0 1 13 0
(vii) less than 5 years 1 7 0 1 8 0

have had at heart for years and I am glad that we are able to do something about it.

Mr. J. H. Osborn

Is the right hon. Gentleman aware that all parties, especially when in power, enjoy raising these benefits and wish to do so? Can he give an assurance that he has carried out actuarial calculations, that they were approved by the Treasury and perhaps by the I.M.F. and that this does not inject a purchasing power into the country greater than we can afford, with consequences on the balance of payments and prices? Will he now say what the cost will be to industry and what the effect will be on prices?

Mr. Crossman

I advise the hon. Gentleman to read the White Paper and the Government Actuary's report, both of which give the calculations.

Mr. Woodburn

Can my right hon. Friend clarify something which seems to have left some doubt in the minds of some hon. Members? Is it the case that, if supplementary benefit and old-age pensions are increased at the same time, this deprives the supplementary beneficiary of the year in which he now gets half in advance?

Mr. Crossman

That is true. If we have an annual review the loss in the value of pension in the first year is something that we make up at the end of 12 months, whereas if there is a biennial review the loss is that much greater

Several Hon. Members rose

Mr. Speaker

Order. I must protect the business of the House.

Blind Scale
(a) Husband and wife:—
(i) if one blind 8 13 6 9 2 0
(ii) if both blind 9 9 6 9 18 0
(b) Any other blind person aged:—
(i) not less than 21 years 5 15 6 6 1 0
(ii) less than 21 but not less than 18 years 4 1 0 4 4 0
(iii) less than 18 but not less than 16 years 3 9 0 3 12 0
(iv) less than 16 but not less than 13 years 2 1 0 2 4 0
(v) less than 13 but not less than 11 years 1 19 0 2 1 0
(vi) less than 11 but not less than 5 years 1 12 0 1 13 0
(vii) less than 5 years 1 7 0 1 8 0
(i) An allowance for rent is added to the above rates.
(ii) Both the existing and the proposed rates given above exclude the 10s. long-term addition which is added to the requirements of persons over pensionable age and to those of persons under pensionable age (other than the unemployed) who have received supplementary benefit for a period of two years.