§ My right hon. Friends and I made it clear in the last election that in the economic situation we were likely to inherit the scope for increasing public expenditure would be very limited the first year, that we would concentrate our immediate efforts in the three fields of the greatest and most urgent importance to the mass of the British people—pensions, food and housing. I now come to our proposals in these three fields.
§ First, pensions and social security. As we made clear in the debate on the Address, the Government consider that a substantial improvement in pensioners' standards is an essential condition of securing greater social justice. The improvement in pensions is long overdue. There is no better way of making a major impact on the problem of poverty in our society than by helping that section of our people which contains by far the largest proportion of the poor.
§ Our first priority is, therefore, to fulfil our promise to increase the standard rates of pensions to £10 for a single 296 person and £16 for a married couple. We have now decided that for this year this will be done not in October, which is the usual time for uprating pensions, but from the earliest date which is administratively feasible. Pensions will, therefore, be increased from 22nd July. My right hon. Friend will make a full statement tomorrow on the Government's proposals but as the House will wish to see how these fit into the context of the Budget, I shall explain the salient features now
§ Parallel with the increase in pensions, there will be corresponding increases in related long-term benefits. Supplementary pensions will be increased by the same amounts as national insurance pensions, that is, by £2.25 and £3.50. Short-term benefits, such as those for the unemployed, sick, and the ordinary rates of supplementary benefit, will be increased by amounts more than sufficient to maintain their purchasing power. They will be increased by £1.25 for a single person and £2 for a married couple. Fuller details of these increases and of improvements in related benefits, including a relaxation in the earnings rule for pensions, will be announced by my right hon. Friend tomorrow.
§ The total cost of these improvements is estimated at about £860 million in the financial year 1974–75 and about £1,240 million in the 12 months from 22nd July. Of this, about £100 million and £140 million respectively represent the cost attributable to benefits which is wholly financed by the Exchequer. The balance of £760 million in 1974–75 and £1,100 million in a full year represents the additional cost to the National Insurance Funds.
§ These costs are large, although a substantial part would of course have been required for the increases to which our predecessors committed themselves. The community must meet the cost in one way or another. So far as national insurance contributions are concerned, we have to ensure that the extra burden falls on those best able to bear it, whether employers or employees. For this reason we will raise the weekly earnings limit for graduated contributions from £54 to £62 and the full rate of graduated contributions from 5 per cent. to 5½ per cent. Employers' flat-rate contributions in respect of men will be increased by 44p a week. This will bring the employers' 297 share of contributions up to about the average for the European Economic Community. But the flat-rate contribution by employed men will be reduced by 9p a week. There will be comparable changes for women and the self-employed and non-employed.
§ The major share of the cost will thus be levied through employers' contributions. Moreover, the share which falls to employees will be distributed to the advantage of the lowest paid. The effect for an employed man earning £62 a week or more will be an extra contribution of 57p a week; if he earns £40, he will pay 7p a week more. But if he earns £20, he will pay 3p a week less than now. The Exchequer will continue to contribute the equivalent of about 18 per cent. of the income from employers and employees.
§ I estimate that the extra amount of contributions payable as a result of these changes, with the associated Exchequer contribution, will be about £615 million in 1974–75. This will ensure that the National Insurance Funds have ample resources to cover the full cost.