§ The Minister for Social Security (Mr. Stanley Orme)
I beg to move,That the Social Security Up-rating Order 1977, a draft of which was laid before this House on 15th June, be approved.
§ Mr. Deputy Speaker(Sir Myer Galpern)
I gather that it may be convenient to the House if we consider the three social security motions together.
§ Mr. Orme
As you have said, Mr. Deputy Speaker, it may be for the convenience of the House if we discussed at the same time the second and third motions, the Child Benefit and Social Security (Fixing and Adjustment of Rates) Amendment Regulations 1977 and the Supplementary Benefits (Determination of Requirements) Regulations 1977, drafts of which were laid before the House on 15th and 20th June respectively.
I must offer my apologies to the House that, owing to industrial difficulties, printed versions of the three instruments and of the accompanying Government Actuary's report, Cmnd. 6848 on the up-rating order, are not available this afternoon, but very clear copies of all four documents have been prepared and I very much hope that right hon. and hon. Members will find those helpful.
The purpose of the first two instruments is to bring into effect in the week commencing 14th November most of the increases in benefits that my right hon. Friend the Secretary of State for Social Services announced to the House in his statement on 25th May. I say "most of the increases" because those for war pensioners are dealt with in separate Prerogative Instruments.
The second instrument, the Child Benefit and Social Security (Fixing and Adjustment of Rates) Amendment Regulations 1977, is complementary to the uprating order and it may be appropriate for me to explain its relevance before going on to deal with the order itself.
Last year's uprating order operated from a date prior to the introduction of child benefit in April 1977. It therefore contained dependency increases for children which did not take account of adjustments consequent on the child benefit scheme. Those adjustments were made 88 by a later set of regulations, which came into effect on 4th April and which reduced by £1 the national insurance benefits payable in respect of first children and by £1.50 the benefits for later children.
In the schedule to the uprating order which is now before the House we have set out the actual rates which it is proposed to pay for children from November onwards. Accordingly, there is no longer a need to impose any further reduction by means of child benefit regulations. The purpose of the regulations now before the House is therefore to discontinue these reductions with effect from 14th November or the first pay day thereafter for the benefit concerned.
Let we now turn to the uprating order itself and the national insurance and industrial injuries benefits which it covers. A list of the principal benefit rates can be found in Appendix 1 to the Government Actuary's report on the uprating order. It might be helpful if I refer to some of the main items.
I must begin with the most significant item in both social and financial terms—the standard rates of retirement pension. The order would raise these from £15.30 to £17.50 for a single pensioner and from £24.50 to £28 for a married couple. These represent increases of 14.4 per cent.
It is proposed that other long-term benefits should rise by corresponding amounts. Thus, for example, the top rate of attendance allowance will rise from £12.20 a week to £14 and the pension payable to a 100 per cent. disabled person under the industrial injuries scheme will go up from £25 to £28.60. In accordance with the recent change in the law which links the level of operation of the earnings rule with the general level of earnings, the amount a person may earn before his pension is reduced will rise in November from £35 to £40.
The standard rate of sickness and unemployment benefit will rise from £12.90 to £14.70 for a single person and from £20.90 to £23.80 for a married couple. These are increases of around 14 per cent. and other short-term benefits will rise by corresponding amounts. The order also provides for an increase in mobility allowance from £5 to £7 a week.
89 The order itself is quite straight forward. Article 1 is formal. The increased rates are provided for by Article 2, together with the schedule. Article 3 provides for the dates from which the various increases in benefits are to take effect in the week beginning 14th November.
In this connection, I ought to explain to the House why the Order Paper still bears, in relation to the order, the intimation that the Joint Committee on Statutory Instruments has not yet completed its consideration of if. This relates entirely to a detailed point on the commencement provisions for short-term benefits in Article 3(2) of the order, and the point is one on which our legal advisers are offering an explanation to the Joint Committee which will, I think, satisfy it that what we have done is in accordance with precedent and is right. Article 4 provides for the increase in the weekly earnings limit for pensioners and some pensioners' wives. Articles 5 and 6 are technical. One updates the Social Security (Pensions) Act 1975 and the other formally revokes last year's uprating order.
The order fulfils my right hon. Friend's statutory duty to raise benefits by the amount he expects to be necessary to match price inflation. But it also meets the repeated undertakings which the Government have given that we shall maintain the value of benefits and improve them whenever possible. Since coming into office in 1974 we have increased social security benefits four times—in July 1974, April 1975, November 1975 and November 1976. This uprating will take effect exactly a year after its predecessor and will be the fifth in just over three and a half years.
Between October 1973, when the Conservative Government last increased benefits, and November 1976, when the current levels of benefit came into force, retirement pensions went up by 97 per cent. In cash terms that has meant a rise from £7.75 to £15.30 a week for a single pensioner and from £12.50 to £24.50 for a married couple. Short-term benefits over the same period rose by 76 per cent. By comparison price inflation was 72 per cent. Thus over that period the purchasing power of pensions and other long-term benefits increased by 15 90 per cent. Any short-term benefits more than held their own.
Let us consider also the relationship between pensions and earnings. In October 1973 the single person's pension was 26 per cent. of the net earnings of a male industrial manual worker. By November 1976 it had risen to 34 per cent. of net pay.
By any comparison, therefore, the Government have stood by their pledges to protect the position of pensioners and other social security beneficiaries during a period of economic difficulty. We are once again acting to protect the poor, the sick and the unemployed. The fight against inflation is far from over, but it is slowly and surely being won. All the indications are there. By November the effects of last year's drought and of the falling exchange rate will have worked themselves through the economy. The improvement in our balance of payments means that we have a stable exchange rate.
I am confident that the rate of inflation will fall by November and that the year-on-year prediction of around 13 per cent., which my right hon. Friend mentioned to the House last month, will prove realistic and will mean that the increases in benefits contained in this order will be more than sufficient to sustain the 1976 values.
I turn now to the draft regulations that provide for increases in the supplementary benefit scale rates laid down in Schedule I to the Supplementary Benefit Act 1976. The increases that we propose are the same as those in the related national insurance increases and will come into force at the same time. We propose that the long-term scale rates, which apply to supplementary pensioners and to people, other than the unemployed, who have received supplementary allowance continuously for two years, should be increased from £15.70 to £17.90 for the single householder and from £24.85 to £28.35 for a married couple. The ordinary scale rates, which apply to the unemployed and to other people who have received a supplementary allowance for less than two years, will be increased to £14.50 for a single householder and to £23.55 for a married couple.
Scale rates for other adults and for children are also being raised. The special rates which apply to the blind will go up 91 by the same cash amounts as the corresponding rates for sighted persons, so that the special preference for the blind will continue. Regulation 2 also ensures that the increases in attendance allowance are passed on to supplementary beneficiaries who need attendance. The standard weekly addition for rent in the case of a claimant who lives as a member of another person's household is to be increased by 25p to £1.45. As a result of these increases, the income of adult non-householders will go up by £2 a week for supplementary pensioners and other long-term recipients and by £1.70 for other non-householders.
I should also like to mention two other changes which, though not provided for by the regulations, are an important element in the uprating. As my right hon. Friend announced on 25th May, the Supplementary Benefits Commission has decided to increase the discretionary additions for extra heating and the standard additions for special diets. These changes will take effect from the week beginning 14th November 1977, at the same time as the increases in the scale rates.
In conclusion let me say a few words about the way in which the increases in contributory benefits will be paid for. More than 12 million people, many of whom are drawing more than one benefit, will receive increases next November from this uprating. However, there is no question of there being any alteration in contributions until April 1978. The contributions which came into force last April made adequate provision for the additional cost of benefits between November 1977 and April 1978.
The increases in benefits embodied in the order will increase the outgo from the National Insurance Fund in a full year by about £1,250 million. Of course, income into the fund will also rise as earnings rise, but the extent to which this will match increased outgo will depend, among other things, on the level of earnings and the level of unemployment in 1978–79. It is too early yet to make firm predictions about these matters.
Indeed, a further complicating factor is the introduction in April 1978 of the new pensions scheme. This will mean one level of contributions rates for the 92 majority of employees, who will then begin to earn an earnings-related addition to their basic pension, and it means a lower contribution rate for employees who are contracted out because they are members of good occupational schemes.
All these factors will be taken into account in the Secretary of State's annual review of contributions in the autumn, when more up-to-date information will be available. The House will have a further report from the Government Actuary showing the effect of the changes already legislated for and of any new proposals arising out of the review. Any new rates of contributions would, of course, be subject to the approval of Parliament.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
Can the right hon. Gentleman say something about the Government's expectation of the number of people likely to be contracted out, and what effect that might have on what has hitherto been thought to be the likely rise in contributions to take account of the effect on the National Insurance Fund?
§ Mr. Orme
As the right hon. Gentleman is aware, the Occupational Pensions Board is dealing with this matter at the moment. I have publicly urged, and do so again, schemes to come forward, because time is running out. I accept that one of the factors in the equation is the problem of incomes, and the Government are fully aware that the negotiations now going on must take account of it. I have often been told that while there are perhaps 12 million people in occupational pension schemes, another 13 million people are not, and their views have to be taken into account. I am sure that the right hon. Gentleman wants to see, as I do, as smooth a turnover as possible—that is certainly the Government's desire. We have no basic information yet that I could give him, because schemes are coming in and are being analysed. I shall certainly keep the House informed as we go along.
I hope that I have said sufficient to show hon. Members what we propose by way of improved benefits for pensioners and other social security beneficiaries this autumn and how we envisage the cost will be met. I have much pleasure in commending the order and both sets of regulations to the House.
§ 5.58 p.m.
§ Mrs. Lynda Chalker (Wallasey)
It is convenient for the House to be able to take these three measures together, because they cover much of the same ground. We are talking about persons who, for reasons of age or disability, or simply because they are individuals hit by the level of unemployment, must be dependent on the State. I strongly echo the welcome given by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) on 25th May to the upratings in benefits. No one in this House on either side is unaware of how greatly the most hard pressed in our society need these increases—the Minister said so himself.
Bearing that in mind, I note with some dismay the absence of the co-proprietors of the Government, the Liberals, whose Bench is once again empty, and also the fact that the Minister, apart from a few faithful followers, is on his own. Yet we are talking about a most important matter. It is a shame that this is always the situation when we face an enormous amount of public expenditure. Other hon. Members do not show as much interest as some of us would wish.
§ Mrs. Chalker
The change of subject matter has only just taken place. I am sure that we shall soon see more of my right hon. and hon. Friends here. They intimated to me earlier that they wished to listen to this debate.
Hard-pressed people in our society may well argue that the need is more immediate than 14th November, and we have previously asked the Minister why uprating takes so long. But in welcoming these measures perhaps I shall be allowed to ask the right hon. Gentleman what progress he sees in speeding up this process. I gather from various parliamentary answers that his Department has been looking into the matter, and it would help all of us if we knew how long it will take the Minister and his staff, with their new computers, to process upratings. It should be possible to reduce the time greatly. In saying that 14th 94 November seems a long way off I echo the view of the potential beneficiaries.
Veterans in social security debates are used to hearing Ministers of both complexions say that they are presenting the fourth or fifth increase and that they have done so much. However, none of us will be bemused into thinking that they have not had to do it under considerable pressure. I can understand why the Minister feels pleased that he has been able to make a little progress here and a little progress there and that he can to some extent, to use his own words, "maintain and improve the benefits" and to carry out his pledge to protect the poor, the sick and the unemployed.
What I am about to say implies no personal antagonism towards the Minister and his Under-Secretary. Both are utterly sincere in this matter. But no increase in benefit of any kind brings anything but temporary and partial relief as long as we go on suffering the present appalling rate of inflation, and there are very worrying indications about it even as late as today. We see in this morning's newspapers that the increase in the price of food is costing the average family 18½ per cent. more per annum. This is the burden everyone faces, but especially those families dependent on benefit, who do not have the same opportunities to shop around or to stock up goods.
We know that food prices rose by 20.2 per cent. in the first three months of this year. This is not a turndown. It is in fact the increased rate of inflation in food prices which affects those families very much.
Today, we have seen an announcement by the OECD. According to The Times,… the OECD experts suggest that inflation will run at 13 per cent. during the second half of 1977 … Gross forecasts show the economy expanding faster than in the last six months, but not fast enough to stop unemployment rising.It is with this in mind that we offer a special welcome to these measures on behalf of those who cannot get jobs and for whom there should be the increase in benefit that is proposed.
We know from all that we have seen that the tough times will continue and continue a good deal longer than the Minister and his friends wish. It is against this background that we must 95 examine the upratings and the welcome improvements for the hardest pressed, but also we must make a critical analysis of the rôle of these benefits alongside the rest of the Government's economic strategy.
I was somewhat relieved when the Prime Minister asked the House in March to regard the financial policy of the Government as a whole. We must do that, because the level of benefit is crucially dependent on what is happening to the rest of the Government's financial policy. The hardest pressed in our society are, increasingly, the families with children. They are the recipients of one benefit or another. Every child now has an entitlement to child benefit. This is a step that has our fullest support. But that benefit is a great deal smaller than any of us would wish. It seems to be smaller for reasons not decided by this House, which is a situation to which right hon. and hon. Members on both sides are very much opposed.
Not only are we crucially aware of the position of families with children, we are also aware of the plight of the disabled, the handicapped and the unemployed, who carry a double burden. They have the double trauma of additional financial pressures as well as that fast-growing burden of family costs.
Over the period of high inflation and in our discussions about social benefits various accusations have been made in this House and outside it against the Opposition Front Bench. I want to put one or two of them in context.
Let me make it clear that there is no intention on the part of the Conservative Party to dismantle the Welfare State. However, there is every determination to bring a lot more sense to the distribution of the resources that we have. There is also every determination eventually to increase the resources so that those who are hardest hit really benefit. They need to be encouraged by incentives to do more for themselves than they are at present.
Then, as my right hon. Friend the Member for Wanstead and Woodford said in a most valuable debate on the poverty trap on 17th June, we need also to make it possible to raise issues of tax and social security together when we are debating legislation. He 96 went on to indicate that we have to arrive at a procedure in this House that allows us to take a sensible look at the combined effects of tax and social welfare benefits. I am aware that those procedural changes have not yet occurred, so although, outside the Chamber we continue to review taxation and benefits together, in this debate I shall restrict my remarks to the benefit half.
My conclusion is exactly that of the right hon. Member for Blackburn (Mrs. Castle). On 30th March she said that the Government were continuing the trend of recent years of financially discriminating against families and that there was no real additional help where there were large numbers of children in the way that she would like. It cannot happen under the present system.
More recently, in our debate 10 days ago, there were streams of examples of the combined problem that families face. Even if they were to get other benefit increases, if they were recipients of an existing benefit or of one of the special allowances, the area where there is no increase is that of child benefit.
The Minister referred to "an adjustment" in child benefit. It is an adjustment to get all the figures in one place in the uprating order. There is no increase in child benefit in the measures that we are discussing today. Yet we know that every household cost is up—clothing, especially for children, shoes, food, heating and school bus fares. I could go on; there is a long list.
I felt a great deal of sympathy for the Under-Secretary when he said in that same debate:We have been struggling for three years with the problems of reducing dependence on means-tested benefit.Those people whose earnings are insufficient, therefore, require to turn to the Government for help. In saying that, the Minister explained why means-tested benefits for the present had to go up and that the dependence on means-tested benefits would continue for some time to come.
Then the hon. Gentleman referred, even more clearly, to the joint problem. He said:We have not been able to afford the cost of eliminating the overlap between tax thresholds and social security benefit levels. 97 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."—[Official Report, 17th June 1977; Vol. 933, c. 804–9.]I would only say that any other step that we take now on the present tramlines on which we are travelling will add to the problems of making people increasingly dependent on benefits. When the whole review—which we hope is going on now—is completed, we hope that it will lead to getting more people off benefits and enabling them to cope for themselves without having to turn to the Government. That means a universal form of benefits and it means that we should not endlessly increase the number of benefits.
We all know that to increase each of these benefits is right in present circumstances, but it is not the long-term answer to the problem of increasing family poverty and increasing dependence on benefits. We must encourage people to do more for themselves. We must look at the priorities put on the money that is available.
I am not in a position to tell the Minister that he should have upped one benefit and not increased another. That is very difficult for Governments and almost impossible for Oppositions. But we have to review the Chancellor's package of £2,250 million against the Secretary of State's draft uprating orders, which the Minister said will cost £1,250 million.
The Government Actuary's report, Cmnd. 6848, informs us that an increase in benefits will cost the National Insurance Fund £466 million this year and £1,234 million in a full year. He expects the National Insurance Fund surplus to fall to £698 million in 1977–78, based on the tragically high figure of 1,350,000 unemployed. It is also based on the assumption that between March 1977 and March 1978 average earnings will have increased by 10 per cent. I hope that the Government Actuary is correct. The National Institute for Economic and Social Research has said in its second quarter review that it believes that a 15 per cent. increase in annual average earn- 98 ings is much more likely. This was reported in The Times on 16th June.
If that latter figure is correct, there will be an increase to the National Insurance Fund but there will be steeper inflation and higher prices and many more groups of people will sink deeper into difficulty in meeting everyday normal costs—not luxuries—but ordinary costs of living for which benefits are designed.
The Government Actuary also says that every 100,000 more unemployed cost the National Insurance Fund £115 million. I am slightly surprised about this. It indicates to me that an increasing number of people will no longer be recipients of long-term unemployment benefit, but will become supplementary benefit recipients. Otherwise, that figure would be a great deal higher.
When the Under-Secretary replies to this debate, I hope that he will tell us how the Government expect the figure of 1,350,000 unemployed will break down. How will it divide among those on unemployment benefit plus earnings-related benefit for the first six months, those on unemployment benefit only, and those on supplementary benefit? How will this be affected when the new upratings take effect?
From the upratings there will be minor relief for the long-term unemployed. But it will be very minor compared with the fact that these people want to work. It is not much solace to give them an extra pound here and there when every one of them is inclined to run up debts for essential costs of living, such as heating. We should not just look to a solution by adding a little here and there but we should seek a real solution to bring that number down. This means looking at the matter in the context of the total management of the economy.
The Government Actuary's assumptions are worrying. In the OECD's background document there is an indication of the continuing likelihood of an increasing number of unemployed, so the costs may be greater than currently estimated.
It comes back to the upratings, where there is an even more worrying situation. On 25th May the Secretary of State said that he was confident of a 13 per 99 cent. inflation rate on a November-to-November basis. Of course this has its effect on the retail price index and the way in which families can or cannot manage on the benefit that they get. The same day my right hon. Friend the Member for Wanstead and Woodford pointed out that in the five months since the last uprating costs had increased by 9p in the pound. He asked the Secretary of State:Is he seriously expecting a rise of only just over 5p in the pound between now and next November?That was a perfectly genuine question to which the right hon. Gentleman replied:… I believe that a figure of 13 per cent. is a realistic forecast…".He continued to adhere solidly to this 13 per cent. estimate throughout all his replies to questions on that statement.
Today's OECD report gives the six months annualised rate of inflation as 17.2 per cent. for the period from January to June and 13 per cent. for the period from July to December. That means that the annual rate of inflation based on May to November 1977 must be over 15 per cent., although the Secretary of State claimed that he stood by his seven months at 5p in the pound, or 13 per cent. I have no inside information about the OECD figures, but all this points to the problem raised by my right hon. Friend on 25th May. The Secretary of State stuck to his 13 per cent., but on the basis of the OECD figures there is no way in which we can possibly anticipate a level of less than 15 per cent.
If this is the case, the right hon. Member for Blackburn was right in her warning to the Secretary of State on 25th May when she said:Is not my right hon. Friend gambling on reductions in the rate of inflation in the next seven months of next year compared with the first five months?"—[Official Report, 25th May, 1977; Vol. 932, c. 1402–4.]She knew and we suspected that this was the problem. If these are the circumstances, the 14 per cent. increase in short-term benefits and the 14.4 per cent. increase in long-term benefits will not meet the law of the Social Security Act 1975. What are the Government to do?
I hope that the Government will tell us what action they propose to take if the upturn of inflation is level with the OECD 100 forecast. OECD forecasts have not often proved wrong in the past, and this one is not what the Secretary of State was hoping for. As a result, will the Government consider returning to the historic calculation of inflation which served them before they avoided the April to November 1975 level in last year's up-rating? If they do that, we must know what is going on. There are a number of dark alleys down which the Secretary of State has been leading us and I hope that the Minister will throw some light on them tonight.
§ Mr. Orme
The Government's forecasts are based on the best possible figures available. Reports come out, one giving one figure and another giving some other. All reports are based on assumptions made about the situation between now and November, and the Government are fully aware of that. I reiterate that the figures given will be met, and if they are not, the Government will deal with the situation.
§ Mrs. Chalker
I am grateful to the Minister for saying that if the situation is not met the Government will cure the situation. The question we wish to ask, bearing in mind the Minister's earlier remarks on how long it takes to get an uprating through, is when this will happen.
There is a further comment I wish to make about the Government's estimates. I have more faith in the OECD figures than I have in the present format, which has existed for the past five years. I hope that the Minister will tell the House how long this process will take. Will it take as long as 20 weeks, or will it be a faster operation? Furthermore, will they return to the historic method of calculation, because this is most important for the future?
It seems ironic that the Civil Service pension increases are still calculated historically on a June-to-June basis, but, because the right hon. Member for Blackburn was forced to change her calculation period for benefit increases, those most in need are left to the vagaries of part historic and part estimated increases. I hope that that anomaly will lead the Minister to think that it would be fairer to ensure that increases are either all historic or all part historic and part estimate regarding future levels 101 of benefit, whether for the Civil Service or anybody else.
The situation is that the law may force this to happen. I gather that the Child Poverty Action Group has been granted leave to appeal in the Metzger case. If that case is won on appeal, what plans have the Government to cope with the situation?
§ Mrs. Chalker
It falls into the same category in that one is unable to calculate the full period in line with the law, and the Government must act. We must have an answer about what the Government intend to do if that case goes against them.
I turn to the question of the 14.4 per cent. increase in pensions. The Minister, as one would expect, made a good deal of this. I know that all pensioners will welcome it, but they will do so only if that money means something to them. I ask the Minister to consider the 10p, 20p and 30p heating additions, and I ask him to consult the Secretary of State for Energy to see that the scheme for next winter is a great deal more applicable than was the electricity discount scheme which came in this year for those on supplementary pension and benefit. That reflected only a 44 per cent. take-up, which was not the level of take-up one expected for those hard-pressed people.
We await the Government's review of all supplementary benefits, which we know is now taking place at all levels of benefit. We welcome the extension of non-contributory invalidity pension and its application to disabled housewives. I was sorry that I could not discuss the matter earlier today because of this debate. There are certain difficulties, and I hope that in the implementation of that benefit we shall have a good all-party approach to ensure that the benefits reach those who are entitled to them.
In the eyes of their local authorities, a large number of disabled persons are not even registered. Many people at present—in some areas probably about 50 per cent. of those entitled—are not receiving the benefits that would help them to cope with the present rampant rate of inflation. We want to see upratings and benefits to help people to become more finan- 102 cially independent in their own homes. We want to see fewer people being forced into local authority care and hospitals because they are unable to cope with life. We want those people to acquire aid and sufficient benefit to keep them out of local authority care. Surely the Government wish to keep people independent in their own homes as long as they can. Therefore, anything in these upratings that assists that aim will be welcomed.
I wish to ask one question on the Statutory Instruments. There is an overlapping benefits rule which will be brought out again when the rates rise in November. Will the Minister examine that rule in so far is it may be a disincentive to widows or anybody else to retrain? I have raised this matter with the Minister for Social Security on other occasions because it has caused a great deal of distress.
If such training were encouraged, fewer people would be benefit-dependent and better benefits could be given to a large proportion of people. At present there is a disincentive for such people to retrain compared with married women who are supported by their husbands.
I turn to the question of the taxation of short-term benefits. This is an issue that has been raised on many occasions by the hon. Member for Islington, South and Finsbury (Mr. Cunningham). The House was told on 28th April that there would be £355 million in extra revenue if all short-term benefits were taxed. I know that on previous occasions the Minister has accepted the need—
§ Mr. Deputy Speaker
Order. I have allowed the hon. Lady a good deal of latitude, as I am sure she appreciates. She is now exceeding that latitude by discussing issues of taxation. The point with which we are concerned in these measures is the adequacy or otherwise of the changes proposed. Therefore, I am afraid that the subject of taxation does not enter into this evening's deliberations.
§ Mrs. Chalker
In no way do I wish to go against your ruling, Mr. Deputy Speaker. I said earlier how difficult this matter was because it is sometimes impossible to discuss benefits without making some reference to taxation.
§ Mr. Deputy Speaker
Order. If hon. Members seek to sweep up everything on these measures, we shall end up by not knowing what we are discusing. The issue before us is quite clear.
§ Mrs. Chalker
May I just ask about the comment made by the Secretary of State on 25th May in answering Questions concerning the social security upratings, which we are now discussing? The right hon. Gentleman said—and this is set out in detail in c. 1409 of Hansard for 25th May—that the short-term benefits in this respect were under review and that the matter was now being considered by the Government. Will the Minister say when we may expect a statement on this matter, because if that amount of additional revenue could be brought forward, it could be used to assist those who are most hard pressed.
We welcome the conference that is to be held on 5th July on social security priorities. That conference will be concerned with these upratings and the priorities will be most important. I hope that the results of that conference, combined with efforts made in the House, will add weight to the sense of wanting to keep families together, whether their recipients are in receipt of child benefit, attendance allowance or whatever it may be. Whatever the outcome of the situation—whether we go by the OECD figures, as I do, or take the Secretary of State's forecast of the problem—the effect of three years of Labour Government has not given good measure for those who are most dependent on benefits. I do not think the Minister would disagree with that.
§ Mrs. Chalker
I am grateful for that intervention, Mr. Deputy Speaker.
One of the things that is worrying us is that people on benefit are becoming increasingly bitter, even allowing for the increases that will take effect in the autumn. One gentleman who wrote to my hon. Friend the Member for Workington (Mr. Page) said that he had to be dependent upon benefit even though he had done his duty, often in long and bitter circumstances. That sentiment can 104 be echoed many times, regardless of the level of uprating because more and more people have become dependent upon benefit.
Throughout the debate on upratings we have come up against the problem that more children could do with help. We heard from the right hon. Member for Blackburn why there is not an uprating in child benefit. We know from a recent survey that it costs 34p a day to feed a child aged between one year and two years, yet the increase in child benefit is only 30p a week.
None of the things happening today will alter the system. The troubles that families are facing stem from the fact that there has been an increased rate of withholding money. There has been no real improvement in benefits to make up for the hardship that families face by not being able to retain a little more of what they earn.
I repeat the words of my right hon. Friend that in this debate we have become thoroughly boxed in, as I was a few moments ago. On 17th June—column 813 of Hansard—my right hon. Friend said exactly the same thing. He said that we cannot possibly discuss this matter if we cannot refer to other aspects of income for a family or for the disabled.
We read in the Sunday Times at the weekend that the Secretary of State wants to raise the family benefit by 50p a week from next April. To do that we might have to wait until the next Finance Bill. Is it to be accompanied by a reduction in child tax allowance, or will help come from some other source?
I have a few questions to put to the Government on that matter, because it concerns the attitude that we take to upratings and the support of children within the family. If the Government are prepared to do something about this level of child benefit, which they are not uprating today, will they accept this net addition to spending that was agreed upstairs in Committee on the Finance Bill, or will they not take 2p off income tax? Will they withdraw the additional £450 million in allowances and replace that by an increased child benefit? The whole criticism of what is going on with benefits and benefit uprating stems from the fact that the Government have done less for the married couple with two children than 105 for the single person and for the married couple without children.
If we can do anything about the situation, it will be through a universal child benefit scheme that will require uprating. We need greater synchronisation of benefits and taxation. We have had some of that. We know that many small additions are now being considered at the same time as local authority benefits, although two years ago they were not.
We find ourselves in the difficulty that for the family that is hardest pressed there is not the help that we wish them to receive. We eagerly await the opportunity to make changes that will lead to a strong economy and to decent benefits for those who are hit daily by the measures of this Government. Despite all their sincere upratings in these measures tonight, we can surely only say that this is the Government of all-time inflation.
§ 6.36 p.m.
§ Mr. William Molloy (Ealing, North) rose—
§ Mr. Tony Newton (Braintree)
On a point of order, Mr. Deputy Speaker. I wonder whether I might seek a little guidance from you on your ruling about the relationship of benefits to taxation. Some of the allowances that we are discussing, including the mobility allowance, are subject to tax. It seems, therefore, that if we are to discuss whether the proposed increase is adequate we must take some account of what the taxation system does to reduce the allowance paid to people.
Similarly, on the question of benefits that are not taxed you suggested that we should discuss whether the increase was big enough or small enough. One wants to compare the situation of the people concerned with that of those who are in work. It seems to me that one cannot discuss these matters without some reference to the effects of the taxation system.
§ Mr. Patrick Jenkin
Further to that point of order, Mr. Deputy Speaker. It cannot be only on this side of the House that some dismay was felt at the narrowness of your ruling. Perhaps I might draw your attention to an exchange that took place during a debate on the Finance Bill on 10th May. I had raised with the Financial Secretary to the Treasury 106 the problem of the impact of taxation on the child benefit and the effect of offsetting the addition of child benefit against social security allowances. The Financial Secretary said:The right hon. Member should…await a debate on social security before bringing these matters forward."—[Official Report, 10th May 1977; Vol. 931, c. 1261.]Now, in a debate on social security matters, when my hon. Friend the Member for Wallasey (Mrs. Chalker) seeks to test the impact of taxation on social security benefits, you rule that she cannot do that as it is a matter of taxation.
§ Mr. Deputy Speaker
I think that the right hon. Member has answered his point of order. I am most grateful to him for the help he has given me. He referred to a debate on social security. Were this such a debate, I should have no objection to the matter referred to by him being raised, but I have yet to hear somebody demonstrate that with these three measures we are having a general debate on social security. A mere reference to taxation would be in order, and I should allow it, but I cannot allow hon. Members to go into the whole question of the basis of taxation and what we should do with taxation.
I must reaffirm that I shall hold to my ruling during my occupancy of the Chair in the debate on these three Statutory Instruments. What we are discussing is the adequacy or otherwise of the upratings provided by the three measures.
§ Mr. Deputy Speaker
Order. I think that when the hon. Lady reads Hansard she will realise that I allowed her to go fairly wide in her speech. My difficulty was brought out in the point raised by the right hon. Member for Wanstead and Woodford (Mr. Jenkin). If I allow the subject of taxation to be raised by one hon. Member, I cannot prevent others from debating the matter further.
§ Mr. Molloy
Thank you, Mr. Deputy Speaker. Had you not made your ruling I might have transgressed, because I should have been tempted to compare the relief paid by way of subsidy and tax relief to company directors who receive in one week what some of these recipients receive in a year—
§ Mr. Deputy Speaker
Order. I know that the hon. Member will not do that. Let us get on with the debate.
§ Mr. Molloy
I shall, of course, Mr. Deputy Speaker, adhere strictly to what I regard as your correct ruling.
I join the hon. Member for Wallasey (Mrs. Chalker) in her general appreciation of the endeavours of my right hon. Friend in introducing these uprating measures and the increased benefits that will flow from them. Having said that, I do not go one step further along the way with the hon. Lady, because what we have to appreciate is that these upratings and increases are necessary because we are in a state of inflation and we have not solved the problem of unemployment.
Regrettably, I am old enough to know that when I was a child Tory Governments did not even consider increasing unemployment benefit as unemployment increased. Instead, they debated how to reduce unemployment benefit when unemployment increased. That was the attitude of the Tory Party. Despite the nice words of the hon. Member for Wallasey and some of her colleagues, there is still a Dr. Jekyll and Mr. Hyde attitude among the Opposition. Today we see Dr. Jekyll being portrayed, but it will not be long before he is banished and the Tories show their true Mr. Hyde attitude.
It is important that the increases in the regulations and order are large enough to try to combat the price increases that fall hardest on the lower paid and the more unfortunate people in our society. My right hon. Friend has endeavoured to achieve this. No matter how much he had increased the benefits, there would still be criticism that they were not high enough. The best answer is to try to abolish unemployment and the need for these benefits.
It is easy when we have virtually full employment and no one on the breadline to debate what to do about the minority who need assistance from the State. It requires guts and courage to do what my right hon. Friend has done at this time of enormous problems. He had to fight very hard for these benefits, and I congratulate him on his courage on achieving increases across a wide range of benefits.
108 I had difficulty believing my ears when I heard the hon. Member for Wallasey talking about price increases. One would not believe that we had a record sitting last week because the Government wanted to help keep prices down by a form of control and the Opposition attacked us for the whole of one day, all through the night and right through the following day for doing so. It is a little nauseating to see Opposition Members leaping to their feet, with their eyes blazing with insincerity, to blame us for price increases.
It is, of course, far better for people to be employed than to be receiving benefits. I am with the hon. Member for Wallasey 100 per cent. about that. But we must look at the firms, one of which has been causing an enormous uproar recently, which pay wages at a disgusting rate so that people are better off receiving benefits than they are working for some of the rotten bosses who impose this sort of wages and conditions on working people. It is better to get people off the dole and off benefits, but we must remember that these instruments would not be necessary if some employers paid proper wages.
The hon. Member for Wallasey referred to the OECD Report. Half the people in my constituency are eagerly awaiting the next OECD Report so that they, like the hon. Lady, can examine it in great detail. The other half of my constituents read other reports in order to make their comparisons.
We are trying to combat inflation and unemployment. Food and other prices in many European countries, including France, Germany and Belgium, are far higher than they are here. We have managed to hold prices to a degree, but the upratings are necessary in order to maintain the balance.
I also agreed with the hon. Member for Wallasey when she spoke about the need to alter the system. Of course, what she means by "the system" and what I mean may be different. I should like to abolish—
§ Mr. Deputy Speaker
Order. The system that I have to try to enforce includes the Standing Orders of the House. The subject that the hon. Gentleman is now discussing does not come within the ambit of these measures.
§ Mr. Molloy
The thought would never have entered my mind but for a submission by the hon. Member for Wallasey. She spoke about the need to alter the system and said that the regulations would not be necessary if we did so. The hon. Lady gave her idea of the system and said that many people had given their lives to an industry or a calling—
§ Mr. Deputy Speaker
Order. We are not discussing the whole social security system. There are three measures under discussion and, according to the Standing Orders of the House, hon. Members must say that they approve or disapprove of the upratings.
§ Mr. Molloy
I approve of the upratings and, like the hon. Member for Wallasey, I should like to see a system in which there was no need for them. I should like to see the abolition of the system under which we have to ask Ministers, irrespective of party, to bring in such measures to sustain and help those in need while the system also allows some people to receive golden handshakes that would keep the recipients of benefits for the rest of their lives. Perhaps one day we shall achieve that. In the meantime, I congratulate my right hon. Friend on trying to maintain a decent standard for those who will benefit from the upratings.
§ 6.48 p.m.
§ Mr. Robert Boscawen (Wells)
There is no doubt that these upratings are desperately needed, and I welcome the extent to which the Government are obeying the law in uprating the pensions annually; but I go no further than that.
I give no great praise for the system under which we make vast changes in social security benefits by way of affirmative resolutions in one and a half or two hours. These measures will in due course levy very large sums in contributions from working people in order to transfer similar sums to those whose needs are greater.
As I said last year, it is high time that we considered going back to the system of the Government having to come to the House with a Bill for upratings, so that the subject could be dealt with in detail, the various benefits could be set out and compared, the rigidities in them could be altered from time to time and we could ensure that the Government would be 110 using contributors' money in the areas where, at varying times in the development of our economy, benefits are most needed. We need a proper Bill that we can discuss in detail in Committee. I hope that my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) will pay attention to that need when he comes into office, as he will.
We should examine the social security system and look at each benefit again in Committee to see whether each is doing the job that it should be doing. For example, some of the grants have not been uprated for many years. We need to ask what good they are doing. What good do the maternity benefit and death grant do, and to whom? It is time that we went through the system, because we have not done so since 1974.
The retail price index is of growing importance to the level of all benefits. The RPI has become the arbiter of the rate of increase of all the benefits. We must ask whether it reflects the true needs of the needy, the old or the disabled. The RPI in fact reflects the requirements of everybody, whether in work or not. It is time to reconsider it. Today we learned that the increase in food prices over the past 12 months has been about 20 per cent. Expenditure on food takes up a large part of a retired person's pension. We should be discussing whether we have the arbiter of these levels of benefits right.
Under the Social Security Act 1975 the Secretary of State is allowed to choose the index or method of bringing the pension up to the level of price increases in the previous 12 months. He has a right to choose the RPI or other machinery. We should examine that now, because certain items such as food, bus fares and other means of transport have increased in price considerably faster than the general level of prices.
We have heard constantly from the Government since they came to office that they have done pretty well with pension upratings in terms of their real value. The Secretary of State claimed when he announced this uprating that the present Government had more than doubled the rates of pension. If he was talking about the rates in cash terms, that is meaningless because we now have confetti money. If he was talking about 111 percentages, he must look at it more carefully. The exceptional increase of July 1974, which was about 30 per cent. above the previous level of pension, was no doubt made possible through the advent of earnings-related contributions which had just come in and which were first paid in April 1975. Since that exceptional increase of July 1974 the record of the present Government has not been conspicuously good.
In the three years since the July 1974 uprating to May 1977 pension levels went up by 53 per cent. During the same period prices went up by 66 per cent. Beneficiaries have been falling back from the gains that they achieved in July 1974. Of course, in November the benefit levels will be bumped up by 14½ per cent., but by then prices will have risen again. Even if the Chancellor's most optimistic figure of only a 13 per cent. rise in the RPI from the end of 1976 to the end of 1977 were to be achieved, the November uprating would represent a total rise of 75 per cent. in benefits compared to an increase of 77 per cent. in prices since July 1974. Since that date, therefore, there has been little improvement in the level of pensions, other than that which was necessary to keep pace with the cost of living. There is no room for complacency.
The level of a married person's pension is about one-third of the national average wage. That is a low level for the basic State pension, and there has been no improvement in it in the last three years. It is no wonder that we are now seeing other concessions in both cash and kind from other agencies.
For example, many urban and metropolitan areas provide concessionary bus fares for retired people. They are available indiscriminately in some areas, but they are not available to people who live in other areas. That is not satisfactory. These concessions occur because local authorities feel strongly that pensioners do not receive sufficient cash in their pockets, and they try to supplement the cash by aid in other ways. Basically it is done because the general level of the basic pension is not high enough. The electricity boards give concessions to pensioners for their winter heating bills. That arises because the basic pension is not sufficient in these difficult times for 112 people in certain parts of the country to live a satisfactory life and be able to keep themselves warm. But the concession does not go to everyone in need.
Neither the Government nor my party has any room for complacency about the general level of pensions. It is true that a new earnings-related system is being introduced next year to try to bridge the gap between the basic pension and the average national wage, but that will not help for a long time and will not help much those on low levels because of the slow build-up in the rate of benefit for this second pension.
It is time to say that we are not doing at all well by our pensioners. It is true that since July 1974 they have more or less kept pace with the level of inflation, but only just; but their increases come in fits and starts, and pensioners fall back substantially in the intervening months, particularly at this time of the year and during August, September and October, when their pensions have fallen behind the level of inflation.
Apart from the increase in July 1974, which was about 28 per cent. above the previous rate and was largely based on the fact that we had moved to an earnings-related system of contributions, I do not think that we are doing very satisfactorily by our 9 million or 10 million pensioners, many of whom have little more than their basic State pension. I see no reason for anyone to congratulate the Government on anything, save that they are carrying out the minimum requirement of law as laid down in the Social Security Act 1975.
§ 7.1 p.m.
§ Mr. Graham Page (Crosby)
On the Order Paper, underneath the motion that we are debating, there appears the statementThe Joint Committee on Statutory Instruments have not yet completed their consideration of the Instrument.I always think that this wording sounds rather like a reflection on the Committee, of which I have the honour to be Chairman. I would rather have it stated that someone has seen fit to put down an order for debate before the Committee has had time to consider it—and in this case before it has had time to obtain the memorandum for which it asked the 113 Department, explaining a certain part of the order about which the Committee had doubt as to the vires.
I shall tell the House the point on which the Committee had doubts, and I hope that I shall receive from the Minister the answer for which the Committee asked the Department. This order is made under Section 124 of the Social Security Act 1975, which gives the Secretary of State power to increase any of the sums set out by reference in that section. If in any part of an order of this kind there is a decrease in those sums, I submit that the order is ultra vires.
Article 2 of the order makes increases permitted by Section 124 of the Act, and in Article 3, which sets out when the increases will occur, in paragraph (l)(a) it is stated that for retirement pensions and others the increases will start on 14th November 1977. Under Section 14(6) of the Act it would follow from that that certain other benefits also should be increased at the same time. For example, those who go on working after they reach the age at which they are entitled to the retirement pension are entitled to unemployment and sickness benefits at a rate equal to the retirement pension. That is set out clearly in Section 14(6) of the Act. Therefore, if the retirement pension were increased, those benefits would follow unless the Act were altered.
By Article 3(2) of the order the Secretary of State purports to alter Section 14(6) of the Act. The order states that unemployment and sickness benefits shall not—as the Act says they shall—follow the retirement pension for a period of three days, from 14th November to 17th November 1977. There is, therefore, a reduction for a short period in what a person entitled to unemployment and sickness benefits would be entitled to under the Act.
It may be said that this is a small matter of only three days. If, however, one recognises that the Secretary of State has power by this order to alter the 1975 Act in order that a person entitled to benefit shall not receive that benefit for three days, one must also recognise his power to reduce the benefit not just for three days but for longer periods, perhaps for as long as 12 months, involving quite 114 large sums. That was why the Joint Committee on Statutory Instruments asked the Department for a memorandum justifying, if it could, the apparent power of the Secretary of State to reduce the benefit.
As it appears in the order, it is a small matter. It may be a matter of administrative convenience that the unemployment and sickness benefits should not increase for those three days. I do not know the reason for this, or why the dates vary, but it seems to me that there is no power under Section 124 of the 1975 Act to alter Section 14(6) of the Act, or Section 15(4), to which the same argument applies.
I am sorry that the order has been brought on for debate before the Department could provide the memorandum to the Joint Committee and before the Committee could report to the House on whether after studying the memorandum, it thought that the order was ultra vires. It is very unfortunate when orders are brought on for debate in this way, before the Joint Committee on Statutory Instruments, which is charged by the House to see whether orders are being made in accordance with the parent statute, can report whether the instrument is or is not ultra vires.
§ 7.7 p.m.
§ Mr. Tony Newton (Braintree)
I wish to raise only a few points and put some questions to the Minister. Some of these points follow remarks that my hon. Friends have made. I should like to press the Minister on a matter raised with great effect by my hon. Friend the Member for Wallasey (Mrs. Chalker) relating to the inflation forecasts on which these upratings are said to be based.
The Minister for Social Security has stated several times in the House, as he stated when the uprating was announced, that the Government's view was that inflation would be at around only 13 per cent. In response to Questions both then and this afternoon from my hon. Friends suggesting that no one else in the country believed this forecast, even if he did, he said "That is what the OECD thinks, that is what the National Institute thinks, and that is what the Opposition think, but we think that it will be 13 per cent. and we are sure we are right". This afternoon he went a little further and said that if by some remote chance, against all the weight of evidence, the 115 Government turned out to be wrong, then—I hope I quote his words exactly—"the Government will deal with it." That is all very fine and splendid. It sounds dynamic, determined and guaranteed to instil confidence in his listeners, but what does it mean?
We are long past the date, on the Government's own statements, for making any adjustment to benefits in November. It takes anything up to six months or so to make any adjustment at all. We also know that these adjustments are normally made in November and that there has been strong resistance to the idea of having them twice a year. We are being told that if the Government are wrong and practically everyone else is right about the inflation forecasts this will become clear in November, by which time retired people and others will already have suffered from the extra inflation At that point, since the Minister says that the Government will deal with it, this presumably means that 12 months after that something may be done in the following uprating.
In short, if 13 per cent. turns out to be as optimistic a forecast as nearly everybody else in the country, apart from the Minister for Social Security, thinks, our retired people will be cheated for the second year running, and it will be, perhaps, over 12 months before anything can be done about it. The Minister looks perturbed now that I have spoken of cheating. I would not want to debate that matter, because it is really last year's orders. I am referring to what I have always regarded, along with many other hon. Members, as the fiddle which occurred last year.
§ Mr. Patrick Jenkin
Is it not a little ironic that the self-same right hon. Lady, the right hon. Member for Blackburn (Mrs. Castle), who described the Government as now taking a gamble on the inflation rate should have been the Secretary of State who introduced the fiddle last year?
§ Mr. Newton
The present Secretary of State is probably a deeply embarrassed man. It was probably a measure of the Government's embarrassment that the uprating was announced some weeks after it would normally have been announced and after some agonising nights spent by 116 the Minister for Social Security with Treasury Ministers deciding how on earth they would deal with it at all.
My first point is, then, what does the Minister mean when he says that if the forecasts are wrong he will deal with it? What does it mean in terms of dates and actual action which will be taken?
Secondly, to come to a slightly delicate point, Mr. Deputy Speaker, the ruling of your predecessor in the Chair this evening on the question of discussing taxation means, if I have it right, that it is possible to refer to tax matters in relation to their effect on some of these increases but not to debate the tax system in general. I hope that I shall manage to stay within that somewhat difficult guideline.
§ The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins)
On a point of order, Mr. Deputy Speaker. I would not wish in my winding up for the Government to trespass beyond the ruling given by your predecessor in the Chair this evening. It was clear to me, if not to the hon. Member for Braintree (Mr. Newton), that any discussion of taxation on these orders was not in order.
§ Mr. Newton
Further to that point of order, Mr. Deputy Speaker. Before you rule on that I would like it to be firmly recorded that, although your predecessor resisted any discussion in general on the taxation system, my recollection is that he did accept that one could hardly discuss benefits which were taxable without looking at the effects of taxation upon them, and equally that, in comparing the effects of non-taxable benefits with what is available to those in work, one must necessarily refer to the lax system.
§ Mr. Deputy Speaker (Mr. Bryant Godman Irvine)
I suspect that what my predecessor in the Chair was saying was that anything relevant to the increases would be relevant to the debate. If taxation can be related closely to this argument, that is in order.
§ Mr. Newton
I am extremely grateful to you, Mr. Deputy Speaker. You still give us a difficult tightrope along which to walk. I hope that I shall stay at least precariously perched upon it.
I would ask the Minister—this is relevant to our overall judgment on the 117 uprating—how much of the gross cost is expected to be taken back in tax, on the benefits that are taxable. In particular, how much of the proposed increase in the mobility allowance from £5 to £7 per week will be removed from the recipients in increased income tax?
This considerably affects one's judgment on whether the increase in the mobility allowance is adequate. In my view, £7 a week is in any case plainly inadequate if it is remotely to replace the invalid trikes which it is supposed to be replacing for some recipients. Many of those recipients, if they have invalid trikes, will have been using them to go to work, so that they will have other earnings apart from the mobility allowances. That means that any increase in the mobility allowance will be subject to a deduction of at least 35 per cent.—the current basic rate of tax—and the increase of £2 will be worth only £1.30. That is even more inadequate, if I may put it like that, than £2, and makes it even more understandable how much concern there is still about the level of the mobility allowance.
It is relevant to know how many people who are in receipt of mobility allowance are expected to lose 70p in tax out of the increase, and, of the total increase in the mobility allowance, how much is expected to be clawed back in this way.
Before departing from the mobility allowance I would like to make one further request to the Minister arising out of the fact that the effects of this taxable situation may be particularly severe for a number of groups, including, in particular, married women who receive the mobility allowance and whose mobility allowance is not taxed as their own earned income, as the Minister will know. It is taxed as their husband's earned income. That means that it will be taxed at the husband's full marginal rate, which could in some circumstances be quite high. It could mean that the grant of a mobility allowance to a married woman in her own right—not on her husband's insurance—could be virtually nullified by the tax system.
I ought to tell the Minister, if he is not already aware of it, that this is a matter which we discussed in the Finance Bill Standing Committee last week, when there was a tied vote on an amendment 118 of mine. His colleagues in the Treasury have undertaken again to look at this point. It is a very serious point, and I hope that we may hear from the Minister that he will support efforts to remedy an injustice to reduce the effectiveness of the mobility allowance for some of those to whom the increase proposed in the orders is designed to bring benefit.
Thirdly, I come to the question of retired people and widows. This is, perhaps, a little bit of a hobbyhorse of mine, for which I make no apology. The tax position and the social security position taken together mean that many single women and widows between the ages of 60 and 65 would have been taxed on this pension increase. I think I am right in saying that that is what would have happened to their basic national Insurance pension, even if they had had no other income, on the basis of the Budget proposals originally introduced by the Chancellor. That certainly was a fear on both sides of the House. The Standing Committee has raised the tax allowance, which may have obviated the problem in this year, but I would be grateful, however, if the Minister could tell us how many such women would have been taxed on the basic national insurance pension had the original Budget proposals gone through along with this uprating, and what the situation will be now if the changes made in the Standing Committee are allowed to stand.
At the same time, on the subject of retired people generally, will the Minister answer a question which he was unable to answer when I raised it at the time of the statement? How much of the increase in pensions as a whole will be clawed back through the tax system? Last year it appeared that over £100 million would be taken back from pensioners and widows by the operation of the tax system, out of a total increase of around £1,000 million. I would like to know what the comparable figures are this year.
Apart from that, I would like to make the point that very large numbers of retired people who happen to have a little bit of extra income from another pension or their own savings, over and above the national insurance pension increased in the orders, will receive very little benefit from the proposed increase, because the 119 tax system will take most of it away from them. That situation is becoming steadily worse.
The Government have not altered the ceiling on the age allowance in the tax system. Anyone who has a total income of some £3,250 a year, which is well below the level of average earnings now, may easily be losing 45 per cent. or 50 per cent. of the increase in pensions which is proposed in these orders. That is plain wrong. It takes no account of the financial pressures on those people. It is calculated to discourage people from saving and looking ahead to their retirement with occupational pension schemes and other savings. It is high time the Government took another look at the whole matter.
I come now to the question of the poverty trap and the disincentive to work, which are, admittedly, slightly separate issues which it would not be proper to debate now in broad terms. Here again, we come to an area in which the tax system is critical in judging the proposals before us. No hon. Member on either side of the House would say that the increases in short-term benefits in the orders are excessive, looked at on their own. No one could say that the income for someone who is unemployed or sick will make him particularly well off. Many of us would find it very difficult to live on the benefits.
Therefore, the issue is not whether the benefits are large enough in absolute terms but what they do to the position as between those in work and those cut of work. We are entitled to a word from the Minister on that. It is my clear impression that the inflation-proofed increases proposed in the order are bound to bring about in the autumn a further narrowing of the gap between what people can received while working and what they can receive when they are not working. That is an increasingly serious problem. It worries many of the Minister's hon. Friends, and it was debated in the Standing Committee considering the Finance Bill last week. I hope that the Minister will read what was said then by his hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham).
I have spoken of the contrast between what some people can get when they are 120 in or out of work, so that some people are better off out of work, especially where they may be out of work for one part of the year once they have consumed all their tax allowances on their earned income. If the Minister agrees with that worry, which is now generally accepted on both sides of the House, what action can we look forward to, so that next year we do not again have to debate such orders in a policy vacuum?
The Minister and his ministerial colleagues in the Department and in the Treasury all agree that short-term benefits should be taxable. We on this side of the House agree. Practically everyone agrees that they should be taxable and that such orders as we are debating make little sense in terms of their effects on the structure as a whole unless they are taxable, but every proposal to make them taxable and to make sense of such orders is resisted, and the Government come forward with no positive proposals or plans of their own. That is not good enough. We cannot go on debating these orders in this way, year after year, without a further sign of Government action to resolve the fundamental problems that underlie the whole discussion we have had tonight.
§ 7.23 p.m.
§ Mr. Terence Higgins (Worthing)
I very much agree with many of the points that my hon Friend the Member for Braintree (Mr. Newton) has just made. I want merely to elaborate on one aspect of what he said and to ask the Minister a set of specific questions.
I share my hon. Friend's concern that the Government's forecasts of inflation will probably prove wrong and that this will have a serious effect on those whom the increases in the measures are designed to help. I believe that the increases are inadequate to help those living on fixed incomes. Over the years there has been a tendency for Governments to say "We shall uprate the benefits in line with inflation" and totally to disregard the position of those who are not living solely on those benefits but who have some savings or pensions. The real value of those savings and pensions has steadily declined, with a resulting steady decline in the real standard of living of those concerned. Their absolute and relative standard of living is constantly drifting further and further down. In discussing the 121 measures we must have that very much in mind. The answer can come only from some other specific proposal or from the taxation system, as my hon. Friend said.
Many of the problems that we now face stem from the present Government's determination not to go ahead with the tax credit scheme devised by the previous Conservative Government, on which we should have legislated had we been returned to power in 1974.
My specific questions relate to what are now described in the jargon, I understand, as category D retired pensioners. We are told that the lower rate for them is to rise from £5.60 to £6.30, while the upper rate is to rise from £9.20 to £10.50. The people in that category are those who were covered by what was known at the time as the over-80 pension arrangements. I introduced a Private Member's Bill on the matter, and it was the first matter on which the Conservative Government legislated on coming to office in 1970. The principle was that we believed that those who were excluded from the original National Insurance Scheme should be given a pension as of right and a part pension related to the extent to which the existing pension at that time had not been covered by contributions.
Successive Governments have failed to give this group—people who must now be 85 or 90, and very small in number—the same absolute increase as the normal national insurance pensioner has received. I see no justification for that. Although I am strongly of the view that these increases are absolutely necessary, they have not been covered by the contributions of those who are already retired. I recently had an answer to a Question to that effect.
The increase in the normal national insurance pension has not been covered by the contributions of those already retired who are to receive it, nor has it been covered by the contributions of those receiving the part pension in category D. If neither group has contributed towards the increase, I cannot understand how in logic it can be that the non-contributory people are not as entitled to that increase as those who are within the contributory scheme but who have not contributed to the increase.
122 I should be grateful for an explanation why this group—the category D pensioners, who have suffered more than anyone from the effects of inflation and are not in a position to argue the case for themselves—should not receive the full increase rather than only the proportionate increase. I do not believe that there has been any discussion of the matter in any of the ministerial speeches. I hope that we shall not hear from the Minister the old hackneyed argument that it is a contributory scheme. That is not relevant in this context, for the reasons I have given.
I do not wish to pursue the point at length. Compared with some of the issues affected by these measures it is simple and straightforward, but I shall be grateful for a reply because the Minister has, no doubt, given the matter considerable thought. I believe that the Government have reached the wrong decision.
§ 7.28 p.m.
§ The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins)
There seems to have been a general welcome for these measures, though a number of criticisms have been made and questions have been asked. I shall do my best to deal with the criticisms and questions.
The hon. Member for Wallasey (Mrs. Chalker), who opened for the Opposition, asked first about progress in speeding up the paying out of benefits. The difficulty is not with a computer. It is not even a difficulty of national insurance benefits. It is mainly a difficulty on the supplementary benefits side. All the supplementary benefit recipients must have their amounts, requirements and resources calculated individually. It is not an operation that could ever be put on to a computer. That is the key factor in determining the length of period. The 20 weeks are needed basically on the supplementary benefits side. Perhaps I may use the simple analogy that the speed of a convoy is dictated by the speed of the slowest ship—in this case the longest period needed to uprate a major part of the social security benefits.
The hon. Lady asked about uprating of child benefits. Child benefit will be increased from April of next year with the second stage of the phasing out of 123 child tax allowances and the transfer of financial support to child benefit. Whether any money will be available for an increase in addition to the transfer from child tax allowances will depend on the economic situation. Each additional 1p on the rate of child benefit would cost £6 million.
I cannot say when the new rate of benefit will be announced, although my Department needs to know that rate by the autumn for operational reasons. It is those reasons which would make it extremely difficult and expensive to up-rate child benefit this November—in particular the need to overstamp millions of order books already issued which include payments for November, and the need to recover supplementary benefit and other benefit order books in order to reduce them to take account of the new rate of benefit.
§ Mrs. Chalker
Does this not underline what we have said repeatedly, that the two matters of child benefit level and supplementary benefit level are so interlocked that we should look at the possibilities of units of payment being introduced? In that way, the unit could be changed in the post office rather than the books having constantly to be recalled and reissued. Does the Minister agree that this problem will bedevil the whole of the child benefit system for evermore unless we get it straight now?
§ Mr. Deakins
I think that the difficulties in doing what the hon. Lady is suggesting are rather greater than she makes allowance for. She might like to put down a Question, or perhaps I shall write to her about it. There are considerable operational difficulties. We have to safeguard public funds, and we have been under a certain amount of criticism or public surveillance about the measures taken to reduce the incidence of fraud. Any new system to achieve what the hon. Lady and many of us would wish to see would have to be at least as fraudproof as the present system but not involve any greater administrative complexity. However, I shall drop her a line about that because, quite frankly, there is a lot that could go wrong in a system which departed from the present administrative arrangements.
124 The hon. Lady asked how the figure of 1.35 million unemployed, which was assumed by the Government Actuary in his report, was made up. She asked for a detailed breakdown by benefit category, but without notice I am unable to provide that information. However, I shall write to her as soon as possible and give her such information as I can.
I should like to correct one point that the hon. Lady made—I believe it was a misunderstanding on her part. She referred to the cost of the increase being £1,250 million. The figure of £1,250 million mentioned by my right hon. Friend relates to outgoings from the National Insurance Fund. The total cost of all the benefits, not all of which come out of the National Insurance Fund, is £1,409.5 million in a full year.
The hon. Lady, supported by the hon. Member for Braintree (Mr. Newton), went on to criticise our inflation or price increase forecast. In order to estimate the likely increase in prices between last November and next, the Secretary of State weighed the evidence open to him and took the view that inflation of around 13 per cent. was likely during that 12-month period. Although this is lower than the latest available figure of year-on-year inflation—17.1 per cent. in the year up to May 1977—all the indications still are that the rate of inflation will fall in the autumn to the anticipated level. The increases proposed in this order are of nearly 14½ per cent. for long-term benefits and 14 per cent. for short-term benefits. These will be sufficient not merely to maintain their November 1976 value but to give a small improvement in real terms.
I might be asked what would happen if prices were higher in November than had been forecast. We should have to face that situation when it arose. By November the effects of last year's drought and the falling exchange rate will have worked themselves through. The turnabout in the balance of payments indicates that we have a stable exchange rate. The money supply is firmly under control. There are other good signs, not the least of which is that the retail price index rose by 0.8 per cent. in May over April compared with 2.6 per cent. in April over March. I am confident that inflation will fall by November and that the year-on-year forecast of 125 13 per cent. that my right hon. Friend mentioned in the House last month will prove a realistic one. Our record demonstrates our commitment to protect the position of pensioners. We have said that we shall look at the situation again were unforeseen circumstances to arise, and that I undertake we shall do.
§ Mrs. Chalker
I am grateful to the Minister for saying that he will look at this matter again should the unforeseen circumstances arise—and we hope that they do not. If they arise and the Minister has to take this back, when will the make-up percentage be able to be brought forward? What he has said already seems to indicate that it will take another 20 weeks for the situation to be dealt with.
§ Mr. Deakins
I can understand the keenness of the hon. Lady and of the hon. Member for Braintree in wanting to know what the Government would do in this hypothetical situation. However, I cannot commit us to any particular way of dealing with the situation should it arise. It is hypothetical at this stage even though, on the evidence of the first five months, it seems to the outside world that the rate will be higher than the 13 per cent. which the Chancellor and my right hon. Friend are confidently forecasting.
The basis of calculation to which the hon. Lady referred—that is the change from the historic to the forecasting method—is one which, I know, has exercised the minds of many right hon. and hon. Members on both sides of the House. But in deciding over what period increases in prices should be taken into account for the purposes of uprating, my right hon. Friend has followed last year's precedent in considering their likely movement between the date the current rates came into force and the date when they will be superseded. This means, on the present occasion, the year between November 1976 and November 1977.
The legality of this forecasting method was recently challenged in the High Court, but the judgment given in March confirmed that the forecasting method complied with the provisions of the 1975 Act. I know that this matter has gone to appeal and, therefore, I would not wish to trespass any further on the likely outcome.
126 The hon. Lady also referred to fuel costs. In so far as fuel customers are receiving social security benefits, the increased pensions and supplementary benefit rates which we are debating, taken together with the increased heating additions decided on by the Supplementary Benefits Commission for supplementary beneficiaries who have extra heating needs, should be adequate to meet any increase in the cost of living—of which heating forms only a part—up to November next. More generally, the matter of the fuel prices and their impact on the poor consumer, bearing in mind the electricity discount scheme, is primarily a matter for my right hon. Friend the Secretary of State for Energy. However, my Department is closely involved in the current consideration of these issues.
The hon. Member for Wells (Mr. Boscawen) criticised us for taking a base figure in the middle of 1974 after the initial uprating of social security benefits by a very large amount by the Government when they first came to power as a minority Government in July 1974. I think that the Government are entitled to look at their record as a whole and to be judged on it as such. We are not complacent, but we are proud that at a time of the most serious economic crisis that this country has faced since the 1930s we have protected the poor, the sick, the unemployed and the pensioners.
We have been asked whether we expect the new rate to keep pace with inflation. The answer is quite clearly "Yes", for the reasons I have given. Since we took office we have increased the single rate of pension introduced by the Conservatives in October 1973 by 97 per cent. in money terms. By November this year the increase will be 125.8 per cent. Between October 1973 and May 1977—the latest month for which figures are available to us—prices increased by 88 per cent. Therefore, allowing for the rise in prices between May and November this year, there is still an adequate margin—an increase in real terms—which I find most satisfactory.
The hon. Gentleman seemed to be implying that he wanted us to spend more on certain social security benefits, and I would not wish to gainsay that as desirable. However, since the hon. Gentleman is a member of the Conservative Party, which does not want public 127 expenditure increased but wants it cut quite drastically, I suspect that he would pay for his increased benefits in some areas perhaps by cutting them out in others.
Indeed, I was a little alarmed to hear the reference to the death grant, to the fact that it has not been increased for a long time and that it does not seem to be serving very much purpose. In view of what the hon. Member for Wallasey said earlier about looking again at the whole system, I hope that the Conservative Party in Opposition will not come out with a suggestion at the next General Election that the death grant, for example, should be abolished altogether. That would be electorally and socially undesirable. Although the grant has not been increased for some time, it plays some part in assuring older people that there will be some contribution towards their funeral expenses, apart from what the Supplementary Benefits Commission can do for beneficiaries.
I turn to the point raised by the right hon. Member for Crosby (Mr. Page) and say at once that no discourtesy whatever was intended by my Department towards his Committee. We have a very great respect for it. The reasons why we are debating these measures today rather than next week are not for me. Since I was away for four days last week, I do not know why we are debating them today rather than any other day of this or next week. It is a matter for my right hon. Friend the Leader of the House.
An explanation is on its way to the Committee on this point. I have a draft of the letter with me but I think it would perhaps be inappropriate to read it out. I should be happy to do so if pressed. I could not possibly read out extracts, because it is a series of technical, detailed and involved legal points which, I am sure, will be appreciated by the right hon. Gentleman although not, perhaps by other hon. Members.
I say to the right hon. Gentleman generally on this point, because some explanation is due since he has raised the matter, that we are not in these measures proposing any different procedure or method of operation from that which was in the uprating order of last year or the uprating order in the previous year. In- 128 deed, I am told that the general point about having different starting dates within the week is something which, in principle, has been accepted by all Governments since the early 1950s. The Department is therefore entitled to assume that what was correct last year is correct this year, even though the Committee—and it is entirely up to the Committee—may have changed its mind. I trust that the explanation will satisfy the Committee.
§ Mr. Graham Page
The Minister will appreciate the difficulty that if, when the Committee receives the memorandum from the Department, it comes to the conclusion that the Secretary of State has acted outside his powers, the House will already have approved this draft order. This is most unfortunate because the Committee would be doing its duty, as charged by the House, in reporting that it considers the action to be ultra vires. If it is to report that finding after the order has been approved, the whole point of the Committee sitting at all is null and void.
§ Mr. Deakins
I take the right hon. Gentleman's point. It is rather unfortunate. All I can say at this stage is that my Department is confident that it will be able to satisfy the right hon. Gentlemen and members of his Committee, and its advisers, that what we have done is in accordance with precedent. I trust that we shall be able to satisfy the Committee that we have not trespassed in any way nor acted ultra vires.
The hon. Member for Braintree asked a number of questions about taxation. I regret to have to say to him—I have debated these matters with him on a number of occasions—that these are primarily matters for my right hon. Friend the Chancellor of the Exchequer. I would not wish to trespass on my right hon. Friend's territory. The hon. Gentleman asked about mobility allowances, for example, and wanted my Department, through me, to support representations which, I understand, are being made to my right hon. Friend. I can say that I shall look at the point the hon. Gentleman has made. I have not been a party to what has been going on in the proceedings in Committee on the Finance Bill. I shall look at this to see whether there is any need for my Department to take appropriate action.
129 The hon. Gentleman raised the more important point dealing with income when at work and out of work. The question is whether the unemployed are treated too favourably as compared with the working population in what we are proposing. For some years there has been a differential between the flat rate of pension and that for short-term benefits. The flat rate payable to the unemployed is about five-sixths of the standard pension rate, and this relative difference is preserved in the uprating. To increase the gap by raising unemployment and sickness benefit by less than the estimated rise in prices would not merely be contrary to my right hon. Friend's legal duties; it would mean cutting the living standards of some of the poorest families in our society. In comparing the level of unemployment benefit and supplementary allowance with the living standards of low earners—we had a long debate on this just over 10 days ago—it has to be remembered that low earners will in general have benefited from a pay rise under phase 2, that family income supplement is being raised next month and again in November, and that the poor working families have acccess to rent and rate rebates and certain other means-tested benefits. Further, the tax concessions in the Budget have meant a rise in take-home pay.
That does not dispose of the problem but at least it indicates that we are aware of it. Whether there can be any longer-term solution is not for me to say in this debate. The hon. Gentleman knows that we have given this matter a thorough airing on other occasions in the House recently.
I am well aware of the point made by the hon. Member for Worthing (Mr. Higgins) on category D pensions. These are uprated in accordance with a provision in the Social Security Act, I think Section 39. In calling for additional increases, the hon. Gentleman is calling for more public expenditure. While, as a member of the Government, I am not opposed in principle: to that, although I find it surprising coming from a member of the Opposition, we have nevertheless to determine priorities and we feel that in this uprating order we have maintained the sort of balance in uprating the different social security benefits—there are 130 several pages of them—in a way that best preserves social justice and equality between the poor, the sick, the unemployed and pensioners.
§ Mr. Higgins
I take the broad point about public expenditure, but I do not think that anyone on either side of the House will argue that we should not, none the less, make increases which are equitable and just and that we should not create anomalies. It seems clear that this is an anomaly for the reason I mentioned—namely, that those to whom the normal pension increase is being given have not contributed to that increase any more than the people in category D have contributed. To give a higher absolute amount to one group rather than the other cannot be logically justified. I am sure that the Minister would not wish, on public expenditure grounds, to perpetuate that type of anomaly. I hope that we shall not have the old chestnut about its being a contributory scheme and so on, because that is totally irrelevant in this context. I hope that the Minister will be able to look at this again, because the numbers must be absolutely trivial. To suggest that it is relevant to public expenditure in relation to the management of the economy would be too silly for words.
§ Mr. Deakins
I take the hon. Gentleman's point. He is perfectly entitled to put forward an argument for a particular section of the community, albeit a very narrow one. I have not made any point about this pension being lower than is necessary because it is non-contributory rather than contributory. I do not rest my case on that. If the hon. Gentleman looks at Part III of Schedule 1 to the main uprating order, he will see that there are a number of other non-contributory periodical benefits. They are being uprated by varying amounts, and they include these category D pensioners. If we were to say that there was a case for looking again at category D, it might be argued that there was a case for looking at something else—for example, attendance allowance, invalid care allowance, age addition or guardian's allowance, all of which affect small sections of the community. We have to be guided by and large not only by legislation, which affects some of these non-contributory benefits, 131 but by the general financial and economic situation.
I do not think that on behalf of the Government I can see my way clear to saying that we would look again at category D pensions without looking again at the whole of non-contributory periodical benefits. We would then have to try to determine priorities for increased expenditure as between them. I regret that I do not believe that I can satisfy the hon. Gentleman on that point.
The cost of the uprating will be about £1½ billion in a full year. We believe that it will maintain the value of the November 1976 level of pensions and other benefits. Pensions were then worth 15 per cent. more than those that we inherited from our predecessors. No increase in contributions will be needed before next April, when the contribution structure will need in any event to take account of the coming into force of the new earnings-related pensions scheme. Proposals will be put before the House next winter for the contribution levels to operate from next year. In the meantime the House is invited to approve the order, which will set a pension level 75 per cent. higher than the level that the Government first brought forward in 1974.
§ Question put and agreed to.
That the Social Security Up-rating Order 1977, a draft of which was laid before this House on 15th June, be approved.
That the Child Benefit and Social Security (Fixing and Adjustment of Rates) Amendment Regulations 1977, a draft of which was laid before this House on 15th June, be approved.—[Mr. Orme.]
That the Supplementary Benefits (Determination of Requirements) Regulations 1977, a draft of which was laid before this House on 20th June, be approved.—[Mr. Orme.]