INCREASE IN CONTRIBUTIONS

HC Deb 11 December 1980 vol 995 cc1089-155

Mr. Rooker

I beg to move amendment No. 2, in page 1, line 12, leave out '£27' and insert '£28'.

The Chairman

With this, it will be convenient to take the following amendments:

No. 3, in page 1, line 12, leave out '£200' and insert '£190'.

No. 4, in page 1, line 12, at end insert— '(1A) In section 1(2) of the Social Security Pensions Act 1975 after the words "not more than 49p less than" shall be inserted the words "or not more than 99p more than'".

Mr. Rooker

It may be convenient for every other hon. Member to nip down to the Library to read the guidance rotes, but I have to present all the amendments. My hon. Friend the Member for Renfrewshire, West (Mr. Buchan) will wind up for the Opposition, but it will not be possible for me to read the notes.

I start by distancing myself from amendment No. 3. No doubt my hon. Friend the Member for Stockport, North (Mr. Bennett) will wish to speak to that amendment. Amendments Nos. 2 and 4 are linked.

Mr. Ioan Evans

Is my hon. Friend aware that the notes and clauses are still not available in the Vote Office?

The Chairman

Order. The Secretary of State said that the documents were available in the Library, not in the Vote Office.

Mr. Rooker

It seems that there is probably a sackload somewhere in the Library, but no one has told the Library staff about it.

Mr. Andrew F. Bennett

Is my hon. Friend aware that some of us went through the Library box on the Bill yesterday evening and the copies were not there? Does he agree that it was disgraceful for the Government to send the documents to the Library yesterday when they knew that if we wanted to table amendments that were not starred and were therefore, likely to be selected, we had to put them down on Tuesday? Was that not a disgraceful but of trickery by the Government?

Mr. Rooker

My hon. Friend is correct. Of course, the box in the Library does not contain all the documents shown in the index. It is well known that documents placed in Library boxes go adrift. The Library staff are always complaining about it. I know that the Low Pay Unit brief was missing from the box a few hours ago, because my copy was required for making a number of copies.

Amendment No. 2 seeks to substitute £28 for £27 as the weekly earnings that trigger off payments of national insurance contributions. Several hon. Members referred on Second Reading to the fact that the increase was a hidden form of tax on the lowest paid. Most people do not appreciate that the national insurance system does not work like the income tax system. Once one passes the threshold at which contributions become payable, they are payable on earnings below the threshold, which is not the case in the income tax system.

It is estimated that for that reason about 50,000 of the lowest-paid workers in the country will have a massive increase in their marginal rate of tax from next April, because they will pass into the earnings level at which they are required to pay national insurance. I shall give the Committee some examples so that we can see the scale of what the Government are proposing. The problem was referred to extensively in the LPU brief, and I do not want to reiterate what was said on Second Reading.

I am pleased to see a Treasury Minister on the Government Front Bench. I hope that he will remain throughout the proceedings. The Chief Secretary to the Treasury said on Second Reading: 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".—[Official Report, 8 December 1980; Vol. 995, c. 1072.] We could examine the Bill in more detail if we were provided with more information.

Let us examine part-time workers. In 1979, part-time workers worked an average of 20.4 hours per week. The average pay was between £26 and £28. That is the point at which they are to be put into the national insurance system.

I shall give some examples of people who will, because they earn an extra £1 or 50p, be subject to a national insurance impost in excess of £2. That will put them in an invidious position. I refer to wages council industries for which figures are available. A 19-year-old "service worker", working as a cloakroom/toilet attendant or night porter in a hotel, will earn £54 for a 40-hour week in London. It is not uncommon for such workers to split jobs. For 20 hours' work, that person will earn £27 a week and, therefore, be required to pay national insurance contributions of more than £2 a week.

An 18-year-old "regular worker" working in a bar, pub restaurant or club outside London earns £57 a week, or £28.50 for a 20-hour week. Such a person would still be caught if our amendment were accepted, because the amendment increases the figure only to £28. There is a limit to how far we can go in amending the original Act to give the Government scope to move away from the original intention, which was to make the lower earnings limit equivalent to the old-age pension. Since 24 November, the pension has been £27.15 a week. Therefore, the Government's provision is within the law.

As I made clear on Monday, the Government have changed the law. The old-age pension no longer goes up in line with average earnings. It goes up in line with prices. In this case, the price rise is less than the earnings rise The pension should have gone up to £28.30 if the Government had not changed the rule.

We are trying to match the original bipartisan, consensus approach to the way in which pension details are organised. That approach has been changed by the Government. We chose the £28 figure because that is the nearest to what the pension would have been had the Government not changed the rule.

We have not had a chance to cost our amendments, so I hope that Government Ministers will not tell us that we have not provided for the increased costs in our amendments. We have made some attempts to gain increased revenue, although you in your wisdom, Mr. Weatherill, have not selected all our amendments. We cannot cost this amendment because there has not been time to table the necessary questions. We have been pushed at a speed which is not commensurate with making good law. I should be interested to know the cost of our amendment, because that would help my hon. Friends when drafting manuscript amendments.

4.45 pm

The Government's view is contrary to the spirit of their election manifesto. It is contrary to the reality of the social security and income tax system in Britain. The Government are pushing more people into the poverty trap. The Chief Secretary has admitted that. I am surprised that some of the so-called experts who have campaigned for many years on the interaction of tax on the social security system are missing from the Government Benches. They know that the first debate is on a crucial subject. They know that more people will pay more combined tax and social security at a lower rate of earnings than is good for the nation.

I shall quote from "The Wealth of Nations" on the consequence of taxing the low-paid. I suspect that Government Members are under strict instructions to keep their mouths shut and keep out of the Chamber because the Government wish to bounce the Bill through the House.

Adam Smith said: If direct taxes upon the wages of labour"— taxes mean social security contributions in this case— have not always occasioned a proportionable rise in those wages, it is because they have generally occasioned a considerable fall in the demand for labour. What is the Government's estimate of the increase in unemployment following the enactment of the Bill?

Adam Smith continued: The declension of industry, the decrease of employment for the poor, the diminution of the annual produce of the land and labour of the country, have generally been the effects of such taxes". He meant taxes on the low-paid. By not raising the lower earnings limit to a level which is high enough to meet the requirements of the law, and certainly by not raising it to meet the requirements of the 50,000 low-paid who will be pushed into paying an impost of £2 a week for crossing over the threshold, the Government are doing a great disservice to the nation.

I do not intend to stray into areas which do not relate to the amendment. I understand that we are to be allowed a debate on the upper earnings limit on clause stand part. I doubt that there will be much left to discuss then, but that is subject to what my hon. Friends find in the notes on the clauses.

I ask the Government to come clean and to itemise the cost. The Government will say that they are bound by the law. However, they could have tabled a paving amendment. We are asking only for a 99p variation between the old-age pension and the lower earnings band. That is not an open-ended commitment that can be abused. The amendment is responsible. I hope that the Government show some good will during the passage of the Bill. The Bill is being bounced through the House. It is a massive tax measure which involves a £1 billion impost and will raise about £2.4 billion in 1981–82.

There are one or two other points that I and some of my right hon. and hon. Friends should like to raise on this group of amendments, but we are in Committee and can raise them later. Therefore, I shall wait until some of my hon. Friends have spoken and the Secretary of State has given the Government's view on the amendments.

Mr. Paul Dean

I have some sympathy with what the hon. Member for Birminghan, Perry Barr (Mr. Rooker) said. He reinforced the matters that have been raised with us by the Child Poverty Action Group and, in particular, by the Low Pay Unit about the possible regressive effect on the lower earnings limit. The hon. Gentleman's amendment proposes a very marginal change in this respect to increase the lower earnings limit from £27 to £28. I shall listen with interest to the Minister's reply to the amendment.

The Committee should address itself also to a wider question which in my opinion, is directly relevant to the amendment— namely, what the loss of revenue would be if the amendment were accepted. I am sure that whichever Minister replies to this group of amendments will be able to tell us the financial implications. In the Government Actuary's report which is associated with the Bill, the estimate for the surplus on the national insurance fund, taking into account the revenue which will accrue as a result of the Bill and the outgo which is already agreed, will be £39 million in 1981–82. In my opinion, that is a very small surplus in view of the large outlay that is involved.

If we accept this amendment and the similar amendments to which we shall come later, will we endanger the firm commitment that we have to maintain the real value of benefits? The pension and other long-term benefits—the retirement pension and widow's benefit are by far the biggest proportion of outlay—were increased by 16½ per cent. for the year beginning 24 November this year. That is a commitment that goes through this year and, no doubt, will be continued into a further increase in benefits in the year beginning November 1981. We are obliged to ensure in the Bill that there is sufficient revenue to the national insurance fund to meet these firm commitments, some of which are already in operation.

I hope, therefore, that my right hon. Friend will be able to respond to what the hon. Gentleman said. I fully appreciate that the hon. Gentleman has not had time to do the full research. So I hope that my right hon. Friend will inform the Committee what loss of revenue will be involved and what the implications are for the firm commitment on expenditure that the Government have already embarked upon for pensions and other benefits.

Mr. Rooker

The hon. Gentleman referred to the Government Actuary's report. An interesting question arises from appendix 3 to that report. The Government Actuary's estimates arrive at a surplus of £39 million on the basis of an 11 per cent. uprating of benefits in November 1981. That makes nonsense of all the figures. Will the Secretary of State and the Chancellor of the Exchequer abate those benefits under the Social Security (No. 2) Act 1980 so that the benefits will not go up by 11 per cent.? That would throw the Government Actuary's forecast of any surplus and deficit completely haywire. We want this information now. Unless the facts about next year's uprating are made available, some of the costings the amendments or the Government Actuary's forecast are nonsense.

Mr. Dean

I think the hon. Gentleman knows very well from his previous experience that it would be highly unusual for Governments to speculate on the likely level of uprating nearly 12 months from now.

We know that there is a firm commitment for the uprating of the long-term benefits by 16½ per cent. and of the short-term benefits by a lesser amount. That is already in operation and has to be paid for. The Government Actuary has given his calculations in that respect. If we are to accept the hon. Gentleman's amendments regarding the lower earnings limit and also the upper earnings limit, together with a number of later amendments, what would be the likely effect on the national insurance fund? Would that fund then be able to meet its commitments? if the fund is unlikely to be able to meet its commitments—the Government Actuary's calculations suggest that the margin is very narrow—we are saying, in effect, in adopting the amendment that we are withdrawing from the pledge made regarding the increase in pensions and other benefits which began on 24 November.

There is another matter which I think is relevant to the amendment and to later amendments. It concerns the balance which was struck, on the contributions side as well as the benefits side, in what is now called the Barbara Castle pensions Act. A balance was struck at the time and accepted by the then Opposition. So we now have, and I rejoice in it, a broadly bipartisan approach to the Castle Tensions Act. I am profoundly relieved that we are not now discussing a possible Jenkin pensions Act. If we are to take that bipartisan approach seriously, an approach which was agreed after much labour, we must be careful that we do not upset the balance between lower earnings limits and upper earnings limits, that being part of the bargain which was struck at the time. I hope, therefore, that my right hon. Friend will be able to give us information on those two matters.

I listened sympathetically to some of the hon. Gentleman's arguments, but if my right hon. Friend is able to convince the House of the need for this additional revenue and the need to preserve the balance and to maintain the compromise in the Barbara Castle pensions Act I, for one, shall hold the view that those arguments outweigh the other arguments that have been adduced by the hon. Member for Perry Barr.

5 pm

Mr. Ennals

I was interested in some of the points raised by the hon. Member for Somerset, North (Mr. Dean). The bipartisan approach, which I am certain was warmly welcomed, came when Mrs. Castle and the late Mr. O'Malley were Ministers, which was in a very different age, when there were genuine attempts over many months to find such an approach for the new pension scheme. I understand that the hon. Gentleman does not want to see anything which would damage that, but we must accept that the bipartisan approach to pensions, the national insurance fund and benefits has been totally destroyed by the Government's actions over the past 18 months. Whatever they may have said before the election, they have introduced a whole series of Bills, until this one, concerned only to reduce benefit entitlements for the elderly and those on short-term benefits, including the unemployed.

The Bill before us has a different role. After two Acts which removed the entitlements of national insurance beneficiaries, the question whether it has been introduced to ensure that there is enough money in the fund to fulfil the commitments to national insurance recipients is irrelevant. The Secretary of State himself in the Second Reading debate on Monday referred to what is proposed as a surcharge. That reference is to be found in column 947 of Hansard of 8 December. It is a surcharge. The Chief Secretary to the Treasury recognised that the Bill introduced a piece of taxation, that it had nothing to do with benefits but was a quick—and, we thought, very unfair—way simply to raise additional revenue to rescue the Government from the crisis that they have got into

Therefore, to analyse whether the motive was to enable the fund to fulfil its commitments shows a naivety on the part of the hon. Gentleman that I would not have expected from him, with all his experience of the subject in office and in the House and in Standing Committees. As my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) said, we can see this only as a piece of straight taxation. I was going to say "straight but crooked". It is certainly straight but unfair.

The amendments, modest as they are, aim to make the changes less unfair. My hon. Friend rightly pointed out that on Second Reading it was agreed that we should look again at the poverty trap. I wish to draw upon the notes made available to us all by the Low Pay Unit, because they are valid. The unit says: The problem is compounded for the families of at least 90,000 low paid workers who are caught in the poverty trap by virtue of the fact that they receive Family Income Supplement and other means-tested benefits. In addition to the 37¾p in the pound deductions for income tax and National Insurance, each additional pound that such families earn also reduces the amount of benefit they are entitled to. The effective marginal tax rate faced by those caught in the poverty trap thus turns out to be either slightly below or slightly above 100 per cent. Indeed the latest DHSS figures indicate that a married man with two young children will have a total disposable income of around £63 a week whether his weekly wage is actually £39 or £79. The Government's decision to raise National Insurance contributions can only help to deepen the trap that these families find themselves in. That is illogical, because during the whole period when the Secretary of State was in Opposition he was concerned, as I was, with the poverty trap. We were devising methods, such as child benefit, to try to narrow it. The Bill can only widen the poverty trap and bring more people within it.

Mr. Patrick Jenkin

I am grateful to the right hon. Gentleman for reminding the House of the debates that we had in earlier manifestations. Perhaps I may in turn remind him of the argument that he and his hon. Friends used to advance from the Government Dispatch Box when these points were made that two of the main means-tested benefits which give rise to the phenomenon to which the Low Pay Unit draws attention, family income supplement and the housing benefit, run on—FIS for a year and housing benefit for six months.

Certainly, for the FIS benefit, the uprating of the entitlement figures each year means that there is not the snapshot effect that the Low Pay Unit has drawn attention to in its report, but a more dynamic effect, which greatly mitigates the phenomenon to which the right hon. Gentleman is drawing attention.

The Low Pay Unit does not take account, in any of its figures, of that six-month or 12-month run-on. I remember the right hon. Gentleman advancing those same arguments from this Box.

Mr. Ennals

I accept the value and significance of the run-on. My point is that the proposals before the Committee will deepen the poverty trap. The right hon. Gentleman cannot question that. He cannot question, either, that people on very low incomes — including many part-time workers earning between £27 and £29 a week—who would not have been touched by tax will be brought into payment.

That is one of the reasons why my hon. Friends on the Front Bench have tabled an amendment to try, at least modestly, to raise the floor. I wish that it had been possible to raise the floor much higher and that the law had entitled us to raise the ceiling much higher, too, as the right hon. Gentleman accepts that this is a form of taxation. It is a form of taxation that is grossly regressive and gives easy opportunities for those at the higher end of the earnings rate to escape from its real significance, because of the ceiling.

Therefore, I support the amendments, although I think that they are far too modest. They are as far as it is possible for us to go in this debate.

I hope that the right hon. Gentleman will tell us some of the financial implications of what is being done. I did not share the belief of the hon. Member for Somerset, North that the estimated surplus, in the Government Actuary's view, was running dangerously low. That is why I said that I did not think that this measure was introduced to deal with the problem of a very low balance in the fund. It is introduced to deal with the deplorable economic situation that the Government have got themselves into.

Mr. Frank Field (Birkenhead)

The argument of the hon. Member for Somerset, North (Mr. Dean) was persuasive—or was it? He said that the argument for the changes that the Government have made — that is, changing the lower limit at a lesser rate than that at which they are changing the higher limit—was to maintain the real value of benefits. Some hon. Members pointed out that the real value of some benefits was not being maintained. Those are the short-term benefits in the national insurance scheme, which are being cut for the first time since the 1930s—in fact, the first time since 1928—by five percentage points.

The hon. Gentleman quickly recovered to say that the main benefits that we were considering were those for the long-term beneficiaries, particularly pensioners and widows. Is it true to say that the Government will maintain the value of those benefits? If not, presumably the arguments supporting the differential changes between the floor and the ceiling of contributions in the national insurance scheme will begin to fall apart.

Mr. Paul Dean

I was endeavouring to advance two arguments. The first is by far the greatest cost in the national insurance scheme and lies with retirement pensions and widows' pensions. The real value of those pensions is being maintained.

Mr. Ennals

It is not.

Mr. Dean

In fact, their value is being somewhat improved this year as a result of the 16½ per cent. increase. No one can deny that. The facts are well established. I note that the former Secretary of State, the right hon. Member for Norwich, North (Mr. Ennals) is nodding.

The totality of benefits was increased on 24 November. The increases will ricochet into forward years and they will have to be paid for. My judgment on the Government Actuary's figures is that the increases in the Bill will be needed to pay for those increased benefits. If I am wrong, I am sure that my right hon. Friend will correct me when he replies to the debate.

Mr. Field

I am grateful for the hon. Gentleman's intervention. One of the problems is that the contribution years as laid down in the Bill do not coincide with the benefit years. If the Bill is enacted, it will take effect from April 1981. The pension increases announced on 24 November will run for a full calendar year. Therefore, there will be an overlap of six months.

I ask the hon. Gentleman to take his argument forward. The rate of the retirement pension will be partly determined by this measure, but it will be determined in the early part of next year for November 1981. Is the real value of that benefit being increased? We know from statements made by the Chancellor of the Exchequer that the real value in one sense will not be maintained because of what is called the overpayment of 1 per cent. this year.

I asked the Library to make researches to ascertain whether there was another example of a Government, at the beginning of a review period, making a statement to the effect that pensions, which the hon. Member for Somerset, North has said are one of the main benefits that take up much, if not most, of this expenditure, were to be increased by less than the anticipated rate of inflation—in other words, a cut.

The Library found that the only other Government who announced that the coming pension increase would amount to a cut in money terms were the one in office in 1920. The Government then said that they were confident that there would be a real increase in pensions, irrespective of the review period in 1920. as the boom had collapsed and there would be a fall in prices.

It seems that the Government have another first. We have had an announcement that the major national insurance benefit—that paid to old-age pensioners— will be cut in real terms next year. The Government have made an announcement to that effect. We must consider that pledge, promise or threat in the context of the floor and ceiling of the national insurance fund.

As usual, my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) explained clearly the reasons why the opposition would ask for the support of the Committee—

5.15 pm

Mr. Reginald Freeson (Brent, East)

It may be that my hon. Friend has overlooked a rather important issue in responding to the reasonably put argument of the hon. Member for Somerset, North (Mr. Dean). The balance to which the hon. Gentleman referred was struck in 1975. There was written into the 1975 Act for the uprating of pensions the earnings link. That has been killed by the Government, with the consequence that this year alone a £2 loss will be experienced by pensioners when account is taken of the sum by which they would have benefited had the Government not introduced the first Social Security Bill earlier this year. That is an important factor to bear in mind.

The loss of £2 followed an earlier effective cut, in that there was a failure to make food certain excess of earnings figures over price figures early in the year. That produced a loss of 50p to 60p a week. This year, pensioners suffered an effective loss of about £2.50 per week before the Bill was introduced.

Mr. Field

My right hon. Friend has put clearly the difference between the two major parties on how pensioners are being treated. That will be taken into account during our discussions in Committee. The Government rightly say that they made up the shortfall by the pens tort uprating that took place in their first year of office. However, they did not make good the shortfall for the short-term national insurance benefits. There was a cut in the first year, followed by a 5 per cent. cut in the second year. It is as plain as a pike staff that there will be a cut in the third year.

Before my right hon. Friend intervened, I was about to turn to the arguments advanced by my hon. Friend the Member for Perry Barr. The change of one percentage point may not seem to be particularly important to sonic, but it is especially significant for those at the bottom of the earnings pile. My hon. Fiend was right to draw the Committee's attention to the importance of the change to part-time workers. His homework was better than mine, in that it included references to the new earnings survey to establish the groups of workers and the numbers of part-time workers who would be affected by the change.

My hon. Friend advanced the valid argument that we must all make a distinction between national insurance and income tax increases. In the public's mind there is often confusion between the two We have a threshold, in the income tax system. That threshold is determined by personal allowances. As we move over the threshold we begin to pay tax at about the threshold point. However, the national insurance scheme is similar to what the old exemption system used to be in our income tax system, until Austen Chamberlain changed it in his famous Budget of 1920 or 1921.

Until that Budget, tax allowances were valuable only if a person's income was below a certain level. Once the threshold was crossed, the whole of a person's income came into tax. Austen Chamberlain created the beginning A the personal allowances system by allowing everyone co claim value of the allowances and not to pay tax on the equivalent of the allowances — the allowances Hatched against one's personal income.

There is a difference between crossing the tax threshold for the low-paid, who begin to pay tax only on the next £1 of earnings, and crossing the national insurance threshold, whereby the low-paid begin to pay tax on all their earnings up to that point as they would have done ender the old exemption system of taxation. That must be borne in mind and linked to my second point, which concerns the changes over the past few years in the threshold for national insurance contributions and the changes in the tax threshold, which are important in this debate.

If we cast our minds back, we will recollect that we used to live in a world where the threshold for national insurance benefits was well below that for taxation. The two are now almost in alignment. My hon. Friend the Member for Perry Barr made the point that as the low-paid crossed the national insurance threshold they will pay tax at 7.75 per cent. on all their earnings up to that point, unless we are lucky with our amendment. They will also begin to pay tax on their marginal rates of tax. A cruel pincer movement will operate against them.

Such arguments would not carry that much weight if the national insurance contributions bore only the burden that they were meant to bear in the original national insurance scheme. I was lucky enough to catch your eye, Mr. Weatherill, on Second Reading, and I drew to the attention of the House the fundamental change in the size of the contribution that comes from the Exchequer. That is relevant to our amendments, particularly No. 2.

Beveridge considered it important that we should all earn our right to benefit. There were powerful arguments for that then, and there may be today'. He won the case for that argument on the basis that if there were a poll tax everyone would feel that he had earned his right to benefit and because that poll tax would bear heavily on low-paid workers we could expect to claim only a certain amount of revenue from the poll tax for the whole national insurance fund. Beveridge envisaged that as rights to benefit grew in the post-war years the employee and employer contributions should fall as a percentage of the total fund and an increasing percentage should be picked up by the Exchequer.

Unfortunately, I do not have the exact figures with me, but they are in the 1944 White Paper on the Beveridge report. If I remember correctly the Exchequer contribution rose sharply throughout the post-war period until it was about 70 per cent. in 1965. In other words, the Exchequer was picking almost three-quarters of the cost of the national insurance fund, the cost being borne by general taxation, which was clearly much more progressive than the proportional system of taxation, which is what the income tax system is for most taxpayers in 1980–81.

Governments of both parties allowed that major change to occur in the post-war period, but particularly the Conservatives. In 1961, with the introduction of earnings-related contributions, the Government decided that there would be no Exchequer supplement to those contributions. We shall return in later amendments to the considerable fall, under the Bill, in the Exchequer contribution from 18 to 14 per cent. To some people the change from 7.75 to 6.75 per cent. may seem trivial, but it is important for the reasons that I have tried to outline. As my hon. Friend the Member for Perry Barr said, as soon as a person crosses the national insurance threshold he pays tax on every pound of earnings.

It is important also in a second respect. The threshold for national insurance contributions is now closely aligned to the tax threshold. At that stage, a person is also beginning to pick up a tax bill. Thirdly, over the post-war period we have seen that much more of the national insurance fund financed from contributions from employers and employees and a very significant decrease in the Exchequer contribution.

Mr. Patrick Jenkin

That is not true.

Mr. Field

I shall happily give way to the right hon. Gentleman if he wishes to take up that point.

An increasing burden is being put on employers and employees, and changes in the rate are therefore that much more important than they would have been had the Exchequer, for example, been footing 70 per cent. of the bill.

If we are concerned about the low-paid and the burden of taxation that they bear, there are powerful arguments for amendment No. 2. My right hon. Friend the Member for Norwich, North (Mr. Ennals) also stated that we cannot view those arguments as separate from the arguments about the poverty trap.

In Opposition, one tends to think of the poverty trap as having a snapshot effect. In Government, one always stresses what wonderful administrative changes have been brought about so that people are not caught in the trap. The real test is how our constituents are affected by the changes. We do not have as much contact with our constituents as we should like, as we have many other tasks to perform. However, I know of people in my constituency who have been affected by the snapshot effect of the poverty trap, as the Secretary of State called it. They have not been released by the different time lags of changes in benefits and tax rates. The poverty trap argument must be taken on board. We know of families affected by it, in spite of the fact that the intellectual and academic arguments say that it is as a figment of our imagination.

I am puzzled by amendment No. 3. I am an abolitionist for the ceiling on national insurance contributions. I am puzzled why my hon. Friends, whom I trust on these issues, ask us to support an amendment that appears to be a contradiction of our normal stance.

I had the benefit yesterday of speaking to someone who helped to devise the 1975 Pensions Act. I was truly puzzled by the explanation that the Financial Secretary gave on Second Reading. I thought that perhaps I had missed something in the background to the 1975 Act, as though the ceiling was of crucial importance to the agreement that we had made with the occupational pension funds. If so, that argument should be spelt out. If that agreement is torn up, the Government have only themselves to blame. The Treasury has destroyed the consensus between the parties on pensions and must take the responsibility if the failure, break-up or tearing up of consensus is followed through.

The real reason why the formula in the 1975 Act of six and a half or seven times the minimum was thought of was that it was then considered important to limit the contribution on those bands of income before taxpayers reached the old surtax rates. In other words, we did not want extra contributions or a proportional contribution from those taxpayers who would have then crossed the surtax band—now called the higher rates of tax.

One change, particularly from the 1979 Budget, is that the thresholds for the higher rates of tax were changed dramatically. There is, therefore, a powerful case for saying that, given that fact, there is not now a problem of lifting the ceiling—certainly not in the terms that some of my hon. Friends have thought—and linking people into the surtax bands as well.

As an abolitionist, I am puzzled that some of my hon. Friends should have put down amendments to bring the ceiling down from, I believe, £200 to £195. There is a powerful case for abolishing the ceiling. We on the Labour Benches must, sadly, accept that we shall be unable to influence the way the Government spend the revenue that arises from the Bill.

5.30 pm

Mr. Rooker

In case my hon. Friend concludes sooner then I had expected, and in order to muddy the waters a little, may I make one point clear? There were two Acts in 1975—one on pensions and one on social security. Much of those Acts was based on the 1973 legislation, which was the responsibility of the Conservatives.

Mr. Field

I am grateful for that intervention, because it reminds me of a point that I should have stressed but did not, which is that if there was agreement between the parties on pensions we have to ask at what cost. The answer is that the scheme was satisfactory to the occupational scheme, and that in itself seems a good reason for questioning whether the State—that is, the taxpayer— obtained a good enough deal. In considering whether the private sector is satisfied with certain underwritings from taxpayers, perhaps we should consider whether the taxpayer's interest was pushed hard enough.

The argument for lifting the ceiling is separate from that about whether the Government are right to bring in the Bill and to increase taxation by £2 billion-plus. There is a powerful Socialist argument for raising the ceiling on contributions, but now there is a High Tory argument for it as well. Although the Government will find the Bill helpful in meeting the public sector borrowing requirement this year, they are putting in their legislative programme a time bomb that will make it that much more difficult for them to achieve their targets in the coming year. That is why Labour Members keep returning to the real cuts in benefits by the Government.

If earnings-related supplements are phased out and national insurance benefits are cut in real terms, more and more families and individual claimants will be pushed on to means-tested assistance. The more that happens, the bigger will be the bill to be met either by the taxpayer or from the PSBR to pay the supplementary benefit budget. The more claimants that are kept within the national insurance scheme, the easier it will be in coming years in this Parliament to reduce to the PSBR as a proportion of GDP, which is one of the Government's major objectives.

While there is that High Tory argument, there is also a powerful Socialist argument. We wish to have a society in which people are not made dependent on means-tested benefits but claim them as of right, as citizens, free of means tests. The Treasury Bench talks about securing consensus, and here is a new consensus growing between both sides on the reforms needed in the national insurance fund to secure the Government's objective of meeting the PSBR and our objective of freeing people from means tests and making sure that those who have been conscripted into the army of the unemployed to fight inflation do not bear an undue proportion of the cost. Those of us who are lucky enough to remain in jobs will then put much more into the national insurance fund so that the unemployed can draw decent benefits as of right and free of means tests. I am puzzled by amendment No. 3, which seeks to lower the ceiling. I should prefer it to be abolished for those powerful arguments.

We must bear in mind, in considering amendments Nos. 2 and 3, that we are dealing with a Government who have not only cut the real value of short-term national insurance benefits but have given notice—the first time that it has happened since old-age pensions were introduced in 1908—that in the coming review pensions will be cut in real terms by 1 per cent. below the inflation rate. It is another doubtful first for the Government.

Some hon. Members may feel that a 1 per cent. change in contributions to the national insurance scheme is neither here nor there. I have tried to point out why it is important for low-paid workers. Their contribution is based on every pound they earn once they cross the threshold. That threshold is near the tax threshold, so that at about that point they start to pay tax as well. Many of them also begin at that point to lose other forms of means-tested help. My right hon. Friend the Member for Norwich, North pointed out the whole bands of income in which considerable numbers of families will be unable to improve their position.

Mr. Andrew F. Bennett

I do not want to venture now into debating the removal of the upper limit, because we have had a clear undertaking that if we keep away from that subject while we debate the amendments we shall have an opportunity to explore it when we reach the clause stand part debate.

With my hon. Friend the Member for Barking (Miss Richardson), I tabled amendment No. 3 in an attempt to discover how the Government arrived at their figure of £200. If I obtain a satisfatory answer, I shall not press the matter to a Division. If not—and so far we have not had satisfactory answers on this point—I hope that we shall be allowed a separate vote, because the matter is one of a separate principle.

We tabled the amendment because the Government provided a lot of information about how they were increasing the amount they wanted to raise through national insurance, but surprisingly they did not make clear what would happen to employers. They did not explain, either, why they had decided to break away from precedent and, in setting the upper limit, go for the top of the range rather than stay at the mid-point.

The regulations suggest that the upper earnings limit should be between six and a half and seven times the basic rate. That works out at between £176 and £203. Over the years, the Government have always gone for a mid-point of more cm less seven times the pension rate. The current mid-point of the range is £163, but the current operative figure is £165. In this new case, the Government have deliberately chosen to go virtually £10 above the midpoint. Why? In spite of their being pressed on Second Reading on Monday, they gave no explanation for not following custom and practice in this matter.

The only explanation I can imagine is that, they must have asked themselves by how much pensions would have risen under the old regulations. The rise would have been based on whether earnings or prices had risen more. If pensions were increased in line with earnings, which the Government did not do, they would have reached £29 or slightly less. If that figure is multiplied by seven, the result is just over £200. It seems that the Government were assuming, in fixing the upper limit, that pensions would go up by the amount by which they should have risen but for the earlier legislation to take away the linkage. That is a perfectly reasonable explanation. Perhaps the Government could offer an alternative one.

However, it appeared from the figures that the Government thought that pensions should have risen to £29 then multiplied that by seven, which comes to about £200. That is how they produced some logic for the figure of £200. If that logic worked for the upper limit, they should have applied the same logic to the lower limit. I am pressing the Government for an explanation of why they chose £200 instead of £190. We have tabled a modest amendment suggesting that the lower limit should be changed from £27 to £28. On reflection, perhaps we should have gone for £29.

There is a major problem for the part-time workers who are trapped when there is a small improvement in their income—it may be only a few pence—and they have to pay national insurance contributions not based on those few pence but on the whole of their earnings. There is not sufficient recognition of the number of people who, for one reason or another, have been forced into living entirely on part-time earnings.

I shall give three examples of constituents who fall into that category. One man worked until July and was then made redundant. He had to make decisions about his future. He concluded that he was in the wrong career and that he wanted to start again and undertake a different university course. He did not find any difficulty in getting into a university. His major difficulty was obtaining a grant. However, based on his redundancy money and the possibility of finding a part-time job he thought that he could struggle through as a student by financing himself. He had major difficulties meeting his fees. He was dependent upon his own money to finance him. When he looked for a part-time evening job, he found that he was entering a whole new world. Employers were talking not about a rate for so many hours but about a rate that took into account whether he could stay below the national insurance level. He discovered that, to some employers, that was important because it simplified their bookkeeping. The employers could then say that the employee preferred to keep below the limit because it saved him having any deductions.

The man found not only that if he earned a little more he would lose money, but that it distorted the whole area of wage negotiation because it was more crucial to keep below the Government limit than to negotiate the rate for the job. The man discovered that h s interests were in conflict with the full-time workers whom he worked alongside. They would be happy to see the hourly rate raised by a few pence, because at least that would be an improvement. Yet, for him, a movement upwards meant telling his employer that he would have to work a few hours less, otherwise he would find himself above the national insurance limit.

Another constituent qualified as a teacher but could not obtain a full-time job. He was entitled to draw benefit. Instead of doing that, he visited many colleges and found a little work here and there. Eventually he built up his work to a level where he was teaching almost more hours during a week than a full-time teacher. That was two years ago. As a result of the cuts that have taken place, he found that because he was a part-time teacher he was especially vulnerable. Every time a college had to make a cut, his hours were reduced rather than those of the full-time teachers. His hours have been cut back to the point where he has to consider whether it is better not to work and to apply for benefit or to remain in work. He is another person who has been caught by the national insurance trap. He would like to build up his work, because the more work that he obtains and the more places where he is seen, the more likely it is that he will obtain a full-time job.

My final example is of a woman who worked in the textile industry for about 20 years. She has been made redundant. She is entitled to benefit but she prefers to work. She lives on her own. She says that unless she goes out to work she does not see anyone. She does not know her neighbours, because for so many years she has gone out to work and seen little of them. She feels socially isolated. With a struggle and much persuasion, she found herself a part-time cleaning job, which brings in a fraction more than she could obtain in benefits. It is very marginal. She now finds that she has a substantial amount of stoppages because she is just over the national insurance limit. She feels that there is little or no justice in that area.

5.45 pm

The Government should be offering a clear explanation of how they managed to pick £200 rather than £190 out of the air. They should say whether it was based on seven times what the pension should be. They should apply that same logic to the bottom end of the scale and allow that limit to rise to at least £28, if not to £29. I do not claim that by doing that they would remove all the problems of the poverty trap, but at least they would show, with a practical action, that they were moving in the right direction. Over the years we have heard about the Government's concern, but we have seen no practical action. We do not have the figures, but no doubt the Government Front Bench will tell us what that would cost. I believe that it would be a small cost and something that they should do.

The Under-Secretary of State for Health and Social Security (Mrs. Lynda Chalker)

In replying to the many points raised by Opposition Members, I shall go through them as logically as possible. We should start with amendment No. 2, moved by the hon. Member for Birmingham, Perry Barr (Mr. Rooker), which links with amendment No. 4. Of course, we understand that there will always be concern when the Government draw a line below which one does not come into a certain category but above which one comes into it. As my right hon. Friend the Secretary of State mentioned in an intervention, the effect of the poverty trap as explained in the brief by the Low Pay Unit—to which I shall return—omitted to note the duration of the family income supplement and the duration of housing benefit.

We need to put on the record not only the effect of the amendments but also why we believe that they should not be accepted. If we increased the lower earnings limit from the £27 proposed in the Bill to the £28 proposed in the amendment, we should fail to do what we are required to do by section 1(2) of the Social Security Pensions Act 1975. That Act requires the lower earnings limit to be an amount equal to, or not more than 49p less than, the basic pension rate at the beginning of the tax year in question. It is customary to set the multiple at 50p, and the tolerance of 49p in the statute was designed to permit that degree of rounding down.

As the Bill stands without the amendment, the amount of the lower earnings limit conforms to that rule. The £27 a week is the required rounded-down figure derived from the pension rate now payable for a single person of £27.15.

Mr. Buchan rose—

Mrs. Chalker

I have not yet finished the point. Perhaps the hon. Gentleman will give me a few moments so that he may hear what I have to say. I understand that any impact on the contributions of low earners will be difficult for them. Nobody is denying that. But there is just as sudden a jump between £27.99 and £28 as there is between £26.99 and £27. I understand that the amendment was tabled for illustrative purposes in order to discuss the issue and not the exact amounts. It may also be argued that by changing the pension formula to relate it to prices movements rather than the better of earnings or prices, the Government had already effectively held down the lower earnings limit and brought more people into the contributions net.

The burden is a percentage contribution. That is why it is light where earnings are low. Although the contribution for an employee—£2.17 at £28 a week—may be a significant burden for people with such earnings, there are three things that we have to remember.

We have had several discussions about part-time and full-time earners, and I want to go into that question for a few moments. There are very few people with full-time earnings at the level concerned. They are generally part-time earners, often with other sources of family income. We know from the Department of Employment statistics that only about 0.2 per cent. of all full-time male employees earn less than £40 a week and that about 2.3 per cent. of all full-time female employees earn less than £40 a week. Therefore, there are very few working full-time for £28 a week.

It is important to remember that if we were to increase the lower earnings limit from £27, as in the Bill, to £28, as in amendment No. 2, we would reduce the accruing rights of the additional components and the guaranteed minimum pensions. Here we enter a very complicated area. I am sure that all hon. Members are well aware that very valuable benefit rights accrue from the contributions. Contributions paid on earnings at the lower earnings limits are sufficient to give full rights to all the basic benefits and pensions in the scheme. If there are any gaps in the year's record, there are credits and voluntary contributions which can rectify the deficiencies.

Mr. Rooker

If I have followed the Minister's argument correctly, she appears to be saying that the more the Government cut the old-age pension, the more the lower earnings limit will be lowered. More people will come into national insurance and, therefore, gain the benefit, at the expense of the cuts in the old-age pension, because of the break with the link with earnings. Is the Minister saying that the cut with the link with earnings is the advantage, so that old-age pensioners have a lower pension and, therefore, the other people make this gain? Is that the Minister's argument?

Mrs. Chalker

No, that is not my argument. I am sorry if what I said in some way gave rise to that thought. I was seeking to explain to the Committee that it was important that, even at low levels of earnings, these people had the opportunity, with those low levels of earnings, to be contributing. I am certain that the whole Committee would want to keep to that. It stems from the Social Security Pensions Act 1975, which sought to bring more people into earning pensions on their own account.

Mr. Buchan

Will the Minister accept that she is advancing an extraordinary argument? She is advancing the argument that the more we drop the floor, the better off will people be. Why, therefore, are we increasing it? Es it suggested that we should have it at £20, £15 or £10, in order to get all the benefits that will flow? it really will not wash.

Mrs. Chalker

What I was saying was not that we would drop the limits but that there are benefits that accrue for the people who come into the area of paying contributions. It has been widely accepted throughout the House of Commons and throughout the pensions industry that contributing towards a pension for one's old age is a good thing to do. If we wanted to raise the lower limit at which we began the process, the size of the contribution paid by those above that limit would be even harsher, and the effect of the poverty trap at that higher rate would be very much more abrupt.

With regard to the whole question of part-time earnings, on which a number of hon. Members commented, we estimate that there are about 200,000 persons with part-time earnings between the lower earnings limit of £27 proposed in the Bill and the £28 proposed in the amendment. The census of employment for June 1977 shows that about 40 per cent. of part-time workers are earning less than £28.

The important aspect, to which I referred earlier, is that those who are on low pay and who work for 30 hours a week—or, if they are single parents, for 24 hours a week—are entitled, if they have children, to family income supplement. That continues for 52 weeks and the housing benefits continue for £26 weeks, irrespective of any change in circumstances, whether it be brought about by a change in the lower earnings limit or by some other change in circumstances concerning taxation.

Mr. Ralph Howell (Norfolk, North)

What is the logic behind one benefit continuing for 52 weeks and the other benefit continuing for 26 weeks?

Mrs. Chalker

Certainly, it is not—as the hon. Member for Birkenhead (Mr. Field) said from a sedentary position—in order to confuse. When the family income supplement was brought in in 1971, it was to try to help the families who were on low lay to increase their income and to help them over a continuing period of time. The housing benefits, as hon. Members will know, are not administered by my Department and are largely administered by local authorities. But, quite separate from anything that is before us tonight, there is the review of housing benefits. I shall note my hon. Friend's comment when we come to that review. In order that my hon. Friend should not be further confused, I felt that I should clarify the point as quickly as possible I do not intend to elaborate it any further.

Some of the other comments made during the debate have concerned not simply the full-time and part-time earnings but the problems that obviously accrue for far lilies who are on low incomes. While it would be very easy to accept the arguments put forward by the hon. Member for Birkenhead, I do not believe that we shall resolve any of the problems that face us in this matter if we do away with the upper limit, to which I shall return when dealing with amendment No. 3, tabled by the hon. Member for Stockport, North (Mr. Bennett).

The problem that the Opposition face when they suggest that there should be any change in the lower earnings limit is that they are seeking to move away from a formula that we have always hoped would stand the test of time. It is a formula that was painfully arrived at during the passage of the Social Security Pensions Bill in 1975. The formula included a lower earnings limit, which would be effective for the payment of contributions. The £28, as the hon. Member for Stockport, North said, might be justified if we were to look at the earnings movement, but there are now other considerations that quite genuinely outweigh this point. We have particularly the need to preserve the basic benefits for the lower-paid.

My hon. Friend the Member for Somerset, North (Mr. Dean) asked about the financial effect of the amendment. The effect would be to reduce income by £9 million in respect of those employees earning between £27 and £28 but to increase income by £31 million by reducing the range over which the contracted-out contributions—of both employers and employees — benefit from contribution abatement. In other words, the amendment would result in a net increase.

6 pm

Both this Government and the Labour Government have kept to the formula because they wished to ensure that the lower earnings limit was linked to the level of pensions. As a result, those in employment whose earnings exceed the lower earnings limit contribute towards these basic benefits.

Mr. Rooker rose—

Mrs. Chalker

It might be better for me to finish my remarks first. It is important that contributions should be sufficient to support the benefit for which they provide cover. That is why the direct link between the contributions earnings limits and the pension rates remains an important criterion. The most important thing is to protect benefit rights for the future.

As the hon. Member for Perry Barr said, amendment No. 4 is a paving amendment for amendment No. 2. Its effect would be to bring the £28 within the limits required by the Act. The Government believe that the link between the basic pension limit and the lower earnings limit should be maintained, but we do not want to lose the start of class 1 insurance cover. Some people would lose that if the Act were amended.

I turn to the questions raised by the hon. Member for Birkenhead. Why cannot we do away with the upper earnings limit? That question is also relevant to the amendment tabled by the hon. Member for Stockport, North. We all accept that pensions—

Mr. Rooker

On a point of order, Mr. Weatherill. We want to be co-operative, but we do not want to lose the opportunity that you granted us—namely, to debate the removal of the upper limit. My hon. Friend the Member for Stockport, North (Mr. Bennett) spoke not on the removal of the upper limit but on the issue of £190. If the Minister carries on in the way that she has begun, I fear that we shall be deprived of our opportunity to speak in the clause stand part debate.

The Chairman

I said that I would allow a debate on clause stand part. That debate should be fairly brief, because many amendments have been tabled on clause 1. However, that guarantee still stands.

Mrs. Chalker

If the hon. Member for Perry Barr so wishes, I shall leave those remarks until later. The House has never agreed that pensions should be unlimited for those who have earned high wages throughout their working lives. Therefore, there must be an upper earnings limit for pension purposes. Contributions above that limit will give no entitlement to benefit. They will be a straight subvention from the national insurance fund. Given the remarks made by the hon. Member for Perry Barr and the wish to discuss the matter in the debate on clause stand part, I shall not go into further detail.

Those of us who have sat on Committees that have discussed social security Bills are used to hearing ingenious explanations for raising certain issues from the hon. Member for Stockport, North. Over the years we have got used to that. However, I assure the hon. Gentleman that his explanation today had nothing to do with the decision about the upper earnings limit.

The amendment tabled by the hon. Member for Stockport, North seeks to change the upper earnings limit proposed for class 1 contributions from £200 a week to £190 a week. Section 1(3) of the Social Security Pensions Act requires that the upper earnings limit should be between six and a half and seven and a half times the basic pension rate, or between £176.48 and £203.63. In practice, the upper earnings limit has long been a multiple of £5, for ease of calculation.

In 1980–81 the upper earnings limit was 7.08 times the pension rate. The proposal put forward by the hon. Member for Stockport, North would reduce that multiple to just under 7, at a time when income to the fund needs to be bolstered in order to match outgo. Cmnd. 8091, the report of the Government Actuary on the financial provisions of the Bill, shows that the total outgo for 1981–82 of £17,842 million is much higher than that of previous years. The amount goes up every year at a fast rate.

On Second Reading, it was accepted that income should be kept in line with outgo. Even with the upper earnings limit of £200, the surplus expected in 1981–82 is under £40 million. Indeed, it is about £39 million. If there were an upper earnings limit of £190, there would be a deficit of £64 million on the estimated outgo according to the Government Actuary's report. The £200 mentioned in the Bill is 7.37 times the pension rate. In other words, it is well within the range of six and a half to seven and a half times the pension rate in the Social Security Pensions Act. If we were to accept the hon. Member's amendment, the House would have to make up the deficit that would accrue for 1981–82 in some other way.

Mr. Andrew F. Bennett

What will the deficit be?

Mrs. Chalker

I have already told the hon. Gentleman that if the upper earnings limit were set at £190 the deficit on the fund would be £64 million, according to the calculations that the Government Actuary has used.

The £200 limit avoids the need for a further rate increase. It makes the impact of the contribution burden a little more progressive. It is important that the national insurance fund should be kept in balance, as far as that is possible. If we were to create a deficit purposely and knowingly, we should be wrong.

Many comments have been made on this group of amendments. A rise in rates for national insurance contributions will never be welcomed. We have sought to keep within the terms of the Act that was agreed, after a great deal of discussion, by the late Brian O'Malley and other colleagues of mine in 1975. Not only was agreement reached between parties in the House and in the other place but also, for the first time in many years, agreement was reached between those in the occupational fields who have about 11 million contributors and those who run the national insurance pension fund. To break such an agreement would be a truly retrograde step.

For those reasons, I believe that we must keep to the formula of the lower earnings limit for the single person's basic pension, that we ensure that the national insurance fund is kept in balance and that we do not go down a path that would lead it directly into deficit.

Mr. Norman Buchan

I hope to say more later, but it might be useful, as I am at the Opposition Dispatch Box for the first time, as it were, to make some comments.

I was surprised at some of the points made by the Minister in justification of these proposals relating to the lower-paid. I find extraordinary the suggestion that whereas, hitherto, we were told that we were keeping out the low-paid in order to save them money, we are now told that if we push up the figure to £28 we shall cause them to suffer. That seems to be a contradiction of the concept that we should leave the figure at £27 in order to assist and not to bring hardship. All who have discussed this proposal have said that the £27 level will increase the hardship on those who are already in the poverty trap. The excuse for choosing this figure is that the 3 million people on the £27 to £29 level are on part-time earnings and are in receipt of family assistance of one kind or another.

I also find extraordinary the argument that the figure could not be moved up to £28 because the parent Act would not have permitted it. But the Opposition, despite all the difficulties that have been imposed upon them in dealing with amendments, have put forward a way of doing that successfully by introducing amendment No. 4 as a paving amendment.

Much of the argument that we have heard has had little to do with the concept of the consensus on national insurance that the Minister has been defending, including using the name of Brian O'Malley. The consensus has been rapidly smashed by the Government. One aspect of the smashing is the heavy reduction in the taxation element—the shift from 18 per cent. down to 14½ per cent. that is envisaged. That is beginning to shift away from the consensus. We do not accept that there is justification for this proposal on the basis of previous Acts introduced largely by the Labour Party, usually with support from the Conservative Party, based mainly on the work of Brian O'Malley.

This is not so much a national insurance measure as a tax measure. The Sunday Times reports: As forecasts of the government's borrowing requirement mount higher, ministers are discussing possible increases in taxation. It would be against the government's principles to raise income tax, and its obsession with inflation figures makes it reluctant to increase indirect taxes. So it is now looking at the employees' national insurance contributions as a way of raising more revenue.

The proposals set out in this clause, but more so in the following clauses, relate to tax and not to national insurance. That is one reason why we feel angry about this measure.

Will the £27 cause hardship? Of course it will. Much has been made of the material brought forward by the Low Pay Unit. I have not heard anyone so far reject the arguments of the Low Pay Unit. It argues that the problem will be compounded for the 90,000 low-paid workers already caught in the poverty trap. It says that the effective marginal tax rate is about 100 per cent. It points out that a married man with two young children will have a total disposable income of around £63 per week whether his weekly wage is actually £39 or £79. The whole argument is based on those who are caught in the poverty trap, and that should be crucial for the Government because they claim that they were elected to provide incentives. I cannot think of anything that will provide a greater disincentive than the £27, because the amount to be charged on that figure is based not on the last pound but on the total amount. Therefore, the Government are contradicting their own claim to try to achieve the non-workshy society.

6.15 pm

The balance has now been shifted, but it has not been shifted justly. One of the arguments for the £27 is that whereas on the upper limit—the ceiling—there has been a shift of about 22 per cent., the bottom level has been raised by only 17 per cent.

Mr. Reg Race (Wood Green)

Will my hon. Friend also comment on the Government's proposal to index the higher-rate tax bands? That is part of the equation, is it not? The difference between the lower-paid and the higher-paid is not only the level of national insurance contributions that they have to pay but the tax benefits that trey are are given.

Mr. Buchan

We are accusing the Government not of having no pattern in their thinking but of having a pattern of that kind in their thinking.

I turn now to the £190 figure, I hope that my hon. Friend the Member for Stockport, North (Mr. Bennett) treats this as a probing amendment rather than an amendment on which we would necessarily wish to vote. I do not think that he has received a satisfactory answer. We had hoped that there would be closer financial involvement in his multiplication by seven, because that would have aided us with the other amendments. We have not yet been given a clear explanation. It is clear that there was no mathematical thinking in the Government's mind.

Approximately 3 million part-time workers will be c aught in the trap between £27 and £29. We have proposed these amendments because we see injustice developing further between higher-paid and lower-paid workers. Each shift by the Treasury towards contributions will result in a direct and highly regressive tax.

I hope that we receive support and even a shift of mind by the Government, particularly on the lower level of £27.

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

I rise with some trepidation to speak on social security, because I do not share the expertise of most Opposition Members. I do not subscribe to Orwell's view that "Ignorance is Strength". I hope that the simplicity of my understanding on one aspect of clause 1 will make more impact on the Secretary of State than the more learned and expert arguments that hate been adduced by my colleagues.

Everyone—even the Secretary of State—accepts that this is a regressive measure. The amendment, which refers to raising the lower limit from £27 to £28, is at the heart of the most regressive aspect of this regressive Bill.

I draw the attention of the Secretary of State to the manifesto on which he and his colleagues fought the general election. On page 13—which was unlucky for some—it states: We shall cut income tax at all levels to reward hard work, responsibility and success; tackle the poverty trap"— we are discussing the poverty trap— encourage saving and the wider ownership of property; simplify taxes…and reduce tax bureaucracy. It goes on: It is especially important to cut the absurdly high marginal rates of tax both at the bottom and top of the income scale. We are here dealing with an even more absurdly high marginal rate of tax at the bottom of the income scale. The election manifesto goes on to say: It must pay a man or a woman significantly more to be in, rather than out of, work. Raising tax thresholds will let the low-paid out of the tax net altogether. This is a lowering of the threshold. It is also a form of tax, so it is contrary to that undertaking. The manifesto goes on: unemployment and short-term sickness benefit must be brought into the computation of actual income. That was on taxation. I turn to what the manifesto says about social security. This aspect may explain why the Chancellor got himself and the House so confused when he introduced his mini-Budget. The manifesto says: Our social security system is now so complicated that even some ministry officials do not understand it. It appears that several Members, at least, of the Treasury Bench did not understand it, and probably do not understand it any more now. The manifesto also says: Income tax starts at such a low level that many poor people are being taxed to pay for their own benefits. This is exactly that kind of tax, and because it is more regressive than income tax it taxes those at the lower end of the scale more heavily even than if this bit of revenue had been raised from income tax.

I therefore strongly support the amendment to increase the minimum level from £27 to £28 because of that crucial, regressive aspect of this part of the existing legislation. I think that we all recognise that it has that impact, whatever the levels may be. There is, nevertheless, merit in raising the level, because this is not like income tax. When one moves from one income tax bracket to another, one pays the enhanced rate only on the income covered by the higher bracket. One does not have to pay the higher rate on all the income that one receives. In this case, as I understand it in my simple way, when people who previously made no contributions go over this benchmark, they must immediately start paying 7.7 per cent. not just on the income above the benchmark but on the whole of their income.

This must be the most regressive aspect of anything in our taxation and social security system. The amendment is an admirable effort to alleviate to some extent the consequences of this general provision. I therefore strongly support it. As I have said, I hope that my simplicity and relative ignorance in this matter may have helped to convince the Secretary of State in a way that the expertise of my colleagues has not.

Mr. Andrew F. Bennett

I am very puzzled by the Minister's reply, the whole thrust of which seemed to be that she was doing people a good turn by keeping the limit that bit lower, because she was ensuring that people paid for benefits. If that is her argument, she must be certain that for all part-time workers there are definite benefits to accrue from payments. Some people are unlikely to receive any benefit. It is a very difficult area.

There are people who, if they do not pay contributions for only short periods in the course of a lifetime, lose very little, if anything of their pension. It is, therefore, dangerous to tell people now struggling to work their way through college or university by working part-time that it is in their own interests to pay contributions. For most of them, that small amount of money is far more crucial now than it is ever likely to be for their pension, as they will almost certainly be entitled to a full pension on the rest of their earnings record over the years.

The only possible area in which those people might lose benefit is in regard to sickness benefit, but if the Minister really believes her own argument she should be saying that all people who are working and are below the £27 threshold should have the opportunity to make a contribution, taking into account their ability to pay, so that they may get benefits. She should be putting forward a graduated system of payments in order to give everyone that form of benefit, rather than have this cut-off point.

Mr. Race

I think that my hon. Friend said that the only benefit that people might actually lose was either retirement pension or sickness benefit. Is he aware that many part-time workers, some of whom earn just over £27, are ineligible to register as unemployed part-time workers and, therefore, receive no national insurance unemployment benefit? Many employment exchanges will only register people, particularly women, for full-time work. That invalidates the argument that only sickness benefit and pensions are affected by this miserable proposal.

Mr. Bennett

I accept that. I am suggesting that if the Minister is really concerned about the group that is losing as a result of the higher rate she should bring forward proposals so that some of those people can qualify for benefit and make a small payment, but not the penal tax contained in this proposal.

With regard to the upper limit, we still have not had a proper explanation of the figure. All that it really amounts to is that the Government were looking for any extra money that they could find, and that is why they raised the limit. There was no logic in it at all.

The Minister went on to say that it all came back to the supposed deal in relation to the Social Security Pensions Act. There is great concern among the Opposition as to what that deal actually was and what record there is of it. As I understand it, the Social Security Pensions Act provided that pensions would be linked with prices and earnings, and that they would be raised in line with whichever went up the most. If that was the deal, it was broken last year, when the Government took away the link with earnings, because that is the important aspect. If the Government wish to rest their case upon that, they must start moving these things in line with earnings and not merely in line with prices.

The Minister must give the Committee a clear explanation. Was the deal based only on the link with pensions, irrespective of how they went up, or was the link with pensions based on the fact that they would go up with the best of both worlds—prices or earnings? That is my understanding of the deal. It is unfair of the Minister to claim that a deal reached in the past, based upon those principles, still holds when one of the fundamental principles has been withdrawn.

Mr. Rooker

I may be wrong. I heard the Secretary of State muttering while my hon. Friend was making his point. I invite my hon. Friend to put the question directly, because I do not know what Ministers actually mean when they talk about the deal. Do they mean the consensus, the bipartisan agreement—the Social Security Pensions Act 1975 or the Social Security Act 1975, one or other, or both? That is the nub of the matter. The earnings link is in the Social Security Act, but the earnings limits are in the Social Security Pensions Act. We must know to which Act Ministers are referring, so that we know which pledge they are breaking.

Mr. Bennett

I thank my hon. Friend for that intervention. I see no point in my repeating the question. I hope that the Minister will answer it and tell us on what basis the deal existed. If she is claiming that it existed merely on the basis of prices, most Labour Members would not accept that.

If the argument is to rest on the link with earnings, the Government at least ought to accept the increase from £27 to £28. On that basis, I would have thought that the £200, rather than being the top point, could be the mid-point in a range between, say, £185 and £210. I believe that the Committee could accept such figures.

We must be told the basis on which the deal was made. Was it based on one of those Acts, or on a combination of them? In my view, it would be acceptable only if it were done on the basis of earnings as well as prices.

6.30 pm

Mrs. Chalker

I come back to what I have said already. I am sorry that the hon. Member for Stockport, North (Mr. Bennett) did not grasp the point that I made about the upper earnings limit being changed in line with his amendment. I was pointing out that this would cause a deficit on the national insurance fund of about £64 million. In changing contributions limits, the previous Government, long before this Government, always sought to keep the fund in balance. The amendment would not permit that to happen. That is the advice of the Government Actuary's Department, and that is the reason why we are unable to accept the amendment. We have a duty to keep the fund in balance.

Both the hon. Member for Stockport, North and the hon. Member for Holborn and St. Pancras, South (Mr. Dobson) made an interesting case. I shall want to go into it in some detail afterwards, but I do not think that it was tied directly to what was said earlier in the debate. I shall consider what the hon. Members said and see whether there is any information that I can give them directly by letter.

I should like to reply to the point raised by the hon. Members for Birmingham, Perry Barr (Mr. Rooker) and for Stockport, North. When I referred to the earnings limit, I spoke of the Social Security Pensions Act 1975. As the hon. Member for Perry Barr said, it is in that Act that the upper and lower earnings limits are defined, as well as their relationship to pensions. For those who were not in the House at the time of that legislation, I should point out that the deal was to enable contracting out by companies that wished to have a company pension scheme that worked alongside the State pension scheme. That was brought into being from April 1978 by the Social Security pensions Act 1975. There has been no change in that deal. The upper and lower earnings limits are set out there for very good reasons, as I have sought to point out. I believe that we are right to maintain the formula that was agreed in that Act, thus ensuring that the contributions of those who earn eventually provide benefit.

One Labour Member spoke of the regressive nature of national insurance contractions. I accept that the argument can be played that way, but I believe that most people in the country realise that it is net income on which most families judge their standard of living. On that basis, one must accept that national insurance contributions are mildly progressive up to the upper earnings limit, and that that contains the vast majority of families.

We could engage in long discussions on this issue. However, the principle that was established by both parties in 1975, in the measure that went through the House speedily and with no difficulty whatever, has now been used as a vehicle. We understand the tactic, but we cannot accept the case that has been put forward by the Opposition.

Mr. Rooker

I should like to make one point so that it is clear and on the record. We do not accept the Minister's, arguments. We sincerely believe that the agreements entered into in tie past have been broken by the Government's decision earlier this year to break the link between the old-age pension and earnings or prices, whichever is the higher. Our argument has hung on that point. We stick by it. We do not accept the Government's arguments, and we shall vote for the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 226, Noes 284.

Division No. 17]	[6.35 pm
AYES
Abse, Leo	Cowans, Harry
Adams, Allen	Cox, T. (W'dsw'th, Toot'g)
Allaun, Frank	Crowther, J. S.
Anderson, Donald	Cryer, Bob
Ashton, Joe	Cunliffe, Lawrence
Atkinson, N.(H'gey,)	Cunningham, G. (Islington S)
Bagier, Gordon A.T.	Dalyell, Tam
Barnett, Guy (Greenwich)	Davidson, Arthur
Barnett, Rt Hon Joel (H'wd)	Davies, Rt Hon Denzil (L'lli)
Beith, A. J.	Davis, Clinton (Hackney C)
Bennett, Andrew(St'kp't N)	Davis, T. (B'ham, Stechf'd)
Bidwell, Sydney	Deakins, Eric
Booth, Rt Hon Albert	Dean, Joseph (Leeds West)
Boothroyd, Miss Betty	Dempsey, James
Bottomley, Rt Hon A.(M'b'ro)	Dewar, Donald
Bray, Dr Jeremy	Dobson, Frank
Brown, Hugh D. (Provan)	Dormand, Jack
Brown, R. C. (N'castle W)	Douglas, Dick
Brown, Ron (E'burgh, Leith)	Douglas-Mann, Bruce
Buchan, Norman	Dubs, Alfred
Callaghan, Rt Hon J.	Duffy, A. E. P.
Callaghan, Jim (Midd't'n & P)	Dunn, James A.
Campbell, Ian	Dunnett, Jack
Campbell-Savours, Dale	Dunwoody, Hon Mrs G.
Canavan, Dennis	Eadie, Alex
Cant, R. B.	Eastham, Ken
Carmichael, Neil	Edwards, R. (W'hampt'n S E)
Carter-Jones, Lewis	Ellis, R. (NE D'bysh're)
Cartwright, John	Ellis, Tom (Wrexham)
Clark, Dr David (S Shields)	English, Michael
Cocks, Rt Hon M. (B'stol S)	Ennals, Rt Hon David
Cohen, Stanley	Evans, Ioan (Aberdare)
Coleman, Donald	Evans, John (Newton)
Conlan, Bernard	Ewing, Harry
Cook, Robin F.	Faulds, Andrew

Field, Frank	Morris, Rt Hon A. (W'shawe)
Fitch, Alan	Morris, Rt Hon C. (O'shaw)
Fitt, Gerard	Morris, Rt Hon J. (Aberavon)
Fletcher, Raymond (Ilkeston)	Moyle, Rt Hon Roland
Fletcher, Ted (Darlington)	Mulley, Rt Hon Frederick
Foot, Rt Hon Michael	Newens, Stanley
Ford, Ben	Oakes, Rt Hon Gordon
Forrester, John	Ogden, Eric
Foulkes, George	O'Halloran, Michael
Fraser, J. (Lamb'th, N'w'd)	O'Neill, Martin
Freeson, Rt Hon Reginald	Owen, Rt Hon Dr David
Garrett, John (Norwich S)	Palmer, Arthur
Garrett, W. E. (Wallsend)	Park, George
George, Bruce	Parker, John
Gilbert, Rt Hon Dr John	Pavitt, Laurie
Ginsburg, David	Powell, Raymond (Ogmore)
Golding, John	Price, C. (Lewisham W)
Gourlay, Harry	Race, Reg
Grant, John (Islington C)	Radice, Giles
Grimond, Rt Hon J.	Rees, Rt Hon M (Leeds S)
Hamilton, James (Bothwell)	Richardson, Jo
Hamilton, W. W. (C'tral Fife)	Roberts, Allan (Bootle)
Hardy, Peter	Roberts, Ernest (Hackney N)
Harrison, Rt Hon Walter	Roberts, Gwilym (Cannock)
Hattersley, Rt Hon Roy	Robertson, George
Haynes, Frank	Robinson, G. (Coventry NW)
Healey, Rt Hon Denis	Rodgers, Rt Hon William
Heffer, Eric S.	Rooker, J. W.
Hogg, N. (E Dunb't'nshire)	Roper, John
Holland, S. (L'b'th, Vauxh'll)	Ross, Ernest (Dundee West)
Home Robertson, John	Rowlands, Ted
Homewood, William	Ryman, John
Hooley, Frank	Sandelson, Neville
Horam, John	Sever, John
Howell, Rt Hon D.	Sheerman, Barry
Howells, Geraint	Sheldon, Rt Hon R.
Huckfield, Les	Shore, Rt Hon Peter
Hudson Davies, Gwilym E.	Silkin, Rt Hon J. (Deptford)
Hughes, Mark (Durham)	Silverman, Julius
Hughes, Robert (Aberdeen N)	Snape, Peter
Hughes, Roy (Newport)	Soley, Clive
Janner, Hon Greville	Spearing, Nigel
Jay, Rt Hon Douglas	Spriggs, Leslie
John, Brynmor	Stallard, A. W.
Johnson, James (Hull West)	Steel, Rt Hon David
Johnson, Walter (Derby S)	Stewart, Rt Hon D. (W Isles)
Johnston, Russell (Inverness)	Stoddart, David
Jones, Rt Hon Alec (Rh'dda)	Straw, Jack
Jones, Barry (East Flint)	Summerskill, Hon Dr Shirley
Jones, Dan (Burnley)	Taylor, Mrs Ann (Bolton W)
Kaufman, Rt Hon Gerald	Thomas, Jeffrey (Abertillery)
Kerr, Russell	Thomas, Mike (Newcastle E)
Lambie, David	Thomas, Dr R.(Carmarthen)
Leadbitter, Ted	Tilley, John
Leighton, Ronald	Torney, Tom
Lewis, Arthur (N'ham NW)	Varley, Rt Hon Eric G.
Lewis, Ron (Carlisle)	Wainwright, E.(Dearne V)
Litherland, Robert	Wainwright, R.(Colne V)
Lofthouse, Geoffrey	Walker, Rt Hon H.(D'caster)
Lyon, Alexander (York)	Watkins, David
Lyons, Edward (Bradf'd W)	Welsh, Michael
McCartney, Hugh	White, Frank R.
McDonald, Dr Oonagh	White, J. (G'gow Pollok)
McGuire, Michael (Ince)	Whitehead, Phillip
McKay, Allen (Penistone)	Whitlock, William
McKelvey, William	Wigley, Dafydd
MacKenzie, Rt Hon Gregor	Willey, Rt Hon Frederick
Maclennan, Robert	Williams, Rt Hon A.(S'sea W)
McTaggart, Robert	Wilson, Gordon (Dundee E)
Marks, Kenneth	Wilson, Rt Hon Sir H.(H'ton)
Marshall, Dr Edmund (Goole)	Wilson, William (C'try SE)
Marshall, Jim (Leicester S)	Winnick, David
Martin, M(G'gow S'burn)	Woodall, Alec
Mason, Rt Hon Roy	Woolmer, Kenneth
Meacher, Michael	Wrigglesworth, Ian
Mikardo, Ian	Young, David (Bolton E)
Millan, Rt Hon Bruce
Miller, Dr M. S. (E Kilbride)	Tellers for the Ayes:
Mitchell, Austin (Grimsby)	Mr. George Morton and
Mitchell, R. C. (Soton Itchen)	Mr. James Tinn.

NOES
Adley, Robert	Fenner, Mrs Peggy
Aitken, Jonathan	Fisher, Sir Nigel
Alexander, Richard	Fletcher, A. (Ed'nb'gh N)
Ancram, Michael	Fookes, Miss Janet
Arnold, Tom	Forman, Nigel
Aspinwall, Jack	Fraser, Peter (South Angus)
Atkins, Robert(Preston N)	Fry, Peter
Atkinson, David (B'm'th,E)	Galbraith, Hon T. G. D.
Baker, Kenneth (St.M'bone)	Gardiner, George (Reigate)
Baker, Nicholas (N Dorset)	Gardner, Edward (S Fylde)
Banks, Robert	Garel-Jones, Tristan
Beaumont-Dark, Anthony	Gilmour, Rt Hon Sir Ian
Bell, Sir Ronald	Glyn, Dr Alan
Bendall, Vivian	Goodhew, Victor
Benyon, Thomas (A'don)	Goodlad, Alastair
Best, Keith	Gorst, John
Bevan, David Gilroy	Gower, Sir Raymond
Biffen, Rt Hon John	Grant, Anthony (Harrow C)
Biggs-Davison, John	Gray, Hamish
Blackburn, John	Greenway, Harry
Blaker, Peter	Grieve, Percy
Body, Richard	Griffiths, E.(B'y St. Edm'ds)
Bonsor, Sir Nicholas	Griffiths, Peter Portsm'th N)
Boscawen, Hon Robert	Grylls, Michael
Bottomley, Peter (W'wich W)	Gummer, John Selwyn
Bowden, Andrew	Hamilton, Hon A.
Boyson, Dr Rhodes	Hamilton, Michael (Salisbury)
Bright, Graham	Hampson, Dr Keith
Brinton, Tim	Hannam, John
Brittan, Leon	Haselhurst, Alan
Brocklebank-Fowler, C.	Hastings, Stephen
Brooke, Hon Peter	Havers, Rt Hon Sir Michael
Brotherton, Michael	Hawkins, Paul
Brown, M.(Brigg and Scun)	Hawksley, Warren
Browne, John (Winchester)	Hayhoe, Barney
Bruce-Gardyne, John	Heath, Rt Hon Edward
Bryan, Sir Paul	Heddle, John
Buchanan-Smith, Hon Alick	Henderson, Barry
Buck, Antony	Heseltine, Rt Hon Michael
Budgen, Nick	Hicks, Robert
Burden, Sir Frederick	Higgins, Rt Hon Terence L.
Butcher, John	Hill, James
Butler, Hon Adam	Holland, Philip (Carlton)
Cadbury, Jocelyn	Hooson, Tom
Carlisle, John (Luton West)	Hordern, Peter
Carlisle, Kenneth (Lincoln)	Howe, Rt Hon Sir Geoffrey
Carlisle, Rt Hon M. (R'c'n)	Howell, Ralph (N Norfolk)
Chalker, Mrs. Lynda	Hunt, David (Wirral)
Chapman, Sydney	Hunt, John (Ravensbourne)
Churchill, W. S.	Hurd, Hon Douglas
Clark, Hon A. (Plym'th, S'n)	Irving, Charles (Cheltenham)
Clarke, Kenneth (Rushcliffe)	Jenkin, Rt Hon Patrick
Clegg, Sir Walter	Jessel, Toby
Cockeram, Eric	Johnson Smith, Geoffrey
Colvin, Michael	Jopling, Rt Hon Michael
Cope, John	Kellett-Bowman, Mrs Elaine
Cormack, Patrick	Kershaw, Anthony
Corrie, John	Kimball, Marcus
Costain, Sir Albert	King, Rt Hon Tom
Cranborne, Viscount	Kitson, Sir Timothy
Critchley, Julian	Knight, Mrs Jill
Crouch, David	Knox, David
Dean, Paul (North Somerset)	Lamont, Norman
Dickens, Geoffrey	Lang, Ian
Dorrell, Stephen	Langford-Holt, Sir John
Douglas-Hamilton, Lord J.	Latham, Michael
du Cann, Rt Hon Edward	Lawson, Nigel
Dunn, Robert (Dartford)	Lee, John
Durant, Tony	Lennox-Boyd, Hon Mark
Dykes, Hugh	Lester Jim (Beeston)
Eden, Rt Hon Sir John	Lloyd, Peter (Fareham)
Eggar, Tim	Loveridge, John
Elliott, Sir William	Luce, Richard
Emery, Peter	Lyell, Nicholas
Eyre, Reginald	McCrindle, Robert
Fairbairn, Nicholas	Macfarlane, Neil
Faith, Mrs Sheila	MacGregor, John
Farr, John	MacKay, John (Argyll)
Fell, Anthony	Macmillan, Rt Hon M.

McNair-Wilson, M. (N'bury)	Shaw, Giles (Pudsey)
McNair-Wilson, P. (New F'st)	Shaw, Michael (Scarborough)
McQuarrie, Albert	Shelton, William (Streatham)
Madel, David	Shepherd, Colin (Hereford)
Major, John	Shepherd, Richard
Marland, Paul	Shersby, Michael
Marlow, Tony	Silvester, Fred
Marshall Michael (Arundel)	Sims, Roger
Marten, Neil (Banbury)	Skeet, T. H. H.
Mather, Carol	Smith, Dudley
Maude, Rt Hon Angus	Speller, Tony
Mawby, Ray	Spicer, Jim (West Dorset)
Mawhinney, Dr Brian	Spicer, Michael (S Worcs)
Maxwell-Hyslop, Robin	Sproat, Ian
Mayhew, Patrick	Squire, Robin
Meyer, Sir Anthony	Stainton, Keith
Miller, Hal (B'grove)	Stanbrook, Ivor
Mills, Iain (Meriden)	Stanley, John
Mills, Peter (West Devon)	Steen, Anthony
Mitchell, David (Basingstoke)	Stevens, Martin
Moate, Roger	Stewart, Ian (Hitchin)
Monro, Hector	Stewart, J.(E Renfrewshire)
Montgomery, Fergus	Stradling Thomas, J.
Moore, John	Tapsell, Peter
Morris, M. (N'hampton S)	Taylor, Robert (Croydon NW)
Morrison, Hon C. (Devizes)	Taylor, Teddy (S'end E)
Morrison, Hon P. (Chester)	Tebbit, Norman
Myles, David	Temple-Morris, Peter
Neale, Gerrard	Thomas, Rt Hon Peter
Needham, Richard	Thompson, Donald
Nelson, Anthony	Thornton, Malcolm
Neubert, Michael	Townend, John (Bridlington)
Newton, Tony	Townsend, Cyril D, (B'heath)
Normanton, Tom	Trippier, David
Nott, Rt Hon John	Trotter, Neville
Onslow, Cranley	van Straubenzee, W. R.
Oppenheim, Rt Hon Mrs S.	Vaughan, Dr Gerard
Osborn, John	Viggers, Peter
Page, Rt Hon Sir G. (Crosby)	Waddington, David
Page, Richard (SW Herts)	Wakeham, John
Parkinson, Cecil	Waldegrave, Hon William
Parris, Matthew	Walker, B. (Perth )
Patten, Christopher (Bath)	Walker-Smith, Rt Hon Sir D.
Pattie, Geoffrey	Wall, Patrick
Pawsey, James	Waller, Gary
Peyton, Rt Hon John	Walters, Dennis
Pink, R. Bonner	Ward, John
Pollock, Alexander	Warren, Kenneth
Porter, Barry	Watson, John
Price, Sir David (Eastleigh)	Wells, John (Maidstone)
Proctor, K. Harvey	Wells, Bowen
Pym, Rt Hon Francis	Wheeler, John
Raison, Timothy	Whitelaw, Rt Hon William
Rathbone, Tim	Whitney, Raymond
Rees, Peter (Dover and Deal)	Wickenden, Keith
Rees-Davies, W. R.	Wiggin, Jerry
Renton, Tim	Wilkinson, John
Ridley, Hon Nicholas	Winterton, Nicholas
Ridsdale, Julian	Wolfson, Mark
Rifkind, Malcolm	Young, Sir George (Acton)
Rost, Peter	Younger, Rt Hon George
Royle, Sir Anthony
Sainsbury, Hon Timothy	Tellers for the Noes:
St. John-Stevas, Rt Hon N.	Mr. Spencer Le Marchant
Scott, Nicholas	and Mr. Anthony Berry.

Question accordingly negatived.

6.45 pm

Mr. Rooker

I beg to move amendment No. 5, in page 1, line 13, leave out subsection (2).

The First Deputy Chairman (Mr. Bryant Godman Irvine)

With this we may take the following amendments:

No. 6, in page 1, line 15, leave out '"7.75 per cent."' and insert

'"6.75 per cent. up to an earnings limit of £85 per week and thereafter 7.75 per cent.".

No. 7, in page 1, line 15, leave out '7.75 per cent.' and insert '7.25 per cent.'.

No. 8, in page 1, line 15, leave out '7.75 per cent.' and insert '7 per cent.'.

No. 9, in page 1, line 15, at end insert '(2A) In section 4(6)(b) of the principal Act (amount of secondary Class 1 contributions) for the words "10.2 per cent." there shall be substituted "10.7 per cent.".'.

Mr. Rooker

The doors are not closed, Mr. Godman Irvine. This is a debating Chamber, and I should have hoped that both doors could be closed before we commenced the debate. [Interruption.] Does the Secretary of State wish to say something?

It is not without accident that only one Conservative Member, the hon. Member for Somerset, North (Mr. Dean), took part in the debate on amendment No. 2. I hope hat a few more Tory Members will seek to participate in this debate, if only because of the large sum of money involved accept that only a small sum was involved in the previous group of amendments—£9 million or £22 million net to the national insurance fund—but amendment No. 5 is in some ways the meat of the Bill. The Government are seeking to raise £1 billion by an impost of 1 per cent. on the national insurance contributions paid by employees.

The Treasury notice issued last month, which was Landed out to selected journalists, broke down the figure. We are talking about £947 million raised from employees, but in the notes at the bottom of the notice it is indicated that a further £50 million has to be added. That will come basically from the self-employed and those who pay voluntary contributions. There is a later amendment on the self-employed. I had not realised on Second Reading that there was an impost on the self-employed. We are talking about a total of £997 million.

Mr. Patrick Jenkin

So that there should be no misunderstanding, I should point out that the £997 million, includes the £50 million, as the note says, added far c lasses 2, 3 and 4 contributions. It is the £50 million added to the £947 million that appears in the first column of the Treasury note.

Mr. Rooker

I thought that that was what I had said. I said £947 million at first, and I realised afterwards that there was an extra £50 million, in the note to the note. The grand total is £997 million, which includes the £50 million it impost on the self-employed. It is £1 billion, and that is a lot of money in anyone's language. I understand from a written reply that it is the equivalent of 1¼p on income tax.

An increase in income tax would be a fairer way of raising the money, because the well-off who earn more than £200 a week would pay extra, but they will not pay proportionally more through national insurance contributions. The Bill does not come into effect until the next financial year, and we shall have a Budget before then, which will change tax rates, or at least tax allowances, for the next financial year. There would be no great problem about holding hack a 1¼p tax increase until tile Budget. The Government would get the same amount of extra revenue for 1981–82.

Why the rush? The money did not have to be raised by the use of the Bill. Most of the contents of the Bill would have been included in an order that would have been debated for one and a half hours late at night, but the Government have chosen to use primary legislation to raise the money.

Why did the Government not raise the money by an increase in income tax? The answer, of course, is that they are committed not to raise income tax. If ever a Government were hoist on their own election promises and hasty measures on taking office, this is that Government. After reducing the standard rate to 30p, they would have considerable difficulties with their Back Benchers if they started to increase it. They have therefore used the backdoor method of the national insurance fund to raise the money.

In the debate on the Queen's Speech the Chancellor of the Exchequer had the gall to try to give the impression that it was the fault of the Government Actuary that the Bill had to be introduced. The right hon. and learned Gentleman was asked why he had not increased the upper earnings limit within the ceiling. His answer suffices for the general tenor of the Government's argument: Because the figure arrived at by way of conclusion follows from the Government Actuary's analysis of what it is prudent to impose."—[Official Report, 27 November 1980; Vol. 994, c. 900.] I assume that that is an equally sufficient answer to those who ask why the impost is 1 per cent.

The Secretary of State was fond of saying in Opposition that the Government Actuary's analysis was based on his assumptions. But those are assumptions that he is directed to use by the Government. The Government cannot try to dissociate themselves from the decision as the Chancellor of the Exchequer sought to do.

The Government Actuary has been instructed to use average unemployment of 2.3 million for 1981–82, average earnings of 10½ per cent. more than in 1980–81 and the fact that there could be a benefit uprating in November in line with the expected movement in prices.

Two qualifications to those instructions must be made. First, the Government are committed to knocking 1 per cent. off the old-age pension increase next year. Secondly, invalidity, unemployment, sickness, industrial injury and maternity benefits may be raised, under the powers that the Government have taken this year, by 5 per cent. less than the rise in prices. I suspect that when the Government Actuary issues his report on the current financial year of the national insurance fund we shall see a different estimate of surplus or deficit. I repeat our complaint that we are dealing with figures that will change substantially in the financial year for which we are legislating.

The Government are telling the nation that they need £1 billion. Some of my hon. Friends will attempt, by amendments Nos. 7 and 9, to split the 1 per cent. impost half and half between employee and employer, as has been done in the past. That proposal has a certain equity about it. The Secretary of State must give us a little more detail and explain why the employee will have to pay the whole impost.

It seems that of the 1 per cent. that vie are debating ¼ per cent. is required for the National Health Service. The questions that I asked about that in winding up Monday's debate were not satisfactorily answered, and I hope that the Secretary of State will answer them today.

I questioned the split-up of the policy decision changes referred to in the White Paper that was issued this year. I am chasing up the £121 million that the Government expected to get for the NHS by imposing charges on road accident cases, removing the exemption from dental charges for young people, tightening up the use of the NHS by foreign visitors and charging for sight tests. The sight test was the only one for which we were given a figure for the extra input to the NHS. It was about £10 million or £11 million. That leaves £110 million split between the other three policy decisions with which the Government now say that they cannot go ahead. I hope that we shall have a breakdown of that. I hope also that the Minister has been provided with the figures.

7 pm

That accounts for only ¼ per cent. By no stretch of the imagination is that new money for the National Health Service, in view of the implication in the White Paper. Another ¼ per cent. is required in the normal course of the national insurance fund operations. There is not too much complaint in principle about that. It would have been required according to the Government's forecast of average unemployment in the same way as a ¼ per cent. increase took place in April this year. We claim that ¼ per cent. of the 1 per cent. is legitimate. It is a tragedy that the Government forecast an average unemployment level of 2.3 million. The implication is that the figure will be much higher than that.

We take extreme exception to the remaining ½ per cent., which we shall debate at great length on clause 2. It involves the removal of the supplement from the national insurance funds to the Treasury. There is no good reason why that ½ per cent. should not be split between the employer and the employee. It is a shift of resources from the taxpayer to the backs of employees. The Government's only argument is that they do not wish to burden industry. The Secretary of State nods in agreements, but the Government are burdening industry substantially by the measure that we are debating.

We have learnt from debates and press comment that the effect of the increase on employers is considerable, simply because of the spill-over effect of the national insurance surcharge, the change in the rates and the expected change in inflation. I accept that employers would have had to pay extra anyway. The Government say that they want to relieve employers of their burdens. But they have not done that, because they are imposing a burden. They are putting the impost on employees. Employers pay corporation tax and others pay capital transfer tax, capital gains tax and even income tax. The burden could have been shared. I suspect that the Government might change the income tax rate in the next Budget, but it is best to get this money under the belt for next year.

Mr. Andrew F. Bennett

I am a little worried that my hon. Friend might be falling into the trap of talking too much about the employers' and employees' contributions, as though they can be kept separate. Many employers manage to shift the burden on to their employees. One must examine a firm's overall wages policy and costs to know whether the burden falls on the firm or on the employees. There is much danger in talking in simplistic terms, which we are forced to do on the amendments. The matter is more complicated than the Government admit.

Mr. Rooker

My hon. Friend is correct. Some of the more detailed issues can be discussed on other amendments, one of which was tabled by Members from the Liberal Party. At least they could find time to table one amendment, unlike Conservative Members.

Mr. Patrick Jenkin

Members of the Conservative Party provided the Bill.

Mr. Rooker

We know that Conservatives are delighted and tickled pink with the contents of the Bill. That is proved by their absence from the Chamber tonight.

Mr. John Major (Huntingdonshire)

The hon. Gentleman should look behind him.

Mr. Rooker

When the number of the Conservatives participating in the debate equals the number of my hon. Friends who are participating, the Government will have a charge to make against the Opposition.

One has to make points in simplistic terms because of the way in which the Bill is drafted and because of the restrictions on drafting amendments resulting from the timetable and the Ways and Means resolution.

All of the 1 per cent. impost falls on employees. If any of it were put on to employers, many of them would simply lump the national insurance contribution with the wages bill and put the entire 20 per cent. on to the consumer. Employers do not attempt to take a share of the burden. I am drawing a distinction between the 0.5 per cent. due to removal of the Treasury supplement and the other 0.5 per cent. that is not due to its removal because it is related to general taxation, of which employers pay an unequal share.

If not the most central issue, this is the most expensive one in terms of raising money from the 22 million people who are lucky enough to have jobs. Whatever the Government might do about tax allowances and the standard rate of income tax, they will not be able to claim that they are fulfilling their manifesto commitment to reduce taxation. They have increased the rate of taxation on the insured population twice this year. In just over 12 months, the burden has increased by 1¾p in the pound for the majority of people. It has changed by almost 8p in the pound for many low-paid workers at the margin.

People are not worried about net income alone. They are worried also about the stoppages and the effect on the extra £1 that they might earn by way of bonus or overtime. The majority of low-paid workers are women who work part-time. Their tax burden is increasing apace under this Government and under the Bill. There is no doubt that £1 billion is a lot to impose upon employees. It is grossly unfair.

I hope that my hon. Friend the Member for Birkenhead (Mr. Field) will not make the plea that he made on Monday for Government Members to seek to overturn the Government's case. We accept that they will not do that. We accept that we shall not win the vote. However, the majority of working people will understand what the Government are doing by pushing the Bill through. In short, it is to increase their tax burden.

Mr. Richard Wainwright (Colne Valley)

I speak particularly to amendment No. 6, in the name of Liberal Members, which was tabled in response to an invitation from the Chief Secretary to the Treasury, given when he wound up for the Government in the Second Reading debate. He said: The hon. Member for Isle of Ely (Mr. Freud)"— the Liberal spokesman on these matters— said that there is a poverty trap difficulty in what is being proposed I cannot deny that. It is a subject more suitable to those, detailed examination that only a Committee stage can provide, but I took note of what the hon. Gentleman said."—[Official Report, 8 December 1980; Vol. 995, c. 1072.] Our amendment is a direct response, because it proposes that the additional 1 per cent. impost shall not apply to wages of less than £85 a week.

There is no doubt that the Bill adds substantially to what was already the worst poverty trap that we have had in this country. On 8 December, reviewing the Bill, The Times said: Those effects are the opposite of the Government's declared aims of removing disincentives. 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 e very extra pound they cam. 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. That is not what the Government told the people when they were seeking election in 1979. The House has so many times heard a recital of the broken promises that I do not want to weary the Committee with it at length tonight. It is sufficient to remind hon. Members of chapter 3 in the 1979 Conservative manifesto, with the bold heading A more prosperous country Under the sub-heading Cutting Income Tax", we read: We shall cut income tax at all levels to reward hard work, responsibility and success; tackle the poverty trap and so on. It is just as well that the very subtle draftsman used the word "tackle". Indeed, the Conservatives have tackled the poverty trap to some tune, by elevating it to a degree of horror that we had not previously seen.

The social policy research unit at York university recently declared that the poverty trap had never been worse. It is so far-reaching now that, in the opinion of the York university researchers, it would be much more accurate to describe it as a poverty plateau", because instead of applying to a fairly narrow, although very hard-done-by, section of the population, it now any lies to a wide hand of people over a wide range of wage scales. Our amendment is an attempt to remove part of the addition to the poverty trap that the Bill undeniably creates.

It will no doubt be said—because the House is often misled in this matter—that by removing the 1 per cent. addition from a number of wage earners we should create a deficit in the national insurance fund for one year. It cam tot be said too often that there is nothing wrong with that For example, in 1977, on the recommendation of the Government of the day, the House deliberately voted national insurance changes in the expectation of a deficit. As is well known, and as the Comptroller and Auditor General has pointed out before now, there is no statutory obligation that every year the fund's income shall at least balance its outgoings. The state of balance is very much to be over a period of time.

There is no reason at all why this impost should be inflicted in this one year. That was another respect in which the Chancellor of the Exchequer on 24 November, in his mini-Budget, failed to spell out the real position as fully as the House was entitled to expect. That is the reasoning behind our amendment — that the poverty plateau was bad enough and extensive enough already, and that it was wrong and unjust that the Bill should further narrow the difference between being on unemployment benefit and being in work.

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I conclude by reminding the Committee—although I am sure that hon. Members will not require much reminding—of the appalling disincentives to taking a low-paid job. My constituency is by no means scattered—it is in two metropolitan boroughs—but I have many distressing examples of people who lose through going out to work, by the time they have paid their appalling bus fares and have had meals out, which working in a distant place involves, and have lost the former reduced rate of income tax, which this Government abolished. It cannot have been the intention of Conservative Members, when they took their seats on the Government Benches that people should lose in that way I beg them to repent of this further error before they add it to their catalogue of crimes.

Mr. Ennals

The Secretary of State and I should be in agreement in strongly objecting to the use of national insurance contributions and payments into the national insurance fund as a simple but grossly unfair means of taxation. As I pointed out in an earlier intervention, when the right hon. Gentleman was in Opposition he voted against the concept of a surcharge, even though that surcharge affected both employers and employees.

It is hard that the right hon. Gentleman has suffered this form of punishment—for that is what it is—from the Treasury, which has decided that it wants to minimise the extent to which it increases the rate of income tax, if that is what it will do, or increase taxes at all. The Treasury is in fact simply using the fund as a means of collecting money for itself.

That means that the national insurance contributions bear no relationship whatsoever to the level of benefits and the entitlement of people who make the contributions. Beveridge and those Labour Ministers who created the national insurance fund and the National Insurance Act, which was the basis of it, would turn in their graves if they thought that Beveridge's concept would be used by Governments simply as a means of raising extra revenue—revenue that they did not have the guts to raise through ordinary taxation, particularly when carried our in such a retrograde way, imposing a tougher impost on the lower-paid than on the higher-paid.

Mr. Keith Best (Anglesey)

Does the right hon. Gentleman wish to dissociate himself wholly from the last Government's action in imposing a 2 per cent. impost, which did not even go into the national insurance fund?

Mr. Ennals

I do. If the hon. Gentleman had been here for the Second Reading debate, he would know that I made precisely that statement. I said that it was wrong that any Government, including the Government of which I was a member, should use the fund in that way. I am being totally consistent. I was under an obligation, because decisions were taken that I had to carry through. I hope that the Secretary of State is in the same position, such is my respect for him from time to time—

Mr. Race

When?

Mr. Ennals

There are moments. The right hon. Gentleman has shown one or two examples of kindness to me. I shall not mention them now. I merely say that there are moments when I have this feeling for him. I am feeling neither sorry for him nor angry with him. One of the accusations that I have frequently made against him is that he is a Treasury Minister. I do not know whether the Bill proves that he is or whether the Bill has been forced upon him by his Treasury colleagues.

There is logic in the Liberal amendment, which has been referred to by the hon. Member for Colne Valley (Mr. Wainwright). If the Government are to use this method of raising £1 billion, it would seem fair to use the principle that has been used over many years—namely, increasing the contributions of employers and employees at the same time. That has not been done. The burden has been placed almost entirely on employees. It is the equivalent of about 1p in the pound on the standard rate of tax.

Mr. Patrick Jenkin

The right hon. Gentleman and the hon. Member for Birmingham, Perry Barr (Mr. Rooker) might like to explain how they can reconcile what they are now saying—namely, that the burden should be shared between employers and employees—with the most almighty row that they both made a couple of weeks ago because it was suggested that my right hon. and learned Friend the Chancellor of the Exchequer was somehow concealing the fact that there were to be increases for employers. It seems that the right hon. Gentleman is trying to have it both ways, and I hope that he will explain the inconsistency.

Mr. Ennals

There was fury in the House as well as among employers, in the CBI, in the press and elsewhere, because it was felt that the House and the country were being misled by the Chancellor's statement. At that stage we did not enter into the argument whether the raising of the money should be shared between employers and employees on an equal basis. We argued that the gist of the statement was that the burden would be placed on one side. The right hon. and learned Gentleman gave no indication that another £1 billion would have to be paid by employers. That was the nature of the row, and the right hon. Gentleman knows it.

What effect does the right hon. Gentleman think that these provisions will have on wage claims when the people realise what has happened? Will they not recognise these provisions as an impost upon their earnings at a time when inflation is higher than the Government's stated 6 per cent. norm? Even those who are forced to accept 6 per cent. settlements will be expected to pay the higher rate of contribution to national insurance. Surely the Government expect that there will be a reaction on the part of employees when the Bill comes into effect.

As my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) stressed, there will be no more money for the National Health Service as a result of the division of the extra money that is being raised. There will not be an extra penny for the NHS. It will not be enabled suddenly to say "We shall contribute £25 million in response to the Select Committee on perinatal and neonatal mortality, or £X million for renal dialysis, or any other specialty. "The money will go to the Treasury. That was said honestly by the Chief Secretary, who replied to the debate on 8 December. We shall be dealing later with the reduction from 18 per cent. to 14½ per cent. of the Treasury supplement. The right hon. Gentleman said: it plays a major part in reducing the public sector borrowing requirement."—[Official Report, 8 December 1980; Vol. 995, c. 1072.] That is the only way in which the Treasury is considering this operation. It considers that it is a simple way of getting itself out of a desperate financial situation of its own making. I hope that my right hon. and hon. Friends will support the amendment when the Committee divides on it.

Mr. Race

These are important amendments because they relate to the form of taxation and insurance contributions that we should pay as employees and employers. They raise a number of general issues as well as the specific ones that are reflected in the amendments.

I share the view of my right hon. Friend the Member for Norwich, North (Mr. Ennals) that the amendments should be supported on the ground that there is a degree of equity in the proposal that any increase that is thought to be required in national insurance contributions should come from both employers and employees on an equal basis. That has nearly always been the practice in the past when Governments have asked for increases in contributions. They have normally increased both sets of taxation. On this occasion, the Government propose to increase taxation by imposing an extra 1 per cent. on employees by a variety of methods and to make no specific increase in employers' contributions directly, although there will be indirect increases in employers' contributions.

I am sorry that the Under-Secretary of State, the hon. Member for Wallasey (Mrs. Chalker), has left the Chamber. I wanted to refer to a remark that she made earlier about taxation.

Mr. Andrew F. Bennett

On a point of order, Mr. Godman Irvine. As this is, in effect, a Finance Bill, is it not reasonable for the Committee to have a representative from the Treasury on the Government Front Bench?

The First Deputy Chairman

The hon. Gentleman knows that that is not a matter for the Chair.

Mr. Race

I was saying that I am sorry that the hon. Lady has left the Chamber. In the previous debate she referred to the form in which national insurance contributions are paid and spoke about their progressive or regressive nature. I think that she said that national insurance contributions were mildly progressive. When she said that, I pricked up my ears. It is the most extraordinary statement that I have heard in a long time in this place. It must have been made on the assumption that those who earn £200 a week, for example, pay a higher cash amount in national insurance contributions than those who earn, for example, £50 a week. That must be so because we pay the same percentage in national insurance contributions, although the cash outcome is different at different income levels. The more one earns, the more one pays.

That cannot be described as mildly progressive. It merely means that the richer one is, the more one pays in cash terms. The percentage of income that is paid by someone earning £200 a week is the same, notionally, as the person who is earning £50 a week. Therefore, the argument that national insurance contributions are mildly progressive should not be tolerated by the Committee. That relates to the amendments, which seek to reduce the impact of the regressive form of taxation. They seek to reduce the regressive form of the taxation in a way that is more acceptable to employees.

Much mention has been made of the effect on the low-paid of the increase in contributions. Low-paid workers, male and female, are hound to pay the same percentage of their total income above the threshold of £27 per week n contributions as the person earning £200 a week. The Minister cannot therefore argue that it is a mildly progressive form of taxation. It is regressive.

7.30 pm

It has other unacceptable features. It is an employment lax. It is as bad as selective employment tax, which was attacked at great length by the Conservative Opposition during the Government of my right hon. Friend the Member for Huyton (Sir H. Wilson) between 1964 and 1970. It is, therefore, absurd for this Government now to argue that it is a form of taxation as acceptable as income tax.

Mr. Best

Does the hon. Gentleman accept that placing a greater burden on employers is likely to lead to further unemployment?

Mr. Race

That is a valid point. However, we must remember the context in which the increases are being made. Substantial concessions are available to companies in the form of deferments on corporation tax. They pay only a small proportion of their before-tax profits in corporation tax and other forms of taxation. For example, tarts of the oil and banking sector have paid little, if any, corporation tax over the past few years. British Petroleum c id not pay any corporation tax in the last financial year far which it reported its pre-tax and after-tax profits. Companies are faced with serious problems over manpower and selling their goods in the market glace, but they pay less tax in real terms than the individual employee.

Mr. Dobson

Reverting to the question whether these national insurance contributions are regressive, is it not true that even if they could be considered progressive they are much more unfair to the low-paid than a system that would take a similar amount from general taxation? However, my hon. Friend and I agree that they are regressive.

Mr. Race

I agree. However, they are less so than a year ago. The Government have abolished the 25 per cent. tax band—the slice of earnings on which people paid only 25 per cent. tax instead of 30 per cent. That change was made in the Budget of 12 June 1979. However, national insurance contributions are still significantly more regressive than income tax on the present basis, even in the context of the Government's extraordinary measures to abolish the 25 per cent. tax band and to index the higher rate bands They have protected higher income earners and attacked the ability of the low-paid to defend themselves against tax increases at that level. The imposition of the 1 per cent. increase, the freezing of the lower point of starting national insurance contributions at £27 per week and the abolition of the 25 per cent. rate band penalise the lowest-paid for the economic policies of this Government.

Amendments Nos. 7 and 9 raise a number of other points. Should the Government be introducing what is essentially an employment tax at this time? The hon. Member for Anglesey (Mr. Best) mentioned the problems created for employers by the increased national insurance contributions. The Government, through this Bill and other measures introduced a few weeks ago, are putting a tax on employment. They will encourage employers to shed as much labour as possible in order to reduce their national insurance contributions and cut costs. Unemployment is rising by 100,000 a month. It is irresponsible of the Government to bring forward proposals that will have a direct ill effect on employment.

We must also consider the effect of the increases in national insurance contributions on the ability of low-paid workers to defend their living standards. We should not gloss over that. We must debate the extent to which they can defend their living standards against the Government. A worker taking home £45 or £50 a week needs to protect his real take-home pay against price and tax increases. The only way to do that is by boosting his wage packet, as the Government refuse to introduce price controls. The only way in which a worker can protect his real take-home pay is to increase the wage claim to his private or public sector employer.

The increase in taxation through the increased national insurance contribution will therefore properly be reflected in trade union wage claims. Trade unions have to bear in mind not only the retail price index but the level of income tax and national insurance contributions.

The Government pretend that we are talking about funding social benefits and not about taxation. That is a piece of hypocrisy, the like of which I have not heard for a long time. Nye Bevan used to say, when addressing Labour Party meetings throughout the country, "Comrades, I'll let you into a State secret. There ain't no fund." He argued that it was merely a bookkeeping exercise. It is myth and hypocrisy to regard the proposals to increase employees' contributions by 1 per cent. as necessary to balance the books. The Bill simply increases taxation, and our amendments say that if the burden is to be applied it should be shared equally between employers and employees.

Mr. Best

The hon. Gentleman makes my point for me. He says that these matters will be taken into account in future wage negotiations. He neglects the other aspect of my argument, which is that employers do not have that facility. If the burden is placed upon them, they will have to shed labour, which will lead to greater unemployment. Surely the hon. Gentleman understands that.

Mr. Race

That is a remarkable intervention, because the one facility that employers have which emloyees do not have is a captive audience. Not only are they able to reduce their static costs—labour, rates and so on—and reduce their marginal costs, but they can pass on through price increases any increased costs. That is precisely what they will do as a result of these changes. They will recoup higher national insurance payments through price increases or by reducing the amount of labour they employ.

We are proposing that the 1 per cent. increase in contributions, with which we do not agree—because it is an attack on the low-paid, it reduces demand in the economy and is unnecessary—should be shared equally between employers and employees. Employees will be seriously affected if they alone bear the burden. The social cost to the community will be just as great as the hon. Member for Anglesey implied it might be if employers had to bear their part of the increase. The hon. Gentleman argues that if the burden is shared some labour might be shed. But if employees carry the whole burden family budgets will be seriously hit in terms of their ability to pay rent, rates and grocery bills.

Mr. Field

I was following my hon. Friend's earlier argument about the effect of the Bill on wage negotiations in the coming year. He was arguing, I believe, that workers and their trade unions would take both price increases and tax increases into account. Can he provide technical information on that point? Whenever we debate national insurance contributions, there is always a discussion about whether they are a tax. As they clearly are a tax and should be thought of as such, will the increase show up in the tax and prices index which the Government produced early in their period of office as a way of showing that prices were rising less fast than the retail price index? Shall we see in the coming year, therefore, many more trade unions using the TPI as a more accurate way of judging changes in the living standards of workers?

Mr. Race

That is a most interesting contribution. Trade unions have ignored the TPI because it does not include a large part of the extra tax burden that the Government have imposed. I have no doubt that trade unions will continue to rely, as they traditionally have, on the RPI as the main source of their prices information. They will add on to that, as is proper, any increases in income tax or national insurance contributions flowing from Government decisions.

I am certain that that will have a major effect on wage claims over the next few months and for the next pay round. This 1 per cent. increase in contributions must be related to the Government's proposals this winter for a 6 per cent. pay policy. The Government are saying that earnings must rise by that amount only, certainly in the public sector. Cash limits in that sector are set at 6 per cent. But the Bill means that, before any price increases or tax rises likely to be included in next April's Budget are taken into account, 1 per cent. of that increase will already have been swallowed up. That action alone invalidates the 6 per cent. pay policy.

Mr. Field

It makes it 5 per cent.

7.45 pm

Mr. Race

My hon. Friend is wrong, because it is 6 per cent. on earnings and that means 3½ per cent. on rates of pay. I have worked out that the hospital domestic can expect on that basis to get about £98 a year with a 3½ per cent. increase on the basic rate before stoppages.

That is another reason why the Government are wrong to insist on employees bearing all the burden. If they want their 6 per cent. wages policy to be effective, they must persuade workers and trade unionists that the only way to obtain a real increase in wages is by agreeing with their 6 per cent. policy, and that will not happen if they introduce measures that undermine it from the outset.

Mr. Field

Do I understand the point correctly? Is my hon. Friend arguing that the Government's wages policy of 6 per cent. on earnings would, if successful, mean 3½ per cent. on overall rates, and that of that 3½ per cent. 1 per cent. would be clawed back by the Bill?

Mr. Race

That is right. [Interruption.] Does the Secretary of State want to intervene on this? Perhaps he or the Chief Secretary to the Treasury, who has just joined him, have information to which I am not privy.

The cash limit specifically demands a 6 per cent. growth in earnings over the next 12 months, but the final figure will depend on earnings opportunities in particular industries. In the National Health Service, a 24-hour operation, earnings opportunities are substantially greater than in other industries. But that means that, in some parts of the public sector, the only increase will be 3½ to 4 per cent. on rates of pay, not the 6 per cent. specified.

Mr. Field

I am more puzzled now by what my hon. Friend is saying. The Government's wages policy of 6 per cent. means 6 per cent. on rates of pay, the lower denominator. That will mean 3½ per cent. on earnings. The national insurance contribution is based on earnings and will therefore apply at the low level. Am I still wrong?

Mr. Race

The Government's proposal is 6 per cent. gross on earnings, and that means that the increase in wage rates would have to be 3½–4 per cent. Therefore, some part of the 6 per cent. would be available for overtime, increased shift work premiums and so on. That has been built into the cash limits. The position under the Bill is that the national insurance 1 per cent. increase would be paid on earnings of 6 per cent. rather than on the rate of 3½ per cent.

Some individuals will be seriously affected. They will not receive the full 6 per cent. increase. It is an illusion to believe that every worker will receive a 6 per cent. pay rise. Many workers will not receive the full 6 per cent. increase because they will not have the earnings opportunities to do so. That applies especially to those who Will be badly affected by clause 1—for example, the part-time workers who earn about £27 a week and who do not have earnings opportunities. They are specifically excluded from receiving overtime payments by their contract of employment. They have to work up to either 40 hours or 33 hours before they can claim any further overtime payments. A substantial number of people will be badly affected by the 1 per cent. increase in contributions. That is a good reason why it should be reduced to ½ per cent.

There is a good argument for reducing the proportion paid by employees and loading some of the burden on to employers, especially in relation to the low-paid. Their jobs are being taken away and their earnings opportunities are being restricted. It is another serious blow to them. It is humbug for the Government to talk about national insurance contributions being mildly progressive. We should throw it back in their faces.

Mr. Field

I apologise for not being in my place to hear the opening comments in this part of the debate. If I understand correctly the remarks of my hon. Friend the Member for Wood Green (Mr. Race), the gist of the case is that because the national insurance contributions and increases are regressive, rather than progressive, the burden should be shared between employees and employers.

I wish to develop the idea that there is a case for the increase being put on to the shoulders of those in work and not on to those of the employers. The contribution of the hon. Member for Anglesey (Mr. Best) is important on this point. If we follow that line of argument, it is crucial that we consider the base on which we are asking workers to make a contribution to the insurance fund. Briefly, I am saying that there is a case for the increase to be shouldered by employees. I go further and say that there is a case for a further increase for employees if we receive concessions on rights to benefit. That argument can be entertained only if we consider the basis on which we take contributions from workers, especially the low-paid. I agree with the arguments put forward by my hon. Friend the Member for Wood Green on that matter.

At this point I wish to speak to amendments Nos. 5, 6 and 7. Amendment No. 5 is a clear statement removing the increase, unless one shares or changes the whole basis on which we ask for national insurance contributions amendment No. 6, coming from the Liberal Benches, would divide the contribution between those earning up to £85, allowing them to pay at the old rate, and those earning above that level, who would pay the new increased rate. Amendment No. 7 would make the increase only ½ per cent. No doubt that ties in with the argument that there is a clear case for sharing the burden with employers.

Unfortunately, I was not in the Chamber to speak again on the first set of amendments. However, the point that I wished to make then is relevant now. I was genuinely amazed by the Minister's comments. The hon. Lady put forward the argument that we should not be too concerned about the increased burden that the low-paid would endure under the Bill because they receive a range of other help—for example, family income supplement. The Secretary of State and the Minister were at pains to say that Opposition Members were mistaken about the way in which the poverty trap works. They said that we gave a snapshot of the real world and that the real world did not operate in that way. They said that the trap should be viewed rather like an old-fashioned time machine camera.

Let us consider the effect of this measure and the contribution of the low-paid. If the clause is passed unamended, there will be an increase of about £2.17 a week for the low-paid. At a stroke, the Government will be taking £2.17 off the family income supplement as soon as the Bill comes into operation. If the Secretary of State replies t3 the debate., I hope that he will give us information about how many family income supplement recipients receive less that £2.17 per week. By this measure alone, how many people will lose the whole of their family income supplement?

While we might have an academic argument as the evening progresses about how the poverty trap works, and whether this side or the other side of the Chamber has a more accurate vision of how the low-paid are affected, there cart be no question but that considerable numbers of those helped by the family income supplement payments will lose all their benefits because of this measure.

I wish to return to some of the remarks that my hon. Friend the Member for Wood Green quite rightly made about the effects of the measure on the low-paid. Like him, I am sorry that the Minister is not in the Chamber. Obviously she will return, she will be told of our comments and she will respond to them. I see that my hon. Friend the Member for Barking (Miss Richardson) is in her place. She can help me with my figures. We have only 19 lady Members of the House. Perhaps I should say women Members. I had not intended to use a sexist term, but I have done so.

Overwhelmingly, the issue of low pay affects women workers, yet one of the 19 women Members of Parliament is a Minister at the DHSS, which has a record of introducing measures that hit viciously at women workers. The Government have proposed a scheme for maternity pay that redistributes the benefits available. The proposals for a sickness scheme redistribute money from families to the childless, again hitting at women and the children that they look after. The measure that we are discussing tonight is a third prong in the attack on low-paid workers. It massively increases the contribution which low-paid workers, mainly women, make to the national insurance fund. Let us remember that most low-paid workers are women. If we are at all concerned about the least privileged, those who gain least from the community's resources — which is another way of discussing the inequalities between the sexes in our society—there is a powerful case for saying—

Mr. Race

One of the points that I made earlier to my hon. Friend the Member for Holborn and St. Pancras, South (Mr. Dobson) was about the ability of women workers to register as unemployed. My hon. Friend the Member for Birkenhead (Mr. Field) referred to the attack on women workers. Is he aware that a school meals worker who is made unemployed by a county council education authority can say to the unemployment benefit office that she wants to register as a part-time worker and have a contribution record, yet she cannot register as unemployed and receive unemployment benefit? At the same time, however, because of the actions of the Government, she is expected to pay substantially more in insurance contributions for the advantage of having no benefits whatever.

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Mr. Field

Yes, I was aware of that and I shall return to the point before we cease debating this group of amendments. The point could be made again and at greater length on the other amendments that we shall discuss.

Mr. Best

I hope that the hon. Gentleman will be fair. I think that he mentioned the maternity grant. It was my understanding that The proposals for redistribution would make it non-contributory, so that many more women would be eligible than are presently eligible under the rules. Will the hon. Gentleman clarify that?

Mr. Field

The hon. Gentleman is correct in one way. That is just one part of it. We now have proposals to reform radically the whole form of support for women in the first weeks of the child's life. The objection is not that one cannot make more sense of the proposals and make sure that, within them, poorer women get more, but that men, who are as a group more privileged than women in our society, will not be asked to contribute one extra penny to those reforms.

Women are a weak group in the community, and we have now come up with a wonderful way in which to reform the forms of support that we give to maternity, if I may use that term as a general heading. We are to redistribute from slightly richer women to slightly poorer women. There is a case for leaving the richer women with the benefits that they have and redistributing from richer men to women generally.

That is the point that we ought to bear in mind with the sick pay proposals that we are discussing tonight. It applies particularly to amendments Nos. 5, 6 and 7, to which many of us will address ourselves. It is an attack on low- paid workers, who are overwhelmingly women workers, and, therefore, the proposal cannot be divorced from other measures which the Government are taking and which are putting women workers at a greater disadvantage.

That is why I said that I regretted that the Under-Secretary of State was not in the Chamber, as she is in a privileged position, being one of the 19 women Members in the House of Commons. One would have thought that on these issues, which vitally affect the half of the population who are women, we would have had a better fight from within the Department to protect the interests of low-paid workers, who are overwhelmingly women.

My next point, which has already been raised in the debate, is about which group should pay the increased contributions. Here I depart somewhat from the argument put forward by my Front Bench. If we make a case for the whole of this contribution increase, or any future contribution increases, to be borne only by those in work, that can be a just move only if we look at the basis on which we ask for contributions from those in work. In other words, I agree with the emphasis that my hon. Friend the Member for Wood Green put on drawing a distinction between the tax system and the national insurance system and showing how, on balance, the tax system was more progressive than the national insurance system.

Given that the difference is such a small one, I am reminded somewhat of the medieval theologians who, for hundreds of years, happily debated how many angels and archangels could stand on the head of a pin. Now that the Government have abolished the lower rate of tax, the tax system is, for the vast majority of workers—apart from the 4 per cent. who pay surtax—a proportional system of taxation. That emphasises the point that it is still a fairer way to raise increasing contributions in this country than the national insurance scheme itself.

I believe, as the hon. Member for Anglesey said, that to increase further the national insurance contributions of employers will put some employers out of a job. Obviously it will not affect most employees, but we are concerned with the people who are at the margin. It might be our children or our mum or dad who are at the margin and are made unemployed. It might be some of our own constituents who are at the margin and who are affected in that way. If we support that argument, given all that we have said here about how regressive the national insurance system is as a form of raising revenue, it is axiomatic that those of us who say that the cost should not fall on employers should say that we will try to persuade the Government to reform the whole basis of national insurance contributions for employees, so that we can build it into a progressive form of taxation or national insurance contribution.

That is why, on Second Reading, several of us made the point about the need to raise the ceiling. I shall not dwell on that because we shall return to it in the debate on the clause. What is necessary is to lift out of the bottom of the scale a number of those who are paying tax. The important point is that once people cross the national insurance threshold they pay contributions on every pound, and the national insurance threshold now is almost the same as the tax threshold. This means that people not only start to pay tax; they start to lose their rights to means-tested benefits. If people are at the bottom of the FIS entitlement, they will lose that entitlement.

Mr. Race

Is it not clear that the impact, in employment terms, of increased contributions on the employer—not the employee—is very much conditional on the context in which those increases are made? In other words, if we have full employment, relatively stable prices and a firm demand in the economy, with few industries threatened by imports on any substantial basis, an increase in national insurance contributions of the kind proposed by the Government for employers, and of the kind proposed in the amendments, is marginal indeed to employment prospects. It is only where a large number of economic variables are impinging on employers and causing them to reduce employment levels that it becomes slightly more significant.

Mr. Field

That is right. I believe that many people are getting very near to the unemployment queues, apart from the millions who are already in the queues.

My hon. Friend referred earlier to how similar this part of our taxation system was to the selective employment tax. We know that the National Institute of Economic and Social Research made a detailed study of the impact of that tax. We know that, wherever possible, that form of taxation was passed on in increased prices. That would be the effect here of increasing the employer's contribution. Where it could not be passed on, there would be an effect on job prospects. We should not do it without making a firm commitment to reform the basis of insurance contributions by employees as well.

Mr. Best

As always, there is great persuasion in what the hon. Gentleman is saying. As I understand it, he is putting forward an argument for graduated payments by employees of national insurance contributions. Has he really thought that through? I accept that a form of regulation is fair—we have it in any event in income tax—but it is already graduated in a way, inasmuch as it is a percentage on earnings. Obviously, as the earnings increase, so the contributions increase. Has the hon. Gentleman thought of the administrative burdens that would be placed on employers as a result of what he is suggesting? He has been kind enough to accept my point that a further burden on employers in contributions is likely to lead to greater unemployment, but surely the greater administrative cost and administrative inconvenience would also lead to greater unemployment.

Mr. Field

The hon. Gentleman should not underestimate the intelligence of employers in the public and private sectors. If the Revenue sends out tables showing how to work out deductions from pay, employers will be able to work them out, just as they have done in the past. No increased burden will result from devising a fairer way of getting contributions from employees.

I am grateful to the hon. Gentleman for his intervention. We are agreed that any increases that are made should be put on employees, as long as the system is more progressive. To hint that the system is progressive because it takes a certain amount from income as income rises is to miss the fundamental point. As soon as a person crosses the threshold, he pays his insurance contributions on every pound earned.

The hon. Gentleman must have been busy on parliamentary duties elsewhere when we debated the first group of amendments. At that time we dwelt on this matter for some time and showed how similar it was to the old exemption system, which was abolished by Austen Chamberlain, I believe in the 1920 Budget. At that time our tax system was based on the same principle,—namely, that allowances were of value to a person only if his income was below a certain level. Once that point had been crossed, the whole of a person's income was subject to tax. That is still true of the national insurance system, and that is why we fought—and lost—the debate to raise the starting point for national insurance contributions.

I have been trying to show that a case can be made in part for debating these amendments. We are discussing amendments Nos. 5, 6 and 7 because we want to draw attention to the effects on lower-paid workers. If we are to hold a sensible debate, we must put a human face on those lower-paid workers. That face is the face of women. This measure cannot be considered separately from the other social security changes that the Government are making. They represent attacks on women workers and on women generally. I am sorry if I am beginning to bore the House by my pleas.

Mr. Cryer

Very good.

Mr. Field

I am grateful to my hon. Friend for his support.

We must consider how we can spread the money, earned over a period of 20 to 40 years, over a lifetime of 30 or more years. As a group, men are more privileged than women. How can we achieve a redistribution of money from men to women? The Government have introduced a series of measures that have increased the status of men at the expense of women. This and other social security measures cannot be divorced from the tax changes that the Government have made.

The Government are trying to balance their books, and they have got into difficulties. I have never accused the Government of dishonesty. Nevertheless, they have ruthlessly redistributed money in favour of the rich. The Government said that they were going to do that, and they have done it. No dishonesty is involved. However, it is wrong to elevate the issue of greed to an issue of principle. It is clear that the Government have a mandate for that. Men were the main beneficiaries of tax cuts. We are—

The First Deputy Chairman

Order. I have allowed the hon. Gentleman a certain amount of latitude in the hope that in the clause stand part debate he would make some of the points that he had in mind. The hon. Gentleman should speak to the amendment.

8.15 pm

Mr. Field

I am grateful, to you, Mr. Godman Irvine, for that interjection. As you say, I shall have other opportunities to discuss this matter.

I sought to plead in favour of amendments Nos. 5, 6 and 7. The Government are making an attack on low-paid workers, and those workers are mainly women. That cannot be divorced from other Government measures. There may be a case for not increasing the contribution on employers, but one must ask how regressive taxation and national insurance contributions are on employees. If we wish to increase the load, we must make the base progressive.

The Government have had to introduce the Bill. It should have included a major change in the basis on which employees make contributions to the national insurance fund. There might be a case for further increases, provided that there is a quid pro quo by way of an increase in benefits. One could then sell that to one's constituents more easily than one can sell the present base.

Mr. Cryer

I shall concentrate my remarks on amendment No. 5, which would delete subsection (2). As has been pointed out, that subsection would place a burden of about £2.17 a week on the low-paid. Therefore, it is deflationary. It will result in a diminution in demand and will create a higher level of unemployment. The Chief Secretary argued at Question Time today that it was a means of paying social benefits. He argued that the sum of about £1 billion, which is derived from the increase in primary class 1 contributions, is sufficient or will go towards the revenue necessary to maintain some of the social services. No doubt the Secretary of State would also argue along those lines.

In reply to my hon. Friend the Member for Derby, North (Mr. Whitehead), the Chief Secretary said that if one wills the end—the maintenance of social services—one must will the means. The Chief Secretary is wrong. The Government will take money largely from the poor and give it back to the poor in a convoluted transfer that will subject them to further means tests. That is not good enough.

I turn to a subject that was mentioned on Second Reading, because it is relevant. We are not supposed to talk about it, because it was featured on a television programme. I refer to the £1 billion that was obtained by the Rossminster group through tax avoidance, The Government could consider tightening up tax evasion and tax avoidance instead of adding another burden in the form of clause 1(2). The Government might argue that it would take a certain amount of time to smoke out those smart alec lawyers and to stop tax avoidance. There is no reason why the Government should not increase the public sector borrowing requirement as a temporary measure. The additional contribution of 1 per cent. found in subsection (2) will be contrasted against that televison programme in which well-heeled gents in well-laid-out offices ran schemes for well-heeled people to avoid paying tax. People will say that the measure is extremely unjust. They will want to change the society in which that—

The First Deputy Chairman

Order. I cannot see any link between the hon. Gentlman's remarks and the amendment.

Mr. Cryer

I shall spell it out for you, Mr. Godman Irvine. Subsection (2) proposes that there should be an increase in primary class I contributions from 6.75 per cent. to 7.75 per cent. That is a 1 per cent. increase. My argument is that the increase in this subsection, which is a burden upon the low-wage earner, will be seen as unjust. That is an argument for approving amendment No. 5, which seeks to delete subsecton (2).

I make the point that a short time ago a television programme demonstrated how the payment of about £1 billion had been avoided by a tax avoidance scheme. I am making the point by way of illustration—

The First Deputy Chairman

Order. That is exactly where we came in. I said that I was unable to follow how that could be linked to the amendment.

Mr. Cryer

I am illustrating this in passing, by way of example. This is the usual way of—[Interruption.] Does the hon. Member for Lancaster (Mrs. Kellett-Bowman) wish to intervene? I do not like sedentary interjections being made by the hon. Lady in that stentorian voice of hers. I do not wish to go down the path that she is suggesting because you, Mr. Godman Irvine, would naturally and correctly call me to order. I was using that illustration by way of example, in passing. I think that it is an important point to make.

I was saying that the subsection should be deleted because it is possible to consider alternative sources of income. I suggest the diminution of tax avoidance, but that might take some time. The Government's argument is that they must have this money in a fairly short time. That is why they are using this quick and easy administrative method of raising money.

However, the Government have already indicated that they are not sticking rigidly to the public sector borrowing requirement target or, for that matter, to the figures for the growth of the money supply. I do not want to go into that, because it is not relevant to the point that I want to make.

My claim that the Government have altered their PSBR target so that they could legitimately accept the amendment to delete subsection (2) is evidenced in The Guardian today. This point was mentioned during Question Time. The heading is: Biffen's hint of U-turn startles the Right. That refers to the Chief Secretary—the right hon. Member for Oswestry (Mr. Biffen). This article by Ian Aitken, the political editor, was challenged at Question Time today. The Chief Secretary said that he had the advantage of being at the meeting where this claim was made. On the other hand, so did the person who spoke to Ian Aitken. [AN HON. MEMBER: "Who was that?"] Who indeed? A mole amongst the Conservatives. In the articles, IanAitken said that "in calculating"—

The First Deputy Chairman

Order. I hope that the hon. Gentleman will soon explain how this can be linked to the amendment.

Mr. Cryer

Certainly, Mr. Godman Irvine.

Mr. Andrew F. Bennett

On a point of order, Mr. Godman Irvine.

The First Deputy Chairman

Order. I should like to deal with one point of order at a time.

Mr. Bennett

I understood that my hon. Friend the Member for Keighley (Mr. Cryer) was making a speech. We are talking about £1 billion of extra taxation. Therefore, the Committee ought to look at the alternatives if the amendment is carried. I think that it is unfair that each time my hon. Friend tries to develop that argument he is cut down.

The First Deputy Chairman

The hon. Gentleman would be right if we were having a general Budget debate, but we are discussing a somewhat limited amendment and we must stick to it.

Mr. Buchan

Further to that point of order, Mr. Godman Irvine. I accept a great deal of what you say. But the Opposition, at any rate, and many people in the country believe that fundamentally this is a Budget debate and that the Bill is about taxation rather than social security and national insurance. That is the problem.

Mr. Cryer

That is the point. My argument is that subsection (2) should be deleted. I am putting forward reasons why subsection (2) should be deleted. I believe that it is unfair. At the same time, if the subsection is deleted, the Bill, which seeks to raise revenue, will be short by £1 billion. The Government will not get £1 billion if subsection (2) is deleted. Therefore, I submit that it is not out of order if, for example, there are alternatives.

Parliament has debates to convince Members to vote in particular ways. That is the pretence through which we go. It is in order to do that. However, we know that, whatever we say, all Conservative Members will support the clause because they are hacks. As soon as the Whip goes out, they follow it. The basis of Parliament is to debate ideas. For example, I might be able to convince the Liberals—who are here in spirit—

Mrs. Elaine Kellett-Bowman (Lancaster)

How can the hon. Gentleman convince them if they are not here?

Mr. Cryer

—or anybody else—some of my hon. Friends may have reservations—about the desirability of accepting the amendment by pointing out the alternatives if it is defeated.

At Question Time today, the Chief Secretary said that if we wanted the end of maintaining social expenditure we had to will the means. The right hon. Gentleman said that in reply to a question about national insurance contributions—in other words, about this Bill. Therefore, I should not have thought that it was irrelevant to consider that comment and to suggest alternatives for subsection (2), which we wish to delete.

The Government's claim that subsection (2) must be retained at all costs because their PSBR target has to be met is not true, in view of a speech made by no less a person than the Chief Secretary to the Treasury to a Back-Bench committee of the Conservative Party.

Mrs. Kellett-Bowman

How does the hon. Gentleman know?

Mr. Cryer

I am only quoting.

Mrs. Kellett-Bowman

It is alleged.

Mr. Cryer

It is alleged to have been said. However, one of my hon. Friends overheard the conversation. Not only is it a newspaper report; it is authenticated from another source.

Mrs. Kellett-Bowman

By the Back-Bench committee?

Mr. Cryer

No. My hon. Friend overheard the conversation between the mole and Mr. Ian Aitken, the political editor of The Guardian.

Mrs. Kellet-Bowman

Will the hon. Gentleman tell us who it was?

Mr. Cryer

I do not propose to reveal any secrets to the Conservative Party yet. Mr. Aitken wrote: He argued that there was a considerable degree of imprecision in calculating such figures as the money supply and public borrowing, and that there were no grounds for despair when things went wrong. But his audience was startled to hear him say that the time had come to abandon such targets in favour of a flexible policy designed to meet the unexpectedly grave economic recession. 8.30 pm

That unexpectedly grave economic recession will be made even graver by the clause and by the raising of £1 billion under subsection (2). That is one of the reasons why we oppose it. By virtue of that quotation, which was hedged around by the Chief Secretary, we are arguing that public borrowing can be increased in order to get over the problem of the £1 billion that the Government are facing.

I should like to go a little further and deal with a number of other alternatives. One short-term alternative is public borrowing. You, Mr. Godman Irvine, have said that this is not a Budget, but we think that it is at least part of the budgetary process. Let us suppose that there is a gap of three or four months between now and the next Budget. That could be covered by borrowing. In the next Budget, an alternative would be to shift this swingeing increase, which will bear heavily on those least able to pay, on to those who are most able to pay. As my hon. Friend the Member for Birkenhead (Mr. Field) said, we should introduce a more progressive basis. Income tax is a more progressive basis.

I was reminded of that when I saw question No. 9 on today's Order Paper, in the name of my hon. Friend the Member for Blackburn (Mr. Straw), who asked the Chancellor of the Exchequer: 'what evidence he has that the opportunities and incentives provided to business and to individuals in his 12 June 1979 budget are working as intended. Those incentives, which were tax concessions to the well-off, were designed to create jobs by stimulating entrepreneurial activity. It is beyond peradventure that that has not worked, and we knew that it would not. Therefore, the claim that this removal of tax from the well-off would produce an improvement in the economy is patently untrue. Therefore, there is a good case for restoring those tax cuts. That would produce more than the £1 billion which would be raised under subsection (2).

The other alternative that I want to consider—assuming that subsection (2) is deleted, which I hope it is —relates to a rapid examination of expenditure on defence. If the Chief Secretary is right—

The First Deputy Chairman

Order. The hon. Gentleman must realise that we are dealing with the case for or against raising the class 1 contributions. It follows from that that it would not be in order to follow the line of argument that the hon. Gentleman is now following about other aspects of taxation.

Mr. Cryer

If amendment No. 5 is carried, I take it that the Government will be short of revenue. I do not think that that is a matter of controversy. I think that the Secretary of State would agree. If I am to persuade my hon. Friends to vote with me, I must convince them—because several doubters exist—that there are alternatives to which the Government could turn their attention. I know that you, Mr. Godman Irvine, would want me to be able to convince my hon. Friends on this matter.

Therefore, as an illustration, I believe that there are areas of expenditure that are non-productive—indeed, they are inflationary because they produce nothing at all —which in the current financial year have risen by 2½ per cent. In my opinion, the Government should look at defence expenditure. They should do so in order to transfer that money to the social expenditure which the Chief Secretary says is a desirable end, although we must look at the means.

Mr. William Hamilton (Fife, Central)

My hon. Friend mentioned alternative ways of raising the money if he persuades us to support the amendment. In fact, the sums about which he is talking are almost exactly covered by the Stingray torpedo, which is currently costing about £1 billion—

The First Deputy Chairman

Order. I am not sure whether the hon. Gentleman has been in the Chamber this evening for very long, but I have tried to point out to the hon. Member for Keighley (Mr. Cryer) that alternative means of raising this money are not matters that we are discussing now.

Mr. Cryer

Surely, Mr. Godman Irvine, we must consider alternatives, otherwise the Government will be £1 billion short. One of the arguments which the Secretary of State will use is that we should not vote for amendment No. 5, unless he—I am willing to give way—accepts it. If he opposes it, it will be on the ground that it is no alternative, because he must have this revenue. Therefore, if I am to persuade my hon. Friends, I must be able to point out to them that there are alternatives. I shall not deal with the question of Stingray, although my hon. Friend the Member for Fife, Central (Mr. Hamilton) is right in saying that it is costing about £1 billion.

I turn now to a suggestion that was made by the hon. Member for Brentwood and Ongar (Mr. McCrindle) on Second Reading. I realise that I must not make a broad Second Reading speech, but we are dealing with that section on which the hon. Gentleman concentrated. He said that this was an unfair tax and that the clause was unfair and bore most heavily on those with moderate incomes. I think that the hon. Gentleman suggested a tax on banks' profits.

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

I had no intention of intervening in the hon. Gentleman's speech, but I am sure that he would not like to misrepresent me. I said that, although there was a regressive element in the proposals, on that basis alone we should not turn back from the path along which we were treading. Instead, any regressive elements could be taken care of by increased family income supplement to those who are at work as soon as there can be any increase in social expenditure. The hon. Gentleman should represent both parts of what I said.

Mr. Cryer

I do not wish to misrepresent the hon. Gentleman in any way, and, indeed, he can make his own speech. I was recalling from memory, and I think that he suggested that the regressive element in this legislation could be remedied to some extent by a tax on the windfall profits of the banks. He is at liberty to modify that and to make his peace with his Front Bench. Undoubtedly he is a man of ability, but he should not put himself too much out on a limb, because there will be a Government reshuffle shortly and I have my eye on him for consideration. Of course, I am very influential with the Leader of the Conservative Party—[Interruption.] I think that I have given the hon. Gentleman the kiss of death.

I endorse the remarks of the hon. Member for Brentwood and Ongar—

Mr. McCrindle

Which remarks?

Mr. Cryer

The remarks about the windfall tax on the banks. As I recall, the right hon. and learned Member for Hexham (Mr. Rippon) said that the only people who seem to make a profit these days are the banks. With the current high interest rates, that is right.

Mr. McCrindle

I hate to intervene yet again in the hon. Gentleman's speech, but he is deliberately taking two sections of my speech, putting them together and drawing conclusions that I did not reach. If he cares to look at the report of my Second Reading speech, in so far as I talked about the possibility of an impost on bank profits he will note that I went on to reject it.

The First Deputy Chairman

Perhaps I should also encourage the hon. Member for Brentwood and Ongar (Mr. McCrindle) to appreciate that we are not discussing the merits of alternative ways of raising the money. We must return to the amendment.

Mr. Cryer

I am grateful for your protection, Mr. Godman Irvine, from the diversions put before me, and I shall not engage the hon. Member for Brentwood and Ongar in a discussion about his speech. I do not want to misrepresent him in any way. He said on 8 December: 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."—[Official Report, 8 December 1980; Vol. 995, c. 1050.] I merely wanted to demonstrate that if we agree to amendment No. 5 and delete subsection (2), this is the way to fill the gap created by the deletion of that subsection.

The banks are making massive profits because of the Government's policy of raising interest rates to extortionate levels, and a tax on windfall profits would be one way of obtaining revenue for the social purposes to which the Chief Secretary referred and which, I have no doubt, the Secretary of State will maintain are necessary.

The Opposition believe that this is an unfair tax—and it is a tax. It will be oppressive on those who are least able to pay. We want to shift the burden on to the backs of those who are most able to bear it, and I have no doubt that both sides of the House agree that the banks are well able to pay in order to maintain social services.

The other amendments are an attempt to produce some element of fairness in a basically unfair and regressive tax position. I do not much like the Liberal amendment. It would make a slight improvement, but I should rather see subsection (2) deleted. If that happy situation were to occur, the Government would have to tell us by what means they intended to raise the money. I should welcome that, because I should like a fairer and better treatment of the ordinary working class than the Government are proposing.

I hope that I have managed to convince any of my hon. Friends who had even an iota of doubt that there are alternatives to subsection (2) and that we ought to support amendment No. 5 and delete the subsection.

Miss Jo Richardson (Barking)

I appreciate the attempts of my hon. Friend the Member for Keighley (Mr. Cryer) to point to other areas where money can be raised if that must be done. I was staggered to hear that we may not discuss other projects where savings could be made. Stingray has already been mentioned, and there are other weapons and projects that could easily be cancelled. As Mr. Godman Irvine has now left the Chair, we may be able to suggest alternative savings.

This morning I went on one of my periodic visits to the River plant of the Ford Motor Company, which makes the upholstery for Ford cars. Nearly all the workers are women, and several asked me what we would be doing in the House today. I said "We shall be putting up your national insurance contributions." Such is the power of the British press that few of the women had heard much about the contribution increases. One or two had heard but could not believe that on top of all the other increases that they have had to suffer as workers, taxpayers and ordinary members of society there was to be yet another blow inflicted by a Government who are mean enough to rush it all through just before Christmas.

I asked many of the women what sort of Christmas they would have, how many children they had, whether they would be having family parties and so on. While not pleading poverty, several said that it would be a pretty hard Christmas, because they would not be able to buy as much for their kids and their homes as they had in previous years. They just do not have the money. They were appalled to find that as a result of the Bill, which is being rushed through the House with unseemly and indecent haste, they will be penalised further.

8.45 pm

The people already understand the result of the Government's actions. In almost every family in the land someone is on the dole, has to claim supplementary benefit or is in receipt of sickness, injury or invalidity benefit. All such families receive child benefit. They know how mean the Government have been in not increasing the benefits to bring them into line with inflation. I am talking about low-paid and average-paid workers. They are finding that times are hard as a result of Government action. My hon. Friend the Member for Keighley was absolutely right to suggest alternative ways of raising revenue.

Amendment No. 5 seeks to delete a whole subsection. That is our aim. However, if we cannot persuade enough Government Members to that view, perhaps they would care to examine one or two other amendments which they might find more attractive. For example, amendments Nos. 7 and 9 divide in half the 1 per cent. which is to be raised under the clause. The intention is to raise half from the employee and half from the employer. I have not heard all the speeches tonight, but some hon. Members suggest that the levy should not be put on the employer because some employers might bounce it back on to the employee or consumer. However, even that seems to be more equitable. If we cannot get rid of the provision altogether, it is better to divide it down the middle so that employees and employers make equal contributions.

Much has been said about low-paid workers—women and part-time workers in particular. I represent a solidly working-class constituency where, traditionally, women go out to work because money is needed to supplement the family income. In most cases women do not go out to work because they want a career, although some do. Some of the work that they do is poorly paid and boring. Mostly it is not work that they would choose to do, but they have to do it because they need the money.

These are the kind of women that I have talked to, as I am sure have other Members in their constituencies, on council estates in particular, who are the first to be driven to the wall, losing their jobs or having to give up their jobs as a result of some of the actions of this Government. Hon. Members cannot fail to realise that some of the overall public expenditure cuts which have been made—for example, in charges for home helps and the cuts in the home help service, the closing, or the non-opening, of old peoples' homes and the fact that school meals provision is not as it used to be—have placed an extra burden on the woman of the family. In some cases, she has had to give up her job to look after children or elderly or sick relatives and is not able to carry on working, even though there may be a job for her.

The Government have not given sufficiently careful consideration to the effects of their policies, including the policy that we are debating tonight, on married women and those who are in poorly paid and part-time jobs. I hope, therefore, that we shall consider, as an alternative to the amendment, to delete the subsection, amendments Nos. 7 and 9. I hope that we shall have a vote on amendment No. 9, assuming that the principal amendment, No. 5, is not carried. I hope that the Committee will support me in amendment No. 9 as an alternative to what has been proposed.

Mr. Dobson

The nub of the clause lies in the rather remarkable statement made by the Chancellor of the Exchequer on 24 November, in which he said: it is right that those who remain in employment should be invited to be in a percentage of that cost by the increase that I have described in national insurance contributions. If amendment No. 5 is not passed, we shall be turning the Chancellor's invitation into a godfather-type invitation which people cannot refuse because it will be the law of the land. That is a curious form of invitation, the sort of invitation which this Government seem to issue to everyone where money is concerned—that is, apart from their rich friends.

In considering what the Secretary of State said about his taxation and benefits policy. I shall refer—unlike my hon. Friend the Member for Keighley (Mr. Cryer), I do not rely on what some Government Members regard as hearsay evidence of a reputable journalist when listening to a wet blue moan in the Lobby—to a piece of wet blue paper issued by the news service of the Conservative Central Office concerning the speech which the Secretary of State made to the Canton Conservative Club. For the uninitiated I should explain that Canton turns out to be not in China but in Cardiff. He said on that occasion, and I must admit that it is pretty true, even with the media not on our side: It is easy for the Socialists to accuse us of cutting back on welfare in order to finance tax handouts for the better-off. He is absolutely right. It is easy for us to do that, because it is true and the most powerful forms of propaganda are always those which are true. For once in a while, the Secretary of State made an accurate statement in his speeches around the country. Having looked at many of the right hon. Gentleman's speeches in the past two hours, I think that that phrase stands out as the one that is probably the most accurate of all those that we could quote.

I turn to the matters that my hon. Friend the Member for Birkenhead (Mr. Field) referred to, particularly in relation to those members of our poorer community who rely on family income supplement. As I explained earlier, I have a very simple view of these matters, because I do not have the expertise of many of my hon. Friends. I understood that my hon. Friend was talking about FIS to the value of £2.17 disappearing from many of those who can presently draw it, disappearing entirely as a result of the Bill. That would be a severe blow.

Mr. Patrick Jenkin rose—

Mr. Dobson

I shall permit the right hon. Gentleman to demonstrate his expertise.

Mr. Jenkin

I hope to enable the hon. Gentleman to avoid falling into the error that his hon. Friend the Member for Birkenhead (Mr. Field) fell into. Anybody on £28 a week pays 28p more—not £2.17—as a result of the clause.

Mr. Dobson

Perhaps my hon. Friend can help me.

Mr. Field

I am grateful to my hon. Friend for giving way so that I can put the argument a little more clearly. We were talking generally about low-paid workers. I was saying that I was sad that I had not received a reply in the debate on the first set of amendments. I was amazed that the Under-Secretary defended the increase in the national insurance contribution of low-paid workers generally by saying that we must not worry too much, because they would pick up FIS. My point was that many of them would have the whole of their FIS given by the DHSS and then taken back by the Inland Revenue. I hoped that the Secretary of State would tell us how many workers would, in effect, have the whole of their FIS payment cancelled out as a result of the clause. Perhaps when the right hon. Gentleman next intervenes he will give us that valuable information.

Mr. Dobson

I think that when the Secretary of State gave the figure 28 he meant 28p and not the number of people who were being taken out of ITS. Apparently his officials, those whom he accused in his election manifesto of not understanding the system, do not understand it well enough to have been able to give him the necessary advice since my hon. Friend raised the point originally.

According to the latest figures provided by the Department, figures which I believe are as recent as 1975, the take-up of FIS is roughly only 75 per cent. of those eligible. I also understand from the Department that it is believed that the bulk of those who do not draw it would not be entitled to a great deal. It seems to follow from my hon. Friend's point that a substantial number of people not drawing FIS would be taken out of eligibility for it by the methods that we are talking about.

We all know that one of the reasons for the 1 per cent. increase is the substantial increase in unemployment. I seem to be following my hon. Friend rather closely tonight. He has already spoken of the exaggerated impact of unemployment on women. They have suffered disproportionately because there has been a disproportionate shedding of labour among people who are only in part-time employment. Women tend to be more often in part-time employment than men. Consequently, they have suffered considerably more as a result of the Government's other measures that have led to increased unemployment. Unless the Government accept amendment No. 5, a disproportionate share of the burden of paying for unemployment will fall upon the shoulders of women in part-time employment who are at the nodule point of the impact of these benefits. Once again, women will suffer more—I refer to those in employment, especially in part-time employment—as a result of the Government's policies.

9 pm

It was stated in the Conservative Party's manifesto that a Conservative Government would "tackle" the poverty trap. There may be numerous interpretations of the word "tackle". There is the tackle by a Third Division North half-back that is intended to knock the knees—

Mr. Race

My hon. Friend is showing his age.

Mr. Dobson

Was that interpretation intended by those who wrote the Conservative Party manifesto? I spoke of the half-back tackling a forward. That example applied to whatever Division One wanted to choose, whether it exists these days or whether it does not. The Bill will help pick up the forward in the role of the poverty trap. It will do nothing to harm the poverty trap. It is not tackling it at all but increasing it. That is another good reason for supporting the amendment to delete the proposed increase. That increase, taken with the other measures in the Bill, is bound to accentuate the poverty trap, especially for women who are in part-time employment or who have passed out of that employment as a result of the Government's policies.

One of the problems is that those who occupy the Treasury Bench have little knowledge of the poverty trap except at a theoretical level. They see their problems as having to deal with the wealth trap. We have had the Treasury Bench graced with a member of the Government whose main reputation was gained outside the House. He is now dependent on his ability to alleviate the wealth trap to the tune of £1,000 million, which is equivalent to the amount to be raised—

The Second Deputy Chairman (Mr. Richard Crawshaw)

Order. The hon. Gentleman is padding everything out to such an extent that we are missing the point that he is trying to make. I ask him to come to the point. What he was saying was not relevant to the issue that we are discussing.

Mr. Dobson

I stand corrected, Mr. Crawshaw. I felt that to refer to another method of raising £1,000 million, which is equivalent to the amount to be raised—

The Second Deputy Chairman

Order. My predecessor in the Chair made it clear that to put forward alternative methods of raising £1,000 million is not relevant to the issue before the Committee. If the amendment is carried, it will be for the Government to decide how they will raise the money. It is not for Opposition Members to suggest where the money should come from. I hope that the hon. Gentleman will speak to the amendment.

Mr. Cryer

Further to that point of order, Mr. Crawshaw. Your predecessor in the Chair raised this point when I was addressing the Committee. If we are to persuade enough hon. Members to vote for the amendment when the Committee divides, we shall have to convince them that there are sound alternatives if the amendment is carried. Surely we are debating whether the amendment should be carried. The arguments for that proposition depend on whether hon. Members regard it as a credible amendment, and that depends on providing the money.

The Second Deputy Chairman

It is perfectly in order for hon. Members to state that money can be raised by cutting the defence budget, but not for them to go into the details of raising the money. Such suggestions may be made only in passing. We are not debating defence. The Government will decide where the money will come from if the amendment is carried.

Mr. William Hamilton

Further to that point of order, Mr. Crawshaw. May I make a tentative suggestion? My hon. Friend the Member for Keighley (Mr. Cryer) attempted to get our support for the amendment by stating with considerable conviction how the sum of money that will be lost to the Government if the amendment is carried can be raised. The Minister will have costed the amendment and in his reply will state that, if accepted, it will cost £X million and that we have not suggested where the Government can find that sum. We are trying to save the time of the House by suggesting alternatives. I have proposals that I hope to put before the House on alternative ways of raising that money. The job of a responsible Opposition is to suggest alternative ways of raising revenue. It is a relevant part of the debate.

The Second Deputy Chairman

As I have indicated, it is perfectly in order for an hon. Member to make a passing reference to a specific item, such as a cut in housing or defence expenditure. However, the proposal that the hon. Member for Holborn and St. Pancras, South (Mr. Dobson) wishes to make is a matter of argument. We are not discussing defence or housing. Hon. Members must make only passing reference to subjects outside the debate. I do not intend to let hon. Members go into detail; they can make only passing reference to such items.

Mr. Dobson

I should hate to be diverted into a series of passing references to anything. I shall, therefore, deal with one consequence that will result if the Committee does not pass the amendment. I address my remarks more to Conservative Members than to my hon. Friends. My remarks have nothing to do with alternative means of raising the £1,000 million that the Government seek to raise by the 1 per cent. increase. I shall point out an inevitable consequence for the Government's economic policies and the general state of the economy if the amendment is not passed.

The Government are in a trap. To date, according to official Government figures, price inflation has been a bit lower or about the same as the level of wage increases. If, however, as a result of the Government's policy, wage increases are kept roughly to the Government's target of 6 per cent. but inflation is not brought down to the same level, the impact on the people will be much greater than merely the official figures. Whatever the official figures, the disparity between pay increases and price increases will grow. The perceived rate of inflation will also increase. The Government would therefore be unwise, even within their own philosophy, to impose an additional £1,000 million tax on people in employment, when they should be seeking to keep to the minimum the perceived rate of inflation. If the Government impose the increase, they will raise the perceived rate of inflation at the very time when they should be doing all in their power to lower it.

This measure is unfair in that it imposes a burden on those least able to bear it. It imposes a particularly harsh burden on women, because they constitute a disproportionately high proportion of those in part-time employment, the people whom the Bill will hit hardest. It shows a failure of the Government's policies because it will accelerate the perceived rate of inflation. The Government have available to them a host of other measures to raise the £1,000 million, including, if I may mention them in passing, some substantial cuts in the wasteful defence expenditure upon which they are now embarking.

Mr. William Hamilton

When the Bill was first published, based as it was on the Chancellor of the Exchequer's statement, a number of commentators, hardly any of whom were sympathisers with my party, said that the increased contributions were the Government's admission of defeat for their policies. The fairest and most just course for the Government would have been to announce that they were increasing taxation. Their election manifesto commitment precluded that, however, and since the manifesto contained no comparable commitment about national insurance contributions they saw it as a convenient way of balancing the books.

Although it gets them out of difficulty, it does so at the expense of social justice. The lower-paid will suffer most. Generally, part-time women workers will have to pay between £2 and £2.25 national insurance contribution out of wages of £27 or £29 a week.

That is a curious comment on the Government's first Budget, of June 1979. Its clear objective was to remove the disincentive effect of heavy taxation on earnings at lower and middle levels and to strengthen financial incentives by allowing people to keep more of what they earned. It was to cut the marginal rate of tax on overtime and so on. That, at least, was the official reason given in the Budget snapshot produced by the Treasury on 12 June 1979.

The proposal to increase the national insurance contributions of those at the low end of the incomes scale runs counter to all that. The hon. Member for Harrogate (Mr. Banks) has said repeatedly that, far from giving those people incentives, the proposal is the grossest disincentive, the grossest attack and the grossest example of social injustice. He said that the only people who were doing well out of the Government were the bankers and the moneylenders. I shall add the brewers also.

9.15 pm

Our charge is the sheer social injustice of the measure and the complete negation of incentives to people who desperately need some help, if not incentives.

Mr. Field

Has my hon. Friend seen the document that the Low Pay Unit has distributed to some hon Members, in which it makes a valid point? It compares workers with income ranges from £40 to £500 per week and the marginal rates of tax—

Mr. Hamilton

I was coming to that.

Mr. Field

Then I shall not continue.

Mr. Hamilton

I was about to mention that document. The Low Pay Unit points out that the marginal rates of tax at selected income levels show the gross disincentive under these and related proposals that have been put forward by the Government since they were elected. The document gives a table showing that by April 1981 workers earning the equivalent of £40 per week at 1979 prices will keep only 62.25p of every additional £1, compared with 68.5p before the June 1979 Budget. The Budget reduced their income by more than somewhat. Those earning £500 per week—not £40 per week—will keep 40p out of every additional £1, compared with 17p that they would have kept prior to last year's Budget.

The document states: Thus while the majority of workers have seen their marginal tax rate reduced by up to 20 per cent. by this Government, an estimated 50,000 workers have had theirs increased by 6¼ per cent. Those are the facts as produced by a reputable outside body.

The obvious intention of this pan of the Bill is to transfer burdens from the Treasury, and, therefore, from the generality of taxpayers, to the national insurance contributors. Generally speaking, an unfair proportion of those increased national insurance contributions will be paid by the low-paid sections of our community. The most regressive provision in the Bill is the reduction of the Treasury supplement from 18 percent. of contributions to 14.5 per cent.—a drastic reduction in the commitment of the taxpayer to the national insurance fund.

The increase in contribution rates over and above that required by the Government Actuary is to finance the cut in the contribution made by general taxation to the rational insurance fund. The Government Actuary's report on the Bill notes that an extra £529 million will have to be raised in contribution income to make up for the cut in the Treasury supplement. That is not coincidental. It is a deliberate part of Government policy to switch the burdens—not only in the national insurance area but in other areas—of social benefits, whether they be housing subsidies or anything else, away from the generality of taxpayers to others who are least able to bear them.

We are moving further away—and the amendment and those linked with it are moving further away—from the original concept of financing the national insurance fund on a tripartite basis. I refer to the Beveridge report, produced 30 years ago. The forecast then was that by 1965—15 years ago—the Treasury would be contributing about 46 per cent. of the total charges on the fund and that that proportion would in all probability increase. Instead of that happening, the Government are reducing the proportion to 14.5 per cent.

The Second Deputy Chairman

; Order. The hon. Gentleman is making a valid point, but I think that it is more relevant to amendment No. 17 than to the amendment that we are discussing.

Mr. Andrew F. Bennett

On a point of order, Mr. Crawshaw. Since we are being asked in this group of amendments to deal with ½ per cent., which was necessary only because of the National Health Service changes, surely it must be relevant to the amendment that we are discussing as well as to amendment No. 17.

The Second Deputy Chairman

The hon. Gentleman has misunderstood me. It is relevant, and I made that clear. I do not think that it should be gone into in detail. A passing reference can be made to it. It can be debated later.

Mr. Hamilton

I shall bring my remarks to an end in view of what you have said, Mr. Crawshaw, except that it will lengthen the proceedings later on. But if it will be more in order on a later amendment I shall be happy to deal with it then.

Mr. Field

My hon. Friend mentioned the Beveridge report. There was no clear statement on how much the Exchequer contribution should be over the years. That was shown in the White Paper produced by the Coalition Government in 1944. There the figures are quite different from those in the note with which we have been provided as a brief. I mention it only because it strengthens my hon. Friend's argument. The then Government estimated that the contribution from the Exchequer would be towards the 70 per cent. level by 1965.

Mr. Hamilton

My hon. Friend's point strengthens the case that I am making. The Government are moving in a different direction, because they are in the active process of dismantling the Welfare State. That is what they are doing, whether it is in relation to national insurance, the National Health Service or whatever it may be.

The Library brief on these matters includes a table deriving from the social security statistics for 1975, showing the Exchequer contribution as a percentage of total contributions excluding contributions to the National Health Service where appropriate. It shows the percentage Treasury supplement as 16.7 percent. in 1975, compared with 38.7 percent. in 1951.

The point that my hon. Friend the Member for Birkenhead (Mr. Field) was making is worth repeating. The Government are pursuing a deliberate policy, which is hidden a little in the technical detail of the Bill. It is a deliberate shift of burdens. We are moving from a relatively fair and progressive system of taxation to a most regressive and socially unfair system of flat-rate contributions under the national insurance scheme. That is the main charge against the Government. In addition, it accentuates the problems of the poverty trap.

When the Conservatives were in Opposition, they—not least the Secretary of State and his underling, the Under-secretary—were eloquent about the evils of the poverty trap. They are now hell-bent on making it worse. That is most reprehensible. During a recent debate in another part of the building, one of our colleagues said that he was sick and tired of hearing Tories saying one thing in Opposition and another when they were on the Treasury Bench. That is what the Government are doing tonight, and that is why we strongly object to the Bill.

Mr. Andrew F. Bennett

Like my colleagues, I find this clause to be one of the most obnoxious in the Bill. The Conservative Party has been trying to trick the country out of a proper debate. The Government have insisted on slipping through a tax measure to raise an extra £1 billion. This measure is designed to discourage debate outside the House and designed to discourage people from finding out what is happening. If the Government had introduced this measure in a Finance Bill, in the normal way, we should have had a period of three or four months for people to appreciate the measure and to make representations.

The Government intend the Bill to be enacted and to increase people's stoppages next April. They do not want people to know why that is happening. That is objectionable. The Government should have the honesty to tell people that they do not want to increase income tax, because that would be a U-turn. They should say that they are doing the same thing in a more regressive way, by increasing national insurance contributions. It would have been fair if the Government had said that and had then received the country's support. It is particularly objectionable that the Government should try to sneak this measure through in such a way.

It is a pretence to say that the measure involves national insurance, because no one will derive any benefit. If the Secretary of State can show me one benefit, I shall take back some of my words. There are cuts in every area. Pensions are being cut in real terms. Sickness benefit, unemployment benefit and industrial injury benefit are being cut in real terms. Even the Health Service has, in effect, been cut, because of the imposition of VAT. In all those areas for which people pay their contributions, there are cuts. They are being asked to pay more and to accept less. This is clearly a taxation measure that has nothing to do with national insurance.

The Minister keeps insisting that the Bill must be rushed through before Christmas so that it can take effect from 6 April. However, the other fiscal measures will be announced in the Budget. We are being given only one measure and we cannot look at a package and a total effect. Why does not the Secretary of State introduce proposals to change personal tax allowances now? New tax tables could then be available from 6 April. That would be logical. However, the right hon. Gentleman seems to think that it is perfectly all right for those measures to be considered in the summer. Perhaps he will not change personal allowances this year.

The Treasury does not intend to bring forward a measure for personal tax allowances this year. Does it intend to have the money and then, perhaps, to pay it back in the form of a refund later in the year? There is no logic in that. What about family income supplement? We have argued strongly about the low-paid. What are the Minister's proposals for FIS next year? That might give us some idea of the impact on the low-paid. Again, he wants to keep that information back. He is not prepared to give us a total package as regards the financial position next April. Some will find that their stoppages will increase in April as a result of this measure and will possibly go down later in the year because the Government will be trying to claim some credit for changing the personal tax allowances.

9.30 pm

The Liberal Party was challenged to propose something that was fairer than a lump sum, but the attempt that is made in amendment No. 6 is somewhat feeble. The hon. Member for Colne Valley (Mr. Wainwright) talked about the poverty plateau rather than the poverty trap. I suggest that the amendment would put into the plateau only one small peak. It would not do much to solve the problem of how to change from a regressive to a reasonably progressive tax.

I hope that a separate vote will be allowed on amendments Nos. 7 and 9 because they deal with a different principle. We are reluctant to concede that the Government need to raise the extra £1 billion. However, if they are to raise it, we would argue that it should be done in a fairer way by sharing the burden between the employer and the employee.

I accept that there are some problems. I do not believe that the imposition of this tax can be see in terms of half going one way and half the other. It depends entirely on bargaining power, labour relations and the employment situation how the money is split between the employer and the employee. However, it still seems fairer to split it in that way.

The Government claimed that they were determined to help the employer and were not putting up his costs. Then it came out that they were putting up his costs considerably.

I suggest that the Minister could accept the amendment and split the increase between the employer and the employee without doing any harm to the employer if he considered the real problems facing the employer—high interest rates and the exchange rate. If he could persuade the Treasury to bring down either of those by a small percentage, most employers would happily pay their extra national insurance contribution. That would be of more help to them than holding off their increase.

Will the Minister say whether the ¼ per cent. is required 1 or the increased numbers of unemployed or for the extra numbers qualifying for pennon payments? I suggest that it is wrong to raise extra money to pay the unemployed. The emphasis should be on reducing the level of unemployment. The most depressing part of the Government Actuary's report on the extra ¼ percent. is the Government's acceptance that the average level of unemployment next year will be 2,300,000. If the Government could solve that problem, there would be no need for the ¼ per cent.

I hope that the Committee will support amendment No. 5 to leave out subsection (2) Failing that, I hope that we shall be allowed to express oar preference for amendments Nos. 7 and 9.

Mr. Patrick Jenkin

It is almost three hours since the hon. Member for Birmingham, Perry Barr (Mr. Rooker) moved amendment No. 5, which seeks to delete subsection (2), which he rightly described as the heart of the Bill and which would raise £1,000 million extra in national insurance contributions. I make no complaint that hon. Members have addressed themselves at length to the issues posed by subsection (2), and I shall do my best, I hope at not too great length to respond to the points that have been made.

The hon. Member for Perry Bar, who was echoed by the hon. Member for Stockport, North (Mr. Bennett), asked why we had to have the Bill now. The hon. Member for Stockport, North asked why whatever tax changes my light hon. and learned Friend the Chancellor of the Exchequer may have in mind for the Budget should not be made known so that the tax tables may be issued or, alternatively, why this decision could not be put in the context of the Budget and dealt with at the same time.

The answer really lies in the practicalities of the rational insurance contributions. I shall explain in a moment why the Government thought that this was the sensible way to proceed in the position in which we find ourselves.

The difference between tax and national insurance contributions, purely as a matter of machinery, is that PAYE is cumulative and national insurance contributions are not. With PAYE, one can announce the rates in the Budget and issue the tables later in the year, perhaps about June—the hon. Member for Colne Valley (Mr. Wainwright), as a member of the accountancy profession, understands these things extremely well—and then catch up with the wrong payments that have been made in the first two or three months of the financial year, because PAYE operates cumulatively.

One cannot do that with national insurance. The tables issued to employers for national insurance purposes must be issued in time to allow them to make the necessary changes in their pay arrangements, whether on computers or otherwise. We therefore have to issue those by the beginning of February so that the new rates of national insurance contributions can be deductable from 6 April. That is the mechanical reason why we have to do this.

It was for exactly the same reason that the Labour Government, when they introduced the National Insurance Surcharge Act in 1976, had to proceed on almost exactly the same timetable—including, incidentally, taking that Bill through Parliament in the space of a very few weeks. That is why we have to do this, and that is why we must pass the Bill.

I turn to the reason why we wish to add one percentage point to the national insurance contribution of employees. The House will remember, as this was discussed at some length on Second Reading, that one-quarter of that is to provide money for the National Health Service and thus to enable the Government to maintain the growth in spending on the National Health Service to which we committed ourselves in our election manifesto.

A further ¼ per cent. is necessary to maintain the flow of funds to the national insurance fund, to meet the expected demand on that fund in the course of the next year. The reasons for that are spelt out in the Government Actuary's report published with the Bill.

The third element, which aroused the indignation of the hon. Member for Fife, Central (Mr. Hamilton), and to which, no doubt, we shall return on clause 2, is a further ½ per cent. to allow for the reduction in the Treasury supplement, which, as my right hon. Friend the Chief Secretary said on Second Reading, makes a direct contribution to the reduction of the public sector borrowing requirement.

It would not be light for me on this amendment to go into the economic arguments for the essential policy of containing the size of the public sector borrowing requirement. But no one has sought to deny that the case for raising extra money in this way, to allow the public sector borrowing requirement to be reduced, was made absolutely clear from the start—from the moment that my right hon. and learned Friend the Chancellor announced this—and it is at the heart of the Government's economic policy.

The hon. Member for Perry Barr and a number of his hon. Friends asked why we must put this wholly on the employee and why it has not been shared, as perhaps in other circumstances it might have been, between employer and employee. It is fair to say that in the early days of the national insurance scheme employers' and employees' contributions were much the same and moved broadly in parallel. In recent years, even leaving aside the national insurance surcharge, the employers' contribution has moved up and is now more than 10 per cent., whereas the employees' contribution was 6¾ per cent., now rising to 7¾ per cent. as a result of the Bill.

The Bill, to a modest extent, narrows the differential. But the real reason why we decided to make this impost on the employee and not on the employer is that the pattern and movement of the factors in the economy, particularly the high interest rates and the high exchange rates that have been referred to in the debate, press very much more hardly on employers than on employees. Standards of living over the last 12 months have on average risen quite significantly across the country. The increase in earnings has been four or five points higher than the increase in prices. In those circumstances, it seemed to the Government fair and right that the extra contribution should be paid by employees and others in work, such as the self-employed.

I listened with great interest to the point made by the hon. Member for Birkenhead (Mr. Field), who courageously took issue with his hon. Friends who argued in favour of splitting the contribution half and half between employers and employees. The hon. Gentleman agreed with my hon. Friend the Member for Anglesey (Mr. Best), who argued for the burden being placed on employees. Before the hon. Member for Birkenhead gets to his feet, let me add that I appreciate that he said this was right provided that the base was altered. The base is settled by the pattern of the 1975 Act, and that base is not being altered in the Bill. However, he accepted the case that those in work should now bear the extra burden of financing the benefits for those not in work, whether they are old, unemployed or whatever.

I take profound issue with the hon. Member for Wood Green (Mr. Race), who said that this would have as much effect on employment as it would if we put the burden on employers. With great respect, that simply does not make economic sense. If we put extra burdens on the employers in the present circumstances, they would have an immediate effect on the level of employment. The hon. Member for Birkenhead certainly accepted that case. At a time when price margins are being squeezed, and when prices in the high streets show that competition is extremely fierce—one can see that in the sales that take place week after week and month after month—there is no possibility whatever of placing the burden on employers. The hon. Member for Wood Green is living in cloud-cuckoo-land—the hon. Member for Barking (Miss Richardson) made the same point—if he believes that if the impost is put on employers they will simply pass it on in higher prices. That would put their profit margins under still tighter pressure and lead inevitably to more people being laid off. For that reason, we felt that it would be wrong to put any part of this additional national insurance increase on to employers.

Mr. Ioan Evans

The Government have claimed that they have reduced taxes. In fact, in the first Budget that they brought before the House they reduced taxes for the wealthy. They have also imposed VAT on working people. Although working people have been told that there have been tax reductions, they will find a reduction in their take-home pay as a result of this increase in national insurance contributions, and that will lead to a feeling of injustice. Does not the right hon. Gentleman agree that when the tax and prices index which is issued by the Government shows the increase to be above 16 per cent., it will encourage workers to claim higher pay increases?

Mr. Jenkin

I do not disagree with the hon. Gentleman. It may well be that unions will seek to use this as an argument in their negotiations for higher pay. However, in the mood of realism which is now dominating the pay scene in this country—where the question of how much extra pay private and public sector employers can afford is the determining factor—my guess is that this will have no significant impact on the level of pay increases that will be awarded.

9.45 pm

Mr. Race

The Secretary of State said that I had been living in cloud-cuckoo-land. Who is living in cloud-cuckoo-land? His Government have screwed employers' profit margins. His Government have undermined their profits. We are arguing for equity and fairness in the national insurance system. If he is so concerned about the plight of employers, let him change the overall economic policy and stance of the Government and stop messing about and accusing us of attacking the employers.

Mr. Jenkin

That is a totally different tune from the tune that the hon. Gentleman sang during his speech an hour and a half ago, when he argued that if we put half the extra charge on to employers it would not fall on employers but would be passed on and that they could afford to do that. The hon. Gentleman must make his arguments a little more logical.

Mr. Field

May we return to the point that there could be a case for putting this increased charge on employees, if only the base could be changed? We have again heard from the Government that it could be changed but for the 1975 Act. Clearly, that Act came down Mount Sinai on tablets of stone, to be unchanged in any way. Will the Secretary of State tell the Committee what there is in the 1975 Act that would prevent people earning below £27, £28 or £29 a week from paying 1 or 2 per cent. of their-wages in contributions, and allowing—as the Liberal amendment suggests—a graduation up the income scale?

Mr. Jenkin

I shall deal with the Liberal amendment in a moment. I think the hon. Gentleman recognises the understanding that was reached in 1975 between the pension interests and the private sector. I should not use the phrase "private sector", because more public sector pension schemes are contracted out than private sector schemes. About 10 million employees are in pension schemes that have been contracted out on the basis of the structure that was agreed in the 1975 Act. The basis of that was a whole range of—

Mrs. Kellett-Bowan

Relativities.

Mr. Jenkin

I am grateful to my hon. Friend—between the contributions for contracted-in and contracted-out schemes, for the protections and limitations of the rights for transferred benefits, and a whole range of matters. That was a carefully constructed package that was felt by both sides of the House at the time to be fair to the occupational pension schemes and fair to the national insurance scheme. It has been the passionate desire of all those concerned with the pensions world outside the House that that carefully constructed package should not be upset.

Mr. Ennals rose—

Mr. Jenkin

I know what the right hon. Gentleman is going to say, but if he consults them he will find that nothing that the Government have done or are proposing to do will in any way upset the essence of that package.

Mr. Ennals rose—

Mr. Jenkin

With great respect, whether it is a question of the index-linking of benefits or taking the margins between the upper and lower earnings limits, we are acting entirely within the spirit of that concordat. Some of the changes that have been proposed, particularly in amendment No. 6—the Liberal amendment—upset that package. They are unacceptable to us and would be totally unacceptable to the pensions interests outside the House.

Mr. Ennals

Surely, all the Secretary of State's arguments are in favour of taking extra money by taxation rather than mucking around with the national insurance system.

Mr. Jenkin

That may be argued on another occasion. I am arguing for doing with the national insurance fund what is proposed in the Bill.

The hon. Member for Perry Barr asked what had happened to the £121 million charges foreshadowed in Last year's public expenditure White Paper. Those charges have not been made, and ¼ per cent. of the increased contribution is required for making up the loss of revenue. Of the total, £100 million relates to England and, of that, £14 million relates to the income from sight tests. The Committee will remember Mat we dropped that proposal in response to objections from hon. Members.

The remainder relates to other charging proposals that have been abandoned or modified, such as that for further measures to recover the cost to the NHS of treating road accident victims. We still hope to bring forward shortly proposals for recovering more of the cost of the use of the NHS by foreign visitors. We shall be announcing details in due course. Much the largest item was the road accident proposal, for which no practical scheme has emerged.

The Liberal amendment would result in a loss to the national insurance fund of £613 million. The hon. Member for Colne Valley said blithely that that would run the fund into deficit. So it ruddy well would.

Mr. Field

Language!

Mr. Jenkin

The hon. Member for Colne Valley asked what was the matter with a deficit, since in 1977 the then Government planned for a deficit. I have looked up the planned deficit in 1977. Far from being £613 million, it was £25 million. For the hon. Gentleman to use that as an argument for cheerfully accepting a planned deficit of more than £600 million is exceeding the normal irresponsibility that we expect from the Liberal Party.

Mr. Richard Wainwright

Despite the Secretary of State's excitable and lurid language, which almost rivals that of the Chief Secretary, who was rebuked by the Chair for swearing at Question Time, he ought to be fair to the Committee and give us details of the accumulated surplus in the national insurance fund this year and in 1977.

Mr. Jenkin

The important point about the accumulated surplus is that as a proportion of the outgo—which is the key ratio—it has been steadily declining year by year. The figures are given in paragraph 16 of the Government Actuary's report. In 1979–80 the proportion was 36 per cent., in 1980–81 it is 34 per cent. and in 1981–82 it will be down to 30 per cent. Even with the modest surplus of £39 million for 1981–82 that our proposals will produce, the accumulated surplus represents only about four months' outgo.

Mr. Wainwright

It is more than £4 billion.

Mr. Jenkin

Yes, but that is only about four months' outgo. As someone said, "There ain't no fund." It is a working balance, and it is absurd for the hon. Gentleman to suggest that we should cheerfully plan for a massive deficit.

I will not go into the obvious practical difficulties of adding yet another rate of contribution, which the amendment would involve. It would massively complicate the work not only of my Department but of every employer in the land. They would need three rates for their employees. The task of checking that and ensuring accuracy would be massive. I cannot advise the Committee to accept the amendment.

We shall come to the question of the Treasury supplement when we discuss the next clause. There is nothing sacrosanct about the size of the Treasury supplement. It has changed over the years. It has been over 34 per cent. and below 12 per cent. It has fluctuated between 15 per cent. and 20 per cent in the last six or seven years. We are spending billions of pounds more on non-contributory benefits, and the general taxpayer is thus making a bigger contribution to social welfare payments. It is, therefore, not unreasonable, when trying to reduce the public sector borrowing requirement, to shift an, additional part of the burden of financing the national insurance fund to the contributors and off the general body of taxpayers, and thus off borrowing.

Mr. Field

But they are taxpayers.

Mr. Jenkin

With respect, I am speaking of the general level of public sector borrowing.

The right hon. Member for Norwich, North (Mr. Ennals) will remember that the Select Committee criticised me in the summer because the changes made in the Social Security (No. 2) Act for reducing benefits in the next year or two did not affect the public sector borrowing requirement to the full amount of the cuts. We answered that argument by saying that it would depend on what happened to the contribution rates in November 1981. The right hon. Gentleman cannot complain if, in order that the changes in the national insurance fund feed through directly to the public sector borrowing requirement, a reduction is made in the Treasury supplement.

The right hon. Member for Norwich, North also argued that the increase for the National Health Service would not give rise to extra spending on the service. That comes rich from the Minister who presided over cuts of one-third in the total capital expenditure on the Health Service rather than move an inch on charges. We have said that we shall preserve entirely intact the growth of the National Health Service. We are right to ask the House and the country to pay a little more for it.

Mr. Ennals

The Secretary of State has criticised me, and I must reply. He knows that when I was Secretary of State the general growth of revenue and capital in the National Health Service was faster than it has been since the present Government came to power There is no point in touching only upon capital and leaving revenue aside.

Mr. Jenkin

The right hon. Gentleman cannot escape the fact that, rather than impose extra contributions and higher charges, he preferred to cut the programme. We do not do that.

I have the impression that the Committee is anxious to reach a conclusion. The changes that we are making in the clause—which is at the heart of the Bill, as the hon. Member for Perry Barr said—are realistic in the financial and economic circumstances. They are fair between different categories of our citizens. They put the burden upon people in work in order to preserve benefits for people who are not in work and in order to preserve the Health Service. The changes are sufficient and necessary, in part to maintain the solvency of the national insurance fund.

Amendment No. 5, which would delete the subsection, amendment No. 6, the Liberal Party's elaborate and not very sensible plan, and amendments Nos. 7 and 9, which would shift part of the burden on to employers, are contrary to the best interests of the national insurance fund, the Health Service and the economy. Therefore, I cannot advise the Committee to accept them.

Mr. Buchan

Perhaps the saddest aspect of tonight is the petty meanness of the Government's action. They face the biggest economic crisis for half a century, and what do they do? They take half of 1 per cent. from the workers alone; there is no half of 1 per cent. from the employers. They remove £1 billion from the workers' pockets to pay for the crisis that they themselves have caused.

The measures that the Government are taking are exacerbating the crisis. They found a short-term crisis—

It being Ten o'clock, THE CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress.