HC Deb 15 April 1970 vol 799 cc1518-30

10.0 p.m.

The Financial Secretary to the Treasury (Mr. Dick Taverne)

I beg to move, That the existing weekly rate of National Health Service Contributions payable by employers be increased from 8d. to 1s. 8d. (and the power under the National Insurance Act 1969 s. 8 to provide for decimalisation shall apply to the new rate as it applies to the old). I propose to address the House very briefly, and my hon. Friend the Minister of State, Department of Health and Social Security, can reply to any queries raised in the debate.

During the debate on the Second Reading of the National Superannuation and Social Insurance Bill, my right hon. Friend the Secretary of State for Social Services announced' the Government's intention to make an interim increase in the rate of employer's National Health Service contribution. The purpose of the Motion now before the House is to provide the foundation for a very short Bill to authorise the increase and to apply the power to provide for decimalisation in the new rate as in the old.

My right hon. Friend said that it was anomalous that the employee's National Health Service contribution was 3s. 2d. per week whilst that of the employer was only 8d. per week. He explained that this anomaly would be ended when the Government's new superannuation scheme came into operation in 1972. The proposed Bill will fulfil my right hon. Friend's intention to act in the interim, before the coming into force of the new superannuation scheme, by raising the employer's present flat rate contribution. It is proposed that the contribution should go up from 8d. per week to Is. 8d. per week, whilst that of the employee, the self-employed and the non-employed will be unchanged.

There is a further justification for an increase in the contribution. The total yield of the contribution as a percentage of National Health Service costs is now lower than it has been since the separate National Health Service contribution was introduced in 1957. The proposed increase in the employer's contribution is needed not only to moderate the present anomaly and to move towards the new scheme, but to provide some offset to the tendency of the flat rate contribution to fall as a proportion of the total costs of the National Health Service.

10.4 p.m.

Mr. Maurice Macmillan (Farnham)

We shall have ample opportunity for an extended debate in the course of the Second Reading of the proposed Bill. Therefore I shall not delay the House for long. Mainly, I wish to ask a number of questions which I hope the Minister of State will be able to answer when he replies to the debate, because the answers will much improve the chances of our having an informed debate when we come to Second Reading.

I propose mainly to deal with the National Health Service aspects rather than the straight taxation aspects of the Motion. Before coming to them, I must first protest at the way in which this has been handled and at the fact that we are having a considerable increase in taxation outside the Budget proposals. Of course, it is convenient for the Chancellor of the Exchequer to boast that he has not had to raise taxation. But it is a distortion and, even when taken like this in the midst of the Budget debate, it is excluded from the economic as well as the fiscal discussion, and we are forced to consider it more or less in isolation.

This is entirely wrong, because the proposed increase is a tax. It is an increase in taxation which the Government propose to make in the form of a higher employer's flat rate contribution. It is even more of a tax when it becomes part of the so-called wage-related contribution, for then it is calculated as a payroll tax. It is virtually, as part of that contribution, in itself a payroll tax, and will become even more so, when the Chancellor's intention of calculating selective employment tax on a payroll basis is brought into effect.

It is an additional tax on industry and, therefore, on prices. It is collected outside the Budget, and even if it is called a contribution or a levy it is still a tax. Whatever the attractions of this system and whatever the rights and wrongs of this method of getting more money for the National Health Service, the amount which it is proposed to raise must have been in the Chancellor's longer-term calculations and should therefore have been in his Budget Statement.

Just what will be the effect of this change on costs and prices? I understand that the initial amount is expected to be about £45 million. Perhaps we may have some more details of what this is likely to be in a full year and later on.

Second, what is the purpose of this levy other than that given by the Financial Secretary? Is it to enable charges to be removed in other parts of the Health Service or to make other changes in financing the service possible, or is it simply to produce more money and more resources? I hope that it is intended to use the results of this increase not to make savings in charges or contributions from the Consolidated Fund, but to produce more money for spending on the Health Service. The sum of £45 million is not a very large extra amount—about one per cent., I calculate—but at least it is something—[Interruption.] Well, perhaps the hon. Gentleman will correct me if I am wrong, but that is hardly the question.

Third, is this amount required to make improvements in the Health Service? I do not except the hon. Gentleman to say today what sort of additional expenditure will be possible, but I should like him to consider that for our later debate, and meanwhile to say whether this is required simply to keep the service going at existing standards, or whether it will make improvements possible.

I am not clear about the relative amounts which will be raised by this interim flat rate extra contribution and the ultimate graduated contribution. In reply to a Parliamentary Question, I was told that the proportion now being raised by contribution in 1969–70 is £176 million, out of a total Health Service expenditure of £1,1977 million. That is about 8.8 per cent. In 1970–71, the amount from N.H.S. contributions will be £181 million, out of a total of £2,048 million, or 9 per cent. That is on the present basis. If this proposal raises an extra £45 million. that of course goes up to £226 million, or about 11.3 per cent.

But, on the other hand, I have been informed that the ultimate arrangement of the graduated contribution—0.6 per cent, from the employer and 0.3 per cent. from the employee—is estimated for the year 1973–74 to raise about £198 million This seems more than the present basis of contributions would raise in that year, but less than one might expect from the increased flat rate contributions. This obviously cannot be so. The Government cannot expect to get less from their ultimate wage-related contributions than they get from the present arrangement. I accept that my figures are not precise, but I trust that the Minister will explain this point.

What percentage of total National Health Service spending is it expected will in future be on the new basis, compared with the present one, and what effect will this have when we ultimately change to the wage-related basis? It would be interesting to know what effect this will have on the contribution from rates, and grants in aid of rates, and whether there is any hope of these decreasing, so helping to offset the extra cost which local authorities, in their capacity as employers of labour, may find themselves paying as a result of this change.

What are the implications of this increase on the principles and methods of financing the N.H.S.? Has there been any fundamental change of Government policy in the major methods of financing the N.H.S.? The Prime Minister made it plain in 1961 that the ultimate object of Labour policy was to bring the N.H.S. and its contributions under the general Exchequer system, so making it entirely dependent on general taxation.

Various Ministers, including the Secretary of State, have given us to understand that this still remains the fundamental objective of Labour policy. I wonder whether it really, is, since in the debate on the National Superannuation and Social Insurance Bill the Secretary of State said: At present we are facing the oddity that a total contribution of 3s. 10d. flat rate is divided into 8d. from the employers and 3s. 2d. from the employees. I have always found this weighting an indefensible anomaly and I have taken the chance to put it right, since in my view there is every reason why British industry should pay a larger share of what is, after all, a Health Service levy, not a National Insurance Contribution."—[OFFICIAL REPORT, 19th January, 1970; Vol. 794, c. 62.] It is not British industry but its customers who pay, something that we should always remember.

I assume that the taxation of industry in this way will become a permanent part, and will remain a permanent and increasing part, of N.H.S. finance and that the concept of financing the N.H.S. from general taxation has been abandoned. We can assume, therefore, that any element of insurance that might have remained in the contributions of both employees and employers has been completely given up.

If the idea of a personal contribution of the nature of social insurance has, as the Secretary of State said, been given up and this is now a levy and not a National Insurance contribution, what is the point of continuing the employee's contribution? It has not even the tenuous connection with benefit or use of the graduated pensions contribution. This subsidises the lower-paid workers' contribution to current pensions, but brings a compensating entitlement, one hopes, to a higher pension ultimately. But that is not the sort of thing that is being done here. So why not go entirely to the Exchequer through the Consolidated Fund, if it is to be a levy? Because that is what the Labour Party believes, what is the point of retaining this very small element of personal contribution? It cannot be simply to enable the Chancellor not to have to raise taxation in his Budget. This change, piecemeal as it is, is by reason of the altering of the weighting a change in the system of financing the National Health Service.

I do not propose to delay the House longer, because we can develop the argument at a later stage, but I have asked a number of questions to which I hope the Minister will reply.

10.17 p.m.

Mr. Tim Fortescue (Liverpool, Garston)

I fully appreciate that we shall have ample opportunity next week to develop this subject in the Second Reading debate on the Bill, but it is only right to point out what is happening because that has been somewhat disguised by the way in which this Motion has been brought forward.

At the moment the employer pays 8d. out of the 3s. 10d. a week, which is approximately 18 per cent. of the total joint contribution. Under this proposal he will pay another 1s., but the employee's contribution will not be reduced by that 1s., so that the percentage paid by the employer will become about 34 per cent. of the total joint contribution. Under the National Superannuation and Social Insurance Bill now before the House the proposal is that the employer's contribution should be double, in fact more than double, that of the employee. While the employee's contribution will be 0.3 per cent. of his weekly pay up to a maximum of one and a half times the national average earning, the employer's contribution which will be 0.6 per cent. of the weekly pay will be unlimited. It will be a payroll tax, as was finally and somewhat grudgingly admitted by the Minister of State in Committee.

Within a matter of weeks the proportion between the employer's and employee's contributions have been completely and radically altered through the employer's contribution being less than one-fifth of the total, to the proposal that the employer's contribution should be twice and more than twice that of the employee. I thought it only right to put this on record this evening, because if I had not done so it might not have been clear to everyone.

10.19 p.m.

Sir Brandon Rhys Williams (Kensington, South)

I also wish to say a word on this Motion and particularly on the way in which the Government have brought it into the business of the House. The Minister of State, Health and Social Security, who, I understand, is to reply to this debate, has heard me say more than once when we have been considering reform of the welfare services that we must ask ourselves who is paying what, to whom, and why? He has heard me say that on a number of occasions, but he has never given me any kind of answer. It is a particularly relevant question when we are considering the future of the Health Service of which the finances have got into such a tangle.

Under this Government we are staggering from one expedient to another to make ends meet. They are so busy doing that that they are not thinking of the future and the way in which the evolution of the Health Service is to be paid for. We are entitled to have an inkling of the Government's thinking. It is not enough that we should try to deduce their thinking from searching in Fabian tracts or by hints in the Press which may or may not be accurate.

I also think that it is an insult to the House to raise taxation by £50 million by inserting an item of three lines and one word between the Budget Resolutions and an Order relating to Sunday Cinemas. This is not the way in which the House should consider a serious increase in taxation.

I am glad that we are to have a debate on this subject shortly. I hope, Mr. Speaker, that I shall have the opportunity of catching your eye on that occasion. Much as I am sure that the Minister of State hopes that I will offer him all the solutions to this knotty problem tonight, I will defer the rest of my remarks for another occasion. However, I hope that, even tonight, the hon. Gentleman will give us some idea of the way in which he thinks that the charges for the Health Service should be balanced as between the taxpayer, the patient, the employer, and the employee.

10.20 p.m.

Mr. Terence L. Higgins (Worthing)

Many years of athletic training, where I suddenly find that the gun goes when I have barely got to my mark, let alone got set, will I hope enable me to cope.

The reason I intervene is that we are gravely concerned at the way the Chancellor clearly has, in making his Budget Statement, done everything he can, when public attention is at its height in Parliamentary affairs, to create a favourable impression in the Budget, we believe by extracting from it matters which at least should be referred to in his speech and by including in his speech some matters which are not normally mentioned by a Chancellor in his Budget Statement.

We are particularly concerned, because in his Budget Statement the Chancellor made this categorical statement: I therefore propose to introduce a Budget which will in no way, either directly or indirectly, do anything to raise prices."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1243.] Although that may be true in a very strict and narrow sense, because the right hon. Gentleman has arranged that it should be so, it is clear that the Ways and Means Motion we are being asked to approve is a substantial increase in the costs of industry and is likely, therefore, to be passed on or, alternatively, will result in a fall in industrial investment as a result of Government action. In other words, we believe that this is a measure which will inevitably have an impact on industrial costs and which will result in further inflation. This is a worrying situation at a time when the inflationary spiral is already proceeding at an unprecedented rate.

A number of hon. Members speaking in the debate earlier this evening suggested that it is a wage explosion of an inflationary explosion. The proposals the Government are making in this Motion we believe will increase that tendency. We therefore thought it right on this occasion, although we shall have an opportunity to debate the matter further when the Bill comes before the House, to underline exactly what the Government are doing; because this is indeed a very substantial percentage increase in the burden which industry must bear, an increase from 8d. to 1s. 8d.—more than 100 per cent.

It was therefore right that my hon. Friend the Member for Farnham (Mr. Maurice Macmillan) should have asked exactly what the Government's intention is about this contribution. We do not fully understand why a certain portion of the National Health Service charge should be levied in this way, whereas the vast bulk of it—more than 80 per cent.—comes out of the general Exchequer subvention. We would hope that even at this early stage, as a basis for subsequent debate, the Minister of State will make clear what the Government's thoughts are.

The Financial Secretary distinguished between an insurance contribution and a National Health levy. The insurance element has virtually ceased to exist. This therefore seems to be a rather metaphysical distinction which we believe should be explained by the Government tonight.

The hon. Member for The Hartlepools (Mr. Leadbitter) suggested in the earlier debate, though I should have thought that the point was more in order in this debate, that the Government will go ahead and eliminate prescription charges. Again, I hope that we shall be told whether the Government have any intentions in that regard.

Mr. Speaker

Order. We cannot go back to that debate, which is now over.

Mr. Higgins

I was not seeking to do that, Mr. Speaker. Rather, I was saying that the point made in the earlier debate was more appropriate to this one. However, we hope that the Minister will make clear tonight whether this is a means of raising additional revenue for the National Health Service which the Government intend to use for the improvement of the service, or whether there is some other thought at the back of their mind.

I shall not detain the House further on this question. We were quite clear that there was a general broad economic technical points regarding the Health Service itself, and we look forward with interest to the Minister's answer.

10.26 p.m.

The Minister of State, Department of Health and Social Security (Mr. David Ennals)

I shall attempt to deal with most of the questions put by the hon. Member for Worthing (Mr. Higgins). One or two points have been raised which, I think, would be more appropriate to the Second Reading debate, and we shall not have to wait long for that.

First, I take up the suggestion that this Measure has been deliberately omitted from the Budget. There is no earthly reason why it should have been included. It is not my recollection that, when hon. Members opposite provided for increases, they chose the moment at which to put them in a Budget speech. As long ago as 19th January, my right hon. Friend the Secretary of State announced his intention to bring in the Bill, and I made a statement in the House in which I referred to it, too. We should have debated this resolution before the Budget had not the Opposition, I understand, seen some sinister motive behind the Government's intention and themselves sought to debate it after the Budget instead of before. As I say, I can see no reason why it should have been included in the Budget speech.

The Measure is simple, and I do not think that it should arouse a great deal of controversy. At one stage, I thought that the Opposition would, perhaps, arouse a good deal of controversy and that we should have a great angry debate tonight, with a vote, but, plainly, they are not as worried as I thought they had indicated they were.

We need this Measure simply because a flat-rate levy, as the National Health Service contribution is, obviously becomes out of date and has to be revised from time to time. When the Conservatives were in office, they introduced no fewer than three Bills to raise the rates. In 1957, 1958 and again in 1961—three times in four years—they raised both the employer's and the employee's rates. Over that period of four years, they raised the employer's rate exactly five-fold and the employee's rate about four-fold. If that rate of increase in contributions had been kept up, we should have been considering tonight an increase of about £1 instead of ls. The employer's contribution has not been raised since 1961, except for the removal of the odd ½d. in 1968, and it, is, therefore, long overdue for revision.

The total cost of the health and welfare services has been increasing year by year. In 1964–65, it amounted to £1,254 million, and in 1969–70 it was £1,973 million, an increase at an average annual rate of 9½ per cent. Even taking into account the effect of pay and prices, there was an increase in real terms of about 4 per cent. a year. This is an increase which we shall expect to sustain. No one can doubt that the demands of the service will create a demand for more funds to be spent. At present, we are facing additional costs of pay awards to nurses and other staff as well as other increases.

If we are to provide a decent service in the 1970s, we must provide increasing resources. In the Government's White Paper, Public Expenditure 1968–69 to 1973–74, one sees the figures of growing expenditure on the Health Service in the coming years.

The question we have to face is how we should finance the Health Service. The hon. Member for Farnham took part in a debate on 1st July last year when my right hon. Friend the Secretary of State explained the breakdown of expenditure on the Health Service. About 85 per cent. is met by taxation, about 5 per cent. by charges and 9½ per cent. by contributions. No new alternatives were proposed in that debate, and I do not suppose that the Opposition would now prefer to see an additional burden on taxation. It has not been their policy over recent months to demand increases in taxation. If it is their policy I should be interested to hear it, but it seems to be in conflict with what they have said before. Maybe they would prefer increases in charges, but we certainly would not. I take the view of my right hon. Friend, who said on 1st July: …one can rule out charges as a substantial answer to the problem of finding alternative sources of revenue for the Health Service."—[OFFICIAL REPORT, 1st July, 1969; Vol. 786. c. 262] This brings us to this method—the National Health Service contribution. The hon. Gentleman said that it was important to have a change from its being an insurance, but it never was an insurance. It always was a levy. It was a levy when it was introduced, continued to be a levy when hon. Members opposite were in power, and is a levy today. The total yield after allowing for the cost of collection in 1969–70 was about £176 million, or 8.9 per cent. of the total cost. This is a lower proportion of the total cost than it has been since 1957, and the proportion would continue to decrease if the contribution were not increased, which is the purpose of the Bill which will be introduced. The increase we propose will raise the yield to about 10.3 per cent. of the cost. This is still a lower proportion than it was for 1958 to 1967, so we are not introducing a dramatic increase.

We propose to put the increase on the employer rather than on the employee because the employee's contribution was increased in 1968, whereas the employer's has not been raised for many years. In any case the division between employer and employee, as my right hon. Friend said in the speech the hon. Gentleman quoted, is quite unreasonable, since it was decided in the new earnings-related scheme, now in Committee, that the employer will pay 0.6 per cent. of the payroll towards the costs of the Health Service and the employee 0.3 per cent. Therefore, the employer in future will be paying twice as much as the employee. We thought that that was a proper division, and that it would be sensible to move towards that, although we are going only part way towards it.

The increase of 1s., making 1s. 8d. in all, is quite moderate. Bearing in mind that the rate has stood for nine years, apart from rounding the halfpenny, during which the cost of the Service has more than doubled, we are not making an undue increase on employers. They will still be paying only about half the contribution of employees. In most of the countries of the Common Market and other countries in Europe, a higher proportion is normally paid by the employers than the employees, so it is a reasonable and sensible procedure that we are taking.

The hon. Gentleman asked about prices and seemed to think that the proposal would add about 1 per cent. to the cost of living—

Mr. Maurice Macmillan

I was referring to the extra resources it brings into the Health Service. I misread my notes, and the 1 per cent. should be 2.5 per cent.

Mr. Ennals

I am sorry that I misunderstood the hon. Gentleman. I thought that he was referring to prices.

He did also ask about the effect on prices, and this would be modest. Our estimate is that it would not make a difference of more than one-tenth of 1 per cent. in the Index of Retail Prices. That is if the whole cost were passed on by the employer, so it is a very marginal figure.

The proposal would increase the yield of the contribution by about £53 million in a full year. It is necessary to take this step in order to have the funds and resources to develop the service. We cannot finance the service in the seventies with the contribution rate of the sixties. The increase of 1s. in the employers' rate is fully justified.

I accordingly ask the House to accept the Motion which will authorise the introduction of the necessary Bill.

Question put and agreed to.

Resolved, That the existing weekly rate of National Health Service Contributions payable by employers be increased from 8d. to 1s. 8d. (and the power under the National Insurance Act 1969 s. 8 to provide for decimalisation shall apply to the new rate as it applies to the old).

Bill ordered to be brought in upon the said Resolution by the Chairman of Ways and Means, Mr. Crossman, Mr. Ross, Mr. George Thomas, Mr. Taverne, Mr. Ennals and Mr. Dell.