SOCIAL SECURITY (CONTRIBUTIONS)

HC Deb 11 January 1977 vol 923 cc1346-94

7.57 p.m.

The Secretary of State for Social Services (Mr. David Ennals)

I beg to move. That the Social Security (Contributions, Rerating) Order 1976, a draft of which was laid before this House on 7th December, be approved. Under the Social Security Act 1975, the Secretary of State for Social Services is required to review each year the general level of earnings in Great Britain and to consider what changes in national insurance contributions need to be made in the light of movements in earnings and other relevant factors.

The draft order provides for increases from next April in certain of the rates and levels of contributions. I will explain, first, the details of the changes, and then go on to deal with the major issues of the size of the surplus, and whether we are maintaining the right balance between income and outgo of the scheme.

Under the order, the lower earnings limit for Class 1 contributions—that is, those paid by employed earners and employers—is to be raised from £13 to £15 a week and the upper earnings limit is to be raised from £95 to £105 a week. The percentage of employed earners' contributions will remain 5.75 per cent. and the effect will be that, as a result of the order, those earning £95 or more will pay increased contributions—at the new higher earnings level, no more than 58p. Employers' contributions will remain 8.75 per cent., and they, too, will pay increased contributions under the order in respect of employees who earn £95 or more a week.

As regards the selfemployed, the increase in their contributions is to be shared between the flat-rate Class 2 contribution and the earnings-related Class 4 contribution.

On the last two occasions on which contributions generally have been increased—in April 1975 and 1976—the Class 2 contribution has been held steady even though this is the contribution to which the self-employed person's rights to benefit are linked. Since the present Class 2 contribution rate of £2.41 a week was established in August 1974, the pension rate has increased by over 50 per cent. I hope therefore that it will be seen as reasonable that the contribution rate should rise on this occasion by 25p a week to £2.66 a week.

No change is proposed in the rate of Class 4 contributions, which remains at 8 per cent. But the range of profits or gains on which the contribution is levied is being changed. Under the draft order the range will be from £1,750 to £5,500 a year in place of the present limits of £1,600 and £4,900 a year. The maximum increase in the Class 4 contribution will therefore be £36 a year and it will be payable where profits or gains amount to £5,500 a year or more.

The draft order also raises the level of earnings below which a self-employed person can be excepted from liability for Class 2 contributions from the present limit of £775 a year to £875 a year. The remaining change made by the order is an increase from £1.90 to £2.10 in the rate of the Class 3 contribution which is paid weekly by some employed contributors on a voluntary basis and paid also by other contributors who wish to make good deficiencies in their contribution records.

I should mention also that the lower rate of Class 2 contributions for women, which is being brought in stages up to the rate for men, is being increased from £2.20 to £2.55 a week under the separate order which was also laid on 7th December. This is part of the preparation for the new pension scheme which will come into operation in 1978.

Mr. Patrick Jenkin (Wanstead and Woodford)

My hon. Friend the Member for Wallasey (Mrs. Chalker) is listening closely to the Secretary of State and she wondered whether he had the figures right for the Class 3 contribution. The order provides for an increase from £2.10 a week to £2.45. I think the right hon. Gentleman said that the increase was from £1.90 to £2.10.

Mr. Ennals

The figures as I have them show an increase from £1.90 to £2.10. The Class 2 contributions for women are quite different. If there is any misunderstanding I shall ask my right hon. Friend who is to wind up the debate to clarify the matter. If it is discovered while I am speaking that the figures I have given are in any way wrong I shall correct them. The last thing I want to do is to mislead the House.

Mr. Patrick Jenkin

It will be a long time to wait for the wind up speeches. Let me quote from Article 4 of the order which reads In section 8(1) of the Act (Class 3 contributions) for "£2.10" there shall be substituted "£2.45".

Mr. Ennals

I must congratulate the right hon. Gentleman and the hon. Member for Wallasey (Mrs. Chalker). The figures they gave were right and mine were wrong. I am grateful to the hon. Lady for being perspicacious. As was said earlier today, she is keen on figures and she got them right this time.

Let me move on to some of the wider implications of the Bill, particularly concerning the Government Actuary's report, which was published at the same time as the order. It was in an attempt to dispel some of the concern which many hon. Members clearly felt on reading the report and the order that my right hon. Friend, the Minister for Social Security, and I had an explanatory note prepared and made available to all hon. Members. We hoped that it would be helpful.

The main argument is centred around the level of the balance in the National Insurance Fund. The Government Actuary's report shows that on certain illustrative assumptions as to the levels of earnings and unemployment, the income of the National Insurance Fund will exceed the outgo by £932 million in the current year and about £875 million in 1977–78. When allowance is made for the actual cost of the November 1976 uprating, the corresponding forecast made at the time of last year's re-rating order implied that the income and outgo of the Fund in 1976–77 would be just about in balance.

By the time of the further report which accompanied the Benefits Up-Rating Order last May the Government Actuary was forecasting a surplus of income over outgo of £389 million. The currently estimated surplus is based upon a much greater contribution yield this year than was previously anticipated. The House is entitled to know why this was occurred. Hon. Members will appreciate that the new earnings-related system of contributions was introduced only in April 1975 and almost no information about its effects was available in the late summer of 1975 when the esctimate for the report on last year's re-rating order had to be prepared. The other main factor is the cost of unemployment benefit. Unfortunately, the Actuary had to make estimates for a level of unemployment higher than we have been used to. In the event, the proportion of the unemployed entitled to benefit from the National Insurance Fund has turned out to be much lower than had been expected, because a surprisingly high proportion of those registered as unemployed failed to meet the contribution conditions.

Another factor contributing to the big increase in the surplus is that higher than expected contributions automatically lead to higher Treasury supplements on the 18 per cents. basis. In addition, a higher balance in the National Insurance Fund leads to bigger interest income, thus further increasing the surplus. It could be said that the Government Actuary got his figures wrong last year and has now adjusted his sights. However, that would be unfair, given what I have already said about the special factors which applied last year and which created difficulties for this assumption. Also, it would be misleading to foster an expectation that, in subsequent years variations between forecasts and out-turn would not occur. Clearly they have occurred in the course of the past year and with the best will in the world I cannot prophesy that they will not occur in the future.

Certainly I hope that, in the absence of these special factors, the variations will not be so wide and that we shall have more experience on which to base an assumption since the earnings-related system will have been with us for longer. I hope that the variations will not be as wide in the future, but the current figures show that in the present economic situation, forecasting the effect on the scheme of changes in factors such as unemployment is an extremely hazardous business.

Many factors influence the actual levels of contribution, income and benefit expenditure. The Government Actuary pointed out in his report that 100,000 people more or less unemployed costs or saves the National Insurance Fund about £130 million, so that an estimate that is 100,000 out one way or the other introduces that degree of variation.

There is the additional factor that we have a statutory commitment to uprate benefits by November this year. Although account is taken of that event in the Actuary's report on the basis of certain assumptions, these assumptions may not be borne out. We are talking here not about cash in hand but about estimates based on certain assumptions. We cannot be certain that those assumptions will turn out as we may estimate.

I turn now to consider the size of the sums involved, because they are very large. We must remember that we are concerned with a scheme in which income and expenditure are about £10,000 million a year. Even a small percentage shift in one or other direction can make a very big difference to any surplus or deficit which arises.

As I said in answer to a supplementary question in the House this afternoon, the Fund now represents about three months' benefit expenditure. For many years after 1948 it amounted to about two years' expenditure, though the total amount involved was much less than it is at present. In other words, whilst the balance of the Fund seems an enormous total, it has to be considered against the rate of expenditure on benefits.

The size of the surplus at which to aim in any year is very much a matter of judgment in the light of the prevailing circumstances. Certainly it would not, in my view, be wise to try to fix some statutory relationship between estimated income and expenditure of the Fund. It must be left to the judgment of the Government of the day. I am not denying that the figure now is larger than was anticipated.

Given that on this occasion there is no need to increase the contribution percentage, the question arises whether we are right to propose an increase in the earnings ceiling. In my view, it would be absolutely wrong not to do so. Any earnings related system must adjust its earnings limits from time to time if the nature of the system is not to be changed as the general level of earnings increases. The increase in the earnings ceiling means that those earning more than £95 a week will have modest contribution increases. But it would be unfair to those lower down the earnings scale if those with earnings of more than £95 a week were specially shielded from increases. It would be socially wrong that the burden should be borne by those earning less than £95 a week when the value of earnings had changed.

Mr. George Cunningham (Islington, South and Finsbury)

Surely the alternative is not to leave the lower and upper levels at the present rates or to raise them by lesser amounts but to allow the percentage to be dropped. My right hon. Friend said that there was no need to raise the 5.75 per cent. figure above 5.75 per cent. I suggest that he seems not to be considering the possibility of dropping the 5.75 per cent. figure below 5.75 per cent. That is what I think the Government ought to be doing, given that there is enough money in the Fund to afford to do so. Why is that option not being pursued?

Mr. Ennals

There are a number of reasons for not doing so, and I should like to deal with them in greater detail later. One is that we are moving towards a new pension scheme. We are anxious not to be faced in 1978 with a big jump in the contributions which have to be paid. That would be unsatisfactory for both employers and employees. We are moving steadily in a variety of different ways towards a new pension scheme. I should like to deal with that matter in greater detail later.

The increase in earnings in the year to April 1976 would have justified raising the earnings level by 17.8 per cent. The House knows that we are not proposing to do that. Instead, we propose to raise the ceiling on Class 1 earnings by only 10.5 per cent. In answer to my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham), I should point out that this is the amount required to maintain a ratio of seven to one between the ceiling and the basic pension rate. That was the target set in the Social Security Pensions Act 1975, It is our intention, in moving towards that target, to have that kind of percentage.

I understand that the Opposition, at the time of the 1975 legislation, accepted that seven to one ratio. It would be hypocritical if we were now to decide to vote against adopting that ratio as a basis for moving forward into the new pension scheme. Certainly if we fail to move towards it now, there will need to be a bigger jump in April 1978 when the scheme comes in.

Mr. Patrick Jenkin

That assumes that the assumptions in the Government Actuary's Report, which accompanied the 1975 Bill, are still valid. Do the Government still accept the assumptions upon the basis on which those figures were written into that Bill? Or is it the case that, with the experience that we now have of a much greater buoyancy of the revenue, coupled with the difference that we have found with the higher level of unemployment, those assumptions are now no longer valid and, therefore, whatever may have been said by either side at that time has been belied by events?

Mr. Ennals

I am sure that my right hon. Friend will be prepared to give some of the assumptions on which the Government Actuary based his conclusions, but I do not think that it would be wise for me to do so at the moment.

Mr. Patrick Jenkin

But the right hon. Gentleman accused me of being hypocritical.

Mr. Ennals

I think that second thoughts may be right. Perhaps the right hon. Gentleman will develop that point in his speech and my right hon. Friend will deal with it in winding up the debate.

Mr. Patrick Jenkin

Now the right hon. Gentleman is being hypocritical.

Mr. Ennals

There is nothing hypocritical in that. We want to deal honestly and fairly and more effectively with the point that the right hon. Gentleman wants to make. If he spells it out in his speech, my right hon. Friend will deal with it in winding up the debate.

The Government have always hoped to set the initial contribution rates for the new pension scheme below the illustrative rates of 10 per cent. for employers and 6.5 per cent. for employees which were given in the Social Security Pensions Act 1975. We have taken many opportunties of making it clear that we hoped that it would be possible to start with initial contributions below those figures. One reason for this order is that that is what we wish to do.

However, it will depend on the future liabilities which the Fund has to meet. For example, if we were to spend both this year's and next year's estimated surpluses on new or increased benefits, as some of my hon. Friends have suggested, it would mean an additional and continuing burden on the Fund, which would almost inevitably prevent reductions in the contribution rates originally predicted for the new pension scheme. Indeed, we might have to increase substantially those rates much sooner than would otherwise be necessary to meet the additional benefits which the scheme will provide.

Mr. Tom Litterick (Birmingham, Selly Oak)

There seems to be an inconsistency between what my right hon. Friend has just said and what he said seven or eight minutes ago by way of explaining the emergence of the large surplus. Earlier, the Secretary of State suggested that the surplus emerged initially by accident. I do not wish to rehearse his explanation of that accident. However, he is now saying, with hindsight, that the surplus is a manifestation of wisdom. I do not think that he can claim it both days.

Mr. Ennals

I did not go quite that far. I might have said that this was good housekeeping. We did not want to have this surplus but, having got it, we are wise to use it as we propose because it means that we shall be able to move steadily into the new pension scheme without a higher level of contributions and without establishing commitments which would result in higher contributions earlier. We do not say that we planned for the surplus, but, having got it, we must deal with it wisely and efficiently for the benefit both of the National Insurance Fund and of the new pension scheme, which is probably one of the most important advances which this Government have proposed.

I hope that the Opposition will make clear where they stand on the order. I understand that they will vote against it, but I cannot imagine that they will urge that we should spend more on benefits because before Christmas they worked themselves into a great lather about public expenditure. Perhaps the Opposition Front Bench did not do that, but most hon. Members on the Opposition side did. The Oppositon certainly urged swingeing cuts in expenditure. As we saw in Standing Committee this morning, the Opposition are prepared to will the end without willing the means. That is the height of irresponsibility.

The operation of the National Insurance Fund cannot be considered in isolation from the requirements of the economy as a whole. Given that the Fund is in surplus, we must look at the impact of National Insurance Fund receipts on the public sector borrowing requirement. The balance resulting from any current surplus in the National Insurance Fund is invested in public sector stock. This reduces the amount which the Government need to borrow from other sources to finance their overall borrowing requirement.

With the public sector borrowing requirement at its present high level a surplus accruing to the National Insurance Fund is of great economic assistance. That is what it is all about. I presume that if the right hon. Member for Wanstead and Woodford is to vote against the order, he is suggesting that we should have a lower balance which would result in significantly adding to the public sector borrowing requirement.

We must look at the other side of the coin. A surplus in the National Insurance Fund is borrowed by the Government. Were the surplus to be spent, the Government would, overall, have to spend less elsewhere—and I am sure that the right hon. Member for Wanstead and Woodford agrees—or else they would have to raise other taxes or borrow more. That would run completely contrary to the Government's objectives and to those of the Opposition, although their objectives appear to be to embarrass the Government and not to serve the economic interests of the nation.

I hope that we shall hear where the Opposition stand on that issue. If they were to vote against the order and if it were defeated, the National Insurance Fund would lose £150 million in 1977–78. Because of the reduced level of Treasury supplement and the lesser burden of contributions on the public sector, the overall effect on Government finance would be to increase the 1977–78 public sector borrowing requirement by about £115 million. But the Opposition complained throughout last year that the public sector borrowing requirement was too high. I look forward with interest to hearing how the right hon. Member for Wanstead and Woodford justifies recommending to his hon. Friends that they should vote against the order.

I do not want to take up any more time of the House nor do I wish to end on a note of controversy. I have tried to be frank with the House both tonight and earlier in a note to hon. Members. We are bound to establish soundly the structure of contributions and benefits of the 1978 pension scheme. We are bound to ensure that the social security system is soundly financed. We cannot ignore the financial conditions of the day. I ask the House to acknowledge these considerations, although I realise that it may be too much to ask it of the right hon. Gentleman. I urge the House to show some sense of responsibility at the end of the debate.

8.25 p.m.

Mr. Patrick Jenkin (Wanstead and Woodford)

The Secretary of State adopts the oldest advocacy trick in the book—when one has a bad case, one abuses the other fellow's attorney. The Secretary of State is more than a little unhappy with the case that he has to defend and he has been in difficulties finding reasons that will convince the House of the justification for the increase in contributions under the order.

He made a statement on 7th December when he announced the increases. Subsequently he has given us a note of explanation, which I welcome, and which set out his argument and the basis of his case. In addition, he and his colleagues have answered a battery of Written Questions from both sides of the House.

But one clear message comes across from all this—these increased contributions have less to do with funding social benefits than with financing the Budget deficit. That is what it is all about. If that is right—and I shall seek to show that it is—it is simply increasing taxation to finance the borrowing requirement. It has nothing to do with pensions or social benefits and we are bound to oppose it.

Given the high levels of direct taxation, we do not believe that it can be right to increase these levels still further to meet the borrowing requirement. On the contrary, as the Chancellor of the Exchequer himself, in his almost daily recantations of his earlier sins and wickednesses has said, direct taxation is already too high and must be reduced across the board for the low, middle and high income earners.

The order increases the burden of direct taxation by about £150 million for no other purpose than to meet the public sector borrowing requirement, and we shall vote against it.

Mr. Ennals

That is hypocritical.

Mr. Jenkin

I cannot see that it is hypocritical. The borrowing requirement is too high, not because direct taxation is too low but because expenditure is too high.

Mr. Ennals

The right hon. Gentleman is arguing that those on the upper level of earnings—between £95 and £100 a week—should be excluded. Is that not the real reason that he opposes the order?

Mr. Jenkin

I shall come to that shortly. The right hon. Gentleman is fairly new to his office, as indeed I am fairly new to shadowing him, although I have had my present position for exactly a year tonight.

The point is that the burden that has fallen upon those people through increased national insurance contributions has been out of all proportion over the last two or three years to any other form of direct taxation. We of course agree that next year's public sector borrowing requirement must be financed, but it would be better by far to reduce public expenditure by a further £150 million.

My right hon. Friends have given the Government plenty of scope for doing that on items that the Government are too frightened to touch because of their hon. Friends below the Gangway—such as stopping the spending of hundreds of millions of pounds on unnecessary public investment in the North Sea. The Government could do that and get all the revenue they want by taxation and control by legislation. They do not need to invest.

This order, because it is a straight increase in direct taxation to finance the PSBR via the National Insurance Fund, is the least acceptable way of dealing with the problem. There are much bigger majorities in the House for cutting public expenditure than for raising taxes.

The rest of my speech will be in two parts. I want first to prove my point that financing the borrowing requirement is the reason we have the order. Secondly, I want to look at the effect of the order, coupled with its predecessors, on different categories of contributor.

A number of basic facts are not in dispute. The right hon. Gentleman rehearsed some of them, but perhaps it would be helpful if I set them out quickly. Not only is the National Insurance Fund in substantial surplus, but the surplus is now very much bigger than it was previously estimated to be—£932 million in the current year as against a previous estimate of £389 million. That is the surplus for one year.

Secondly, the total balance of the Fund —the right hon. Gentleman did not mention this figure by this coming April, on the assumptions spelled out in the Government Actuary's report, will be about £3,000 million. That is a figure that was given to me in a Written Answer published in Hansard on 23rd December.

Thirdly, there will be a further surplus next year, on the assumptions in the Government Actuary's report, estimated at between £867 million and £888 million. Therefore, by April 1978 the total balance of the National Insurance Fund will be approaching £4,000 million.

The fourth point is that the main variable on outgoings, namely, the level of unemployment, on the figures that the right hon. Gentleman quoted is relatively minor by comparison with those sums. Even a variation of 100,000 in the number of people eligible to draw unemployment benefit—and we know that that is only half of the number unemployed—on the figures that we were given a few moments ago would mean only £130 million. That is just under 14 per cent. of the annual surplus in 1977–78, or, putting it another way, 3¼ per cent. of the total balance at the end of that year.

Even if the number of unemployed eligible for benefit increases to twice that figure, 200,000 more, which implies an extra 400,000 unemployed because only half are eligible for benefit, that means that there would be an additional outgoing of precisely 7 per cent. of the accumulated Fund.

The Minister for Social Security (Mr. Stanley Orme)

What about sickness benefit?

Mr. Jenkin

One could have short-term fluctuations in the sickness benefit. I agree that one could have an epidemic. However, that would be a comparatively short-term matter for relatively few weeks. But compared with the increase that I have quoted for unemployment it would be small. For the Government to pretend that somehow here there are potential massive fluctuations in the Fund is nonsense.

On the other hand—the fifth point—the main reasons for the massive increase in this year's surplus were that the cost of unemployment was £220 million lower than estimated in the Government Actuary's report—not the level but the cost of the benefit—and, secondly, that the yield of contributions, as the right hon. Gentleman has said, was £237 million higher than the estimate.

The right hon. Gentleman said that that was as a result of a lack of experience. But that applied only to the estimate made in the autumn of 1975. It is a little strange that the estimate made in May 1976 should have still failed by such a wide margin to estimate the level of contributions. However, there it is, and that is what happened.

There is no dispute about any of those facts. They are beyond argument. They are all in the Government Actuary's December report or in figures that we have had in parliamentary answers. It is against that background, the huge total Fund, that we must examine the Government's reasons for yet further increases in contributions. In his original statement——

Mr. Ennals

In an answer that I gave to my hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) I pointed out that on 31st March 1974, just a few weeks after the right hon. Gentleman himself was a Treasury Minister, the National Insurance Reserve Fund together with the Industrial Injuries Fund totalled £1,861 million. The change is not very great. Was he as worried then as he is now?

Mr. Jenkin

I shall quote the figures. I intend to quote figures for a different series of dates from the Government Actuary's report, because I want to make it clear what has happened to the ratio of the total Fund to the annual outgo. That is part of the Government's case for an increase.

In his statement of 7th December the Secretary of State was remarkably vague about the reasons for maintaining such a large surplus and for adding to it by increasing the contribution. In the only really relevant sentence of that statement he said: … this favourable balance will be of advantage in view of the economic uncertainties".—[Official Report, 7th December 1976; Vol. 922, c. 157.] For sheer vagueness, that is difficult to beat. It must by now be clear to the right hon. Gentleman that it convinced no one, not the Press, not the Opposition and not his hon. Friends.

We therefore had his curious apologia, this explanatory note which purported to set out the reasons more fully. Like the right hon. Gentleman, I shall follow it closely. The relevant questions are divided into two—why do we need a surplus for 1977–78 and why do we have a re-rating order at all?

To the first question the right hon. Gentleman has given broadly three reasons. Two of them I shall prove are insubstantial and the third—the borrowing requirement—will be seen as the real reason. The first insubstantial reason was that the Fund needed to be built up so that its size matched the scale of the expenditure. The right hon. Gentleman has just made that point again. On the face of it that reason sounds plausible until one looks at the figures. They show clearly that on 31st March 1974, according to the social security statistics, the reserves were £1,461 million. On 31st March 1977, I was told, they will be £3,000 million and the estimate for 31st March 1978 is between £3,867 million and £3,888 million.

According to the statistics and the Government Actuary's report—I shall not quote the detailed figures—if one looks at the ratio of the annual outgo, the expenditure, of the Fund to the balance, one sees that, for the year to 31st March 1974 the reserves represented 36 per cent. of the expenditure; by 31st March 1978 the percentage will have risen to 41. Therefore, the right hon. Gentleman's argument that he needs an extra £150 million of revenue to preserve the balance is sheer bunkum.

That balance is already moving sharply in the direction of the increased size of the Fund relative to the expenditure. It is on that basis that the right hon. Gentleman says that he needs to ensure that the size of the Fund matches the scale of the expenditure. The size of the Fund is rising sharply relative to the scale of the expenditure, and the order will increase that trend further. So that reason for the surplus is absurd: it does not hold water.

The absurdity is underlined by the comparison that the right hon. Gentleman made with the position in 1948. He must surely know that when the scheme started in 1948, large numbers of people of pensionable age were not entitled to pensions, yet the entire working population was pouring contributions into the Fund from the start. Therefore, of course, in those years the ratio of outgo to surplus was very different. But that bears no comparison to the position today. What the right hon. Gentleman has said merely seems calculated to mislead his hon. Friends into thinking that he is doing something reasonable.

Second, the right hon. Gentleman said that we need to take account of sharper fluctuations in benefit expenditure. I have already shown that the biggest such fluctuation, the level of unemployment, is marginal in relation to the size of the Fund. The Minister has made reference to the next uprating, which is coming in November of this year. But the point must be recognised—and the Minister skated over this—that with earnings-related contributions there ought to be no increase in the level of contributions over that achieved by the application of the percentage of contributions to rising earnings. The contributions rise automatically to meet the rising cost of benefits. This has been shown to happen and it has happened. As the hon. Member for Islington, South and Finsbury (Mr. Cunningham) said, the increase in the contribution percentage to 5¾ shows that that may not all have been necessary.

Mr. Ennals

Is the right hon. Member for Wanstead and Woodford (Mr. Jenkin) saying that as earnings levels increase ceilings should remain the same? He is saying that ceilings must remain the same and that the burden must fall on those below a ceiling that has been kept unnaturally low.

Mr. Jenkin

That does not answer the point that I have just made, but seeks to make another point that I shall come to in a moment. I do not believe that the surplus will evaporate through payment of benefits and I suspect that that is also the view of the Department. The Minister has answered more than 20 parliamentary Questions on this subject during the last two or three weeks, but there has not been so much as a hint in his answers that the surplus could evaporate as a result of expenditure during the course of the year.

Mr. George Cunningham

I understood that the right hon. Member for Wanstead and Woodford (Mr. Jenkin) said that the new system of earnings-related contributions would mean increasing revenue to the Fund. It would not do that if one did not raise the upper limit, because 5¾ per cent. or any other percentage of a fixed band would produce the same amount of money in cash terms, subject only to the very tiny qualifications that as more people earned a maximum above that band there would be some product from that. The intention of not only the 1975 Act, which was a consolidation measure, but the 1973 Act, passed by the Tory Government, was always that upper and lower limits ought to rise. The system will not work unless they do that.

Mr. Jenkin

Of course, over the long term upper and lower limits will rise, but, having seen the result of the current percentages and limits, is it right simply to go on as if nothing had happened- As to the point raised by the hon. Member for Islington, South and Finsbury, if everybody were at the upper limit of £95 already, there would be no increase. But the vast majority of earners are moving through the bracket and as their incomes rise, so do their percentage contributions. There are relatively few contributors whose incomes are above the upper limit and for them there would be no increase in contributions. To suggest that because there is a fixed band between £15 and £95 there is no increase in contribution revenues as incomes rise is absurd. The majority of incomes move up through the band and as they move up the same percentage produces a higher figure.

The surpluses are not likely to evaporate. Nor will they be used to pay increased benefits. There should be no mistake about that. I am sorry that the hon. Member for Selly Oak has left the Chamber. He and his hon. Friends wanted more benefits, and they received dusty answers.

The hon. Member for Bristol, North-West (Mr. Thomas) wanted to increase unemployment pay and, together with the hon. Member for Chorley (Mr. Rodgers) to pay the £10 Christmas bonus to pensioners. Other hon. Members opposite wanted other goodies, but they all got dusty answers from the Secretary of State. One example was: No. The use of the surplus to provide for the payment of a Christmas bonus or a special increase in social security benefits would mean an increase in public expenditure, which cannot be contemplated in present circumstances."—[Official Report, 13th December 1976; Vol. 922, c. 601.] The right hon. Gentleman was quite right, but it must be puzzling to a lifelong Socialist such as the hon. Member for Selly Oak to be told that although the money is there, it cannot be spent.

So I discount the first two reasons for the surplus as shallow and insubstantial. I come to the third, and what I believe to be the real, reason—the impact of the National Insurance Fund receipts on the public sector borrowing requirement. The Minister's note says: The balance resulting from any current surplus on the National Insurance Fund is invested in accordance with Section 133 of the Social Security Act 1975 in public sector stock. The interest on this stock accrues to the Fund for the benefit of contributors. The surplus has the effect of reducing the amount which the Government needs to borrow from other sources to bridge the gap between its expenditure and its revenue. That is the real reason for the surplus and the reason for contributions being increased.

For once, I agreed with what the hon. Member for Selly Oak wrote in Tribune just before Christmas when he said: the Government is using the fund simply as another means of taking purchasing power out of the hands of the people, hoping, no doubt that it would go unnoticed. £932 million is a hefty contribution to the Treasury hunt for cuts and all the better if it does not need to be debated and voted on in the House of Commons."— I hope that the hon. Gentleman realises that it is being debated and will be voted upon. He added: This is simply disguised taxation."— I agree— it is deflationary taxation which bears hardest on the poorest. The hon. Gentleman is right again.

The basic marginal rate of tax for an employed man is not 35 per cent.—the basic rate of income tax—but 40.75 per cent. This is because of the 5.75 per cent. national insurance contribution. That is the rate of tax on every extra pound of income of all single men earning more than £15 per week and for a childless married couple with more than £21 per week. Above these ridiculously low levels of income, the marginal rate of taxation is 40.75 per cent. The burden of taxation has become a cruel imposition on the lower paid.

The real reason for the surplus is to help to finance the Budget deficit. The Fund is in a massive surplus, so should contributions be increased? The Minister's note says that this is mainly to raise ceilings. It says: If the ceiling is not raised periodically, in line with the general movement of earnings, the better off, i.e. those presently earning over the current ceiling of £95 a week, would be the only ones paying no more by way of contributions than they are at present. They would not therefore be paying their fair share towards the cost of benefits. That sounds plausible—again until one looks at what has happened to these people's contributions. Let us take a man on the upper earnings limit of £105 and assume that he has had no increase in his income over the past three years. My case is even stronger if he has had a pay increase.

In 1975–76, when the upper limit was £65, such a man paid contributions of £197.34. In 1976–77, when the upper limit was raised to £95, his contributions increased by 44 per cent. in one year to £284.05. For 1977–78 when the upper limit will be £105, his contribution will be £313.95. This represents an increase of 60 per cent. in his contributions in two years. I do not understand how any hon. or right hon. Gentleman can conceivably say that it is so reasonable that it follows automatically and inexorably that the ceiling has to be raised. That 60 per cent. increased contribution has to be paid out of net income.

The assumption I made is not altered if the man's income has gone up, because if his income goes up he pays an even bigger contribution. On the assumption I made, that his income had not gone up. that is a whacking great tax rise by any standards. When it is set against the size of the National Insurance Fund surplus and the fact that the only reason for increasing it still further is to help to finance the Budget deficit, we say that this is not only taxation; it is very unfair taxation.

The Secretary of State made some play with the fact that we are moving to a new pension scheme. He referred to the agreement that the upper limit should be seven times the basic pension level. But that assumption was made on the original assumptions of the Government Actuary. If the application of that rule now produces both a huge surplus of the Fund and such massive increases of taxation for those on modest middle incomes, surely the right hon. Gentleman should look again at the rule to see whether it is fair.

The Secretary of State said that buildup was needed to meet the cost of the new second pension scheme in 1978. Why should the contributions be raised for the coming year to meet the costs of a scheme which is not due to start until 1978? The 1975 Government Actuary's report—Cmnd. 5928—did not envisage the contributions going up in advance.

The right hon. Gentleman made great play with the fact that we did not know the results of the earnings-related contributions, but now that we have the experience and have shown that the Fund is being built up massively ahead of the time assumed by the Government Actuary, would it not be wiser and fairer to defer an increase in the contributions for the new scheme until next year? I cannot see what is hypocritical about demanding that of the Government. There is nothing hypocritical. We are simply standing by our oft reasserted principle that direct taxation is much too high and should not be further increased.

The Chancellor of the Exchequer has repeatedly acknowledged that. In October he said in a broadcast: I think the rates of income tax are too high at every level of earnings from the poorest paid to the highest paid. It must be within the memory of every hon. Member that just before Christmas the Chancellor of the Exchequer said: it has become essential to reduce the burden of direct taxation."—[Official Report, 21st December 1976; Vol. 923, c. 502.] Yet here we have an order—the latest in a series—which has effectively increased the burden of national insurance contributions by 60 per cent. in two years for the category of taxpayer affected by it. I say flatly to the Government that it is unacceptable, and we do not propose to accept it tonight.

In particular, it is unacceptable to the self-employed. Last year the right hon. Member for Blackburn (Mrs. Castle) boasted that she was setting out to right the wrong she had done to the self-employed a year earlier. According to the notice issued by the DHSS: Special steps to help the less well-off and self-employed are included in the review of national insurance contributions announced today by Mrs. Barbara Castle. Said Mrs. Castle: 'If we can find a solution to this problem, which I am urgently examining, this would right one of their biggest grievances'. Yet in The Times of 10th August 1976 appeared these words: The interdepartmental working group set up to study how the self-employed could be brought fully into the earnings-related State pension scheme has been disbanded, and the Government says that it has no intention of bringing the self-employed into the full scheme in the predictable future. Nevertheless, they have to pay earnings-related contributions if they have clear profits of £1,600 a year. That lower limit is raised by this order. Yet tonight we see the result—a further increase in flat-rate contributions and a substantial raising of the upper level. But still the self-employed will get no unemployment benefit, no industrial injury benefit and no entitlement to earnings-related sickness benefit.

These arrangements are highly unsatisfactory. I repeat the pledge that we have given to do all we can within available resources to meet the legitimate grievances of self-employed people in all sections of the community. Their contribution to the community is invaluable and their independence is essential to a balanced society.

Perhaps the most important single duty of this House is to prevent Governments oppressing the people by harsh and unfair taxation. At least most taxation is levied openly through the Finance Bill. When we have this sort of sneaky, backdoor tax masquerading as the financing of social benefits when it is really the funding of the Government's Budget deficit, our duty is clear. We must throw it out.

8.56 p.m.

Mr. George Cunningham (Islington, South and Finsbury)

The speech of the right hon. Member for Wanstead and Woodford (Mr. Jenkin), besides being wrong headed in many respects, was breathtaking in the gall which it manifested, especially in those last remarks. Such agreement as I had with the right hon. Gentleman this morning on another matter he has entirely dissipated in his remarks tonight. He said that there should not have been, over the past two or three years, a 60 per cent. increase in social security contributions. But there has been an increase of that order in National Insurance Fund outgoings. Therefore there ought to be a commensurate increase in contributions.

The hon. Gentleman does a great deal of harm by referring to national insurance contributions as a tax. We all know the sense in which a national insurance contribution is not like a contribution to a funded pension scheme. It is important that the public should realise the enormous cost of providing national insurance benefits. The only way in which that can be constantly brought home to people is for there to be a separate, specific contribution for those national insurance benefits. These are contributions for benefits received, not a tax in any case whatever.

Mr. Patrick Jenkin

The hon. Gentleman entirely misses the point. If the object were to finance benefits I would accept what he said. But when the only object is to finance a Budget deficit, it ceases to be a contribution and becomes a tax.

Mr. Cunningham

The right hon. Gentleman knows quite well that when he was a Treasury Minister it was then the practice—and it has always been the practice—to treat the National Insurance Fund for the purposes of public sector management as part of public sector finance. He did that when he was in the Treasury a few years ago. If he were saying only that we should not allow a surplus of the present dimensions to build up, I would have more sympathy with him. Of course, if there is a surplus, justifiable on other grounds, the Government must not ignore that and secure a borrowing requirement as large as they would have done if that surplus did not exist. The right hon. Gentleman knows, or should know, that this is the situation. If there were a Conservative Government at present they would be doing the same.

Mr. Ennals

My hon. Friend will also agree, since we are concerned that the public should understand, that the National Insurance Fund can be used for no other purpose than the payment of benefits. What the right hon. Member for Wanstead and Woodford (Mr. Jenkin) was saying was very misleading.

Mr. Cunningham

And insofar as there is a surplus, it is carried forward to later years. If there were a deficit it would be carried forward, so that, taking the years together, any money which is collected is and must be disbursed. There is no way of siphoning it off for other purposes.

I would prefer that the aim should be to have no significant surplus in the National Insurance Fund. Obviously, one's aim is never perfectly correct, and if one aims at a zero figure—why not, because this is a pay-as-you-go scheme?—sometimes one will have a surplus and sometimes a deficit. There is nothing wrong with that, and one should carry one or other of them forward to the following year and adjust one's percentage contribution figures in order to take account of that.

I can see only one reason for aiming for a modest surplus rather than for a zero figure. If, by going for a zero figure, one ends with a deficit, one has much more difficulty in increasing tax rates on a temporary basis than one would have in increasing national insurance contributions. So maybe there is a justification for aiming for a modest surplus. But a surplus which amounts to one-quarter excess over the yearly consumption is not modest in a pay-as-you-go system.

My right hon Friend has advanced tempting and attractive reasons, relating to the introduction of the new scheme in 1975, in an attempt at justification. I think that that is the only reason that justifies it. Nothing else would do so.

The right hon. Member for Wanstead and Woodford as usual surely lost sight not only of the reality of managing these things but of the intentions of his own social security Ministers when they put through the Social Security Act 1973, upon which all this is based, when he argued that the lower and upper limits should not be automatically raised. I do not believe that one should take the size of the fund into account when one raises the lower and upper limits. I think that he has lost an opportunity tonight for arguing that that ought to be a perfectly automatic rising but that what one alters is the percentage figure.

Now, if there is an excess of 25 per cent. in the Fund—if we are to be fairly extreme—it would be possible to reduce contributions by about 10 to 20 per cent. Let us be much more modest than that. It should be possible to secure a balance in the Fund in 1977–1978 even if one were to drop the contributions—I shall instance only the employees' contribution, but the same would apply pro rata to the others—reducing the 5.75 per cent. to about 5 per cent. The indication, as I see it, is that one could do that and still have a surplus in the Fund. Why were not the Opposition arguing for that, rather than for the illogical move of freezing the limits because one does not need so much extra money in the coming year?

I think that if any of us were in the Secretary of State's position we would be greatly attracted, this surplus having accidentally came about, by the thought of keeping it and using it to soften the increase in percentages which will inevitably be needed in April 1978. Let us remember that, when the child benefit argument was going on last summer, one of the difficulties which were foreseen in making a swift shift from child tax allowance to child benefit was that that would have affected wage packets not only this coming April but the April after, and that a shift of that sort in April 1978 would be particularly unattractive at a time when an increased national insurance contribution was going to be needed because of the introduction of the new scheme.

If, as a result of pushing forward the surplus, snowplough fashion, into 1978, there need not be such an increase in the contributions in April 1978, one thing follows—that it will be possible to have a bigger shift from child tax allowance in April 1978 to child benefit. This is a very appropriate time for that fact to be pushed around, because we shall shortly be thinking about what further change in the shift from child tax allowance to child benefit it would be appropriate to make in April 1978. That to me is a very attractive argument indeed.

In principle, leaving other things aside, there should not be a surplus of any significant size in the National Insurance Fund. But if we can ease the shift to child benefits, and ease the introduction of the new and very important pension scheme in 1978 by pushing it forward instead of liquidating it, I think that is an attraction. Otherwise, the right course would have been to let the percentage fall back to around 5 per cent. and for the Government to make up the difference, so far as general economic management is concerned, by an increase in tax.

Since the Chancellor intends to reduce taxes this coming April it would have been possible to make this change. He would be reducing the national insurance contribution—and the tax rates as well—but he could reduce our tax by a little less than he otherwise intended to do because he had made a larger reduction in the national insurance contribution. That is the argument that the Opposition should have been making. But because of these considerations relevant to 1978, and the difficulties that will be presented, I think that on balance it makes sense to use this windfall to ease the difficulties that we shall have in 15 months' time.

Mr. R. A. McCrindle (Brentwood and Ongar)

I start by posing the question: why raise contributions at all? I realise that I am echoing my right hon. Friend on the Front Bench, the Member for Wanstead and Woodford (Mr. Jenkin).

Here we have a sector, perhaps the only sector, of the economy that appears to be constantly in surplus and where there is a buoyancy that would be the envy of many another sector of our economy. If in these circumstances we are still faced with the possibility of a substantial increase in contributions, one is entitled to ask where it is all going to end.

When we have a surplus of the order of that revealed this evening, when we have reserves that appear to be more than adequate and when we have just gone through a year in which perhaps the greatest test in terms of fluctuations in the requirement for benefits has been passed—by that I mean the sizeable increase in unemployment benefits that may have been thought to have been required—one is entitled to ask where it is all going to end if we still face these increases in contributions. When can we ever envisage a situation in which the burden of contributions is likely to be reduced?

I now turn to the position of the earnings-related aspect of contributions. I would concede the point made by the Secretary of State earlier, that if we are to have an earnings-related system, as inflation and other factors affect earnings, there has to be a constant increasing of the ceiling to which those earnings related contributions are attached.

Having said that, I hope that the House will forgive me if in passing I say that the effect on the upper earners—those now earning £105—is really nothing more than a further clobbering of a section of society which has been at least as subjected to a reduction in the standard of living by a combination of taxes and inflation as any other section of the community.

My right hon. Friend pointed to the fact that the contribution made by the top earners has gone up by no less than 60 per cent. over a period of two years. By any standards that is a very sizeable increase. When people in this category look at the abuse, as they would contend, which exists within the distribution of our social benefits, one can understand their disillusionment, and one will also be able to understand their inability to appreciate why, with a surplus of the size that we are discussing, nevertheless their contributions have to be increased once again. I mention that not as a special plea for such people but so that the House can consider the attitude which will prevail among many of them.

It has been asked why, if there is this vast surplus, it cannot be used to introduce new benefits, and of course it is a very tempting thought to pursue. It was particularly tempting to consider the possibility of a Christmas bonus. Most hon. Members will have had numerous requests in their postbags in the period leading up to Christmas. Yet I am sure that the Government, in a period when total expenditure has to be reduced, are right to resist the temptation to use this surplus for the increasing of benefits or for the introduction of new benefits.

But there can be no doubt that my right hon. Friend the Member for Wanstead and Woodford was correct when he described this order as nothing short of increased taxation made necessary by the need to finance the borrowing requirement, and one cannot but say in passing that, whatever else may be the effect of these increased contributions, they are a further turn of the screw against offering an incentive to those people who have had incentives reduced substantially over the past few years.

Attention must be drawn also to the fact that the order is not only increased taxation, whatever the hon. Member for Islington, South and Finsbury (Mr. Cunningham) may say. It is increased taxation which can be authorised by this House without the necessity to introduce a Finance Bill. That is a matter which the House should consider very carefully and, I hope, not provide as a precedent.

Mention has been made of the self-employed. I find it distasteful to discover that on this uprating once again the self-employed have a slightly larger additional burden placed upon them than that placed upon the ordinary employee. It is incumbent upon Opposition Members who have spoken out consistently over the past few years against the increasing burden placed upon the self-employed, not only in national insurance contributions but in so many other ways, to draw attention once again to the feeling which prevails amongst such people that they continue to carry a disproportionate share of the burden of national insurance contributions and taxation and to point out that, when that is allied to the difficulties which as small shopkeepers they frequently experience in the application of multiple rates of VAT and in many other ways, they expect us to protest that the Government have not taken this opportunity to reduce their burden.

We are asked to take account of the fact that these increased contributions are necessary because of the possibility of a shaper fluctuation in the years that lie ahead in benefit expenditure. I respectfully ask the Minister of State to say from where he expects such an increased fluctuation to develop. Over the past years we have had an increase in unemployment of an order that one would have expected to demand a considerable additional requirement from the Fund. We have had, it would seem, that additional unemployment, but nevertheless we have weathered the storm and in the process produced a substantial surplus. What could it be that the Government envisage happening which might possibly require this substantial surplus? Mention has been made of an epidemic, but it would have to be an epidemic of the most major proportions before there was such a fluctuation in the requirements to justify an increase of the order proposed in relation to the surplus which has been announced.

I have reached the conclusion that without question this is simply another method of increasing taxation. The Government should be criticised for increasing taxation through the back door, because that is what is being done this evening. The Opposition are correct to draw attention to these facts and to vote against the Order. I shall have the greatest pleasure in following my right hon. Friend in to the Lobby on that vote tonight.

9.17 p.m.

Mr. Robert Boscawen (Wells)

I think that my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) did a most effective demolition job on the thinnest case I have heard from the Government Front Bench in a long time. The case put up by the Secretary of State for increasing the contributions in the higher band was one of the least plausible we have heard for a long time in this House. The Secretary of State said it was wrong not to raise the upper band in any case because more people's earnings had increased into that upper band, and because an increase in contributions was necessary to preserve the structure of the scheme.

In a year when there is this record surplus on the National Insurance Fund, in a year when everyone who has to contribute towards the Fund is in personal economic difficulties, and when many businesses are also in some difficulty, there is no excuse whatever for increasing the contributions in the upper band. I make no apology for emphasising what my right hon. Friend and my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) have already said.

There is a trend, under the present Government, towards national insurance contributions becoming just another way of raising progressive income tax from the taxpayers. Despite what the hon. Member for Islington, South and Finsbury (Mr. Cunningham) said, this is what has happened. As if it is not enough for this Government to have just placed a national insurance surcharge of 2 per cent. on the contributions of employers. This latest increase makes the whole contribution system look like progressive taxation.

It is highly desirable in our society that people should understand that their right to get something out of the kitty in the long run depends on putting in regular contributions throughout their working lives, which they can identify as being tailored towards these particular benefits they hope to receive. If the people are not going to get anything more in the way of benefits, yet their contributions rise year after year, as they have under this Government, they will regard this form of contribution as just one more part of the general taxation system. It is an undesirable trend and the more that it continues the less favourable will be the reaction of people to the National Insurance Fund.

One excuse that I saw for the increase in the contribution, which I am glad to say the Government have not used, is that it is to pay for raising the lower earnings limit. I agree that the limit ought to be raised. It is far too low. I saw from a parliamentary answer that raising the limit by £2 as suggested would cost the scheme only £4 million a year, and that money could be paid out of the £3,000 million surplus without any difficulty. The sum of £4 million could be covered by a mere statistical error in calculations and it certainly would not require an increase in the upper earnings limit.

As my hon. Friend the Member for Brentwood and Ongar said, those in the upper earnings limit band including the self-employed—those who are receiving £5,500 a year or just above—have already been treated in a cavalier fashion in the last couple of years. They come into the higher levels of additional tax. They are the people who are probably the most affected by the massive increases in rates on their homes and by the increase in the mortgage interest rate. These are the people, particularly the self-employed among them, who are today opting out of much of the activity in which they should be playing a part.

In my area the product of a penny rate has fallen by 2 per cent. or 3 per cent. this year because of the closure of small businesses and shops. This has taken place because for the people who run them it is not worth while continuing when they are clobbered so badly. Such people will be having to pay a considerable increase—about £1 a week more—but are not receiving an extra penny of benefit.

We are told that this large surplus is necessary, since it accounts for only about three months' outgoings from the fund. The surplus is now to be increased by £150 million or so. That increase will add only one week to the three months' surplus. Such an increase is totally unnecessary to preserve the surplus and the essential structure of the scheme.

I concede that there is one good side to the increase, but it happens for all the wrong reasons. It will tend to help occupational pension schemes when the new two-tier system is introduced in 1978. A greater number of people in the upper earnings limits band will undoubtedly decide that their advantage will lie in finding an occupational scheme which will enable them to opt out of the basic State scheme and the new earnings-related scheme. Many of them will consider joining one of the very good occupational pension schemes that exist, although some cannot do so because they are self-employed and have great difficulty in finding a suitable scheme.

By clobbering the upper earnings limit band, the Government will give a boost to many occupational schemes. It is essential to the whole basis of the new State earnings-related scheme that as great a number as possible take part in occupational pension schemes. In the long run that will reduce the amount the National Insurance Fund will have to contribute to the earnings related State benefit.

Even so, this benefit to the National Insurance Fund is for all the wrong reasons. This is another mean measure, trivial in its overall effect, as it will raise only £150 million, but considerable in the blow it will deal to a vital sector on whom we so greatly depend for our economic recovery. For that reason, I shall certainly support my right hon. Friend in opposing this increase.

9.22 p.m.

Mr. Dan Jones (Burnley)

I am surprised at the Opposition. It is true that there is a sizeable surplus in the Fund, but those of us who have a genuine respect for health know that our National Health Service is still the best in the world. Tory Members should be glad that we have such a service and should argue that it should be used to promote better health.

I wonder whether Ministers and officials in the Department have read the report published by those responsible for the medical care of rheumatics and arthritics. Are they aware of the great loss of industrial output arising from rheumatism and arthritis? Tory Members cry out when there are industrial stoppages, but they do not always stop to consider the cause. They argue that industrial stoppages have a detrimental effect on our economy.

Is the Minister prepared to take into account the appreciable surplus? Perhaps some of it should be devoted to the provision of better facilities. Many people who badly need hospitalisation cannot secure it because there are no facilities available. That is an aggravating situation, particularly when those awaiting treatment are at work.

In this country many thousands of people are prematurely crippled by arthritis and rheumatism. I should applaud the Opposition with glee if they said "Here is the money. Use it in the way suggested by responsible people in society." I cannot understand why the Opposition, who are constantly talking about a constructive approach to the nation's problems, should quibble about a couple of quid and say "Do not do it", referring to the self-employed who apparently will suffer as a result. I do not accept that approach. Apparently some hon. Gentlemen believe that the self-employed will opt out. I wonder whether they will opt in when they, their wives, or families are sick.

Members must be careful about what they say in this House. With health, everything is possible. Without health, everything becomes intensely difficult. The Government should be pressed from both sides of the House to look at those features of British society detrimental to our standing in the world.

I should like my right hon. Friends to consider the problems of those who are crippled with arthritis and rheumatism. Those responsible for treating them are confident that with greater facilities they could considerably reduce suffering and return to industry those who, at this time more than any other in the post-war years, can make a vital contribution to the economic well-being of the nation.

I beg my right hon. Friends before deciding to add to the credit balance to consider whether they can advantageously spend the money in the way that I have meekly and humbly recommended for the sake of those suffering intensely from arthritis and rheumatism.

9.33 p.m.

Mr. Tony Newton (Braintree)

I shall not attempt to follow the eloquent plea made by the hon. Member for Burnley (Mr. Jones). I have no doubt that in different financial circumstances many hon. Members on both sides of the House would have a great deal of sympathy with what the hon. Gentleman said and could think of a number of causes of their own that they would like to advocate. Indeed, I should find no difficulty in doing that. However, I fear that the hon. Gentleman was banging his head against a brick wall in making his plea to his right hon. Friends.

I do not know whether the hon. Member for Burnley heard the Secretary of State's opening speech. I should like to quote from the end of the note which the right hon. Gentleman circulated. The punch line at the end of his message is that any spending of the surpluses would be contrary to the whole objective of the Chancellor's statement on December 15th. What we are debating tonight is not how and whether we can spend the money —we have been told that we cannot—but whether it is right to raise the money in this way.

Mr. Dan Jones

The Chancellor, after all, does not have the last word. The hon. Gentleman will be aware that the Opposition have pressed my right hon. Friend in many ways and for different reasons. Why not press him on this matter? Any money spend in the way that I have indicated would be an investment, not expenditure.

Mr. Newton

I fear that, as an Opposition Member, albeit on the Back Benches rather than the Front Bench, in the nearly three years since I came into Parliament the major problem for me has been preventing rather than encouraging the Chancellor to spend excessive sums of money. Now that we have at last got him to accept the need for some sense of reality, even though it imposes some harsh decisions, I do not intend to go overboard in encouraging the Chancellor to reverse engines almost before he has started to move in the right direction.

I wish that the two senior DHSS Ministers were in the Chamber because it is difficult not to feel sympathy with them in their plight. In reality they are not spokesmen for their Department, but are acting in this debate, as they have in others, as proxy spokesmen for the Treasury. In the debate on the earnings rule the Chief Secretary to the Treasury was in the Chamber, nearly all the time, which is not usual on such an occasion. A charitable man might have thought that he was there to help, but I believe that he was there to ensure that there was no backsliding by Ministers.

Tonight Ministers have been spared his presence. They have been spared him breathing down their necks, but a large part of the speech by the Secretary of State was written in effect by the Chief Secretary. It was being read out in justification for a proposal which cannot be attractive to the Ministers in the Department, but they were forced to put it forward. It is easy enough to score points on this issue and I accept that Ministers are in an awkward position. But they should be more honest with the House and with the country.

Ministers, particularly those from the Department of Health and Social Security, are fond of saying that their Department has in some way been sheltered from the impact of public expenditure cuts. But that is true only to a limited extent. They may not have been forced to cut benefits—and we may have saved them from cutting a benefit this morning. But when one examines the balance between what they are collecting and paying out in benefits, one sees that the Department has become an arm of the tax-collecting branch of Government. The Department has been asked to collect money which is not required to pay the benefits for which it is responsible.

Mr. George Cunningham

There is no doubt about that.

Mr. Newton

There is certainly no doubt about the construction to be placed on the circulated note and on what the Secretary of State said when opening the debate. I have not got his exact words, but in effect the Secretary of State said that if we did not have this surplus in the National Insurance Fund, we should either have to borrow money or raise other taxes. There is no other deduction than that this is either forced saving or a form of general taxation.

Mr. Orme

I am sure that the hon. Member does not want to mislead the House on the argument of taxation. He is aware that this money cannot be used for any purpose other than national insurance purposes. It is not a form of taxation and the money is not transferred to general taxation. It is not a tax.

Mr. Newton

That is a fine semantic point. I said that there could be no interpretation but that it was either forced saving or additional taxation. What the Ministers has just said puts it rather more into forced saving than into extra taxation.

If the Minister does not want me to use the phrase "extra taxation" I shall not use it. However, the blunt fact is that money is being raised from the public in the form of national insurance contributions which is not required to meet the current needs of the National Insurance Fund. That is misleading to people paying contributions, who are encouraged to believe—and rightly encouraged—that these contributions are required to pay for benefits that they will receive. It is money which is not currently required at all.

Whether the Minister chooses to call it taxation, as I should be inclined to call it, or whether he accepts that this is forced saving, as it certainly must be, it is not easy to justify, and for the very reasons touched on by the hon. Member for Islington, South and Finsbury (Mr. Cunningham). It is very important that the public should be confident that these contributions are required to pay for the benefits that they receive. That is exactly what we are currently undermining, in both this proposal and, even more so, in the National Insurance Surcharge Bill, even though that Bill primarily affects employers.

The whole national insurance scheme is at present being perverted to a purpose quite alien to what it was set up to do and quite alien to what the public think it is doing. That is a senseless thing to do in terms of public relations, even if it could be justified in other terms. The Minister clearly disagrees with the use of the word "taxation". We can agree to differ, though there is little in the Minister's argument.

My other main point concerns the other arm of the argument that has principally been used by Ministers—that this surplus is needed in order to cushion the blow when we move over to the new pension system next year. I wish that more Labour Members were present tonight. I invite Labour Members to think of what would be said if that analogy were followed by other people increasing their charges.

Let us suppose that the Secretary of State for Prices and Consumer Protection were faced with Rank-Hovis-McDougall and the other bread manufacturers saying "We know that bread prices will have to rise rather a lot next autumn because of something that we expect to happen in the price of wheat, so please let us raise them a little more now, or let us make huge profits now, in order to cushion the blow then." There would be an outcry.

One of the whole purposes of the price control machinery is to prevent people doing that. It is to accept that there will be frequent price increases, rather than to allow bigger increases, which will cushion the blow over a period and prevent the massive increases. The argument that is now being used would not be acceptable if adopted by any other Department in relation to the social contract.

It is not merely in this bit of the public sector that this has happened. Let us look at what has happened with the Post Office. It would be out of order to stray into that matter for more than a moment. However, a huge surplus of profit has built up in the Post Office and we are being asked to accept it as justification that the Post Office will be able to hold prices for about 18 months.

Mr. Dan Jones

Thank God for that.

Mr. Newton

Yes, indeed. However, if any private concern had been allowed to increase prices in the past to build up such profits, it would have been treated on the Labour Benches as a public scandal. Labour Members would have demanded that the prices be reduced. They would have said that the profits were obscene and that capitalists had been allowed to run riot. The Post Office has been allowed to run riot, and now DHSS Ministers have been allowed to run riot with these contributions and they ask us to accept that they are being responsible in terms of the development of their policy over a long period ahead.

I want to give reasonable time for the Opposition Front Bench spokesman to wind up the debate, but I want to make one final point. My objection to these increases is not simply the fraud that is being perpetrated in the presentation of the Government's argument. It is the fact that it is part of a policy that has left the people of this country with a disastrously high level of deductions from earnings. None of us can get away from that immediately, but we do not always recognise what has happened in the last few years.

I was told in a Written Answer on 14th December that the percentage of average earnings taken by income tax and social security contributions from an average family man with a wife and two children under 11 was 9.2 in 1964–65 and 19.1 in 1970–71. In 1973–74, after three years of Conservative Government, there was a more modest increase, to only 19.3 per cent. In 1976–77, before these increases, it has gone up to 24.1 per cent. In 12 years, the deductions from the average family man have risen from less than 10 per cent. to nearly a quarter of his earnings.

Then we wonder why people say that it is hardly worth bothering to work, or people think of going abroad, or the self-employed say that they cannot manage. The reason is not only national insurance contributions, but that is part of it. Against that background of problems it is little short of criminal for Ministers deliberately to raise one important part of those deductions above the level which is necessary. I am glad that we shall be voting against the order.

9.46 p.m.

Mrs. Lynda Chalker (Wallasey)

We have had an interesting if perhaps short debate on something which to the majority of people outside the House looks relatively innocuous; something which those of us accustomed to social security debates have seen arise with monotonous regularity—an uprating order, normally of benefits but this time of contributions.

The Secretary of State seemed to believe that we did not understand that there were pitfalls in forecasting. Above all else, I, as a statistician, know that there are plenty of pitfalls in forecasting and that really reliable statistics are often difficult to get. But that is why statistical theory has developed a system of calculating terms of error and bands of confidence with known probabilities. I am sure that the 37 statisticians working away at the Elephant and Castle know all about that. I expect that in our future debates Ministers will bring before us not just one figure but the 95 per cent. confidence limits as well. That will really be blinding the House with further science.

My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) spelled out most clearly just where the Fund surpluses are and how large they are. This is not just a matter of what we in this House think about a surplus for 1976–77 of £932 million or the Government Actuary's estimate for the coming year of a surplus of between £867 million and £888 million, depending on the per- centage increase in earnings. It is very much a matter of the way in which the position is understood by the British public when, as we constantly say, we have a major economic crisis.

That is why the House, and the Opposition in particular, have a responsibility to spell out clearly, as we have done tonight, what is going on. My hon. Friend the Member for Braintree (Mr. Newton) spelled out the figures that he received on 14th December. Those are the figures that the British public understand, money they see being taken from their direct income.

It is incredible how many people have thought that the National Insurance Fund was notional. Perhaps it was not until the series of parliamentary Questions on 13th and 14th December that even some hon. Members realised that the Fund was no more notional than the fact of my standing here; that it was substantial that it needed to be, and was, invested in accordance with Section 133 of the Social Security Act 1973.

This investment—and we know that the benefit of the investment can be used only for social security purposes—is reaching a higher percentage as the balance of reserves builds up. The Minister would be doing a service to the House if he revealed what proportion of the £3,000 million surplus is invested in Government and local authority stock, and the sort of yield it produces. We are a little wary, and the more we probe, the more information comes out. If the Government continue to defend such a surplus, more information should be given about what they are doing with the money.

We have seen the balance of the fund change substantially. Since March 1975 there has been an increase of 50 per cent. to £1,000 million—according to the estimate for April 1977 produced by the Government Actuary in Command Paper 6688. The biggest problem is that the Government are being seen to make a profit. Whether or not the Government argue about it, that is how it is seen outside the House, and it colours people's attitude to the increases in taxation. I am convinced that whatever the notes with which hon. Members have been provided say about investment, and whatever Ministers say about the way in which money is being used and about what would happen if there were a major crisis, those facts will not be known and understood outside. What will be publicly known is that an extra amount of money is being taken out of the pockets of working men.

I accept that those on a higher income will be more heavily penalised, and in recent months the House has turned its attention to such people for good reasons. As my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) said, these people feel that this is just a further clobbering of their income. When the hon. Member for Islington, South and Finsbury (Mr. Cunningham) challenged my right hon. Friend the Member for Wanstead and Woodford about the Fund, the hon. Member would not accept the point that is understood by many other people—that if there is to be an increase in the Fund, such an increase must be seen by the British public to be used for benefits. As we know from Government replies to parliamentary Questions, that is certainly not what the Government intend to do with the growing surplus of the National Insurance Fund.

The way in which the Secretary of State dealt with the explanation tonight was understandable. I make no bones about that. We know why there is a re-rating order: because the money that is being invested is helping the Treasury in difficult circumstances. That has been clearly spelt out, and I do not need to repeat it. The money taken from working people in the different classes of contributions set out in the uprating order will not increase benefits for anybody.

I was interested in and sympathetic to the plea made by the hon. Member for Burnley (Mr. Jones) who was extremely sincere in what he said about the surplus on the Fund. There are many cases deserving extra expenditure but, we now have to steel our hearts more than we would wish in order to get the economy back on the right road. Then it will be possible to have the benefits which the hon. Member for Burnley would like, and which the Opposition are determined to get from a strong economy in the future. But now people are feeling overcome by the taxation burden which has been imposed on them in the past two or three years.

The Secretary of State said that it was necessary to raise contributions in 1977–78 in order to pay for the better pensions under the Social Security Pensions Act 1975 which comes into operation in April next year. He said that it was being done now in order to avoid a big jump next year. If only 50 per cent. of the unemployed people in this country are drawing unemployment benefit while the others are taking some other benefit, we know that there must be a substantial alteration to the Government's Actuary's figures and the surplus in the Fund.

Some of these matters are unclear even to hon. Members who study this subject. We hope that the Government are looking into the reasons why only 730,000 of the 1,350,000 unemployed people are receiving unemployment benefit. As these figures change, so does the effect on the Fund and so will the ability, with or without increased contributions, to pay the pensions under the scheme which starts next year.

When we were discussing the Social Security Pensions Bill in 1975, we had before us a Government Actuary's report which did not envisage an increase in contributions before 1978. We suspect that the April 1977 rates will probably be only a stop-gap.

It would be much more sensible to wait until we are clearer about what is going on in this field before changing the contributions. The men who will have to pay the increases in April this year see the Government taking extra money from them to invest, albeit for the benefit of the social security system, on the chance that they may need it in April 1978 or thereafter. Those men would rather keep their money than pay an extra percentage of direct taxation which the Government may invest as they wish without those men having any security of a return of benefit on that investment when the Government decide that they have finished with the money. We have heard from my right hon. Friend the Member for Wanstead and Woodford that the contributions of a man earning £5,500 a year have increased by 60 per cent. since 1975–76.

We have heard from the Secretary of State that he must deal with the unexpected surplus wisely and efficiently. When he used those words I felt that we had the answer to why the Government were taking yet more money. It is to pay for the vast deficits we are seeking to repay, which have resulted from the Government's mismanagement of the economy by buoying up the public sector borrowing requirement. We have seen unfrocked the real intention behind this order.

Several hon. Members have referred to the relationship between contributions and benefits. Those Government Front Bench Spokesmen who are used to hearing my comments on these subjects know that I would dearly love to bring home to the people the real cost of the services and benefits we provide. The people are totally divorced from the reality of cost. The Government, led by the Chancellor of the Exchequer, have a duty to put that right, and we shall do our best to help them, so that people really understand about the costs of the system.

The real problem is that—as the man in the street knows only too well—this progressive taxation is not being related back to him in benefits. It is being used to buoy up an already excessive Fund. We should be increasing the cost consciousness of the nation by telling the people how the benefits from the National Insurance Fund are being used. We might then find it not quite so difficult to explain why things sometimes go wrong and why, with the best will in the world, the Government Actuary and all the statisticians from time to time get matters out of true.

If we continue to divorce national insurance contributions from the cost of specific benefits, real anger will be felt about the increases. So often the increased contributions are seen as a little bit of extra taxation that the Government are taking. There is no need to increase the surplus. As was pointed out, the £150 million which the Government will gather in from the order will provide only for one more week of benefit in addition to the existing Fund surplus.

We know that the Government are making these increased contributions because, regrettably, the Front Bench, speaking on behalf of the Department of Health and Social Security, are no longer allowed to be independent thinkers in the interests of health and social security but are merely a tool of the Treasury. That is why we shall oppose the way in which they are seeking, unreasonably, to take money from working men when they do not need it at present for benefits. We shall vote against the order.

10.4 p.m.

The Minister for Social Security (Mr. Stanley Orme)

I felt the lash of the words spoken by the hon. Member for Wallasey (Mrs. Chalker) when she implied that the Department was being dictated to by the Treasury. I do not know whether, when the right hon. Member for Wanstead and Woodford (Mr. Jenkin) was Chief Secretary to the Treasury, he behaved in the manner in which his hon. Friend thinks that the Treasury behaves now, but I assure the hon. Lady that that is not the case.

One or two red herrings have been drawn across the debate. The right hon. Member for Wanstead and Woodford referred to the red herring of taxation, which his hon. Friends have followed up.

Mr. Patrick Jenkin

Are we really to believe that it was entirely out of the goodness of their hearts that the right hon. Gentleman and his right hon. and hon. Friends decided that they needed this enormous surplus to help finance the public sector borrowing requirement? If that is what the right hon. Gentleman is saying, I do not believe him.

Mr. Orme

The right hon. Gentleman may not believe me, but I am telling him the truth. When we saw what the surplus would be, we examined the issue with a view to altering the rate and perhaps meeting the point made by my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham). We thought long and hard about this. In a period of inflation and economic difficulty it would have been attractive to make a reduction in this type of contribution. We had to consider not only a surplus that would last for only 12 weeks if it were paid as benefit, but the new earnings-related pension scheme which is due to start in April 1978. That will mean considerable increases in national insurance contributions for most people.

Faced with this and taking into account that the surplus is not as large as it seems on the surface, and bearing in mind the calls that could be made on the Fund as a result of sickness or unemployment, we concluded that the Fund ought to remain at its present level and that the uprating should take place only at the top level for the benefit of those at the bottom end of the scale. If that is not social justice, I do not know what is.

Mr. McCrindle

Much play is being made by the Minister and his right hon. and hon. Friends of the fact that part of the reason for the large surplus is to cushion the effect of the increased contributions required in 1978. To some extent I accept that argument. Is the right hon. Gentleman telling us that that means that in 1979 and subsequent years, were the Government still to be in office, they would not contemplate a surplus of this order?

Mr. Orme

When we face the position after 1978 the Government will obviously want to take account of the surplus. The hon. Gentleman is right in saying that we shall have to examine the position. We cannot make hypothetical assumptions now.

I understand that I caused some amusement at Question Time today when I said that the hon. Member for Wallasey was very good at figures. The hon. Member has asked about figures and about the investment of the surplus. She said that more ought to be known about it. The answers to her questions are to be found in the published accounts, the latest of which relate to 1974–75. I shall willingly send her a copy. The accounts show in detail the type of stock held. I know that she would not want me to go into detail now. The 1975–76 accounts will be published in a couple of months' time. The full figures, both of the previous and of the current investment, are and will be known.

The right hon. Member for Wanstead and Woodford mentioned the seven to one ratio. He asked whether it stood by the Social Security Pensions Act 1975 for the relationship between the earnings ceiling for contributions and the basic pension rate and rested on assumptions by the Government Actuary that have now been invalidated. The answer is that the level of the earnings ceiling depends not on calculations by the Government Actuary but on a judgment as to the proper definition of an earnings-related pensions scheme operated by the State on a compulsory basis. The Government adhere to the view, taken at the time of the 1975 Act, that the right ceiling for the State scheme would be about seven times the basic pension rate and that the maintenance of the ceiling at that level would provide a stable basis for the State scheme.

This can be used as a firm structure for pensions planning, both in relation to those who will participate fully in the new earnings-related State scheme, which starts in 1978, and in relation to those who will be contracted out as members of occupational pension schemes. I hope that this explanation satisfies the right hon. Member for Wanstead and Woodford.

The right hon. Gentleman discussed the effects of changes in the level of unemployment, given in the Government Actuary's report. He spoke of a change of 100,000 in the number registered as unemployed. The right hon. Gentleman was wrong, incidentally, in his initial assumption. It is a matter of the number registered as unemployed and not the number eligible for benefit. It follows that a variation of 400,000, to which he referred, in the number of unemployed would affect the annual outcome to the extent of over £500 million and not the £260 million that he quoted.

A number of hon. Members asked questions about the position of the self-employed. The Government would like to be able to offer the self-employed earnings-related benefits for earnings-related contributions, and there are ways in which this could be done. But, as my right hon. Friend made clear last August, there is no way of doing it at a cost in manpower which would be acceptable in the present circumstances.

I have discussed this with a number of self-employed people, and I have found that there is not a great deal of enthusiasm amongst many of them for earnings-related benefits as such. Despite what they will be paying under the new scheme and the fact that they are not eligible, therefore, for certain benefits, the main benefit—the pension—which accounts for about 75 per cent. of the expenditure, will not be affected. The self-employed, therefore, will find themselves with a mixed flat-rate and earnings-related contribution system.

In deciding what share of the contribution burden the self-employed should bear the Government have done their best to ensure that substantial fairness will be achieved as between the self-employed as a group and employed earners as a group, and as between different groups in the ranks of the self-employed themselves. The Class 4 rate has not been increased and the lower profit limit has been raised, the latter a beneficial measure. The Class 4 upper limit has moved in line with the Class 1 upper limit. We believe that that is fair. The flat-rate Class 2 contribution is being increased by only 10 per cent. after having been steady for the last two years, during which time there has been a more than 50 per cent. increase in pension rates.

A great deal of comment has been made about the increase that many people have had to pay since 1974. The hon. Member for Braintree (Mr. Newton) said it was about 60 per cent. for certain people in the top figures. Benefits have also increased. The main benefit—pensions—has increased by over 50 per cent. in that period.

It is a fact that we cannot use the money for any other purpose. The Government can only spend the money on benefits. That is the purpose of the scheme. The money will not be used for any diversionary methods such as going into other forms of taxation or being used by the Treasury. It will only be used by the National Insurance Fund.

Mr. Dan Jones

That is as it should be.

Mr. Orme

I thank my hon. Friend for that intervention. The overall contribution required from the self-employed has been held at about 8 per cent. of total profits or gains. On those figures it can hardly be said that the self-employed have been singled out for exceptionally harsh treatment. We would not accept that argument in any circumstances.

My hon. Friend the Member for Islington, South and Finsbury raised an interesting point about child benefit and told the House what he thought the Government ought to be thinking about in 1978 in particular and possibly in 1979. My hon. Friend will appreciate that I cannot comment on the points that he made at this stage. However, I would say that his points were extremely interesting and obviously the Government will have to take them into account.

My hon. Friend the Member for Burnley (Mr. Jones) made a special plea for arthritics and other National Health Service patients and hoped that there could be some benefit from expenditure of this Fund. He should appreciate that the Health Service is largely supported by direct taxation as opposed to contributions to the National Insurance Fund. I shall certainly take account of what my hon. Friend has said. I note the report issued yesterday on arthritic people and the effect that rheumatism and arthritis have on industry. My right hon. Friend will be looking at this report with keen interest and he will take my hon. Friend's observations into account.

Mr. Dan Jones

I would simply ask that a team at the Ministry examines the present uneven state of treatment of patients. The most industrialised part of the country, the North-West, is the worst treated.

Mr. Orme

As a Member for the North-West, I would not contradict my hon. Friend. I am sure the hon. Member for Wallasey will not do so, either. My right hon. Friend the Secretary of State was present when the report was published. Naturally he will have a keen interest in it.

Some of my hon. Friends rightly raised important points about the surplus in the Fund and asked whether the Fund could be used for other benefits. This is not possible within the confines of this order or within the confines of the principles governing it.

It is not because we are unsympathetic with what many of my hon. Friends are suggesting. It is because of the manner in which the money is invested. Using it as suggested would have an effect on the public sector borrowing requirement and there would be difficulties that could affect the Chancellor's strategy. I am sure that my hon. Friends will take that into account.

If the House declined to approve this re-rating order, the direct financial consequence would be that in the year 1977–78 the National Insurance Fund would not receive the £150 million which the order is estimated to produce. But it is not only the total financial effect which is important. As my right hon. Friend explained, the purpose of the order is to raise the lower and upper earnings limits for Class 1 contributions so as to bring the limits more into line with the current earnings level and to make associated changes in the contributions of the self-employed.

If the order is not made, the effect will be that the scheme will operate until April 1978 with its present earnings limits and its present self-employed contributions, and, from April 1977, the employer's contributions will be affected by the addition of the 2 per cent. national insurance surcharge. But in the absence of the present re-rating order, employees with earnings above the present £95 earnings ceiling would have no increase in their contributions, so the contributions of employees at the lower earnings level would be increased to the extent that their earnings rose.

I am sure that many of my hon. Friends would not accept that as a basis for proceeding at present. Moreover, the movement of the earnings ceiling in April 1978 when the new pension scheme starts would need to be so much the greater if no interim increase were made in April

1977 of the sort for which the present order provides.

There is an additional point dealing with women's Class 2 contributions. Here I refer briefly to the Women's Class 2 Contributions Order, since that order has been made so as to provide a woman's Class 2 rate consistent with the man's rate provided in the order now before the House. If that order were not made, the order setting the women's Class 2 contribution rate would need to be revoked, with the effect that the rate of Class 2 contributions payable by women from April 1977 would be the same as that already payable by men, namely, £2.41 a week.

I hope that I have said sufficient to show that the present order is necessary to adapt the dimensions of the national insurance contributions system to the changes in the earnings level and that without it we should be failing to keep the scheme's contributions provisions up to date, thus distorting its structure and leading to the need for much bigger changes in 1978. It is on that basis that I commend the order to the House.

Question put:—

The House divided: Ayes 143, Noes 136.

Division No. 28.]	AYES	[10.23 p.m.
Allaun, Frank	Dempsey, James	Kaufman, Gerald
Archer, Peter	Doig, Peter	Lambie, David
Ashton, Joe	Dormand, J. D.	Lamborn, Harry
Atkins, Ronald (Preston N)	Duffy, A. E. P.	Lamond, James
Atkinson, Norman	Dunnett, Jack	Lestor, Miss Joan (Eton & Slough)
Bagier, Gordon A. T.	Eadie, Alex	Lewis, Ron (Carlisle)
Barnett, Rt Hon Joel (Heywood)	Ennals, David	Litterick, Tom
Bates, Alf	Ewing, Harry (Stirling)	Lomas, Kenneth
Bean, R. E.	Fernyhough, Rt Hon E.	Loyden, Eddie
Bennett, Andrew (Stockport N)	Flannery, Martin	Lyons, Edward (Bradford W)
Bishop, E. S.	Foot, Rt Hon Michael	McDonald, Dr Oonagh
Boardman, H.	Fraser, John (Lambeth, N'w'd)	McElhone, Frank
Booth, Rt Hon Albert	Freeson, Reginald	McGuire, Michael (Ince)
Boyden, James (Bish Auck)	George, Bruce	Mackintosh, John P.
Bray, Dr Jeremy	Gilbert, Dr John	Maclennan, Robert
Brown, Hugh D. (Provan)	Golding, John	McMillan, Tom (Glasgow C)
Brown, Robert C. (Newcastle W)	Gourlay, Harry	Mahon, Simon
Buchan, Norman	Graham, Ted	Mallalieu, J. P. W.
Buchanan, Richard	Grant, George (Morpeth)	Marks, Kenneth
Callaghan, Jim (Middleton & P)	Grant, John (Islington C)	Maynard, Miss Joan
Campbell, Ian	Harrison, Walter (Wakefield)	Mikardo, Ian
Carmichael, Neil	Hattersley, Rt Hon Roy	Millan, Rt Hon Bruce
Cocks, Rt Hon Michael	Horam, John	Morris, Rt Hon J. (Aberavon)
Coleman, Donald	Howell, Rt Hon Denis (B'ham, Sm H)	Murray, Rt Hon Ronald King
Concannon, J. D.	Hoyle, Doug (Nelson)	Oakes, Gordon
Conlan, Bernard	Huckfield, Les	Ogden, Eric
Cook, Robin F. (Edin C)	Hughes, Rt Hon C. (Anglesey)	Orme, Rt Hon Stanley
Cowans, Harry	Hughes, Robert (Aberdeen N)	Ovenden, John
Cox, Thomas (Tooting)	Hughes, Roy (Newport)	Padley, Walter
Craigen, Jim (Maryhill)	Hunter, Adam	Parker, John
Crawshaw, Richard	Jeger, Mrs Lena	Pendry, Tom
Cunningham, G. (Islington S)	John, Brynmor	Price, William (Rugby)
Davidson, Arthur	Jones, Alec (Rhondda)	Rees, Rt Hon Merlyn (Leeds S)
Davies, Bryan (Enfield N)	Jones, Barry (East Flint)	Richardson, Miss Jo
Davis, Clinton (Hackney C)	Jones, Dan (Burnley)	Roberts, Albert (Normanton)
Deakins, Eric	Judd, Frank	Roderick, Caerwyn
Rodgers, George (Chorley)	Stallard, A. W.	White, James (Pollok)
Rooker, J. W.	Stewart, Rt Hon M. (Fulham)	Whitlock, William
Rose, Paul B.	Stoddart, David	Williams, Rt Hon Alan (Swansea W)
Ross, Rt Hon W. (Kilmarnock)	Stott, Roger	Williams, Rt Hon Shirley (Hertford)
Rowlands, Ted	Strang, Gavin	Wilson, Alexander (Hamilton)
Silkin, Rt Hon John (Deptford)	Thomas, Mike (Newcastle E)	Wilson, William (Coventry SE)
Silkin, Rt Hon S. C. (Dulwich)	Thomas, Ron (Bristol NW)	Wise, Mrs Audrey
Skinner, Dennis	Thorne, Stan (Preston South)	Woodall, Alec
Small, William	Varley, Rt Hon Eric G.	Young, David (Bolton E)
Smith, John (N Lanarkshire)	Walker, Harold (Doncaster)
Snape, Peter	Walker, Terry (Kingswood)	TELLERS FOR THE AYES:
Spearing, Nigel	Wellbeloved, James	Mr. Joseph Harper and
Spriggs, Leslie	White, Frank R. (Bury)	Mr. James Hamilton.
NOES
Adley, Robert	Grist, Ian	Page, Richard (Workington)
Arnold, Tom	Grylls, Michael	Penhaligon, David
Atkins, Rt Hon H. (Spelthorne)	Hall, Sir John	Percival, Ian
Baker, Kenneth	Hall-Davis, A. G. F.	Pink, R. Bonner
Banks, Robert	Harvie Anderson, Rt Hon Miss	Prior, Rt Hon James
Beith, A. J.	Hastings, Stephen	Pym, Rt Hon Francis
Benyon, W.	Hayhoe, Barney	Rathbone, Tim
Berry, Hon Anthony	Holland, Philip	Rhodes James, R.
Body, Richard	Hooson, Emlyn	Ridley, Hon Nicholas
Boscawen, Hon Robert	Hordern, Peter	Rifkind, Malcolm
Bottomley, Peter	Howells, Geraint (Cardigan)	Roberts, Michael (Cardiff NW)
Braine, Sir Bernard	Hunt, John (Bromley)	Ross, Stephen (Isle of Wight)
Brocklebank-Fowler, C.	Hurd, Douglas	Rost, Peter (SE Derbyshire)
Buchanan-Smith, Alick	James, David	Scott, Nicholas
Buck, Antony	Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Shepherd, Colin
Budgen, Nick	Jopling, Michael	Shersby, Michael
Bulmer, Esmond	King, Evelyn (South Dorset)	Sims, Roger
Burden, F. A.	King, Tom (Bridgwater)	Sinclair, Sir George
Butler, Adam (Bosworth)	Kitson, Sir Timothy	Skeet, T. H. H.
Carlisle, Mark	Knight, Mrs Jill	Smith, Cyril (Rochdale)
Chalker, Mrs Lynda	Lamont, Norman	Smith, Dudley (Warwick)
Clark, Alan (Plymouth, Sutton)	Lawrence, Ivan	Speed, Keith
Clark, William (Croydon S)	Lawson, Nigel	Spicer, Michael (S Worcester)
Clegg, Walter	Le Marchant, Spencer	Sproat, Iain
Cooke, Robert (Bristol W)	Lester, Jim (Beeston)	Stainton, Keith
Cope, John	Loveridge, John	Steel, Rt Hon David
Corrie, John	Luce, Richard	Stewart, Ian (Hitchin)
Crowder, F. P.	McCrindle, Robert	Stradling Thomas, J.
Davies, Rt Hon J. (Knutsford)	Macfarlane, Nell	Taylor, Teddy (Cathcart)
Dean, Paul (N Somerset)	McNair-Wilson, M. (Newbury)	Tebbit, Norman
Douglas-Hamilton, Lord James	Maude, Angus	Thatcher, Rt Hon Margaret
Drayson, Burnaby	Mawby, Ray	Thomas, Rt Hon P. (Hendon S)
Edwards, Nicholas (Pembroke)	Maxwell-Hyslop, Robin	Trotter, Neville
Eyre, Reginald	Meyer, Sir Anthony	van Straubenzee, W. R.
Fairbairn, Nicholas	Miller, Hal (Bromsgrove)	Vaughan, Dr Gerard
Fairgrieve, Russell	Mills, Peter	Viggers, Peter
Fisher, Sir Nigel	Mitchell, David (Basingstoke)	Walker, Rt Hon P. (Worcester)
Fookes, Miss Janet	Moate, Roger	Walters, Dennis
Fowler, Norman (Sutton C'f'd)	Monro, Hector	Warren, Kenneth
Fox, Marcus	Morrison, Charles (Devizes)	Weatherill, Bernard
Glyn, Dr Alan	Morrison, Hon Peter (Chester)	Wells, John
Goodhew, Victor	Mudd, David	Winterton, Nicholas
Gow, Ian (Eastbourne)	Nelson, Anthony
Gower, Sir Raymond (Barry)	Neubert, Michael	TELLERS FOR THE NOES:
Gray, Hamish	Newton, Tony	Mr. Carol Mather and
Grieve, Percy	Onslow, Cranley	Sir George Young.
Griffiths, Eldon	Page, Rt Hon R. Graham (Crosby)

Question accordingly agreed to.

Resolved,

That the Social Security (Contributions, Re-rating) Order 1976, a draft of which was laid before this House on 7th December, be approved.