HC Deb 10 April 1974 vol 872 cc567-77

Again considered in Committee.

10.3 p.m.

Sir Geoffrey Howe

I beg to move Amendment No. 8, in Clause 5, page 5, line 4, at end insert: (2A) In subsection (3) of the said section 39, after paragraph (b) there shall be inserted the following paragraph— (c) the rate of change in the general level of prices and earnings with a view to considering the desirability of introducing legislation requiring more frequent reviews of benefit than is provided for in this section '. I understand that it will be for the convenience of the Committee to consider at the same time Amendment No. 9, in page 5, line 4, at end insert: '(2B) After subsection 10 of the said section 39 there shall be inserted the following sub-section— (10A) Following each review of social security benefits under this section, the Secretary of State shall lay before each House of Parliament a report of his conclusions on the matters which he is required to consider by subsection (3)(c) above '. The two amendments are linked. Amendment No. 8 requires certain additional matters to be written into Section 39 of the 1973 Act. It is suggested that in the course of a review of benefits under that section the Secretary of State should consider the rate of change in the general level of prices and earnings with a view to considering the desirability of introducing legislation requiring more frequent reviews of benefits than the annual reviews provided for in that section. The linked amendment, Amendment No. 9, requires that any such review be followed by laying before the House a report of the Secretary of State's conclusions on this matter. The question is whether to impose on the Secretary of State an obligation to consider whether an annual review is enough in present circumstances. The introduction of an annual review was admittedly a great step forward. My hon. Friend the Member for Rushcliffe (Mr. Clarke) pointed this out in an earlier debate.

There has previously been an erratic pattern whereby eventually about every two years benefits have been reviewed and uprated, but this has always been a matter of increasing concern and agitation, and so both sides welcomed the provisions of Section 39 requiring an annual review to be undertaken. That great step forward is to the credit of the previous Government.

In the present situation, in which I have already reminded the House of the anticipations of the Secretary of State for Prices and Consumer Protection about the possible movement of prices in the year ahead, the question is whether an annual review is frequent enough or good enough. While we have no quarrel with the proposed timing for the introduction of these benefit increases or with the annual review on the basis of the Bill as it stands, we are now asking why there should not be more frequent reviews.

In our election manifesto we said that we would move towards the introduction of reviews every six months. Hon. Members on bath sides must have felt increasingly attracted by this idea. I believe that the Canadian Government have recently proposed the introduction of quarterly reviews, and I understand from some of my hon. Friends that in some European countries—Belgium, I believe, is one—reviews are as frequent as monthly. This may be the kind of direction in which we should be moving, certainly if anything like the present or expected rate of inflation continues.

One of the difficulties, I know, about more frequent reviews is the administrative problem for the Department—the same problem as gives rise to the difficulty in accelerating uprating. This is an area in which we hope further progress can be made. One of the matters which was always clear to me as holding back advance on this front is the extent to which, as a nation, we have so deeply embedded in our national life a weekly rhythm of payments and incomes. This is deeply ingrained in the concept of the weekly pay packet and weekly benefit, although one can depart from that by expressing an option.

One hopes that it may be possible over the years ahead to move towards a monthly rhythm, which would certainly reduce enormously the administrative work and make this kind of uprating and a faster uprating much more possible. But, short of that, 1 am now asking the Secretary of State to accept an obligation at the next and each successive review to consider whether more frequent reviews should not be undertaken and to report on her conclusions in the course of the report on that review. I hope that the two amendments will prove acceptable to the Government.

Mrs. Castle

It is a hallmark of the inflationary world into which we have moved that there should have been such an inflation of the pensions policy proposals of the Conservative Party in the last few years. We only recently moved to annual reviews, and under this Bill we are moving to annual reviews on the basis of earnings, not just prices. The suggestion is now made that even that is not enough.

Every Government who introduce an uprating are well aware that the erosion in the value of that pension starts from the very moment of the introduction of the uprating. We are aware of how long it will inevitably take to bring under control the runaway inflation of this country; that is why we introduced such an exceptionally large uprating. We have started with a margin over inflation and inflationary prospects that has not, I think, been embodied in any previous uprating.

Let me give an illustration. The October 1973 uprating of the last Government represented, at the time it was announced, a 14.9 per cent. increase in long-term benefits over the figure of October 1972. But by the time it came into operation that 14.9 per cent. increase was worth only 3.5 per cent. in real terms. In this uprating the increase is 29 per cent. after only 10 months. Even at the worst estimate of the possible rate of inflation this year, by the time this up-rating is introduced in July it will still represent an increase of 15 per cent.—more than three times the value in real terms of the last Conservative uprating. Therefore, the Committee will realise that we have tried to give an uprating that will insulate pensioners to a greater extent than heretofore against the price rises that lie ahead. Of course, that is coupled with the Government's other policies for holding down price increases which are of particular interest to pensioners.

The right hon. and learned Member for Surrey, East (Sir Geoffrey Howe) likes to sneer about what he calls our indiscriminate expenditure on food subsidies. But it is not indiscriminate in a situation like this to say that we shall bring down the price of milk and peg the price of bread. I should have thought that that was a very discriminatory way of operating on the expenditure of the very hard hit group which we are trying most to help. It comes a little odd from the mouth of the right hon. and learned Gentleman to talk about indiscriminate subsidies when his Government left us with the job of reducing some of the massive subsidies that they had been running up in, for example, the electricity industry. Then, when we do reduce those indiscriminate subsidies, the Opposition will complain that we have put up prices. It is a question of heads they hope they win and tails they hope we lose. But it will not prove as simple as that.

Sir B. Rhys Williams

Would it not be more discriminating to use the money to increase family allowances?

Mrs. Castle

It would not discriminate in favour of pensioners. I was talking about pensioners and how we were trying to keep down the costs of their budgets. Clearly, bread and milk figure very largely in those budgets. I have explained how we shall insulate pensioners against rent and rate increases by seeing that the pension increases do not affect rent or rate rebates and allowances. We have gone carefully down the list, to heating allowances and so on. So we have tried to create in this comprehensive uprating a greater protection for pensioners against price increases than existed hitherto.

10.15 p.m.

I owe it to the Committee to point out that the right hon. and learned Member for Surrey, East has hinted at the administrative implications. But it is not only a question whether more frequent upratings would put a strain upon my staff. I say quite categorically that more frequent upratings would make unavoidable a substantial increase in the staff of my Department. They would not be possible or tolerable on any other basis. This is one of the considerations which any Secretary of State operating under this amendment would have to bear in mind. What anyone who calls for more frequent upratings is asking for is an increase in the staff of my Department of about 2,500 or 3,000, or even more. I hope that once again we shall be spared the hypocrisy of the Conservative Party saying, on the one hand, that they want more frequent upratings but, on the other hand, then saying "Look at the wicked Labour Government. They have increased the number of their civil servants by these fantastic figures."

Mr. McCrindle

To help the Committee to evaluate this situation, may I refer the right hon. Lady to what she said a few moments ago? It is stated that the increase that she proposes is 29 per cent., and that at worst, on introduction, that would be worth 15 per cent. Bearing in mind the reference of her right hon. Friend the Secretary of State for Prices and Consumer Protection to the possibility that inflation in the forthcoming year would go forward at up to 18 per cent., at what period during the 12 months following July does the right hon. Lady feel that the value of the pension that she is introducing would begin to evaporate?

Mrs. Castle

I am taking into account the estimate of the possible increase in prices, the worst possible estimate, for the period up to July. That is included in my calculations and is part of the price movements in the coming year which, by these various devices, the Government are seeking to curb.

I should like to to return to the point about the number of staff. It has been one of the more unpleasant features of Conservative policy and propaganda always to attack the "inflated bureaucracy" created by a Labour Government. The right hon. and learned Gentleman is asking me to inflate the bureaucracy. I am not one of those who oppose increasing the number of civil servants when it is essential to do so to give a better service to the people. But can we please now realise that we must make a choice, that either we want to give a better service or we want to bring down the number of civil servants? We cannot do both. I hope that we shall have the honesty to admit that.

I am asked in the amendment to have as one of the discretionary considerations the desirability of introducing legislation requiring more frequent reviews of benefit ". Of course, any Government in the situation which the world is in of inflationary pressures would be compelled to have under consideration the extent to which even the most careful planning of uprating to forestall price increases could be undermined. If that happened, any Government and any House of Commons would have to consider it. Therefore, I am willing to accept the amendment, because it is a consideration that I should, of course, have to have in mind anyway.

I repeat that we have given ourselves a margin that I hope will hold in real terms, but in accepting the amendment I accept that in the present fluid and difficult economic situation any Government would have to have that sort of consideration in mind.

I am therefore happy to accept the amendment.

Mr. Gwilym Roberts (Cannock)

The arguments in the Committee are becoming more absurd as the evening goes on. We had a complex discussion on indices to start with, where the difference might be only that between 112 and 113, and we were talking about a matter of some lop in £10. Now the right hon. and learned Member for Surrey, East (Sir G. Howe) talks about moving towards monthly reviews. When we talk like that, we are thinking of something like Latin American inflation.

Clearly, the amount of leeway in the figures is already adequate. Even the proposal in the Conservative manifesto of a six-monthly review as a standard procedure was, I feel, only a gimmick, and it is appearing in the debate again as a gimmick.

Rather than add to the administrative costs by having over-frequent reviews, a more subtle approach might be to rely on methods of economic forecasting, anticipating what the index will be, instead of adding to the burdens of my right hon. Friend's Department in the way suggested.

Mr. Ian Lloyd (Havant and Waterloo)

One of the things that the country may or may not have come to learn during the last election is that we are finding ourselves as a country, and possibly as a civilisation, in a zero growth situation. The real income of our community and of our civilisation is probably stabilising itself at current levels. There is little prospect of an increase in real terms. It seems that the Committee, if it is doing nothing else, is saying to the country "We are prepared now to institutionalise inflation. We are admitting defeat. We are saying that never again shall we be able to offer the prospect of a stable pound and a stable currency ". I find that a horrifying admission and realisation.

Is the only possible alternative that Governments now have before them to institutionalise inflation to the point when my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) seriously suggests that we might have to review pensions and income of other forms on a monthly basis? If that can be done on a monthly basis, it could quite seriously be decided that it should be done on a weekly or daily basis. Are we to have all the main computers of the Treasury churning out all the statistics which would be needed to give a daily point value to the currency? If we admit that we can go from a year to half a year and from half a year to a month, why should not we go from a month to a week and from a week to a day?

The first question which we should ask ourselves is whether there is a practical alternative. Must we now as an administration, and as the engine of management of this country, seriously accept that inflation is so totally out of control that the only way in which we can pretend to guarantee a real income for the retired section of the community—to use the word "guarantee" would be a grave exaggeration—is by the extraordinary process of national self-bluff that we can go on and on dealing with our currency in the present way?

I see that the Secretary of State is looking at me somewhat indulgently. Perhaps she has practical alternatives. She may well be looking at me and thinking that it is time that I suggested some practical alternatives. I accept that. There is only one serious objective which any serious Government of a serious civilisation could put forward, and that is to restore the stability of our country. If as a Par- liament we now say that we shall institutionalise inflation not only in this sector, whilst dealing with possibly 8 million people who represent 15 per cent. of the population, but on a broad front wherever Parliament has a definite responsibility for fixed incomes and for the real income content of those incomes, then it seems that Parliament is making a most extraordinary confession of total defeat.

We cannot even discuss the amendment without facing seriously the reality of what we are doing. There are other ways of proceeding which involve the acceptance on the economic front of a variety of economic self-disciplines which, as far as I have been able to judge, the nation is not prepared to accept. Unless that message does not produce a package deal that institutionalises inflation, the confession of defeat will be final and permanent.

Sir G. Howe

It falls to me to thank the Government for their willingness to accept the amendment. In so doing, I must say a word about the thoughtful contribution of my hon. Friend the Member for Havant and Waterloo (Mr. Lloyd). My hon. Friend is undoubtedly right to underline the extent to which the British people—and I hope that this is implicit in some of the things that were said by the Chancellor of the Exchequer in his Budget Statement—must face a world in which the achievement of growth on any steady basis is far more difficult than it has been in our political lifetime.

The impact of world economic conditions must make a substantial difference to our expectations. My hon. Friend is right to ask how far the Committee and any Government should accept the institutionalisation of inflation. I have no doubt that right hon. and hon. Members on both sides of the Committee would like more than anything else, as would the electors, to see any Government achieve a stable currency.

There appear to be factors at work in the opposite direction, even in the most well-disciplined economies around the world, which are, as it were, looking for a new Keynes to produce something in the way of a fresh solution. We are not near to finding that solution. No doubt part of the answer is to be found in an acceptance of some of the harsh realities of the difficulty of overcoming inflation. It is worth pointing out that even the most economic purist from the Chicago school, and I have in mind Milton Friedman for one, actually argues now that if we are to obtain acceptance by a community of all that is necessary to overcome inflation—and that will not be easy—it is legitimate often to index benefits of this kind while the inflation persists.

I hope that no one on either side of the Committee thinks that the provision for a periodic review of benefits—although it is part of what we must do to deal with inflation—represents, for me anyway, an acceptance of any form of institutionalising inflation. Far from it. While inflation is with us we have to be prepared to make this kind of change in our machinery.

When I spoke about monthly reviews I was not arguing that that was the necessary or desirable pattern. I was commenting on the fact that I was told that it was done in Belgium. I was arguing the desirability of a monthly pattern of payment over the years to get away from the many hazards of storage of cash, administrative burdens and everything else involved in the weekly pattern. I referred to the monthly review only to demonstrate that other administrative systems find it easier to cope with more frequent reviews than does our own. The right hon. Lady said that a change to a more frequent review would involve an inflation of the bureaucracy. That can be presented as implicit in a change with the system we now have.

It may be possible to improve on that system and by other changes, such as tax credit changes, to produce an offset in saving elsewhere. We are grateful to the Government for their willingness to accept the amendment and hope that they will also accept the consequential Amendment No. 9.

Amendment agreed to.

Amendment made: No. 9, in Clause 5, page 5, line 4, at end insert: ' (2B) After subsection (10) of the said section 39 there shall be inserted the following subsection— (10A) Following each review of social security benefits under this section, the Secretary of State shall lay before each House of Parliament a report of his conclusions on the matters which he is required to consider by subsection (3)(c) above '.—[Sir G. Howe.]

Question proposed, That the clause, as amended, stand part of the Bill.

10.30 p.m.

Mr. Kenneth Clarke

I should be grateful for clarification of a matter of substance which I had hoped to raise on Amendment No. 6, standing in my name, which was not, unfortunately, selected, because, I am advised, a wider amendment to earlier legislation would have been required to reach the conclusion I wished. I am sure that the point is in order on Clause 5 as it refers to the annual review.

I ask whether the Government will now concede that the annual review should now include the application of the earnings rule to retirement pensioners. As I sought to raise the matter on Clause 4 and the Under-Secretary of State replied, I will not go into the case at length again now, but he was unable to answer me fully then and perhaps he has now been more adequately briefed.

I will not press the matter too hard because I am sure that the Government agree in principle with what I am saying. I remember how passionate in Opposition the right hon. Lady and the Minister of State were in pressing that we should include the earnings rule for retirement pensioners in the annual review. When the Under-Secretary of State tried to defend the earnings rule against my hon. Friend the Member for Kensington (Sir B. Rhys Williams) earlier, he did it so diffidently that it was clear that he shared our approach to it and had little faith in the brief from which he read extracts.

I believe that the case is now even stronger than it was last year. The earnings rule for retirement pensioners must be kept in step with earnings in the annual review because otherwise failure to consider such earnings in any one year would lead to a tightening of the rule and an effect which none of us want.

I trust that the Minister of State will answer sympathetically. The Government are quite excited about their commitment to an annual review in line with earnings, but apparently they are not sure that they should include it in statute. They have made a point of their commitment to keep pensions in line with earnings, and I ask them to accept that the earnings rule should be included in the annual review as well.

Mr. O'Malley

First, I repeat the point made earlier when we were discussing the general question of the earnings rule. Both sides of the Committee recognise the problems of conflicting financial priorities. Secondly, without commitment, I am of course prepared to consider what the hon. Gentleman has said.

Question put and agreed to.

Clause 5, as amended, ordered to stand part of the Bill.

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