Social Security (Contributions) Bill

HC Deb 08 December 1980 vol 995 cc625-708

Order for Second Reading read.

3.31 pm

The Secretary of State for Social Services (Mr. Patrick Jenkin)

I beg to move, that the Bill be now read a Second time.

The Bill gives effect to the decisions on national insurance contributions and the Treasury supplement to the national insurance fund that were announced by my right hon. and learned Friend the Chancellor of the Exchequer in his statement on Monday 24 November and in the details of national insurance given in a written reply by myself on Tuesday 25 November.

The Bill is accompanied by the usual money resolution and a Ways and Means resolution. The latter is required to authorise clause 1(1) and clause 3 of the Bill. Clause 1(1) creates additional income for the Consolidated Fund by raising the earnings limit for class 1 contributions, thus increasing the yield on the national insurance surcharge. Clause 3 increases the National Health Service allocations from national insurance contributions and thus creates additional income for the Consolidated Fund.

As the House knows, in the ordinary course of events changes in the rates of national insurance contributions and the regular annual increases in the upper and lower earnings levels, which have to be fixed each year, are normally made by statutory instrument. This year, because the Government have decided to make a number of changes that cannot be achieved by order, a Bill is necessary. The opportunity has been taken to include all the changes in the Bill, including those that could have been made by order.

Last Thursday, the Leader of the Opposition, who has just left his place, complained that it was unsatisfactory that proceedings on the Bill should be dealt with on the time scale outlined by my right hon. Friend the Chancellor of the Duchy of Lancaster. I, too, regret the necessity for this, but necessity is the word. I should point out, as my right hon. Friend the Chancellor of the Duchy of Lancaster did on Thursday, that it hardly lies in the mouth of the Leader of the Opposition to complain about this. He it was, after all, who made precisely the same arrangements for the Bill introduced by the previous Labour Government that first imposed the national insurance surcharge on employers. We are following exactly that precedent.

I am sure that the right hon. Member for Salford, West (Mr. Orme) will recognise that the reason why the Bill has to become law before the end of January is that it is necessary for my Department to send out to employers details of the arrangements, including tables, in time, so that the new rates of contribution can become operative from 6 April.

Mr. David Ennals (Norwich, North)

Bearing in mind the right hon. Gentleman's justification for introducing the Bill, will he tell us whether he supported the measure that was introduced by the previous Labour Government? Did he not oppose it then? What is his justification now?

Mr. Jenkin

I opposed the surcharge but accepted the necessity for the timetable. It was only the timetable that I was talking about.

We have in the Bill a number of changes that go beyond the scope of the usual orders. There is the increase of ¼ per cent. in the contribution from employees to the National Health Service; the ½ per cent. from employees, to raise around £½ billion to go into the national insurance fund; and the reduction in the Treasury supplement to the national insurance fund, which is paid from the Consolidated Fund on behalf of the general taxpayer. None of these changes could have been made by order, hence we have the Bill.

As my right hon. Friend the Chancellor explained in his statement, these changes are part of the Government's overall economic strategy to restrain the growth of the public sector borrowing requirement. If the Government borrow too much, the effect must be to keep interest rates too high and so to add to the difficulties of the private sector at a time of world recession. The Chancellor told the House about the cuts in public spending of £1 billion, which the Cabinet have agreed for next year. The changes in the Bill to raise extra revenue will reduce the PSBR next year by a further £1.5 billion.

That reduction will be achieved by increased contributions. The main effect of the changes in benefits on the PSBR will not he felt until the next contributions review. This, I think, meets the point raised by the Social Services Select Committee in its third report.

The reason why the Government have decided to put most of the additional contribution burden on employees is that the combination of a high exchange rate and high interest rates works to the disadvantage of the corporate sector and, on balance, to the advantage of the personal sector. High exchange rates, while squeezing corporate profits, reduce the cost of imports, including food.. High interest rates press a good deal more hardly on corporate borrowers than on personal borrowers, whose debt tends to decrease in real value year by year.

The Government are very well aware of the strains on manufacturing industry during a period of structural change, and felt that this was not the right moment at which to impose on industry extra burdens in the form of higher national insurance rates. I stress the word "rates". Of course, as the right hon. Member for Salford, West—and particularly the right hon. Member for Leeds, East (Mr. Healey)—must have known, employers must expect to pay their share of the normal increase in national insurance contributions due to the increases in the upper and lower income levels.

That happened every year under legislation passed when the Labour Government were in power. I find it inconceivable that either the right hon. Member for Leeds, East or the right hon. Member for Salford, West could ever have imagined that, somehow, what my right hon. and learned Friend the Chancellor of the Exchequer meant in his statement was that the absolute level of employers' contributions would remain unchanged. [Interruption.] If ever there were a bogus row, that was it.

I must now turn to the Bill. It might be for the convenience of the House if I were to deal first with the extra National Health Service contributions, to be found in clause 3, and then to deal with the points about the Treasury supplement, in clause 2. Finally, I shall cover the total effect on contributions, including the effect on employers'.

Clause 3 increases the National Health Service allocation from employees' class 1 contributions from 0.4 per cent. of earnings to 0.65 per cent. The employers' contribution to the National Health Service will remain unchanged at 0.6 per cent. of earnings. The rates for other classes of contributor also go up by corresponding amounts.

The effect of these changes is to raise about £250 million in the next full year, the whole of which will go to the National Health Service. It will bring the proportion of the cost of the National Health Service met by contributions from about 8.3 per cent. in the current year to about 10 per cent. next year. The increase for the man on average earnings is about 32p per week—or about the price of half a pint of beer.

At the last election my party gave a commitment to maintain the gross spending plans of the National Health Service in line with the projections of our predecessors, as set out in their 1979 White Paper on public expenditure. Last year, as the House knows, the cash limit squeeze and the raising of VAT led to a reduction in real terms of about £170 million in health authorities' revenue spending. Against that must be set the sum of £360 million, which the Government provided to finance pay increases awarded by Clegg and the review body, and for which the Labour Party had made no provision whatsoever. This year we made good that shortfall of £170 million and added a further ½ per cent. real growth to spending by health authorities. Next year's spending on the Health Service provides for a growth of about 1.7 per cent. in real terms, bringing the planned spending in 1981–82 to about £8.2 billion in England, or to £9.9 billion in Great Britain.

The House will remember that in the White Paper on public expenditure, issued last March, we indicated that part of this growth in spending for 1981–82 would be financed by increased charges, mainly on road accidents and on sight testing. In the event, the House indicated its great dislike of charges for sight testing, and it has so far proved impracticable—as the right hon. Member for Norwich, North (Mr. Ennals) found when he attempted to go down the same road—to devise a satisfactory scheme for recovering more of the costs incurred by the Health Service from road accidents.

Accordingly, next year we would have started about £100 million short of the spending foreshadowed in the White Paper of last March. In addition, the Treasury, faced with the need to find further economies in public spending, naturally looked for some help from the third biggest spending programme. Nevertheless, the Department has to cope with the increasing requirements posed by the rising number of elderly persons and by demands for improved services. Those hon. Members who listened to Friday's debate on the maternity services and on perinatal mortality know what those demands can involve. In addition, the Department has to cope with the effects of advancing medical technology. Therefore, the Government decided that cuts in the National Health Service on the scale that would have been necessary were unacceptable. Accordingly, apart from a smal saving on account of increased efficiency, the Government decided that the growth in spending on the National Health Service should continue as planned.

Therefore, we were faced with a choice between a reduction in services—which would inevitably fall on the sick, the old, the handicapped and others in need of health care and treatment—and asking those in work to pay a bit more by way of National Health Service contributions. In our view it was better to raise the contributions. Faced with the same choice, the House and the country would have made the same decision. Last Friday, every speaker from the Opposition Benches demanded that I should spend more money on supporting better maternity services. I look for their 100 per cent. support for clause 3.

It is not as though there is anything sacrosanct in the proportion of NHS spending that is financed by contributions. I am sure that all hon. Members will agree that there is a popular misconception to the effect that the Health Service is paid for entirely by contributions that are deducted from pay. Of course, Mr. Speaker, you and I know that that is not right. Most of those contributions—formerly known as "the stamp"—go on paying for pensions and other benefits. Only a small part goes on paying for the National Health Service. Since the inception of the NHS a small proportion of the contribution has gone to finance it.

In the 1950s about 10 per cent. of the cost of the service was financed in this way. During the 1960s the figure rose to over 17 per cent. In the 1970s it fluctuated between about 5½ per cent. and 9½ per cent. As I said, the effect of the change contained in the Bill will be to raise the figure to about 10 per cent.

Clause 3(3) gives power to vary the rate of NHS contributions both for employers and employees. The existing power is linked unnecessarily to changes in the rates of national insurance contributions both for I hope that the House will agree that it seems sensible to break that link and to enable the House to amend the rate of the NHS contributions separately and independently from the amount necessary to finance cash benefits. Although I seek to take this power, I must make it clear that no decisions have been taken about the rate of NHS contribution for the years after 1981–82. However, the House will know that I and my hon. Friend the Minister for Health have repeatedly said that it is our belief that people will be ready to pay more by way of a specific contribution for health than thay are prepared to pay through general taxation. They know that the money paid will go to maintain or improve the Health Service. I repeat; no decisions of any kind have been taken for the years after 1981–82.

Clause 2 reduces the Treasury supplement from the figure of 18 per cent. of contribution income—at which it has stood for five years — to 14½ per cent. The Treasury supplement, sometimes called the Exchequer contribution, has been made since the national insurance scheme was set up in 1948. The amount of the supplement has varied over the years in order to take account of changes in the social security scheme and the state of the national insurance fund. When the scheme started in 1948 the total of Treasury payments as a percentage of flat-rate contributions was just under 33 per cent., and rose to about 35 per cent. in 1950–51. In the early years of the scheme full benefits were paid to many whose contribution record fell far short of the amount necessary today to qualify for a full pension.

Therefore, in those years it was entirely proper that the general body of taxpayers should make a substantial contribution to the fund. During the 1950s and 1960s the Treasury supplement fluctuated from less than 15 per cent. to nearly 25 per cent., but from about the middle of the 1960s it was relatively stable, at between about 17 per cent. and 20 per cent. For the past five years, under the Social Security Act 1975, it has stood at 18 per cent.

Although the rate of the supplement to the fund has thus remained stable since 1975, support for social security from the general taxpayer has grown considerably in real terms over those five years. In particular, the big increases in supplementary benefit and the new contributory benefits have put extra burdens on the Consolidated Fund. In 1975–76, the Treasury supplement amounted to £2,162 million, while expenditure or, non-contributory benefits, excluding family allowances and child benefit, amounted to a further £3,051 million, making a total of £5,213 million. Those figures are all at constant prices. During the current year, 1980–81, the Treasury supplement has risen to £2,820 million and expenditure on non-contributory benefits has risen to £3,851 million, making a total of £6,671 million to be found by the taxpayer.

In five years, £5,213 million has become £6,671 million at constant prices. That is an increase of 27 per cent. in real terms in the taxpayers' contribution. During the same period, total contributions paid by employers and employees and other contributors to the national insurance fund have grown by only 7.8 per cent. in real terms.

Mr. Ennals

Does the right hon. Gentleman accept that the new figures proposed in the Bill will take the taxpayers' share to the lowest proportion since the creation of the national insurance fund?

Mr. Jenkin

No. With great respect, if the right hon. Gentleman had been following my arguement he would know that it is quite unreal to take the taxpayer's contribution to the fund as separate from what the taxpayer contributes by way of non-contributory benefits as a whole—things which are charged directly on the Consolidated Fund.

As I said, the total amount of taxpayers' support for social security has risen 27 per cent. in five years, while the total amount raised by contributions to the fund has risen by only 7.8 per cent. That is a particularly striking contrast.

Given that disparity, and given the urgent need to reduce pressure on the public sector borrowing requirement, we have concluded that the time has come to place greater emphasis on direct contributions. For the reasons which I have already explained, this year that means direct contributions from employees. Accordingly, we are increasing the contribution for employees by 1 per cent. of earnings, raising the rate from 6.75 per cent. to 7.75 per cent. As I said, one-quarter of this is for the NHS, one-quarter is the usual amount needed to cover increased benefits, and the rest will go to the national insurance fund to reduce the amount paid by the general taxpayer.

The Treasury supplement was originally paid in order to avoid flat-rate contributions bearing excessively on the low-paid. Today, contributions are almost all earnings-related. Accordingly, it seems right that the Government should take power to adjust the balance between contributors to the fund—including, in this case, the Treasury—in the light of economic circumstances. It is obviously undesirable to have to resort each year to primary legislation to make changes of this sort. Therefore, of clause 2(2) gives power to vary the rate of supplement by up to 2 per cent. in either direction in a future tax year.

Perhaps I may end this part of my speech by saying—here I come to the point raised by the right hon. Member for Norwich, North—that even after the reduction of £529 million made by clause 2 in the amount of the supplement, it will still be about 9 per cent. higher in real terms than it was in 1975–76. [Interruption.] It will be 9 per cent. higher in real terms. The right hon. Member for Norwich, North must not ignore that. I hope that the House will agree that at this time this is a sensible step for us to be taking.

Clause 1 provides for the increased rate of contribution of employees, including married women, and of the self-employed. The clause also increases the lower and upper earnings limits. I gave the details in a written answer that appeared in Hansard on 25 November and in the Government Actuary's report on the financial provisions of the Bill. As always, that report is a mine of information. about the effect of the contribution increases on different categories of contributor and on the effect on the national insurance fund. I often think that a number of hon. Members are not aware of just how much information can be gained from the Government Actuary's report.

The impact of the increase on employees will mean that for a man with weekly earnings of £100 the increase will be £1 per week; for a man on average weekly earnings of about £130 a week the increase will be £1.30; and for a man on £200 a week the increase will be £2. These are for people who pay the full rate. The rates for contracted-out employees between' the lower and upper earnings limits will go up from 4.25 per cent. to 5.25 per cent. Of course, no one will welcome paying more, but the fact of the matter is that benefits have to be paid for and it is those in work who have to pay for them by their contributions.

Mr. Ennals

The right hon. Gentleman is cutting the benefits.

Mr. Jenkin

The contributions pay able by women who have opted out of the full rate will go up from 2 per cent. to 2.75 per cent.

In response to the right hon. Gentleman's intervention from a sedentary position, perhaps I may say that if we had not taken steps to limit the growth in benefit payments in the social security scheme, contributions would have had to be even higher.

Mr. Ennals

Is it now true that, on the one hand, the right hon. Gentleman is increasing the contributions to the national insurance fund and, on the other, in other legislation he is reducing the entitlement to receive benefit from the fund? Is not he undermining the whole principle of the insurance scheme, which is written into the national insurance fund?

Mr. Jenkin

On the contrary, by raising the proportion of funding of the national insurance fund that comes from contributors we are strengthening the contributory principle.

Married women and widows who have opted-out of the full payment will pay the increased NHS contribution. They also contribute to the cost of the national insurance scheme, from which they benefit. The increases for them are a little higher, proportionately. The reason for that is that in 1975 the reduced rate for opted-out married women was set at 2 per cent., while the standard rate of contribution for employees was 5.5 per cent. That 2 per cent. figure has remained unchanged in the last five years, while the standard rate has risen to 6.75 per cent., and under the Bill it will rise to 7.75 per cent. In these circumstances it seemed to us to be right this year to go some way towards restoring the original differential.

Married women who have opted for the lower rate of contribution are still getting a very good bargain, and the value of the option will have increased marginally.

Some anxiety has been expressed about the impact of the Bill on the self-employed. No doubt this is something that we shall wish to explore in detail in Committee. At this stage I make only two points. These increases in no way prejudice the review that we launched in October of self-employed benefits and contributions—a review that we had promised in our election manifesto. We undertook then — and we are engaged in it now with the self-employed — an examination of their comparative contributions and benefits in relation to those of the employed population as a whole. The present increases in the Bill are no more than is necessary to maintain the same relationship between the self-employed and employed contributors as has existed for some years past.

The other point is that these higher self-employed contributions will be taken fully into account in our studies. They will in no way prejudice the outcome of that investigation.

I come to the effect of the Bill on employers. Employers' contributions are affected in three ways.

Mr. David Stoddart (Swindon)

The right hon. Gentleman has omitted to say what the figures for employees' contributions would actually mean for contracted-out contributors. He read the figures for those contracted in, but he did not say what the figures would mean on a weekly basis for those contracted out.

Mr. Jenkin

I gave the figures. If I could look back through my notes I might be able to find them. Perhaps the hon. Gentleman will be able to read them in Hansard.

I was coming to the effect of the Bill on employers. Employers' contributions are affected in three ways. First, they obviously rise automatically when wages rise. Secondly, they rise with the regular increase in the upper earnings limit. That happens every year. Thirdly, they can, of course, rise if the employer's rate of contribution rises. This year we have not increased the employer's rate. It stays unchanged at 10.2 per cent.

Mr. Andrew F. Bennett (Stockport, North)

Why did the Government choose to take the highest point rather than the mid-point?

Mr. Jenkin

I appreciate that intervention. That is an argument that the House will want to explore. I shall explain the reasons.

The Government Actuary has estimated that during 1981–82, on the assumptions that he was given about earnings and so on, an extra £394 million in contributions would be paid by employers even if we left the earnings limits unchanged, and left the rates unchanged. That is nearly £400 million simply from the normal impact of inflation. But it goes further than that. The Social Security Act, passed under our predecessors, requires me to review for each tax year the lower and upper earning limits. The lower limit must approximate to the basic pension of a single person and the upper limit has to be between six and a half and seven and a half times that rate.

These limits were part of the bargain struck between the national insurance scheme and occupational pension schemes. Those figures could not be changed without a drastic revision of the assumptions on which that bargain was based. The reasons why the limits have to be changed regularly are, first, to safeguard the value of contribution incomes against inflation and to prevent the national insurance fund going into deficit, and, secondly, to prevent the value of earnings-related pensions declining in real terms. The increase in contributions from employers from the change in the earnings limits in 1981–82 is estimated by the Government Actuary at £282 million.

Quite separately from all this, there is the effect of the national insurance surcharge imposed by the Labour Government. My right hon. and learned Friend the Chancellor felt that in present circumstances it would not be wise to reduce the rate of the surcharge. This means that rising wages and the higher earnings limit will increase automatically the revenue from the surcharge by £295 million. All these figures and a number of others have been published in a Treasury press release, which is available in the Library of the House.

The increase for employers is an inevitable consequence of the operation of the national insurance system. If I may say so, hon. Members who were Ministers in the Labour Government must know this. I know, too, that many of my hon. Friends were anxious that the Government should do what they could to shield employers from increased contributions at the present time, and this we have done. The increase that it is estimated they will pay in money terms is 8.3 per cent., which is significantly below the anticipated rate of inflation. The contributions will therefore represent a reduction in the burden on employers in real terms.

I turn to the question raised by the hon. Member for Stockport, North (Mr. Bennett) of the upper earnings limit, which the Bill fixes at £200 per week. The question that has been asked is whether it needs to be as high as that at the upper end of the bracket.

Should it not be either in the middle of the bracket, at £190 per week, or, as the right hon. Member for Leeds, East suggested the other day, at the bottom of the bracket, at £177 per week? If it were set at the bottom of the bracket, at six and a half times the basic pension level, the deficit on the fund next year would have been about £237 million. If the limit had been set at £190 per week there would still have been a deficit, though reduced to £64 million. Setting the upper earnings limit at £200 per week, at the top of the bracket, will produce, as is made clear in the Government Actuary's report, an estimated surplus of just £39 million. I am sure that the hon. Member for Stockport, North, with his great expertise, will recognise that that is a tiny proportion of the total outgo and must therefore be within the margins of error.

Mr. Andrew F. Bennett

Surely choosing a place on the scale is a matter of Government intentions. If the Government had said that they were deliberately making life harder for employers they could justify the top point. But the Government claimed to be doing all that they could to protect employers. If they were, they should have picked the middle point, as is custom and practice, or have gone for the lower point.

Mr. Jenkin

If we had gone for the middle point and accepted an estimated deficit of £64 million, one way of dealing with that would have been to put up the employees' contribution still further, perhaps by a further 0.1 per cent., from ¼ percent. to just over that, or we could have trimmed benefits further. I doubt whether the hon. Gentleman would have liked that. Given the figures this year, given the rising numbers of unemployed—and unemployment benefit conies straight out of the fund—in order to keep the fund in surplus, even by the very modest figure of £39 million, we needed both an extra ¼ per cent. on he employees' contributions and an upper earnings limit of £200.

Some Labour Members have argued that the upper earnings limit should be abolished altogether. I could not possibly advise the House to adopt that course. The upper earnings limit is a ceiling not only for contributions but for earnings-related pensions and the guaranteed minimum pension provided by contracted-out pension schemes. Removing it for contributions, and so breaking the link with pensions, would undermine the basis of the partnership with the private sector, which was so painfully but, in the end, successfully worked out by my right hon. and learned Friend the Chancellor—then the Opposition spokesman—and the late Brian O'Malley. It is not a course that I could commend to the House.

The Bill is essential because it makes a significant contribution to containing the size of the public sector borrowing requirement next year, and that, in turn, is crucial to the Government's economic strategy. The Bill recognises the pressures on industry and seeks to keep to a minimum the additional burden on firms. At a time when incomes have risen sharply and public expenditure is having to be cut, the Bill makes a significant contribution to the funding of the national insurance scheme and a significant add lion to the financing of the National Health Service.

The Bill is therefore essential to the Government's overall economic and social strategy, and I commend it to the House.

4.6 pm.

Mr. Stanley Orme (Salford, West)

The Bill has three major effects. It increases employers' and employees' contributions, it decreases the Treasury element, and it increases the contributory element in National Health Service funding. Those three aspects must be dealt with in relation to each other because, as the Secretary of State pointed our. they are interrelated in that they represent an entire philosophy, part of which, tragically, has already been seen in the reduction in benefits that has occurred.

Before dealing with those three main issues, I wish to make it plain that the Labour Opposition greatly resent the manner in which the Bill is being rushed through Parliament. Later this week the Committee stage will be taken on the Floor of the House, late into the night. It is my view that a Bill of this kind, not least some of the detailed points that the Government Actuary has raised and which we wish to raise in Committee, should be dealt with in a Standing Committee, particularly as the Bill was not even mentioned in the Queen's Speech—an indication of panic measures being taken by the Government. That comes through very clearly

I turn first to the effect on employers. Here we must return to the manner in which the announcement was made. The total package, including national insurance surcharge, means that employers will have to pay an extra £971 million in national insurance contributions in a full year. If the Secretary of State did not know this, the Chancellor of the Exchequer should have known. If he knew, clearly he was too afraid of the effect that the announcement would have, not least upon the CBI. The Secretary of State said that we had gone over these words before, but surely there is nothing clearer than what the Chancellor said in his economic statement: Having regard, however, to the financial pressures on industry and the way in which the employer's share has grown in recent years, employers' contribution rates—including the surcharge — will remain uchanged." —[Official Report, 24 November 1980; Vol. 994. c. 316.]

The right hon. and learned Gentleman had a responsibility to tell the House that £973 million was to be claimed back from the employers.

Mr. Patrick Jenkin

The right hon. Gentleman held office in my Department. He must know perfectly well that there is a clear distinction between the rates of contribution and the percentages—my right hon. and learned Friend the Chancellor had been talking about the percentage increases for employees—and the total burden. If the right hon. Gentleman is really trying to maintain the pretence that despite his knowledge and his years in the Department, he did not know about that, and neither did his right hon. Friend the Member for Leeds, East, (Mr. Healey) he cannot expect to get away with that.

Mr. Orme

I think that the Chief Secretary was more honest outside the House in acknowledging that, in effect, the Cabinet was not aware of it. Perhaps the Secretary of State will say why he had to make that urgent visit to No. 10 Downing Street to clear up this matter. Let us have the facts on the table. In fact, the Government found that because of existing legislation £973 million would be claimed back from employers due to inflation this year. The Government have not come clean on this issue.

Mr. Jenkin

I am sorry to interrupt the right hon. Gentleman again, but he really must not bang on about this. If the Government had wanted to keep something dark, would I have disclosed it all in a parliamentary answer the very next day? The right hon. Gentleman recognises, as my right hon. and learned Friend the Chancellor of the Exchequer indicated, that a statement would be made in the House in the usual way by a written answer.

Mr. Orme

The Secretary of State had no alternative. He had to answer the parliamentary question.

Mr. A. W. Stallard ((St. Pancras, North)

It was a written question.

Mr. Orme

And, as my hon. Friend says, it was a written question. But perhaps the Secretary of State will say why he went in such haste to No. 10. Why did not the Chancellor of the Exchequer make a statement in the House clarifying the position instead of trying to brazen it out? The facts are on the table for all to see, and I make no apology for returning to the subject today.

Mr. Ennals

Is it not also clear that not only did the House not know—and perhaps right hon. and hon. Members are a little more sophisticated about what these terms mean—but the CBI did not know, that individual firms did not know, that the press did not know and that the country did not know, and that the Secretary of State had to answer the question simply because the Chancellor of the Exchequer refused to give the information?

Mr. Jenkin rose—

Mr. Orme

I ask the right hon. Gentleman to wait a moment. I will give way to him presently, of course. I endorse what my right hon. Friend the Member for Norwich, North (Mr. Ennals) said. He has made the position quite clear. However, if the Secretary of State wishes to answer my right hon. Friend, I am happy to give way to him.

Mr. Jenkin

The right hon. Member for Norwich, North (Mr. Ennals) knows, because he adopted the procedure himself, as did the right hon. Member for Salford, West (Mr. Orme), that the upper earnings limit on contributions is announced every year by means of a written answer. It so happens that that written answer came the day after the statment by my right hon. and learned Friend the Chancellor of the Exchequer. There is no question of anyone having to rush forward with information. That has always been the plan. It was done in the ordinary way, exactly as it had been done in previous years.

Mr. Orme

It would have been unbelievable for a Labour Chancellor of the Exchequer to make that statement without giving the facts to the House. I can imagine what the reaction of a Conservative Opposition would have been if he had done otherwise. They would have pulled the place down. The way in which the Secretary of State has tried to argue his way out of this only confirms that the Government have misled the country on this issue. We have a right to raise the matter in the House.

At a time of recession compounded by destructive domestic economic policies, this additional burden on employers could be insupportable. The argument is sharper for the reason that, whereas previous Governments have increased the upper earnings limit by about 7 per cent., this Government have squeezed as much as possible out of employers by raising the limit to the legal maximum of 7½ per cent. It is no wonder that the Government did not want to tell employers both pieces of news.

I ask the House to contrast this with the attitude of the Conservative Party when in Opposition, when employers were confronted with increased contributions. I could quote ad nauseam previous speeches by Conservative spokesmen, not least by the Secretary of State, when the surcharge was put on originally. Incidentally, after all their talk, this Government have undertaken to remove the surcharge since coming to office.

Linked with this is the position of the self-employed. I notice that the Secretary of State slipped round this aspect very easily and said that we could discuss it in Committee. But the self-employed also face increased contributions, and their case has always been courted assiduously by the present Government, not least when they were in Opposition. But that is no longer the case. The self-employed now have to face the consequences.

These proposals reduce incentives to employ people, especially part-time women workers, and therefore they have a further depressive effect on the labour market.

I come to the effect on employees. Here the arguments should be judged against the decision to reduce the Treasury element. In the past, rising contributions have been matched with increasing benefits and a stable Treasury element. The Secretary of State underlined that there was a stable Treasury element and had been since 1975. Both rules have now been broken. The principle of contribution is cynically devalued and benefits have been reduced. It is painful to repeat them. Unemployment benefit, sickness benefit, invalidity benefit, industrial injuries benefit and earnings-related benefit are all affected, and all these benefits are being reduced at a time when they are more necessary than ever.

Those who earn least are now being asked to pay more for the privilege of reduced taxation. This brings the contributory principle into disrepute and, as I said, significantly, this is accomplished 'by a decrease in the Treasury element, which was fixed at 18 per cent. in 1975.

I ask the House to consider what it means. Contributions are payable on the whole of a person's earnings, from the first £1 up to the ceiling. Those with very small earnings are exempted. But the vast majority of earners, even low earners, are above the exemption limit and pay on the whole of their earnings. Income tax, on the other hand, is payable only on income above the tax threshold.

Contributions are payable only on earnings up to the ceiling, which at present is £165 a week and which under the Bill will go up to £200. Income tax has no such ceiling and is progressive. Higher incomes are taxed at higher rates. Contributions are payable only on earned income. Income tax is paid on unearned income, too. Higher employers' contributions mean higher prices in the shops, which hit the poorer sections of the community hardest.

These are facts which cannot be refuted. These are the results of this Bill passing into law. I think that the House will take full note of the consequences. We may not have a very full House, but we are dealing with a very important Bill affecting millions of our constituents.

Mr. Stallard

I should like to hear my right hon. Friend's comment on the fact that although the upper limit has been raised by 22 per cent., which is the average earnings increase, the lower limit has been raised by only 15 per cent. Is this not another hidden tax against the low-paid?

Mr. Orme

If I may correct my hon. Friend, the lower limit is being raised by 17 per cent. But he is quite correct. It is another imposition.

I move on to deal briefly with the Beveridge report, because the Secretary of State referred to the Treasury contribution arising out of Beveridge, and he made the point that people were not paying contributions at the start of the national insurance scheme in 1948 and that it had been necessary to have a higher contribution.

Beveridge envisaged that the contribution would be higher and that at one period it would rise to as much as 46 per cent. of Exchequer input. Beveridge did not believe that it should be reduced. I know that under previous Labour Governments it was fixed, for example, at 18 per cent. in 1975, but many people feel that a contribution of one-third would be a much more equitable distribution. Some of my right hon. Friends will have heard this argument in another context, but I shall not pursue that today. The Bill worsens the position by reducing the Treasury element. It means that the lower income groups will be at a gross disadvantage.

That leads on to one of the main factors in the Government's proposals, that contributions act as a regressive form of tax. As I have already pointed out, the ceiling on contributions means that the richest are exempt but the poorest are not exempt. That must be taken into account.

Many organisations have commented on the equity or social justice of the proposals. In a recent statement the Child Poverty Action Group said: In previous years rising benefits, paid for by rising contributions, have also been supported by a constant Treasury element. That happened previously, but it will no longer be applicable under the Bill. The burden will fall on those least able to bear it.

Mr. Patrick Jenkin

Will the right hon. Gentleman deal with the point that I made, namely, that the total Treasury contribution to social security has risen by 27 per cent. in five years, whereas the contribution from contributors has risen by less than 8 per cent.? Does he not think that that calls for some redressing of the balance?

Mr. Orme

I do not accept that. The whole tenor of my argument is a higher Treasury input. We should move above 18 per cent. I make that point clearly to the Secretary of State. I cannot accept his argument.

The Government, faced with more than 2 million unemployed at an estimated cost to the country of £1,072 million next year, have placed the responsibility for supporting those people on the poorer sections of our community. In Committee we shall want to examine the actuarial forecasts, which have been inaccurate recently. I do not know whether the Secretary of State has asked the Government Actuary to take into account the adjustments that he is making. If he does not take them into account, instead of having a small surplus—I do not have the figures in front of me, be they £46 million, £48 million, £56 million or whatever—it is running at more than £600 million, and it could be greatly increased next year. Is there any necessity for that? What will the Government do to correct it? We shall wish to discuss that matter in greater detail.

I turn to the increase in National Health Service contributions. Once again, national insurance contributions are being used effectively as an instrument in fiscal policy in reducing taxation. The Government are refusing to admit the necessity for additional resources that, in fairness, should be raised only through the normal taxation system, which is related to the capacity to pay. National insurance contributions are related to anticipated benefits. This is a deeply cynical move. It is a desperate move when the NHS is so short of resources.

I wish to ask the Government and the House two fundamental questions about this important issue. First, how far can national insurance contributions be used as a covert form of income or employment tax? That question needs to be answered, not least by the Government who are taking the decision. Secondly, how long can the contributory principle survive under the present frontal attack by the Government? Beveridge stated clearly that the contributory principle was that one should be able to pay for a benefit and then receive it as a right. I find it ironic that at a time when the Secretary of State is destroying the insurance principle in relation to the insurance aspect, he is flirting with the idea of introducing a part insurance principle for the health aspect.

The Opposition will need a great deal of convincing before agreeing to move away from the national insurance principle, for the reasons that I have already given. It has been proved satisfactory that people should receive benefits of right. It removes people from means testing.

The second Social Security Act 1980 puts 110,000 people on supplementary benefit that previously were on national insurance contributions.

The principle is being undermined. That could have an adverse effect on people paying contributions. At present they cynically see an increase in national insurance contributions—which is a form of tax, but not on the basis of income tax—coming out of their weekly or monthly pay packets. In return for that, they see the benefits being reduce. I warn the Government that there will be a reaction from those paying contributions if they do not see them justly linked to benefits as of right. It is a serious development which undermines something that has been painfully built up. The Secretary of State was in agreement with the Opposition—when we were in Government and he was in Opposition — to remove people from means testing and to remove some of the problems in that area. He is now creating greater problems.

Mr. Matthew Parris (Derbyshire, West)

Does the right hon. Gentleman agree that the insurance principle often pushes people on to supplementary benefit? Not having contributed in many cases, they are eligible only for supplementary benefit.

Mr. Orme

That point relates to people who do not contribute. One of the problems that concerned me when I was in Government was the number of people who became unemployed and were not entitled to benefit because they did not have a full contribution record. I wish to redress that problem by going in the opposite direction to that of the Secretary of State. I want to see everybody entitled to benefit if they contribute. Those who do not contribute will have to be sustained through the supplementary benefit system.

Mr. Andrew F. Bennett

Does my right hon. Friend agree that the Government's policy of devaluing the contribution benefit encourages people to wonder whether paying national insurance really matters? The Government should ensure that people receive good value for money. They should encourage them to have a full contribution record.

Mr. Orme

I accept my hon. Friend's point. I am raising the matter as a serious argument. 'There is a philosophical difference between the two Front Benches about this issue. However, it must be discussed widely in the country. The Secretary of State must put his mind to the matter. We are dealing with 26 million employed people who are contributing weekly. If we are not careful, the whole system will be undermined.

Mr. Patrick Jenkin

I do not think that there is a philosophical difference between the two sides of the House. I have repeatedly stressed the importance in my philosophy of having a contributory national insurance scheme. I do not think that there is any difference between us on that point. The difference arises as to the precise treatment at the margins of contribution as between contributors and Treasury, and the margin of what the social security system as a whole can afford by way of benefits. That is the difference between us. Confronted with the current conditions, I think that the right hon. Gentleman would have been faced with some pretty unpalatable decisions about the social security scheme.

Mr. Orme

I listened to what the Secretary of State said, but I doubt that there is not a philosophical difference between us. The measure that he took in the two Social Security Acts of 1980, and the measures that he now proposes in the Bill undermine the whole contributory principle. We are very concerned about it. We believe that it must be fundamentally opposed.

Turning to health expenditure, I am concerned about the move away from the principle of contributing to the NHS through direct taxation, which was the original method of funding. I know that such funding is not 100 per cent., but that principle has been weakened. The Secretary of State and the Minister of Health have been talking about pressure towards an increase in the activities of the private sector and an increase in the insurance element, but the Royal Commission on the NHS unanimously condemned such a move.

This is a short, but devastating, Bill. It will not assist either the current economic situation or the employment postion. It erodes some basic principles and we do not accept the wider economic arguments concerning the public sector borrowing requirement that have been raised by the Secretary of State.

We shall oppose the Bill at every stage. We shall oppose the money resolution as well as the Second Reading and we shall oppose it in the convoluted Committee stage that is to start on Thursday. It is a bad Bill, which will not assist those on benefit or those who contribute and will not assist employment or the economy.

4.31 pm

Mr. Paul Dean (Somerset, North)

I can summarise my attitude to the Bill in two sentences. If one wills the end—in this case increased pensions—one must will the means. I will the end and, therefore, I support the Bill as the necessary means to that end. I am sure that there will be arguments—we have heard some already—about the details in the Bill, but it is clear that additional contributions are needed in order to meet the increased cost of pensions and other benefits.

The right hon. Member for Salford, West (Mr. Orme) made two main points. His first was that the increased cost should be met by taxation, but he must recollect that the point of no return in increasing direct taxation had been reached by the Labour Government of which he was a member. Does he really think that if he were in Government he would succeed if he went to a Labour Chancellor of the Exchequer to urge that the increased bill should be met by an increase in personal taxation? The record of the previous Government shows that the point of no return along that road had been reached. I believe that he would have had to produce a Bill similar in principle to, though in detail slightly different from, the one that we are discussing.

The other main point made by the right hon. Gentleman was that the Bill undermines the insurance principle, or what I prefer to call the contributory principle. I believe that it does exactly the opposite. The figures that my right hon. Friend the Secretary of State quoted in commending the Bill were reassuring. The measure reinforces the contributory principle on which I thought both sides of the House had been agreed for many years.

The Bill provides the means, and one of the chief ends is the maintenance of the real value of pensions and other benefits. My right hon. Friend the Prime Minister made that clear again in answer to questions last month, when she said: The full value of the pension in terms of what it will buy will be preserved. Last year, we added to the provision for pensions because the amount that had been provided was not sufficient This year, we provided more than was warranted by the price increase. The undertaking is to compensate fully for price increases over the lifetime of a Parliament." —[Official Report, 25 November 1980; Vol. 994, c. 488.]

That is a pledge of great significance and value. It is one of the main reasons why the Bill is necessary and should be supported.

I hope that my right hon. Friend the Minister who is to reply will assure us that in carrying out the pledge to maintain the real value of benefits the necessary calculations will err on the side of generosity. It would be unfortunate if we had two years in succession in which calculations produced an under-provision for pensions rather than an over-provision.

Another reason why the Prime Minister's pledge is important is that no groups of pensioners can hope to have adequate bargaining power in modern conditions unless they have a guarantee from the Government of the day underwritten by the Parliament of the day. If there were a scramble for scarce resources between pensioners and the industrial muscle of trade unions, there is no doubt that pensioners would be trampled.

How are we to maintain the pledge and to make it stick in circumstances that are becoming increasingly difficult? My right hon. Friend the Secretary of State has reminded us on a number of occasions of the substantial cost of cash benefits, which are running at the enormous figure of £20 billion a year. Translated into terms that are more readily understood, they cost £400 million a week. That is one-quarter of all public expenditure, and that proportion has gone up substantially in recent years under Governments of both political colours. That is one of the harsh facts that are a background to the Bill.

Another such fact is the growing proportion of the elderly in our community. It is clear that for many years the proportion of retired people will continue to grow and the proportion of working people will continue to decline. In other words, a smaller number of working people will have to find the money to pay the pensions of a larger number of retired people. Not only is the ratio changing, but the proportion of the very old among the retired population is growing rapidly. We are in an age when it is becoming normal for there to be two generations of pensioners in one family. The financial significance of that is considerable.

The third and even more dramatic factor is that we have probably moved into a period in which we must expect lower growth rates in our economy than were achieved in the 1950s and 1960s. There is a growing dilemma and a growing gap between the current programmes and expectations and the resources to meet them. That dilemma was highlighted by the Daily Mail on 1 December in an article which stated: The crunch has come for the cradle to the grave society. A similar point was made more fully in Time magazine of 1 December. The article explained that Britain was not alone in the dilemma but that all the advanced countries of Western Europe were facing the same problems.

I shall quote one or two features from that interesting article, which underlined the necessity for the Bill. Time introduces the subject by stating: They are called welfare states, after the sense of collective passion that inspired them. Like Gothic cathedrals, they rose gradually in Western Europe, the work of whole societies dedicated to a common vision. They grew out of a marriage of Christian social conscience and secular idealism that flourished most dramatically north of the Alps and the Pyrenees — principally in Scandinavia, the Low Countries, Britain, France and Western Germany. Theirs was a force that transcended class divisions and partisan politics. Successive governments, whatever their ideological leanings, added their own benevolent building blocks to the soaring structures. That describes the vision and the action on it which followed in the early clays after the war.

The article continues to draw some striking conclusions. It states: Now, for the first time since its brave beginnings amid the ruins of World War II, Western Europe's proud accomplishment is threatened. No one is proposing the dismantlement of the welfare state, but there is a growing realization that the structure is in urgent need of pruning and reform … Across Western Europe social security systems are now either grappling with fiscal crisis or being stretched to the danger point. The article continues: After 35 years of expansion, the welfare state seems finally to have reached its fiscal frontiers, unable to promise more and, in some cases, even to fulfil past commitments. Those are disturbing and disappointing thoughts.

Like many hon. Members on both sides of the House and many people outside, I have devoted time and energy trying to improve our social health services. We have tried to ensure that the second great Commandment—to love one's neighbour—lives in politics. We have tried to ensure that the strong help the weak and that people at work help the young and the elderly. Has the edifice become too heavy for its foundations? Is it in danger of collapsing under its own weight? Is the burden on the workers and wealth producers inhibiting their efforts? Are we in danger of killing the goose that lays the golden egg? These are profoundly disturbing questions. We would fail in our duty to the nation if we did not face them.

In the light of that background, it is all the more important that the establishment of priorities should take on a greater urgency than before and that we should seek the most effective ways to retain the essential fabric of the Welfare State. On the benefit side, the Government have taken the right course in establishing priorities in this parliament. The first priority which my right hon. Friend the Secretary of State established was to defend the real value of long-term benefits. He recognises that in order to do that for the pensioners, widows and others on long-term benefit it is necessary to make some economies in short term benefits.

I remain disappointed about the invalidity benefit, which is a long-term benefit. I recognise why my right Ion. Friend took action on that. However, it is important to remember that a large proportion of people in receipt of invalidity benefit do not pay tax. I hope that the pledge to restore the relationship between invalidity benefit and pensions will be honoured before long.

I remain disappointed about child benefit. I hope that it will be possible to maintain the real value of child benefit. After all, it is now the main support for both families in work and families out of work. In a sense, that will be of greater significance than the proposals for employers to take on responsibility for sickness benefit for the first eight weeks, because that does not give additional recognition to children, which makes it more important for child benefit to maintain its real value.

Mr. Peter Bottomley (Woolwich, West)

The Green Paper refers to income during sickness and discusses the policy of successive Governments to raise the value of child benefit. When the question of income during sickness comes to the House, the Government's resolve must be tested firmly. There is no point in making the proposed change if something extra is not achieved for child benefit so that it is not merely lifted in line with tax allowances or inflation.

Mr. Dean

I am grateful for my hon. Friend's support. He is a well-known campaigner on this subject.

In spite of the sombre background that I have painted, and in spite of my support for the Government's priorities, I wish to express my disappointment in relation to invalidity benefit and child benefit.

I turn to the question of contributions and the Government's priorities. In its general principle, the Bill is right. The arguments used by my right hon. Friend in favour of a bigger percentage increase for employees than employers is impelling in present circumstances in view of the economic difficulties and the burdens on employers in trying to maintain their businesses arid employment. My right hon. Friend's arguments are absolutely right. However, I regret the increase that goes automatically on to the national insurance surcharge. That is a result of one of the unfortunate measures introduced by the Labour Government. We are stuck with it for the time being. Unfortunately, as a result of the increases in employers' contributions there is an automatic increase totalling £104 million on the national insurance surcharge. I regret that, but I recognise that it is impossible to decouple the two provisions in such a Bill.

I also accept in principle the necessary increases for employees. We shall discuss the details and whether the balance is right in Committee on Thursday. We shall wish to return to the arguments expressed by the Child Poverty Action Group and the Low Pay Research Unit. Whatever the argument as to the relative burden on different types of employee, my right hon. Friend's arguments in commending the increase were impelling if we wish to maintain the essential fabric of our social security arrangements.

I also agree with the Secretary of State about the Exchequer supplement. In modern conditions and with the experience of the Labour Government and this Government of direct taxation, one cannot go on increasing tax borne benefits in the way in which they have been increased in recent years.

The right hon. Member for Norwich, North (Mr. Ennals), who unfortunately is no longer present, adduced entirely the wrong argument when he interrupted my right hon. Friend. It is not only the Exchequer supplement to the national insurance scheme that one has to consider but also the tax borne benefits—the supplementary and other benefits—whose cost has increased considerably in recent years. One should consider the total in assessing what support the taxpayer should give through the Exchequer supplement and the other benefits borne entirely by the taxpayer. Here, also, my right hon. Friend has got it about right.

I found it difficult to understand the criticisms of the right hon. Member for Salford, West about the National Health Service element. After all, we have a commitment, which I warmly welcome, to maintain the real value of expenditure on the National Health Service. That is a considerable pledge when many economies are being made throughout the range of public expenditure. If the NHS is to continue to depend to the present extent on tax-borne revenue, it will be increasingly insecure. I therefore welcome this modest additional revenue for the NHS through the National Health Service element in the national insurance scheme.

There is a sombre background to the Bill. It is unfortunate that the right hon. Member for Salford, West continues to ignore the realities of the situation. We must try to find new ways to maintain progress in increasingly difficult economic circumstances. The Government have shown a realistic approach rather than the head-in-the-sand approach adopted by the Opposition. I welcome the Bill on those grounds as the essential means to try to ensure that we maintain the main benefits, the main fabric of the social services which we have built up so proudly over many years.

4.52 pm

Mr. Andrew F. Bennett (Stockport, North)

I can find nothing in the Bill to recommend it to the House and I suspect that, even if he were pressed, the Secretary of State could not produce one letter received by his Department urging him to bring in such a Bill. I doubt that he has a postcard or any other shred of evidence to show that anyone outside the Government has asked for the Bill.

Directly against the promises by the Conservative Party in its election manifesto that it would cut direct taxes, the Bill represents a glaring U-turn. Most of my constituents talk about stoppages and do not bother to separate national insurance payments from income tax. On most arguments, it is easy to show that they are essentially the same sort of tax and that the Bill is one more way of pushing up inflation. It will certainly be unpopular, and rightly so.

My second criticism of the Government relates to their attempt to rush the Bill through roughly three weeks after it was announced. They had a few presentational problems when they announced it, which drew more attention to it, but the proof is that the majority of people still know very little about the Bill. I checked with 20 people on Saturday and not one really knew what impact it would have on them.

Once again, the Government are trying to stifle opposition and debate. One of Parliament's important functions is the right not just to debate measures here but to stimulate debate in the country so that our debate will be informed. In trying to get the Bill through the House in three weeks, the Government are trying to stifle that debate.

It has been said that the Government must have this legislation in time for 6 April, but they could have allowed much more debate in the House and still got the information to employers so that they could implement the provisions from that date. If the Government put something up, they always do it as early as possible; if they are cutting something, they always delay it. On this occasion, the Government could nave devised a way of following the proper parliamentary procedures instead of cheating both Parliament and country of adequate debate.

National insurance is a regressive tax, and the Government should be criticised for increasing taxation in this major area. They are moving the burden of taxation from income tax to a more regressive tax. That should be deplored.

Again, in its election manifesto, the Conservative Party referred to the stupidity of taking money from people in work with one hand and giving it back with another, yet the Bill will make that process more likely and will apply it to lower income levels.

The Bill provides for a ¼ per cent. increase to cover the extra people coming into benefit during 1981–82. So far as I can make out, the largest number of extra people will be among the unemployed. The Government's advice to the Government Actuary, published in the report, is that average unemployment during 1981–82 will be 600,000 more than in 1980–81. In other words, if the Government have predicted matters correctly, those are the assumptions on which we should work. They are proudly saying that their policies will deliberately increase unemployment by 600,000. It is that for which the Government should be most criticised.

My constituents have suffered a great deal over the last six months from the Government's deliberate policy of creating an industrial wasteland. Stockport has worked hard for most of this century to remove its dependence on declining textile and hatting industries and to get itself firmly into a wide range of engineering industries, which would avoid the town suffering recession and cuts. It has gone for high skills and diversification, yet the deliberate policy of the Government is bringing major devastation to the town.

I have a list here of about 20 firms which, in less than three months, have all had significant redundancies—Scraggs, Abbey Electronics, Crownflex, Bowbros, British Metal Crates, Parkside Dies, TPT, H. Parkes and Nephew, Peak Trailers, Bolton's Superheater and Pipe Works, Johnson Machinery, Huntfield Engineering, Adamson Containers, Mullard, Bowater, Fairey Engineering, Viking Engineering, CPA and Edward Wilcox. There are many more. That increasing unemployment has been inflicted on my constituents and they are also asked to pay more for the privilege of having those extra unemployed.

The Government should learn from their own Actuary's report and work out the cost of the unemployment that they are creating. The Government Actuary says that every 100,000 unemployed cost £205 million, or just over £2,050 per person. On top of the lost taxes, that means that the Government have a considerable amount to spend which they could use to try to save jobs. Instead of increasing charges by ¼ per cent., the Government should be considering seriously measures to save jobs in areas such as mine. They should not accept that in 1981–82 the average level of unemployment will be 2,300,000.

I turn to the extra ¼ per cent. for the National Health Service. I would normally welcome that in principle. I should welcome it more enthusiastically if there were to be an improvement in the NHS. In my constituency there are major areas of the Health Service that are totally inadequate, especially provision for the elderly and for psychiatric patients.

There will be resentment because charges are being increased and yet there is to be no more money for the Health Service. It is another way of increasing poll taxation and making taxation more regressive.

There is another ½ per cent. provision merely to reduce the Treasury contribution. The Government are moving from slightly more progressive taxation methods to an especially regressive method. On what basis did the Treasury suddenly pluck out 14½ per cent.? Had that anything to do with national insurance principles? I can see no evidence of that. The Treasury was merely trying to balance its books.

It is clear that the Government have misled the House when it comes to the bands. Whatever is said about the Chancellor of the Exchequer's statement, in choosing the upper limit of the bands for the increase and in going for £200 as the upper limit rather than £190 and some pence the Government are changing their policy. The right hon. and learned Gentleman's statement contained no explanation. As a matter of principle, I do not object to the change that the Government propose. I can see many arguments for abolishing the £200 limit. However, the Chancellor should have told the House of the direction in which he was moving. He should not have tried to mislead the House and the country by suggesting that his measures would have no impact on employers' contributions. It seems clear that in that area the right hon. and learned Gentleman misled the House.

If the Chancellor abolished the upper limit, he could raise enough money to move the long-term unemployed from the lower rate that they now suffer to the higher rates—to a minimum standard of living. If I can overcome the difficulty of framing and introducing amendments on account of the money resolution, I shall attempt by way of amendments to abolish the upper limit when we debate the Bill in Committee on Thursday.

What are the Government's intentions on sick pay? The Government's scheme is designed to transfer liability to the employer for the first eight weeks of sickness benefit. What effect will that have on national insurance contributions? There should be a clear statement now.

The Bill has to be taken in conjunction with all the areas in which the Government have been cutting back benefits. They have removed the linkage between pensions and earnings. That has resulted in a major reduction in what pensioners could have expected if the old legislation had been allowed to continue. By the pretence of deemed taxation, the Government have cut unemployment benefit, invalidity benefit, sickness benefit and industrial injury benefit. They are phasing out the earnings-related benefit. The payment of benefits took place two weeks late this year.

The general insurance principle is that the more we pay as we go, the more benefits we shall receive when we need them. The Government's motto is "Pay more and receive less in benefits". That is why the Bill should be opposed today and throughout all its stages.

5.4 pm.

Mr. Matthew Parris (Derbyshire, West)

I listened carefully to the hon. Member for Stockport, North (Mr. Bennett). He made a debating point when he said that he did not suppose that my right hon. Friend received many letters or postcards asking that employees' contributions should be increased. None of us would expect my right hon. Friend to receive that message. Many of us would expect letters from the public to my right hon. Friend asking him to maintain the present level of benefits if possible. Of course, charges have to be levied to maintain he level of benefits.

The hon. Gentleman argued that in Stockport, North there is a need for Government money to be spent on unemployment. I am sure that most of us would agree with that. This measure will take a small part of the burden off the Treasury and in that way it will allow the Government to put more into schemes such as the youth opportunities programme and the temporary employment subsidy. Those measures do not solve the problems but they help in areas such as Stockport, North and Derbyshire, West.

I agreed with much of the speech of my hon. Friend the Member for Somerset, North (Mr. Dean). I was interested in the article that he quoted from Time about the increasing difficulty in maintaining the level of social provision that we now all expect on the resources now available to us. Does not that argument lead to a discussion on whether we can maintain social provision at its present level rather than to a discussion on whether it is right to raise taxes and insurance contributions? That is perhaps an argument that it will be more appropriate to take up when we debate the 1 per cent. cut in old-age pensions that is being planned.

My hon. Friend argued that this measure strengthens the insurance principle in the national insurance scheme. My right hon. Friend the Secretary of State and my hon. Friend feel that the Bill reinforces, or does not do violence to, the insurance principle, which they both support. The right hon. Member for Salford, West (Mr. Orme) feels that the Bill does some damage to the insurance principle, which he supports. I have a third permutation of those views. I agree with the right hon. Gentleman that the Bill does some damage to the principle. However, I am increasingly sceptical about the value of the principle. For that reason I welcome the Bill.

My right hon. Friend argued that the Bill somewhat reduces the contribution that the Treasury has to make and that in that way it reinforces the insurance principle. That is an argument that will serve, but it is rather a dangerous one. The time may come when my right hon. Friend wants again to increase the contribution that the Treasury has to make. The time may come when unemployment is so low that there is a small surplus in the national insurance fund and we are able to cream it off to put it, for example, into other areas of social spending. In either event, that action would be said to weaken rather than strengthen the insurance principle.

For as long as we adhere to the insurance principle but merely pay lip service to it, our real motivation will have little to do with the principle. My right hon. Friend will have to get used to the principle being thrown across at him from the Opposition Benches as part of the argument against the measures that he wants to take.

The Bill is consistent with the insurance principle. In any event, it does not do violence to it. The principle is supposed to be central to the scheme. The timing and magnitude of these changes seem to indicate that the principle has played only a small part in the introduction of the scheme. It seems that the Government are proposing the measures contained in the Bill because they need the money. I agree that they need the money. I agree that it must be found somewhere. I agree that this is a reasonable place to find it because employees' contributions are not levied on the least fortunate in society. It is therefore, in present circumstances, a reasonable measure to take. That, for me, is sufficient argument for taking it.

We should look generally at the operation of the insurance principle in our national insurance scheme. It never was a proper insurance scheme. A proper insurance scheme is voluntarily entered into and premiums depend on risk. Half the purpose of our national insurance scheme is to cater for areas that private insurance schemes would not reach. There is an element of wealth distribution in the scheme, because good risks subsidise bad. The scheme also enjoys a measure of support from general tax revenue, which is as it should be. However, it is not an insurance scheme.

My right hon. Friend's duty—and his stewardship of the DHSS suggests that he sees it in the same way—is to assess genuine need and meet it so far as resources allow. The balancing of accounts in his Department is secondary to that. His predecessors have seen the matter in the same way. For that reason, maternity and invalidity pensions have come outside the insurance principle and only a small proportion of the National Health Service is funded from within it.

Unemployment benefit and retirement pensions remain within the principle, and that allows the Government to refuse benefit, for instance, to unemployed school leavers because they have not paid contributions. It also allows the Government to refuse it to the long-term unemployed, apart from supplementary benefit, and retired wives who have not contributed in their own right.

However, rather less than generally supposed of the money refused is money saved. Supplementary benefit is claimed instead, and that is a costly, cumbersome and demeaning way to help people. I do not like it. I should like the Government to consider other means by which people entitled to help can receive it.

There are arguments for the groups that I have mentioned being excluded from the benefits of contributory pensions. Those arguments should be re-examined. They are not all very strong. The argument that those groups have not contributed to the pension is the weakest of all.

In a rough and ready way, the insurance principle has served to explain and justify DHSS practice in the past, but decreasingly is it the motivating force behind social policy. The Bill makes that especially clear. Paying lip service to the principle will become increasingly inconvenient to Ministers of either party. One day it may prevent my right hon. Friend from taking action that he should take, which will be the wrong time to jettison the principle. People may then feel that principles serve Ministers instead of the other way round.

I support the measure, but I ask my right hon. Friend whether he will instruct his Department to prepare a paper — which I should be interested to see—assessing the present status and future prospects of the insurance principle in social policy.

5.12 pm

Mr. Clement Freud (Isle of Ely)

The hon. Member for Derbyshire, West (Mr. Parris) appeared to welcome the Bill as a means of raising money from the more fortunate in society. I oppose the Bill, not only because I sit on the Opposition Benches but because it dangerously narrows the gap between the low paid and those receiving unemployment benefit. The Conservatives' election promises, so carefully presented to the nation by their public relations consultants, said that they would not do that. On the contrary, they promised to widen the gap between the income of those who had a job and those in receipt of benefits.

I am saddened by the Government's failure to do anything about those who are really low paid. The Eastern Daily Press, my local national newspaper, carried an advertisement from Norfolk for a full-time coypu operative to control the vermin in East Anglia. The wage offered was £56 for a 40-hour week, and the Bill, which will doubtless be enacted with the Government's majority, means that the new contributions will be paid by the man who obtains that job, even on that minimal sum. A man blessed with "the dignity of work" and in full-time employment is likely to receive supplementary benefit, rate and rent rebates and free school meals for his children.

The Bill seeks to find £973 million from employers and just over £1 billion from employees, which equals about 1½ on the standard rate of tax. I believe that the Government have considered the alternatives and decided that fewer hon. Members would be in the House, fewer people would complain and fewer editorials would berate the Government for a U-turn if, instead of putting an additional 1½p on the standard rate of tax, they placed the burden on the DHSS. I hope that they will find that they are wrong.

The Bill is a good example of how the national insurance fund is misused. In a New Society article, Professor Metcalf of the University of Kent said of the DHSS; about the only effective role it has currently is that of Treasury lapdog — making its revenue-raising function so much easier…the DHSS is no longer running an insurance system, but has opened a bucket shop for the Treasury. I have some sympathy with that view.

The hon. Member for Somerset, North (Mr. Dean) quoted purple prose from Time magazine. I shall quote some unpurple prose from The Times today. It takes a constructive look at what the Bill is seeking to do instead of talking ephemerally about castles in the air. It states: Those effects are the opposite of the Government's declared aims of removing this incentive. The changes mean that 50,000 of the lowest paid will have their marginal tax rate increased by 6.25 per cent. next April compared with their position before the Budget. Those earning £40 a week will be able to keep only 62.25p of every extra pound they earn. On earnings of £500 a week high earners will be able to keep 40p of every extra pound, compared with 17p before last year's Budget. In addition 90,000 families receiving family income supplement and other means-tested benefits will have an effective marginal tax rate close to 100 per cent. Besides losing 37.75p in a tax in national insurance in every extra £1 earned, they will also lose some or all of their benefits. The Secretary of State's alarm about the social security budget is vastly exaggerated. The percentage of GDP taken by the Government for total expenditure is less than it was five years ago. The social security benefits are a transfer of income and make no claim on resources. Half of social security expenditure is on national insurance benefits, which have been funded as to 82 per cent. by earnings-related contributions from employees and employers. The Secretary of State really "doth protest too much."

There is a strong argument for saying that national insurance benefits funded in this way should not be regarded as public expenditure, except for the decreasing 18 per cent. Treasury supplement. But the upper limit has been raised more than necessary to take account of increases in the basic pension. That puts an additional burden on employees at a time of acute economic crisis.

I should like the Minister to bear in mind in his reply the contention that has been made in newspapers, and in letters to me and to many hon. Members, that people who fall between the old and the new higher limits get a caning which is totally undeserved I am sure that the Minister will agree that it is undeserved. But, when there are gaps on either side, it is wrong that one section of society should suffer more than the others.

Mr. Peter Bottomley

I hope that the hon. Gentleman will not take my remark as a debating point, but I should be interested to know whether he thinks that there should be an upper limit or whether he prefers the existing system where, once a person reaches a certain level of earnings, his marginal loss of income is reduced—in other words, he keeps more of his money when he gets above a higher limit.

Mr. Freud

Many of my political feelings lead me to believe that the upper limit should be scrapped, but I agree that the only way in which we shall keep people in this country, and the only way in which we shall get people to work harder, is to provide a real incentive. I have often toyed with the idea of recommending that there should be a final sum beyond which no one pays any tax It should be enormously high—£70,000, £80,000 or £100,000 a year—and, as a reward for having achieved that, in earned income on which tax has been paid anything above it should be free from tax. That would be an extraordinarily effective way to attract the real high fliers to this country, and it would cost us very little.

We have heard the alternatives from the Secretary of State—that the Bill is necessary because there must be a reduction in services or there will be higher contributions. My right hon. and hon. Friends and I are totally in favour of higher contributions. Our argument is with the equity of the legislation. We feel that in many ways this is yet another measure that has been rushed through without sufficient careful thought.

We shall oppose the Bill because a large sum—£406 million—is being transferred from general taxation to national insurance contributions, from money that takes due account of a man's wealth to an across-the-board, sweeping decision that take account of nothing. It ignores the family responsibilities and the social needs. It falls on the breadwinner of a large family just as heavily as it falls on a young single man living with his family. Insurance contributions were never intended to be so heavy an item in the weekly deductions from pay.

This measure has been described as a large rise, put through as a sneaky alternative to raising income tax. My objections are that people are suffering disproportionately to their income and that it narrows the gap that the Government set themselves to widen—the gap between earned income and social security.

5.28 pm.

Mr. James Hill (Southampton, Test)

I apologise to my right hon. Friend the Secretary of State for not being present at the beginning of the debate. I was travelling from my constituency, having attended a meeting organised by the Transport and General Workers Union for the young unemployed in Southampton. Consequently, I arrived here in a subdued state of mind, and I was met by a subdued debate in the Chamber.

No matter what it is called, this is an increase, perhaps a minor increase in some cases, in the taxation system. It is minor because the employee's contribution will rise from only 6.75 per cent. to 7.75 per cent. The employers, who were on automatic indexation, have little to grumble about, because they have a cut-off point. I enjoy the cutoff point at £200, and sometimes I have sympathy with the view that the cut-off point is unfairly low. Although we wish to encourage our entrepreneurs, there is a duty on all citizens who enjoy a good and comfortable way of life towards those who have a less comfortable life, and perhaps in the future the top rate should be raised to a more realistic figure.

Having said that, many members of the public and many hon. Members often confuse the objectives of the insurance fund. They think that it supports the National Health Service. It supports it only in a minor way, this year to the tune of only £700 million. The contributions are extremely high in total—£16,145 million—of which there seems to be a small surplus each year. The surplus is small compared to the grand total, but nevertheless it amounted to £682 million this year. We are all grateful for that, because for all taxpayers and for all people who pay any form of contribution it must mean a reduction of the public sector borrowing requirement.

One of the anomalies that I should like to mention, having just attended a meeting of unemployed youth, is that young people are unable to claim supplementary benefit at the age of 18. They are completely dependent upon their parents. It was mentioned at the meeting that at the age of 18 young persons can join the Army, the Navy or the Air Force, they have the ability to vote, and they think of themselves as adults, but they cannot claim supplementary benefit. I am sure that that is being examined. Perhaps the youngsters gave me a distorted view, and I hope that my right hon. Friend the Minister will be able to clarify that in his reply.

Mr. Frank Field (Birkenhead)

I am slightly confused by the point that the hon. Gentleman is making. A young person is able to draw supplementary benefit at the age of 18. He can do so at an earlier age, but, as a result of a measure introduced by this Government, he cannot do so immediately after leaving school. Was the hon. Gentleman making a plea that young people who have finished their education and who, through no fault of their own, cannot get jobs should have the immediate right to national insurance unemployment benefit? There would be considerable support on both sides of the House for such a move.

Mr. Hill

I thank the hon. Gentleman for clarifying the point. Perhaps I did not put it clearly enough, or perhaps I put it in a way which could be easily misunderstood. The hon. Gentleman is perfectly correct. I was making the point that someone can leave school at 17 and still be unemployed at 18 and unable to get the benefits of which we are speaking. Indeed, at the meeting to which I have referred there were several adults, as I would call them—people who had left school at 16 and who were still unemployed at 18. This state of affairs spans both Labour and Conservative Governments and I do not think that it is a political point to make.

Unemployment has not been growing simply in the last few months; it has been with us for some considerable time. We are all aware that the two groups hurt most by unemployment are the ethnic group and the young of all racial categories. I know that my right hon. Friend the Secretary of State for Employment, with his usual flair for putting his finger on the root cause, will use the £250 million that has been bespoken for youth employment. He would be well advised to attend some of the meetings of the unemployed youth so that he, like me, can see the real problems in the raw. But I am sure that he is doing that.

The whole Budget will be terribly distorted if we do not hold unemployment to 2.3 million. It would be a tragedy for all political parties if the world recession, the lack of markets overseas, the rate of the pound, high interest charges — they are still fairly high — and lack of industrial growth were to mean that a figure of 2.3 million unemployed could not be contained in the year 1981–82. The Government are doing their very best in this matter, but we are likely to suffer still more from world recession. The recession may be almost stationary for the next six months, but if it moves through like a typhoon we all hope that we shall be in the heart of the storm and that industry will be in a position to take on at least half a million of the unemployed, particularly the young.

Mr. Andrew F. Bennett

No doubt the hon. Gentleman, in preparing for the debate, will have looked carefully at the Government Actuary's report on the Bill. If so, he will have seen that the Government are deliberately assuming that there will be an average of 2.3 million unemployed for the whole of the period 1981–82. Surely, that is going much higher than the figure that the hon. Gentleman is pleading with the Government to contain.

Mr. Hill

The report of the Government Actuary, on page 6, shows that he is working towards the figure of 2.3 million. I should be distressed if the figure were to go that high, but projections of figures and statistics are so liable to distortion in the very short term that it would need only the slightest improvement in our trading markets for 2.3 million not to be a realistic figure for the period 1981–82. I know that all Ministers are extremely worried about this problem, and it does not help if certain Shadow Ministers use it as some sort of political bludgeon against the Government.

I do not want to go into too much controversy, but it was the Chancellor of the Exchequer in the Labour Government who introduced the 3½ per cent. national insurance surcharge, which now costs British industry about £3½ billion per year. I do not think that we can tolerate crocodile tears from the Chancellor of the Exchequer in the previous Government. Indeed, he got it consecutively wrong, and we are now in the difficult position of having to find about £16 billion to pay even the retirement pensions, widows' pensions, unemployment benefits, and so on. We need £16 billion not only to fulfil the obligations of the last Labour Chancellor but to pay the indexation that is written into the agreements.

I am a little worried about how the employers will react to their surcharge. The employers in general have accepted the argument that it is automatic and that it is geared to the last measure on the subject. It is something that I pay, as do most of us here. We were worried at the time that it was not sufficiently well explained. I have told many employers that it is an automatic procedure and that the Chancellor did not at any time mislead the employers. The Chancellor certainly did not grossly mislead the Commons, as an article in The Guardian said on 26 November. He is the last man who would grossly mislead the House. Nevertheless, it has to be said that the new cost to the employer will be in the region of £386 million per annum. Perhaps the Minister will correct that figure if it is wrong.

The employers are paying their way. The difficulty is that they will say "We are under stress and are finding it more and more difficult to make ends meet. Is not this another form of taxation?" It has never been anything but that, right from the beginning. From the first national insurance scheme that was ever produced, it has been a form of taxation. To the person who receives the pay packet, it is all the same whether the figure is entered as pension contribution, income tax, corporation tax or national insurance payment. What matters at the end of the day is the amount that is left for the person to live on.

It is a very minor increase, and I know that the economists within the Department could make a case for saying that it is even less this year in percentage terms than it was last year. The economists have said that it is an increase of only 8.3 per cent. to the employers and that, with prices going up at about 11 per cent., it should have been around 11 per cent. I do not think that I could sell that sort of argument, although it is a perfectly logical accountancy argument.

When the Government next come to the point of explaining the employees' and employers' contributions, I hope that they will put the two items together and make one statement about them, so that there will be no chance of Back Benchers making any mistake or of the media getting into such a tizzy. I hope that the Government will not provide the opportunity for former Chancellors of the Exchequer to try to score points in relation to a perfectly simple updating of the employers' contribution

My right hon. Friend should realise that he has many friends on the Government Back Benches who support him in what he is trying to do. However, I hope that he will explain the subject more plainly on the day, so that we may give the Government even more support in our constituencies.

5.40 pm

Mr. Frank Field (Birkenhead)

I should like to make two points, but first I appeal to Conservative Members to join us in the Lobby tonight.

The measures in the Bill and the other measures which the Department of Health and Social Security has already piloted through the House are putting at risk the Government's economic strategy. For that reason alone, we are entitled to appeal for votes. Secondly, despite what the Secretary of State said, the Bill is an attack on the insurance principle—a matter which I want to discuss in some detail.

One of the advantages of speaking in a debate in which many hon. Members wish to speak but have not been brought in by the Whips or other forces, is that there is the opportunity to comment on what has already been said. I shall start by developing the argument that the hon. Member for Somerset, North (Mr. Dean) presented. The hon. Gentleman read some very important passages from the Daily Mail and Time magazine. In my opinion, he not only posed the wrong questions but drew the wrong answers from those questions. The questions that he posed were the old questions that we expect from the Treasury Bench: is the burden now too great to carry? Are we in danger of killing the golden goose? In my opinion, those are not relevant questions.

There is an important issue that hon. Members on both sides of the House should consider. It is relevant to the debate, particularly at a time when it looks as though we shall not be returning to a period of even the sluggish growth rate that we expected in the post-war period. The central question to which we should address our attention today and on other occasions is how to get the population to spread 40 years' earnings over a lifetime which, for many people, now lasts over 80 years. In order to answer that question, we must decide to what extent the Bill helps as to present that question and get a sensible answer to it. If we support a measure that asks for increased contributions and lessens the benefits to be gained in return For those contributions, we shall not get that major debate on how both political parties persuade people to spread their earnings over a lifetime.

A well-attended debate allows hon. Members to comment on the Secretary of State's contribution. I wish that he had been honest about the mess that the Chancellor of the Exchequer made in making the announcement to the House about the increased employers' contributions. I know a fair amount about the national insurance scheme and how it works, but even I mistook what the Chancellor said. The key part of his statement was that the burden on employers should not be increased and, therefore, that the rate had not gone up.

My guess is that even the right hon. and learned Gentleman did not know how the insurance scheme contributions worked in detail for employers and that, in desperately trying to find sums to contribute towards his £4 billion target for cuts in public expenditure, an increase in national insurance contributions was proposed for employees. The Treasury presented him with the gross figures of the effect on revenue but did not explain in detail to him that the burden on employers would be raised because of the change in the ceiling. How much more refreshing and honest it would have been if the Secretary of State had admitted that.

The Secretary of State's argument falls to the ground. If, as he says, everyone, bar the Shadow spokesman for health and social security, knew that employers' contributions were being increased—in amount rather than in the actual percentage rate — why was it necessary for a written question to be planted the following day that could make clear what the increase was?

Mr. Patrick Jenkin

The normal practice, which has been followed year after year at precisely this time of the year, is to announce the rates of contribution and the levels of the lower and upper earnings limits. That is exactly what was done this year. There was no question of a specially planted question after the Chancellor's statement on 24 November. It was the normal procedure, carried out in the normal way. I hope that the hon. Gentleman will accept that.

Mr. Field

The Secretary of State is at a disadvantage, because he was talking when I first raised this topic. The right hon. Gentleman is confusing two points. One is, was the normal procedure followed this year as it was last year? The answer is, undoubtedly, that the normal procedure was followed. But the totally separate question is whether the Chancellor, most of the Cabinet or anyone else in the House of Commons who heard the statement was aware that the money size of the employers' contribution would increase, given that the Chancellor said that the rate of contribution would not increase. The answer to that question is clearly "No" — hence the question on the following day to clear up the difficulty.

There is a continual attempt by the Government to try to disguise what happened. Given that one sometimes believes in the cock-up theory of history rather than any other kind of history, it would have been refreshing for the Government to have told us that that was what did happen but that perhaps, on reflection, they would rather not have made that move.

I turn to the two matters that I intend to raise in my contribution to today's debate. The first is the argument that this measure is destroying the Government's main economic strategy. The second is that, despite what has been said, the measure is undermining the contributory principle in an important way, which will have long-term repercussions.

The Government's economic strategy, if I correctly understand it in the way that the Chief Secretary has so often explained it to the House and elsewhere, is as follows. The Government have a target of controlling the increase in the money supply in the medium term, and they have the immediate objective of decreasing the public sector borrowing requirement as a proportion of gross domestic product. This measure, together with the other measures that the Secretary of State has pushed through the House, makes it more difficult for the Chancellor of the Exchequer and other members of the Government to keep on an even keel in relation to that policy. I should like to take a little time to explain my reasons for saying that.

First, we have had a series of measures that have cut not only the rate of benefit paid to national insurance beneficiaries but the benefits themselves. For example, this year we are experiencing the first stage in phasing out the earnings-related supplement.

The more the Government pursue this policy, the more people will be pushed on to supplementary benefit. But, as we know from this debate, the more we keep people within the national insurance scheme, the more we must not raise contributions to pay benefits. But, likewise, the more we keep people within the national insurance scheme, the less the Government will have to increase traditional taxation or borrowing.

The Government are set on moving people from insurance benefits to means-tested supplementary benefits. The more that they are successful in that objective, the greater will be the burden on either taxation or Government borrowing. Therefore, we must view this measure in the wider context of the Government's aim of controlling the growth of the money supply in the medium term and of reducing the public sector borrowing requirement in the immediate future. This measure will make it more difficult to achieve that goal.

I hope that the Government will tell us what thought they have given to raising the ceiling so that we can increase the rates of benefit and the coverage of national insurance benefits and thereby keep people from drawing means-tested supplementary benefits. The more successful they are in achieving that objective, the greater will be their success in reducing either traditional taxation or the public sector borrowing requirement.

This measure hits the central plank of the Government's economic policy. For that reason alone, we should command support from many Conservative Members when we divide the House.

Secondly, I want to comment on the way that the revenue is to be raised. The hon. Member for Isle of Ely (Mr. Freud) made a valid point when making a distinction between whether the Opposition objected to the raising of contributions or to the means by which the contributions were to be raised. That is an important distinction and I shall come back to it later.

The starting point for this part of the debate is what Beveridge originally envisaged for the national insurance scheme. I was interested in the comments made by the hon. Member for Derbyshire, West (Mr. Parris) in this respect. It seems to me that Beveridge was slightly more of a collectivist than the hon. Gentleman, in that he did not view the national insurance scheme in the same way as we view a private insurance scheme. It was a way of enabling working people in the main to undertake collective insurance for a whole group. The rules of the scheme were, therefore, different from what would obtain in a private insurance scheme.

Beveridge was operating against the background of the 1930s, when every household had a real fear and hatred of the means test. Consequently, he plumped for an insurance-based scheme. He believed that in that way we could guarantee that people would feel that they had earned the right to benefit. But Beveridge was also aware that by opting for an insurance-based scheme, particularly with the poll tax which paid for those insurance benefits, only a limited amount of the fund raising for the national insurance scheme could be put into the poll tax.

For the first and last time, I should like to cross swords with my right hon. Friend the Member for Salford, West (Mr. Orme). I think that he underestimated the contribution that Beveridge envisaged coming from the Exchequer and overestimated the amount coming from employees and employers. In the Beveridge report there is no clear statement of the projections for the national insurance fund in the post-war period. One has to turn to the White Paper on the report to find the Government's response to those proposals and their commitment to the Exchequer's contribution to the insurance fund.

In 1945, the Government envisaged that the Exchequer's contribution to the national insurance fund should be over 54 per cent. In 1965, the last projection in the 1944 White Paper, the Exchequer's contribution was seen as being 67 per cent. The Bill will reduce the Exchequer's contribution to 14 per cent. It is the change from raising it through taxation, which one would hope would be progressive, to a flat-rate poll tax to which many of us object.

Mr. Peter Bottomley

As this is a significant debate, will the hon. Gentleman reconsider his use of the phrase "flat-rate poll tax"? It may be a single rate, but it is not a flat rate, because it is earnings related.

Mr. Field

I accept that point. However, throughout the debate there has been confusion between the amount paid as a set contribution in money terms and the proportion of earnings that is paid into the national insurance fund.

The main thrust of my argument was that we could support the national insurance scheme only if we kept the poll tax, or whatever one wishes to call it, as a very small part of the total amount of revenue raised for the entire scheme. We have moved steadily away from that position.

Governments of both parties have allowed the Exchequer's contribution to fall. Then the Macmillan Conservative Government made a major change when introducing the graduated pension scheme in 1961 by, for the first time, not matching earnings-related contributions to the Exchequer's contribution. The Bill represents a third move in the undermining of the contributory principle by lowering the Exchequer's contribution to 14 per cent.

Mr. Parris

What is the insurance principle?

Mr. Field

As we have a few minutes to spare, I shall digress on the insurance principle. I was trying to explain that the hon. Gentleman got it wrong earlier when he confused how private and State insurance schemes would operate. Beveridge set on the idea of an insurance scheme partly because he wished contributors to feel that the benefits were theirs as of right as citizens, not as in a private insurance scheme from which one can draw benefits, first, if one has made contributions and, secondly, on an actuarial base.

What I am saying in answer to that interesting intervention is that from the word "go" the insurance principle was a fiction. It was an important fiction for Beveridge to put forward because it was a way of convincing the vast majority of people that this would signal the end of means-tested assistance. It was not envisaged that people would benefit only if they had made the necessary contributions on an actuarial base.

One of the problems that we face stems from that fiction. If we believe the myth that we have an insurance-based scheme, we start to exclude people from that scheme because they do not have adequate insurance records. That happened at the start when Beveridge excluded the vast majority of single-parent families. Obviously, he could not foresee that the advance in medical knowledge would enable many disabled people to survive not only birth but well into old age. Such people were obviously excluded, because, by definition, they were part of the labour market and could not make contributions.

In many ways, the hon. Gentleman's intervention is valid. We have none of the advantages of an insurance scheme, but we have all the disadvantages of believing that we have an insurance scheme because we have based eligibility on the fiction of contributions. We have also witnessed Governments changing the level of benefits according to the size of the scheme.

It is dangerous to believe that if we could build up a surplus in the national insurance scheme it would allow Governments to increase the rates of benefit. History teaches that when we build up a surplus in the national insurance fund Governments decide to decrease the Exchequer's contribution to the fund. That is not a path that I wish to follow.

Before that interesting intervention, which involved what was and what was not an insurance fund, I had pointed out that on three occasions Governments had undermined their contributions to the scheme. During the post-war period Governments cut the size of their contributions. They did not back the graduated contributions with an Exchequer contribution. We are now faced with the Bill.

I have listened carefully to the debate, and it could be argued that both sides of the House have pleaded that the ceiling on contributions should be raised. The Government should consider what could be done with the additional revenue. The Secretary of State said that such a move could not be contemplated because private pension arrangements were tied to the level of contributions and the rate of the State graduated pension scheme. On many occasions the Government have taught us that it is easy to tear up previous agreements. If it is right to raise contributions and to adjust the formula for pension calculations, the Government should do that.

The regressiveness of increasing contributions can be mitigated by lifting the ceiling for employees, if not for employers. The additional revenue could be used to raise the floor for contributions. If I lip-read correctly, the Secretary of State just said that that was not possible. The Government have taught us that more things can be legislated for than most of us had dreamed of before we came to the House. The Secretary of State should take courage. He should draw on some of the things that the Government have done. He should make the world as we would want to see it. He should not consider previous measures as if they were laws of God that cannot be Changed.

In Committee I shall again plead that the Secretary of State should not increase the employers' contribution by raising the ceiling but should raise it for employees. He should use that revenue to raise the floor of the contribution at least to the level of supplementary benefit. In that way, nobody would contribute to the national insurance scheme from the part of his wages that was below the supplementary benefit poverty level.

The Low Pay Unit provided hon. Members with a brief. I am grateful to it for that. However, I take issue with the Low Pay Unit on one small point. It rightly draws our attention to the difference in contributions that two groups of workers will make under the arrangements proposed in the Bill. It draws our attention to the contributions made by those who have contracted out of the scheme compared with those made by people who have contracted into the State pension scheme. It pleads that, as those who have contracted out can set their increased contributions against tax, the same privilege should be allowed to those who are making national insurance contributions. I hope that the Government will not go down that road. I hope also that a future Labour Government will never go down such a road.

Mr. Patrick Jenkin

The hon. Gentleman said that those who have contracted out can set their increased contributions against tax. I think that he meant that they can set their contributions to private pension schemes against tax. Under the Bill, none of the contributions— increased or otherwise—can be set against tax.

Mr. Field

I am grateful to the Secretary of state for that intervention. I was trying to point out that there was an increase in contributions to the national insurance fund. If those who have contracted out make a similar increased payment to their private funds, they can offset that amount against tax. Even so, the House should not accept the Low Pay Unit's proposal.

The House must come to terms with the massive growth in tax allowances. We must control that loss of expenditure and not increase the drain on the Exchequer by granting yet more privileges that can be set against tax. It is amazing that the tax-benefit Welfare State has grown in such a way that only 45 per cent. of personal income if set against tax. We should debate how to bring more income into the tax net and thereby reduce the marginal and average rates of tax for individual taxpayers. We should not decrease the amount of income that is tax-free and thereby push up everybody's average and marginal rate of tax.

Within the next few decades all parties will have to face the problems caused when major pension companies become insolvent. Those companies will then be paying out pensions at a faster rate than that at which they receive contributions and investment income. The "British Leylands" of the next 20 years will be private pension funds. We must take a cool look at the problems that we are building up for future taxpayers. We are making it advantageous for individual taxpayers to sink some of their money into private pension funds. At the same time, we are giving them tax concessions for doing so. In addition, we are increasing the tax burden for the rest of the taxpaying community and leaving that community with some hefty bills, because private pension funds will run into serious financial problems within 10 or 15 years. At that time, the balance between receiving contributions and paying out pensions will have shifted, and increasingly private pension funds will be paying out an ever-increasing proportion of their income in pensions while at the same time receiving proportionately less in contributions.

I have sought to make two brief points. The first is that the Bill, coupled with the other measures that the DHSS has presented, will sabotage the Government's main economic strategy. That is a good enough reason to ask for support in the Lobby tonight. Secondly, the measure asks taxpayers to contribute more for less. During the next 10 to 15 years, parties will have to face the essential problem of how to persuade the electorate to spread the earnings that they have gained over 40 years over a lifetime of 80 years. That argument will never be heard if measures are brought before the House which seek to increase contributions and cut benefits. For those two reasons, I appeal to hon. Members to reject the measure in the Lobby tonight.

6.8 pm

Mr. Eldon Griffiths (Bury St. Edmunds)

The House will always listen to the hon. Member for Birkenhead (Mr. Field) when he speaks on this subject. He has spent a lifetime studying it. I was impressed by what he said about the possibility of many large private pension funds being forced to pay out, notionally perhaps, more than they had taken in. In part, that would reflect the fact that people live longer. I hope that the hon. Gentleman will agree with me when I say that if he fears such a possibility he will want, above all else, to reduce inflation. I believe that this measure is designed as part of a strategy to get down the level of inflation. Therefore, on the hon. Gentleman's own argument he ought to support it.

At the beginning, I should like to dispose of some of what I can only call the flim-flam. The hon. Member for Isle of Ely (Mr. Freud) talked about coypu. I am probably one of the few people in this House who have actually exterminated a coypu. I find it very hard to credit that somehow or other in Norfolk there are at present significant numbers of people who are being taken on for full-time jobs—whether at £56 a week, as the hon. Member said, or some other figure—to get rid of the coypu herd. That is not exactly the subject of the debate—

Mr. Deputy Speaker (Mr. Bernard Weatherill)

I was about to make that very point. Perhaps we should not pursue coypu.

Mr. Griffiths

As I have said, Mr. Deputy Speaker, I was very anxious simply to dispose of the flim-flam. That was the "flim". I come to the flam.

The flam is the noise that has arisen from the Labour Party about the alleged misleading of the House by my right hon. and learned Friend the Chancellor of the Exchequer. I do not think that any of those present this afternoon who have studied this matter will have pursued that accusation seriously. However, it is just worth recording that when I heard this charge against my right hon. and learned Friend I looked up the record, and I discovered four things. The first is that when earnings limits were altered, every year under the Labour Government, there was no special statement by the then Chancellor of the Exchequer. It was indeed treated as a normal and uncontroversial procedure.

The second point is that the formula for increasing the earnings limit is laid down in, of all places, the Social Security Pensions Act 1975, the product of the Labour Party, so Labour Members can hardly complain about the particular procedure laid down in the Labour Government's Act being followed.

The third point is that when I began to concern myself about the impact of this additional impost on my constituents who are employees I discovered, historically, that the previous Government increased the upper earnings limit every year. In particular, I discovered that in April 1975 the upper earnings limit was £69 a week, and by April 1979 this had just on doubled to £135 a week. I accept the point about to be made by the right hon. Member for Norwich, North (Mr. Ennals) before he even makes it. The Labour Government altered it at both ends. None the less, for many of my constituents the reality is that they doubled the upper earnings limit.

Mr. Ennals

Earnings doubled.

Mr. Griffiths

So they still are.

Fourthly, I discovered that not only did the right hon. Member for Leeds, East (Mr. Healey) introduce the 3½ per cent. national insurance surchage—which, incidentally, costs industry £3,500 milllion a year; it was the right hon. Gentleman's measure—but he was a leading member of a Government who raised the employers' national insurance contribution rate from 8½ to 10 percent., costing employers a further £1,500 million each year. It may be that there will be some hon. Members — the hon. Member for Birkenhead, I suspect—who would support the philosophy behind many of those changes. However—I leave the flam alone now—I think that I have said sufficient to demonstrate that it was a piece of classical parliamentary humbug on the Opposition's part to lay those allegations against my right hon. and learned Friend.

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

The hon. Gentleman has obviously done some homework. I have looked at the dates as well. Can he instance a single case in those four years when, on the day previous to the written answer, normally given in written form, about the change in contributions, there had been a mini-Budget from the Chancellor of the Exchequer?

Mr. Griffiths

I am always honest in these matters. I cannot give the hon. Gentleman a single answer, because I have not looked that up. But that does not detract from my central point: that the record speaks for itself and that it was a piece of classical humbug. It was rather effectively done. I congratulate the Opposition on their sense of press manipulation.

Mr. Peter Bottomley

Surely, the point made by the hon. Member for Birmingham, Perry Barr (Mr. Rooker) works the other way. On none of the other occasions did a Labour Minister come to the House and say whether the rate percentage would change. At least we had the advantage before the written answer of hearing that the employers' rate would not be changing.

Mr. Griffiths

I am grateful, as always, to my hon. Friend for coming to my rescue—when I was not in great need.

I come to the substance of the Bill. I have asked myself three basic questions. The first is whether we need it. The second is whether the proportions are right as between employees and employers. The third question is: once we have the money, what will the Government use it for?

I start with the need. I say at once to my right hon. Friend the Secretary of State that I do not like any further additional impost on the workers that will serve in any way to discourage them from work. In stating that, I think I am stating what is common ground on the Conservative Benches. I do not like it, but I belibeve that it is, in all the circumstances, neccessary.

I went into some detail. I wanted to find out what we needed it for. I discovered that ¼> per cent. is reguired to keep the fund in balance. This reflects in part the substantial increase in much regretted unemployment. I hope that the Opposition, when they come to vote against the Bill tonight, will not be voting against the additional moneys that will be required to keep the unemployment insurance fund in balance.

For a party that has, quite rightly, concerned itself with the impact of unemployment, it would be very odd if Labour Members were to be thought tonight to be voting against the money to provide unemployment pay. When we hear the winding-up speech from the Opposition, I hope that we shall hear the hon. Gentleman extricate himself from the dilemma that tonight he will be advising his party to go into the Division Lobby to vote against a fund that will put the national insurance back into balance.

I am not one of those who believe that unemployment is a passing phenomenon and that within two or three years, or less, we shall find the graph turning down. I hope that that is so. I believe that with luck and good management we shall see a significant reduction in the very high levels of unemployment that exist today, and may be higher still in the months ahead, but I am sure that there are some structural reasons why high levels of unemployment will remain, not only in this country but in much of the industrialised world.

One of the reasons is international events, over which we have very little control. If Saudi Arabia collapses and there is a further transfer on a large scale of wealth from the Western nations to the Middle East, there can be no dodging the consequence: there will be a further recession in the West and there will be higher levels of unemployment.

Secondly, we are in the process of major structural change, and new industries based on cybernetics, chemistry and telecommunications are advancing. The older labour-intensive industries are going into rapid decline. In this connection I declare an interest, for I am a director of a number of engineering companies.

Thirdly, I have no doubt that we are starting to pay some of the high price of a generation of low productivity. That low productivity is having the effect of making our goods uncompetitive. We are losing international markets and we are losing jobs.

For all these reasons, I do not believe that unemployment will start to recede just round the corner. We shall have to live with it and try to cope with some of the immense social and political consequences for most of this generation. I believe that that is common ground which it would be wise for the Labour Party to recognise. We are wrestling with it together.

So, on the first question, I believe that the new measure is necessary because of the ¼ per cent. that will go into keeping the unemployment fund in balance.

The second reason why we need the measure is that another ¼ per cent. is going into the health services. I congratulate my right hon. Friend the Secretary of State for Social Services on the fact that, during a period when all the pressures have been for substantial cuts in public expenditure, he has been able to keep the broad investment in health on an even footing—indeed, it is going up. But, of course, if we want to maintain or to improve the expenditure on the Health Service, the money has to be found. Once again, I put it straight to the Opposition. I hope that they will be able to demonstrate that, in voting against this measure, they are not voting against the ½ per cent. that will be used to maintain the health services over the coming year.

In my view, for reasons which the right hon. Member for Norwich, North knows better than probably anyone at present in the Chamber, the demand for expenditure, both public and private, in the Health Service will not decline. It has to rise very sharply, first, because of the large numbers of people who live longer, which is a welcome development; secondly, because of the increase in mental and geriatric problems; thirdly, because of the rapid advances in surgical techniques, notably in transplants and in prosthetics; and, fourthly, because of the exploding technology and high costs of modern medicines and drugs. For all these reasons, we shall have to find more money for the health services. Once again, this measure is a small contribution towards meeting that extra cost.

The third portion of this new impost that is needed is the ½ per cent. that will be used to reduce the Treasury supplement to the national insurance fund. As between the two sides of the House, that is probably the most contentious aspect of the Bill. I say at once that I am strongly in favour of it, because it is necessary to reduce the public sector borrowing requirement.

As a Government, we did not do well enough in our first 18 months in office to get a grip on public borrowing. Far too large a proportion of our taxes and contributions is being used to pay the interest on the previous Government's borrowing, and it is very much in the highest national interest that every effort be made to reduce the PSBR. I believe that the ½ per cent. that will be contributed from this source will help in that process, and therefore I am happy to support it.

I come to the concluding part of my remarks. Once the Government have got the money, for what exactly will they use it? I have indicated the three broad areas.

I was very impressed by much of the speech of the hon. Member for Birkenhead, and I hope that his cogent arguments will be dealt with. I am sure that he will forgive me if, in the interests of time, I do not develop them. I do not think that it is possible to put them more clearly than he did.

However, I hope that I might be permitted to put a démenti in the other direction. I remember Beveridge. It was a new light in the darkness. I speak as one who grew up in difficult circumstances in South Lancashire in the 1930s. To many of us who were serving in the Armed Forces, Beveridge was a new light of hope, and I was very glad to support it—indeed, it had all-party support. But I do not believe that Beveridge and those who supported him at that time would recognise the Welfare State as it is today. Without going into details, it is the most complicated, ramshackle and ineffective Welfare State that it is possible for man to devise.

A great many of those who need its help do not understand it. There is not an hon. Member of this House who does not at his Saturday morning surgeries have the difficult task of trying to explain to some of the neediest members of our society why they cannot have help as the Welfare State is organised. So, in this brief discussion of the national insurance contributions, I say that one development that I wish to see is a rapid advance in the Government's attempt to simplify and make more comprehensible the benefits paid by and the charges made for the Welfare State.

I have in my possession a document that I find of great value during my weekly surgeries. It is entitled "Which Benefit?", and it was published recently by the Department. It describes 60 ways of getting cash help, many of them provided under the terms of this and similar legislation. I leave it to the House to judge whether it is in every respect wise to push out official documents that will encourage more and more people to see whether they are getting every last penny to which they may be entitled. There are various views about that, and I leave it entirely to the House.

Mr. Bob Cryer (Keighley)

Members of Parliament do.

Mr. Griffiths

Does the hon. Gentleman wish to intervene?

Mr. Cryer

Yes. I find it very offensive that the hon. Member for Bury St. Edmunds (Mr. Griffiths), who is getting his Member's pay, pay for the directorships that he holds and Police Federation pay, should talk about people not receiving supplementary benefit or even information about their rights. As I understood him, that was what he was on about.

Mr. Griffiths

I do not propose to join the hon. Member for Keighley (Mr. Cryer) in the gutter. He has just slid into the House and got it not only wrong but rather nastily wrong. I was; saying no such thing. If the hon. Gentleman had been here a little longer, he would have realised that. My point is simple, and I shall illustrate it. We have an immensely complex and prodigiously expensive Welfare State, to which the Bill will make a further contribution. Far too often those in greatest need do not receive the necessary benefits, and those whose need is less receive benefits which they could do without.

I was driving along a lane in Suffolk recently when I came across a blind man who was walking a long way from the village. It was cold and dark. I had a long talk with him and subsequently examined his situation. He is a man of courage. He worked on a farm for six years while he was blind, and during that time he earned £10,000, which is not very much. He managed to put aside something more than £1,000, which, together with some other savings and the fact that he is able to live with his mother, puts him just above the supplementary benefit level. Consequently, he is not eligible for a wide range of benefits that are paid to others who are manifestly better off than he is.

The problem of those who are just above the supplementary benefit level has been discussed frequently in the House. It is not what Beveridge intended. While that blind man and many others are denied the benefits that they need, others, whose need is less, continue to draw significant benefits from our Welfare State. I am thinking especially of those who are retired, sometimes on a decent occupational pension. In the case of women under the age of 60 and men under the age of 65, they claim unemployment benefit, to which the Bill will contribute. They go into the statistics. Quite frankly, I do not believe that it is right that people in that position should be able to receive benefits. If they do, for reasons of lack of cash the same amount of money is denied to those who need it.

Another group are the self-employed. I declare an interest here. I suppose that many hon. Members are self-employed in one sense. When they move from one job to another, as is the nature of their work—for example, a violin player in an orchestra or other self-employed people in the professions—during the interim period between their engagements they claim supplementary benefit and frequently receive it.

There are those who arrange their lives to qualify for benefit. I am not thinking of the poor or needy who do not understand the way that the system works. I am referring to those who study the matter carefully. An example is a young couple who marry while the husband is a student and the wife a school teacher. They study the system and realise that if they have their first child while the husband is still a student, to a considerable extent they can both live on social security for a couple of years. Of course, the wife has a mortgage and the usual commitments based on a not inconsiderable salary. They manage to live comfortably. They are proud of their achievement because they studied the system.

I need not go further. The House knows perfectly well that there are many who do not need help from the Welfare State but who regard it not as a necessity to prevent them from falling into poverty — which was Beveridge's original idea—but as a means of receiving a little bit on the side. It is a supplement to an income which, in many cases, is fairly adequate. One of the consequences is that much of the available resources is moving in the direction of those who plunder the system and, therefore, is not available for the poor in genuine need.

I support the measure, for the reasons that I have given. It would be valuable to know how the Government propose to reform the balance and thrust of the Welfare State so that more of the benefits go to those whose poverty is genuine and less to those who are using the system as a racket.

6.36 pm

Mr. David Ennals (Norwich, North)

Before referring to what was said by the hon. Member for Bury St. Edmunds (Mr. Griffiths), I wish to apologise for having been out of the House for part of the debate. I shall be out of the Chamber for a further part of the debate because I am host to the United Nations High Commissioner for Refugees, who is visiting Britain.

I wish to follow the hon. Member for Bury St. Edmunds on a number of points, especially the last two. He said that it was not the job of Members of Parliament to explain entitlements to constituents. My hon. Friend the Member for Keighley (Mr. Cryer) intervened, and the hon. Gentleman said that he did not want to get into the gutter with him. I believe that one of the jobs of Members of Parliament is to ensure that constituents are informed of their rights under the Welfare State. What worries me more than the small number of people who may claim benefit to which they are not entitled is those who do not claim benefits to which they are entitled and which they very much need. If I misunderstood the hon. Gentleman, let him now intervene.

Mr. Eldon Griffiths

The right hon. Gentleman is courteous, as always. I did not say what he has suggested. I regularly explain the available benefits to people who do not understand the matter. If either the right hon. Gentleman or his hon. Friend the Member for Keighley (Mr. Cryer) are in doubt about the available benefits, I should be happy to give them a helping hand if they come to my surgery in Bury St. Edmunds.

Mr. Ennals

I have enough problems in my constituency, largely created by the Government. I shall not accept the hon. Gentleman's invitation. It may be that he was referring to the leaflet and saying that it was ill-advised to publish a leaflet about benefits and contributions just before the Government introduce legislation that changes the basis of contributions. If that is what the hon. Gentleman meant to say, I warmly support him.

The Bill has been introduced at great speed, and without adequate thought, to deal with a crisis. I shall deal with the flim-flams with which the hon. Gentleman began. I must not mention the "flim" because that was a coypu and I am not a coypu lover. On the "flam", the hon. Gentleman referred to what he thought was a public relations operation suggesting that the Chancellor of the Exchequer misled the House. I do not accuse the Chancellor of deliberately misleading the House. I am not sure that, when he made his statement, he knew what sum of money would be required from employers as a result of the Cabinet's decision. I doubt whether the majority of Cabinet Ministers knew what the effect would be. That was why the Secretary of State hurriedly went to the Prime Minister to indicate the implications of the decision. I am not saying that the right hon. and learned Gentleman deliberately misled the House. I am saying that he made a statement in which he did not make clear the effect upon employers. That led to a great deal of misunderstanding, including among the majority of employers.

The hon. Member for Bury St. Edmunds implied that he supported the Bill because it would bring new money into the NHS. Unless I misunderstand the Bill or have been misled, it will not bring in any new money for the Service. It may be a taxation method of paying for the NHS, but it will not bring in new money. Indeed, the Chancellor of the Exchequer said that among the savings to be made was a cut of £25 million in the funds available for the NHS. Far from bringing more money into the Service, the Government will take money from it.

What irritates me about the Bill is that it shows that the Government are stumbling from week to week with measures that they have not thought out. We spent many months in the previous Session dealing with legislation to take away the legal entitlements of those who paid national insurance contributions The Government introduced Bills to reduce the rights of pensioners and those on earnings-related benefits and the rights—written into statute—of those on short-term benefits The Government took away rights that had been paid for by contributors to the national insurance system. I fear that we shall have further legislation in the current Session that will take away further rights from recipients of national insurance benefits as a way of saving the Government from a dilemma into which they have got themselves.

The Bill provides that contributors should pay more for less. There was a discussion earlier about the insurance principle. Whatever that principle is, it is based on people knowing what they will get for their money in the end. Of course, the money is not paid into an account and conserved for contributors for when they retire or are sick. It is paid in order to provide for the benefits that have to be paid in that year, but each person pays contributions on the basis of a knowledge of laws passed by the House detailing what his entitlement will be. The Bill undermines still further the whole principle of the national insurance scheme.

The hon. Member for Bury St. Edmunds says that we have a complicated scheme and that Beveridge would be horrified by it. He has to recognise that we have introduced many benefits, especially for the disabled, that Beveridge did not conceive of, but certainly Beveridge would be horrified to think that we were using national insurance contributions as a form of taxation. The Chancellor of the Exchequer does not want to introduce a Budget at this stage. He has chosen to try to push the Bill through the House at drarmatic speed—the Second Reading today and the start of the Committee stage on Thursday—in order to raise taxation.

I say to any Conservative Member who claims that the previous Government adopted the same course that, as Secretary of State at that time, I believed that it was wrong to use the national insurance system as a means of taxation. I voted for it, but the present Secretary of State, who is introducing such a scheme, and, I suspect, the hon. Member for Bury St. Edmunds, who is supporting it, voted against it. I do not believe that national insurance contributions and the national insurance system should be used in that way

I agree strongly with what my ton. Friend the Member for Birkenhead (Mr. Field) said—namely, that, proportionally, the highest contributions are being paid by those on lowest earnings while those who are on highest earnings will not have to pay any of the additional impost. That is a regressive form of taxation compared with income tax, on which we shall no doubt be faced with increases in the next Budget.

I hope that the appeals made from both Sides of the House that the Secretary of State and the Government should reconsider both the higher and the lower levels will be heeded. If we are to have the Bill foisted upon employees, it should be done in a fairer way so that it will not hit as hard on the low paid and will hit harder on the higher paid.

The hon. Member for Bury St. Edmunds asked why the Bill was being introduced. The reason is that the Government have got themselves into an intolerable mess. They are failing to achieve any of the economic objectives that they have set themselves. They may say that the level of inflation is coming down, but it is only coming down from the level to which they increased it. They cannot expect much thanks from the country when we have a level of inflation at 15.4 per cent., which is 5 per cent. higher than the level that the Government inherited and when inflation was substantially increased as a result of the Government's taxation measures, particularly the increase in VAT.

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

The right hon. Gentleman says that is is wrong for the Government to take credit for the reduction in the level of inflation, but he was a member of the previous Labour Government who — having raised the percentage increase in inflation to the upper 20s — went to the country claiming credit for a considerable fall by May 1979.

Mr. Ennals

But that is exactly what we had achieved. We inherited a rising inflation rate which, at 13 per cent. in February 1974, was far higher than the level that the present Government inherited. It went up to over 25 per cent. but, as a result of negotiations with the unions and the responsible way in which they behaved, we brought it down, bit by bit, to single figures. That was no mean achievement. We got no co-operation from Conservative Members. It was a battle that we had to fight ourselves.

There is no credit for the Government in the present level of inflation, and it must be disappointing to them to see the latest figures on the level of earnings. The money supply is virtually out of control, and the estimates on the public sector borrowing requirement shows that it is hopelessly out of hand. Any thought of an increase in living standards was dashed by the Prime Minister, who said that the living standards of our people would inevitably have to fall.

The estimates of the Secretary of State for Social Services in the public expenditure White Paper about the level of unemployment have proved to be wildly wrong. Unemployment has risen much faster than was expected. The Government have got themselves into a mess and have looked for a quick way of escape. They have chosen the national insurance system and intend to hit hardest the employees, particularly those on low incomes, and by doing that they will make a further contribution to the rate of inflation. I hope that the Chief Secretary to the Treasury will tell us his estimate of the impact on inflation of the extra impost on employees.

The Bill is a retrograde step. It was rushed into the House without proper consideration. On Thursday there will not be much time to put it right. There is not much sign that the Government want to put it right. If they can make some improvements, we shall welcome them and do our best to make some. This is a panic measure, introduced because of the appalling economic situation resulting from the Government's policies.

6.50 pm

Mr. Anthony Grant (Harrow, Central)

The last time I spoke in the House my speech was followed by that of the right hon. Member for Norwich, North (Mr. Ennals). Today I follow him. I shall speak about the National Health Service later. However, I am glad to notice that the right hon. Gentleman no longer needs the services of the National Health Service.

The debate arises in the aftermath of the most ludicrous hullabaloo. Wild and absurd accusations were made concerning my right hon. and learned Friend the Chancellor of the Exchequer about misleading the House and other nonsense. Anybody who knows the Chancellor will know that he is the last person to mislead anybody, let alone Parliament. The accusations came ill from the right hon. Member for Leeds, East (Mr. Healey), because he introduced the charge and increased it. His attack was total humbug.

We know why the nonsense occurred. It took place during the Opposition leadership contest. The right hon. Gentleman had to make his mark. However, he resembles the man who spent a fortune on curing halitosis only to discover that his best friends did not like him anyway. We can disregard all that nonsense.

As my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths) said, the Bill has three purposes. I shall deal with two of them. The problem of unemployment takes up 25 per cent. of the Bill. I regret the necessity for it. I am deeply worried about the unemployment level, as I was when in Government. I am entitled to say that because when I took responsibility unemployment was about 1 million. When we left office, unemployment totalled 600,000. It was particularly galling to see that figure increased to 1,600,000 under the last Government.

I agree that high unemployment will be with us for a long time. In addition to the recession, we must face long-term structural unemployment. In future we shall not require as many jobs of the type which have existed. Somehow we must find replacements. That is serious and should not be the subject of wild and absurd accusations between the two sides of the House. We must do something about it. We must ensure that the necessity which arises in the Bill does not occur year after year.

Mr. Ennals

In the last 15 months of the Labour Government the unemployment level fell each month. Since then the level has increased by 600,000 or 700,000. Was not that a dramatic change in direction?

Mr. Grant

We must examine the record. It is necessary to make political points. When the Government of which the right hon. Gentleman was a distinguished Cabinet member left office, unemployment was 1 million more than when I left office. That is the plain arithmetical fact. In the long term we must discover how to deal with the underlying difficulties of unemployment and thereby avoid the necessity of increasing the constantly rising contribution to unemployment benefit. I am not particularly optimistic, but I have no doubt that one of the ways to do that is to encourage small businesses. That is the only hope. New industry must replace old industries.

I warn my right hon. Friends that if we are not careful more and more people with an entrepreneurial spirit will disappear into the black economy. That is already happening and it is likely to increase. If the burdens upon people who are valuable contributors to small businesses and the creation of new jobs increase, more will go into the black economy and we shall have further reason to fear the level of unemployment.

Some of the keenest and most enthusiastic of my young constituents who work hard opt out of the system. They refuse to be involved in national insurance stamps or paying tax and they disappear into the black economy, never to return. The Government should take that seriously.

Mr. Eldon Griffiths

Is not that exactly why the Government are right to avoid putting the bulk of an increase on to employers? Should they not share it with the employee, as they are?

Mr. Grant

My hon. Friend is right. That is exactly the point that I sought to make.

I turn to the question of the National Health Service. One-quarter per cent. of the increased charge will be attributable to the National Health Service. I agree with the right hon. Member for Norwich, North that the amount of money available to the National Health Service will not be increased. However, the Government are to be congratulated on maintaining the planned growth of the Health Service and for spending more in real terms than in any of the years when the Labour Government were in power. One result is that the number of people on hospital waiting lists has fallen, from 250,000 under the Labour, Government to 90,000 this year under this Government.

I make no apology for repeating what I said in the House a few weeks ago—that there is a need for the Government to take seriously the National Health Service's financial mess and muddle. One of the reasons is the insufficient use of private enterprise in the ancillary services. I have already declared an interest in a company involved in such work.

The Bill will provide £254 million for the National Health Service. That is the approximate cost each year of cleaning the hospitals. Only 2 per cent. of cleaning is done by private enterprise. In other countries the percentage is higher. Whenever private enterprise has been used in ancillary services, it has been more efficient and cheaper. That better use of resources has freed money for vital medical services.

Great trouble is occuring at a fine hospital, the Great Ormond Street children's hospital. If the press is right, there are quite disgraceful goings on under a singularly unsavoury character who, I believe, is a member of the New Communist Party, whatever that is. We may have further enlightenment about that. That hospital used to be cleaned by a private enterprise firm. Then it was decided to go back to direct labour. After it went back to direct labour, this strange character emerged, and now, much to the detriment of sick children, the system is causing disruption.

The idea that direct labour somehow gets over enormous industrial relations problems is a total illusion. Therefore, the argument used against private enterprise—that there will be industrial relations problems—is not valid.

I therefore ask Ministers, who I know want this to happen, to get hold of the area authorities, shake them up and tell them in no uncertain terms that if they want to continue, if they want the Health Service to have more resources for medical matters, they must use private enterprise where it is feasible and practical so to do. I would like my right hon. and hon. Friends in the Department of Health and Social Security to conduct a vigorous campaign in this connection in the coming year, if the Health Service is to benefit.

I regret very much the necessity for the Bill, but I accept that it is necessary. I intend to vote for the Bill, as my hon. Friends should do—I am surprised that the Opposition are dividing the House in the circumstances—and if it receives a Second Reading I hope that the Government will heed the observations that I and my hon. friends have made and ensure that a similar Bill will not be necessary this time next year.

7.2 pm

Mr. Ioan Evans (Aberdare)

On Second Reading of the Hill we are discussing the basis of the Welfare State. This measure is one of a number of measures that have been put forward by this Government to Undermine that basis.

The hon. Member for Bury St. Edmunds (Mr. Griffiths) recalled the war years, when the Coalition Government set up the committee under the chairmanship of Sir William Beveridge to consider the reorganisation of the social services. The idea was that we were fighting to create the Welfare State.

There was a telling phrase in the Beveridge report, which said that there were five giant evils on the road to progress — want, ignorance, idleness, disease and squalor. The aim of the Government that came in at the end of the war was to remove those evils. Under this Government, we are seeing a return of those evils. Ignorance is returning with education cuts, over-sized classes and the denial of real provision to educate our children—all due to the present Government. Squalor is returning, with local authorities denied the resources to create a good local community. The evil of idleness is certainly returning. The increase in unemployment since this Government came to office is the result of their economic strategy, the aim of which seems to be to increase unemployment. The Conservative Party at one time wanted to minimise unemployment and to avoid the problems facing industry. That is why they, too, gave financial support to industry and why we have all sought

But what we are concerned about in the Bill and what Beveridge was concerned about is the problem of poverty. The Labour Government brought in the Welfare State and a huge range of social services under the national insurance and industrial injuries legislation and the National Health Service Act. The last of these was opposed by the Conservative Parry. This was despite the fact that Beveridge made it clear that medical treatment should not depend on insurance contributions or on income, and should be given to those who required it, irrespective of income.

The hon. Member for Harrow, Central (Mr. Grant) talked about provision for the NHS. Under this Government, the prescription charge has been increased again and again. It has gone up from 20p to £1. There are new rumours in Fleet Street that the next Budget will increase it even further. People in need who do not qualify for social benefit may be given four or five prescriptions by their doctor, Under this Government, they have to pay £4 or £5 for these prescriptions. That undermines the whole concept of a free Health Service.

Mr. Anthony Grant

If the hon. Gentleman had been listening, he would have noticed that I described a way in which money could be saved in the NHS by the greater use of private enterprise for the ancillary services. That could avoid the need for increases in prescription charges and might even reduce them. Therefore, do I have the hon. Gentleman as an ally when I say that we should move away from direct labour to more use of private enterprise in the ancillary services?

Mr. Evans

We all know this theory of privatisation. We are all free to holiday in Monte Carlo and dine at the Ritz. Increased privatisation of health provision will mean that people with a large bank balance will be able to have minor ailments dealt with while poorer people with serious illness will be denied treatment.

Beveridge's idea of the social services was based on a national insurance scheme which would ensure that people would have adequate benefits when they were unemployed. But that still leaves those who do not qualify for unemployment benefit, for whom the social security system must act as a net.

I want to deal with a serious development which shows that the party political consensus for maintaining the Welfare State is being undermined. I want to quote two letters that I have received from the social security office in my constituency. The first relates to a Mr. R, who was told that he should go to a re-establishment centre. Having been there a week, he decided to leave. The local social security office, in answer to a letter of mine, wrote that he volunteered initially to attend the Department's Re-establishment Centre at Henley-in-Arden near Birmingham in February of this year. We obtained a vacancy for him on 16th June 1980 and he travelled to the Centre on this day, he stayed there one night and returned home on 17 6 80. He re-claimed at this office on 30 6 80 stating he would not stay at the Centre because of the amount of pocket money he would receive whilst there". In fact, he tells me that he saw no purpose in remaining. He received £5.95 a week, after having lost his social security benefit. In Britain, in 1980, an adult is expected to live on £5.95.

Mr. R did not stay at the centre. We are told that working people are asked to volunteer for these resettlement camps. It is rather like volunteering in the Army—"You, you and you". Mr. R volunteered, and went, but he did not stay. The Department decided to seek a Section 10 directive from the local appeal tribunal, this was done and as a result of this claimant is now under the Section 10 directive from 11 August 1980 to 11 August 1981, and this means that unless Mr. R attends the Re-establishment Centre, his Supplementary Benefit will be withdrawn. We have always understood that a person in financial need may go to his local social security office to obtain financial help. This individual has been told that his social supplementary benefit has been stopped. If he were living in a wealthy family, he could ask his brother or parents to assist him. However, he is living with his mother, who is also on social benefit. Her social benefit was reduced because her son was also in receipt of social benefit. This 31-year-old man, who has no means of income, is having to live on the social benefit that his mother is receiving.

When I was told that in my constituency surgery, I did not believe it. I thought "We can say things about this Tory Government"—I have said a few things myself—"but they would not go that far." The hon. Member for Bury St. Edmunds has talked about the gutter. It seems that we have reached it by denying social benefit in this way.

Another case was brought to my attention. A person who is unemployed came to see me. He has been unemployed for only 18 months. If a person has been unemployed for 18 months in South Wales, that is not bad going. In my constituency there is 17 per cent. male unemployment. Beveridge talked about 3 per cent. unemployment. At the jobcentre there are nine vacancies. That is what the Government's economic policy is doing to industry in my valley. We cannot expect an individual to get a job. It is impossible to do so in the present industrial climate.

In another instance a mother came to see me. She was upset. She happened to be of a nervous disposition. Her son did not want to go—I am tempted to call it a concentration camp—to a resettlement camp. He had a good reason for taking that view. The thought of having to leave Mountain Ash in my constituency to go to Henley-in-Arden, to the resettlement camp was something that the mother felt would have an effect on the family.

What happened? When Mr. K. was asked to attend the centre at Henley-in-Arden, he declined. Of course, we are told by the Government that they are asking for volunteers. One would think that if Mr. K. declined to be one of the volunteers his decision would be accepted, but that was not so. One would think that he would continue to receive his social security benefit. Again, it is his only means of finance.

An independent appeal tribunal considered the issue on 30 June 1980 and directed that Mr. K. should attend the centre. The tribunal stated that it had no doubt that the period at the resettlement centre at Henley-in-Arden would be most beneficial to Mr. K. However, he failed to go there. As a result, his supplementary benefit was withdrawn.

Those are two individuals in my constituency. It may be that they are the tip of the iceberg. I make no complaint that there are those who have come from abroad to Britain who have received social benfit. They have done so because they have been in need. That is the basis of a Welfare State. I am talking about two individuals—one is aged 31 years and the other is younger—who have been denied aid although they are seeking employment.

There are employment difficulties. I am aware that there is a world recession. However, the Government are adding to the recession. Since the Government took office, companies have collapsed in my constituentcy that were there since the end of the war. Unemployment has increased to over 3,000. We are witnessing the denial of the basis of a Welfare State. The Welfare State means that if a man is in need the Government will give aid. That principle has been thrown overboard by the Government.

Yesterday in The Sunday Times Isabel Hilton wrote about the jobcentres. They have been described as being run like Colditz. It seems that the Department wanted to involve the media following my complaint. It explained to the media what a good thing the resettlement camps are. It took the reporters and television cameras to Henley-in-Arden and other camps. The reporters talked to those at the camps. We have been led to believe that they were volunteers and that the Government were trying to help the unemployed by taking them away from their homes and involving them.

What are they doing at the resettlement camps? Yesterday The Sunday Times stated: The day at Plausworth, near Durham, and at Henley-in-Arden begins at 7.30 am and the lights are turned out at 11 pm. We are talking about adults of 30 years, 40 years and 50 years. The report continues: The accommodation is spartan—in both places a series of low, temporary buildings which have in the past served a variety of purposes. The work the men do is basic carpentry, cleaning, kitchen or garden work, in return for which they receive £5.95 a week 'pocket' money. Most of those with whom the journalists spoke complained that they had not wanted to come and that the centre was doing them no good. Tony Underwood of Doncaster said: I'm here because I had no choice. I'm not learning anything. Another said: We call it Colditz. The Government will probably argue that there has been something of the sort on the statute book for many years. If we had full employment, and if there were more jobs available than applicants to fill them and there were those who were workshy, there might be a case for doing something of the sort that I have described. I believe that some of the camps have been used in the past for itinerants who have no proper sleeping accommodation. It can be argued that the camps serve a social need if they are used for that sort of purpose.

That does not apply to those who are seeking work and who have been denied the opportunity of getting work. There is an obsession among Conservative Members about public expenditure. How much does a place cost at one of the camps? It costs at least £100 per week to keep a man in prison. Presumably the Government are spending over £100 a week to send unemployed persons to these camps.

I have heard it said by the DHSS that there are those among the unemployed with psychiatric problems. However, there is a report in The Times about a psychiatrist, Leonard Fagin, who has studied the problems of the unemployed. He believes that the regime at a resettlement camp can damage morale and that unless work has some meaning it is merely a substitute. There is a report in The Daily Telegraph today from a journalist, Mr. McIlroy, who has been in touch with the Department and with the camp at Henley-in-Arden.

We understand that in 1950 there were 10 resettlement offices. Under the present Government the number has increased to 950. I do not know what that increase has cost us. I suggest that there are many who are entitled to benefits who are not claiming them.

As Members of Parliament, we have to act as advisers to people seeking help. We often ask whether they are receiving mobility or attendance allowances, and they say that they have not been advised that they are legally entitled to such benefits. The DHSS staff should advise people of their legal entitlements rather than harass the unemployed.

A recent article in Labour Weekly was headed: Putting frighteners on the unemployed". [HON. MEMBERS: "It is biased".] Yes, Labour Weekly is biased, but it has a bias to try to help those people. The Government have a bias to try to injure them. The article states: It's Britain 1980, and the men arrive at the centre. They don't know how long they will have to stay there, but they know they'll have to obey orders. Orders may cover keeping themselves and the centre clean and submitting to a medical examination. Failure to obey orders can lead to one month's imprisonment, but the centre itself is not in fact a prison—it's run by the Department of Health and Social Security.

I raised this question with the Prime Minister after we had heard that, because the Government had got into trouble with the Prison Officers Association, the Home Secretary advised magistrates not to send people to prison, even if they had committed a crime I am all for keeping the prison population down, but I do not know whether that is the right way to do so. The Government are now compelling people, whose only crime is that they are unemployed, to attend a resettlement camp in order to receive social security payments.

The Government are undermining the whole basis of the Welfare State. I do not know how many people have lost benfits. The Under-Secretary of State said that it would cost too much to find out the details. Is that because there are so many? What is the reason? The House should demand an answer. There are only 17 resettlement camps. In an attempt to reduce benefits by £50 million, the Government are using these unscrupulous methods to deny people benefits to which they are entitled.

That comes ill from a Government, members of which have been advising the Rossminster Group, which, it has been disclosed, has avoided paying taxes. The Chief Secretary to the Treasury and the Under-Secretary of State for Health and Social Security shake their heads, but the Financial Secretary to the Treasury, the Secretary of State for Trade and the Minister of Agriculture, Fisheries and Food were accused of that in the Granada television programme "World in Action". If it is not true, I hope that the Ministers referred to in the programme will tell the House that it is not true. Nevertheless, whether we now have a denial that they were involved—the denial has rot come from the Ministers concerned—we cannot get away from the fact that there has been massive tax avoidance. In the last Session we had a Budget that took the burden off the wealthy, but in the Bill the burden is being imposed on the people who can ill afford it.

I hope that the Minister will say someting about resettlement camps in his reply. Even if my right hon. and hon. Friends support the Bill, I shall not support it, and I intend to return to the matter at a later stage unless the Government give a full explanation.

7.25 pm

Sir Brandon Rhys Williams (Kensington)

Unfortunately, I had to miss part of this debate in order to lead a constituency deputation to the Minister for Health; but I was glad to hear the opening speech of my right hon. Friend the Secretary of State and the reply by the right hon. Member for Salford, West (Mr. Orme).

I am sorry that the right hon. Member for Salford, West will no longer be leading for the Opposition on this subject, because he brought to it a great wealth of sincerity and a grasp of the details, which was valuable to the House and much appreciated on both sides. However, his contribution and that of my right hon. Friend the Secretary or State reminded me of a mysterious game of three-dimensional chess, the rules of which had almost been forgotten. We are reaching the dangerous point where the national insurance system has become such a specialised study that there will soon be no one who understands it.

I welcome the Bill—I shall certainly vote in favour of it—because it is a necessary step towards realism. It contains a number of elements—for example, a reduction in the meaningless Treasury contribution. I have never had a satisfactory explanation of why the principal Act of 1975 adopted the idea that the Treasury would make an 18 per cent. contribution. Why not 25 or 55 per cent.? From somewhere in the history of national insurance 18 per cent. has grown up as a more or less annual figure, and now my right hon. Friend suggests a reduction to 14.5 per cent.—another completely meaningless figure. It bears no relation to reality.

Mr. Freud

When the hon. Gentleman talks about realism, will he bear in mind tha the Bill will enormously narrow the gap between the low-paid worker and the normally paid recipient of social security benefits? What is realistic about that?

Sir Brandon Rhys Williams

I do not wish to enter into points that would be better raised in Committee. It may surprise the hon. Gentleman, or please the House, to know that I believe that the Bill serves, as has been said, to undermine the national insurance system, and I am glad that it does so, because it is time that it was ended. It also introduces an increase in the visible share of the real burden of the Health Service to be met directly by the beneficiaries. Why should not beneficiaries bear the whole cost? In fact, the beneficiaries pay for the whole cost, but the money does not go through the national insurance fund. It reaches the National Health Service, and through the Health Service it flows back to the beneficiaries through another route. That should also be examined. More seriously, I believe that the Bill will serve to awaken the public to the need to avoid waste in the Welfare State, to avoid misdirection of resources and to insist upon better priorities in the use of the contributors money.

I said that I welcomed the Bill. I do so because I believe that it indeed serves further to undermine the national insurance system. I do not believe that anyone on either side of the House would deny that it is becoming an increasingly rickety sham. It started off on a basis of humbug when the original prospectus was launched by Lloyd George. We were told that it would be financed on the basis of 9d for 4d. Anybody can see that there was something fundamentally wrong from the beginning in such a system. It plainly was an advertising stunt and was not intended to be a convincing and actually sound scheme. [Interruption.]

If the hon. Member for Isle of Ely (Mr. Freud) does not join me in criticising Lloyd George, perhaps he will join me in criticising the national insurance system, which is now based on earnings-related contributions for flat-rate benefits. I personally believe that that is not only right but inevitable, but it is not insurance. It does not have any relationship to any conceivable insurance system. I welcomed and, in fact, I worked for the move towards the financing of the social security system on the basis of earnings-related contributions. I am glad that it happened. However, we need to go much further and to clarify our thinking, not simply to come to rest at this ridiculous halfway point where we find ourselves tonight.

Another aspect of national insurance systems that, to my mind, is utterly illogical is that the benefits change by reference to factors that have no relation to contributions, past or present. The cost of living index determines the level of benefits, but the cost of living index is completely apart from anything that contributors may have put in and which present contributors may be paying. I am well aware of the French concept of repartition — that the redistribution of income is paid for through the arisings of contributions at the same time as the payments are being made. However, the cost of living index is not a fair fulcrum on which to balance the two sides. It is more in the nature of goblin fruit. It looks delicious until one tries it, and then one weakens and dies.

Mr. Frank Dobson (Holborn and St. Pancras, South)

It is like voting Tory.

Sir Brandon Rhys Williams

There is an aspect of the national insurance system that I think the hon. Member will agree is unacceptable—namely, that, because of deficiencies in the contribution record, benefits are withheld from the people most in need. How can we welcome and wish to perpetuate a system that operates on that basis? It is the exact opposite of what we want.

Also, the automatic nature of the supplementary benefit undermines the whole morality of the system, because the beneficiary qualifies for the one because he has failed to qualify for the other. There is no point in someone making contributions and building up his self-respect on the idea that he has an entitlement to national insurance, because whether or not someone has an entitlement he is entitled to fall back on another aspect of the Welfare State that will protect him from need. The contribution record and everything to do with it is another pointless sham and a waste of time.

I of course accept—and I agreed with the right hon. Member for Salford, West when he said this afternoon that it is important to give the feeling—that the benefit is paid as of right. But it is wrong to duplicate the tax system simply to create that illusion. For instance, child benefit — the former family allowances — was not paid by relation to contributions or to need, and yet there was a virtual 100 per cent. take-up of family allowances. It did not need a contribution record to give people the feeling that their family allowances were payable as of right and that there was no humiliation in drawing them. On the other hand, only a proportion of beneficiaries claim the family income supplement, because of the humiliating element about having to claim. The difficulties of doing so choke off the very people whom we should like to have that benefit.

It is wrong to perpetuate a system that makes it a condition of entitlement that people may not work in order to qualify for unemployment relief—that is to say, they may not work or must not admit to working. Every hon. Member knows that a large proportion of the unemployed enter into work for remuneration of one kind or another. Good luck to them. It is right that they should do so and wrong that we should try to keep a system that enforces idleness on them or enjoins them to become completely idle in order to qualify for benefit. I realise that if we were to encourage people to enter into part-time work when they come out of full-time work there would be a problem for the tax collector; but the pay-as-you-earn system is also a rotten, crashing edifice, and it is high time that we reformed that, too.

Let us look at the national insurance fund itself, which is so much the exercise of the Government Actuary in his supporting paper. The national insurance fund constitutes meaningless symbols. The money has to come from the taxpayer-contributor in order to be paid to the taxpayer-beneficiary. It does not come out of a fund. It does not go into a fund. There are no real assets. It is merely a paper transaction of meaningless value. There is no real carry- over in the national insurance fund from one year to the next, or even from one week to the next. There are no real assets. The whole pretence is simply a waste of time.

When unemployment rises, as we have seen in the past year, there has to be a rise in income tax or contributions—but income tax and contributions are the same. They are levied in relation to income on an earnings-related basis, and there has to be a rise from somewhere. Whether one calls it a rise in contribution or a rise in income tax is virtually immaterial. There is no fund and there are virtually no benefits.

I believe that the right way is to reconstruct the whole system around the concept of citizenship rather than contributions and to forget the entire fiddle-faddle of the earnings record and entitlement through contributions. We should provide a minimum income guarantee for every citizen, whether in work or not. That sounds revolutionary, but, of course, we are doing it already. I do not believe that we have any citizens—or very few—who die through lack of a minimum income guarantee. We are already providing it, but we do not admit it to ourselves. We do it in a way that gives unnecessary work to tens of thousands of officials.

When people are in work, the minimum income guarantee should replace the net worth of the tax allowances, and when people are out of work it should provide the core of the relief of need without resort to any test of means. In other words, what I am returning to is the need for a full-blown tax credit system instead of the rotten old structure of national insurance.

Some people say that we cannot afford to introduce a tax credit system for the foreseeable future. I say that we cannot afford not to do so because of the approaching administrative collapse of the ridiculous structures that we are still maintaining.

I am sorry that my right hon. Friend the Chief Secretary left the Chamber while I was speaking. I should like to ask him whether he sincerely wants to be efficient in the redistribution of income. I believe that a tax credit scheme of one sort or another has to come. The present system is grinding to a halt so fast that I feel confident that a tax credit scheme will come, and soon enough for me to live to see it.

I shall vote for the Bill tonight, but I hope that we shall very soon see the reconstruction of the whole rotten, divisive, unfair, inefficient, costly and humiliating edifice of the British welfare system on lines that are efficient, comprehensible and humane.

7.29 pm

Mr. Robert Hughes (Aberdeen, North)

The hon. Member for Kensington (Sir B. Rhys Williams) made a very interesting speech. I do not want to go too far into the very fine detail with which he presented his case, but I can say that from time to time all of us have constituents come to us because their benefit has been ended and they have fallen foul of the system. That often happens in relation to unemployment benefit, the qualification for which is the number of weeks that one has worked, or not worked, in the previous calendar year. Therefore, people are forced on to the social security system when they should not be, because they have been off for a week or two more than the time allowed in the Act.

I agree with the hon. Gentleman that the way in which the benefit system operates is far too complex and cumbersome. It has grown up over the years in an ad hoc way. As there has been a demand for a particular kind of benefit, it has been grafted on to the original system. Therefore, we have a whole range of different benefits. People never know which they qualify for or do not qualify for. A person may apparently qualify for one benefit and then find that he cannot receive it because he is in receipt of another benefit. That leads to all kinds of expectations being raised. What we really need is a minimum guaranteed income. With it, we could do away with many different benefits and have one proper benefit.

It is inevitable that in this debate what the Chancelor of the Exchequer said in his statement, what he meant to say and what he did not say, how he said it and whether he misled the House, should play a large part. Hon Members on the Government side have rightly—I give them credit for it—rallied to the right and learned Genteleman's defence. They have said what a marvellous man he is and, that he is a man of great integrity who would no more seek to mislead the House than to fly. They say that it was all a misunderstanding by those who listened to the statement. That goes so far as to pretend that the row over what the Chancellor said was bogus and humbug, part of what might be described as the ya-boo of politics.

In fact the matter was much more serious. It is worth quoting exactly what the Chancelor said. Having gone through all the business of the increase in rates and so on, he said: Having regard, however, to the financial pressures on industry and the way in which the employer's share has grown in recent ears, employers' contribution rates—including hte surcharge—will remain unchanged.'

Mr Patrick Jenkin

"Rates".

Mr Hughes

Of course the Chancellor said "rates". I repeat the sentence in case the right hon. Gentleman thinks that I am misleading the House: Having regard, however, to the financial pressues on industry and the way in which the employer's share has grown in recent years, employers' contribution rates— certainly, "rates" — including the surcharge—will remain unchanged."—[Official Report, 24 November 1980.] However, that contrasted with the way in which the Chancellor stressed how the rates and contributions of ordinary individuals were being increased. It is a question not of the exact words but of the tone in which they were said, stressing the financial difficulties that industry faces. The Chancellor certainly gave the impression, in a statement that was not wholly welcomed on both sides of the House, that the employers would not pay any more.

Mr Peter Bottomley

Does the hon. Gentleman know whether it would be legal to apply the unchanged rate to an earnings range different from that on which the employee pays his national insurance contribution?

Mr Hughes

My understanding is that the Chancellor could have changed the rate and left the total paid by industry exactly the same. In any event—

Mr Andrew F. Bennett

We now have the Bill.

Mr Hughes

I was coming to that. Even if my interpretation is wrong, we have a Bill to change the rates. The Government could easily have reduced the employers' liability under the Bill.

A clear impression was given in the House, and it was widely understood outside, that because of industry's great financial difficulties—the problems of liquidity and high interest rates — the right hon. and learned Gentleman would not add to its burden through this measure. The fact is that he has increased its burden. The Chief Secretary to the Treasury admitted, once the whole matter became public knowledge, that it would probably have been more prudent to make both announcements on the same day, at the same time.

Perhaps the Chancellor did not understand the position himself. What happened may or may not have been inadvertent, but it came after a whole series of occasions on which the Government made information available by written answer. They had ample opportunity to make the information available. This is what distinguishes this occasion from previous times when both rates and the sums involved were increased and the information was made available by written answer.

I do not dispute that in the days of the Labour Government the liability on both industry and individuals was announced by written answer. However, the Chancellor came to the House with a prepared statement about what was happening, and, for reasons that none of us fully understands chose to remain silent about the additional burden that was being put on industry, If the Government are to retain any credibility, they must be honest with the House and the country.

Under the Bill, a sum of about £1 billion will be raised from workers. Who will pay the money, and how will they pay it? In line with what might almost be called Tory orthodoxy, the lowest paid will be the worst hit. If there was any cheering aspect of the Chancellor's mini-budget, it was the return almost to Tory orthodoxy. The Chancellor seemed to be almost turning his face against the new-fashioned monetarism.

The lowest paid will have to bear the biggest proportional burden. For example, I understand that those who earn between £27 and £29 a week will now pay between £2 and £2.25 in national insurance contributions. That can be described only as regressive taxation. When it is applied to people at the lowest end of the scale, it contradicts a Government who suggest that they came to power with a compassion for ordinary people.

One of the reasons why people at the bottom end of the scale are so badly hit is that the upper limit of the rate has been increased by 22 per cent. but the lower limit has been increased by only 15 per cent. I am advised that the result is that a substantial proportion of 3 million part-time workers in particular will be caught by this new tax—or surtax. That is the advice from reliable sources. It is up to the Government to challenge those figures if they are wrong.

The Government always claim that they came to office to help people, to free them from the restrictive burdens of bureaucracy and so on. If we look at what has happened to marginal tax rates since the Government came to power, we can see who benefits. By next April workers earning the equivalent of £40 a week, at 1979 prices, will keep only 62.25p of every additional pound earned, compared with 68.5p before the June 1979 budget. Those earning £500 a week will keep 40p out of every additional pound, compared with 17p before last year's budget. Here again, we see people at the top end of the scale getting a much better benefit from the Government.

That is typical of the way in which the Government have operated throughout, simply because they have never been in control of the economic situation. They are not in control now. They seem wholly to have misunderstood, or misread, the effect on the public sector borrowing requirement of the increase in unemployment. It was largely the great increase in the PSBR that led the Government to introduce the Bill.

I do not see the Bill, and the way in which it hits the lower paid, as something in isolation. It is part of a consistent attack on the living standards of working people. We know that benefits have not kept pace with inflation. That is a deliberate policy and the Government cannot deny it. We see increased rents for local authority houses, and there will be increased rents for those who live in private rented accommodation. This is a further attack on working people. We have also had the increase in prescription charges, going up from 20p to £1 per item.

The retail chemists have been stating recently from their own direct experience the more horrific details of people who are asking for time to pay the prescription charges. People are saying to the chemists that they can pay only so much today and that they would like to pay the rest at the end of the week. These reports are not coming from the wild people of the Left. People who criticise the Government are usually quoted as being wild people of the Left. I hardly think that spokesmen for the retail pharmacists can be described as the wild or the loony Left.

The number of people employed in social security benefit offices is being cut, with very severe consequences. It not only adds to the number of unemployed; it leads to a very great reduction in the service given to the people who need the service, and this is happening at a time when they are having to pay more for it. I am sure that every hon. Member, from his own constituency experience, could give dozens of examples—if not more—of how the system is operating today. Perhaps I might be allowed to give just two examples from my own experience.

A constituent came to me and said that she had been thrown out of the house by her husband. The local authority, acting in a very humane and compassionate way, transferred the tenancy of the house to her because she had the children. When she eventually received the keys to the house, she discovered that not a single item of furniture—not even curtains or the linoleum on the floor—was left in the house. Everything had been taken by the husband when he left. When she went to the social security office and asked for some assistance to have the house furnished, she was told "No, you are not entitled to any additional benefit. You are not entitled to any special needs allowance for furniture."

I then raised the matter with the local office, which investigated it. Once the investigation had taken place, the local office made some money available to her. I also received an apology from the office because the initial decision had been taken without even investigating the circumstances. Unfortunately, that is the sort of climate that is to be found in social security benefit offices today.

Mr. David Myles (Banff)

Is the hon. Gentleman suggesting that it is because of the Government that there are weaknesses in the running of social security benefit offices? Surely, it was the civil servant in the particular office who was failing in his duty. It was not the fault of the Government.

Mr. Hughes

I am very grateful to the hon. Gentleman for that intervention, because it leads me to the very point I want to make. I am indeed blaming the Government for cutting the amount of money available, for reducing the number of staff in benefit offices and for creating a climate of opinion in which people who are genuinely in need are being classed as scroungers. The whole emphasis now is that people should get as little as possible.

There has been an increase in the number of inspectors in the DHSS to look for the so-called scroungers, the tax dodgers—sorry, not the tax-dodgers; I shall come to them later—and the so-called unemployed. The whole emphasis has changed. The basis of the whole system of social security, the Beveridge system, was that when people in need went to the office for help, instead of having to know everything about their entitlements, the staff in the office were supposed to say "What are your circumstances?" and "This is how we can help you." That is not hapening today. Where discretion is available to the staff working in the offices, that discretion very often is not being properly used.

My second example concerns a man who had been unemployed for a number years and who had been asked to go to work in a fish house. He tried it, he lasted there for one day and he had to give up the work. He was not entitled to unemployment benefit because he did not have any contributions record to sustain a claim. He was told that he would not get any social security benefit because of the way in which he had behaved. I should emphasise that the individuals to whom I go in the local offices with particular complaints always investigate them thoroughly, they are courteous, and more often than not they come down on the side of the claimant. But far too often, at the initial contact between claimant and social security office, the decision is against the claimant. He then has to go through the whole appeals procedure in order to try to get the benefit to which in many cases he is shown to be entitled.

Mr. Myles

Is the hon. Gentleman suggesting that this never happened under the Labour Government and that it happens only now?

Mr. Hughes

I am sorry if I have given the impression that incidents of this sort began only when the present Government took office. That is not the case. Of course, they occurred previously as well. But, from my experience, there has been a big increase in the number of people who are getting this kind of treatment. At the end of the day, things very often work out in favour of the claimant. That does not happen only because I have raised the matter with the local office. Other people raise issues as well as Members of Parliament. But people often come to me long after the event, when it is too late for me to help. They tell me their problems and I say "I wish you had come at the right time." I believe that for every case which reaches a Member of Parliament—or is dealt with by the citizens' advice bureau, the local minister or the local councillor—there must be at least four or five people who simply accept the initial decision and who suffer badly as a result, together with their families.

This is happening because of the new climate of opinion in benefit offices. We have not heard much recently from the hon. Member for Aberdeen, South (Mr. Sproat) about people getting benefit to which they are not entitled, but the point is heard constantly. We heard from the hon. Member for Bury St. Edmunds (Mr. Griffiths) that it is the people who are not entitled to the benefit who are getting the best deal out of the social security service and that the people who are entitled to the benefit are not getting it because they do not know how to work the system. But I believe that what is happening at the present time constitutes a very severe attack on the Welfare State.

Another proposition has been put to us during the days and nights when we have discussed these matters. That is the possibility that benefits will be taxed; that as part of the Government's drive against inflation they will lake more money from the people who are in the greatest need. That will do a fat lot of good for inflation. If the Government are to tax benefits, does it mean that contributions will be offset against tax as part of normal expenses? We have heard nothing at all about that side of the coin.

We have heard a great deal about how the Health Service is being improved. I have heard nice-sounding phrases about the amount going into the Health Service increasing. That surprises me. Finance officers in any area health board, if asked, will say that they have no idea how they will manage to balance their budgets in the coming year because of the cuts. The Health Service is under severe attack. The Government are ashamed not to be able to boast how they are cutting back on the Health Service. Unemployment is getting worse because of Government policy. The Government's strategy is wrong.

If the Government had done their duty properly, the Social Security (Contributions) Bill would be unnecessary. They should ensure that they collect taxes from the right people. I hope that the Minister of State. Treasury, the hon. and learned Member for Dover and Deal (Mr. Rees), will pay attention, because I wish to refer to a measure which would have made the Bill unnecessary in terms of the money that is proposed to be raised by these provisions. The Government should ensure that those who are due to pay tax pay it. We hear how some people are able to work the system. If one has enough money to hire tax experts and people learned in the law, one can certainly beat the system.

There has been criticism in the House about the activities of the Rossminster Group. One of the most serious aspects about the Rossminster Group, on which I tope we shall have a full debate before too long, is not just that it looks for ways to exploit the tax laws for the benefit of its clients. Any company or individual who can afford it can go to a tax consultant and say "This is my income and these are my outgoings. Do the best you can for me with the Revenue."

As I understand it, the Rossminster Group was deliberately seeking legal ways of concocting tax avoidance schemes and then selling them to customers, saying "Come to us and we will ensure that you avoid paying tax." That kind of activity goes beyond legitimate advice by tax consultants to clients who have income and expenditure problems. I hope that we shall have a full debate on that matter, because my constituents who are in difficulties—

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

Order. I cannot see how that can be part of the Bill.

Mr. Hughes

I accept that it is not part of the Bill, Mr. Deputy Speaker. My point is that if the revenue were properly collected the Bill would not be necessary.

Pensioners in my constituency who manage to get part-time work from which they earn perhaps £4 a week on top of their pensions are often hit. They come to me and say "The Revenue wants £200 immediately." There is a qualitative difference between the treatment of ordinary PAYE individuals and those who have the wherewithal to get proper tax advice.

The Government are doing a great disservice to the country by the way they constantly harp on its problems being caused by workers and by proceeding to hit workers in every possible way. We are constantly told that we need adjustments to the system—for example, that we need to change the retail price index because certain items ought not to be in it. The Government are all the time seeking to put a gloss on the way that they are running the country. However, they will not convince my constituents or the majority of people that they are doing their job in a way that benefits ordinary people or that this is anything other than a mean and petty Bill which should not have been brought before the House.

8.5 pm

Mr. Peter Bottomley (Woolwich, West)

The announcement of the responsibilities of members of the Shadow Cabinet must have been exciting to most Opposition Members earlier, because we have heard at least two speeches that showed that they did not gain much benefit from earlier contributions to the debate.

The Opposition intend to vote against the Bill, so the hon. Member for Aberdare (Mr. Evans) will not be alone if he does what he has threatened to do.

The major point about the debate is the benefit to the tax system which we have got wrong. During my five and a half years as a Member of the House, we have had a number of debates in which this matter has been brought up. What worries me is that we have not had anything like the kind of thinking that went into the Beveridge report—perhaps because we have got away from the habit of having one person produce a report and have gone on to committees and Green Papers, which I often welcome.

As the hon. Member for Birkenhead (Mr. Field) said, the difficulty is that our tax base is too narrow. The hon. Gentleman said that only about 45 per cent. of personal income is taxed, because of tax allowances in the main. It could probably be made a smaller proportion if one added in the value of company cars. There is a report in the evening paper today pointing out that three out of lour cars are bought by businesses for employees. No one could possibly claim that most of those were needed for company business. If we consider mortgage interest relief, company cars and a whole spread of allowances which have little economic purpose, we can see why taxation rates are relatively high. We can also see why many more working people are now paying tax than when Beveridge produced his report and when Lloyd George brought in some of the elements of the Welfare State.

The interaction between the system of benefit contributions and the taxation system has become so chaotic that it is almost impossible to think of anyway of making any significant change for the next four or five years.

On the narrow point of what is in the Bill rather than the general background, it is clear that there has been a great deal of synthetic anger during the past few weeks. I am rather surprised. The protestations by Opposition Members and what has appeared in newspaper reports show that very few Labour Members are aware of how the national insurance contribution system works. From my experience in industrial relations and management, it was plain to me, after my right hon. and learned Friend the Chancellor of the Exchequer sat down, that he had announced a change in the basis on which national insurance contributions were made. He had raised the upper and lower limits. He had raised the rate at which the employee was to make national insurance contributions and he was not proposing to change the rate at which employers would make contributions. Therefore, nothing surprised me more than to read a day and a half later that this had been missed by all Opposition Members and, from the way that it was taken up in the press, by most of the press as well.

I should have thought that Opposition Members who had previously employed people, worked in nationalised industries, been Ministers in the Labour Government, been shop stewards and had experience on the trade union side would have been aware how the national insurance contributions system worked. However, in their protestations they showed that they were totally ignorant of how so much of the money for national insurance and other

We have heard from two Opposition Members enough to show that they do not know what is involved in raising the lower and upper limits. One hon. Gentleman said that, because the upper limit had been raised by a higher percentage than the lower limit, the higher earners were getting off more easily. In fact, it is the reverse. If the higher limit had been raised by a smaller percentage than the lower limit, those who had previously been paying the employee rate would be paying less, making allowance for inflation. If one raises the upper limit by a greater amount, it is more redistributive than raising it by a small amount.

The right hon. Member for Norwich, North (Mr. Ennals) said that the best off get off and do not have to make any payments. He also got it wrong. The person with the highest income in the country still pays the higher rate on the increased limit of up to £200. The right hon. Gentleman was trying to point out that if one takes national insurance contributions and income tax together, the gradient has a kink when one drops over the higher limit. That is a separate point. He was probably aware of it when he introduced the 1975 Act. Although this is not the time to deal with this subject, I should point out that the anomaly still exists. It has no justification other than the so-called insurance contributory principle.

My hon. Friend the Member for Derbyshire, West (Mr. Parris) asked the hon. Member for Birkenhead to explain the benefit of an insurance principle. I thought that the hon. Member for Birkenhead failed to give the simplest argument in favour of the insurance principle. That argument has nothing to do with contributions. It is that if someone is entitled to benefit he will get the benefit whatever his other earnings or assets might be. For his first period of unemployment, sickness or lack of attendance at work, for whatever reason, he has the advantage that he automatically gets the sum that he expects to receive without any investigation. At times, many of us are sick or unemployed. At those times it is ridiculous to have to undergo the means tests or investigations required for supplementary benefit. That is the basis of an insurance principle.

The Government raised the employee rate by at least one-quarter of 1 per cent. because they suspected—they have been proved right today—that changing the rate of national insurance contributions for the employee receives far less attention than the raising of income tax. That is proved by the poor attendance here today. Indeed, I regret the poor attendance. We should give as much attention to the national insurance side of contributions as we do to income tax.

I should prefer the Government to raise the money from indirect taxation. However, I recognise that the Government,, like the previous Labour Government, would face a problem if they were to do anything that appeared to raise the retail price index. The retail price index has become too much of a totem in our society. We should be willing to recognise that whether Government revenue is raised by charges, rates, tax, indirect taxation, or—as is preferable—by raising the sinners' taxes on tobacco or alcohol, it will have the same impact on the consumer. It will still take money out of the consumer's pocket or will prevent money from reaching it. The differential impact on the retail price index should be irrevelant. The important point is whether people are better off and whether people get the benefits and services that they want.

I turn to some of the other reasons for raising the employee contribution. The Government should recognise that they have done well to maintain Health Service spending at the level planned by the Labour Government. I congratulate them. More hon. Members should recognise the Government's achievement.

In the same way, we should recognise that educational spending per capita is increasing in real terms. I accept that there have been cuts in education, but the Government intend to increase spending per head of the number of children in education. I welcome that. I also welcome the fact that the retirement pension will be maintained in line with inflation over the two years as a whole. I regret that the Government have not been able to do the same for child benefit.

The thrust of the Government's policy is to try to get away from the poverty plateau. Therefore, they should aim to raise child benefit. It is impossible to take the coypu catcher mentioned by the hon. Member for Isle of Ely (Mr. Freud)—the person on £55 or £60 a week who is supporting a spouse and children—off the poverty plateau even if one gives him a pay increase of 50 per cent. If such a person received a pay increase of 50 per cent., he would be only about £5 better off.

Mr. Dobson

Does not the hon. Member for Woolwich, West (Mr. Bottomley) accept that it is fraudulent to claim that the Government are maintaining expenditure on the Health Service at the same level in real terms? Does he not realise that that can be true only if one ignores the extra amount that the Health Service must pay to the VAT man? As far as I know, the VAT man does not contribute to the Health Service. Therefore, the hon. Gentleman's figures are fraudulent.

Mr. Bottomley

If I am correct about spending being maintained on the Health Service in real terms, the overall VAT payments, including payments made in part by the Health Service, contribute to that.

I turn to the point made by the hon. Member for Stockport, North (Mr. Bennett). I think that he spoke with his tongue in his cheek, but it was difficult to see where his cheek was because of his heard. He said that the Government aimed to have unemployment at a certain level. The Government did not aim to have unemployment at a certain level. They were required to make an estimate, and they did so in good faith. The trade union movement did not aim to contribute heavily to the increase in unemployment when it helped to settle pay claims that led during the past two years to pay increases of 50 per cent. for most of those in work. It was plain to both the TUC and the employers, who sat on the other side of the table, that if the gross national product did not grow—and most people expected it to decline—pay increases at anything like that level would lead to more people losing their jobs.

Mr. Andrew F. Bennett

I quoted 20 firms in Stockport where there have been substantial numbers of redundancies. Often the greatest number of redundancies occurred in firms in which the pay settlements were most moderate. In addition, in several of the firms that paid large increases last year, there were no redundancies. Can the hon. Gentleman explain that?

Mr. Bottomley

I cannot. Those of us who have been involved in pay settlements during the past two years have contributed greatly to the extra increase in unemployment. Indeed, we have done more than that.

Mrs. Elaine Kellett-Bowman (Lancaster)

Does not my hon. Friend agree that it is extremely sad that groups of workers such as the textile and footwear workers, whose industrial relations record is superb and as good as that of the agricultural workers, and whose pay claims have been moderate, suffer because other sectors of industry have made immoderate pay claims? Does he not agree that such ray demands have increased the costs to employers and hereby contributed to redundancies that have not been deserved?

Mr. Bottomley

The consequential price increases have a greater impact on Government spending, because of the differential price factor. I hope that I have used the right technical term. Government spending tends to rise faster than the rate of inflation because much of what the Government spend their money on sees a slower rate of increase in productivity than the rest of private industry.

During the past two years we have made life worse for all of us. The Cabinet and the Chancellor of the Exchequer had to consider how far those who remained at work should be asked to contribute to maintaining the Health Service and to maintaining benefits to those thrown out of work. The Government came to the House and asked us to contribute more. I am willing to do that.

I ask my right hon. Friend the Chief Secretary to pay more attention to the role of child benefit. When I put forward the case for restoring the level of child benefit—even to the level at which it was 25 years ago—people say that it would cost, for example, £700 million. They say that it would increase the public sector borrowing requirement and that we cannot afford that. The CBI will want to know how much it will cost. When it is told that it might cost £700 million, it will say that is is telling the Government to reduce the impact of Government borrowing. If one puts that proposition to the TUC, it will say that the only answer to low pay is to raise pay rather than the benefits that come through the community.

Mr. Orme

The hon. Gentleman has just listed a number of organisations when speaking about child benefit, but he said that the TUC was more interested in pay than in child benefit. I am sure that he is aware that the TUC is very interested in child benefit.

Mr. Bottomley

I am grateful for the correction suggested by the right hon. Gentleman.

When I asked my right hon. Friend the Prime Minister a year ago what representations she had received from the TUC or the CBI about an increase in child benefit, the answer was "None'. That is a fact. It is not something that I welcome. It is not a point that I am throwing against the TUC. I am trying to put a point to the Government. If we are trying to get a 6 per cent. cash limit in the public sector accepted during the coming year and to have the same thing or rather better in the following year—by "better", I mean a lower limit—how shall we get a large number of people in low-paid jobs with family responsibilities to be able to accept it?

I believe that the only way that we can do this is for the Government to say in advance that if inflation, or whatever measure they choose, is brought down to a certain target—say, 8 per cent. next year, or whatever they believe is realistic—they will then increase child benefit by more than inflation. What has happened in the past is that the Treasury, the Cabinet or the Government in one way or another come around at the end of the year just before the Budget and say "Because inflation is rather higher than it ought to be, we cannot afford to raise child benefit very much." They do not say so in advance. They do not give those of us who are looking after dependants during the year any incentive to try to help to reduce the level of our settlements. One cannot reduce the level of claims, but one can help to influence the level of settlements.

If the Government were willing to come out with sonic tentative plans which they would be willing to bring into effect if we could get the level of interest rates down or the level of inflation down, or whatever it may be, I think that they would then find that many more people were willing to do what it is necessary for them to do—to get rid of inflation.

The reason why we have this Bill tonight and the reason why we have extra unemployment as well is that our inflation has been running unnecessarily high. During the debate on the Queen's Speech, my greatest disappointment was hearing not a single speech from the Opposition Benches about the impact of inflation or the significance of pay claims and settlements on inflation. If we are to learn the lesson of the past 25 years, we must try to bring all these things together and to give some reason to the majority of decent people to support what was the aim of the previous Government and is the aim of the present Government and my aim—to stop unemployment rising, to keep inflation coming down, to bring clown interest rates and to make sure that we are as competitive as our industrial competitors around the world.

8.22 pm

Mr. Bob Cryer (Keighley)

I tend to differ from the hon. Member for Woolwich, West (Mr. Bottomley). As the report by the Government Actuary on the financial provisions makes clear, the purpose of the Bill is to provide, at least in part, for increased unemployment. I do not think that it is chance. The three years of unparalleled austerity mentioned by the Chief Secretary to the Treasury about 12 months ago were part of the Government's plan, and they knew very well that austerity meant austerity by an increase in the dole queues.

If one runs a high interest rate economy because one believes that it is a necessary concomitant of market forces to control the money supply, and if one knows that that will cause a crisis in many firms and will cause many to close or to reduce their work forces, that increases unemployment. It is not chance. From the Government's point of view, it also has the advantage that it is an attack on the trade union movement. Most members of the present Cabinet are delighted about that. They hate and fear trade unions, so they are delighted if by increasing unemployment they can decrease trade union membership and effectiveness.

I do not think that it is any chance that we have longer dole queues. It is part of deliberate Government policy. What I find particularly repulsive is the fact that deliberate policies have brought about a deliberate lengthening of the dole queues, following a poster campaign prior to the last general election, run by Saatchi and Saatchi, showing false dole queues outside false employment exchanges and saying "Labour is not working", with the clear implication that the next Conservative Government, which they hoped would be elected, would alter all that and provide jobs. The Bill is testimony to the fact that that is not true and that the Conservatives were elected on a false prospectus.

We are now having to pay for the Government's crazy economics. To cut back on public expenditure and lengthen the dole queues only increases public expenditure to pay for those very lengthening dole queues in the form of unemployment benefit, supplementary benefits, retraining facilities and everything that the community picks up.

The hon. Member for Lancaster (Mrs. Kellett-Bowman) pointed out that the dubious economics of the Government do not seem to apply to a wide range of industries. She mentioned textiles. The Prime Minister and her cronies are always talking about our industry not being co-operative. They say that there should be reasonably low wage demands and high investment. It has all happened in the textile industry. The unions have been co-operative. The have accepted all sorts of innovations, such as two-shift and three-shift working, and modern machinery. What has happened? They have been kicked in the teeth. Mill after mill has closed. We have a massive balance of trade deficit in textiles, and we still find lengthening dole queues.

Mrs. Kellett-Bowman

Does the hon. Gentleman agree that the problems in the textile industry arise as a result of a not perfect negotiation of the multi-fibre arrangement, and the bilateral agreements that went with it, by the previous Government?

I am sure that the hon. Gentleman and the hon. Member for Stockport, North (Mr. Bennett) will agree that that is something that must be remedied in the forthcoming renegotiation of the MFA and the bilaterals that go with it.

Mr. Cryer

I do not want to go too far down that path. The EEC has proved notably ineffective in applying the MFA, which was negotiated in good faith and with a decent mandate. I hope that the hon. Lady will bring pressure to bear on the Conservative Government to make sure that they negotiate a tough MFA. She ought to understand that the Department of Trade is riddled with free traders and Eurofanatics. Those are the two overriding pillars of philosophy of that Department. If it had had its way in 1978, the MFA would not have been anywhere near as good as it was.

One of the reasons for the loss of jobs in the textile industry is the inept and inert way in which the EEC has carried out its job. However, I do not want to go too far down that road. I simply point out that one of the reasons for the Bill and the increased contributions to pay for the unemployed is reflected in constituencies throughout the country.

Since May 1979 the achievement of the Conservative Government in Keighley has been to increase unemployment by 110 per cent. It would be very interesting to hear what the Government propose to do to get unemployment back to the level that existed when they came into office. They can argue that unemployment increased during the period of office of the Labour Government, and that is right. It was too high then, but it is a damned sight higher now, and I want to know what the Tories propose to do to get it down to the level that it was when they were elected. What do they propose to do to get interest rates down to the level at which they operated when they got into office? If they were to strive only for the targets that they had when they were elected, that would not be bad, and if they were to achieve that level we should not need this legislation.

The Bill is a tax by another name, the reason being that the Government do not want to be seen to capitulate on their proud boast when they came into office. If we float back 18 months or so, we recall their boast that they would reduce direct tax—income tax—which would stimulate entrepreneurs, provide jobs and get the economy going, because the level of unemployment that they had inherited was too high.

I want to know where all the entrepreneurs have gone. They were supposed to be stimulated. They were supposed to be creating jobs and making high-quality decisions. We knew it would not work. The Government believed it. What has happened to this cherished belief? The entrepreneurs, the people on whom the Government relied, have not turned up, the regions are suffering more than ever and the jobs have not been produced.

In order to maintain the mythology that the tax concessions would stimulate this entrepreneurial spirit, the Government do not want to move back to obtaining the revenue by direct tax, so they are producing an increase in insurance contributions. It is a tax by any other name. The difference is that an increase in direct tax would have been a good deal fairer, because the people whose shoulders were broadest would have paid more. That would have been essentially much fairer than the system that the Government propose.

Some of the comments during this debate, especially those of the hon. Member for Bury St. Edmunds (Mr. Griffiths), suggested that the people at the poorest end of the social scale—those in receipt of unemployment benefit and supplementary benefit—include amongst their number certain racketeers. The hon. Gentleman ought to realise that whenever we on the Opposition Benches suggest double standards on the part of hon. Members who criticise the poor, we are told that it is not done, that it is not nice and that it is going into the political gutter.

I like people who say "Do as I do" and not those who say "Do as I say". People who are in receipt of public funds—just as much as those who are on supplementary benefit and unemployment pay—and who have several directorships and parliamentary adviserships, and who take advantage of everything going, should not be surprised if they are criticised when they suggest that some recipients of supplementary benefit and unemployment pay perhaps do not quite qualify and are racketeers, that people should not know their rights and that it is a waste of time printing material to supply that information. It is really a case of double standards.

The other feature that I deplore about such comments is that if anyone makes a suggestion of that nature, it is a smear that spreads right across every supplementary benefit and unemployment benefit claimant. It is not good enough to make suggestions of that kind.

Everyone has said how complicated our welfare system is. It is complicated because Governments have laid down a massive number of regulations to try to ensure that people are qualified to receive either supplementary benefit or unemployment benefit. People do not go to Government offices arid receive payments when they do not qualify for them. There is no question of money simply being doled out of a bag. That is why the system is complicated. People are subjected to close scrutiny before, a payment is made. It is most unfair to suggest that it is otherwise.

Another Government supporter said in criticism of the Bill that national insurance contributions should not be increased too much because small firms were disappearing into the black economy. I think that the hon. Gentleman probably got it mixed up with "The Black Hole", which is a Walt Disney film about people disappearing into space. Apart from that, he meant that people were trying to evade their obligations, which placed a burden on firms. That is valid, because it places a larger heavier burden on employers as well as on employees.

My hon. Friend the Member for Aberdeen, North (Mr. Hughes) said that the Chancellor of the Exchequer should lave made the increased burden on employers clear beyond peradventure when he made his statement. The Chief Secretary was right to say that the framework of the statement had been imprudent—I think that that was the word—which indicated that it could have been improved. Of course it could, and should, have been improved. The tradition of Ministers not giving the House full information is deeply embedded in the system. That is wrong. It is time that we moved towards a more open system of government. The very notion of withholding any relevant factor should be cast to one side. Ministers should disclose full information to the House and take whatever criticisms are due to them.

We are suspicious about the omission of information because that information would have invited criticism. A Minister should ensure that every scrap of information is given, even if it invites criticism. He must stand at the Dispatch Box and give as good as he gets. That would not be true of the Chancellor of the Exchequer, but it would be true of many other Ministers, including the Chief Secretary.

Small firms cannot afford the fees that an organisation such as Rossminster requires. That is why, according to one Conservative Member, small firms are disappearing into the black economy. When legislation comes before Parliament because of an increased public expenditure requirement that involves increasing a tax—although it is called a social security contribution, it is a tax—there is an obligation to give full information, especially when information about tax avoidance or evasion has been made public.

We are not sure whether it is avoidance or evasion, because the Inland Revenue might at some future stage find that it is evasion. When a Treasury Minister has given advice to a firm, we are entitled to say that there should be a full and complete debate about it. It is not good enough to say that everyone in the House is an hon. Member and we cannot criticise one another. At least 55 hon. Members signed an early-day motion expressing concern about the position. If we are all hon. Members, our honour must be justified also. We have expressed honourable concern about double standards.

We are talking about national insurance contributions that will affect the lowest paid. They will be a burden on them. At the same time, a defence is made of people who formerly gave tax avoidance advice on a grand scale, possibly leading to the loss of £1 billion to the Inland Revenue. That is not good enough, especially when those who gave the advice—

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. That does not have anything to do with the Bill.

Mr. Cryer

If the tax avoidance advice had not been given, the Bill might not have been necessary, because the Inland Revenue would have been better off by £1 billion. It is relevant from that point of view.

The Bill is regressive and counter-productive to the creation of jobs. We cannot lightly dismiss that when unemployment may be moving towards 3 million by the end of 1981.

The Bill mentions the National Health Service, and my hon. Friends, including my right hon. Friend the Member for Norwich, North (Mr. Ennals), a former Secretary of State for Social Services, have pointed out that the Bill does not increase the allocation to the NHS. Indeed, there has been a cut.

In case there is any misconception, I should emphasise that the Government's motivation is not to maintain the NHS but to diminish it and to move away from a national insurance system, including health service charges, towards private insurance schemes. Near my constituency there is, alas, a private hospital being developed which will allow greedy consultants to get their hands on the rich pickings in the bodies of patients who can afford to pay.

My hon. friend the Member for Holborn and St. Pancras, South (Mr. Dobson) was right to point out that the increase in VAT was a severe blow to the NHS and that many area health authorities found the greatest difficulty in meeting the virtual doubling of that indirect taxation.

Mrs. Kellett-Bowman

It is not many years since the inclusion of private health insurance in workers' terms and conditions was one of the attractions put forward by the Post Office workers' union and one for which the electricians' and plumbers' union fought hard and successfully.

Mr. Cryer

The hon. Member is correct in saying that the EEPTU has negotiated private medical deals as part of wage negotiations. I condemn that, hip and thigh.

Mrs. Kellett-Bowman

The union does not.

Mr. Cryer

The executive does not, but many members do. Since the Conservatives are concerned about freedom of thought, they may be interested to know that the union executive recently censored a member's election document that criticised that deal. The union made a mistake. Any trade union that is involved in propping up the private sector is making a mistake. The Labour Party's view is that the freedom to receive medical attention should depend upon people's illness and not on the depth of their pockets. The better our NHS, the greater will be freedom and security, and the greater will be the possibility of people having what is wrong with them dealt with instead of having to rely on a shoddy little private insurance scheme that will involve checking whether contributions are up to date and whether people have paid for the class of medical work that is needed, as happens in the United States.

The Bill is a regressive measure. It will diminish the job creation potential and carry on the mad merry-go-round that the Government are creating. They are cutting jobs by cutting public expenditure. For example, 92 per cent. of all local authority housing—98 per cent. in Scotland—is built by private enterprise and not by direct works departments. The Government are hitting even the sort of organisations that they support. They are putting people on the dole and are having to raise money through measures such as the Bill to pay for the lengthening dole queues. It is a mad economic system. It is bound to fail, and we will replace it with more Socialist measures.

8.43 pm

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

Perhaps predictably, this has been a widely discursive debate in which some speeches have seemed to move far from the provisions of the Bill. The speech of the hon. Member for Keighley (Mr. Cryer), while interesting, was a classic example of that.

The House is aware that my interest in the matters covered by the Bill flows particularly from my long involvement in health and social security measures. We are, however, discussing a measure which has powerful implications for economic policy. I have been struck by the fact that the debate has been strong on condemnation, denunciation and analysis but weak on solutions that the Government could have introduced as alternatives to the proposals in the Bill.

It might be helpful if I examine the possible options that the Government might have pursued, given the economic problems confronting them when the decision had to be taken. I do not suggest that my list is complete, but the Government might have pursued any of three broad options. I hope that I can suggest powerful reasons why it was wise that they did not.

It would have been possible for the Government to let the public sector borrowing requirement continue to rise and, simultaneously, to maintain public services and to refuse to look for additional revenue. In the opinion of some of us, that would have involved committing not just one sin of economic management but three. It is instructive to examine the result of such action. It would have achieved substantial inflationary pressure and ensured that the private sector was squeezed out of borrowing opportunities, and high interest rates would have been necessary if the total credit in circulation was to be kept under some control. I concede that that is an option which the Government might have pursued.

A second option was that the Government might have insisted on a reduction in the public sector borrowing requirement but refused to countenance raising revenue in any way, whether from additional contributions as the Bill proposes or by increasing income tax. The result of that action would have been a necessity to slash the number of public services to a level unacceptable to the Government and to Parliament.

A third option was that the Government might have accepted that the public sector borrowing requirement should be contained and that services should be supported at a reasonable level but that to raise income tax instead of charges would be preferable or, perhaps better, that they should impose a once-for-all excess levy on banking profits.

I put forward these suggestions not because I agree with them but because they have been described as being preferable to that which we are considering. If the last option to which I referred had been adopted, notwithstanding the comments of the hon. Member for Keighley, all incentive to invest—which is so important to the upturn in our economic activity — would have been reduced to the point where it disappeared. I am not as lacking in hope as the hon. Member for Keighley. The provision of an incentive to invest, as a result of the reduction in income tax, remains an important cornerstone of any economic revival. Instead of raising taxes or charges, we might have made a once-for-all levy on bank profits. Superficially, that is an attractive proposition. However, if that had been adopted it would have removed all hope of the banks being able—and some would say that they are duty bound — to extend assistance to business expansion come the upturn. My conclusion is that the proposals in the Bill, which I do not pretend to enjoy or to like, are probably on balance the best that were open to the Government.

I turn to the Bill's details. The increase in contributions concentrates largely on the employee. It is fair to ask why that should be so. Any suggestion that the major impact of the Government's need to raise revenue should have gone instead to the corporate sector overlooks the fact that in the last year or so the corporate sector has been severely bruised. In my judgment, some relief from that bruising is needed.

There can be little argument that the strong pound, which has been such a disadvantage to the corporate sector, has brought some marginal benefits to the private, individual sector. For that reason perhaps more than any other, it is justifiable to concentrate the increases on employee contributions rather than employer contributions. But here I must enter a personal caveat, which I hope the Chief Secretary will take on board. It is possible to support this measure and yet to conclude that there is a certain regressive effect, particularly upon the low paid, inasmuch as the lower earnings limit in effect becomes a tax threshold.

However, one cannot simply make that statement without pointing out that, if the measure is otherwise acceptable, in order to offset that regressive effect on the low paid the Government should turn their attention to an increase in family income supplement to low-paid people in work. I have always felt that the family income supplement was a much maligned and overlooked social benefit which in present circumstances should have priority Government attention when social expenditure could be increased. There is one point about the employer's contributions that I have not heard so far, although I have listened to most of the debate. The employer's burden is likely to rise by about 8.3 per cent., but that is less than the predicted inflation rate of 11 per cent. during the period in question., The real burden on employers is, therefore, falling rather than rising.

Given the decision to increase charges, all that is being proposed for employers—I shall deliberately resist the temptation to follow the controversy raised by my right hon. and learned Friend the Chancellor of the Exchequer recently—flows directly from the Social Security Act 1975. There are ample precedents for the course that the Government have taken. Therefore, in effect, having created the trigger by which these measures could be introduced, the Opposition now complain when the trigger is employed by their successors.

Notwithstanding the comments of the Opposition, the National Health Service has been virtually untouched by expenditure curbs, but that has been possible only because user charges in the shape of prescription charges and the like have been increased. That is not unreasonable. Nor is it unreasonable that national insurance contributions as a proportion of the total National Health Service expenditure should be increased at the same time.

In all, therefore, the Bill is an important weapon of economic; and social policy. Those of us who have been concerned at the seeming total concentration upon monetary methods of controlling inflation welcome the involvement through the Bill of additional taxation as a further weapon to fight inflation. For that reason, I shall support the Bill tonight.

8.54 pm

Mr. Frank Dobson (Holborn and St. Pancras, South)

I seem to be developing a traditional role as the last person to speak before the winding-up speeches. Listening to the debate tonight, I was reminded that just over a week ago I went with great pleasure to watch my distinguished predecessor, now Baroness Jeger, unveil a plaque in Mecklenburgh Square—in what is now my constituency but was once her constituency—to celebrate the centenary of the birth of R. H. Tawney. Tawney's wife was Beveridge's sister.

That collection of intellectuals, some Socialists, some liberals, who surrounded the Beveridges, the Webbs and he Tawneys displayed a characteristic which is totally licking from the Government Front Bench—a combination of compassion and expertise in this sort of topic. The Government Front Bench is now characterised by a total lack of compassion and, in these affairs, an almost total lack of expertise as well.

One result of that is this tax proposal. It is a form of taxation related to national insurance contributions, but a nix it is arid a very regressive one. It bears most heavily on those on lower incomes and more heavily on them than the equivalent tax increases would have done. The lower earnings limit is lower than the tax threshold, and when earnings exceed the limit the contributions on earnings below the limit are brought into consideration. If people go above that benchmark, they are caught for the whole lot. That is certainly regressive.

The Secretary of State is smiling because he knows that I am reading from the brief prepared by the Child Poverty Action Group, but I have smiled through a number of speeches that his officials have written for him, so I have no apology to mike.

One reason for this form of tax, as several of my hon. Friends have said, is that the Government have not been getting the tax income that they should, because such people as the Vesteys and those served by the Rossminster Group have been making certain that they do not pay the taxation that Parliament expected them to pay under legislation passed by successive Governments.

This proposal, in effect, will shift money from the national insurance fund and shovel it into the Treasury. That is not a sound basis on which to proceed at the moment. The badly off who are in work and who will have to pay these increased contributions will do so to save the Prime Minister's face. It seems that the right hon. Lady simply cannot bear to go back on one election pledge—the pledge that there would be no increase in income tax. Instead, we have a poll tax on those in work, bearing more heavily than income tax would on the badly off. The badly off are bearing the brunt of trying to save the Prime Minister's face, and that is deplorable.

The report of the Government Actuary is very enlightening, particularly paragraph 9, which gives the Government's projections for unemployment. If we add all the bits and pieces together, the projection is for an average of 2½ million unemployed throughout 1981–82. I do not want to speculate on whether that will be an overestimate or an underestimate — I should have thought the latter—but I am reminded of the Prime Minister's speech to the Conservative Party conference, which some of us saw on television but most Conservative Members will have seen in person. The right hon. Lady said: The lady's not for turning. She went on to say that one of the problems with U-turns was that they took one back to where one had been.

In the Government's own estimate, in the middle of 1981–82 1 million people would like to be back where they were—in productive employment. They will have been denied that opportunity by the Government's policies and they will put a tremendous burden on the Exchequer and the national insurance fund. The Bill is basically a measure to pay for the ill consequences of the Government's deliberate creation of increased unemployment.

There is one final irony, Mr. Deputy Speaker. I have not been a Member of the House for as long as you, but you will probably agree that over the years Ministers have made their reputations by the vigour and effectiveness with which they defended the budgets of their Departments and looked after the people for whom they were responsible. It seems that there has been a reversal since May 1979. It seems that the prizes are awarded to those who can offer up the most to the Treasury and the most in sacrifices—other people's sacrifices, riot their own—to what the Prime Minister wants in the way of reductions in public expenditure. It seems that Quisling is the person who is idolised by the various departmental Ministers, who face us from the Treasury Bench.

This is a totally deplorable and squalid little measure. Since I have been in this place, my right hon. and hon. Friends have been saying that about practically every measure that the Government have introduced. We seem to have an escalation of deplorability in the measures that are introduced. This Bill seems to have escalated to the deepest, bottommost and rottenest sump of the London underground when judged with shoddy and second-rate measures generally. I hope that the House will join the Opposition in rejecting the Bill, but I doubt very much that that will happen.

9 pm

Mr. David Myles (Banff)

I shall make a brief contribution to the debate

I am tempted to follow my hon. Friend the Member for Kensington (Sir B. Rhys Williams), the hon. Member for Aberdeen, North (Mr. Hughes) and others who have spoken about the awful complexities of the social security system. With that I agree. Those complexities are matched only by the awful complexity of our taxation system. I wish that the systems could be simplified so that simple souls such as myself could understand them as well as simple souls such as those who have to claim social security benefits. I wish that there could be simplification of the taxation system so that simple souls such as small business men could understand it and so that they would have no need to employ those such as the Rossminster Group, although I have nothing against tax consultants.

I was brought up to understand and believe that nothing was free. In other words, we must contribute something before we can benefit. I have purposely changed the single pronoun "I" to "we". In a Welfare State we contribute collectively, on what has been deemed to be a fair basis, so that all can be protected. It is surely perfectly fair and reasonable that contributions should rise to meet the cost of providing benefits that have increased because of inflation. It is also fair and reasonable that in this period of unemployment, when many are in transition between a job in which they were not really gainfully employed and another where their talents can be more fully utilised, those still in employment, as my right hon. and learned Friend the Chancellor of the Exchequer said, should help to pay the cost of the transition.

It is right that we should cease hiding the cost of benefits merely by increasing our borrowing, which produces a mounting bill for further interest payments. I welcome the fact that as a result of the Bill the percentage rate of the Treasury supplement will be reduced. I welcome the fact that one-quarter per cent. will go to maintain the planned level of the Health Service.

I plead that part of that one-quarter per cent. should be used to improve services for the deaf. I admit an interest as I am deaf myself. That is frequently considered by my right hon. and hon. Friends to be an asset. That is only because I have an excellent hearing aid that enables me to switch on or off when perhaps a Labour Member is wasting my battery. I joke in this matter as many do about deafness. Somehow this affliction does not command the sympathy that other sense losses do. Nevertheless, it is a real affliction for those so handicapped, and I therefore urge that attention be paid to it. With modern technology many things are possible. I hope that with this increase in resource they can be made possible for more of those with this need.

Of course the Bill is not popular, but I am sure that the realism that it demonstrates will be appreciated by all thinking people. I am therefore pleased to give my support.

9.5 pm

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

That the Bill is not popular is indicated by the fact that the Chief Secretary to the Treasury is to wind up and not a Minister from the Department of Health and Social Security. The Chief Secretary can be relied on with his usual openness, not being "office-soiled", to spell it out exactly as it is. This is a nasty Bill that the Government did not want to introduce. It will raise the tax burden on the low paid in a very unfair way. The right hon. Gentleman may be a bit more forthcoming about his right hon. and learned Friend's original statement after the remarks that I intend to make.

We object most strongly to the undue haste with which the Bill is being pushed through the House. The Secretary of State, I believe, said that the Government had to have Royal Assent by the end of January. There is no reason at all why the Government could not have had Royal Assent by the end of January by having the Second Reading today and putting the Bill through its Committee stage ordinarily in January or even starting before Christmas. It is a very small Bill. It will be very difficult to get massive amendments. There is no possibility of undue delay being caused by any hon. Members on these Benches. In fact, most of the Bill, as the right hon. and learned Gentleman admitted, could be put in an order to be put through in an hour and a half one night and the rest of it in a one-clause Bill without any difficulty whatsoever. The undue haste is probably a symptom of what is to come in the rest of the Session.

My right hon. Friend the Member for Salford, West (Mr. Orme) said that the Bill was not announced in the Queen's Speech. The Bill was announced a few days after the Queen's Speech but was not referred to in that speech. Therefore, we most strongly object and will strongly object on Thursday when the Government attempt to bounce the Bill through the House without adequate debate.

A lot of the speeches have been a lot wider than the Bill and touched on general economic policy. The Bill is basically a weapon of economic policy so far as the Government are concerned. The Bill is part of one of the most extensively leaked mini-Budgets that I can ever remember. I have been a Member of the House for fewer than seven years, but I have seen in that short time a considerable number of Budgets. If we leave aside the two to three weeks before the Chancellor's statement and the press circulations and just start at what was written about on the Sunday before he made his statement, we can see how well orchestrated the Government's propaganda machine was in preparing Conservative Back Benchers for the shock of the statement. That is what it was done for, and it cannot be denied by the Government that there was not a co-ordinated public relations effort before the right hon. and learned Gentleman made his statement.

We will take just the Sunday beforehand. On the front page of The Observer, Adam Raphael stated: The key measures in what amounts to a direct tax increase mini Budget are: A £1,000 million increase in employee national insurance contributions. The rate will go up from 6.75 to 7.75 per cent. on 1 April. It does not say "about." It gives the precise figures. The Sunday Times on the same day reported: A sharp rise in employees' National Insurance contributions"— I emphasise "employees", and I ant not arguing about the difference between contributions and rate—I accept that and I will come to that in a moment— raising n extra £1,000 million a year". That is the same figure. It did not come out of thin air.

We will take the day of the statement itself, Monday 24 November, but before the statement was made. In the Financial Times we see a piece—I do not know who the author was—which states: The main elements of what Whitehall still primly refuses to describe as a package or mini Budget will be: An increase in personal taxation by a large rise from next April in the employees' national insurance contribution. This is the same as raising the basic rate of income tax. That is not strictly true, although raising the basic rate of income tax would be fairer. That article appeared alongside another article in the Financial Times, referring to the Testing time for Tory morale". Richard Evans, lobby editor of the Financial Times, said that one of the crucial tests for the Chancellor would be to counter the misgivings of a growing number of Conservative Members of Parliament who have become restive in recent weeks because of apparent confusion"— that was before the Chancellor's statement— in so many areas of economic policy. Let us take the morning after the statement — the Horning after the night before. On the Tuesday morning, The Guardian said: The main economic effect is that the Chancellor is raising an extra £2 billion, half from an increase in the employees' national insurance contributions. The Financial Times said: National insurance employees' contributions to be increased text April. On the inside pages of the Financial Times, Samuel Brittan wrote: The know-nothing, say-nothing, explain-nothing school of Thought won the Chancellor's car. He went on to point out: Employees should pay directly in that form of income tax known as National Insurance contributions for the unemployed and the sick. There was no mention on the morning after from all those expert, technical financial journalists of the impost on employers. The experts outside tie House did not draw the alleged obvious conclusions Wednesday's press was full of the story.

Mr. Orme

The Chancellor of the Exchequer is here.

Mr. Rooker

My right lion. Friend tells me that the Chancellor is present in the Chamber.

That point had been announced then. It was implicit in he Chancellor's statement that we should all understand what would happen when he changed the rate. That is the point. We were supposed to have known what would happen before the written answer was given. Everyone has said that the Chancellor did not mislead the House and that we should have drawn the obvious conclusions. But people outside the House who spend all their working lives dealing with such matters did not draw the obvious conclusion.

By Wednesday morning, after the written answer and before the Treasury statement, the headlines in The Guardian stated: Howe in store on hidden pay tax. The right hon. and learned Member for Hexham (Mr. Rippon), was quoted in The Guardian as saying: If this"— the extra tax on employers— had been understood at the time, there would have been a protest. The Financial Times said: The CBI had not realised until last night"— that was Tuesday night, over 24 hours after the Chancellor's statement— that employers' contributions would rise because of the vague nature of the Chancellor's statement. That was the CBI—a body that is supposed to have understood the direct implications of the Chancellor's statement. By Thursday morning, Fleet Street was running riot, with headlines such as that in the Financial Times: The Cabinet did not discuss the National Insurance rise. The Times stated: He should have given the whole picture. The Guardian stated: Cabinet kept in the dark over £960 million job tax. By that time we all knew about the visit to No. 10 Downing Street by the Secretary of State for Social Services and the Chancellor of the Exchequer to explain to the Prime Minister either how they had got it wrong or what they forgot to tell her in the Cabinet on the Thursday of the week before, and to say that the previous Labour Government did the same thing.

At Question Time on Thursday 27 November, the Prime Minister treated the House to what can only be described as sleight of hand. She read out a list of the debates when many of my right hon. Friends had announced, under the law, by written answer, the normal annual change in upper and lower earnings limits. It was unfortunate that she did not give the precise dates. Like the hon. Member for Bury St. Edmunds (Mr. Griffiths), I had to go digging. At each date the Prime Minister gave, the cheers got louder from the nervous hon. Members behind her. But, as I pointed out to the hon. Member for Bury St. Edmunds, not one of those previous written answers by a Labour Secretary of State followed a mini-budget statement in the House by a Chancellor of the Exchequer.

It is part of the normal social security system. That is why the Opposition were so angry about the way in which the Chancellor misled the House. At no time did a Labour Chancellor stand at the Dispatch Box and announce a mini-budget on the day after a statement of that nature had been made.

I do not deny that in 1976 the Second Reading of the National Insurance Surcharge Bill took place on 6 December and the written answer from the Department of Health and Social Security was issued on 7 December. But that Bill was the result of the then Chancellor's mini-budget announcement of the 22 July measures. There was a considerable gap between the Chancellor's statement and the date on which the Bill was brought, to the House.

However, that did not stop Conservative Members complaining bitterly and, I understand, sincerely about the fact that the written answer had been given the day after Second Reading. In fact, the hon. Member for Wells (Mr. Boscawen), the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) and the right hon. Member for St. Ives (Mr. Nott) were all on their feet on 8 December 1976 complaining to you, Mr. Speaker, on points of order. The hon. Member for Wells, now a Government Whip, said: It is becoming a regrettable practice of Ministers increasingly to announce large increases of taxation of the citizen by means of Written Answers". The right hon. Member for St. Ives, now Secretary of State for Trade, asked: Is it correct practice and in accordance with our traditions for the Secretary of State to make an announcement about a very large increase in taxation and not to come to the House". The hon. Member for Cirencester and Tewkesbury, now a Minister at the Foreign and Commonwealth Office, said: the Government had come to a conclusion but deliberately deceived the House by not announcing what they had decided."—[Official Report, 8 December 1976; Vol. 922, c. 465–6.] At least those three members of the Government will understand the anger felt by the Opposition the day after the Chancellor made his statement on the Wednesday.

Here we come to the difference in practice, and this is where I think the Secretary of State became confused when my hon. Friend the Member for Birkenhead (Mr. Field) mentioned the form of the written answer. In addition to the answer given by the Secretary of State for Social Services—a normal part of the process—a copy of the press notice from the Treasury was placed in the Library, following requests from the Library. The staff of the Library had read about it in the press and realised that they did not have a copy. That notice was not on Treasury notepaper. The document gave an exact breakdown of how the £2.4 billion is raised. This is where the figure of £971 million representing the extra burden imposed on employers comes from. The bit of paper had no official heading and was simply headed: Employees' and employers' contributions to the National Insurance Fund and the National Insurance Surcharge". I have discovered from inquiries that I have made that this form of Treasury press notice—not even an answer given to a Member of the House, which would appear in Hansard—is the first of its kind. It appeared on 27 November, the day the Chancellor spoke at the Dispatch Box on the Gracious Speech to answer the charge of misleading the House. If all the normal procedures were followed, why did the Treasury issue that press notice? I am told that it was given only to selected journalists and that that is why it was not sent to the Library. Why was the notice issued in the form that it was? Moreover, if such a notice has been issued in that form before, I should like to know the column references in Hansard. That would be a useful piece of information. But it has never been done before, because the way the changes were made by Labour Ministers did not cause the confusion that the Chancellor's statement caused.

Mr. Ennals

Is not the real truth that the Chancellor himself did not know and, having discovered what the situation was, thought he had better tell everyone else what he had discovered?

Mr. Rooker

Of course. But when the debate took place on the Thursday afternoon the information was not available—not in the Library, anyway. No one knew where the information came from. There were press stories saying that the employers would have to pay another £386 million, and there was another report which said that they would have to pay another £580 million. It was only later that we discovered that the extra impost on employers was £971 million. Nobody knew where that figure came from, and it turned out to be on a scrap of paper sent to selected journalists and to the Library. If the Chief Secretary can give me a reference that it has been done before, that will be fine, but here we come to the beginning of further breaches of the Tory Party manifesto promises. This is where the matter becomes serious. This is where a serious charge can be laid in regard to the low paid.

The Tory party manifesto said, on page 13: It is especially important to cut the absurdly high marginal rates of tax both at the bottom and top of the income scale. When the Government came to office, the marginal rate of tax at the bottom of the income scale was 31.5p—25p in the pound and 6.5p national insurance. In 1980 they abolished the 25p bottom rate and put 0.25p on the national insurance contribution. That was done in April this year. So in 1980 the figure is 36.75p. By 1981, taking the 30p basic rate tax figure as it is, the figure will be 37.75p. The marginal rate when the Tories came to power was 31.5p, and the marginal rate next April will be 37.75p.—a 20 per cent. increase in the marginal rate of tax at the bottom end of the income scale.

How does that square with the Tory Party election manifesto commitment? The Government have reduced the marginal rates of tax on the higher paid from 83 per cent. to 67 per cent. That is another flagrant breach of the election manifesto pledge. I do not know whether anyone will wish to argue with me about including the national insurance rate with the basic rate of income tax. I suspect that no one will, because most hon. Members who have spoken have linked them. For practical purposes they are a tax. But, if hon. Members are to argue about that, I offer three views from the Conservative Members.

The first is from the Secretary of State for Social Services: Strictly speaking, the sums involved here are not taxation, but I suspect that for most people increasingly their national insurance contributions have more the quality of taxation than they used to do". — [Official Report, 5 December 1978; Vol.959, c.1369.] The second quotation is from right hon. Member for St. Ives when, on a point of order in 1976, he was claiming that the increases in national insurance were "a pure tax increase". That was on 8 December.

The latest one is from the Minister for Social Security.

He said: If we reduce the expenditure from the national insurance fund and if the contribution is also reduced — I am saying 'if' because other factors come into it—we are still fulfilling the objective of reducing taxation because national insurance contributions are a form of tax. That was on 23 April 1980, when he was trying to kid the Social Services Office that the Government would decrease the contributions to the national insurance fund in April this year—not last year.

Two Conservative Members last year — the hon. Member for Northampton, North (Mr. Marlow) and the hon. Member for Newark (Mr. Alexander) — tabled early-day motion 224, complaining bitterly about the change in the national insurance upper and lower earnings. I do not think that they have been here today. They had clearly got the message that the whole lot was combined taxation.

But the national insurance contribution — as the Committee stage will make abundantly clear — is a grossly regressive tax. Unlike the tax system, where we have a threshold operating below which income tax is not levied, that is not the position in the national insurance system, although on paper it looks as though that is the position. It might be thought that someone earning over the £27 a week threshold set in the Bill will pay only 7.75p in the pound on each pound above the £27, but that is not so. Once he moves from £26.99 to £27.01, he will pay 7.75p in the pound on the whole £27, so that it will be levied from the minimum earnings. That makes it grossly unfair to the low paid. If possible, under the terms of the restrictions on the Money and Ways and Means resolutions, we intend to seek to amend the Bill to prevent that happening.

The other part of the Bill involves Tory promises about the National Health Service. Anyone would think—I hope that he will not—that new money was to come to the NHS from the Bill. That is not so.

In the small print of the Treasury's statement we saw that another £25 million was lopped off the budget of the DHSS. 'That was for drugs efficiency and other matters. In the large print we saw a statement to the effect that £121 million appeared to be floating around which the Government intended to collect for the Health Service but were not now going to collect.

The Secretary of State pointed out that money would have come from the proposals regarding the recovery of road accident costs, the charge on insurance companies and sight-testing, which the House obviously would not wear, but that is not strictly accurate.

Two other policy decisions were announced in the White Paper, Cmnd. 7841. They were to remove the existing exemption from dental charges for young people who had left school and to have tighter control over the use of the NHS by foreign visitors. There were four policy changes to create that income of £121 million. The secretary of State, in answer to a question of mine last week, did not itemise the £121 million. What is the position on the commitment in the public expenditure White Paper regarding foreign visitors and NHS treatment? HOW much is involved?

The attack on the low paid has gone on apace, not only because of the operation of the national insurance fund—I have already referred to its regressive nature—but because the Government halve almost fiddled the increases in the upper and lower earnings limits. It is known that the percentage increases in the upper and lower earnings limits are not the same. The lower earnings limit—£23 to £27—is about 17 per cent. The higher earnings limit—£165 £200—is about 21 or 22 per cent. Why should there he that difference? Why should they not be raised by the game amount? If it is right to raise the higher limit by 21 per cent., why not the lower limit?

The snag is that the Government are bound by previous Acts, which they are not seeking to change, that the lower 1imit must mater within 49p the old-age pension. If Me Government had not changed the law about raising the old-age pension and cut the link with earnings or prices, whichever is the higher, the old-age pension increase of 16½ per cent. that has just been granted would have matched earnings, which are 21 per cent. That change in the Social Security Act created the reason for raising the lower earnings limit by only 17 per cent., and that means that more lower-paid workers will be sucked into payment. Fart-time workers in industries where part-time work is prevalent—for example, the hotel and catering industry—will be hit severely by the failure to raise the lower earnings limit by the same percentage rate as the upper earnings limit.

Yesterday I saw a piece by Woodrow Wyatt claiming that the unemployed should have greater benefits. I do not know where Woodrow Wyatt has been, other than down a the Tote coining it. I do not know whether he appreciates that more than half of the unemployed do not get unemployment benefit. They do not receive any benefit out of the national insurance fund.

The figures for August—there ma) be others more up to date—show that 1.1 million out of 1.8 million unemployed were not receiving unemployment benefit in any shape or form. Three-quarters of a million were getting supplementary benefit. It is not generally known that about 300,000 registered unemployed signing on the dole once a fortnight do not get a penny piece from the State. They do not get any unemployment or supplementary benefit. Nevertheless, they are included in those figures. There will be no extra for them out of the Bill. Nor will there be any extra benefits for the long-term unemployed. As has been said, it is clear that the DHSS has overpaid Ministers, who are operating a Treasury bucket shop.

Mr. Arthur Lewis (Newham, North-West)

I heard my hon. Friend mention Mr. Woodrow Wyatt. I am sure that my hon. Friend would like to be fair to him. He may not know that besides receiving hundreds of pounds a week from the Sunday Mirror, and many hundreds of pounds a week from his company directorship, he gets about £10,000 a year as chairman, on a part-time basis, of the Horserace Betting Levy Board and free entrance to every race meeting that he wishes to go to. He does very well out of State benefits.

Mr. Rooker

My hon. Friend has reinforced the view that Mr. Woodrow Wyatt knows nothing about the problems of the unemployed. The DHSS has overpaid Ministers of misery, who are operating a Treasury bucket shop of cut-price benefits based on high-price insurance. At the very least, they should be run out of town.

I saw a long, discursive article in The Sunday Times. It discussed the replacement of the Chancellor of the Exchequer. The article was written by Hugo Young. Indeed, it is worrying. It said: If there were to be a change, the smart money could swing to a surprising candidate, Patrick Jenkin, the Secretary for Health and Social Services. Exchanging Jenkin for Howe might seem a dubious bargain politically. On the other hand, Jenkin showed Thatcherite virtue by defending the Treasury's case for cuts from the DHSS. Only the wets in the Cabinet prevented the cuts from being greater. The right hon. Gentleman is supposedly charged with looking after the interests of pensioners and of the needy and poor.

I would rather see almost anyone at the Treasury than the Secretary of State for Trade, the right hon. Member for St. Ives. Given some of the comments made in the House, that would be very worrying. My hon. Friend the Member for Keighley (Mr. Cryer) was correct. The amount of new money that the Bill will raise in the form of the 1 per cent. contributory increase is £1 billion. That is the same as some of the estimates given for revenue lost as a result of the tax avoidance activities of the Rossminster Group. That is why tax avoidance—however legal it may be—places an impost on the ordinary taxpayers of Britain. We do not often have an example of an increase in the tax rates that is equivalent to the rate mentioned in relation to tax avoidance schemes.

Although the Prime Minister is not here, I should like to ask her how she and the Government have the barefaced cheek to tax the low paid through the national insurance system and the PAYE system in order to support the activities of those who can afford tax advisers to reduce their tax burdens. The Bill shows the unacceptable double standards of Toryism, and we shall oppose it all the way.

9.33 pm

The Chief Secretary to the Treasury (Mr. John Biffen)

I see the hon. Member for Renfrewshire, West (Mr. Buchan) in his seat. I congratulate him on being appointed the Opposition spokesman on social security matters. I remember him with affection as a former Agriculture Minister. I thought that he was sound on agriculture. In Tory circles, that is a great compliment.

I am sure that my hon. Friend the Member for Banff (Mr. Myles) will join me in saying that, having conquered the complexities of the hill cow subsidy, the nuances of social security benefit will be simplicity itself.

The hon. Member for Birmingham, Perry Barr (Mr. Rooker), for the Opposition, wound up a wide-ranging debate. The hon. Member for Keighley (Mr. Cryer) said that it had great elasticity. I must say that he used it to the full. I shall try to incorporate some references to the multi-fibre arrangement if I get the chance, but I hope that he will not think that I am too neglectful it I confine my remarks to the Bill.

The fact is that the Bill has a wider concern merely than that of the DHSS. Therefore, I represent the somewhat bashful Treasury presence on this occasion. But it is a measure which was referred to by my right hon. and learned Friend the Chancellor when he made his statement on 24 November and considered a range of fiscal propsals which were expected to yield £2,000 million in 1981–82, and the Bill was foremost among those proposals.

From that particular event there has come some subsequent controversy. It has echoed in this Chamber today. I want only to say this, and I say it in measured terms to the hon. Member for Perry Barr, for whom I hold a respectful affection. My right hon. and learned Friend the Chancellor has acted throughout with propriety and integrity, and those who know him believe that they are qualities which are second nature to him.

Mr. Orme

Answer the question.

Mr. Biffen

There I intend to conclude my contribution to that aspect of the debate. I now turn to consider the economic background to the Bill, which justifies, as it were, a Treasury participation in its passage.

The Government have a strategic commitment to the reduction of inflation as a major economic objective, but that policy must be related to tactical judgments in the light of external and domestic circumstances. The hon. Member for Birkenhead (Mr. Field), in a speech of characteristic charm and persuasiveness, conceded that there was a powerful economic case to be considered in this debate. He brought himself to use the term "money supply". One is always beguiled by Merseyside monetarism, but I should like to conduct this argument in my own terms and I shall resist the hon. Gentleman's blandishments.

What I suggest is that the policy requires that a balance is kept between spending and revenue in order to keep borrowing within acceptable limits and thus avoid future inflation and high interest rates. There must always be the fear that a high public sector borrowing requirement is a time bomb carrying the detonation of future levels of inflation and future havoc in interest rates.

The right hon. Member for Norwich, North (Mr. Ennals) asked by what fashion I thought interest rates would be affected by this legislation. He knows perfectly well that that is not a question to which any specific or meaningful reply can be given. But this measure, in the totality of policy, enables one to judge whether the Government are taking measures which show that they are seriously concerned about the containment of public sector borrowing.

The present situation is that the borrowing requirement is expected to be £11,500 million for the current year. That casts a serious shadow before it. Therefore, whatever may be the arguments about the ease with which one can accept a higher borrowing requirement because of the cycle of the recession, I do not dismiss those arguments, but I qualify them by saying that once Governments get used to borrowing on a massive scale it is increasingly difficult for them to give up the habit when the economic cycle turns in such a way that it requires them so to do.

Therefore, as we look at the prospects for 1981–82, I think it is clear that recession has affected likely spending in certain areas. Therefore, we have accepted that there will be additional spending on the nationalised industries. The House will know of the £250 million programmes on employment measures which were presented to the House during the debate on the Queen's Speech by my right hon. Friend the Secretary of State for Employment. We have sought to try to contain that as far as possible by securing economies in other spending programmes, and these measures were set out fully in answers published in Hansard on 24 November.

So the aim is to keep the volume of public expenditure for 1981–82 about 1 per cent. below the expected outturn for the current year. I believe that that aspiration for volume spending remains a modest, practical and prudent aim, and certainly it compares happily with the extravagant public spending plans bequeathed to us by the right hon. Member for Leeds, East (Mr. Healey), which would have resulted in £5,000 million additional expenditure in 1981–82.

Let my right hon. and hon. Friends never cease to remind themselves that, in 1975–76, public sector borrowing as a percentage of our gross domestic product in the previous Parliament reached more than 9½ per cent.

This evening's debate clearly is around the issue of what revenue can do, and revenue will have to play a greater role in the economic policy of this Government. Of course, the scope for additional savings is not exhausted, but further moves in that direction are circumscribed by practical considerations and by political commitment.

In this context, the present Bill, through the provisions of clause 1(2), provides £1,000 million additional revenue which will go to contain the public sector borrowing requirement and the pressure that that maintains upon interest rates. In that sense, I commend it wholeheartedly to my right hon. and hon. Friends.

The House is entitled to judge whether it is securing a preview of the Budget. By convention and necessity, the Budget is the centre-piece of annual economic judgment. Increases in national insurance rates normally are dealt with in November and December, so it is natural that we should be taking this revenue decision now. That is also true of the other major revenue decision announced by my right hon. and learned Friend the Chancellor of the Exchequer, namely, the proposed increase in oil revenue. Again, it was appropriate that it should be announced now to enable consultations to take place between now and the Budget itself.

None the less, there is now a clear indication that we are seeking to place an emphasis upon revenue as a means of containing borrowing. But, as I say, the full implications of that will be apparent only with the Budget to be pre rented by my right hon. and learned Friend. These measure of necessity, have to come before the House now.

I turn to the Bill itself. A good deal of concern has been expressed about the financing of national insurance benefits — the very philosophy contained in present practice. I am sure that those hon. Members who were present will have been much impressed by the compelling way in which my hon. Friend the Member for Somerset, North (Mr. Dean) traced the background and to some extent the sombre prospects for the financing of welfare.

Mr. Orme

Rubbish.

Mr. Biffen

Although a valedictory "Rubbish" has come from the right hon. Member for Salford, West (Mr. Orme), sedentary noises of that kind validate my judgments rather than confound them.

Naturally enough, a great deal of the discussion turned upon the question of the increase in limits and the burden placed upon employers. The right hon. Member for Salford, West was making a final appearance. It was touching. I am sorry that he is now to give his benefits to industry. I thought that there was already some signs that he was affected by his transfer. Speaking of the burden upon industry, he said that it could be insupportable. Those were the most solemn boss-like words echoing from Tothill Street. I was rather like an up-market edition of Sir Terence Beckett. There was all the sentiment without tie dark threats and abrasive rhetoric.

Although I appreciate what was said about the burden on employers, the matter needs to be kept in perspective. Under the Bill, the total payments by employers will increase by 8 per cent., whereas the payments by employees will increase by 27 per cent. The national insurance surcharge is not within the scope of the Bill, but I am by no means convinced that a remission on the surcharge is self-evidently the most helpful way to benefit industry, because only one-third of that benefit would go to manufacturing industry. which, by general acquiescence, is most adversely affected in the current economic circumstances.

The question of the limits has been discussed a great deal. I appreciate the argument put forward by my hon. Friend the Member for Southampton, Test (Mr. Hill) that, n, use his words, it was unfairly low to have an upper earnings limit of £200. I hope that the hon. Member for Birkenhead will not be too upset if I make a flattering reference to him. He argued cogently for a setting aside, partially if not wholly, of the present upper earnings limit. Only a few years ago, we concluded some consensus about the managing of pensions, including the role that could be provided for the private pensions sector. That was it intimately related to the existence of the upper earnings limit. I should be worried if there was any ending of the degree of bipartisanship that has existed and that has enabled the private pensions sector to exist alongside public pensions.

Mr. Rooker

Does not the Chief Secretary realise that part and parcel of the consensus and bipartisanship that was reached shortly after I came to the House was the requirement for the State retirement pension to be linked to prices or earnings, whichever was the higher? The Government have broken that agreement.

Mr. Biffen

I do not deny that. If the Opposition are now saying that they repudiate the upper earnings limit arrangement—[Interruption.] This matter should not be debated from a sedentary position at 10 minutes to 10 o'clock. There will be future occasions on which to debate the matter. There is to be a new Shadow spokesman. We know that there will be a conscious retreat by the Opposition from consensus politics. If the pension arrangements patiently negotiated over the years are to be torn up as part of a new partisanship, at least we are getting an early warning — [Interruption.] I am delighted to have drawn a certain measure of response from the Opposition, especially from the Front Bench, which, we understand, is known as the only isolated element of moderation left in the Labour Party. I am beginning to be disavowed even of that hopeful thought. If the reaction that has been displayed to my few innocent remarks about the upper earnings limit is to be taken for real and not simply as casual asides late at night, the House had better be informed of that by the new spokesman at the earliest opportunity.

The other matter that has caused considerable controversy is the size of employees' contributions. The decision to make the charge on employees' rates was taken deliberately in the context of altering the relative personal and corporate burden. Furthermore, it does something to remedy the trend that had been moving particularly adversely against employers over recent years. Whereas the ratio of contributions by employers and employees was equal in 1966, the proportion had risen to 1.5:1 against the employer and it will now be returned to 1.25:1

The hon. Member for Isle of Ely (Mr. Freud) said that there is a poverty trap difficulty in what is being proposed. I cannot deny that. It is a subject more suitable to the close, detailed examination that only a Committee stage can provide, but I took note of what the hon. Gentleman said.

The House would do well to ponder how different an employee is, in financial terms, as a taxpayer rather than as a contributor. Too often, it is assumed that we have to compare the income tax status, but that is only part of the story. The employee's contribution has been increased in order to diminish the Treasury contribution, which embraces not only income tax but a range of indirect taxes, many of which are as regressive as income tax is progressive.

The central feature of the Bill is the proposal to drop the Treasury supplement from 18 per cent. to 14½ per cent., which was made possible by the alteration in the employees' rate of contribution. It was supported by my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths), in a delightfully robust speech, and by my hon. Friend the Member for Kensington (Sir B. Rhys Williams). I commend it to my hon. Friends because it plays a major part in reducing the public sector borrowing requirement. As so many of the contributions which are wholly Treasury-financed are among the most rapidly rising in social policy, it seems appropriate that, within national insurance, the Treasury contribution should be adjusted.

The hon. Member for Aberdare (Mr. Evans) made a powerful case with both general and specific application. He will appreciate that I cannot answer the narrow issues concerning his constituent, but, on the general case, he argued that the Welfare State was being undermined by the legislation. That is language which does not adequately describe in any sense what the Bill purports to do.

Although Labour Members may harbour a desire to have substantial departures in policy in respect of social welfare, that would not have been clear from any Opposition Front Bench speech until a few moments ago. After all, the Bill does what successive Governments have done year after year since the national insurance fund was created.

Mr. Ioan Evans

Will the Chief Secretary give way?

Mr. Biffen

No. The Bill seeks the agreement of the House to revise rates and levels in respect of contributions to be payable from next April. That is always done in November and December because of the lead time involved in preparing new rates so that they may come into operation from the following April.

Clause 1 provides for a change in the national insurance earnings limits. That was required by the 1975 legislation. There is now an upper earnings limit of £200 a week. Several hon. Members have commented upon the additional burden that this imposes upon industry. I appreciate that anxiety, but I must point out that the percentage increase being borne by employers has grown rather less than the increase upon employees.

We are back to the principle of how we shall finance standing welfare services. Such a financing technique is a major economic factor. The House should realise just what is implicit in the present expansion Of the benefits being paid for from the national insurance fund. It is expected that benefits in 1981–82 will increase by over 15 per cent. — a sum of £2,300 million. As the House knows, that sum is predominantly devoted to retirement pensions. The present structure of national insurance contributions, with an upper earnings limit related to the level of retirement pension, is broadly accepted. It has the general approval of both sides of the House and the private insurance industry and thus enables the coexistence of the public and private provision of pensions.

Mr. Russell Kerr (Feltham and Heston)

That might sound good, but there is no need to repeat it.

Mr. Biffen

It would sound twice as good if repeated, but it would still not impress the hon Member for Feltham and Heston (Mr. Kerr). Whatever time of the afternoon or evening, however late at night, the hon. Gentleman comes in with a cheerful disposition and a closed mind. In many ways the hon. Gentleman represents the most dangerous aspect in British politics—the smiling face of Socialism, as if that were something with which one could coexist. I could call the right hon. Member for Stockton (Mr. Rodgers) to give testimony that that is an illusion that cannot last for long. Behind the smiling face of Socialism is the eternal itch to spend.

My reference to £2,300 million, which has been inscribed carefully on Treasury notepaper, was a matter for some ridicule. It is not a matter for ridicule. Every Opposition Member believes that somehow or other one can spend without taxing, or that perhaps one can borrow. Under the Labour Government, borrowing rose to over 9½ per cent. of the gross domestic product.

We know that pensions are taken in trust by the present for the future. Value for money — holding faith to money—is the quality above all that one must exercise politically. The Opposition ranks, week in and week out, whether they have smiling or scowling faces, have but one common bond and commitment. It is that they have a programme whose financing is wildly beyond their means. This evening they have shown the first inkling that that fatal trait has been reinforced by the way in which they have reacted to the consensus which hitherto has existed about the upper earnings limit.

On pensions, as on every other aspect of economic policy, we accept the challenge of sound money. We shall champion it and win.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 319, Noes 261

Division No. 12]	[10 pm
AYES
Adley, Robert	Churchill, W. S.
Aitken, Jonathan	Clark, Hon A. (Plym'th, S'n)
Alexander, Richard	Clark, Sir W. (Croydon S)
Alison, Michael	Clarke, Kenneth (Rushcliffe)
Amery, Rt Hon Julian	Clegg, Sir Walter
Ancram, Michael	Cockeram, Eric
Arnold, Tom	Colvin, Michael
Atkins, Rt Hon H.(S'thorne)	Cope, John
Atkins, Robert (Preston N)	Cormack, Patrick
Atkinson, David (B'm'th,E)	Corrie, John
Baker, Kenneth(St.M'bone)	Costain, Sir Albert
Baker, Nicholas (N Dorset)	Cranborne, Viscount
Banks, Robert	Critchley, Julian
Beaumont-Dark, Anthony	Crouch, David
Bell, Sir Ronald	Dean, Paul (North Somerset)
Bendall, Vivian	Dickens, Geoffrey
Benyon, Thomas (A'don)	Dorrell, Stephen
Benyon, W. (Buckingham)	Douglas-Hamilton, Lord J.
Best, Keith	Dover, Denshore
Bevan, David Gilroy	du Cann, Rt Hon Edward
Bitten, Rt Hon John	Dunn, Robert (Dartford)
Biggs-Davison, John	Durant, Tony
Blackburn, John	Dykes, Hugh
Blaker, Peter	Eden, Rt Hon Sir John
Body, Richard	Edwards, Rt Hon N. (P'broke)
Bonsor, Sir Nicholas	Eggar, Tim
Boscawen, Hon Robert	Elliott, Sir William
Bottomley, Peter (W'wich W)	Emery, Peter
Bowden, Andrew	Eyre, Reginald
Boyson, Dr Rhodes	Fairbairn, Nicholas
Braine, Sir Bernard	Fairgrieve, Russell
Bright, Graham	Faith, Mrs Sheila
Brinton, Tim	Farr, John
Brittan, Leon	Fell, Anthony
Brocklebank-Fowler, C.	Fenner, Mrs Peggy
Brooke, Hon Peter	Finsberg, Geoffrey
Brotherton, Michael	Fisher, Sir Nigel
Brown, M. (Brigg and Scun)	Fletcher, A. (Ed'nb'gh N)
Browne, John (Winchester)	Fookes, Miss Janet
Bruce-Gardyne, John	Forman, Nigel
Bryan, Sir Paul	Fowler, Rt Hon Norman
Buck, Antony	Fox, Marcus
Budgen, Nick	Fraser, Rt Hon Sir Hugh
Bulmer, Esmond	Fraser, Peter (South Angus)
Burden, Sir Frederick	Fry, Peter
Butcher, John	Galbraith, Hon T. G. D.
Butler, Hon Adam	Gardiner, George (Reigate)
Cadbury, Jocelyn	Gardner, Edward (S Fylde)
Carlisle, John (Luton West)	Garel-Jones, Tristan
Carlisle, Kenneth (Lincoln)	Glyn, Dr Alan
Chalker, Mrs. Lynda	Goodhew, Victor
Channon, Rt. Hon. Paul	Goodlad, Alastair
Chapman, Sydney	Gorst, John

Gow, Ian	Maude, Rt Hon Angus
Gower, Sir Raymond	Mawby, Ray
Grant, Anthony (Harrow C)	Mawhinney, Dr Brian
Gray, Hamish	Maxwell-Hyslop, Robin
Greenway, Harry	Mayhew, Patrick
Grieve, Percy	Mellor, David
Griffiths, E. (B'y St. Edm'ds)	Meyer, Sir Anthony
Griffiths, Peter Portsm'th N)	Miller, Hal (B'grove)
Grist, Ian	Mills, lain (Meriden)
Gummer. John Selwyn	Mills, Peter (West Devon)
Hamilton, Hon A.	Miscampbell, Norman
Hamilton, Michael (Salisbury)	Mitchell, David (Basingstoke)
Hampson, Dr Keith	Moate, Roger
Hannam, John	Montgomery, Fergus
Haselhurst, Alan	Moore, John
Havers, Rt Hon Sir Michael	Morris, M. (N'hampton S)
Hawkins, Paul	Morrison, Hon C. (Devizes)
Hawksley, Warren	Morrison, Hon P. (Chester)
Hayhoe, Barney	Myles, David
Heath, Rt Hon Edward	Neale, Gerrard
Heddle, John	Needham, Richard
Henderson, Barry	Nelson, Anthony
Heseltine, Rt Hon Michael	Neubert, Michael
Hicks, Robert	Newton, Tony
Higgins, Rt Hon Terence L.	Normanton, Tom
Hill, James	Nott, Rt Hon John
Hogg, Hon Douglas (Gr'th'm)	Onslow, Cranley
Holland, Philip (Carlton)	Oppenheim, Rt Hon Mrs S.
Hooson, Tom	Osborn, John
Hordern, Peter	Page, John (Harrow, West)
Howe, Rt Hon Sir Geoffrey	Page, Rt Hon Sir G. (Crosby)
Howell, Ralph (N Norfolk)	Page, Richard (SW Herts)
Hunt, David (Wirral)	Parkinson, Cecil
Hunt, John (Ravensbourne)	Parris, Matthew
Hurd, Hon Douglas	Patten, Christopher (Bath)
Irving, Charles (Cheltenham)	Patten, John (Oxford)
Jenkin, Rt Hon Patrick	Pattie, Geoffrey
Jessel, Toby	Pawsey, James
Johnson Smith, Geoffrey	Percival, Sir Ian
Jopling, Rt Hon Michael	Peyton, Rt Hon John
Joseph, Rt Hon Sir Keith	Pink, R. Bonner
Kaberry. Sir Donald	Pollock, Alexander
Kellett-Bowman, Mrs Elaine	Prentice, Rt Hon Rug
Kershaw, Anthony	Price, Sir David (Eastleigh)
Kimball, Marcus	Prior, Rt Hon James
King, Rt Hon Tom	Proctor, K. Harvey
Kitson, Sir Timothy	Raison, Timothy
Knight, Mrs Jill	Rathbone, Tim
Knox, David	Rees, Peter (Dover and Deal)
Lamont, Norman	Rees-Davies, W. R.
Lang, Ian	Renton, Tim
Langford Holt Sir John	Rhodes James, Robert
Latham, Michael	Rhys Williams, Sir Brandon
Lawrence, Ivan	Ridley, Hon Nicholas
Lawson, Nigel	Ridsdale, Julian
Lee, John	Rifkind. Malcolm
Lennox-Boyd, Hon Mark	Rippon, Rt Hon Geoffrey
Lester Jim (Beeston)	Roberts, M. (Cardiff NW)
Lewis, Kenneth (Rutland)	Roberts, Wyn (Conway)
Lloyd, Ian (Havant & W'loo)	Rossi, Hugh
Lloyd, Peter (Fareham)	Rost, Peter
Loveridge, John	Royle, Sir Anthony
Luce, Richard	Sainsbury, Hon Timothy
Lyell, Nicholas	St. John-Stevas, Rt Hon N.
McCrindle Robert	Scott, Nicholas
Macfarlane, Neil	Shaw, Giles (Pudsey)
MacGregor, John	Shaw, Michael (Scarborough)
MacKay, John (Argyll)	Shelton, William (Streatham)
Macmillan, Rt Hon M.	Shepherd, Colin (Hereford)
McNair-Wilson, M. (N'bury)	Shepherd, Richard
McNair-Wilson, P. (New F'st)	Shersby, Michael
McQuarrie, Albert	Silvester, Fred
Madel, David	Sims, Roger
Major, John	Skeet, T. H. H.
Marland, Paul	Smith, Dudley
Marlow, Tony	Speed, Keith
Marshall Michael (Arundel)	Speller, Tony
Marten, Neil (Banbury)	Spence, John
Mates, Michael	Spicer, Jim (West Dorset)
Mather, Carol	Spicer, Michael (S Worcs)

Sproat, Ian	Wakeham, John
Squire, Robin	Waldegrave, Hon William
Stainton, Keith	Walker, Rt Hon P.(W'cester)
Stanbrook, Ivor	Walker, B. (Perth)
Stanley, John	Walker-Smith, Rt Hon Sir D.
Steen, Anthony	Wall, Patrick
Stevens, Martin	Waller, Gary
Stewart, Ian (Hitchin)	Walters, Dennis.
Stewart, J.(E Renfrewshire)	Ward, John
Stokes, John	Warren, Kenneth
Stradling Thomas, J.	Watson, John
Tapsell, Peter	Wells, John (Maidstone)
Taylor, Robert (Croydon NW)	Wells, Bowen
Taylor, Teddy (S'end E)	Wheeler, John
Tebbit, Norman	Whitelaw, Rt Hon William
Temple-Morris, Peter	Whitney, Raymond
Thatcher, Rt Hon Mrs M.	Wickenden, Keith
Thomas, Rt Hon Peter	Wiggin, Jerry
Thompson, Donald	Wilkinson, John
Thorne, Neil (Ilford South)	Williams, D.(Montgomery)
Thornton, Malcolm	Winterton, Nicholas,
Townend, John (Bridlington)	Wolfson, Mark
Townsend, Cyril D, (B'heath)	Young, Sir George (Acton)
Trippier, David	Younger, Rt Hon George
Trotter, Neville
van Straubenzee, W. R.	Tellers for the Ayes:
Vaughan, Dr Gerard	Mr. Spencer Le Marchant
Viggers, Peter	and Mr. Anthony Berry.
Waddington, David

NOES
Abse, Leo	Davidson, Arthur
Adams, Allen	Davies, Rt Hon Denzil (L'lli)
Allaun, Frank	Davies, Ifor (Gower)
Alton, David	Davis, Clinton (Hackney C)
Anderson, Donald	Deakins, Eric
Archer, Rt Hon Peter	Dean, Joseph (Leeds West)
Armstrong, Rt Hon Ernest	Dempsey, James
Ashley, Rt Hon Jack	Dewar, Donald
Ashton, Joe	Dixon, Donald
Atkinson, N.(H'gey,)	Dobson, Frank
Bagier, Gordon A.T.	Dormand, Jack
Barnett, Guy (Greenwich)	Douglas, Dick
Barnett, Rt Hon Joel (H'wd)	Dubs, Alfred
Benn, Rt Hon A. Wedgwood	Duffy, A. E. P.
Bennett, Andrew (St'kp't N)	Dunn, James A.
Bidwell, Sydney	Dunnett, Jack
Booth, Rt Hon Albert:	Dunwoody, Hon Mrs G.
Boothroyd, Miss Betty	Eadie, Alex
Bottomley, Rt Hon A.(M'b'ro)	Eastham, Ken
Bradley, Tom	Edwards, R. (W'hampt'n S E)
Bray, Dr Jeremy	Ellis, R. (NE D'bysh're)
Brown, Hugh D. (Proven)	Ellis, Tom (Wrexham)
Brown, R. C. (N'castle W)	English, Michael
Brown, Ron (E'burgh, Leith)	Ennals, Rt Hon David
Brown, Ronald W. (H'ckn'y S)	Evans, loan (Aberdare)
Buchan, Norman	Ewing, Harry
Callaghan, Jim (Midd't'n & P)	Faulds, Andrew
Campbell, Ian	Field, Frank
Campbell-Savours, Dale	Fitch, Alan
Canavan, Dennis	Flannery, Martin
Cant, R. B.	Fletcher, Raymond (Ilkeston)
Carmichael, Neil	Fletcher, led (Darlington)
Carter-Jones, Lewis	Foot, Rt Hon Michael
Cartwright, John	Ford, Ben
Cocks, Rt Hon M. (B'stol S)	Forrester, John
Cohen, Stanley	Foster, Derek
Coleman, Donald	Foulkes, George
Concannon, Rt Hon J. D.	Fraser, J. (Lamb'th, N'w'd)
Conlan, Bernard	Freeson, Rt Hon Reginald
Cook, Robin F.	Freud, Clement
Cowans, Harry	Garrett, John (Norwich S)
Cox, T. (W'dsw'th, Toot'g)	Garrett, W. E. (Wallsend)
Craigen, J. M.	George, Bruce
Crowther, J. S.	Gilbert, Rt Hon Dr John
Cryer, Bob	Ginsburg, David
Cunliffe, Lawrence	Golding, John
Cunningham, G. (Islington S)	Gourlay, Harry
Cunningham, Dr J. (W'h'n)	Graham, Ted
Dalyell, Tarn	Grant, George (Morpeth)

Grant, John (Islington C)	Orme, Rt Hon Stanley
Grimond, Rt Hon J.	Palmer, Arthur
Hamilton, James (Bothwell)	Park, George
Hamilton, W. W. (C'tral Fife)	Parker, John
Hardy, Peter	Parry, Robert
Harrison, Rt Hon Walter	Pavitt, Laurie
Hart, Rt Hon Dame Judith	Pendry, Tom
Hattersley, Rt Hon Roy	Penhaligon, David
Haynes, Frank	Powell, Raymond (Ogmore)
Healey, Rt Hon Denis	Prescott, John
Heffer, Eric S.	Price, C. (Lewisham W)
Hogg, N. (E Dunb't'nshire)	Race, Reg
Holland, S. (L'b'th, Vauxh'll)	Radice, Giles
Home Robertson, John	Rees, Rt Hon M (Leeds S)
Homewood, William	Richardson, Jo
Hooley, Frank	Roberts, Albert (Normanton)
Horam, John	Roberts, Allan (Bootle)
Howell, Rt Hon D.	Roberts, Ernest (Hackney N)
Howells, Geraint	Roberts, Gwilym (Cannock)
Huckfield, Les	Robertson, George
Hudson Davies, Gwilym E.	Robinson, G. (Coventry NW)
Hughes, Mark (Durham)	Rodgers, Rt Hon William
Hughes, Robert (Aberdeen N)	Rooker, J. W.
Hughes, Roy (Newport)	Roper, John
Janner, Hon Greville	Ross, Ernest (Dundee West)
Jay, Rt Hon Douglas	Ross, Stephen (Isle of Wight)
John, Brynmor	Rowlands, Ted
Johnson, James (Hull West)	Ryman, John
Johnson, Walter (Derby S)	Sandelson, Neville
Jones, Rt Hon Alec (Rh'dda)	Sever, John
Jones, Barry (East Flint)	Sheerman, Barry
Jones, Dan (Burnley)	Sheldon, Rt Hon R.
Kerr, Russell	Shore, Rt Hon Peter
Kilroy-Silk, Robert	Short, Mrs Renée
Kinnock, Neil	Silkin, Rt Hon J. (Deptford)
Lambie, David	Silkin, Rt Hon S. C. (Dulwich)
Lamborn, Harry	Silverman, Julius
Leadbitter, Ted	Smith, Rt Hon J. (N Lanark)
Leighton, Ronald	Snape, Peter
Lestor, Miss Joan	Soley, Clive
Lewis, Arthur (N'ham NW)	Spearing, Nigel
Lewis, Ron (Carlisle)	Spriggs, Leslie
Litherland, Robert	Stallard, A. W.
Lofthouse, Geoffrey	Steel, Rt Hon David
Lyon, Alexander (York)	Stewart, Rt Hon D. (W Isles)
Lyons, Edward (Bradf'd W)	Stoddart, David
Mabon, Rt Hon Dr J. Dickson	Stott, Roger
McDonald, Dr Oonagh	Strang, Gavin
McGuire, Michael (Ince)	Straw, Jack
McKay, Allen (Penistone)	Summerskill, Hon Dr Shirley
McKelvey, William	Taylor, Mrs Ann (Bolton W)
MacKenzie, Rt Hon Gregor	Thomas, Dafydd (Merioneth)
Maclennan, Robert	Thomas, Jeffrey (Abertillery)
McNally, Thomas	Thomas, Mike (Newcastle E)
McTaggart, Robert	Thomas, Dr R. (Carmarthen)
McWilliam, John	Thorne, Stan (Preston South)
Marks, Kenneth	Tilley, John
Marshall, Dr Edmund (Goole)	Tinn, James
Marshall, Jim (Leicester S)	Torney, Tom
Martin, M(G'gow S'burn)	Varley, Rt Hon Eric G.
Mason, Rt Hon Roy	Wainwright, E.fDearne V)
Maxton, John	Wainwright, R.(Colne V)
Maynard, Miss Joan	Walker, Rt Hon H. (D'caster)
Meacher, Michael	Watkins, David
Mellish, Rt Hon Robert	Weetch, Ken
Mikardo, Ian	Welsh, Michael
Millan, Rt Hon Bruce	White, Frank R.
Miller, Dr M. S. (E Kilbride)	White, J. (G'gow Pollok)
Mitchell, Austin (Grimsby)	Whitehead, Phillip
Mitchell, R. C. (Soton Itchen)	Whitlock, William
Morris, Rt Hon A. (W'shawe)	Wigley, Dafydd
Morris, Rt Hon C. (O'shaw)	Willey, Rt Hon Frederick
Morris, Rt Hon J. (Aberavon)	Williams, Rt Hon A.(S'sea W)
Morton, George	Williams, Sir T.(W'ton)
Moyle, Rt Hon Roland	Wilson, Gordon (Dundee E)
Mulley, Rt Hon Frederick	Wilson, Rt Hon Sir H.(H'ton)
Newens, Stanley	Wilson, William (C'try SE)
Ogden, Eric	Winnick, David
O'Halloran, Michael	Woodall, Alec
O'Neill, Martin	Woolmer, Kenneth

Wrigglesworth, Ian	Tellers for the Noes:
Young, David (Bolton E)	Mr. Terry Davis and
	Mr. Hugh McCartney.

Question accordingly agreed to.

Bill read a Second time.

Motion made and Question put, That the Bill be committed to a Committee of the whole House.—[Mr. Wakeham.]

The House divided: Ayes 317, Noes 262.

Division No. 13]	[10.13 pm
AYES
Adley, Robert	Dickens, Geoffrey
Aitken, Jonathan	Dorrell, Stephen
Alexander, Richard	Douglas-Hamilton, Lord J.
Alison, Michael	Dover, Denshore
Ancram, Michael	du Cann, Rt Hon Edward
Arnold, Tom	Dunn, Robert (Dartford)
Atkins, Rt Hon H.(S'thorne)	Durant, Tony
Atkins, Hobert (Preston N)	Dykes, Hugh
Atkinson, David (B'm'th,E)	Eden, Rt Hon Sir John
Baker, Kenneth(St.M'bone)	Edwards, Rt Hon N. (P'broke)
Baker, Nicholas (N Dorset)	Eggar, Tim
Banks, Robert	Elliott, Sir William
Beaumont-Dark, Anthony	Emery, Peter
Bell, Sir Ronald	Eyre, Reginald
Bendall, Vivian	Fairbairn, Nicholas
Benyon, Thomas (A'don)	Fairgrieve, Russell
Benyon, W. (Buckingham)	Faith, Mrs Sheila
Best, Keith	Farr, John
Bevan, David Gilroy	Fell, Anthony
Biffen, Rt Hon John	Fenner, Mrs Peggy
Biggs-Davison, John	Finsberg, Geoffrey
Blackburn, John	Fisher, Sir Nigel
Blaker, Peter	Fletcher, A. (Ed'nb'gh N)
Body, Richard	Fookes, Miss Janet
Bonsor, Sir Nicholas	Forman, Nigel
Boscawen, Hon Robert	Fowler, Rt Ron Norman
Bottomley, Peter (W'wich W)	Fox, Marcus
Bowden, Andrew	Fraser, Rt Hon Sir Hugh
Boyson, Dr Rhodes	Fraser, Peter (South Angus)
Braine, Sir Bernard	Fry, Peter
Bright, Graham	Galbraith, Hon T. G. D.
Brinton, Tim	Gardiner, George (Reigate)
Brittan, Leon	Gardner, Edward (S Fylde)
Brocklebank-Fowler, C.	Garel-Jones, Tristan
Brooke, Hon Peter	Glyn, Dr Alan
Brotherton, Michael	Goodhew, Victor
Brown, M. (Brigg and Scun)	Goodlad, Alastair
Browne, John (Winchester)	Gorst, John
Bruce-Gardyne, John	Gow, Ian
Bryan, Sir Paul	Gower, Sir Raymond
Buck, Antony	Grant, Anthony (Harrow C)
Budgen, Nick	Gray, Hamish
Bulmer, Esmond	Greenway, Harry
Burden, Sir Frederick	Grieve, Percy
Butcher, John	Griffiths, E.(B'y St. Edm'ds)
Butler, Hon Adam	Griffiths, Peter Portsm'th N)
Cadbury, Jocelyn	Grist, Ian
Carlisle, John (Luton West)	Gummer, John Selwyn
Carlisle, Kenneth (Lincoln)	Hamilton, Hon A.
Chalker, Mrs. Lynda	Hamilton, Michael (Salisbury)
Channon, Rt. Hon. Paul	Hampson, Dr Keith
Chapman, Sydney	Hannam, John
Churchill, W. S.	Haselhurst, Alan
Clark, Hon A. (Plym'th, S'n)	Havers, Rt Hon Sir Michael
Clark, Sir W. (Croydon S)	Hawkins, Paul
Clarke, Kenneth (Rushcliffe)	Hawksley, Warren
Clegg, Sir Walter	Hayhoe, Barney
Cockeram, Eric	Heath, Rt Hon Edward
Colvin, Michael	Heddle, John
Cope, John	Henderson, Barry
Corrie, John	Heseltine, Rt Hon Michael
Costain, Sir Albert	Hicks, Robert
Cranborne, Viscount	Higgins, Rt Hon Terence L.
Critchley, Julian	Hill, James
Crouch, David	Hogg, Hon Douglas (Gr'th'm)
Dean, Paul (North Somerset)	Holland, Philip (Carlton)

Hooson, Tom	Osborn, John
Hordern, Peter	Page, John (Harrow, West)
Howe, Rt Hon Sir Geoffrey	Page, Rt Hon Sir G. (Crosby)
Howell, Ralph (N Norfolk)	Page, Richard (SW Herts)
Hunt, David (Wirral)	Parkinson, Cecil
Hunt, John (Ravensbourne)	Parris, Matthew
Kurd, Hon Douglas	Patten, Christopher (Bath)
Irving, Charles (Cheltenham)	Patten, John (Oxford)
Jenkin, Rt Hon Patrick	Pattie, Geoffrey
Jessel, Toby	Pawsey, James
Johnson Smith, Geoffrey	Percival, Sir Ian
Jopling, Rt Hon Michael	Peyton, Rt Hon John
Joseph, Rt Hon Sir Keith	Pink, R. Bonner
Kaberry, Sir Donald	Pollock;, Alexander
Kellett-Bowman, Mrs Elaine	Prentice, Rt Hon Rag
Kershaw, Anthony	Price, Sir David (Eastleigh)
Kimball, Marcus	Prior, Rt Hon James
King, Rt Hon Tom	Proctor, K. Harvey
Kitson, Sir Timothy	Raison, Timothy
Knight, Mrs Jill	Rathbone, Tim
Knox, David	Rees, Peter (Dover and Deal)
Lamont, Norman	Rees-Davies, W. R.
Lang, Ian	Renton, Tim
Langford-Holt, Sir John	Rhodes James, Robert
Latham, Michael	Rhys Williams, Sir Brandon
Lawrence, Ivan	Ridley, Hon Nicholas
Lawson, Nigel	Ridsdale, Julian
Lee, John	Rifkind, Malcolm
Lennox-Boyd, Hon Mark	Rippon, Rt Hon Geoffrey
Lester Jim (Beeston)	Roberts, M. (Cardiff NW)
Lewis, Kenneth (Rutland)	Roberts, Wyn (Conway)
Lloyd, Ian (Havant & W'loo)	Rossi, Hugh
Lloyd, Peter (Fareham)	Rost, Peter
Loveridge, John	Royle, Sir Anthony
Luce, Richard	Sainsbury, Hon Timothy
Lyell, Nicholas	St John-Steves, Rt Hon N.
McCrindlo, Robert	Scott, Nicholas
Macfarlane, Neil	Shaw, Giles (Pudsey)
MacGregor, John	Shaw, Michael (Scarborough)
MacKay, John (Argyll)	Shelton, William (Streatham)
Macmillan, Rt Hon M.	Shephord, Colin (Hereford)
McNair-Wilson, M. (N'bury)	Shephord, Richard
McNair-Wilson, P. (New F'st)	Shersby, Michael
McQuarrie, Albert	Silvester, Fred
Madel, David	Sims, Roger
Major, John	Skeet, T. H. H.
Marland, Paul	Smith, Dudley
Marlow, Tony	Speed, Keith
Marshall Michael (Arundel)	Speller, Tony
Marten, Neil (Banbury)	Spence, John
Mates, Michael	Spicer, Jim (West Dorset)
Mather, Carol	Spicer, Michael (S Worcs)
Maude, Rt Hon Angus	Sproat, Ian
Mawby, Ray	Squire, Robin
Mawhinney, Dr Brian	Stainton, Keith
Maxwell-Hyslop, Robin	Stanbrook, Ivor
Mayhew, Patrick	Stanley, John
Mellor, David	Steen, Anthony
Meyer, Sir Anthony	Stevens, Martin
Miller, Hal (B'grove)	Stewart, Ian (Hitchin)
Mills, Iain (Meriden)	Stewait, J.(E Renfrewshire)
Mills, Peter (West Devon)	Stokes, John
Miscamphell, Norman	Stradling Thomas, J.
Mitchell, David (Basingstoke)	Tapsell, Peter
Moate, Roger	Taylor, Robert (Croydon NW)
Montgomery, Fergus	Taylor, Teddy (S'end E)
Moore, John	Tebbit, Norman
Morris, M. (N'hampton S)	Temple-Morris, Peter
Morrison, Hon C. (Devizes)	Thatcher, Rt Hon Mrs M.
Morrison, Hon P (Chester)	Thomas, Rt Hon Peter
Myles, David	Thompson, Donald
Neale, Gerrard	Thorne, Neil (Ilford South)
Needham, Richard	Thornton, Malcolm
Nelson, Anthony	Townend, John (Bridlington)
Neubert, Michael	Townsend, Cyril D. (B'heath)
Newton, Tony	Trippier, David
Normanton, Tom	Trotter, Neville
Nott, Rt Hon John	van Stiaubenzee, W. R.
Onslow, Cranley	Vaughan, Dr Gerard
Oppenheim, Rt Hon Mrs S.	Viggers, Peter

Waddington, David	Whitelaw, Rt Hon William
Wakeham, John	Whitney, Raymond
Waldegrave, Hon William	Wickenden, Keith
Walker, Rt Hon P.(W'cester)	Wiggin, Jerry
Walker, B. (Perth )	Wilkinson, John
Walker-Smith, Rt Hon Sir D.	Williams, D. (Montgomery)
Wall, Patrick	Wintertori, Nicholas
Waller, Gary	Wolfson, Mark
Walters, Dennis	Young, Sir George (Acton)
Ward, John	Younger, Rt Hon George
Warren, Kenneth
Watson, John	Tellers for the Ayes:
Wells, John (Maidstone)	Mr. Spencer Le Marchant and
Wells, Bowen	Mr. Anthony Berry.
Wheeler, John

NOES
Abse, Leo	Dunn, James A.
Adams, Allen	Dunnett, Jack
Allaun, Frank	Dunwoody, Hon Mrs G.
Alton, David	Eadie, Alex
Anderson, Donald	Eastham, Ken
Archer, Rt Hon Peter	Edwards, R. (W'hampt'n S E)
Armstrong, Rt Hon Earnest	Ellis, R. (NE D'bysh're)
Ashley, Rt Hon Jack	Ellis, Tom (Wrexham)
Ashton, Joe	English, Michael
Atkinson, N.(H'gey,)	Ennals, Rt Hon David
Bagier, Gordon A.T.	Evans, Ioan (Aberdare)
Barnett, Guy (Greenwich)	Ewing, Harry
Barnett, Rt Hon Joel (H'wd)	Faulds, Andrew
Benn, Rt Hon A. Wedgwood	Field, Frank
Bennett, Andrew (St'kp't N)	Fitch, Alan
Bidwell, Sydney	Flannery, Martin
Booth, Rt Hon Albert	Fletcher, Raymond (Ilkeston)
Boothroyd, Miss Betty	Fletcher, Ted (Darlington)
Bottomley, Rt Hon A.(M'b'ro)	Foot, Rt Hon Michael
Bradley, Tom	Ford, Ben
Bray, Dr Jeremy	Forrester, John
Brown, Hugh D. (Provan)	Foster, Derek
Brown, R. C. (N'castle W)	Foulkes, George
Brown, Ron (E' burgh, Leith)	Fraser, J. (Lamb'th, N'w'd)
Brown, Ronald W. (H'ckn'y S)	Freeson, Rt Hon Reginald
Buchan, Norman	Freud, Clement
Callaghan, Jim (Midd't'n & P)	Garrett, John (Norwich S)
Campbell, Ian	Garrett, W. E. (Wallsend)
Campbell-Savours, Dale	George, Bruce
Canavan, Dennis	Gilbert, Rt Hon Dr John
Cant, R. B.	Ginsburg, David
Carmichael, Neil	Golding, John
Carter-Jones, Lewis	Gourlay, Harry
Cartwright, John	Graham, Ted
Clark, Dr David (S Shields)	Grant, George (Morpeth)
Cocks, Rt Hon M. (B'stol S)	Grant, John (Islington C)
Cohen, Stanley	Grimond, Rt Hon J.
Concannon, Rt Hon J. D.	Hamilton, James (Bothwell)
Conlan, Bernard	Hamilton, W. W. (C'tral Fife)
Cook, Robin F.	Hardy, Peter
Cowans, Harry	Harrison, Rt Hon Walter
Cox, T. (W'dsw'th, Toot'g)	Hart, Rt Hon Dame Judith
Craigen, J. M.	Hattersley, Rt Hon Roy
Crowther, J. S.	Haynes, Frank
Cryer, Bob	Healey, Rt Hon Denis
Cunliffe, Lawrence	Heffer, Eric S.
Cunningham, G. (Islington S)	Hogg, N. (E Dunb't'nshire)
Cunningham, Dr J. (W'h'n)	Holland, B. (L'b'th, Vauxh'll)
Dalyell, Tarn	Home Robertson, John
Davidson, Arthur	Homewood, William
Davies, Rt Hon Denzil (L'lli)	Hooley, Frank
Davies, Ifor (Gower)	Horam, John
Davis, Clinton (Hackney C)	Howell, Rt Hon D.
Davis, T. (B'ham, Stechf'd)	Howells, Geraint
Deakins, Eric	Huckfield Les
Dempsey, James	Hudson Cavies, Gwilym E.
Dewar, Donald	Hughes, Mark (Durham)
Dixon, Donald	Hughes, Robert (Aberdeen N)
Dobson, Frank	Hughes, Roy (Newport)
Dormand, Jack	Janner, Hon Greville
Douglas, Dick	Jay, Rt Hon Douglas
Dubs, Alfred	John, Brynmor
Duffy, A. E. P.	Johnson, James (Hull West)

Johnson, Walter (Derby S)	Roberts, Allan (Bootle)
Jones, Rt Hon Alec (Rh'dda)	Roberts, Ernest (Hackney N)
Jones, Barry (East Flint)	Roberts, Gwilym (Cannock)
Jones, Dan (Burnley)	Robertson, George
Kerr, Russell	Robinson, G. (Coventry NW)
Kilroy-Silk, Robert	Rodgers, Rt Hon William
Kinnock, Neil	Rooker, J. W.
Lambie, David	Roper, John
Lamborn, Harry	Ross, Ernest (Dundee West)
Leadbitter, Ted	Ross, Stephen (Isle of Wight)
Leighton, Ronald	Rowlands, Ted
Lestor, Miss Joan	Sandelson, Neville
Lewis, Arthur (N'ham NW)	Sever, John
Lewis, Ron (Carlisle)	Sheerman, Barry
Litherland, Robert	Sheldon, Rt Hon R.
Lofthouse, Geoffrey	Shore, Rt Hon Peter
Lyon, Alexander (York)	Short, Mrs Renee
Lyons, Edward (Bradf'd W)	Silkin, Rt Hon J. (Deptford)
Mabon, Rt Hon Dr J. Dickson	Silkin, Rt Hon S. C. (Dulwich)
McCartney, Hugh	Silverman, Julius
McDonald, Dr Oonagh	Smith, Rt Hon J. (N Lanark)
McGuire, Michael (Ince)	Snape, Peter
McKay, Allen (Penistone)	Soley, Clive
McKelvey, William	Spearing, Nigel
MacKenzie, Rt Hon Gregor	Spriggs, Leslie
Maclennan, Robert	Stallard, A. W.
McNally, Thomas	Steel, Rt Hon David
McTaggart, Robert	Stewart, Rt Hon D. (W Isles)
McWilliam, John	Stoddart, David
Marks, Kenneth	Stott, Roger
Marshall, Dr Edmund (Goole)	Strang, Gavin
Marshall, Jim (Leicester S)	Straw, Jack
Martin, M (G'gow S'burn)	Summerskill, Hon Dr Shirley
Mason, Rt Hon Roy	Taylor, Mrs Ann (Botton W)
Maxton, John	Thomas, Dafydd (Merioneth)
Maynard, Miss Joan	Thomas, Jeffrey (Abertillery)
Meacher, Michael	Thomas, Mike (Newcastle E)
Mellish, Rt Hon Robert	Thomas, Dr R. (Carmarthen)
Mikardo, Ian	Thome, Stan (Preston South)
Millan, Rt Hon Bruce	Tilley, John
Miller, Dr M. S. (E Kilbride)	Tinn, James
Mitchell, Austin (Grimsby)	Torney, Tom
Mitchell, R. C. (Soton Itchen)	Varley, Rt Hon Eric G.
Morris, Rt Hon A. (W'shawe)	Wainwright, E.(Dearne V)
Morris, Rt Hon C. (O'shaw)	Wainwright, R. (Colne V)
Morris, Rt Hon J. (Aberavon)	Walker, Rt Hon H.(D'caster)
Morton, George	Watkins, David
Moyle, Rt Hon Roland	Weetch, Ken
Mulley, Rt Hon Frederick	Welsh, Michael
Newens, Stanley	White, Frank R.
Oakes, Rt Hon Gordon	White, J. (G'gow Pollok)
Ogden, Eric	Whitehead, Phillip
O'Halloran, Michael	Whitlock, William
O'Neill, Martin	Wigley, Dafydd
Orme, Rt Hon Stanley	Willey, Rt Hon Frederick
Palmer, Arthur	Williams, Rt Hon A. (S'sea W)
Park, George	Williams, Sir J.(W'ton)
Parker, John	Wilson, Gordon (Dundee E)
Parry, Robert	Wilson, Rt Hon Sir H.(H'ton)
Pavitt, Laurie	Wilson, William (C'try SE)
Pendry, Tom	Winnick, David
Penhaligon, David	Woodall, Alec
Powell, Raymond (Ogmore)	Woolmer, Kenneth
Prescott, John	Wrigglesworth, Ian
Price, C. (Lewisham W)	Young, David (Bolton E)
Race, Reg
Radice, Giles	Tellers for the Noes:
Rees, Rt Hon M (Leeds S)	Mr. Dennis Coleman and
Richardson, Jo	Mr. Joseph Dean.
Roberts, Albert (Normanton)

Question accordingly agreed to.

Bill committed to a Committee of the whole House.

Committee tomorrow.