POVERTY TRAP

HC Deb 17 June 1977 vol 933 cc735-818

11.8 a.m.

Mr. Ralph Howell (Norfolk, North)

I beg to move

That this House deplores the disastrous impact of this Government's policies on the poor, and the widening of the poverty trap by the fall in the real value of tax thresholds relative to welfare benefits; and calls on the Government to redress the position by raising tax thresholds, improving child support and taking other measures necessary to restore the incentive to work.

Within a few days of the Government's most humiliating defeat in the Finance Bill Standing Committee it is most appropriate that we should discuss this subject. The Government have failed to take effective action on this most serious matter, a matter which hon. Members on both sides recognise to be of the greatest consequence, and they deserve the humiliation which they have suffered because of their failure to take action.

In discussing the poverty trap it is essential that we realise its extent and gravity. Various figures are bandied about, but I believe that they are false and that they diminish the seriousness of the problem. Since we have a totally crazy taxation and welfare system, which has been in operation for a long time under Governments of both parties, the situation exists in which many people are either better off out of work than working, or are only marginally better off if they work, given the cost of getting to work and other expenses.

We now have the situation in which people earning as much as £80 a week find it only marginally worth while to work, and that is terribly serious. The term "poverty trap" is not necessarily the correct term. It is the term one must use in discussing the subject, but I would prefer to talk about the treadmill State, because that is what we have developed in this country through a total lack of co-ordination of welfare and taxation.

Even worse, the nation itself, the whole economy, is caught in the poverty trap. By our welfare and taxation systems we are driving more and more people to depend on aid from the State. As we increase the number of people dependent on aid from the State, we obviously de- crease the number of people paying for themselves and paying for others.

We are approaching the point—and, unless some drastic reform takes place, we shall get to the point—at which those who are creating the wealth will be so few that they cannot carry the load imposed upon them because the Government are forcing more and more people into dependence on the State.

There are hon. Members who want to see more and more people dependent on the State. That is the way in which they hope to get complete State control. I think that we should be well aware of that.

I ought to spend a few minutes explaining the causes and the origin of the poverty trap. I think that the first step towards it occurred in 1949, when the Attlee Administration exempted short-term benefits from taxation— unemployment benefit, sickness benefit and supplementary benefit. Other benefits, such as family allowance and pensions, were not exempted from taxation. Therefore, we have a completely distorted situation. A person can receive as much as £40 of supplementary benefit, but if he earned £40 he would be paying about £6 a week in tax and national insurance. What a totally absurd situation to develop!

The second reason for this situation developing is that tax thresholds have fallen in value consistently since 1950. In 1950, on earnings of less than the national average wage, the average family did not pay tax. Now, people who are earning only 46 per cent. of the national average wage find themselves paying tax. It is that that has done so much to create this problem.

Another matter is our very high starting rate of income tax. Perhaps the most serious reason for the poverty trap is that we cut in at 35 per cent., and when one adds national insurance to that, it means that our initial tax rates are over 40 per cent.—the highest in the world. I believe that this has a bearing on our economic performance.

The fourth major reason for distortions in the system is our totally absurd child support system. Let me state what happens to a person with three children. When he works, he receives £4 in family allowance. As soon as he ceases to work, he receives £12.15 for the same three children, and when he becomes long-term unemployed he receives £17.35 for those three children.

This causes massive distortions. Many families with children, particularly those with large numbers of children, find themselves in a situation in which they simply cannot afford to work. People are being forced into idleness by the stupidity of the system.

I should like to give one or two examples of what I am talking about. A man who has a wife and two children and who is earning £40 a week pays £559 a week in tax and national insurance and has a spending power, after allowing for rent rebate, rate rebate and so on, of £34.51. If he were on supplementary benefit, he would have a spending power of £34.27. There is not much incentive there. If he were unemployed and receiving tax rebates, he would have a spending power of £4502. It goes right up the scale to £70 a week and over. At £70 a week, a man with a wife and two children would have a spending power of £44.89, and when unemployed and receiving tax rebates his spending power would be £48.62.

It is no wonder that many people are realising that it does not pay to work regularly and that if one works during the summer months, from April to September, one can freewheel for the rest of the year, until the next April, claiming tax rebates, and the State seems to think that that is the way in which things should be done.

The Government really must apply their minds to these matters. After the defeats that they have suffered at the hands of their own Back Benchers, surely they will do so. I congratulate those hon. Members who had the courage to do what was done in the Standing Committee on the Finance Bill. I know that it could not have been easy. I believe that it was done because hon. Members on both sides of the House feel very disturbed by the fact that we are taxing people into poverty as we are.

I want also to talk about widows and single-parent families, because they are hit very seriously by all this. Widows or any single parents who bothered to go out to work and to earn £30 a week in 1976 found that they had the grand extra spending power, above what they would have had if they had not worked, of £11.99. Now, as a result of this year's Budget, they have the grand total of £1 less—£10.88. In some cases, where such a person earns an extra £10 a week, that person can be 50p worse off than if that extra money had not been earned. The pensioners are another category particularly hard hit. I have previously drawn the attention of the House to the instance of a widow in my constituency who had an income of £28 a week and who had to keep a home together but who was being charged £5 a week tax.

It is a thoroughly rotten society that finds that it cannot finance itself without taxing people at this abominably low income level. The Government really must take immediate action to remedy this. In my view, the remedy is, first, to treat all income alike for tax purposes. That must be done. We must stop having some income, income from the State, exempt from taxation while wages and pensions are always taxed. That does not make sense. It causes a great area of anomaly.

Secondly, we should raise the tax thresholds dramatically, not just by the small amount—although I recognise that it is a step in the right direction—of the amendment in Standing Committee a few days ago but well above all social security ceiling levels. It is totally absurd to take tax from people who are earning at a lower level than the supplementary benefit levels that they could receive.

Mrs. Audrey Wise (Coventry, South-West)

Will the hon. Gentleman be asking his own Front Bench Members why they did not vote on Tuesday for an amendment moved by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), supported by myself, which would almost have done that for which the hon. Gentleman is asking?

Mr. Howell

Yes, I shall be very happy to ask my own Front Bench that question. I have attacked my own Front Benchers when they were in office and I shall attack them until they make these changes. I am not concerned with the present dying Government. They are on their way out. The person to whom I am preaching is my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin). I trust that the next Conservative Government will take note of what I am saying and do something about it. If they do not do so, they will fail. Therefore, I am very anxious that the future Government should be listening. We must raise tax thresholds substantially above all social security ceilings.

Thirdly, we should have a uniform child benefit, whether the parents are in work or out of work. That must be obvious to all.

The fourth thing that we should do is to slash income tax in a very big way. Most of the trouble is due to our very high rates of income tax, and we should switch from income tax to indirect taxation.

The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins)

Ah!

Mr. Howell

The Minister says "Ah". I do not know why he should. That would give an incentive to everybody. It would make it more profitable to work than not to work.

Finally, I believe that we should have one simple co-ordinated benefit instead of all the dribs and drabs of rent and rate rebates, which demand the services of an army of bureaucrats to administer them. We could make tremendous savings and have a simple, more easily understood system which would solve all these problems. I believe that this would do more than anything to get this country moving again and to restore the economy of Britain to a sound position.

Sir John Hall (Wycombe)

Does my hon. Friend agree that his aim would be achieved if we were to introduce the tax credit system?

Mr. Howell

No; I believe that such a system would achieve very little. It would not reduce the number of separately means-tested benefits, it would not reduce the huge bureaucracy, and it would enshrine high income tax levels. It would be difficult to put a tax credit system into operation without high income tax levels. Furthermore, such a system does not provide for the taxation of supplementary benefit. Therefore, all those problems would still remain. I am anxious that we should not enter into this new system until we are sure that it would cure the problems to which I have alluded. I am convinced that we need a much simpler and more easily understood system, and I think that this could be achieved by implementing the three or four proposals I have mentioned.

Mr. Patrick Jenkin (Wanstead and Woodford)

My hon. Friend referred to the taxation of supplementary benefit. Earlier he made the fair point, with which everybody in the House would agree, that it was desirable that the tax threshold should be well above the supplementary benefit level. Why does he now place such a weight of objection to the tax credit scheme because it would not tax supplementary benefit?

Mr. Howell

I have never been convinced that the tax credit system would operate without clawing back a vast amount of tax allowance given generally throughout the country. It will have a minimal impact if watered down in such a way that it is able to be afforded in the first place. I am convinced that to operate such a system the starting rate of tax would need to be at a much higher level than I should wish. I believe that we should aim quickly for a starting rate no higher than 15 per cent. and with a top rate of no more than 50 per cent. We should then be on a par with our main competitors, the Americans, the German and the French.

Mr. Patrick Jenkin

My hon. Friend was kind enough to say that he was addressing his remarks a little earlier to me, although perhaps they were meant generally for the Opposition Front Bench. He is now dealing with a key point on which he and I find it difficult to see eye to eye. He must recognise that the lower the rate of tax, the smaller the cost of introducing tax credits, because the lower is the cash value of the tax allowance one is to replace. Therefore, it is mistaken for him to argue that the tax credit scheme is inseparable from a high starting rate.

If the Chancellor of the Exchequer brought the rate of tax down to 20 or 25 per cent., the value of personal allowances would be worth much less. Therefore, from the point of view of the call on the Exchequer, the conversion of personal allowances into tax credits would not impose the burden that it would impose at a rate of 35 per cent. Therefore, the argument is directly contrary to the point my hon. Friend just put to the House.

Mr. Howell

I am convinced that such a watered-down tax credit system would not solve the overall problem. Now that we are arguing in public, my right hon. Friend must agree that the tax credit scheme would eliminate only one of the 44 means-tested benefits.

Mr. Patrick Jenkin

That is a separate argument.

Mr. Howell

Of course it is, and there are so many arguments. If, after this grand new scheme has been put into operation, we are still to have rent and rate rebates, free school meals, free welfare milk, earnings-related benefits and all the other dribs and drabs of supplementary benefits, all separately means-tested by armies of civil servants, we shall achieve very little indeed.

Mr. Patrick Jenkin

I must allow my hon. Friend to make his speech, but he changed the basis of the argument dramatically. I must add that he said a great deal that had behind it good sense, but I find it sad that he shied away from his logical conclusion, namely, that the concept of tax credits is the right way to deal with the situation. Does he believe that the lower the rate of income tax, the easier it is to introduce a tax credit scheme which will achieve the social objectives spelled out in the Green Paper?

Mr. Howell

I am ready to argue this out with my right hon. Friend, and perhaps I am being a little thick. I do not think I am alone in not understanding what my right hon. Friend says about this matter, and I am ready to discuss it with him at length. But I cannot quite grasp what he is saying.

Mrs. Wise

Perhaps when the hon. Gentleman talks to his right hon. Friend he will make the point that the tax credit system enshrines a permanent poverty trap, since a rise in income would automatically reduce the value and effect of the credits.

Mr. Patrick Jenkin

No.

Mr. Howell

I reach a similar conclusion. I shall deal with this point when I talk further to my right hon. Friend.

I am close to the end of my speech, but I am convinced that we need a completely revised system. I believe that the present totally chaotic system is the main cause of the malaise in this country. I believe that some dramatic change must be effected in this respect if this country is ever to regain its economic position and if we are to regain our self-respect and to be a great country once again.

11.29 a.m.

Mr. J. W. Rooker (Birmingham, Perry Barr)

This debate is a timely one for the Government, the House and my hon. Friend the Member for Coventry, South-West (Mrs. Wise) and myself. It has very important social and political overtones. I appreciate that we cannot refer to what happened upstairs in the Finance Bill Committee this week, but this debate is most relevant to the central issue discussed in that Committee on Tuesdays.

It relates solely, as the motion does, to the tax thresholds. The motion does not go into a great deal of detail but we are talking basically about the poverty trap, which has been brought about by the operation or the non-operation of the tax threshold system. The social issue is important. The hon. Member for Norfolk, North (Mr. Howell), along with a few of his hon. Friends, has an honourable record on this issue. The Low Pay Unit has published the hon. Member's paper drawing attention to the problem of the poverty trap and its growth during the last few years.

Every November social security benefits are brought into line with inflation— as this Government are committed to doing and as I want them to continue doing—but every November the Opposition Front Bench have made sure that stories have been published in the Press blowing up the issue and giving new rates for the "scroungers" and the unemployed, and pointing out that people at work are earning less than those receiving benefit. I do not know how long the present Opposition spokesman on social security matters has held that post, but he certainly raised that issue last year.

I know that the Opposition Front Bench publicises facts and not distortion, but the objective is to deliberately undermine the Welfare State. That is the overwhelming objective of the majority of the Opposition—to seek to use the poverty trap to undermine the Welfare State as it is operated by the present Government.

It is a tragedy that we must spend £4½ billion in order to keep 1½ million people unemployed. However, that is not the issue. The issue is that the benefits that they receive and the price they have to pay for living in our economic system should be safeguarded in terms of the cost of living. We are committed to this, and I know that the Minister will make clear what the Government have done since 1974 by way of benefits for pensioners and increased benefits for the unemployed.

However, that is only one side of the equation. The other side is the effect of the policies that we have pursued on the great majority of people who must provide the income for those benefits, particularly people at the lower end of the earnings scale.

This is where we come to party politics. There is nothing bad in saying that this is a party political issue. The way that the poverty trap is operating and the way that the Opposition and others outside the House use it each year to beat the Government will operate against the Labour Party and the Government. Low paid people who wish to support a Labour Government and those who expect the Labour Government to solve the problem are, to use the Chancellor of the Exchequer's expression, at the sharp end of the problem. They are on relatively low earnings and many receive less than £50 a week, which is below the average.

They also know that because they are paying tax their net take-home pay is far less than they would receive if they were unemployed. It is to their great credit that people do not wish to be unemployed. They know that they are worse off when working but they look to a Labour Government to try to redress and solve that problem. They do not want the Government to do it immediately by reflating the economy in such a way that everybody's living standards will drop and there will be 50 to 60 per cent. inflation, as in a banana republic. However, they expect the Government to solve the problem or else, in the end, they will draw the obvious conclusion—that in order to protect their own families and living standards they must not seek opportunities for employment as they arise. They will not deliberately chuck up a job or become unemployed, but, when the opportunity arises, they will seek to swell the queues for voluntary redundancy, or they will not try to prevent a firm from closing down and moving—for example, from a once prosperous area like the Midlands to a development area. They will not fight to save their jobs, because they will know that if they lose their jobs, their families will be better off.

I know that they will be better off in only the short term, but people do not calculate the long term. That is the great problem with inflation. Indeed, the retail price index is expected to rise again this afternoon. The fact that people do not look at things in the long term is a problem of communication. People will draw the obvious conclusions.

I want my Government to receive the credit for putting right a social problem in a Socialist manner. That problem will never be solved—whatever the hon. Member for Norfolk, South may say—by a Tory Government. It would not be in their heart, politics or philosophy. It is in the interests of the Conservative Party that people should always be raising questions about the operation of the Welfare State and the growth of the State bureaucracy. I do not like bureaucrats any more than anybody else does, and I spend most of my time battling against them.

I have not examined all the submissions that have been made to the Chancellor of the Exchequer and to the Secretary of State for Social Services by the TUC, but in each of the past two years the TUC has drawn attention to the poverty trap and put forward Socialist conclusions that it expected the Chancellor to put into operation. The TUC is aware of the problem and it does not need the Conservative Party to make the point.

In 1976 the TUC pointed out to the Chancellor that a married man with two children started to pay tax at the rate of 35 per cent. at the starting point of £2660 a week, whereas even the short-term supplementary benefit rate for the same family—which would automatically include rent and rate help—would be more than £30 a week. At that time the family income supplement level was £35 a week, yet such a family started to pay income tax at the rate of 35 per cent. at the starting point of £26.60 a week.

The TUC asks that something should be done, because this will become a major problem in the future and because it must be solved in the interests of working people. The TUC came to the conclusion that there was a heavy burden on low income households and that few workers, if any, were altogether exempt from tax. Every year for the last eight years the TUC has made that point.

The tax threshold, as a percentage of average earnings, for the married man with two children in 1964–65 was 46 pet cent. It is now 31 per cent. One does not need to be a super mathematician to calculate that the low paid and those on less than average earnings are now paying for the Welfare State, in its widest sense, in a manner in which they have never paid for it before.

They are paying for hospitals and pensions. They do not object to paying for the Welfare State, because they all know that their children must be looked after in hospital and that their elderly parents will use the social services and doctors. However, they rightly object to paying a totally disproportionate share of the cost of the Welfare State, bearing in mind that they are caught in the poverty trap. That is a quite legitimate point and it is legitimate for the poor to make it as they have repeatedly.

Mr. Deakins

I have listened with close attention to the argument that has been put by the TUC. I do not wish to go into the merits of whether the tax thresholds are now too low or at the right level, or into the effect of what is wanted by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) and the TUC, namely, the raising of the tax thresholds. However, that would have a certain effect. It would reduce Government income from taxation.

At the same time, my hon. Friends propose, and quite rightly wish to see, vast increases in public expenditure. I can see that there is a case for increased public expenditure and a case for reducing the burden of taxation, but I cannot see how one can hold both those views at the same time, unless one is prepared to put forward ways in which the extra public expenditure—as well as the reduced income to the Government— can be financed from some other source.

Mr. Rooker

I have until 4 o'clock today. I am happy to stay here all day. I should prefer to go to Birmingham later in the day, but, as far as I am concerned, my hon. Friend is in a hole as big as that Floor. I am prepared to say where the money shall come from. I am prepared to itemise new types of tax, such as the wealth tax, which has been put on one side. We do not tax companies on profits because of the deferred tax provisions. I want to stay within the terms of the motion, but I am happy to say where the money shall come from.

My hon. Friend must accept that I have not sought to expend any more money within the Finance Bill than was anticipated by the Chancellor that he had to spend. I cannot be charged with irresponsibility. The Chancellor said that tax cuts of £21 billion were to be made and that the sum of £1 billion was conditional. We know that the 2 per cent. which is conditional on the pay policy is there. We now know after the Budget, which we did not know before, how much the Chancellor has to play with without necessarily cutting services or raising other taxes. I do not wish to go into wider economic policy—I have not come prepared for that—but I am happy to call for an adjournment of the debate so that we can get some of that material.

A few weeks ago we gave massive tax handouts to the real rich—those earning over £140 or £150 a week. The popular Press has not painted that in its reality for the working population. The Chancellor has taken 800,000 ordinary working people out of income tax altogether in his Budget. That is 800,000 out of 20 million. He also took 800,000 out of the band paying the higher rate of tax. There are only 1.8 million in there anyway. Therefore, he took 50 per cent. of those paying the higher rate out of that tax band and took less than 5 per cent. of all other workers paying ordinary rates of tax out of tax altogether. That is disproportionate. That is why we have only 4 per cent. of the working population paying over 35 per cent.

It follows from what I have said that, because of the decrease in the threshold as a percentage of average earnings, the low paid are paying for the Welfare State as they have never paid for it before relative to the rich. That cannot be denied.

Mr. Peter Bottomley (Woolwich, West)

That is Socialism.

Mr. Rooker

That is not Socialism. I am not prepared to say that is Socialism. The position has been deteriorating every year under both Tory and Labour Governments. They have each been as bad as the other in that respect.

Mr. Peter Bottomley

The hon. Gentleman has made the point forcefully and convinced the House that the poor are paying more taxation than ever before for the Welfare State. During the last three years the position has got worse. How can he say that is not Socialism?

Mr. Rooker

The hon. Gentleman defines what a Labour Government do as equalling Socialism. I do not define what a Labour Government do as automatically being Socialism: far from it, The Government would not admit that. They are confined by the constraints of the international economic order and other problems. I am not making excuses for them. They have given thousands of millions of pounds in tax handouts to industry.

We are debating poverty surtax. Because of the loss of benefits which the low-paid lose, the marginal rate of tax that they pay is much higher than the highest rate of tax.

Who pays the highest rate of tax—the rich or the poor? Obviously, the answer for most people is that the rich pay the highest rate of tax—75 per cent. of the total. But that is not so. The Economist —no friend of this Government, but a friend of reality when it goes into issues in depth, as it did on 24th July last year on a brief "Tax and poverty"—asked the question: Who pays the highest rate of tax on every extra pound he earns? Not, under Britain's crazy tax and welfare system, the millionaire but the family man earning between £30 and £44 a week. The Economist makes the point that that man will be paying a marginal rate of tax of 110 per cent. No one can dispute that. That was last July, and the position has not changed because of the pay policy, although the figures may be slightly different.

Last July a married man with two children under 11 and earning £30 a week entered the poverty trap. Once he got over £30 a week, he began to lose his welfare benefits, such as school milk, school uniform allowance, rent allowance and rate rebate. It was not until he earned £48 a week that he came out of the trap and started to have more money for his family.

Who got an increase of £18 a week last year at that level of earnings? Perhaps company chairmen—people who work fiddles because they are in a position to do so—but not the average wage earner on £30 to £48 a week. He was lucky if he got £6. Many of those in industries which come under wages councils did not get an increase of £6 a week. For every extra pound in wages over £30, a married man with two children lost more than £1 when he took into account the increased tax and the loss of benefits. He needed an increase of £18 a week before the situation was redressed.

It will require a massive increase in public expenditure to resolve the matter. That is why two days ago my hon. Friend the Member for Coventry, South-West and I attempted to go some way towards closing the gap. We could not get support from the Opposition. They were cynical about it. They would not support us by going half way to closing the poverty trap by getting the tax threshold for a married man raised to £1,350 a year. That would be only half way to closing the gap. However, the Opposition would not support us.

The hon. Member for Caernarvon (Mr. Wigley), to his credit, was the only Member who joined us. We make no apology for the action that we took. We had to take the crumbs which were left under the table, because the Opposition had run away and Labour Members deserted us.

There is no Labour Back Bencher here today to defend the Government. I defend the Government against hypocrites on the Opposition Benches for the good things that they are doing and have done. However, no Labour Members have come to defend the Government today. Just like Tuesday, there is abject silence.

I do not wish to detain the House too long, but the debate should not pass without the Chancellor's words in defence of the Government. My right hon. Friend's words of only a few weeks ago in his Budget Statement are significant. My right hon. Friend said: So far as those on low incomes are concerned, the highest priority for the future must be to raise the tax threshold so as to maintain the real value of personal allowances as far as possible and, if circumstances permit, to increase their level to the point where they stand clear about the levels of the main social security benefits. I merely sought to put the Chancellor's words into practice.

I should like to quote another passage from my right hon. Friend's speech. This is important, because it does not show the Opposition in too good a light—or the Chancellor for that matter. When talking about protecting pensioners, the unemployed, and those on supplementary benefit by inflation-proofing their benefits each year, my right hon. Friend said: The effect has been to weaken the incentive to work throughout the economy."—[Official Report, 29th March 1977; Vol. 929, cc. 279–81.] The House was full at the time and cheered to a man—and a woman from the other side—when the Chancellor said that our Welfare State is coming to the position where there is no incentive to work. That is the stick which the Opposition use to beat us and which they will use again in November. It is easy to predict that in the middle of November when there is a change in benefits the right hon. Member for Wanstead and Woodford (Mr. Jenkin) will say "This is the week when the poverty trap widens again. This is the week when there is no incentive to work".

The Chancellor made that point and identified the problem in his Budget, but he made no attempt to solve it. The TUC has told my right hon. Friend about the difficulties suffered by these people. This is not the fault of my hon. Friend the Under-Secretary of State for Health and Social Security. It is not the fault of his Department. My hon. Friend is doing a good job in fighting poverty, but this debate is not about poverty.

I want more benefits to be paid to the unemployed and the disadvantaged who cannot work, but that is not the issue today. The issue today is the poverty trap into which only those who work fall. The poverty trap does not concern those who are receiving benefits from the Government to protect them from poverty. I suspect that my hon. Friend has a good brief from the Department about all the benefits that have been increased during the past three years and about what we are doing for the disabled. That is a good tale, and it should be told repeatedly, but that is not the answer to the poverty trap.

Mr. Deakins

I hope that my hon. Friend will not feel inhibited in broadening his remarks to cover the poor generally. Although we are debating the poverty trap, we are debating also a motion the first two lines of which read: That this House deplores the disastrous impact of this Government's policies on the poor". The motion does not refer to the poor at work, and there are more poor people out of work than in work.

Mr. Rooker

I accept that 100 per cent. I am speaking not in support of the motion but on the subject of poverty.

I shall not vote for this motion, because it docs not mean anything. I shall vote if the result of doing so means a change in allowances to improve conditions for the poor. That is when I shall vote. I shall never join the Opposition in their cynical motions on Supply Days. I shall never join them when they try to make political capital by putting down cynical motions. The other week when we debated mobility allowances everyone thought that that was the subject under discussion, but it was not. The debate was about reducing the salary of the Secretary of State.

Mr. Patrick Jenkin

The debate was on the Adjournment.

Mr. Rooker

Yes. It was on the Adjournment, and we voted not to go home. I am a full-time Member of this House, and I shall always vote not to go home. I shall never join the Tories in their cynical approach to these matters. I shall not vote for this motion, because of the point made by my hon. Friend.

I have no objection to my hon. Friend the Under-Secretary of State pointing out what the Government have done for the poor. It is important that that message is repeated, because we want those who are disadvantaged and unemployed through no fault of their own to know what is being done. However, at the moment there are 250,000 registered unemployed who receive no benefit at all from the State. They receive neither unemployment pay nor supplementary benefit, yet each week they sign on at the employment exchange. They do that because they want work and because that is the only way of making sure that they will be offered any jobs that turn up.

The latest figure for the registered unemployed who receive no benefit at all from the Government is 264,000. Even the Government will not shout about that figure and the difficulties involved for those concerned. It is left to Back-Bench Members to try to defend the Government when they are attacked by the Opposition, who say that we are paying too much to the unemployed. We do not pay a penny piece to a vast proportion of the unemployed. Many of the 250,000 people involved have been unemployed for 12 months or more. Unemployment pay has disappeared; and in many instances the wife has to work part time.

Some wives spend five hours a day doing cleaning jobs in a factory or a college. By that means they earn enough money to take their husbands above the level that would qualify for supplementary benefit. That means that because the man is unemployed for more than 12 months, his wife keeps him on her part-time earnings, but to protect his pension and to try to get work he has to sign on at the employment exchange every week. He does not even get his bus fare to the employment exchange.

I realise, of course, that in that situation there are a few disregards—a couple of pounds here and there—but I repeat that there are 250,000 registered unemployed who sign on at employment exchanges every week but who collect not one penny piece from the State, and even the Opposition have never drawn attention to that fact. I hear someone on the Opposition Back Benches tutting, but I am talking about the Opposition Front Bench. I am talking about those who can make the headlines. They have never drawn attention to this sorry state of affairs. I have never seen that fact placed on record.

It is bad enough for the Government to run the economy in the way that they do and pay £4 billion of workers' money to keep 1½ million workers unemployed. It is much worse that they do not pay a penny to the unemployed who are in the situation that I have outlined. The benefits that they have been provided by the Government have helped, but there is a massive poverty trap. One cannot put a percentage figure on not receiving any money at all. The percentage is so much of a minus quantity that the mind boggles.

It is a disgrace that that situation has arisen. I know that my hon. Friend will tell us what the Government have done to help in the past three years. All that is to the Government's credit, but my hon. Friend the Member for Coventry, South-West and I wish the Government to do more. We wish them to change their priorities. That is all. The answer is to change the priorities.

A few weeks ago the Prime Minister, the Lord President of the Council, the Chancellor of the Exchequer, the Leader of the Opposition and the Opposition Front Bench went into the same Lobby to vote for tax reliefs for the very rich. A few of my hon. Friends and myself were in the other Lobby in an attempt to get that money spent on dealing with the problem of poverty. We want to change the priorities, and when the opportunity comes for a vote to be meaningful, we shall do just that. We shall not adopt some of the silly antics of the Opposition. It is important to tell the Government that they ought to take some credit for what they have done, and we are trying to help them to fight off attacks by those who are seeking to undermine what the Government are trying to do for the poor. I wish the Government to take some credit for what they have done.

When the history of this debate and this week comes to be written, credit will be given to the Government for the 1977 Budget because we were in power. Because of that, we stand more chance of remaining in power. However, people outside who want to vote Labour are assailed by various problems and doubts. They say to themselves "I am caught in the poverty trap. Who is to blame for this? Why should I go to work? Why am I paying increased taxes? Why has this happened under a Labour Government? I shall abstain and not vote". What we are trying to do is the sort of thing that will convince these people that hope for the future lies in the Labour Party. It may lie with only a few, but it is enough at the moment.

Mrs. Wise

Is my hon. Friend aware that some of our hon. Friends are so pleased with what happened on Tuesday that they are writing to their local papers to share in the credit which they think is accruing to himself and myself?

Mr. Rooker

I am aware of that. I did not see the letters but I was gratified. I have been even more gratified by the letters I have been receiving from ordinary working people, Labour supporters, who were thinking of abstaining in the next election but who now say that they will vote Labour. We are helping the Government. I hope it will not be long before they wake up to that fact.

I come to the point about the TUC raising the issue of the poverty trap with the Government. I am all for maximum consultation on economic matters. It is not the job of this House to decide and settle matters, although it is our job, as representatives of the taxpayer, to make the final decision. What we expect the Government to do, and to their credit it has been happening, is to bring the TUC into consultation on matters in a way that has not been done before. On the great majority of issues it is true to say that, while the Government have listened to the TUC, they have not acted.

For two years in succession the TUC has made the point about the poverty trap in its economic review. It has told the Chancellor that the issue had to be dealt with and action had to be taken to help the low-paid who were suffering because of the incidence of tax on their low earnings. The TUC gave the Chancellor three options. Each one was quite complex—a combination of a reduced rate band and higher tax threshold allowances or tax relief on national insurance contributions plus higher allowances. Not one of the options dealt with higher tax allowances and a reduced rate of basic tax. Only the Chancellor could think that one up. The TUC never asked for tax handouts for the rich totalling £600 million. These are going to a third of taxpayers, already rich and highly paid. I am talking about people getting £150 plus a week.

The TUC made the point about tax relief on national insurance contributions. These have a disastrous effect on the low paid. The incidence of tax on the low paid does not bite at 35 per cent. but at 40¾ per cent. The tax is high enough but from next April it will go up. About 1 per cent. extra has to go on insurance contributions to pay for the new pension scheme coming into force next April. The millions who pay occupational pension scheme contributions receive tax relief on them. This is something that has to be tackled.

To put this situation right would cost about £1½ billion. That is the measure of the problem. I feel sure that a way could be worked out to make sure that those at the lower end of the scale would get relief. It would have almost the same effect on the lower rate band as raising the threshold because it would have the effect of making them pay less tax relative to the more highly paid— those who get inflation-proof benefits. There are so many different combinations which could be used that it is inconceivable that the Chancellor should have chosen a combination which gives us almost the worst of all worlds.

That is why it is important to take any crumb going. The most significant crumb is the fact that as long as things hold still and the will of the House is maintained, the Chancellor's hands are tied for the future. I know that there are those in the DHSS, Ministers and civil servants alike, who will be quite pleased about the fact that, not only shall we index the benefits paid to the poor but we shall also index the tax thresholds so that those affected by the poverty trap have their circumstances changed in line with inflation.

I know that many Ministers can read behind the small print. They know what is the right thing to do. I do not want to give the impression that my hon. Friend the Under-Secretary has come up to me and said in private "That was a damn good job". He did not, has not and will not. But the fact remains that others have. And they are not all Tribune Group members—far from it. There has been a wide spread of the party. Hon. Members realised the importance of the issue because in their surgeries every week people are asking "Why do I pay so much tax?" That is a simplistic way of putting it, but it is the way a lot of constituents put the problem. They do not even calculate what they could get if they were out of work. Many do not realise that they would be better off out of work. That conclusion is fast dawning on many of them and that is a great danger.

I cannot explain why people pay so much tax. All I can say is that, using my practical votes in this place, and through my speeches in and out of the House, I try to change opinions so that we can change the situation of these people. That is my function. All hon. Members can do that. Anyone else outside can speak about the issue. Such organisations as the Child Poverty Action Group and the Low Pay Unit can raise these matters and take action about closing the poverty trap.

These people can draw attention to those who, for all sorts of reasons, would have a larger income if they did not work. But there is one class of person not even allowed to say that outside this House. My hon. Friends might wonder who those people arc. Some of my constituents and there will not be an hon. Member in this House who does not have people in this category, who are not allowed to say what I have said. Who are these people who have had their freedom of speech removed from them? They are the employees of the Department of Health and Social Security. They are not allowed to make statements about these problems. If they do, the Official Secrets Act is used against them, as happened in the case of one of my constituents, Mr. John Bourn, whom I have never met.

Mr. Bourn has raised problems in the Press. We have communicated. He is in no way a political animal. He seeks to make no party points although, of course, because he sees the problem from his position, he has had the Fascists of the National Front knocking on his door and the evil Fascists of the Conservative Party knocking on his door saying "Here, lad, you have got a tale to tell. Can we use it?" To his credit Mr. Bourn has said "No. I am raising the issue, which I think is important, as an employee and an ordinary taxpayer."

Mr. Bourn sees both sides of the equation in its full nakedness. Because he is relatively low paid he is caught in the poverty trap. He sees some of the clients with whom he has to deal—he is not knocking them because he wants my right hon. Friend to increase the benefits—receiving more than he is earning. He has never identified a single claimant. That would be totally wrong.

Mr. Bourn has been demoted and decried, and he has had the Official Secrets Act read to him by his superiors. He has been removed from all contact with the public. That is why this week there has been action taken by his colleagues in DHSS offices all over Birmingham. Those who will suffer are those who cannot get their benefits, the pensioners and single-parent families.

They will suffer, but it is not the fault of my constituent, his trade union, or the TUC. It is the fault of the system, if anything, the fault of the Department of Health and Social Security. The Department has a suggestions scheme, and one would imagine that the poverty trap was the sort of subject one could mention under that scheme. Just as any good employer would, every Government Department has a suggestions scheme for its employees. Last month I asked the Secretary of State for Social Services to list those matters which staff in his Department cannot raise by means of the departmental suggestion scheme. My hon. Friend replied: Staff are encouraged to submit suggestions, through the departmental staff suggestion scheme, to improve the efficiency of my Department. The scheme excludes suggestion which propose changes in Government policy; come within the scope of the suggestor's official duties; are patented or intended to be patented."—[Official Report, 27th May 1977; Vol. 932, c. 696.] I cannot conceive why the Department should exclude that sort of suggestion. I cannot imagine that many people would try to patent a scheme to try to solve the poverty trap.

I wanted to raise the point about which my constituent has been speaking for the past six months. It is important because it relates directly to poverty, the poverty trap and the effect of inflation-proofing benefits and not inflation-proofing the tax threshold. That is what it is all about in a nutshell. My constituent has been pushed from pillar to post.

If my hon. Friend has not already considered the case, I should like him to see his civil servants and examine it and let me know whether he thinks that Mr. Bourn has been treated fairly and whether it has ever been proved that he has identified particular claimants. That is one of the charges that has never been substantiated. I should like my hon. Friend to tell me whether the Official Secrets Act has been used against an ordinary taxpayer who just wished to make an ordinary point that everybody else is free to make. If action is not taken soon, there will be bad results for the Government, because the case will be used as a stick to beat them.

My hon. Friend the Member for Coventry, South-West and I have tried this week, not misguidedly but in full knowledge of what we were doing, to solve the matter to help the Government on behalf of the low paid. That is what it is all about.

12.13 p.m.

Mr. Peter Viggers (Gosport)

The hon. Member for Birmingham, Perry Barr (Mr. Rooker) appears to have gone through a cathartic experience this week. I must congratulate him on doing and saying what he thinks is right. It is not often that I find myself marching side by side with him. I feel that we are aiming toward different objectives, but his actions this week have been exemplary and I congratulate him.

I also congratulate my hon. Friend the Member for Norfolk, North (Mr. Howell), who has fulfilled a most valuable role over the past few years. It is not often that a Back Bencher can influence the country, but he clearly has done that. With the wide range of Questions he has been putting down over the past few years, he has illuminated a problem which is now generally recognised. He has done a great deal to shed light on this area and deserves tribute and recognition for his valuable work in drawing attention to the problems that we are dis- cussing. I also congratulate him on his useful speech today.

My hon. Friend and the hon. Gentleman both talked about the poverty trap in its income terms. I should like to speak more broadly and to mention the capital side of the poverty trap. The income side is well known. Everyone has his own examples, and I have mine. I have recently been in correspondence with the Chairman of the Supplementary Benefits Commission, who has confirmed one figure that I was asking him about. That concerned the example of a tradesman working for a gross pay of £52 a week, a married man with two children and with a £6,000 mortgage on his house. He receives total take-home pay, including child benefit of £45.50 a week, but if he decides to stop work his income will rise by 6p a week.

All examples are rather unusual. The exact facts in each case will depend on the different circumstances, and working families can receive benefits and allowances that are not received by the unemployed. But it is crazy that unemployed people can in certain circumstances be better off than employed people.

Another example is that of a man and wife who run a successful roofing contracting firm in my constituency and who advertised for a roofer. A man turned up, but when they told him what his pay would be he said that he would be better off staying in bed. Moreover, he could then do occasional window-cleaning, for which he would be paid cash in hand.

A third example, also from my own experience, is that of a professional man near retirement age who decided that it was no longer worth working. He said "I could have got a job if I wanted, but why should I work? I am just as well off not working and letting younger people do the job. Their morale would probably be damaged more than mine if they were not working. I am better off letting them do it, and then once a year for three months I shall take on a part-time job just to keep myself in credit for unemployment benefit."

Mr. Deakins

The hon. Gentleman's second example of a man doing part-time window-cleaning and not informing the authorities is a clear example of fraud. I hope that in this debate no one will use the example of possible fraud to illustrate the dire nature of the poverty trap. There is sufficient material, of which we have already been given quite a lot of examples, without going into fraud. No conceivable system of dealing with the poverty trap or poverty can ever be proof against fraudulent abuse of the kind which the hon. Gentleman mentioned in his second example.

Mr. Viggers

I accept what the hon. Gentleman says, of course. Unlike some people, I do not get particularly angry about the individuals who find that the system makes it more beneficial to take unemployment benefit than to work. It is not those individuals who annoy me, although I accept what the hon. Gentleman says, that fraud can never be condoned. I do not get angry at the individuals but I get furiously angry with the people who allow the system to exist. They are the men of shame, and many of them are in this House, because we are responsible for the system.

However, I want to talk principally about the capital aspect of the poverty trap. As a family solicitor in my constituency about 10 years ago, I used to deal with all kinds of estates for the families of people who had died. I was impressed by the frugality and thrift of people who had always made a point of saving throughout their lives. In that privileged position of knowing exactly what were people's personal affairs, I found that the typical estate, which might be of a chief petty officer, for example, would include £500 or £600 in the Post Office Savings Bank, £20-worth of Premium Savings Bonds, £200 or £300 in the Trustee Savings Bank and sometimes a small amount in a building society. There would almost invariably be a small insurance policy through the Prudential or the Pearl to pay for funeral expenses.

The point is that those savings were accumulated slowly and carefully over the years, week by week and month by month. The Post Office Savings Bank books would show how the husband or wife, usually the wife, had saved a shilling or half-a-crown a week so that they would never be in need in their old age

Those savings were made at a time when virtue was rewarded. The savings enabled a family to face the future with confidence, and they yielded a dividend in real terms. This has all changed. The traditional advice passed on by father to son never to let his expenditure exceed his income, never to live beyond his means, has recently been proved false by circumstances.

The current rate of inflation is between 15 per cent. and 20 per cent. The current rate of interest on national savings is 759 per cent., but only if the savings have been held for four years. Someone investing £100 in national savings will find that he is £10 worse off at the end of the year. Building society interest rates are a little better, but they are still well below the rate of inflation. More sophisticated investors may buy local authority bonds or Government stock, but even so the rate of interest is well below the rate of inflation. All fixed-interest deposits are little more than a confidence trick on the gullible saver.

Every day one can see advertisements for fixed-interest savings. We see the rate of 759 per cent. advertised for national savings certificates. Another advertisement says: For the security you need today come on in 'to the Abbey National' and we'll get that pound growing at good interest for you". A Chelsea Building Society advertisement says "Chelsea pounds keep growing". These claims are nothing more than an organised fraud at which the Government connive. Just as cigarette packets carry the warning Warning.…Smoking can damage your health", so advertising of fixed-interest savings should carry the warning "If you put your money here, you will be worse off at the end of the year."

In 1976 the inflation rate in the United Kingdom was officially assessed at 15.1 per cent. compared with 3.9 per cent. in West Germany and 4.8 per cent. in the United States. Earlier this year the three-months moving rate was 21.8 per cent. The latest estimate is 17.5 per cent.

The total amount of national savings has increased slowly over the past 25 years, but in real terms it has fallen as it has failed to keep pace with inflation. Total Treasury securities have decreased from £3.2 billion in 1950–51 to £2.1 billion in 1971-72 expressed in terms of the purchasing power of money in March 1951. That is a decline of 35 per cent. Similarly, National Savings Bank deposits have declined in real terms over a comparable period from £1.9 billion to £0.8 billion, a decline of 56 per cent., and national savings have declined from £61 billion to £4.2 billion, a decline of 30 per cent.

The figures for small investors on the Stock Exchange are similar. The personal sector on the Stock Exchange decreased its holdings in public securities by £13 billion in 1975 and by a further £12 billion in 1976. These are the small savers—people who have been putting money aside, usually for their retirement.

Attempts have recently been made to give security to savers by introducing inflation-proof savings schemes. These are obviously advantageous to those who participate, but inflation-proofing of some savings is in itself inflationary and helps further to damage the position of those who do not participate in them. Inflation has made savings so unattractive that other incentives have had to be found to persuade people to save. For example, building societies have special arrangements for the payment of tax, and Government stock held for more than 12 months is exempt from capital gains tax in the hands of the owner.

The most speculative investors—and here I echo some remarks made by the hon. Member for Perry Barr; I almost intervened when he made them but hoped to have the opportunity of making my own remarks—can buy and sell commodities and commodity futures. At the domestic level, they can acquire silver, jewellery and antique furniture and buy articles which will be a hedge against inflation. Such investment possibilities are merely hedges against the havoc of inflation and simply emphasise the extent to which the pattern of personal savings has become distorted and unreal. Alert and sophisticated investors can take advantage of special opportunities, and many of them have taken advantage of the ultimate special opportunity by emigrating. As inflation continues and the tax law becomes more complicated, the ultimate loser in every case is the small saver.

There is a crisis in personal savings. The system prevents personal savings and thrift. It deprives people of the security that they try to prepare for themselves and then, when the individual has been ground down to a level of poverty which the State finds acceptable, the State steps in with State-provided help. We all know of hundreds of examples of proud self-sufficient people who have planned and saved for their retirement only to find that their plans have been ruined by inflation and tax and who are now reduced to pleading for council house accommodation because they cannot afford to maintain the house that they have saved to buy. Such people do not want rent rebates, supplementary benefit or any other benefit. They want the chance to keep some of what they have worked for to provide for themselves.

Yet our present system militates against self-reliance. I could give a large number of examples. I have a particular example very much in mind. An elderly gentleman whom I visited in a retirement home in my constituency explained to me that he had worked throughout his working life and had managed to save a certain amount—call it £1,000 or £2,000. His wife died, leaving him by himself. He had always been convinced that half the money belonged to his wife. He thought that fair, because they were in partnership. Therefore, he wanted to leave half the money to his wife's family and the other half to his own.

That gentleman is living in a home for which the county council charges rent, which he pays. His savings have been eroded by inflation. If he had less than £1,200, the rent would be paid for him by the local authority, but because he has more than £1,200 the local authority will not pay his rent and he must pay it out of capital. Moreover, if his capital fell below £1,200 he would be given pocket money; he would receive extra benefits.

Here is a man who has worked throughout his working life. When he has been ground down to a level of poverty which the local authority finds acceptable, his rent is paid for him and he gets pocket money. He said "Why should I not give away all my money, and then I could get my pocket money and my rent would be paid for by the local authority?" It is difficult to answer such questions from people who have been self-reliant and full of self-respect throughout their lives.

The State clobbers the person seeking to improve his lot and forces him to a level of poverty which the State finds acceptable. It then steps in and provides a cocoon of benefits and payments which hold the individual in that acceptable level of poverty. The cocoon is so complicated that it is difficult to understand. The acceptable level of poverty is a trap from which it is difficult to climb. When someone is in the poverty trap, the benefits are available and, given proper advice, the benefits will be received by the individual and his family. But if for any reason he should receive more money—if he should be given some money or earn money—all the traffic lights of the State system go red and he stops receiving some of the benefits and will not receive them again until he falls back to what the State regards as an acceptable level of poverty. If he stays in the poverty trap, if he behaves himself, he will not starve but he will never be well off.

The system is wrong and we must change it. We must create a climate in which effort and virtue are rewarded. We must identify the main enemy, which is inflation. As long as inflation continues at a high rate, an increasing number of people will find the poverty trap closing around them and the State cocoon will become their home and their way of life. Wealthier people can engage accountants and big investors can buy land and commodities. But we are not concerned about them. The rich do not suffer so much. It is the humble, ordinary person who is clobbered because he saves where the advertisements tell him to save and he has no mesh of sophisticated contacts to enable him to get out of his difficulties.

It takes great political and even moral courage to resist inflationary pressures. Inflation is comforting because it gives the illusion of prosperity; but it is only an illusion. The Government's prime domestic duty is to reduce the rate of inflation. They will then be able to encourage personal savings and the independence that they bring. A country in which individuals can make personal savings is morally superior to a country in which high inflation prevails and in which the State has to assume the role of universal provider. It is morally and psychologically better for decisions about their lives to be taken by individuals rather than by the State. Individual decision-making encourages independence of thought and an enterprising spirit. State control and State decision-making stifle the very enterprise which should be encouraged.

I have six specific suggestions to put forward. The first is to reduce inflation. If that does not sound original, may I ask whether we are becoming rather smug and complacent, saying "Inflation is only 17½ per cent.; it is not as high as it was"? We must never be complacent about a high rate of inflation. How dare we in Parliament be smug and self-satisfied while decent people are having their lives ruined? Let us get angry about inflation and do something about it.

Secondly, we should reduce taxation at all levels and raise personal allowances. I appreciate that that may well mean higher indirect taxation and, in my view, involve less Government expenditure, but that must be done.

Thirdly—here I return to the Minister's intervention; I accept completely what he said—let us make people pay their taxes. Many people find it amusing to avoid paying taxes. Some go further and evade paying them. A large number of people who should know better think that if they earn cash in the hand it need not be declared as earnings. How many window cleaners declare all that they earn? How many house owners ask "Are you declaring this for tax revenue?" when they pay their window cleaners? That is a way of making oneself more unpopular than anything else I can imagine. It is necessary that we develop a moral climate in which we all know that all income should properly be taxed. Let us make people pay their taxes. Let us eliminate the cash-in-the-hand brigade It is up to all of us to make the moral climate right in that sense.

My fourth suggestion is to simplify Department of Health and Social Security systems. For example, we should simplify social security systems. When I visited a local social security office I was horrified to find the amount of work that is involved in each change of benefit level. Each change means a review of all individual cases and a reassessment of benefit level. I was horrified by the number and types of benefit.

We must always bear in mind that the individual who most needs benefit is the person who can least understand the various forms of benefit. We in the House of Commons are all literate, yet I know that I find it difficult to understand many social security forms. I am sure that many of my colleagues find them difficult to follow. If we cannot understand them, how can the 2 million who find it difficult to read be expected to understand the complexity of the social services system and the network of benefits that are available for them? Let us make an effort to simplify the system.

Fifthly, let us eliminate some redundant benefits. There are some very old benefits that we introduced many years ago that no one has had the courage to attack. In winding up small estates in my capacity as a solicitor, I have seen the way that the death grant of £30 comes into every estate, rich and poor, including those with the landed acres, the dukes and all the others whom those on the Government Benches think populate the Conservative Party. Every rich person gets his £30, as does every poor person. The £30 is completely outdated. I have heard suggestions from Back Benchers on the Government Benches that it should be brought to a realistic level—for example, increased to £150 or £200—so that it will again pay for funeral expenses. I have a much better idea. Let us eliminate it and give grant where necessary. To give £30 to everyone on death is a stupid grant. If we want to give such a grant, why not give £30 to everyone on his or her twenty-first birthday? Let us not give £30 to someone when he is dead. That is quite unnecessary.

Mrs. Wise

The hon. Gentleman has just shown his complete failure to understand what can be a serious worry for ordinary people. Anyone with experience of working-class life knows that the fear of dying and being unable to have a decent funeral haunts the ordinary elderly person. I remember vividly that attitude being taken by my grandmother. The hon. Gentleman has shown that he has no conception of that feeling.

Mr. Viggers

The hon. Lady is not being fair. I know exactly what she means, and very often when I was making wills for elderly people an old lady would ask me whether she might pay in advance as she did not like the idea of leaving any debts. There are those who have never had debts and who will never accept debts. I fully understand their concern. It can become a haunting night- mare and an obsessive fear. At a lower level it is still a major fear. I accept that. However, it is not necessary to give £30 to each individual's estate. A far more sensible and civilised approach would be to give a much larger sum—say £150— where it is necessary and not £30 where it is not necessary.

The hon. Lady may have had experience of estates where for some reason the £30 was not paid, or was paid and was insufficient to meet the funeral expenses. I have brought such cases to the notice of the Department of Health and Social Security in my constituency and I am proud to say that it was extremely helpful. But it is not good enough to say that the £30 is needed in every case.

I move to my sixth point. It is that this stage that I think the hon. Lady and I will not agree. It is a difficult argument to put across philosophically but I shall try to do so. Are we prepared to live in a world in which the State does not provide some sort of benefit to remedy every need? Are we prepared to say occasionally that hard cases make bad law and that when the television cameras and the newspapers focus upon one anomaly, one case of hardship, it is not right to introduce a completely new benefit or a sweeping range of benefits to counter the one anomaly? Are we prepared to be rather more selective in our benefits? Are we prepared to steel ourselves to the possibility that it will not be possible to introduce a new range of benefits to remedy each wrong?

Are we prepared to steel ourselves to arguments such as that recently advanced by the hon. Lady? Are we being hardhearted and callous? We are not. We care just as much about individuals, I trust, as any other group in society. The fact is that it is inefficient and damaging to the bulk of the people to have anomalous and excessively wide-ranging benefits and we must reduce them.

Those in the poverty trap are not happy beneficiaries of the system. They tend to be resentful and bewildered. The House will recall Mr. Richard Hoggart's important book entitled "The Uses of Literacy". Mr. Hoggart illuminates the way in which ordinary people talk about "them", meaning the faceless people who run the country, and "us", meaning ordinary people. They talk about "them" as those who impose taxes and say that "we" are the people who have to pay them. "They" are the people who cause wars, and "we" have to fight in them. "They" are those who are behind the police, and "we" have to obey the law.

Too often hon. Members say that the system is too big, that they cannot fight it and that Back-Bench Members have no particular power. Perhaps we shuffle oft our responsibility by thinking that we cannot change things. With great respect, my hon. Friend the Member for Norfolk, North has illuminated an important point by demonstrating the power of Back-Bench Members to draw attention to a problem. The hon. Members for Perry Barr and for Coventry, South-West (Mrs. Wise) have already shown that they are prepared to think through a problem and act accordingly. We in the House of Commons are the "they" that Richard Hoggart is talking about in his book. We are those who have responsibility for putting the system right. It is wrong at the moment, and it is our job to do something about it.

12.38 p.m.

Mrs. Audrey Wise (Coventry, South-West)

Like my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), I am not speaking in favour of the motion; I am merely speaking on it. The flaw in the motion is in the first two lines. That is because it is quite unfair to talk about the disastrous impact of this Government's policies on the poor when, as my hon. Friend the Undersecretary of State has said, some real improvements have been made, especially, I submit, for the elderly. There have been improvements in a number of ways for the elderly, and at least it can be said that serious attempts have been made to ensure that other main benefits remain in step with inflation.

I am not prepared to make the sort of case that is contained in the first two lines of the motion. I also agree with my hon. Friend the Member for Perry Barr that the time when we seek to use our votes should be when they have an effect and not when they are rhetorical. Nevertheless the hon. Member for Nor- folk, North (Mr. Howell) is doing the House a service in providing an opportunity for the matter to be discussed.

I am very sorry that on both sides of the House there are not more hon. Members taking part in this debate. There are some notable absences. All morning I have been looking eagerly for the hon. Member for Aberdeen, South (Mr. Sproat), who takes such an interest in social security matters and who places Questions on the Order Paper relating to the constituency of almost every hon. Member in the House. Where is he when it comes to discussing poverty in the serious way in which it is being done so far by hon. Members on both sides? He is missing.

The problem to which we are calling attention this morning is very complex. It involves also our taking a close look at some of the practices of this House and at some of the mechanics of government itself. One of my great regrets as a Back Bencher is that it is not possible for me to table Questions about the working of government. So often I have gone to the Table Office seeking to table a Question asking, for instance, whether my right hon. Friend the Secretary of State for Social Services was consulting the Chancellor of the Exchequer on the relationships between social benefits and taxation. I cannot even ask the Question, because the mechanics of government are secret.

That is quite ludicrous. I tell my constituents proudly that we have a very open Parliament. Every word spoken here is recorded, and our votes are public. So they should be. However, we have a secret system of government. Here, I am not making a point about the Labour Government. I am making it about the British Government. I feel this very strongly. My hon. Friend the Member for Perry Barr pointed out, for example, that civil servants at low levels are not allowed to make suggestions about Government policy. I was fascinated to hear about that exclusion. It does not apply to civil servants at the very top. Some of us think that civil servants at the top not only make suggestions about Government policy but on occasion make Government policy. Sometimes I think that, somewhere in Whitehall, there is a suggestion box for Ministers and that as much notice is taken of their suggestions as is taken by employers of suggestions from workers.

This is unsatisfactory. The structures of this House and our procedures do not allow us to have a rational system in relation to this problem as well as many others.

I believe that there are two Welfare States and not one. The first is operated through the tax system. The second is operated through the cash benefits system of the Department of Health and Social Security and various other institutions, especially local government. They operate in quite different fashions and they have quite different effects. It is this fact which makes it especially difficult even when we know the right answers, to get anything done, and which makes difficulties for Back Benchers. We have an annual Finance Bill. I have been fascinated by the workings of the Standing Committee on the Finance Bill, which is a new experience for me and one that I should very much like to have the opportunity to repeat in future years.

What has fascinated me more than almost anything else is the wealth of detailed examination which is given to the minutiae of tax allowances, most of which go only to the most privileged. One or two items may get the headlines, but most of the Committee's time is not spent on what affects the majority of the people. It is spent on matters of tiny detail relating to a very few people. For instance, we look at the position of husbands working abroad and of their wives who go to visit them, and the tax effects one way and another. We look at the position of children going to visit their fathers working abroad, whether they are legitimate or illegitimate.

All kinds of detail is gone into at enormous length, especially by Opposition Members. It is equivalent to the situation which would arise if we could have a detailed discussion about the number of vests that the Supplementary Benefits Commission regarded as appropriate for a child of a family on supplementary benefit. However, we do not do that because we do not have an annual Bill dealing with social security matters.

Mr. Deakins

I take my hon. Friend's point. But she should not leave the impression that, although we do not discuss social security matters on an annual basis as we do the Finance Bill, they are any less complicated or time-consuming than the matters discussed in the Finance Bill. She will recall the recent Social Security (Miscellaneous Provisions) Bill, where the complexity of our discussions was such that even hon. Members who had been previously concerned with Finance Bills were amazed. If my hon. Friend is saying that we should go into greater detail, we should need most of the Session to pass an annual Social Security Bill. It would take up much more time than is the case at present.

Mr. Rooker

It would be more useful than discussing direct elections to the European Assembly.

Mrs. Wise

As my hon. Friend the Member for Perry Barr points out, it would be a better use of our time than that which we may be spending on discussing direct elections to the EEC.

I accept what the Under-Secretary says. However, there are deeper matters involved. My point was that, for example, we can discuss at length the raising or lowering of personal tax allowances but that when my hon. Friend comes to the House with an uprating measure we are unable to amend it.

I have been told frequently by hon. Members on both sides of the House— especially, I may say, by Treasury Ministers—that many of the suggestions that I make are more properly dealt with by the DHSS, and I am asked why I want to do this or that through taxation and why I do not go instead for some alteration in child benefit. The Treasury loves child benefit. It loves it because it knows that I cannot do anythting about it.

Mr. Patrick Jenkin

I follow what the hon. Lady is saying. She has just referred to child benefit. This is one of the matters which demonstrate that this House has to improve its procedures. With child benefit, as we move further into tax credits, as we hope to do under the next Government in the next Session acute. The meshing in of social security benefits and tax allowances will be seen to become quite inextricable. If we do not have procedures for dealing with the problem, I can see us being in great difficulty.

Mrs. Wise

It may be that we agree about the need for different procedures but I am certain that we shall start disagreeing very quickly about the procedures and the effect that they ought to have. I have already said one or two words in an intervention about the tax credit system, so I do not propose to take up what the right hon. Gentleman said about that. I am making the point that there are two Welfare States with different effects and different methods of treatment in this House and by the Government, and that there is less opportunity for my hon. Friend the Member for Perry Barr and me to assist Ministers in the DHSS than we recently have had to assist my right hon. Friend the Chancellor of the Exchequer. Ministers in the DHSS might be more appreciative than he of our efforts if we were able to make such attempts at assistance.

The effect is different in other ways. Let us take housing. The Opposition love referring to housing subsidies. These are extremely relevant to the poverty trap because some of these subsidies take the form of rent and rate rebates which are intimately tied up with the problems of the poverty trap. That is what Conservative Members mean by housing subsidies, but there is a different system altogether in which there is no trap. There is no wealth trap—nothing at all. In fact, the opportunity for gain expands as income rises in relation to mortgage interest relief.

I have a great many constituents who are owner-occupiers. I am not here making a point against mortgage interest relief in general. I am in favour of mortgage interest relief, unless we are to recast the system completely in a more rational manner, in which case many of my constituents would not need it. But mortgage interest relief has the very interesting characteristic that the more income and wealth a person has, the more expensive a property he can afford to buy, the higher the rate of tax he is nominally paying, the more he benefits.

I am astonished that the opportunity has not been taken in this year's Budget at least to alter that to the extent of ensuring that mortgage interest relief should be claimable only at the standard rate and not at higher rates of tax. Hon. Members may not realise that people who pay at higher than the standard rate —people whose income is at least £140 a week, and mostly considerably above that—can get tax relief which is worth more to them than it is to the ordinary run of my constituents. Of the £950 million which went on this particular item in 1975–76, no less than £80 million went to people claiming at higher than the standard rate. If we are looking for a quick £80 million—the figure will be higher now—for more worthy causes, there is the first candidate.

I am amazed that Conservative Members dare to suggest that the money for the improvement in the tax threshold level should come at least partly from the reduction of housing subsidies, because they mean the sort of housing subsidies which affect the ordinary person. They do not mean high-rate mortgage interest relief—the housing subsidies for the rich. I should like to see a curtailment of that relief.

We hear a very great deal about abuse in relation to social security. One of the most disturbing features of the poverty trap is that it causes antagonism between people who are at work and people who are unemployed, or even people who are sick. This is very much to be regretted, and it should be very much regretted especially on the Government side. We should be looking for ways of ensuring that there is no justifiable grievance which can feed that antagonism. So far, the Chancellor of the Exchequer's efforts in this direction have been puny.

We do not hear so much about other kinds of abuse. We do not hear so much about the profession which has been built up over many years for finding ways of avoiding taxes. I have some very interesting information, for which I am indebted to the work of Frank Field, Molly Meacher and Chris Pond in their recent book called "To Him who Hath". They use figures showing the effect on estate duty of the avoidance procedures which have been built up over the years. These are very striking figures.

Mr. Patrick Jenkin

At what page?

Mrs. Wise

This is on page 158, where it is stated that One of the striking features of estate duty is the failure of the revenue to rise in line with the increase in the rates of duty. In 1911–13 the duties represented 0.25 per cent. of total personal wealth. By 1966 this had increased to only 0.39 per cent.—a very much smaller increase than one would have expected in view of the rise of rates of duty. This is very striking. It goes on to say that In 1911–13 the highest rate of estate duty was 15 per cent., whereas in 1966 the rate was 75 per cent. It could have been expected, therefore, that the total revenue from estate duty in 1966 should have been in the region of £1.2 billion rather than the £382 million actually raised. It was this process of very sophisticated tax avoidance which led, of course, to the very correct introduction by this Government of the capital transfer tax, which was fiercely resisted by Conservative Members. But even the capital transfer tax can be and is being evaded. Such is the profession which has grown up to find loopholes to maximise the benefit of the second Welfare State, the hidden Welfare State in our society, that we now have an extraordinary situation.

I take as an example a widow who has a house worth £80,000. On her death it would be expected that that house would bear almost £20,000 of tax on transfer. Transfer to a spouse, as all hon. Members know, is free of capital transfer tax. That is why I am specifying a widow. It is possible for that widow, by going through the motions of selling the house to her children or grandchildren, subject to the right to stay in the property for the remainder of her life—that is, by selling a reversionary interest in the property—to ensure that no capital transfer tax will be paid.

It only needs 100 people per year to carry out that particular manoeuvre to produce a loss to the Exchequer of £2 million. That loss to the Exchequer just happens to be the amount of the known social security frauds. This is very interesting, because I am sure that a great deal more effort and energy are being expended in preventing social security frauds than in preventing the growth of the kind of process which I have outlined.

It cannot be said that this process is illegal, but the Inland Revenue, I understand, has powers under the Income and Corporation Taxes Act 1970 and under last year's Finance Act to investigate tax avoidance and to levy taxes where an intent to avoid tax can be shown. I understand, however, that only about 30 people——

Mr. Peter Bottomley

Does the hon. Lady actually mean "avoid" or does she mean "evade"?

Mrs. Wise

No, I mean avoid. I understand that only about 30 people are currently employed in using these powers. My hon. Friend the Under-Secretary of State will know that his Department has a great many more people employed in investigating the so-called abuse at the bottom end of the scale and that the prosecutions instigated by his Department have greatly increased, not because of any increase in the incidence of fraudulent claims but as a result of the deliberate use of greater vigilance by his Department. Perhaps he should have a chat with the Treasury about the other aspect of the problem. In this way also there are two Welfare States. Generally speaking, in our society the more one has the more one is given, whether by way of tax allowances or by way of the opportunity to avoid tax altogether.

There is another way in which these welfare states are treated differently. It is a way which is very pertinent to child benefit. Child benefit has an important rôle to play in the poverty trap. One aspect that is sometimes overlooked in discussion of the overlap between low wages and social benefits is that people on social benefits have their family responsibilities and their rent taken into account. However, those on wages are paid not according to their family responsibilities but according to their job and all sorts of factors such as the militancy and success of a trade union, profitability of a company and so on.

It is often said on the Labour Benches—and it is correct up to a point—that the remedy for the overlap between benefits and low wages is to increase wages. I accept that to a considerable extent. It would be of enormous value, and I look forward to the day when the trade unions are once again given more opportunity of doing something about low wages directly.

But even increases in wages do not meet one intractable part of the problem, which is the question of family responsibilities. That aspect could be met through an adequate child benefit system, and that is something we do not yet have but which we need. This is not simply a matter of how much the country deems it can afford, or even how much the Treasury deems it can afford. This is tied up quite intimately with the Government's accounting methods.

I have never heard such nonsense as the situation in which it is possible for the Chancellor of the Exchequer to increase the child tax allowance without running into difficulty under the Government's accounting methods and even without any accusations that he is increasing public expenditure but in which it is not possible for the child benefit to be increased without coming up against these obstacles.

I noted last year that the Chancellor gave £300 million in extra family support, and I welcomed that sum. But he gave it the wrong way because he increased child tax allowances instead of increasing family allowances, and he thus made it harder to move towards child benefit.

I am at the moment driven to considering the expedient of proposing a further tax allowance for families. I tabled a Question asking how much it would cost to introduce a new tax allowance called the parents' allowance payable to any family with children, which means that it would be payable on the first or only child, at a rate of £156 per family. It would be payable to the mother if she were a taxpayer or to the father if she were not.

I have received an answer, and I am considering in the light of it whether to table a new clause to the Finance Bill to provide for such an allowance, even though I do not believe that tax allowances are the way to deal with family support. I am driven to this because I could table that clause, and it could be carried. No one could say that we did not have enough money in the Contingencies Fund to finance it. No one could say that it would increase expenditure. We would not hear about the IMF or any of those other mysterious monsters that lurk around upsetting our social policies.

I want the Government to find ways of imposing their will—and it had better be a good Socialist progressive will—on this system so that we are not hamstrung by nonsenses about accounting methods and contingency funds.

We can understand the problem of whether the country can afford it. Some of us think that the country certainly can afford to ensure that all families have a decent standard of living. The mind boggles, however, at the argument that £300 million spent in one way is not public expenditure and that £300 million spent in another way is public expenditure.

When the method which is classed as public expenditure is the most useful one, it is quite intolerable that that method is not selected. If the Government cannot solve a bookkeeping problem of that nature it tempts me to say that I despair, but I am not normally given to despair. Instead, I say simply that we must do something about it.

Those, then, are suggestions which are related to the poverty trap. They are political suggestions, but they are suggestions, too, about the workings of government and for finding ways of exercising power in favour of working people. They are not simply about more money but are about what happens to existing expenditure. In our General Election manifesto, we did not talk merely of increasing resources and ensuring that the increase went to working people. We talked about the redistribution of wealth and power in favour of working people and their families. It is of redistribution and the mechanics of achieving it that I am speaking now.

How do we solve this problem? Has the Chancellor been helping? We have been discussing in Standing Committee, and we shall discuss again on the Floor of the House, proposals which affect one of the welfare states in particular and how much money the Revenue will have to dispose of.

The proposals which have come from the Treasury so far have failed to grasp the problem. They have involved three kinds of disbursement for taxpayers. The poorest have one cherry to bite at—the tax threshold cherry. While this helps the poor proportionately more, it gives in absolute terms the same amount to all taxpayers except those at the very top, who benefit a little more. It is about as near as we can come with the present system to saying that we are treating everyone equally.

Then there is the second cherry which is held out tantalisingly—the conditional tax cut. That would help everyone who would still be paying tax after the threshold increase, so it helps most people, including some who are still below the official poverty line because they will still be paying tax as well. However, it helps proportionately more those with the biggest tax liability. Therefore, the better off have that second cherry to which to look forward.

In fact, it would have some very striking effects. The Chancellor is proposing a reduction in the standard rate of tax of 2 per cent. My hon. Friend the Member for Perry Barr and I have been saying that as long as we have the poverty trap any money that is paid out should go to increasing tax thresholds or introducing a reduced rate band. The reason why we say that can be illustrated by just one or two simple figures.

I take as an example someone earning £40. If the Chancellor's proposal for a reduction in the standard rate comes to pass, a single man on £40 would gain 49p a week, but a married man with two children would gain 19p a week. Therefore, it is loaded against families. That is point one.

I come to point two. A single person earning £100 a week would get a £169 benefit—considerably more than the £40-a-week person—and a married person with two children would get a £1.30 benefit, which again is less than that for the single person. A single person earning £140 would benefit by £2.30. A married person with two children would benefit by £2.19. It can be seen that with the Chancellor's second cherry a family with two children and an income of £40 a week will gain 19p a week, but if the family have an income of £140 they will gain £2.19 a week.

I really cannot imagine why the Chancellor thinks that this reduction of 2 per cent. is what will make the TUC fall over itself with eagerness to conclude a further wage restraint agreement. The TUC never asked for it. The TUC can read these figures. They are not secret. I cannot imagine why the Chancellor thinks that this proposal is the key to a peaceful phase 3. Certainly his proposal is no help whatsoever in removing the poverty trap.

Then there is the third cherry, which was not conditional and which we have already had. Some of my hon. Friends went into the Lobby to oppose this cherry, which goes only to the better off. It is the £45 million for helping those paying the investment income surcharge and the £275 million for the raising of the tax bands, the points at which higher rates become payable. My hon. Friends and I wanted to save the Government about £325 million. On 4th April we went into the Lobby. We gave the Government two goes, the first being on 4th April.

It is interesting that my hon. Friend the Member for Perry Barr and I are being accused of having voted with Opposition Members—and to us that is almost a fate worse than death. However, on 4th April there was an interesting Division list, which everyone should study. In the Lobby defending tax handouts to the richest were my right hon. Friends the Prime Minister and the Chancellor of the Exchequer and the right hon. Lady the Leader of the Opposition —all in the same Lobby, all defending the third cherry of the Chaincellor's handout, the one that went only to the best off. We can all talk about who votes with the Tories.

I think that I have made it fairly clear that I do not think that the Chancellor has taken one step forward in relieving the problem of the poverty trap. My right hon. and hon. Friends at the Department of Health and Social Security have very honourably been keeping to the promises of protecting the disadvantaged, the unemployed and the sick in relation to inflation. They have kept to that, and I applaud them for it. We would defend them every inch of the way, especially against so many of the unworthy attacks that come from the Opposition Benches. But we cannot say the same about the Treasury.

In order to help the Treasury, I should like to suggest very quickly one or two basic solutions—that is, basic in relation to the tax system. The fundamental solution is to move towards a different kind of economy. The hon. Member for Norfolk, North said that this was a thoroughly rotten society. He was right. I wish that he would remember that it is a capitalist society. However, staying within the realms of the tax system for a moment and thinking of recasting it, let us consider what should be done to make the biggest impact on the poverty trap.

Mr. Ralph Howell

How can the hon. Lady claim that we are living in a capitalist society when all these things have developed from Socialist measures? So much of this nonsense is due to the fact that Socialism demands high taxation rates. It cannot exist without them. The group to which the hon. Lady belongs, or some of its members, are clamouring for even higher tax rates, adding to the problem that she claims to be trying to solve.

Mrs. Wise

There is no relationship between Socialism and high tax rates——

Mr. Peter Bottomley

Oh!

Mrs. Wise

—and certainly there is no relationship between Socialism and the taxation of poverty. The taxation of poverty has been a growing phenomenon year after year. The tender concern being expressed for the better off, about which I talked earlier, has also been a continuing phenomenon year after year. It is really not good enough for Opposition Members to complain. The taxation of poverty is not a matter which has started only in the last three years, though public attention has become drawn to it more and more.

I hold no brief for the multifarious means-tested benefits, many of which were introduced by the Conservative Government but public attention has become drawn to this matter because of the contrast between the sensible way in which my hon. Friends have succeeded in keeping at least the basic social benefits in step with inflation and what has happened to the tax threshold. To a large extent that is what has drawn more public attention to the problem of the poverty trap, and it is causing more and more bitterness.

Keeping to the idea of solutions which are basic in relation at least to the tax system, I would propose that the sensible thing to do would be to have a total exemption from tax which applied to people on the lowest incomes and certainly which applied up to and past the official poverty line. On this matter I share the views of the writers of the work to which I referred earlier. Opposition Members who are acquainted with it will know that this point is very well argued in that book. After the exemption rate is passed, the whole income should be taxable, but at a very reduced rate.

I believe in graduated rate bands. It is absolutely intolerable that people start paying tax at 35 per cent. With national insurance added, it is over 40 per cent. It is intolerable that that is the leap. Therefore, I believe in reduced rate bands.

The TUC has also pressed this very firmly on the Government. The Government need to press it on the Treasury. The TUC is rightly keen on reduced rate bands. If we are to have a progressive tax system at all, it is intolerable for people to start paying tax at 35 per cent. or 40 per cent., with the vast bulk of taxpayers paying at the same rate and some of them paying at a lower rate because there is a reduction when they reach £96 a week and the marginal rate goes down.

It seems elementary that the introduction of the reduced rate bands should be the next step after the raising of the threshold, and that we should move, from the kind of threshold with which it is impossible to do anything without benefiting the rich along with others, into a straightforward exemption. It is quite possible to work out figures without asking for an extra penny in taxation overall yet which would be infinitely fairer than the present figures.

I wish to conclude by mentioning the idea put forward by the TUC that national insurance contributions should be tax-allowable. We have a situation in which we tax people on contributions which we are taking from them anyway. That slice of their income is being taxed twice, and this is deplorable. Surely the suggestion by the TUC that the amount of such contributions should not be taxable is sensible. In fact, the rational thing to do is to go even further and incorporate the national insurance system within the tax system. We moved a little towards it when we left the flat rate.

These suggestions cannot be implemented from the Back Benches, because under existing rules we cannot initiate a completely new tax system from the Back Benches. We are in the hands of the Government. Therefore, I implore the Minister, for the sake of the work of his own Department, to make urgent representations to the Chancellor of the Exchequer that he should work in line with my hon. Friend's Department and not in antagonism towards it. If we achieve that end, we shall be working according to our manifesto commitment for a redistribution of wealth in favour of working people and their families.

1.22 p.m.

Mr. John Cockcroft (Nantwich)

I have promised to be brief, and I shall be. This is an excellent subject for debate and is most topical. I agree with much of what has been said on both sides of the House.

I wish to make a brief plea for a simplification of the extraordinary complexity of benefits and subsidies. I do not know whether that complexity is unique in world terms, but it certainly is most unusual.

I believe that in the long run—I hope that it will not be too long a run—we should move as rapidly as possible to the idea of negative income tax. I believe that the individual should have an overall account with the State, whether a credit or debit balance, depending how much he earns and having regard to his general circumstances. But the present situation, involving so many handouts from so many different Departments, is chaotic and unnecessary.

The idea of centralised benefits is not as fanciful as it would have seemed even five years ago, certainly 10 years ago. Because of mechanisation and computerisation it is very much easier to implement such an idea and to put these overdue changes into effect. If we were to make such a move, there would be a considerable saving in the number of officials employed. I appreciate that in present circumstances job creation and job preservation have a high priority. One example springs to mind relating to the kind of action of which I speak, namely, that we should seek to do away with the licensing of vehicles and increase petrol tax. That, again, may save a large number of officials.

I receive from the poorer areas of my constituency, which geographically is vast, more letters on the problems of social security than on anything else. There is great concern in places such as Winsford and Middlewich about the present state of social security. There is concern about what people are entitled to receive. Indeed, there is also much confusion, and this creates a great deal of correspondence in finding out entitlements and all the rest of it. There is, moreover, concern— perhaps it is somewhat exaggerated—that there is no incentive for people to work or to take a job when it is available. Again, I do not under-estimate the problems of high unemployment.

I found in my years as a financial journalist and in the last three years as a Member of Parliament that many foreigners who come to this country cannot understand the complexities of our system of social welfare.

Mr. Deakins

I do not wish to deny what the hon. Gentleman has said about the complexity of the system, but it is a little unfair to expect foreigners to have the same comprehension of our social security system as might be expected of the indigenous population. If we were to visit France or Germany, no doubt we should find that their national insurance and social arrangements were equally complex.

Mr. Cockcroft

I take the point made by the Minister. I was seeking to make the general point that the man from Mars often sees things with a greater clarity than somebody on the ground.

I believe that there is no other country in which there is so little incentive at every level of income to earn money and to keep something for one's children. I believe that something must be done about the situation—and the sooner the better.

1.28 p.m.

Mr. Patrick Jenkin (Wanstead and Woodford)

I wish to offer warm congratulations to my hon. Friend the Member for Norfolk, North (Mr. Howell) not only on having chosen this subject, but on having introduced it in a forceful and compelling speech. I also wish to congratulate my hon. Friend on the many years at work he has put in on the whole subject of the poverty trap, with all the complexities that surround our tax and welfare systems. He has not only, as my hon. Friend for Gosport said, illuminated the subject by his persistent questioning of Ministers and his publications, but he has pursued it with a dogged persistence that has aroused the admiration of the entire House. Therefore, it is fitting that we should have this opportunity to debate this subject today.

There is another reason why it is valuable in private Members' time to examine the problem of tax and welfare benefits. This matter was touched on by the hon. Member for Coventry, South-West (Mrs. Wise), who suggested that we needed to examine the procedures of the House.

Our most recent debate on this subject was conducted late at night on 10th May on Clause 21 of the Finance Bill in that part of the Committee stage which was taken on the Floor of the House. I wish to quote from column 1261 of Hansard, because it illustrates the difficulty to which the hon. Lady adverted and to which I feel sure we shall return.

I asked the Financial Secretary to deal with the double deduction from net income under the child benefit scheme in respect of those who would lose part of their child tax allowances and who would have child benefit offset against national insurance dependency allowances. The reply given by the Financial Secretary was: The right hon. Member should … await a debate on social security before bringing these matters forward. At that point the hon. Member for Islington, South and Finsbury (Mr. Cunningham), who is always vigilant to detect procedural nonsenses in the House, said: With the greatest respect to the Financial Secretary, I do not think that in future we can rely on separate discussions on social security matters and personal income tax matters. The two are so inextricably intertwined, and will be so for at least the next five years, that the House must find sensible ways—although the House never does this— to discuss these subjects at the same time and with the same people taking part."—[Official Report, 10th May 1977; Vol. 931, c. 1261.] That is exactly the point. It is of enormous importance that it should not be only in private Members' time or on Supply Days that the House can address itself to such questions. Legislation was going through two years ago, the Child Benefit Bill. We have had subsidiary legislation and the orders consequential upon the Government's decisions and changes of tack, and we have had the Finance Bill. However, every time one raises a question relating to tax during a social security debate, Ministers take refuge behind the device that the matter under discussion is not a tax Bill, that tax cannot therefore be discussed, and that a question should be put to the Chancellor of the Exchequer. I have just given an illustration of when one is debating a tax Bill the Minister takes refuge behind the same device when he is asked questions about social security and he advises Members to divert their questions.

With the introduction of the child benefit scheme this procedural shortcoming has been brought out into the open and into the forefront of our affairs. I cannot believe that it is beyond the wit of the House and of those who guide its procedure so to alter Standing Orders that it becomes possible to raise matters of tax and social security whilst debating important legislation.

I had some sympathy with the hon. Member for Birmingham, Perry Barr (Mr. Rooker) when he said that one wishes to vote at the point at which it matters. However, the hon. Member for Coventry, South-West, as she amply demonstrated, is not able in debates upstairs to put down amendments to achieve the objects that she wants. I am not saying that I would support those amendments, but one must criticise procedure that so precludes the House from taking a sensible look at the combined effects of tax and social welfare.

The Minister made a suggestion that we should have a social security Bill annually, but I would not endorse that. That would pile Pelion on Ossa. We already have a Finance Bill, but when one debates those parts of the Finance Bill that involve social security matters, we should be able to raise these matters by amendment and vote if we wish.

This is a valuable and important debate but as there are other motions on the Order Paper today it is right that we should give time for them to be debated. I can make my points briefly and succinctly.

The hon. Member for Coventry, South-West made an attractive and interesting speech, although there were many parts of it with which I disagreed. I sat up and took notice when she said that there was no relationship between Socialism and high taxation. The Labour Party is irredeemably the party of high taxation and in the last three years this Government have done nothing to sully that reputation. As we have heard today, they have raised taxation right across the board, up to the absurd and meaningless top rate of 98 per cent. As we have also heard today, the burden of extra taxation has fallen nowhere more heavily than on the poor in the community. Even after the so-called tax cuts in the Budget—and the hon. Lady will be aware that even the increased personal allowances do not, in real terms, restore the level of last year's personal allowances—the tax threshold is still some way below long-term supplementary benefit rates.

I should like to quote some figures. Under the Finance Bill the tax threshold for a single man is at the weekly rate of £15.48. In November the long-term supplementary benefit rate will go up to £17.90. For a married man the tax threshold is £23.56 while the long-term supplementary benefit rate for such a person in November will be £28.35. That is an overlap of nearly £5 between the tax starting point and the officially defined poverty level under the supplementary benefits scheme.

Even if the Government accept the amendments that the Opposition have put into the Bill—if the Government cannot throw them out, and they are amendments that the hon. Member for Perry Barr and the hon. Member for Coventry, South-West helped us to bring into the Bill— the single person's tax threshold will be £16.54 a week against £17.90 for the single person's supplementary benefit level. For a married man the tax threshold will be £24.42 a week compared with a supplementary benefit level of £28.35. Even if we put back the tax threshold in real terms to what it was last year, that would still leave a substanial gap between the poverty level and the tax threshold.

Mrs. Wise

The Opposition spokesman has under-estimated the gap. I am not sure that the right hon. Gentleman has taken into account the rent and rates element in the supplemenary benefit scheme. The gap is larger than he has indicated and, no doubt, this makes his point even stronger.

Will the right hon. Gentleman tell me why in Committee on the Finance Bill his hon. Friends did not vote for the amendment that would have closed the gap proposed by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) and myself and why his party settled for second best?

Mr. Jenkin

My hon. Friends are perfectly well able to defend themselves. The extent to which we can debate what happened in Committee is limited by our procedure, but the hon. Member for Coventry, South-West did not mention that everybody must have regard to the size of the public sector borrowing requirement, because it is there that her strange monster, the IMF, has put the screw upon the Chancellor of the Exchequer. On the other points the hon. Lady is right, and I shall come to them later.

The tax threshold is now so low that even those on means-tested benefits are paying tax—for instance, those on family income supplement. My hon. Friend the Member for Norfolk, North asked a Question about this subject on 29th April. The answer showed that a married man with two children on £40 a week receives £1.30 in family income supplement and pays £3.29 in tax, assuming a 35 per cent. rate of tax. One is bound to ask what could be more absurd. What can one think of a tax system in which someone who is so poor that he is entitled to draw a means-tested benefit finds himself paying tax to contribute towards the cost of it? That is the height of the absurdity to which we have come with low tax thresholds.

My next point is simply the fact that during the past two or three years, shortterm benefits have gone up in line with prices broadly but substantially faster than earnings have, even though earnings are taxed while short-term benefits were exempted from tax by the Attlee Government in 1949.

The third point concerns the consequence of these two factors, which is that net weekly spending power can be much higher for those at work than for those who are out of work. Even more important than the number for whom that is true is the far larger number for whom the marginal extra income that they can earn by going to work for substantial periods is so small as to render the incentive almost nugatory.

I should like to quote some figures for the record, because I think that they are very telling. Let us take the same married man with two children who is earning £40 a week. On the assumptions made by my hon. Friend the Member for Norfolk, North in many of his Written Questions in which he has asked about the expenses at work, the rents being paid by the household, rates, family allowance or, as it now is, child benefit—nobody has said that those are untypical or unreal assumptions, although there are an infinite variety of assumptions—that man in work will have a net spending power, after rent and rates, of £34.51. If he is out of work, he will have £34.27. He will actually have more spending money after rent and rates if he is out of work while getting the earnings-related benefit.

The effect on a four-child family with an income of £30 a week—one can imagine a single parent or a family with an invalid in such circumstances—is, in work £43.97; out of work, £48.77. At £60 a week, moving up the scale, a fourchildren family will have an income of £47.34 in work, compared with £46.33 out of work. That is a wholly derisory extra incentive to go out to work—a difference of £1.01. Going up to £70 we find that less than £5 is gained by going out to work compared with being on benefit. That is at the present rates of benefit.

In November the rates will go up in line with prices. We have yet to see what the figures are. Some of the consequentials in terms of rent levels, free school meals and so on have yet to be determined. The position cannot but be even more absurd than that I have already quoted.

The point which has come out from the debate is that there is no dispute about any of these matters. There is no dispute not only about the facts, but that they are highly undesirable.

The hon. Member for Perry Barr expressed himself very strongly today. The hon. Gentleman and his hon. Friend the Member for Coventry, South-West and every other Member of the Labour Party know that one of the major factors in recent by-election results at Stechford, Ashfield and elsewhere has been that millions of ordinary people regard the situation as totally absurd and unacceptable. It is widely recognised and resented. My hon. Friend the Member for Norfolk, North was right when he said that it was a major contributor to the low level of morale in industry, which itself is one of the factors leading to poor industrial performance. It certainly explains this otherwise inexplicable contrast which we hear from all sides that, notwithstanding that we have nearly 1½ million unemployed, both large and small firms are constantly saying that they find it difficult to recruit the people they want to fill the vacancies that they have.

My hon. Friend the Member for Gosport (Mr. Viggers) mentioned one case. I refer to another, described in a letter in The Times from the man who applied to a labour exchange in London for somebody to become a packer-warehouseman. He was told that the exchange had ideally suited people and three were sent, but not one of them turned up. One can only imagine that that is because the incentive to work is so low.

My hon. Friend the Member for Wallasey (Mrs. Chalker) has supplied me with an example of a car worker in her constituency who when in work takes home £49.90. When he was sick, including earnings-related sickness benefit, he received £53.77. He is a skilled manual worker who wants to work, but the disincentive is so clear that he wonders whether it is in the interests of his family that he should accept a lower net income by going out to work.

The Government sometimes suggest that this is an insignificant problem because the numbers are tiny. That is not the view of some members of the Government—at any rate, not when they address the House of Commons. Last November, in the debate on economic affairs, the Chancellor of the Exchequer said: I fear that the current overlap between benefits and earned income, besides its disincentive effect on those in work, is fuelling a backlash among the low-paid against the whole concept of the Welfare State and creating the wholly unwarranted impression that people on benefit are in some sense scroungers….I believe that the social and political implications of this backlash should be a real cause for concern on both sides of the House."—[Official Report, 30th November 1976; Vol. 921. c. 717.] To that I say, "Amen". That is absolutely right. Today's debate has shown that they are indeed of real concern on both sides of the House.

But what we discover about Ministers in this Government is that it depends on the audience whom they are addressing what they say on the subject.

On 3rd April the Minister for Social Security, addressing the Poverty 77 Conference at Harlow Town Hall, Essex, said: The real value of supplementary benefit is now twice as high as when it was introduced 30 years ago. That is unexceptionable. But I am sure he was boasting when he went on: As compared with the standard of living enjoyed by those in employment, supplementary benefit has held its position in relation to gross earnings and improved against net earnings. Presumably at that point he expected that audience to cheer him——

Mrs. Wise

Why not?

Mr. Jenkin

—to show that the Government were defending the poor. When we address ourselves, as the Chancellor did, to the economic performance of the country and face the backlash among ordinary constituents, whether they be in Stechford, Ashfield, Saffron Walden or wherever else it may be, an entirely different view is put forward.

We must have a clear statement from the Minister on the Government's real view on this issue. Do they regard it as a matter of serious concern which needs to be dealt with, or is it a matter about which they can sit back and boast, as the Minister for Social Security did when addressing the Harlow conference? They cannot have it both ways.

My next point concerns an even more serious consequence of the system—the poverty trap, which is the centrepiece of this debate. Again, I should like to quote some figures to show how devastating the poverty trap can be. I very much welcome the phrase "the treadmill State" used by my hon. Friend the Member for Norfolk, North. It seems to describe the situation admirably.

I shall quote in-work figures, which have nothing to do with benefits. Again, I take the married man with two children. If his income goes up from £30 to £40 a week—a £10 increase—his net spending power actually goes down from £34.98 to £34.51. If he moves up from £40 to £50 a week—another £10—his net spending power goes up from £34.51 to £36.38. Therefore, a gross increase of £10—a 25 per cent. gross increase—produces an extra £1.87 spending power. According to my calculating machine, that is a marginal rate of tax of 81 per cent. and yet his £10 pay increase left him still substantially below national average earnings.

If he goes on—and this is a hypothetical man—from £50 to £60, he has a gross increase of £10, a net increase of £2.76, and a marginal tax rate of 78 per cent. When he goes from £60 to £70, the increase is a little more reasonable—he is allowed to keep a little more than half the increase. But that still gives a marginal tax rate of just under 50 per cent., a rate that does not affect higher rate income tax payers until they get perhaps £10,000, £12,000, or £13,000 a year. Yet here we are talking about somebody who is still below average earnings.

The Minister of State, Treasury (Mr. Denzil Davies)

It would be more.

Mr. Jenkin

The Minister of State says that it would be more, but it would depend upon allowances. Nevertheless, the point is made. These are impossibly high marginal rates of tax.

If someone changed his job from having been low paid at £30 a week and took up employment at £70 a week his net spending power would go up by less than £10. Over that substantial band of income, which must include millions of people, the tax rate is more than 75 per cent., a rate of tax that is not reached by the higher rate taxpayer until he gets close to £20,000 a year.

Mrs. Wise

And the right hon. Gentleman wants more for them.

Mr. Jenkin

These are ordinary families, with typical benefits, typical rebates, typical subsidies and typical family circumstances. It is this stultifying, frustrating system that is the real poverty trip. The reason is mainly, though not solely, the high initial tax rates and the absurdly low tax thresholds. As Frank Field put it in an earlier pamphlet: The tax system has become an engine of poverty. There can be no question but that the poverty trap is wider and deeper than it was three years ago. Since the 1973 Budget—the last Conservative Budget— the RPI has gone up by 92 per cent. In the Finance Bill the single allowance is up by 35 per cent. over the 1973 figure, and the married allowance is up by 58 per cent.; at the same time, the tax rate has gone up from 30 per cent. to 35 per cent. I do not think that one needs to look much further than that to find the overriding cause of the seriousness of the poverty trap. It is to be found in the Socialist tax system which is the engine of poverty.

However, it does not stop there. The hon. Member for Coventry, South-West spoke about social security benefits, and the hon. Member for Perry Barr spoke about national insurance contributions going up from 5.25 per cent. to 5.75 per cent. of earnings. That will make the situation much worse. FIS is an immensely complex benefit to analyse, but it looks as though the qualifying limits have gone up faster than earnings so that there are more families within that means-tested benefit than there were three or four years ago.

Taking school meals one finds that in November 1975 no free school meals were provided for families with two children and an income of £40 a week. In November 1976 families with an income of £45 a week would have been eligible for school meals at 75p a week. That must make the poverty trap that much worse.

My hon. Friend the Member for Woolwich, West (Mr. Bottomley), from whom I hope we shall hear in this debate, received an answer to a parliamentary Question on 24th May. I shall not read the whole reply, but it said among other things, that the number of unclaimed free school meals had risen from 200,000 in 1973–74 to 400,000 in 1975–76. This would, of itself, suggest that there are many more people on free school meals, and therefore within the poverty trap.

The Government will claim, as they have frequently, that the numbers affected by this poverty trap are very small. The Minister for Social Security answered a Question on 22nd November last in which he referred to about 50,000 fami- lies on a tax rate of 100 per cent.—that is to say, a marginal tax rate of 100 per cent.—40,000 between 75 per cent. and 99 per cent., and 200,000 between 50 per cent. and 74 per cent. In addition, he said that 90,000 families without children were similarly liable to tax at the rate of 50 per cent. to 74 per cent. I have the gravest doubts whether those figures come anywhere near touching the real number of families affected.

I must ask the Under-Secretary of State to explain those figures. If one takes FIS alone—and that must take it over 50 per cent. for these people within the tax bracket—one finds that 50,000 to 80,000 families are in receipt of FIS and subject to tax. When one adds those in the tax net because of other benefits, the number must be even higher.

It is interesting to note, that the Secretary of State for Prices and Consumer Protection, in what seems to have been a powerful speech to the Child Poverty Action Group in York—this is reported in The Observer—said: … I also know that 300,000 families live on wages so low that they are caught in the poverty trap, so dependent on means-tested benefits that every pound they earn makes a net difference of only 50p. to their real income. The right hon. Gentleman went on to say: The 'terrible conclusion' to be drawn from a series of surveys was the inability of the poor to break out of such poverty. 'if at first you don't succeed, you don't succeed'. I could not have put it better myself. There is no doubt that this aspect of the poverty trap has become one of the real blots on the face of the tax and welfare system.

My fifth point is one that is now well recognised. The position of families with children has become far worse relatively than that of the rest of the population. I shall not quote all the figures, because they are legion. The case has been made with devastating clarity by the CPAG and other bodies, and I need quote only one question asked by the CPAG in the Press release with the recent evidence that it gave to the Royal Commission on the distribution of income and wealth. It asked: Why should a four-child family on £100 be left with only £10.93 more than a single person on the same income? That figure demonstrates clearly the extent to which this system militates against the family with children.

Faced with what one can only describe as a travesty of social policy, one asks what should be done. We have had the answer from both sides of the House. The first and most important thing is that tax thresholds must be raised.

Mrs. Wise

Oh!

Mr. Jenkin

My party voted with the hon. Lady to raise tax thresholds. Perhaps she did not realise that.

Mrs. Wise rose—

Mr. Jenkin

Let me give the measure of what needs to be done if we are to get back to the levels current under the last Conservative Government. The single person allowance in the 1973 Budget was £595. The present level is £805 and the Finance Bill proposes that that should go to £860. To get back in real terms to the 1973 level it would have to be £1,140. The married person allowance was £775 in 1973. It is now £1,225. The Finance Bill proposes £1,270 but to get back to the real value of 1973 it would have to be £1,485.

Mrs. Wise

Once again I ask why the right hon. Gentleman's hon. Friends did not vote for the amendment, which would have increased the tax threshold to £1,350. Why did they run away? I shall say why. It is because they prefer that the tax concessions should go mostly to the better-off.

Mr. Jenkin

That brings me to my next point. As was made clear, part and parcel of the problem of the poverty trap is the high rate of tax, which has gone from 30 per cent. under the last Conservative Government to 35 per cent. under this. There is no doubt—this is widely recognised—that massive cuts are needed. It is no good concentrating tax cuts on raising the threshold: we have to reduce the rate. I am glad to see the Under-Secretary nodding his head. What we say is that to get the kind of reductions which we need we cannot merely look for cuts in expenditure. We have to obtain other forms of revenue. My hon. Friends have made it abundantly clear, in Committee and elsewhere, that we would see an increase in the rate of VAT as being one of the ways in which we would pay for an increase.

Mr. Denzil Davies

This is not a debate on tax, although clearly taxes are important. However, the right hon. Gentleman has pointed out the cost of getting back to a position in which there would be full revalorisation. He has not said how he would pay for that, because the increase in VAT he is talking about takes care of only £500 million. Where is the extra coming from?

Mr. Jenkin

I must make it clear that such is the pit into which the Government have dug both themselves and the country that I do not believe there is any prospect of revalorising personal allowances at one go. Certainly the Conservative Party has not promised that. I was quoting those figures to illustrate how far we should have to go. I imagine that the net cost is something of the order of £5 billion. We are glad to see the Minister of State to the Treasury present. He has no reason to apologise for intervening. I have indicated the magnitude of the task. One point about VAT is that, because of the exemptions and zero-rating, it is a progressive tax in that it bears much more heavily on those with larger incomes than it does on those with smaller incomes.

The third thing that has to be done— despite all Labour's protestations of refusing to support the Conservative Party— is to introduce a full child benefit as soon as possible. In the debate on the Finance Bill dealing with the Government's devastating about-face on child benefit, I described that fiasco as the graveyard of the Government's social policy. They have tried to redeem themselves, but we are left at the moment with a pitiful shadow of what a child benefit ought to be. I repeat the pledge I gave on that occasion: I must state clearly without any "ifs" and "buts" that it will be our intention, when we win the next General Election, to introduce a full child benefit as soon as it is practicable as the first stage of phasing in a tax credit scheme."—[Official Report, 10th May 1977; Vol. 931, c. 1269.] If I am asked why we give that pledge, it is, first, because that is the way to restore the position of families. Secondly, it is the best way to ease the poverty trap. Thirdly, it is the best way to help the poorest families in work—those who earn their poverty. Fourthly, it is the best way to reduce the nonsense of people being much better off out of work. Fifthly, it is the best way of reducing the dependence of families on means-tested benefits.

I was delighted to receive a letter from the Minister of State at the Department of Health and Social Security on 9th March in which he said: I can assure you that we fully accept the principle that the improvement of universal benefits should reduce dependence on meanstested benefits. That means that if we increase child benefit, we do not increase the level of every means-tested benefit to make sure that everybody gets the full advantage of the increase in child benefit. It is not always an easy message to get across to those affected but it must be right. Otherwise we shall never reduce the number of people in the poverty trap subject to means-tested benefits. The child benefit is essential.

Fourthly, we have to bring the shortterm benefits into the tax system, as they were originally intended to be. They were initially within the PAYE scheme and it was only in 1949 that they were taken out for administrative reasons. If we cannot apply PAYE to them as they stand we must be prepared to examine other ways of achieving the same objective. The hon. Member for Islington, South and Finsbury had an interesting article in The Guardian on 8th March. Although we recognise that with that crude scheme there are all sorts of anomalies, there may nevertheless be the germ of an idea there, and we are examining it. We are also examining a number of other ways of achieving the same objective. It cannot be right that substantial slices of income should be so wholly outside the tax system as to create such absurd anomalies with those who are paying tax.

Fifthly, over a period we have to phase in the full tax credit scheme. The essence of the tax credit system—child benefit is an example—is that, while the tax allowance benefits only those with incomes high enough to be within the tax net, tax credit gives that benefit to everyone above and below the tax threshold. When we increase the tax allowance, we help only those who pay tax. When we increase the tax credits, we also help those below the tax threshold. Tax credits will replace tax allowances and when they are combined with the essential feature of the scheme— a non-cumulative PAYE system—that will greatly simplify the administration of the tax system.

Tax credits have other advantages. All income can be taxed, including shortterm benefits. We can perhaps lift——

Mr. Ralph Howell

When my right hon. Friend says that short-term benefits could be taxed, does he also mean supplementary benefits?

Mr. Jenkin

As I explained in an intervention earlier, I hope that we shall at least lift the tax threshold above supplementary benefit level, so that that question does not arise. What we need to get are incomes above the tax threshold which are at present tax free. The tax credit will lift hundreds of thousands, perhaps eventually millions of people, off supplementary benefit. It will markedly reduce the impact of the poverty trap and give help to pensioners and others who are hardpressed.

I hope that we shall not have from the Minister the old Government canard that this is bound to cost £5,000 million. By now Ministers should have hoisted on board that that is absolute nonsense. That figure can only be reached by applying the illustrative figures in the Green Paper and uprating them in line with inflation, without taking account of any of the other changes that have taken place since. One of the consequences of falling tax thresholds has been a reduced number of people with incomes below the tax threshold. This has therefore reduced the cost of switching from tax allowances to tax credits.

My hon. Friend the Member for Woolwich, West tabled a Question the other day which was answered by the Financial Secretary to the Treasury. The answer showed that on certain assumptions—and I am not suggesting that this would be the proper way of doing it—it would be possible to introduce a tax credit system and actually save money. The amount of the saving to the Exchequer given in that answer was £600 million. No one is suggesting that we should do that but it illustrates that if the level of tax credit is tailored to the level of the allowance and if account is taken of the total income that would flow from taxing short-term benefits, it is absolute nonsense to say that the cost of introducing a tax credit scheme would be wholly beyond the means of the country. The central problems are administrative, and we have always recognised that.

I can tell the House that the Conservative Party is continuing its intensive studies of the tax credit system with a view to phasing it in by a steady, measured programme spread over a period of years. We believe that it remains the best and most practical way out of the fearsome mess into which our tax and welfare system has got itself. I do not believe that some other sort of big bang operation—I am not sure quite what my hon. Friend is proposing—leading to total instantaneous reform is a practical possibility.

I am equally sure that the Government's position of frozen, impotent immobility in the face of all the absurd consequences of the present situation cannot possibly be a substitute for policy. Instead we must have the lifting of tax thresholds, the cutting of tax rates, the introduction of the full child benefit, the taxation of all income, in and out of work, and moving into a phased system of tax credits. That is the Tory strategy. I am happy to say that daily the time is coming closer when we shall be able to put it into operation.

2.12 p.m.

The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins)

This has been a very stimulating debate. I hope that the House will forgive me if I take a little time in dealing with the many and varied points raised by right hon. and hon. Members who have taken part.

The hon. Member for Norfolk, North (Mr. Howell) is to be congratulated on his success in the Ballot. However, as one who in his years as a Back Bencher was never successful, I also feel a certain amount of envy of his achievement. The subject that the hon. Gentleman has chosen has certainly aroused a great deal of public interest and concern. I am not certain whether the earlier attendance in the Press Gallery was indicative of interest in the subject or in the presence of my two hon. Friends the Members for Birmingham, Perry Barr (Mr. Rooker) and Coventry, South-West (Mrs. Wise) and their contributions. Nevertheless, it is an important topic that we do not debate often enough.

The interest of the hon. Member for Norfolk, North in the subject of social security is well known, not least to me and my right hon. Friends. I have read with great interest on several occasions his pamphlet "Why Work?" and his lowpay research pamphlet. However, I hope to demonstrate, first, that the hon. Gentleman's charge that the Government's policies have been disastrous is the opposite of the truth. As the debate has impinged only marginally on the first two lines of his motion, I shall deal with that relatively briefly, to get it on the record, and then deal with the more constructive contributions made from both sides of the House.

We must bear in mind that most of the poor are out of work, for one reason or another. We have increased social security benefits four times and they are to go up again in November. Between October 1973, when the previous Government last increased these benefits, and November 1976 retirement pensions and other long-term benefits rose by 97 per cent. Over the same period prices, as measured by the General Index of Retail Prices, rose by 72 per cent.—significantly less than the increase in pensions. Over that period the purchasing power of pensions and other long-term benefits increased by 15 per cent.

In October 1973 the single person's pension was 26 per cent. of the net earnings of a male industrial manual worker, after deduction of national insurance contributions and income tax, and the married couple's rate was 41 per cent. In November 1976 the pension rates had increased to 34 per cent. and 52 per cent. of those earnings respectively.

Short-term benefits, such as sickness benefit and unemployment benefit, also more than kept pace with prices. Over the same period, from October 1973 to November 1976 they rose by 76 per cent. while prices went up by 72 per cent. Supplementary benefits, which are not indexed statutorily but which are raised by roughly the same amounts, as well as war pensions and industrial injuries benefits, went up by the same amount as national insurance benefits. By any comparison, therefore, there has been a significant improvement in the position of pensioners and others during a period of great economic difficulty.

The real increase of 15 per cent. in the value of pensions and other long-term benefits over a period of three years compares with an 11.6 per cent. increase over a period of four years under the previous Government, when our economic situation was considerably better. In fact, as a result of these increases and other improvements introduced by this Government, public expenditure on social security benefits has increased by about £1,000 million in real terms, after allowing for price increases, compared with the period following the last increase by the previous Government. This is a massive transfer of national resources to pensioners and other social security beneficiaries at a time of great economic difficulty. We are confident that the increases in benefits to be introduced in November will more than maintain the relationship between benefit levels and prices and earnings.

The Government have also introduced a range of new benefits—non-contributory invalidity pensions, which will also shortly be extended to housewives, mobility allowances and invalid care allowances— all of which are related to disablement without a test of means. The new child benefit scheme, much criticised by the right hon. Member for Wanstead and Woodford (Mr. Jenkin) and his hon. Friends, will provide a benefit for every child instead of only the half covered by family allowances. This will replace tax allowances which do not help the poorest, those too poor to pay tax.

As to the future, the Government's long-term strategy to deal with poverty amongst pensioners rests on the new pensions scheme which comes into operation next April and has all-party support. This will provide earnings-related pensions comparable with those paid by good occupational pensions schemes and, as the levels build up over the years, will gradually reduce the amount of dependence of pensioners on supplementary benefit, an objective that every hon. Member will fully support.

I now turn to the main burden of the motion, the poverty trap, which has been referred to by my hon. Friends and all other speakers in the debate. First, it is important to define what we mean by the poverty trap, because it can be used to mean quite disparate things, and in this debate it has been so used. So often the poverty trap is used to describe the plight of the poorer members of our society or those whose incomes, for whatever reason, have fallen in relative terms over the past years. For example, a recent article in one of the national dailies was headed Parents in the Poverty Trap although it was concerned entirely with living standards.

What, then, is the poverty trap? It is the name that has been given to the situation in which someone receiving means-tested benefits may lose much, if not all, of a pay increase because, as the hon. Member for Norfolk, North has pointed out on many occasions, extra pay leads to the payment of more income tax and higher national insurance contributions and the reduction or loss of meanstested benefits. It has been said that it is possible for a rise in gross earnings of £1 to involve a loss of well over £1 in benefits, in addition to the payment of additional tax and national insurance contributions. The argument is that an extra £1 leads to the payment of another 35p income tax for a start. Then there is the loss of family income supplement, another 50p, to say nothing of the losses in housing benefits—rent and rates rebates—and free school meals. The hon. Gentleman's Questions and papers are full of examples.

But this is a highly theoretical illustration of the poverty trap. There is very little resemblance between the effects of the poverty trap in practice—I stress "in practice"—and the exaggerated accounts that have been put about. Furthermore, many of those who are most critical of the Government in this respect fail to understand a fundamental point—and it is essential that we understand each other in this matter—that the poverty trap is a consequence not of poverty but of measures for relieving poverty.

Mr. Patrick Jenkin

The Minister said that the figures in the Questions asked by my hon. Friend the Member for Norfolk, North (Mr. Howell) were highly theoretical and bore little resemblance to what happened on the ground. Is he contending that the electors of Stechford and Ashfield spent the election periods studying my hon. Friend's Questions and the Written Answers to them rather than looking at the position on the ground?

Mr. Deakins

I hope that the results were not attributable to my presence, but I worked in both the Stechford and Grimsby by-elections and I am well aware of the feelings expressed on the doorstep about these matters. The poverty trap— although people would not have used those words—was not one of the major issues. There may have been some complaints about taxation, but in my view the main reason why we have lost some of our support, why people stay at home voting with their bottoms as they have been doing at by-elections recently, is rising prices. However, it is entirely a matter of judgment and we all have our own experiences of working in by-elections.

Mr. Ralph Howell

I think that the hon. Gentleman implies that some of my Question were exaggerated; but the opposite is true. Only £1.75 is allowed for expenses in travel to work. That is a totally unrealistic figure for most people.

Mr. Deakins

I accept that. It depends entirely on which part of the country a person lives in and his means of getting to work. There is no disagreement about the fact that there is a problem over the poverty trap, and I shall try to ensure that we are at one on the problem before dealing with possible solutions.

We could do away with the poverty trap tomorrow if we were prepared to do away with the network of meanstested benefits that have been introduced over the years to meet the needs of families in the lower income brackets. This is the reality of the situation as opposed to the theory. There is no escape from reality, and our critics really must face up to it. But, of course, it is quite unthinkable that this Government, or indeed any Government, would abolish means-tested benefits at a stroke and leave the shorn lamb exposed to the bitter winds of poverty.

I shall return to the subject of means-tested benefits in a moment. In the meantime, I will explain why the poverty trap is more apparent than real, why it occurs much less in practice than in theory. This is because some of the key benefits, once they are awarded, are retained without any reassessment for a period of 12 months. Family income supplement is one of these key benefits. Thus a pay rise during the 12 months does not lead to a cut in benefits. Perhaps the wife of another member of the family goes out to work and boosts the family's weekly income. But the FIS goes on at the same rate. Twelve-month awards, coupled with regular upratings of the income limits for these benefits, mean that families who get a pay rise, particularly under stages 1 and 2 of the pay policy, do not lose the benefits.

Even if all the means-tested benefits were adjusted instantly after a pay rise, the numbers affected by the poverty trap would still be a very small proportion of working families. That is not to say it is not a problem; it is a question of how widespread the problem is. I shall not weary the House with a surfeit of statistics, though, if the hon. Member will forgive me, I know that his appetite for figures is greater than that of most hon. Members. And, after all, it is Friday. But perhaps I could say that there are altogether about 6½ million working families with children. The numbers theoretically—and I must emphasise yet again "theoretically"—subject to the poverty trap effects I have described, to the extent that extra pay of £1 might lead to a loss of over 50 per cent. of it, that is, over 50p, have been estimated at less than 300,000 families. This broad estimate is theoretical because it is based on the totally unrealistic assumption of instantaneous adjustments of benefits. The numbers actually affected are not known but are thought to be very much lower. How much lower is very much a matter of judgment and personal experience. An indication of our view that the number is not very large is that no authenticated case of a loss of over 100 per cent, has ever come to light.

I turn to the question of means-tested benefits themselves which are part of the general problem of the poverty trap. The poverty trap is with us because meanstested benefits are received by poor working families. I need not remind the House that the Government would greatly prefer to dispense with such benefits. We recognise the problems associated with them, some of which have been mentioned in this debate—for example, complexity, administrative difficulties and unsatisfactory take-up.

But I part company with some of the hon. Members who have contributed to the debate when they talk as if these benefits were a cause of poverty. They are not; they are a method—not the method we would choose in an ideal world—of helping poor families, of increasing their income. We could put an end to the poverty trap if we took away these benefits, but at what a cost to the families who receive them. I remind hon. Members that in this context we are speaking of working families. Without these benefits, many more families on low earnings would be in the position where their incomes at work were less than when out of work. Thus, against the largely theoretical criticisms of the poverty trap we must set the indisputable fact that thousands of working families get substantial help from means-tested benefits and that these benefits help to provide them with an incentive to work. That is a distinction—between the poverty trap on the one hand, and the incentives problem on the other—which some outside observers, if not hon. Members, have failed to make. Means-tested benefits for working families contribute to the poverty trap, but they operate the other way in the problem of incentives for working families.

Since we must live with means-tested benefits for some time to come—because of the cost of replacing them by universal benefits which would give anything like the same help to the poorest—what are the Government to do? We could have let them wither away simply by failing to increase the income limits; they would then have been overtaken by pay rises resulting from inflation. Once again, it would have been the poorest working families who would have suffered.

Of course, we have chosen to maintain the value of these benefits. By this I mean that we have raised the income limits— for FIS, free school meals, ands so on— in line with other benefits and in line with inflation. I do not mean that we have necessarily enabled all these working families to maintain their standard of living completely when standards generally, of people at work, have been falling. If their other main source of income—their earnings—has fallen in its real value, then to some extent they have had to share in the general sacrifice. But by not allowing the qualifying limits for their benefits to fall behind inflation we have given them help which higher earners have not had.

Mr. Ralph Howell

I cannot understand the sense of the Government's system of maintaining living standards of people receiving benefits while, through the taxation system, depressing those of people who are working.

Mr. Deakins

I shall come to the issue of tax thresholds and take-up—a point raised by my hon. Friend the Member for Perry Barr on the effect of pay policy under stages 1 and 2 on low income families at work.

What I have been talking about is part of our overall achievement in giving beneficiaries priority—and it is a priority about which I, as a Socialist, am very proud. If as a result we still have more people getting means-tested benefits than hon. Members would like, if it means that we have not floated them off these benefits as we would have liked, that is the price that we must pay for having fulfilled our obligations.

The pamphlet written by the hon. Member for Norfolk, North entitled "Why Work?" is very interesting and contains in the last four pages some radical suggestions with which the right hon. Member for Wanstead and Woodford would not necessarily agree, and neither would I, but 1 pay the hon. Gentleman the compliment of saying that he has thought through these problems and has come up with some original solutions. The House always benefits from hon. Members, on whatever side of the House they may sit, who have the capacity to think for themselves and argue and publicise their views in the way that the hon. Member has done.

We have been struggling for three years with the problems of reducing dependence on means-tested benefit. We have had to increase them for the reasons that I have given, but we have tried to avoid introducing new meanstested benefits, which would obviously be a step in the wrong direction. We have introduced benefits—and we can be proud of this—which are not meanstested which will help to alleviate, if not entirely eradicate, the problem about which the hon. Member for Norfolk, North is particularly concerned. We have introduced the mobility allowance, the invalid care allowance and the child benefit scheme, all of which are non-means tested.

We shall continue on this path, implementing the full child benefit scheme by 1979, which is later than the right hon. Member for Wanstead and Woodford and the Opposition would wish. We feel that when it is in full operation it will have a major impact on the problem of the poverty trap, which is widely recognised, and, indeed, was recognised as long ago as 1975, when, with all-party agreement, the scheme was introduced under the appropriate legislation.

We shall be starting our new pensions scheme next year. It will offer the first real prospect for 20 or 30 years of reducing the dependence of older people on supplementary benefit. It will be a marvellous achievement. It will take time to achieve it, but we should all be proud of it. It is slow progress, but we in Government must deal with the reality of the real world.

I turn to the problem of incentives. This problem has also been exaggerated. Most of those who are unemployed have incomes lower than those they could expect to receive when in work.

During the early months of unemployment, a family man with several children may find that his income compares quite well with the income that he had when working. The hon. Member for Norfolk, North and some of his hon. Friends have given examples of where a man could receive more money when out of work compared with when in work. That situation arises basically if earningsrelated supplement is payable on top of flat-rate unemployment benefit, plus, where applicable, tax refunds, and the man is receiving all the means-tested benefits to which he is entitled. But fewer than one in four of those registered as unemployed are receiving earnings-related supplement at any one time, and the supplement lasts for only six months. Moreover, income tax refunds have to be claimed and may be received for only a few weeks depending on the time of year that the man becomes unemployed. Further, not everybody takes up all the means-tested benefits to which they are entitled.

For those who have to rely on flat-rate unemployment benefit alone, the current rates are 12.90 for a single person, £20.90 for a married couple and 27.50 for a married couple with two children. Even with the help of means-tested benefits, a married couple with two children aged four years and six years will have a net disposable income of only 30.50 without the earnings-related supplement and tax refunds.

For those receiving supplementary benefit, in most cases the benefit levels are much lower than the income a man could get when in work. However, as supplementary benefit makes provision for a man according to the number of his dependants and his rent commitments, it is possible that a man on comparatively low earnings and with a large family could be financially as well off, or nearly so, when out of work as in work. But the number of families in that position must be very small. There were only about 38,000 families with four or more dependent children where the beneficiary was unemployed in December 1975 and receiving supplementary allowance.

I came to the Department of Health and Social Security with no previous background or experience in these recondite subjects, but I discovered a matter that seems to have gone almost unnoticed —namely, the difference between income from work and income from the Welfare State. When a person is employed—no matter in what capacity—and earning an income, he or she is paid according to the value of the work that he undertakes. It is in the employer's interest to pay whatever is the fair rate for the job. My hon. Friend the Member for Coventry, South-West alluded to the influence of trade unions in forcing up wage rates.

It would be absurd to have a system of payment for work which meant that an employer had to pay a person according to his or her family responsibilities It would be one way out of the poverty trap, but it would have disastrous economic consequences if we insisted that an employer employing a married man with four children should pay him twice as much as a single person. Therefore, we are stuck with a basic parameter which places a limitation on the action of any Government—namely, that the family man in work and the single person in work should receive exactly the same amounts for doing the same job.

It is a function of the Welfare State under any Government not to pay a person who is not in work according to his value to society or the value of the work he would normally do. It is the function of the Welfare State to pay people to recompense them according to their needs and family responsibilities. That is widely accepted on both sides of the House.

However one juggles with the figures and whatever system is used—I accept that some systems could be better than others in theory—we shall always have a real problem, even when we have higher child benefit rates, when comparing income at work received by a man with a large family with his income when out of work. In future, it will not be such a problem, but it would be foolish of anyone to claim that the problem can ever be completely eradicated in an economy in which a person's work at work is unrelated to his or her family responsibilities.

The hon. Member for Norfolk, North and his right hon. Friend the Member for Wanstead and Woodford have said that there may well be incentives not to be in work. We have no evidence of large-scale abuse in the sense that people are deliberately leaving employment to live on benefit. If they do so, they can lose benefit. The right hon. Gentleman knows that that is the case. If someone gives up a job voluntarily without just cause, he can lose the whole of his unemployment benefit and part of any supplementary benefit for up to six weeks. Moreover, the interaction between benefits is complex. Every hon. Member who has spoken in the debate has referred to the complexity of the system. It would not only be difficult for a man to work out what his position would be if he gave up his job, but he would be a foolish man who gave up his work for a temporary short-term gain only to find that his income dropped after the first six months and that he could not easily get back into employment.

Mr. Ralph Howell

If the Minister has no evidence of cases in which people have deliberately left work, I suggest that he gets in touch with his right hon. Friend the Secretary of State for Employment. His right hon. Friend has received letters from many hon. Members, including myself, giving the names and addresses of such people.

Mr. Deakins

I mentioned large-scale abuse. I am prepared to take up with my right hon. Friend the Secretary of State for Employment the cases which the hon. Gentleman says that he and his colleagues, and perhaps some of my hon. Friends, have passed to him. As far as I am concerned, there is no evidence that this is a large-scale problem. That is not to say that it is not a problem at all. It is all a matter of judgment.

I turn to a theme which has echoed largely in the debate. With respect to the right hon. Member for Wanstead and Woodford, it is not entirely a matter for my Department. Tax thresholds are basically matters for my right hon. and hon. Friends in the Treasury, but I know that they are of concern to my hon. Friends the Members for Perry Barr and for Coventry, South-West.

I fully accept that a person can begin to pay tax at a point when his or her earnings are below the level of income that would be received from supplementary benefit. That is a matter of fact that cannot be denied. The Government agree that it is a worrying situation. Although I do not pretend that the present situation is ideal, I hope that I can explain some of the factors that have a bearing on the issue.

Mr. Patrick Jenkin

The hon. Gentleman has said that it is a worrying factor. That was not the impression that the Minister for Social Security gave to the Poverty '77 Conference at Harlow. Is he now disowning his right hon. Friend?

Mr. Deakins

Not at all. These are all matters of judgment. It is not a question of black and white or right and wrong. It is a question of where we draw the line.

There are basically two reasons for the point at which some people start paying tax being below the level of the income that they might receive in supplementary or other benefits. First, given a public expenditure commitment and the continuing severe economic difficulties that we have been facing, it has not been possible to increase the earnings allowances as much as we should have liked. That is recognised by the Opposition Front Bench, although it may not be recognised by some Opposition Back Benchers. We have not been able to afford the cost of eliminating the overlap between tax thresholds and social security benefit levels. The other reason is that we have the responsibility to ensure that disadvantaged members of society are given an adequate minimum standard of living. That has meant increases in social security benefits and rates that have overtaken the increases that we would have been able to make in tax thresholds.

As social security benefits for the most part concentrate help selectively on the elderly, the sick, the disabled, the unemployed and other needy sections of society, increases in these benefits are the most cost-effective way of relieving hardship, given the limited resources that are available.

Tax allowances and supplementary benefits necessarily have rather different functions. Tax allowances have to apply to millions of taxpayers and can proceed only on the basis of distinguishing broad groups with differing family responsibilities. They are not designed to reflect minimum income levels. Rather are they part of the system of tax progression, and they must depend on the prevailing economic circumstances. On the other hand, supplementary benefits make some attempt to take account of differing individual circumstances and requirements. They must be enough so that people can live on them, and there is no necessary reason why the supplementary benefit rates applying to a small minority of the population should determine the level of tax applying to taxpayers generally. I recognise that this is a difficult argument. I think that it would be accepted by those whose incomes are well clear of both thresholds and supplementary benefit levels.

The real problem is that some people who are at work or are supplementing national insurance benefits with other small amounts of income have net incomes which are a little above or even slightly below supplementary benefit levels. For them, the comparison may be understandably frustrating. We must not underestimate the resentment which they may feel. Nevertheless, to raise the levels of personal tax allowances to social security benefit levels, which my hon. Friend the Member for Coventry, South-West tried to do in the Finance Bill, would be very costly, and at present my right hon. Friend the Chancellor of the Exchequer could not contemplate it, although he made it clear in his Budget speech that for those on low incomes the highest priority for the future must be to raise the tax threshold so as to maintain the real value of personal allowances as far as possible and, if circumstances permit, to increase their level to the point where they stand clear of the main social security benefit. Meantime, our policy has been to increase substantially the level of State benefits and pensions, because in this way the greatest help goes to those in the greatest need.

I turn to a matter which the hon. Member for Norfolk, North did not mention today but referred to in his pamphlet. I mention it not in any way to score a point. He referred to the idea of a national minimum wage. There is an answer to the point. The hon. Gentleman raised some very complex issues in talking about a national minimum wage, though I do not go into them today since they were not raised specifically in the debate. However, I do not want him to think that I am unaware of these points.

The hon. Gentleman also raised in his pamphlet, although again he did not mention it in his speech today, the idea that national insurance should be combined with income tax or financed through indirect taxation. I shall be happy on another occasion when it is raised to deal with the point. Again, I merely mention it to show the hon. Gentleman that I have studied his pamphlets with care and that I am aware that he has not fired all his bullets today.

I turn to the comments of my hon Friend the Member for Perry Barr. There are a couple of matters that I should like to discuss with him across the Floor of the House. The first is the effect of Government policies on lower-wage earners. He and I may disagree about this, although I hope not. Whatever else may be said in criticism of stages 1 and 2 of the wages policy, they favoured the low paid wage earner. Whatever other demerits they may have had, that wa3 a major part of the policy in stages 1 and 2. As a Socialist, I believe that the idea of incomes policies can be used to favour the lower paid. They can be used in various ways. It depends how Draconian they are, what measures are contained in them, how complicated they are and so on. My hon. Friend should not rule out the idea of incomes policy merely because he disagrees with certain aspects of the incomes policy which has been forced upon us.

Mr. Rooker

My hon. Friend is quite right. I am not in favour of a free-for-all, because in such circumstances the weak go to the wall. But has my hon. Friend read the latest pamphlet from the Low Pay Unit which contradicts the idea that the differentials were changed by the £6 policy for the low paid? Many millions of low-paid workers in wages council industries did not even get the £6.

Mr. Deakins

I am aware of the excellent work which my hon. Friend and others have done on behalf of low-paid people in wages council industries, where the Department of Employment is chasing up recalcitrant employers.

My hon. Friend also said that we needed priorities. This is a more general point, of course. But, if we are to put forward solutions to the problem of the poverty trap, we have to be clear not only where the money comes from but also whether alleviating the effects of the poverty trap should have as high a priority as many of the other worthwhile causes in the social security system on which we need to spend money.

My hon. Friend mentioned the case of Mr. Bourn. I hope my hon. Friend will forgive me if I do not go into it in detail across the Floor of the House. Since he has made a number of comments about it, I will write to him because I think that there has been some misunderstanding.

The hon. Member for Gosport (Mr. Viggers), made a good point about inflation. I do not think that there is any dispute between the two sides of the House that the top priority of any Government must be that of getting down inflation. There is no dispute about that.

The hon. Gentleman talked about the need to reward effort and virtue. I take issue with him when he mentions virtue. I am not sure how one defines that. But, in terms of rewarding real effort, again there is no dispute between us.

The hon. Gentleman also made a point, as did the hon. Member for Nantwich (Mr. Cockroft), about the complexity of the social security system. Hon. Members will know that the complexity issue arises every time we debate aspects of social security. I have no new palliatives or answers to offer. We are all agreed on the objective of simplifying the system.

Many of the forms are extremely complicated. Some of them I do not understand myself without re-reading them three or four times. We have to try to simplify them but, at the same time, we have to make sure that they do not mislead people. This is not merely a problem of forms. It applies to all the legislation as well. The difficulty is to decide how simple we can be without being so simple that we mislead the people concerned.

My hon. Friend the Member for Coventry, South-West referred to abuse. I will not repeat what my right hon. Friend the Secretary of State has said about our feelings on fraud and abuse, especially about the measures that we are taking to tighten up on them.

My hon. Friend also made a point about pay not being in relation to family responsibilities. Then she raised a matter which was echoed by the right hon. Member for Wanstead and Woodford and which again is a subject that is of great concern to anyone taking part in debates on social security or taxation, namely, the interaction of the two, the accounting conventions in government, which the right hon. Gentleman, having been a Treasury Minister, knows more about than I do, and the need in some way eventually to work out a system whereby allowances and social security payments are merged. Whether one should also bring national insurance into the taxation system is another matter, but it may be that, if we look at the relationship between allowances, social security payments and national insurance, that would be just one more little problem to be added on which could be taken into account.

I come finally to the right hon. Member for Wanstead and Woodford. I agree with him 100 per cent. that we in this House need to be able to discuss social security matters and tax matters together where they impinge on each other. However that is not a subject on which I can offer any advice. It is a matter partly at least for the procedures of this House. Obviously, there is also work to be done in the Government as well. It will come as no surprise to the right hon. Gentleman to know that this is a problem which greatly exercises the minds of those in the Government who have responsibility for it. If there were to be a Conservative Government in office, there would be the same problems. It is a matter of who will be able to come up with some sort of acceptable solution.

The right hon. Gentleman mentioned the shortage of labour in industry. I take issue with him there, but, since time is pressing, I will not divert from the main theme of the debate except to point out that, in my view, one of the reasons why there are shortages of skilled labour in industry is not so much the poverty trap, the lack of incentive and so on, as the problems of low wages. When skilled engineers can be paid less than, say, secretaries sitting in offices, society as a whole and not merely industry has some of its priorities slightly wrong. However, that takes us into a wider debate than we have here today.

On child benefit, the right hon. Gentleman said that under a Conservative Government we would have the full system immediately. We may well have the full scheme available under this Government by April 1979, and I hope that I am not being too optimistic in thinking that we may be able to go that long. But certainly no party can rest content with the scheme which involves the transfer of the child tax allowances on to child benefit. We have to make sure that the rate of child benefit is sufficient to alleviate the problem with which we are all concerned in this debate. That is a matter of the resources which are available to give a sufficiently good rate to enable——

Mr. Patrick Jenkin

With respect, it is not only a matter of resources. It is totally absurd that the Government have got this so boxed in with the manner in which they have handled child benefit that the Chancellor could not do anything about it in the Budget, because the books have been printed, with their numbers. The Government cannot do anything about it in the uprating next November because it has to be combined with the tax allowances, and that can be done only in April. It will be two years, therefore, before it is possible to do anything about it. It is a question not just of resources but of thoroughly blind administration.

Mr. Deakins

I do not accept that for one moment, but if I were to deal with it now it would mean going into a great deal of detail which was discussed at great length in the House a couple of months ago on an Opposition Supply Day on the matter of child benefit administration. I refute what the right hon. Gentleman said. Those who may have doubts as to which of us is right can refer to the speeches made in that debate.

With regard to tax credits, the right hon. Gentleman has chided me in the past for referring to the cost of the 1972 Conservative scheme. I accept what he says, that there are now new developments, but certainly the tax threshold for working families is only one of the variables affecting the cost of the scheme. The cost of anything like the Green Paper scheme would be extremely high.

From other statements which have been made, it would seem that the Opposition themselves do not now think that the cost of the kind of scheme they have in mind would be manageable, because their plans include the possibility of introducing it in stages, precisely because of the cost. I shall not quote from "The Right Approach", but it appears that the Opposition are contemplating, albeit in stages, something even more ambitious than the 1972 scheme in the longer term.

There was a Press release from the Conservative Central Office quoting a speech that the right hon. Gentleman made in Norwich on 19th March 1976, in which he admitted that the scheme would cost a lot of money if it were introduced at one fell go. We never anticipated being able to do that. We always saw it coming in stages—first for children, then for people in employment, then pensioners, and so on. The right hon. Gentleman went on to say: I am curently re-examining our proposals to see how best this can be done within the stringent cost constraints, to which I referred earlier. We see no worthwhile prospect of reasonable developments in tax credits. It is one thing to be making plans while in Opposition—there is no objection to that—but quite another to have the responsibility of Government. Tax credit schemes which achieve a real social purpose cost a great deal of money. We are facing a severe economic crisis and are under pressure, particularly from the Opposition, to reduce public expenditure. The Government are taking one worthwhile aspect of tax credits—child benefit —and giving it legislative and practical effect in an orderly and progressive way, taking care to ensure that the transfer from wallet to handbag is sensibly phased.

I hope that I have dealt with all the point raised by right hon. and hon. Members. From the Government side this has been a very constructive and worthwhile debate. Everyone taking part has made an interesting and reasoned contribution, even though we would not all agree with each other. We have been long on analysis but rather short on solutions. That may be inevitable, but all of us need to get our thinking caps on more than we have done in the past in trying to deal not merely with this problem but with the wider problem which the right hon. Gentleman mentioned, which will always be with us in the Welfare State, of the relationship between taxed income and social security benefits.

2.55 p.m.

Mr. Peter Bottomley (Woolwich, West)

I am very glad to hear from the Minister that tax credits are now respectable. If the Government's attitude in March 1974 had been the same, if he had then occupied his present position, and if his right hon. Friend the Member for Blackburn (Mrs. Castle) had not been in office, perhaps we might have got some way out of the poverty trap in the last three years instead of digging a deeper hole.

My hon. Friend the Member for Norfolk, North (Mr. Howell) has clearly demonstrated how the trap has become larger and now affects more people. It is a sufficient condemnation of the present Government to say that no family with children should consider voting Socialist again until the leopard has changed its spots, particularly when that Government had gone into Opposition.

I was interested in the remarks of the hon. Member for Birmingham, Perry Barr (Mr. Rooker) and his hon. Friend the Member for Coventry, South-West (Mrs. Wise), because they are two of the people who voted initially against putting the date of April 1976 on the introduction of child benefits when we told that the matter of high alumina cement at Washington made it impossible to bring them in. They also voted after hearing the advice of their right hon. Friend the Member for Blackburn that child benefits should not be indexed. Since the time when the level of child benefit was announced, inflation has gone roaring ahead and the Government have not been able to do much about it.

I want to look ahead 25 years and see what we can achieve. We should be able to achieve another doubling of the standard of living, as we have done over the past 25 years, but what has happened to the level of child support in the last 25 or 30 years since the introduction of family allowances? In the last 30 years the combined value of family allowances and child tax allowances has remained roughly the same in real terms, yet the standard of living of those who get their income from work has doubled. The cost of raising children has not stood still for the last 20 or 30 years. People looking after dependants, whether ageing or young, have found it far more difficult because of the way we distribute resources in this country.

I have made more detailed speeches on this matter in the past, but I point out that we have a system for distributing national income in this country which totally ignores the interests of those with dependants at home. Even at the present time, when the TUC and the Government and perhaps the CBI are discussing the next round of pay increases, who is speaking for the interests of those with dependants? The answer appears to be nobody.

The Government say that naturally the TUC includes among its affiliated unions many members with family responsibilities. The CBI employs a number of people with family responsibilities. But this does not come into negotiations at the place of work or into national negotiations between the National Union of Mineworkers and the National Coal Board. The Government do not talk about it and the TUC does not mention it, except at the bottom of its agenda of requests for talks with the Government. It never comes out in the final communiqué or in Government legislation.

Without wanting to ape any of the European countries, I believe that Government should take responsibility for getting the views of a slice of the population, many of whom are at work and who have family responsibilities and an interest in what the consequential level of inflation will be if the Government set a pay norm or allow pay increases above the level of increase in production. The interests of those who are to be harmed should be heard in advance.

The hon. Member for Coventry, South-West was talking about how the TUC in 1975 was worried about the poverty trap. What was the TUC doing in 1973 and 1974, when the poverty trap was first talked about in theory, long before it became a matter of fact for so many families? What was it doing when the Chancellor of the Exchequer was raising the tax rate from 30 per cent. to 33 per cent. and then to 35 per cent.? Was it not aware that to increase tax allowances without increasing family allowances was what leads to the poverty trap? Was it not aware that the unintentional increase in taxation caused by the refusal to index or revalorise tax thresholds was the other half of the engine leading to the poverty trap?

The crucial point on this matter was mentioned by my hon. Friend the Member for Norfolk, North. It is that one must have in effect the same level of child benefit for people whether or not they are at work. No one has argued that the level of benefit to those who are out of work is too high. If one compares the cost of a dependent child with that of a dependent adult, one sees that the proportion in this country gives a lower ratio than in most other European countries. I do not think that many would argue that people on supplementary benefit can make a profit out of the money they get for a child.

We must therefore face openly the fact that the universal benefit for children should be raised to the level now obtaining on supplementary benefit. To do that, there must be an open agreement in the country that the resources devoted to benefits for children must be increased. We shall not get that from the present TUC-Government negotia- tions. We shall not get it from either side of the present House of Commons. We therefore have to try to create some kind of family movement in the country which will create political pressures in the trade unions and the political parties which will make this a reality.

The 1919 constitution of the Labour Party means that that party is dominated by the representatives of the person at work. There is no way in which the Labour Party can represent the interests of the family as opposed to the interests of the person at work. This presents, therefore, the biggest reason for those who are politically uncommitted to come into the Conservative Party and to make it reflect the true thinking of Conservatives in promoting the family interest. In that way account would be taken of family responsibilities and the responsibilities of parenthood. When we come into office, perhaps this year or next, we will ensure that we do not increase the poverty trap but instead solve some of the problems which have been created in the last three years.

Mr. Ralph Howell

This has been a most interesting debate. I thank the Under-Secretary, my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) and other hon. Members for having taken part. There has been a degree of unanimity on the subject, and I appreciate the Minister's difficult task in trying to defend the indefensible. We are confronted here with a very difficult situation and we have got ourselves into an appalling mess. One thing that comes through from almost everyone who has spoken is that we must have urgent coordination between the Department responsible for welfare and the Treasury.

Question put and negatived.