Social Security (Contributions) Bill

HC Deb 15 December 1981 vol 15 cc173-234

Order for Second Reading read.

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition.

4.50 pm

The Secretary of State for Social Services (Mr. Norman Fowler)

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

In his statement on 2 December my right hon. and learned Friend the Chancellor of the Exchequer announced that the Government proposed to raise employees' national insurance contributions by 1 per cent. from April 1982, and at the same time to reduce the Treasury supplement to the national insurance fund by 1.5 per cent. to 13 per cent. He also announced that the lower and upper earnings limits for contribution liability would be raised.

On the same day as my right hon. and learned Friend made his statement, I placed in the Vote Office and in the Official Report a statement setting out in detail the changes in contribution rates and earnings limits proposed for 1982–83 and a breakdown of total payments for that year compared with the current one. I have also laid before the House the report of the Government Actuary containing the assumptions on which the Government's proposals are based. The Bill gives effect to those proposals.

The Bill contains a number of changes which could have been made by statutory instrument. These include the changes in earnings and profits limits for contribution liability, the small earnings exception and the contribution rate for classes 2, 3 and 4. The reduction in the Treasury supplement could also be made by order. But because primary legislation was required for two of the most important changes—the total increase in the class 1 employee's contribution and the introduction of an employment protection allocation into it—it seemed right to include all the changes proposed for 1982–83 in a single piece of legislation.

The House will know also that the legislation must receive Royal Assent by the end of January for the good reason that we need to give employers sufficient notice of the contribution changes to enable them to implement them by next April. Clearly I am conscious of the time constraint that this places on the House and I would prefer a slower pace. It may be of some help that I have arranged that notes on clauses should be available now in the Vote Office. I know that this issue was raised in last year's debate.

Perhaps I could start by setting out some of the main aims and themes of the Bill. First and foremost, it is a Bill to provide payment for the very large amount which the Government will be spending on social secruity benefits next year. All told next year we shall be spending almost £30 billion on social security benefits—an increase of £2½ billion. Of this, about £19 billion will come from the national insurance fund and the rest from general taxation.

Of the estimated spending from the national insurance fund of about £19 billion, £13½ billion will be spent on the retirement pension—about £1½ billion more than this year. This will enable us to fulfil our pledge to pensioners that their pensions will keep up with the cost of living. It recognises our obligation to the pensioners which The Timesset out fairly in a recent editorial when it said: The elderly contain the largest single area of poverty and sickness in Britain. They lack the strength and mobility to adjust to the inflationary gale. The second important theme is the increase in the National Health Service contribution of 0.1 per cent. That will enable us not only to maintain spending on the National Health Service but to increase it. It cannot be emphasised too often that the Government, far from cutting back spending on health, have increased it by 5 per cent. in real terms since 1979. One result is that we now employ many more doctors and nurses. I believe that this extra provision is right. I also believe that it is entirely reasonable to ask for an extra contribution which will raise £100 million from those in work which will be earmarked specially for the National Health Service. I should emphasise that, of the £12 billion that we shall now be spending on the National Health Service, no less that 85 per cent. comes from general taxation. By contrast, under 12 per cent. comes from the National Health Service contribution, which compares with 17 per cent. in the early 1960s.

Mr. Mike Thomas (Newcastle upon Tyne, East)

Will the right hon. Gentleman tell the House what proportion of the increased employment of nurses is a real increase in nursing manpower and what proportion is merely a response to the reduction in working hours to 37½ hours a week?

Mr. Fowler

I can give the hon. Gentleman the broad figure from memory. There are now 21,000 extra qualified nurses and midwives working in the National Health Service. Clearly that is partly due to the latter reason, which the hon. Gentleman put, and surely it is to be welcomed. It cannot be denied that 21,000 extra nurses and midwives now work in the National Health Service. My point about the 0.1 per cent. increase in the National Health Service contribution is that in this way we can not only maintain spending on the National Health Service but increase it.

The third theme concerns a change in the arrangements for financing the redundancy fund, from which payments are made to employers to help finance their redundancy payments. Inevitably, the increase in redundancies over recent years has meant correspondingly heavier calls on the redundancy fund.

The House agreed last month to increase the statutory borrowing limit of the redundancy fund to £300 million. But, even though there are indications that the peak for redundancies has passed, it is clear that extra finance for the redundancy fund will be needed to keep within the borrowing limit. The case for an increase in the employment protection allocation, as the financial base on which the redundancy fund stands, is therefore not really in dispute.

Mr. Andrew F. Bennett (Stockport, North)

Will the right hon. Gentleman give the House his estimate of the number of people who will be made redundant during the next two years?

Mr. Fowler

I shall ask my right hon. and learned Friend the Chief Secretary whether he can provide more accurate information, but we would expect a progressive reduction in the number of redundancies over the next 12 months. If I can provide more information during the debate I shall do so.

The crucial point is that in the past there has been an employment protection allocation—which, as the hon. Gentleman knows, includes a payment to the maternity pay fund—only in the employer's share of the contribution. At present it stands at 0.2 per cent. But we have decided that the time has come to share the burden of financing the redundancy fund between employers and employees. It seems to me that to ask employees to contribute to the cost of redundancy payments is a perfectly logical extension of the principle of social insurance. It is asking those in work to make a contribution towards redundancy payments to people who lose their jobs. The alternative of refunding less to employers would have an immediate adverse effect on the cash flow of firms, which could only risk further redundancies.

Mr. Brynmor John (Pontypridd)

An obvious alternative would seem to be to maintain the Treasury contribution rather than dropping it by 1.5 per cent.

Mr. Fowler

The hon. Gentleman anticipates a part of my speech to which I shall come shortly. He is certainly entitled to argue that point, but I hope that he will also tell us what policy he intends to put in place of this.

The Bill proposes that employees should pay 0.35 per cent. of their liable earnings to the employment protection allocation. Employers will continue to put in 0.2 per cent. But I stress—and it is important that the Opposition take this on board—that the employer will still meet the lion's share of redundancy payments. At present all the costs of redundancies are met by employers. They can recover only 41 per cent. from the redundancy fund, but as the fund is at present constituted employers collectively are the sole contributors.

Our proposal will save employers only the new burden of finding the extra finance for the redundancy fund. They will still bear the brunt of redundancy payments. Even with employees contributing, employers will meet three-quarters of the cost of statutory redundancy payments. In addition to all this, of course, many employers pay amounts well in excess of the statutory requirement. So I do not think tht we could be accused of imposing unfairly on employees by asking them to put in 0.35 per cent. of their liable earnings and to share with their employers the cost of financing the redundancy fund. Their contribution will bring in £353 million in 1982–83, and this figure can be found in appendix 2 of the Government Actuary's report. This extra income should be sufficient to keep the borrowing of the redundancy fund within the £300 million limit agreed by the House for the year.

The fourth theme, on which the hon. Member for Pontypridd (Mr. John) has touched, is the reduction in the Treasury supplement—in other words, the amount of money being paid from the Consolidated Fund to supplement the national insurance fund. There are no hard and fast rules about the amount of that supplement. Here we are recognising the position where the taxpayer's share of the cost of benefits has increased. This is because expenditure over the years on the non-contributory benefits—the social security benefits outside the national insurance scheme—has grown substantially and that expenditure is met entirely out of taxation.

Therefore the question that the Government have had to ask is not the simple one of how much the Consolidated Fund should boost the national insurance fund, but the wider one of how much benefit expenditure it is reasonable to expect the general taxpayer to finance. Over the years, the proportion of benefit expenditure met from general taxation has tended to rise. It was about 37 per cent. in 1975–76. It is 45 per cent. in the current year and, even with the 1.5 per cent. cut in the Treasury supplement, it will still be about 45 per cent. in 1982–83

Mr. David Ennals (Norwich, North)

Does the Minister agree that throughout almost the whole period since national insurance was introduced the figure has been about 18 per cent.? He is, of course, right to say that there is no statutory requirement. Nevertheless, it has been about 18 per cent. throughout the whole period. Why does he say that it is more unfair to put the burden on the taxpayer than to put it on a limited number of workers?

Mr. Fowler

The case that I was making—and I note from the Official Report of last year's debate that the right hon. Gentleman made precisely the same point to my predecessor—is that we must consider two aspects. The first is the Treasury supplement. The second is the amount that the taxpayer pays for benefits in general. It seems to me reasonable that the Government should take that wider aspect into account when reaching their decision. We may debate these matters, but as we estimate that the amount of benefit expenditure met from general taxation in 1982–83 will still be about 45 per cent.—an increase from 37 per cent. in 1975–76, just before the right hon. Gentleman became Secretary of State—I believe that that is a fair balance.

I claim that in reducing the supplement we are not so much altering the balance of burden between the general taxpayer and people in work as redressing that burden. The reduction in the Treasury supplement will save £260 million.

The fifth theme is that we have sought as far as possible to protect the employer and the self-employed, on the ground that, although we are talking here of benefits, the major economic, industrial and social aim must be to secure a recovery of industry and a reduction of unemployment. That is the Government's aim, and surely the House will agree that that must be the priority of all policy at the present time. It is for that reason that in the Bill we have protected the employer from the increase in national insurance contributions—although not, of course, from the increase in the upper earnings limit. Similarly, as the Government Actuary's report sets out, we have modified the effect on the self-employed—again reflecting the Government's recognition of the role played by the self-employed, especially small businesses, in economic recovery and the creation of jobs.

Those are themes which occur in this Bill and which the House should remember in considering the detail of it.

Turning to the detail, clause 1(1) raises the lower and upper earnings limits for class 1 contribution liability from £27 and £200 a week to £29.50 and £220 a week respectively. As I mentioned earlier, this is one part of the Bill that forms part of the routine annual exercise for reviewing national insurance contributions and which would ordinarily be done by order. The lower earnings limit is linked by the Social Security Pensions Act 1975 to the basic rate of retirement pension. The upper earnings limit must be between 6½ and 7½ times that rate. The upper limit proposed in the Bill' is 7.43 times the basic rate.

Clause 1(2) raises the employee's contribution from 7.75 per cent. of liable earnings to 8.75 per cent. I shall give a breakdown of that figure. It consists of the additional National Health Service allocation of 0.1 per cent. and the additional employment protection allocation of 0.35 per cent. A further 0.25 per cent. is to compensate for the reduction in the Treasury supplement and 0.3 per cent. is to keep the national insurance fund broadly in balance. The 1 per cent. increase applies equally to contracted-out employees as to others.

In proposing these changes, the Government have been at pains to keep additional burdens on employers to a minimum. Employers will, however, pay more as a result of the increase in the upper earnings limit, but the only way this could be avoided would be by not raising the upper earnings limit at all. The effect of holding the upper limit down would be to increase the contribution made by lower-paid workers. The low paid rightly expect that the earnings limits should rise with inflation so that those at the upper end of the earnings scale meet their fair share of costs. So by avoiding any increase in the employers' contribution rate we have gone as far as we reasonably might and can to protect employers.

Consequently, of the estimated £652 million increase in employers' contribution in 1982–83, only £140 million arises through the Bill as a result of the changes to the earnings limits. The remaining £512 million has nothing to do with the Bill and would have happened anyway without any changes in it. It is simply the result of contributions increasing as earnings increase. In other words, it is the natural result of having an earnings-related contributions scheme.

Clause 1(3) raises the contribution payable by married women and widows with the right to pay the lower rate from 2.75 per cent. to 3.2 per cent. In 1977—the last year in which women could decide if they wanted to keep their right to pay lower contributions—opted-out women had to choose between a rate of 2 per cent. compared with a full rate of 6.5 per cent., so in 1982–83, we will have preserved the advantage that opted-out women were promised in 1977.

The increase in rates for opted-out women will also include the increased National Health Service allocation and the employment protection allocation. That is fair, as they benefit from both the National Health Service and redundancy payments.

Contribution rates for self-employed people are dealt with in subsections (4) and (7) of clause 1. Perhaps I could make this initial point about the self-employed. The House will know that we launched a review of the self-employed and national insurance in October last year, with the publication of a discussion document. My hon. Friend the Minister of State has been involved in these discussions. The Bill's provisions in no way pre-empt or imply the outcome of that review. Decisions on that are still to be taken.

On the provisions in the Bill, just as I have been concerned to spare employers the main impact of changes in contribution arrangements for 1982–83, I have also sought to give some protection to small businesses. For lower earners among the self-employed the Government Actuary's report has made it clear that application of the formula for calculating the class 2 contribution, which has been used since 1978, would have led to a rate of about £4. In fact, we propose a rate of £3.75 a week as set out in clause 1(4).

For the higher earners among the self-employed, the level of profits at which class 4 contributions will become payable will be raised in line with inflation. I propose in the Bill to raise the class 4 contribution rate by 0.25 per cent. only, less than the 0.35 per cent. that the Government Actuary has concluded would be warranted by the application of the usual formula. Again, I do this to offer a small extra protection to the self-employed. The most that a self-employed person would have to pay extra would be £1.49 a week, which is for someone at the upper profits limit.

Clause 2 provides for the Treasury supplement to be reduced from 14.5 per cent. to 13 per cent. I have already set out the general background to this change. The reduction in the percentage of the Treasury supplement will not appreciably reduce the amount of 'Treasury supplement going into the national insurance fund. This is estimated by the Government Actuary as £2,591 million for 1982–83—only £9 million less than in 1981–82.

Clause 3 is in two main parts. The first will increase the National Health Service allocation in the primary class 1 contribution and in the class 4 contribution by 0.1 per cent. As I have said, we shall be increasing our expenditure on the National Health Service substantially in the corning year. The figures are worth repeating. Expenditure on the National Health Service in 1982–83 will be just over £12 billion, compared with just under £11 billion in 1981–82. In other words we are planning for an increase of just over £1 billion to be spent on health. A contribution of £104 million towards that growth will be provided by what amounts to an extra 15p a week for a man on average earnings. I hope that will be accepted as a reasonable contribution to the continued growth of the National Health Service.

The second main part of clause 3 will, as I have already indicated, introduce an employment protection allocation for the redundancy fund from the employee's contribution.

Those are some of the Bill's main objectives and detailed provisions. I want to say a word about the Opposition amendment, which seeks to criticise the Government on three counts—the level of benefits being paid, the contribution by the employed population, and the reduction in the Treasury supplement. I have already dealt with the second and third points.

As to the level of benefits, I remind the House of the Government's commitment to price-protect the retirement pension and related benefits, which accounts for about 60 per cent. of all social security expenditure. This we have done.

Mr. Andrew F. Bennett

The right hon. Gentleman has referred to 60 per cent., but that is no consolation to the other 40 per cent. Last week we pressed his colleagues for a statement on short-term benefits. There have been many rumours. Will he now confirm that he will not let the cut in short-term benefits made for this 12 months continue in the future?

Mr. Fowler

The hon. Gentleman raises the very point to which I was about to refer, but before doing so I should like to make an additional point. Not only have we price-protected the retirement pension, but other benefits such as FIS and mobility allowance have enjoyed increases considerably better than the rise in prices. We have promised to make good the shortfall for pensions because of our absolute commitment to ensure that they are fully price-protected in the lifetime of this Parliament.

At the next uprating we intend to increase all benefits by what we estimate to be the increase in the RPI by November 1982.

Mr. Mike Thomas

rose—

Mr. Fowler

I cannot give way again.

The final figure will not be determined until the spring of next year, but the present estimate is 10 per cent.

Mr. Thomas

Will the right hon. Gentleman give way?

Mr. Fowler

I am sorry; I have given way many times and I cannot do so again.

I now come to the point raised by the hon. Member for Stockport, North (Mr. Bennett). As to the shortfall for other benefits, my right hon. and learned Friend the Chancellor of the Exchequer made it clear in last week's debate that final decisions will be taken on all these matters next spring. We shall, of course, listen carefully to the views of hon. Members, but at this stage I can go no further than what my right hon. and learned Friend has already said.

The changes for which the Bill provides are required to maintain the basic shape and funding of the national insurance scheme. It is an essential feature of that scheme that it is funded on a pay-as-you-go basis—that income should match spending. The Bill maintains the principles of social insurance—that people who are in work today fund the benefits for those who need them today in the expectation that they will be similarly provided for when they need them. It also helps to ensure that the PSBR is kept within reasonable bounds while ensuring that the national insurance fund remains in balance.

These are the responsibilities of the Government, and I ask the House to support the Bill as the sensible minimum that a responsible Government could put forward.

5.20 pm

Mr. Brynmor John (Pontypridd)

I beg to move, to leave out from "That" to the end of the Question and to add instead thereof: this House declines to give a Second Reading to a Bill which increases the burdens upon employed persons and decreases the Treasury contribution to the National Insurance Fund at a time when the real value of many benefits is being cut. Our amendment encapsulates what we feel is wrong with the Bill which, despite the way it was caressed clause by clause and subsection by subsection by the Secretary of State, is a miserable, squalid Bill, and the product of gross financial and economic incompetence under its presiding genius the Chancellor of the Exchequer. The Chancellor's statement combined a leaden stubbornness wih complete insensitivity towards those who have been the most unfortunate casualties of his catastrophic period in charge of the British economy.

As the Secretary of State said, there are three major provisions in the Bill, which we believe to be its major defects, as well as a general scene that is debasing the whole Welfare State concept. The first defect is the 1 per cent. increase in national insurance contributions for employed persons, raising them to 8¾ per cent. I remind the House of the recent history of national insurance contributions. When the Government came to power, the contribution was 6½ per cent. of earnings. In April 1980 it rose by 0.25 per cent. In April 1981 it rose by a further 1 per cent. and that increase is to be followed next April by a further 1 per cent. increase. In other words, in three years the rate will have increased by over one-third, despite the fact that wage settlements will bring in more money.

As the Chancellor of the Exchequer said—and as the Secretary of State repeated—he has not raised the effective rate for employers. But they will have to pay more in total because of the changes proposed in the Bill. He did not say that the national insurance surcharge will be abolished. To employed persons, the increase in national insurance contributions means added burdens. It is a form of taxation, not insurance. It is a particularly regressive form of taxation for two reasons. First, it does not have the allowances available to taxpayers, so it starts at a lower income level—£29.50 a week. Secondly, having crossed that low threshold into national insurance contributions, a person starts paying at the full rate of 8¾ per cent. immediately.

The harshest effect of the measure will fall at the lowest end of the scale. The Financial Times stated on 3 December: Those earning £3,000 a year were harshly treated last month. This month has seen a repeat dose. The real net spendable income of those people has declined by 3 per cent. since just before the last Budget. Those people earning average wages of £150 a week will have to pay £1.50 more, those earning £100 a week will have to pay £1 more until the ceiling is hit for those earning £220 a week and over. This is a tax, because the lower figure fails to take full account of inflation. It should be £30, not £29.50. The increase will particularly affect part-time workers. A person earning as little as £30 a week will have to pay £2.63 a week in national insurance contributions because of the Treasury fiddle in not adequately and fully updating the amount.

I shall reiterate later my belief that those in employment would not mind paying an extra amount if they thought that thereby they were securing or paying for additional or improved benefits. The Secretary of State tried hard this afternoon, but out of the whole of the Chancellor's package, the only increase in real benefits to which he could point was the 0.1 per cent. being paid additionally to the National Health Service. We welcome that, but 0.9 per cent. of the 1 per cent. increase is for other purposes. About 0.3 per cent. is to balance the national insurance fund and 0.35 per cent. to keep the redundancy fund solvent.

It is right to highlight this matter. For the first time since the 1975 Act, employees are being compelled to contribute to the fund that was set up to compensate them for loss of jobs. The Government, whose woeful economic miscalculations have irresponsibly shed jobs, are now coining a new slogan: "Pay now, be redundant later". The employee is now shouldering a large section of the burden for his own redundancy. When that 0.35 per cent. is added to the 0.3 per cent. it can be seen that two-thirds of the increase now being imposed on employed persons is to cover the worsening unemployment position. The right hon. Gentleman should reflect on the morality of expecting employees to bail out their man-made—or, rather, their "Howe-made"—disasters.

Our uncrushable Chancellor—not so much an iron Chancellor, as a rubber Chancellor—said on 2 December 1981: It is, moreover, right that those in work should shoulder the additional costs".—[Official Report, 2 December 1981; Vol. 13, c. 239.] He repeated those words in last week's economic debate as if that were a self-evident truth. Is it? I remind the House of another way in which the Government have muddied the concept of the Welfare State and are again doing so with this Bill. It was envisaged by Beveridge that the responsibility for the scheme should be tripartite. Certainly, employers and employees should fund the scheme in the main, but it was never envisaged that employed persons should be responsible for all the extra burdens on the fund, particularly when the Government create those burdens. All society, not merely people in employment, must shoulder that burden. That means the taxpayer, too.

The Bill continues the resolute march of the Government away from the Beveridge principle of funding the scheme. The Secretary of State said that the amount was never fixed. I remind him that in 1975, the amount of the Treasury contribution was written into statute at 18 per cent. It was as fixed as anything else that this legislature manages. In November 1980, it was reduced to 14½ per cent. and now, under clause 2, it is being reduced to 13 per cent. That is by far the lowest contribution that the Treasury has ever made to the national insurance fund. It is far lower than it was in the 1950s when receipts from national insurance contributions far outweighed the calls upon the fund. It is lower—by 3 per cent.—than the lowest previous figure that I can discover. In the last two years, 0.75 of 1 per cent. has been added to the employed person's national insurance contribution in order to gain a 5 per cent. saving for the Treasury.

The Secretary of State had an answer for that. He said—there is truth in what he says—that some part of other taxation is devoted to non-contributory pensions. However, I challenge him on that point. Is the diminution from 18 per cent. to 13 per cent. in the last two years in the Treasury's contribution to the insurance fund solely equal to the amount of non-contributory pension provided from general taxation? I doubt it. As ever, the Treasury is, in a hidden and covert way, clawing back money to its maw in order to transfer the burden of financing the scheme from general taxation and the general taxpayer, to those who are worse off.

Mr. Fowler

My right hon. and learned Friend the Chief Secretary will get some of the latest figures. However, in my speech I pointed out that over the years, the proportion of benefit expenditure met from general taxation had risen. As I pointed out to the right hon. Member for Norwich, North (Mr. Ennals), in 1975 the figure was 37 per cent. That figure is now 45 per cent. and was about 45 per cent. last year. Therefore, the trend is quite contrary to that suggested by the hon. Gentleman.

Mr. John

The Secretary of State challenged me about an alternative strategy. On a muted scale, he returned to the old "TINA" theme—there is no alternative. However, if, only a year ago, it was right for the Treasury to contribute 14.5 per cent. to the national insurance fund, why should that not be maintained? That would avoid additional burdens being placed on the employed, who face hard times because of the Government's mismanagement of the economy and their under-estimation of the rise in inflation.

Mr. Ennals

Does not the Secretary of State's reply imply that if supplementary benefits increase—because more people are unemployed, or for any other reason—there may well be a further diminution of the amount paid by the Treasury to the national insurance fund, even below the figure included in the Bill?

Mr. John

I agree with my right hon. Friend. The rise in the percentage figures is largely explicable for that reason. The Secretary of State's remarks prove that under this Government there has been a steady march away from the acceptance of the tripartite principle of funding the national insurance fund. Indeed, that is the second point on which we criticise the Government in our motion. The Treasury is opting out of its duty to help to keep the fund in being and solvent. That can only mean higher and higher contributions from those who are employed. The rationale of the Secretary of State's remarks is that those who are employed can look forward to another 1 per cent. in about a year's time. Steadily, they will have to finance themselves.

The Secretary of State wants to advocate that people should pull themselves up by their bootstraps. According to the Secretary of State, those in employment should pay an increasing part of the burden in order to help relieve the misfortunes of those out of work. That is better than nothing at all, but it represents a regression from the philosophy that the Conservative Party put forward in the 1930s. Therefore the Bill's defects can be amply demonstrated.

The Secretary of State was wise to maintain a low key when introducing the Bill. He and I know that the measure conceals an economic reality that he must have fought against, to the best of his ability, in Cabinet. However, he must have lost and the measure represents a defeat for him and for his Department. The motion states that the Bill has been introduced at a time when the real value of many benefits is being cut". I said that employees would not react adversely if they believed that they were paying for improved services and benefits. However, people believe that they are now paying more and more for less and less. In the package of measures announced by the Chancellor of the Exchequer some benefits were not protected in full from the rise in inflation. That follows the Chancellor of the Exchequer's unhappy precedent of the previous year. If any Conservative Member is in any doubt about the Government's failure to maintain the real value of benefits during the past year or so, he should read early-day motion 127 which stands in my name and those of my right hon. and hon. Friends. It calls attention to the Social Security (No. 2) Act 1980 which, for many people, cut the real value of benefits. The 2 per cent. cut today does not stand in splendid isolation from the rest of the package. It has been made in addition to the earlier cuts.

During last week's debate on the economy many Conservative Members directed their attention to the Government's iniquitous proposal to cut unemployment benefit. By any standard, that proposal is indefensible. Indeed, this morning's edition of The Times states that the plight of the unemployed is the worst that it has been in the past decade. Conservative Members made powerful speeches on this subject. We are glad that they joined us and made such speeches, but they came a bit late in the day.

Last year the real value of benefits, including unemployment and invalidity benefit, was cut by 5 per cent. No Conservative Members threatened rebellion then. Last year, a whole benefit—earnings-related benefit—was abolished, to take effect in January 1982. It will have taken effect before we return from the Christmas Recess. Again, not a worm turned then on the Government Benches. In the past year, Conservative Members have connived at an even greater cut in the real value of benefits than the cut that they cannot stomach now. However, the unemployed were just as deserving and the sick were just as blameless when more things were done as they are now.

What a difference a year makes! This year, Conservative Members are far less confident, united and certain that the great economic design, embarked on with such confidence, will work. We hear murmurings of dissent from all parts. That is why there were many murmurings when, this year, the 2 per cent. was clawed back.

I should make it clear that it is not only unemployment benefit that is suffering a shortfall of 2 per cent. compared with inflation. We debated this subject on 3 December. The Under-Secretary of State made it clear that other benefits would suffer a 2 per cent. cut. It may be interesting for hon. Members to hear about the type of benefit that will not be uprated in line with inflation. Long-term supplementary allowances will not be uprated in line with inflation. Thus those in dire need will be compensated differently according to whether they are of pensionable age. During the Adjournment debate the Under-Secretary of State held out the hope that that would be reconsidered. Has that reconsideration led to any change of heart? Sickness benefit will also be subject to a cut in real value of 2 per cent.

There is also injury benefit, maternity benefit, child benefit and family income supplement. The Secretary of State has claimed the credit for the earlier increase in family income supplement in real terms. But he omitted to say, when he was dealing with the amendment, that the family income supplement now suffers by being compensated by 2 per cent. less than the expected rate of inflation for this year. Finally there is the mobility allowance, one of the jewels that he claimed, but which only compensates this year for 10 per cent. inflation instead of the full 12 per cent. of inflation.

My hon. Friend the Member for Stockport, North (Mr. Bennett) reminded the Secretary of State of press reports that have come with a suspicious consistency. They claim that the Government Chief Whip has been trying to earn his salary by assuring the dissidents that the Government will not proceed with the clawing back of the 2 per cent. By convention, the Chief Whip is silent in the House, so we do not know how soothing his syrup can be. The Opposition want to be soothed and assured, and to have information as to whether the Goverment will proceed with the clawing back of the 2 per cent.

The Secretary of State said that if we waited for the Budget all would be revealed. This merely makes the Opposition suspicious because that statement will add to the misconceptions that clearly exist in some parts of the press and on the Government Benches. The Government rebels, or dissidents, clearly believe that they will have a legislative opportunity to register their protest against this cut. However, I have news for them—they will not. The Government's cut of 2 per cent. does not need primary legislation, and when the orders come before the House the effect of voting against the failure to uprate by the full amount of inflation will also mean voting against the uprating by 10 per cent. Therefore, it will be extremely difficult for the dissidents to fight in that way.

In practice, the Government will allow no legislative opportunity for the rebels to register their dissent. Unless the Opposition can manufacture an opportunity, there will be no chance for the dissidents to show the passion that they showed in the economic debate last week by voting against the Government. We promise that when the Social Security and Housing Benefits Bill is debated on the Floor of the House on Report, and in the absence of a firm undertaking by the Government, either today, or before that stage is reached that they will fully uprate all the benefits that I have mentioned, we shall create such an opportunity for the dissidents. We shall then expect the fine words of the right hon. Members for Sidcup (Mr. Heath), Chesham and Amersham (Sir I. Gilmour) and Chelmsford (Mr. St. John-Stevas) to be turned into votes. We shall expect Tory agonising to turn into Tory activity, because otherwise they will once more confess themselves, however agony-ridden, to be the captives of the monetarist doctrine which besets this Government.

The debate is not an arid swapping of statistics, nor is it an academic exchange of obscurities. It is a matter that vitally affects the living standards of many millions of people, many of whom are among the poorest sections of our community. The Chancellor of the Exchequer has increased the burden on employed persons and cut the benefits of those receiving them. He has betrayed those whose care he has held in trust. For these acts of political vandalism we ask the House to support the Opposition and to deny this squalid Bill a Second Reading.

5.45 pm

Sir Brandon Rhys Williams (Kensington)

I shall begin by congratulating the Member of Parliament in whose constituency lies my permanent address—the hon. Member for Pontypridd (Mr. John) — on his first major contribution on this fascinating subject. He has made a good start and, as I told him when I first congratulated him on his new responsibilities, this is a subject that grows in fascination, and those who really take an interest in it are never able to leave it. I look forward to listening to him on many occasions in the future. I believe that he will enlighten the House more and more as he goes deeper and deeper into the principles of our wretched national insurance system that is so desperately in need of reform.

The Bill appears to be a modest measure of only five clauses and two schedules; but it is a Bill that affects tens of millions of people and aims to bring about transfers of hundreds of millions of pounds a year. Therefore, Parliament ought to ask the big questions affecting the policy of the Government on the Welfare State and I hope that the Department will reply to the big questions, if not tonight, then sooner rather than later.

I have often asked the question, when dealing with the distribution of income—who is paying what, to whom and why? I have put that question so often in this House and outside that I begin to feel that one has to operate on the Jericho principle when dealing with questions of national insurance—if one goes round and round the subject often enough the obstacles will all disappear; but I am sure that those besieging Jericho would have given up long before this if they had gone round and round the subject as often as I and other hon. Members.

I should like to mention the general policy of the Treasury's accounting methods. Having had some opportunities of looking into the ways that other national Governments and international institutions handle their accounts, I feel all the more disposed to question the way that our own Treasury deals with our accounts. I should like to see a perfectly plain, straightforward and comprehensible statement of the current account of the nation; an entirely separate but also transparently clear statement of the capital account; and an absolutely clear statement of the transfer account.

All too often, people slip into the way of saying that the Government spend a great deal of money on pensions or child benefit. But the Government do not spend any of that money—the pensioners spend their pensions and the child benefit is spent by the mothers. It is not the Government who have the responsibility for spending the money; they are simply responsible for organising the transfer of income between one set of citizens and another. It ought not to be regarded a part of Government expenditure when an increase in child benefit or pensions takes place. It is merely an extension of Government activity, which ought to be kept entirely separate from the current account and the capital account of the nation. The Government Actuary's analysis of the national insurance fund is an inextricable mixture of taxes, contributions, borrowing and the build-up and the rundown of funds without any apparent guiding principle. As each year goes by, the National Insurance system gets worse and more inscrutably dark, complex and unpopular.

Next, I would like to look at the relationship of the Bill to the economic policy of the Government. Are we trying to reflate or deflate the economy through the withdrawal or release of purchasing power? The Bill has the aim of diminishing the purchasing power of workers, no doubt to enable the Government to increase the purchasing power of certain other categories in need.

Should the national insurance budget balance? Should the whole budget of the economy balance at a time such as this? Should we be taking more money from the workers when the economy is so flat? In times when we were dominated by Keynesian thinking, it used to be thought that raising taxes—or reducing the spending power of the workers by some other means such as increasing their national insurance contributions—would tend to make unemployment worse. Now that we make a more sophisticated analysis, I am bound to say that I think that the Government are not wrong in the measure of increased contributions that they are introducing in the Bill, because in the context of their economic policy we ought to be tilting the balance of the economy away from current consumption and in favour of investment. But that is almost as far as I can go in favour of the Bill as it stands, because there is so much to be done and the Bill makes such a limited beginning.

I agree that a rise in contributions or in taxes is right at this moment, and that it is right to avoid financing current spending by borrowing capital and crowding out investment, which can be shown to have happened last year—I hope for the last time.

What are the principles of the national insurance scheme, now that it has been changed so very much from what it was when Parliament set it up before the First World War? When it was first introduced, the Lloyd George concept was of a national scheme based on actuarial principles such as would be followed by any prudent company in the private sector. That was the aim, but even from the very start it was not achieved, because there had to be a Treasury contribution in order to make it sufficiently popular to be acceptable to the voters. Since that time we have drifted so far that I do not believe that there is anyone who can now expound the principles on which the national insurance scheme is being run.

I will put a simple question. If contributions go up, do benefits also go up, or do they remain the same? Or is it even possible that contributions could go up at the same time as benefits actually fall? It would seem that in some respects the Government have it in mind that contributions should go up and benefits fall simultaneously, and that is bound to cause the House to ask questions. I cannot help feeling that the contributor to the national insurance system has now got into a squirrel cage—so that the faster he goes, the more he remains where he was. The higher his contributions, the more quickly he sinks to the bottom.

What is the relationship between earnings-related contributions and flat rate benefit? I agreed at the time—and I am sure that it was right—that contributions had to be put on an earnings-related basis, because the farce of relying on flat rate, poll tax contributions to pay for the Welfare State was obviously unable to be sustained any longer. But once we have moved on to earrings-related contributions and flat rate benefits, what is the citizen's right? What can he claim from the insurance fund, and what does he have to give towards it out of his income?

At this point, if I had time, I should have liked to dwell on the question whether the national insurance fund is a real fund or purely notional, and whether it would be more advisable to adopt the Continental principle of re-partition rather than continuing with the idea that somewhere in the national insurance fund there are real assets that have been built up through contributions and which are available to meet the national need.

I want to return in a moment to the reality or otherwise of the national insurance fund, but clearly we must establish what is the basis of the entitlement to benefit that the contributor builds up in the course of his years of contributions.

I have often tried to analyse the source of entitlement to benefit under the Welfare State, and I think it is obvious that there are three different methods of assessment. One is on the record of contributions, one is on the basis of citizenship, and one is through the establishment of need.

Since we have gone over to earnings-related contributions and flat rate benefits, the earnings-related aspect of the contribution relates only to the second pension. The Government have done away with the earnings-related element in unemployment benefit and other short-term benefits, so what we have is simply a tax on income that does not directly confer a different entitlement to benefit on the member of the scheme, whether he has a high or a low income, whether he has a long and unbroken contribution record or whether it is patchy and inadequate. In looking at national insurance as a system for financing citizenship benefits, it is obvious that what comes through at this point is the old principle "From each according to his capacity, to each according to his need". I have never quarrelled with that principle, which is now the principle on which the national insurance fund seems to be founded.

We have then to ask why the citizen's duty to contribute to society suddenly comes to an end at £220 a week, when as a taxpayer he goes on having to pay more beyond that point. Where does the figure of £220 come from? Do we find it in the Koran, or is it simply an artificial level that has been dreamed up because a certain amount of money has to be produced in the immediate future and that is a convenient round figure to adopt for some reason?

Using the maxim "From each according to his capacity"—up to £220 a week—"to each according to his need", how do we then go on to define need? Is our concept of need absolute? Do we have a perfectly clear concept of the minimum standard of living that we regard as the basis for our income support policy, or is our standard of what constitutes the minimum sufficient income for the citizen something rather transitory and related to the general standards of society from time to time? After all, there are many people in this country who feel that they could not possibly be living at a lower standard than they are, yet in Naples their standard of living would be regarded as comparative affluence, in a country where, unhappily, much lower standards are regarded as the normal thing.

If we are to have two standards of basic need when we are assessing uprating—that is to say, where we establish the national insurance minimum income and where we set the supplementary benefit minimum income—we are entitled to expect from the Secretary of State a much clearer statement of what he thinks is the absolute concept of need and where we are going with it in the future.

There are many reforms that I should like to recommend in the national insurance scheme that ought to be put in hand. The question of uprating has occupied the House a good deal in the last few months. The fund has to pay for it with the added contributions for which we are asked to vote tonight. As I understand the position, child benefit has been increased by less, since the last general election, than the rise in the general level of prices, and by some percentage less even than the rise in the gross national product, so we are definitely taking benefit away from the children at this time. I wonder whether that is a sensible policy, bearing in mind the pressure for higher wages that inevitably results from the fact that people with more mouths to feed become more desperate during times of inflation, and more insistent on an increase in their wages. If they were helped through child benefit, we would have a selective method of raising wages, and the advantage would go to the people with the biggest real requirement for income.

Pensions meantime have risen more than the gross national product. That is because the Government are trying to honour a pledge to keep pensioners' incomes level with prices. Obviously, we must honour that pledge until the election, but I believe that pensioners would do better in the long run if the uprating of the national insurance pension were related to the changes in the gross national product rather than to the cost of living. Our optimism tells us that over a period of time the standard of life of the whole country will rise, but if we stick to the principle that pension upratings are based only on changes in the cost of living index, the pensioners will ultimately be left behind.

Will my right hon. Friend also give a fuller explanation in due course of precisely what he sees to be the role of the Treasury contribution? When I first started making speeches on this subject, the contribution was 18 per cent. or possibly more. It is now 14½ per cent. and the Bill will reduce it to 13 per cent. Where do we find that 13 per cent. written in our consciences? What exactly is that 13 per cent. doing? Where does it come from? If we set national insurance on the basis of impeccable rectitude and complete translucency, I am not certain where that 13 per cent. will fit in.

I should like to end the farce of the national insurance fund altogether. It has lasted long enough, outlived its usefulness and become an inscrutably complex, unhappy and unfair organisation for the redistribution of income on principle which nobody understands or accepts. We should establish a transfer income account in the national budget and do entirely away with the national insurance fund. I would go further than that and reform the whole redistribution-of-income industry by putting the Inland Revenue and the cash side of the DHSS into a single transfer income department. The numbers engaged in the transfer-of-income industry have grown to 160,000 or 180,000 of every 200,000. It is not a happy industry; it is miserably under-equipped, terribly obsolete in its methods, grossly overmanned and desperately in need of reform. I hope that my right hon. Friend will prove to be the administrative genius who will take the redistribution-of-income industry and put it on a thoroughly modern and acceptable basis.

Taking a further look at the rationalisation of administration, we should amalgamate the income tax allowances with the cash benefits payable in the absence of, or in support of, income. I have called for that many times and we have made limited progress in that direction, but that progress has obviously been brought to a halt.

We should provide a minimum income guarantee as an automatic citizenship benefit. The computer is ready and to hand, able to deal automatically with vast arrays of information; it is ridiculous that we should still go on with the rigmarole of the national insurance benefits, supplementary benefit assessments, local authority allowances, tax allowances and all the other methods by which we ensure that citizens enjoy a minimum income guarantee. That job ought to be done in a modern way and I hope that the Government will not boggle at the reforms that are so urgently needed.

We should also integrate the income tax and national insurance contributions in a single universal income-related tax. We should end the farce of the Chancellor coming to Parliament with a Budget with changes in income tax in April, and later in the year requiring changes in national insurance contributions, that are collected through the same mechanism as the income tax. How much longer can that idiotic survival remain part of the regular annual routine?

We have already made some progress. We have amalgamated the child tax and family allowances in a single child benefit. We made the second great step forward in recent months—and I congratulate the Government—by introducing the concept of unified housing allowances. That was the necessary next step and I am glad that they took it. However, we still have a long way to go if we are to rationalise all the housing subsidies. That is another urgent job.

We should devolve to local authorities the attention to case work that is handled through the DHSS local offices. When the DHSS last published a year book—in 1977—I recall that the Department had about 1,000 offices throughout the country, full of dedicated and earnest people doing their best with an absolutely obsolete system. At the same time, local authorities had offices dealing with housing matters and subsidies and benefits in kind, and people were available to help in personal and family crises. For the life of me, I cannot understand why we still have DHSS offices supplementing and duplicating the work being done by local authorities.

In the assessment of supplementary benefits in very many cases the only reason why applicants need to apply for supplementary benefit on top of other income is because of their rents. It is because rents vary so much from one part of the country to another that a minimum income guarantee across the board is not adequate in many cases. We have made a start on the unification of the housing allowances and by so doing we have transferred to local authorities much of the responsibility for the case work and individual attention that must be given to those who fall to the bottom of the income scale. We should now put that whole function on a rational basis and proceed to wind up the 1,000 local offices of the DHSS.

I have put some points to my right hon. Friend, that I particularly wanted to make, but I have not dealt with the redundancy fund and the relationship I see developing between payments on redundancy and the transfer payments due to those who move from one pension fund to another in the course of their employment. My right hon. Friend may revert to that subject in due course, although it certainly arises under the Bill. If my right hon. Friend is not disposed to answer all the arguments today, I nevertheless hope that he will turn his mind to them and make it a major preoccupation of his Department to introduce reforms on the lines that I have recommended. I hope we shall see them introduced before the next election.

6.6 pm

Mr. David Ennals (Norwich, North)

I have great respect for the hon. Member for Kensington (Sir B. Rhys Williams), but also a sort of deep sympathy. He always puts the big questions, but he never gets the big answers. He was never satisfied with the answers that I gave to him, and I suspect that he will not be satisfied with the Chief Secretary's reply.

However, I welcome the fact that the Chief Secretary will reply to the debate because this is clearly a Treasury Bill. It is said that the Bill is presented by Mr. Secretary Fowler and supported by Mr. Chancellor of the Exchequer, but it was sponsored, backed, initiated and everything except presented as a Treasury measure. It is the first measure to give effect to the Chancellor's wretched inflationary and deflationary—I agree with the hon. Member for Kensington that it was a deflationary package—mini-Budget on 2 December.

The Chancellor's package bears all the hallmarks of a Government who have got the economy into an appalling state and have neither the wit nor the imagination to provide a remedy by reflating the economy and creating real jobs. All that the Government can do is pile an ever heavier burden on the hard-pressed workers, struggling as they are to keep their jobs, as they see their mates losing theirs, and resisting steadily falling living standards.

We must understand that the effect of the package on working people is a new deduction from their pay packets of £1 a week on average, although that figure is much more for others. We must consider that, together with a whole range of other burdens imposed by the Chancellor on 2 December.

First, workers face a sharp rise in rates. The Government's further cut in the rate support grant has reduced their expenditure from 59 to 56 per cent. and that will mean a rent increase on average of about £2.05 per person. We see the Government, step by step, contracting out of the tax-bearing burden, not only as regards national insurance in the Bill, but in relation to local government. Secondly, we see a further increase of 30 per cent. in prescription charges that bears no relation even to the high rate of inflation that the Government have been unable to check. The increase to £1.30 will have a serious effect on many of those who do not qualify for exemption but who suffer sickness and who will often have to make the choice of the prescriptions that they will accept.

The Prime Minister denied only recently in the House that she had given a pledge at the last election not to increase prescription charges. It is true that she did not make a pledge that she would not increase prescription charges. All she stated was that she had no plans to increase prescription charges. Other people, of course, did have plans, but the Prime Minister did not. If her first name is TINA then I suppose that NPTDI—if she has "no plans to do it"-must be her second. I am sure that the Prime Minister did not have plans to raise unemployment to 3 million. I am certain that she did not have plans to ensure that the inflation rate throughout the first two and a half years of the Government's period in office remained above the level that she inherited. She did not plan for those things, but they have happened.

The Prime Minister certainly did give a pledge that the National Health Service would be protected. But that is hardly true either. The Treasury has cut its expenditure on the National Health Service and has forced the Secretary of State to recoup the losses, first, by the increase in prescription charges and, secondly, by the increase in national insurance contributions in the Bill to pay for the National Health Service. The Secretary of State knows that he would have had to make cuts in the National Health Service if he had not found another way to place the burden on the backs of people who can ill afford to bear it.

Another example of the fact that it is a Treasury Bill is the cut to 13 per cent. in the long-standing Treasury grant to the national insurance fund, a cut which is worth a £261 million increase in revenue immediately to the Treasury. That is the benefit that the Government Actuary says will come from the Bill. There has been a steady erosion of the Treasury supplement from the 18 per cent. that existed under previous Governments, including the Conservatives. I agree with the hon. Member for Kensington that there is nothing sacrosanct about 18 per cent. There is, however, a great difference between 18 per cent, and 13 per cent. Next year, it may be 12 per cent.

If the argument used by the Secretary of State has any validity, the more the Government pay in non-contributory benefits the less they will contribute to the national insurance fund. Unless there is to be a cut in supplementary benefits—a step that hon. Members inevitably fear—there will obviously be a higher supplementary benefit bill. This process will be continued as unemployment increases and as more pensioners come to depend on supplementary benefits because their level of income does not keep pace with inflation.

The Secretary of State argued that the Government were price-protecting the pensioner. I invite the right hon. Gentleman to tell any pensioner this year that he is being price-protected. They are not. They receive a benefit from last month that is roughly 3 per cent. less than the inflation rate. The assurance given to pensioners that, at some stage in the future, the 3 per cent. will be made up to them may be reassuring. It does not actually pay for the daily food. It does not help to pay the bills. During the next 12 months, whatever the Government may do in November, the standard of living of pensioners will inevitably decrease by roughly 3 per cent.

The Secretary of State has shown himself to be even more responsive to the pressures of the Treasury than his predecessor. Time and again, I referred to his predecessor as still being a Treasury Minister. I suppose that the Secretary of State for Social Services must be a budding Treasury Minister. The right hon. Gentleman must have ambitions. Why anyone should have ambitions to go to the Treasury I cannot imagine. However, his behaviour so far suggests that this is the destination that lurks in his mind.

What does the Bill mean to ordinary working people? It pushes up the deductions from the pay packet to the highest level ever at a time when people's standard of living is being steadily eroded and when they are expected to accept pay settlements way below the level of inflation. It is recognised that unemployment is still on an upward trend. An additional 300,000 was, I believe, the figure anticipated by the Chancellor of the Exchequer. On that basis, the Government Actuary makes his assumptions about adult unemployment. That figure represents a further 10 per cent. increase.

The Government Actuary is working on the basis of an increase of 5,000 in unemployed school leavers and students where the number is already at an horrific level. Whether he made his assumptions with any knowledge of Government plans I do not know, but those were the assumptions in his report. It is a reminder that those still lucky enough to be at work have to pay more in order that next November there will be some compensation to pensioners and other national insurance beneficiaries who received a rise last month, if reckoned against the retail price index, that was about 3 per cent. less than the rate of inflation. The rise was 5 per cent. less than the rate of inflation if one uses the tax and price index. Since that index was introduced by the Government as a fairer method of determining people's real income in relation to taxation and prices, that is the figure, I suppose, on which the Government should be judged. It is the figure that I shall use.

The level of taxation on the average population of Britain has never been higher under any Government at any time in spite of the Government's election pledges. The only people to receive some benefit from tax reduction promises made at the time of the election have been those on high incomes.

The hon. Member for Kensington is right to inquire about this magic figure of £11,000. I suppose it is roughly the magic figure above which the higher paid would start to see the tax benefits that they have already received eaten into if they were asked to pay more than the percentage that everyone else pays. There exists here a source of additional income. If the upper level were set at £20,000 or £25,000, instead of £11,000, that would produce substantially more income from people who can afford to pay. I hope that the Minister who is to reply sees that this would be fair. I hope very much that my hon. Friend the Member for Pontypridd (Mr. John) and other hon. Members will press strongly in Committee that this upper figure should not remain as it is. I am glad that this matter has been included in the motion to which I shall be glad later to give my vote.

6.20 pm

Mr. Andrew F. Bennett (Stockport, North)

I hope that my right hon. Friend the Member for Norwich, North (Mr. Ennals) will be present for the Committee stage, which is to take place in the House on Thursday. It would be a big advantage to have him with us on that occasion.

Mr. Ennals

I shall be here.

Mr. Bennett

Measured by any standards, the Bill is appalling. It will be interesting to reflect at the end of the debate whether anyone, apart from the Minister who introduced it and the Minister who is to reply, actually speaks in favour of the Bill. I suspect that no one else will do so, and that it will be only the Ministers on the payroll vote who will put forward a case.

Even judged by the Government's central aim, the Bill is a total disaster. We heard from the Dispatch Box earlier today that the Government's main aim is to conquer inflation. If that is their central target, why do they impose an extra 1 per cent. tax on everyone earning between £29 and £220? That increase of 1 per cent. is one of the first ways of guaranteeing that people will want extra wage increases to meet it. Therefore, it is the Government who are busily fuelling inflation. They have set out with this measure to defeat their own programme.

It might be possible to argue that people ought to pay more in contributions if they were to get more in benefits, but it is absolutely clear that this increase will not produce more benefits. It is coupled with a major cut in benefits. For the Government to claim that their central objective is to conquer inflation and then to add an extra 1 per cent. to the payroll tax, is asking people to press for higher wage increases, to put up costs generally, and to defeat the central aim of the Government's policy.

The Bill is called a social security measure, but does it increase security? It does not. It is asking people to pay more so that wage earners have a little less security and, in fact, it will give beneficiaries less. Therefore, it clearly gives less security to most groups of people who are at present dependent on benefits.

The Bill is also considered to be an insurance measure. Over the last three or four years we have seen the total farce of the whole question of national insurance. There is no insurance principle left in the scheme.

It is a straightforward taxation measure. Any pretence that there is insurance disappears when one considers the way in which the Government feel that they can vary the level of benefits at will.

Moreover, the Bill does not even qualify as an insurance measure through its effect on individuals. I shall refer later to several of my constituents because that might have an impact on the Ministers when quoting figures does not. One of my constituents who came to see me has been unemployed for 12 months and is at the level where he has to depend on social security. However, he is unable to draw social security because his wife earns 20p above the level where they would qualify for social security. So he receives no benefit at all.

This man has not had a day off work since this scheme was introduced in 1947 until he was made unemployed 12 months ago. He was in work, luckily had good health, and although made redundant several times in that period, he always managed to go from one job finishing on the Friday to a new job on the Monday. He may have been lucky. In the whole of that time he had no time off until he was made redundant. He has now had 12 months' benefit and exhausted his entitlement.

My constituent has a brother who works in the building trade. That brother, over about the same 33 years, has averaged five weeks off each year, mainly because of the problems that exist in the building trade—the difficulty of working in the winter—but also because he has had several major illnesses. The brother has had 150 weeks off work over that period and if he is out of work again now he is entitled to another 52 weeks. That is roughly 200 weeks of benefit over his working life, yet his brother, having had only 52 weeks, exhausts his entitlement.

Both brothers have probably contributed roughly the same amount, but one brother during his lifetime has had merely a year of benefit and the other could have had almost four years of benefit from the scheme. What justice is there in that? What insurance principle is there over a lifetime, because the scheme is worked out on a basis of contributions over a 12-month period?

The credits for the earnings-related contribution were paid last year. The Government are abolishing the scheme in January. That will be a major cut for those people who are coming on to benefits. But was there any cut in the contributions? Of course not. So people were asked to contribute at the same rate on the basis that the earnings-related schemes would disappear. The Government have collected insurance contributions from people who in previous years would have been entitled to sickness, unemployment, injury, maternity or widow's allowance, all on the contributory principle. They have contributed to earnings-related benefits. Now it is said that they have gone.

Again, we have the farce that there are people who have contributed for 10 or 11 years to those benefits and they have enjoyed them some time in that period, but someone who so far has not required them but requires them from 1 January will find that they have disappeared. So, whereas one person may have benefited over the period of the scheme's 10 or 11 years, and may have benefited on many occasions from those benefits or a combination of them, if a person wants to benefit in the eleventh year, he will get no benefit because the Government have decided to abolish them.

Again, that is an illustration of the way in which the insurance principle has become a farce.

Another of the Government's cuts is that about which they have said "In logic, unemployment benefit and sickness benefit ought to be taxed", and then they have said "It is far too complicated administratively to do so, so we shall cut everyone's benefit by 5 per cent. and that will he rough justice."

For those who are sick only occasionally and those unemployed for only short periods, there may be rough justice in it, but anyone who is out of work or sick for long periods will lose as a result of the measure.

The Government gave undertakings when they introduced this measure that they would make good the loss—although so far they have not given a clear announcement that the 5 per cent. will be made good—once they had introduced measures that would allow them to tax sickness benefit or unemployment benefit. So there is that 5 per cent. because the benefits have not risen and there is a 5 per cent. shortfall.

The Government say that they are looking at the question of making the shortfall good next November. But what is happening now? From the uprating on 20 November last we have now had three weeks during which people have got 2 per cent. less benefit than they needed to keep pace with inflation. Some of them will be back in work or on to other benefits by the end of this year. For them there will be no making good the shortfall. However one interprets the Government's words, those people have lost about a week's benefit if they have been receiving it for 12 months—or 2 per cent.

It does not matter whether one listens to the Government Chief Whip saying "It will be made good for all benefits next November", or to Ministers who are saying "No, it will not be made good, unless, perhaps, in the Budget, and then only for some benefits". Those on sickness benefit and unemployment benefit are losing 2 per cent. now.

The same applies to pensions. Pensioners are losing 2 per cent. In his introduction the Minister proudly said that we are now spending £13½ billion on pensions, but he has cut them by 2 per cent. for this year. It is all right him saying that he will make this good in the future, but many pensioners will die during the period. They will never see their pensions restored. We cannot put the money back into their pockets. The Chancellor is not talking about doing that. He is simply saying "We shall bring the benefit back to the level that it ought to be next November". There is no talk of giving any money back.

We can also consider the way in which the Government changed the rules of the national insurance scheme for the linking of benefits. The period was cut from 13 weeks to eight weeks, which saved the Government £10 million. The Government did not offer a cut in contributions because of that. The Government also changed the supplementary benefit rules for redundancy payments. if someone receives more than £2,000 that is taken into account when calculating his social security payments. That is another area in which the Government have changed the rules and saved a considerable amount of money.

The position is that we must pay more and receive less for it. Why is that necessary? It is because the Government are steadily changing the rules. We could argue strongly that there should be cuts in contributions in some areas. During the past two years, fewer people have qualified for sickness benefit. It appears that, because of high unemployment, fewer people are working and those with the poorest health record, such as the elderly, have been pushed out. That should have been a saving to the Government and should be a justification for cutting back the contributions. There is also the built-in inflation factor. As wages go up, contributions go up because they are on a percentage basis. There should have been an increase in most of the figures because of inflation and also in the upper limit, if that can be justified.

The Government have some problems. There are areas of greater expenses and more pensions. That should have been foreseen and if we had a true insurance principle it would have been taken into account over a longer period. There are also far more people unemployed. That is a result of Government policy, so the Government should contribute and not demand more money from those who are in work.

We could have found a group of people to compensate for that. The Government could have received more money from those just coming on to the pay roll. There is a bulge of youngsters leaving school now and coming on to the labour market. If the Government had found jobs for that group they would be making national insurance contributions and helping to balance the fund.

I wish to put a specific question to the Minister about the statement made this afternoon. What will be the position of all those who participate in the new youth training programmes? Will their national insurance contributions be credited to them? What is the position about those on the youth opportunities programmes? Their income is below the lower limit and they do not make a contribution. There is considerable confusion about whether their contributions should be credited to them. If they are, that will affect their future entitlement to sickness and unemployment benefits. Sadly, because some young people are out of work for long periods, it may well begin to affect their entitlement to retirement pensions.

The Government should be able to tell us whether young people in the youth opportunities programmes and the proposed training schemes will have their national insurance contributions credited, as is the case with some students, or whether they will be short of some contributions. If the Government wish to maintain the national insurance principle, those young people are entitled to have their contributions made up.

The Government are also demanding that a larger part of the national insurance contribution should go to the National Health Service. That is a straightforward taxation measure. The Government are saying that there is more justice in national insurance contributions than in the general tax system. Everyone accepts that national insurance contributions are much more regressive than income tax. Yet the Government are saying that they wish to switch the system of tax from a progressive to a more regressive form. That is again an indictment of the Government.

It is odd that those on low incomes find that, as a result of the poll tax of national insurance and income tax, they have deducted from their wage packets almost as much as they may get back in family income supplement. It is crazy that the Government should deduct money in the form of national insurance and then say that if someone completes the complicated procedure of filling up forms he can get it back in the form of family income supplement. The Government should consider the low tax threshold. This measure makes the low tax threshold rather worse.

Turning to the question of the low paid, I have mixed views about the Government's proposals to raise the lower limit from £27 to £29.50. If one is earning only £27, at first sight it seems attractive if one can save on national insurance contributions. However, as long as we have the national insurance principle, those people will lose benefits. As the figure has yo-yoed, people contribute for some time and then find that they do not contribute. Instead of receiving benefits based on half a year's contributions, they receive nothing, because they do not have enough contributions in any one year.

The position at the moment is that someone who earns just over £27 pays national insurance contributions. When the Government raise the limit, they will no longer pay contributions. They may then receive a wage rise and begin to contribute again. If they pay contributions for less than half a year they receive no benefit because they do not have enough contributions to qualify under the test. That is a farcical situation.

I realise that there are difficulties, but if the Government raise the limit they should at least consider a system of crediting those people who do not pay contributions by reducing the test period. It is a trap. It is mean to ask someone to pay tax of about £2.50 on a salary of £27 and say that it will be deducted for six months, but that the limit will then be changed and the person will not benefit from it.

I would wish to make many other points, but I turn now to the matter dealt with in the Opposition motion, which is essentially to criticise the Government for the shortfall in benefits announced this year. The Government should at least have said that they would do something about it. We have heard many figures quoted. I wish to give the Government one or two examples from my constituency. I shall call them poverty profiles. I admit that I have changed the names and one or two of the details, because it is unfair to those in such difficult circumstances to put the glare of publicity upon them. My examples illustrate the difficulties and I should have thought that Ministers, in their advice bureaux, will have seen such cases.

I refer first to Mrs. X. She was persuaded that she and her husband should buy their council house. They did so four years ago. The mortgage was carefully worked out by the local authority on the basis that the husband was then 54 years old and that it would be repaid during his working life. The capital repayments were set fairly high. No one would offer them life insurance to cover the mortgage. Sadly, last year, the lady's husband died and she was left with the mortgage. She no longer had his income to pay off the mortgage and depended on social security. Of course, social security will pay off the interest on the mortgage, but it will not pay anything on the capital. As it is a short mortgage, the lady has considerable capital payments to make.

Now she does not know what to do. She could try to sell her house, but as it is on a council estate it is not very popular. Also, because of the attractive discounts being offered at the moment by the Government, other council houses on the estate are being sold to sitting tenants for less than she needs to cover the repayments. She finds it almost impossible to sell. However, at the same time she finds it almost impossible to keep up the capital repayments, towards which social security makes no contribution. I am not suggesting that, had she had the additional 2 per cent. this year, it would have completely eased her problems. I am simply giving an example of the way in which people are caught in a trap from which they cannot escape.

That lady is but one example. She and her son spend less than £10 per week on food because she is trying to pay her mortgage. If she is forced to sell her home she will have to join the council house waiting list. She does not have enough money to buy another house. She will probably end up with one of the least attractive council properties.

Another constituent of mine has many problems. He can best be described as a little simple. He has a dog that he has looked after for a long time. Indeed, in a sense, the dog has looked after him. When walking round the streets he is picked on by children who tease and torment him. If he has his dog on a lead it discourages the children from being a nuisance. He has been in receipt of benefits for a long time, and gradually his debts have built up. He has been advised that the only way to solve his problems is to give up his dog, which would save him 50p or 60p a week on dog food. That may not be enough, but it would help to balance his budget. However, if he does so, he will be prey to all the kids who torment him. Had the Government raised benefits in November by 2 per cent. to keep level with inflation, he might have kept his dog.

There are many other examples, but I know that other hon. Members wish to speak so I shall not cite them. The Government's failure to uprate benefits by 2 per cent. in November is causing real hardship. Concern has been expressed on both sides of the House that that money must be put back next November. There should be equal concern that money should be provided this year for this set of benefits. It is not enough simply to uprate benefits next year.

6.42 pm

Mr. Mike Thomas (Newcastle upon Tyne, East)

We have not seen a rush of inordinate enthusiasm by Government Back Benchers to support the Bill. The hon. Member for Kensington (Sir B. Rhys Williams) made a sensitive, thoughtful and intelligent speech, and I agreed with many of his remarks. However, I could not discern much support for the Government, however tactfully he made his points. I also agreed with the points made by the right hon. Member for Norwich, North (Mr. Ennals) and the hon. Member for Stockport, North (Mr. Bennett). The paucity of support for the Bill has even led the Government to invent a new Member to sponsor it. I find myself in a slight procedural predicament as the new Member does not have a constituency and I must refer to him by name. I see from the back of the Bill that "Mr. Hugh Ross" has now joined the Government. No doubt the Government will continue to have difficulties in finding support for such measures.

The social security system does not do its job properly. It does not provide proper income support to those who need it. The Government have cut even the inadequate levels of support that existed in 1979. In the case of long-term benefits there has been not only the shortfall and delay in make-up, but the 5 per cent. abatement. For short-term benefits, the shortfall on inflation proofing will not be made up. It is not only that the level of benefits is too low. The Government and the system no longer provide for people to receive income support in a way that allows them to keep their self-respect. Many feel humiliation at the process and rigmarole of applying, establishing entitlement and receiving many social benefits. Successive Governments have done little to put that right.

One reason why we are debating the Bill today is that the idea of the national insurance fund and the contribution system, as laid down by Beveridge, should, in part, help with that problem. It should give people the feeling that they are contributing to benefits to which they are entitled. That has become so far from reality that it is farcical. Most individuals in our community believe the measures that we are discussing to be simply an additional taxation deduction from their pay packet. They do not perceive any insurance principle to which they are making a contribution. Indeed, they are puzzled when, at the age of 60 or 65, someone tells them that 3½p is being deducted from their pension because of a hole in their contribution record in, say, 1957.

The Under-Secretary is not present. In the debate last year she said that it was important that, even at low levels of earning, these people had the opportunity, with those low levels of earnings, to be contributing."—[Official Report, 11 December 1980; Vol. 995, c. 1681.] She said that that was a major principle of the Social Security Pensions Act 1975. That is arrant nonsense. Neither the House nor the Government should perpetuate that any longer.

It is clear that the financing system for our social security and pension benefits make the whole arrangement infinitely worse. We must consider certain facts about the income taxation of the lower paid. The income tax threshold is now 38 per cent. of the average wage, whereas it was 45 per cent. in 1978. The last Budget put 1¼ million low-paid workers into liability for tax. The numbers caught in the poverty trap are 40 per cent. higher than they were in 1979. It is not good enough to have a Bill and arrangements for collecting revenue that will make the impact of all that on the lower paid even worse. The facts do not need to be quoted. They have been charted accurately in the Chancellor's reply to the hon. Member for Blackburn (Mr. Straw), by the low pay unit, the Child Poverty Action Group and other organisations. The right hon. Member for Norwich, North was right to say that the Bill is a mini-Finance Bill raising taxation through what is probably the most regressive form of taxation in the British taxation system.

I wish to say a few words about the approach of the Social Democratic Party to these matters. We must do what successive Governments and the two old parties have ducked for so long, and that is to consider the questions of poverty, social security, pensions and taxation together. We shall have to find other forms of taxation that will raise more fairly the revenue required for the State component of benefits. We must also consider the appalling gaps on the pension front created by the present system between employees in the public sector and the private sector and between those contracted out into occupational schemes and those dependent on the State scheme.

The Social Democratic Party believes that the Social Security Pensions Act 1975 should not be regarded as the final word. It needs careful review. Any analysis of the provisions in the Bill will show ample evidence for that.

Mr. Andrew F. Bennett

The hon. Gentleman is making an interesting speech. He said that his party would look for new forms of taxation. That sounds attractive, but what new forms are there? Everyone involved in politics would love to find a new form of taxation that had no objectors to it.

Mr. Thomas

The hon. Gentleman is right. No taxation will have a complete absence of objectors, certainly not among those required to pay it. I thought that I detected in his speech some agreement with me that even to raise the revenue through progressive income tax might be better than to raise it by the crude, arbitrary, semi-flat rate basis that we are debating today.

Mr. Andrew F. Bennett

I agree that that is income tax, but it is not a new form of taxation. Indeed, it is a traditional form.

Mr. Thomas

I beg the hon. Gentleman's pardon. I readily agree with him. My rhetoric and the inclusion of "new" may have carried me away. But it would be a new form of raising revenue for this part of public expenditure and it might be a better form of so doing. I am glad to see that the hon. Gentleman agrees with me. There are new forms of taxation that we should consider such as a sales tax.

My right hon. and hon. Friends will vote against the Bill. That is because the proposals before us are part of the Government's game of "Find the Lady." The Bill appears to make provision on the public expenditure front to satisfy the Government's Back Bench rebels—those whom the hon. Member for Pontypridd (Mr. John) referred to as the "dissidents"—although it will take more than it gives. Therefore, the net effect of the Chancellor's proposals will in the end be deflationary.

As the right hon. Member for Norwich, North (Mr. Ennals) said, this is a Treasury Bill that in reality has only a Treasury purpose. Even the Secretary of State could not find a way of moving the Second Reading convincingly without falling back on the shibboleth of the public sector borrowing requirement. The technical arguments that will be conducted today and on Thursday will no doubt have their value. I have no doubt that hon. Members on both sides of the House will seek to reduce the impact of the Bill on the lower paid, and we shall support them, but I hope that occasionally they will try to see the wood rather than the trees.

The Bill is a tax-gathering measure and it will gather tax from the wrong people, from the wrong places and for the wrong economic purpose. It is essentially a tax on jobs and it will help to create inflationary pressures. That is why the Social Democrats will oppose it.

6.52 pm

Mr. Ken Eastham (Manchester, Blackley)

The Bill is part of the long saga of cuts and tax increases. I support the Opposition's amendment, which states that the real value of many benefits is being cut. I have vivid memories of the Social Security (No. 2) Bill in Committee. It was subjected to lengthy consideration in Committee and the Opposition were busy for many sittings over several weeks in exposing the impact of the small print and the consequences of some of the shabby cuts that would confront the poorest and the most needy. The media were interested only in the small clause that was designed to cut down to size so-called strikers and their benefits. We had great difficulty in trying to convince the public of the extent of the damage that the Government wished to cause. We said that invalidity benefits and earnings-related benefits would be subjected to serious cuts.

It is right to remind the House that this is the International Year of Disabled People. By the end of the year serious cuts will be felt by all sections of the disabled. That was brought vividly to my attention last week when a group from the North-West came to Parliament to lobby on behalf of those who have been damaged by vaccine. It argued that real benefits had been cut by current legislation, including the £2,000 limit and the £10,000 grant. The grant means that if vaccine damage is certified and confirmed, the unfortunate individual will receive £10,000, but will be disqualified from receiving other benefits because he will be over the £2,000 limit that is part of the Social Security (No. 2) Act 1980.

At a recent constituency surgery I had a visit from a constituent who presented real and genuine problems. He said that he would not mind in the least if I quoted him as someone who is suffering continuing cuts. Mr. W. S. C. Sutherland of 12, Thurlby Avenue, Blackley was a fireman. He was seriously injured and he received an injury pension. Due to the £35 limit in the Act, he is suffering a cut-off limit, although unemployment benefit has been increased by 9 per cent. It is a shabby affair and it is difficult to convince him that he is suffering because of the measure which was introduced in 1980, which was designed to save a mere £25 million.

I undertook to raise this issue with the Minister. Mr. Sutherland argued that if other benefits have been increased by 9 per cent. it would not be unreasonable to increase the £35 limit, which if increased by 9 per cent. would mean a limit of £38.15. I tabled a question to the Secretary of State for Social Services on 14 December. It asked: if he will review the Social Security (No. 2) Act to take into account inflation; and if he will take steps to increase the £35 and £55 limits. The Under-Secretary of State replied: The provisions of the Social Security (No. 2) Act 1980 which have a continuing effect are kept under review, and inflation is one of the factors which are taken into account. We will bear the hon. Member's specific suggestions in mind in the course of preparing detailed proposals for the 1982 uprating, but final decisions will depend on economic circumstances at the time."—[Official Report, 14 December 1981; Vol. 15.] I am sure that Mr. Sutherland and thousands of other citizens feel that they are being cheated and are experiencing a reduction in their genuine purchasing power. It is not good enough for the Government to say that they will carry out a review in 1982 and bring the uprating in line with inflation, for example.

We are all politicians, and we understand that 1982 will be a magical year for the Government. In all probability, they will make a large handout in readiness for the oncoming general election. We should not be shocked or surprised at the motive for the delays which will continue for a year or 18 months before they are replaced by the so-called give-away. That will be a great display of generosity with which the Government will hope to win the day when they meet the electorate.

This is not satisfactory. We are being insulted by the Bill. In effect, we are being told that there will be further increases in taxation. At the same time there will be decreases in benefits across the board. Surely no Minister should place such proposals before the House. I hope that the Minister will review the position and acknowledge in all honesty that mistakes have been made. Of course, he may say that benefits have been reduced by design and the taxpayer must pay more and receive less. The Minister cannot justify tax increases for reduced benefits.

6.59 pm

Mr. David Penhaligon (Truro)

There have been several speeches about uprating benefits due to inflation.

I believe that for one reason or another—not always malicious—we have ended up with the worst of all options available for the uprating of benefits. Benefits are now uprated according to what the Government guess inflation will be in the next 12 months. I can think of nothing that one can predict with greater confidence than that the Government will always underestimate the likely rate of inflation.

The position is not entirely the present Government's fault. Until 1975, benefits were paid according to the rate of inflation over the previous 12 months. That was not always perfect for the pensioners of Britain in times of rising inflation, but fortunately what goes up tends to come down, so there was eventually a jackpot year. After several years of adjustments based on past inflation rates, when the current year's rate was even higher, inflation would suddenly drop. An increase in pensions based on the previous year's inflation rate therefore meant that pensioners could look forward to an increase in real terms.

Those who attended the debates in 1975 will recollect that the Labour Government suddenly decided that that was not a fair way to do things and that in future they would guess at the rate of increase of inflation and of prices for the following 12 months. At that time, I called it the greatest money-saving fiddle of all time. I do not know how much the saving is in today's finances, but it must have been £500 million or so. That was just one in a series of steps. The Government have a less than honourable record since then, as the prices element has now been pushed out and we must rely entirely on their guess at the rate of inflation for the next 12 months.

A better system of uprating pensions must be found, as the guess does not even cover just the next 12 months. When it is announced to the House, it relates to payments some 18 months away. Moreover, one suspects that the guess was made behind the scenes several weeks earlier. People's benefits therefore depend upon guesses which may be up to two years old. I doubt whether many hon. Members on either side of the House would like to guess at the rate of inflation next month, let alone in two years' time. It is a ridiculous system.

The Government clearly could have done something about the 2 per cent. shortfall this year. There is no reason why they should not have done so. Compared with the size of the British Budget or even the various predictions for the PSBR, the sum involved is not large. This is penny-pinching at the expense of those who can least afford it. If a last minute adjustment presents administrative difficulties, the Christmas bonus offers a way out—although I do not recommend it as a perfect solution—if we are to keep the insane system of trying to guess the inflation rate for the next 12 months.

I wish to make two further points—one specific to my own area, and the other of more general relevance. The hon. Member for Stockport, North (Mr. Bennett) made an interesting speech about how in the real world these matters actually affect people. I wish to bring to the attention of the House a matter specific to my area which is nevertheless an appalling scandal. Complaints about the loss of 2 per cent. in benefit bring a wry smile to the faces of some of my constituents, as they know that they will receive no benefit. I refer to those who make their living from what is now the largest industry in my part of the country—the tourist industry. It has been said that tourism provides 16 per cent. of the jobs in my county. Tourism, of course, is seasonal. Although the weather in my constituency has been considerably better than that in other parts of the country recently, I could not recommend it as a place to acquire a sun tan or to spend a weekend on the beach. We have not had much snow, but there have been 100 mph gales. When the weather is bad, the tourist industry scarcely exists.

People in my area who have worked for an employer in tourism for more than three years have no entitlement to any unemployment benefit whatever. By statute, they are compelled to pay their stamp. There is no rule which says that they need not pay it because they are doing seasonal work and there is no alternative work for them. They are simply told that they must pay the money but they will receive no benefit.

I cannot believe that there is no way to modify the various statutes so that areas such as mine are not penalised so much. I am sure that the Government accept that there is no other work, yet those people are severely penalised. When I put down questions seeking to ascertain the numbers involved, I have always achieved the marvellous response that it is "too expensive" to obtain the information—in other words, "Get lost". I do not know how many people are involved, but six people came to my surgery last week asking about the regulations. They could not believe that that was indeed the position. Unfortunately, with one exception in which I think that a mistake may have been made, I had to tell them that that was indeed how the rules operated. It is unfair, and I see no logical reason for it.

Moreover, people who have made their living from the tourist industry for more than three years must never in any circumstances save more than £2,000. If they succeed in doing so the only income to which they might be entitled during the winter months—supplementary benefit—will immediately be Lost. How can anybody ever afford to buy his own house or his own anything in a county such as mine if that is the situation? If I obtain no more from the Government today than a promise that they will at least write and tell me how many people are affected by the regulations, I shall greatly appreciate that, as will my constituents, because it will enable me to raise the matter on a rather better basis.

More generally, I wish to deal with the effects of the increase in national insurance contributions in tends of marginal rates of taxation. The Chief Secretary to the Treasury is present, so no doubt he will correct me if I am wrong. It is my recollection that when the Government came to power in May 1979 the national insurance contribution was 6.5 per cent. and the standard rate of income tax 33 per cent. Moreover, the first £750 of taxable income was taxed at a lower rate of 25 per cent. Since then the standard rate of tax has been reduced from 33 per cent. to 30 per cent., but under the Bill the national insurance contribution will rise from 6.5 per cent. to 8.75 per cent. On the face of it, the rate of taxation seems to have been reduced, in fulfilment of the Government's great election promises about tax reductions, from 39.5 per cent. to 38.75 per cent., although that is scarcely a reduction to celebrate from the rooftops.

The situation is worse than that, however. The first time that the Government reduced income tax, they abolished the £750 lower band. On the second occasion, they did not increase taxation thresholds at all. We have now reached the incredible position in which someone earning as little as £29 per week will face a marginal taxation rate of 38.75 per cent. on the next pound. I do not know whether any other country taxes at a marginal rate of almost 40 per cent. a person earning one-fifth of the national average wage. Not long ago people on the national average wage paid no income tax at all, although they paid national insurance contributions.

The Government are now planning deductions from single people who earn not significantly more than a fifth of the average national wage—in other words, about £30 a week. We are telling such people that Britain is in such a financial state that if they earn an extra £1 a week they must give 38¾ of those miserable 100 pennies to the Government to help them balance the books. I challenge the Minister to name any other Government who would dare tax anyone at those incredible rates. The fact is that 38¾ per cent. of any marginal increase in income must go to the State by one means or another. I shall vote against the Bill for that reason if for no other.

It would be ducking the issue to pretend other than that large sums of money can be raised, but I cannot believe that we need to tax people at anything like that rate. After all, many hon. Members would consider such a wage to be a "pocket money" income, but many people in my constituency work for £40 or £45 a week.

The way in which we uprate benefits is crazy. We would do better to revert to the inflation rates for the previous year. That at least would be understood and would avoid the 2 per cent. nonsense. I specifically ask the Minister to turn his attention to how the three-year rule for unemployment benefit operates in areas such as mine. I draw to the Government's attention the marginal rates of tax that are now applied to people earning as little as £30 a week. I cannot believe that the Government are unaware of that, and I cannot understand how they are prepared to justify it.

7.12 pm

Mr. Bob Cryer (Keighley)

I begin by commenting on the general nature of this regressive legislation, which, as the amendment says, puts an enormous burden on the employed. In so doing, it takes money out of the economy, thereby reducing the level of demand which will in turn increase the number of unemployed. In due time, the Government will have to bring forward further legislation to increase national insurance contributions to pay for the additional number of people on the dole that they will have created.

Since the Government came into office, the number of registered unemployed has risen to almost 3 million, but almost certainly a further 1 million people are not registered. Therefore, the Government ought to do something to avoid applying further taxation measures through national insurance contributions, because that is what is happening.

It is no good the Secretary of State arguing that this device has been used before. That is true, but the Government's tax concessions in 1979 were so generous to the well-off that that group is now in the best position in society. According to the Government Actuary's report, which accompanies the Bill, the upper earnings limit is fixed at between six-and-a-half and seven-and-a-half times the rate laid down in section 1 of the Social Security Pensions Act. Instead of bringing forward legislation to increase contributions, it is time that the Government recognised the gross inequalities that they have largely created and tried to remedy them by altering the 1975 Act at least to the extent that people in the top income brackets made a significantly greater contribution towards unemployment pay than they are doing at present. It is a demonstration of the Government's regressive attitude that so far they have failed to do so. Indeed, they have created a society in which the amount paid to the top 10 per cent. of income earners is equal to that paid to the bottom 50 per cent. The Government ought to try to eradicate that inequality, and this is the sort of legislation in which such action could be taken.

The motion points out that many benefits are already being cut. It says that the burdens upon the employed take place against a background of cuts in benefits. I refer the Minister to early-day motion 127, which sets out graphically and in a straightforward manner what the Government have already done.

I shall shortly comment in the Chancellor's recent announcement on which this legislation is based, but before doing so I should like to outline the background to the further cuts in benefits.

The Social Security (No. 2) Act reduced by 5 per cent. in real terms unemployment benefit, invalidity pension and other short-term national insurance benefits to save £140 million in a full year. Section 2 froze the earnings rule for retirement pensioners, which saved £16.5 million in a full year. Section 3 reduced the linking period for spells of unemployment and incapacity from 13 weeks to eight weeks, saving £10 million a year. Section 4 abolished the earnings-related supplement from January 1982, saving £360 million a year.

That is the sort of enormous burden that the Government are placing on people who are least able to bear it. If I recall correctly, according to the Government's own figures about 1,000 additional civil servants will have to be employed to cope with the supplementary benefit applications from people who no longer qualify for earning-related benefit because of the difficulties in which the Government have placed them.

Section 5 of the Act reduced unemployment benefit for certain occupational pensioners, saving £25 million in a full year. Section 6, the most controversial section dealing with supplementary benefit entitlement to strikers' families, saved approximately £13 million.

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

I hope that my hon. Friend will realise that, while the early-day motion detailed the cuts that he has just itemised, its general thrust was to attack the quality of the BBC programme "Yesterday in Parliament" and the quality of reporting in The Times and The Guardian, all of which referred only to the section dealing with supplementary benefit for strikers' families and did not mention any of the other cuts to which he has just referred.

Mr. Cryer

I wanted to give the background to the Bill and elaborate on the amendment to demonstrate that the Social Security (No. 2) Act was a vicious attack on the unemployed and other benefit recipients. As my hon. Friend said, it was treated by the media as though it was solely concerned with an attack on strikers' families. The Government were keen to do that, but they were also keen to attack the weakest in society who were least able to help themselves. The essence of the early-day motion is that the reporting was inacccurate, prejudiced and unbalanced.

The Government Actuary's report also referred to the increase in unemployment. As I said earlier, there will be further unemployment as a direct result of this legislation taking out expenditure from the economy and thereby reducing demand. Earlier today, the Prime Minister clutched at an increase in production of just over 1 per cent.—after this Government have decreased production over two years by more than 15 per cent. They have a long way to go to achieve the level of production that was operating in this country when they came to power in May 1979.

What will happen to the economy when the Government increase national insurance contributions? The increase is bound to deflate demand. On page 6 of the Government Actuary's report there is an estimate—which I believe is a woeful underestimate—of an increase in unemployment of 300,000. The Government Actuary is under the general instructions of the Government and as a result he says that there will be an increase in unemployment of 300,000 on average. That figure will probably be nearer 500,000 because of the Government's action.

Since the Government came into office, they have increased unemployment in my constituency by no less than 182.5 per cent. About 4,000 people in Keighley are chasing about 80 jobs. That is the Government's achievement and they are now introducing legislation that will compound the felony and make the prospect for job-hunting in Keighley worse, not better.

Mr. Reg Race (Wood Green)

May I divert my hon. Friend from job creation and job destruction in Keighley to appendix 3 of the actuary's report? My hon. Friend referred to the woeful underestimate of the increase in unemployment that the Government instructed the actuary to calculate for the coming financial year. Appendix 3 shows that unemployment benefit is to rise by only £13 million between one financial year and another. That strikes me as peculiar if there is to be a substantial increase in unemployment.

Mr. Cryer

That is an interesting comparison and I hope that the Minister will explain how the appendix ties in with the claim by the Government Actuary that there will be an increase in unemployment of 300,000. Perhaps the Government have plans for slashing unemployment benefit even further, which they have not released to us, but which they have discussed with the Government Actuary.

In Keighley, 4,000 people are chasing 80 vacancies, and Keighley is not the worst affected constituency in the country. Some constituencies are much worse off and the Government, with a smile on their face in the form of the Chief Secretary, are compounding the problem. We know that the Chief Secretary is not too concerned because he is a wealthy lawyer when he is not earning his money by cutting back on expenditure on the unemployed, pensioners, and so on. He has no cause for concern, but the vast majority of people in this country, and certainly hundreds of thousands of young people, do not know whether they will ever get a job. People in their fifties are particularly fearful because they know that if they are made redundant the chances of them getting a job are virtually nil. That is the tragedy that the Government have created, which they are now compounding by this legislation.

As I said earlier, this is a vicious spiral. The public sector borrowing requirement is so high because the Government are having to finance unemployment. Under this legislation they are seeking to finance unemployment by imposing a further tax that will reduce demand, create more unemployment and drive them back to the House with more legislation to finance the ever-growing dole queues. That is the vortex into which their mad economics has drawn them. The cost of unemployment in dole payments, supplementary benefits, the loss of direct taxation revenue and the loss of value added tax revenue is now running at about £12 billion a year. In those circumstances it is madness to bring forward this legislation. The Government should find other means of financing the dole queue in the short term, and they should alter their economic strategy so that the dole queues are decreased, the payments of unemployment benefit are decreased and tax revenue is increased. That is the only way to break through the spiral.

We must resist the Bill and tell the Government to look to alternative policies. For example, they should be injecting more money into the economy—between £6 billion and £10 billion at least. Instead, the Chancellor announced a further reduction of between 3 per cent. and 4 per cent. in the rate support grant, which will inevitably mean an increase in the rate levy if local authorities are to maintain services. If local authorities do not raise the rate levy they will be putting people on the dole queue and, if they do that, the Government will be back here all the sooner asking for a greater national insurance contribution to pay for the extra people on the dole. They should be giving local authorities more money.

The Government should know by now that of the money that goes to local authorities at least 80 per cent. is spent in the private sector. When they cut back on funds to local authorities they are cutting back on the sector that they claim to represent. That is why there are grumbles from all sorts of associations—for example, associations representing the building trade—because the Government are cutting back on local authority expenditure which, in turn, affects private enterprise suppliers.

Mr. Race

Does my hon. Friend recall the answer to the parliamentary question asked by my hon. Friend the Member for Vauxhall (Mr. Holland)? He asked the Secretary of State for the Environment what proportion of new build in local authorities in Scotland, England and Wales was accounted for by the private sector. The answer was that 97 per cent. of new build in Scotland was accounted for by the private sector and that the figure was 93 per cent. in England and Wales.

Mr. Cryer

My hon. Friend has illustrated my point graphically. In Scotland, 97 per cent. of housebuilding in the public sector is undertaken by private enterprise for local authorities—which no doubt scrutinise the private companies in great detail, as they need to do. The figure for England and Wales is 93 per cent.

Local authorities will be under greater strain at a time when inflation is running at an annual rate of at least 11 per cent. or 12 per cent. They will have to cope with a cutback in expenditure from Government of at least 3 per cent. If Labour-controlled local authorities try to increase rates to keep people in useful employment and to maintain services, such as education, facilities for the mentally handicapped, meals on wheels, services for the elderly and so on, the Government criticise them for trying to keep people off the dole. However, the Government's policies will increase the very dole queues that the Bill seeks to finance.

The Government should switch from some of their lunatic public expenditure projects, such as Trident, to projects with peaceful purposes. The funny thing is that the Government never link public expenditure with jobs unless that public expenditure is on defence. When defence is mentioned, the Government always bring in the number of jobs generated by public expenditure. Instead of embarking on the £10 billion expenditure required for the Trident D5 missile, the Government should consider more mundane matters, such as the textbooks needed by our schools, the meals on wheels needed by the elderly and the facilities needed by the mentally handicapped. Such essential facilities should take priority over mad and lunatic expenditure on the means of mass destruction.

The Government should be considering financing research and development into industrial projects. They should follow the path of the Japanese, who are not prepared to cut centrally directed expenditure on industrial research and development and on designing and developing products that people will need and use. If the Government embark on such a path—which is extremely unlikely—we shall need quota controls on imports to prevent increased demand from sucking in imports willy-nilly. In turn, we shall have to stand up to the Common Market and ensure that we are prepared to impose quota controls—whatever the EEC may think—as a prelude to withdrawing from the EEC, whilst maintaining trading contracts with it. We shall also need to restore exchange controls, so that the capitalists who parade as patriots in Conservative guise, when they drape the union jack over the table, are not allowed to shovel money as fast as possible out of the country to any country that will permit the maximum exploitation with the maximum profit. They do not care about those in Britain who need jobs and investment. They are prepared to shovel their money where they can make the maximum profit.

If we carry out such measures, we shall create real jobs instead of the 12-month foundation jobs that consist of a sort of super youth opportunities programme and which, according to the Secretary of State's statement, will cost over £1 billion per annum. Under that scheme, people are taken from the dole queue and given a 12-month compulsory training course, although it is not clear what the purpose is. They are then shoved back on the dole queue and only a tiny minority of those involved have the possibility of a job. That is the reality. The Government are just disguising the situation.

As the general election draws closer and closer, the Government will hope to disguise such things. It is no coincidence that the scheme is designed to come into full operation in 1983. The Government wish to doctor the unemployment statistics. According to the Government Actuary's report, unemployment will inevitably increase. The Government's policies will ensure that.

Paragraph 14 of the Government Actuary's report says that the Treasury supplement will be reduced from 14.5 per cent. to 13 per cent. The supplement to the National Health Service is important. By and large national insurance contributions represent a regressive tax. The Labour Party favours income tax, as opposed to indirect taxation, because it is more progressive and levies a greater tax on those most able to afford it. It relieves those least able to bear it. Of course, under this Government the situation has changed. The Government abolished the Rooker-Wise amendment, proposed by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker)—who is sitting on the Opposition Front Bench, listening attentively—and by Audrey Wise in Committee on the Finance Bill. They sought to provide a link between inflation and taxation allowances so that those at the bottom of the tax bracket moved upwards as inflation increased.

By removing the Rooker-Wise amendment, the Government have automatically brought people into the income tax net in a regressive way. Those who, under the Labour Government, were not subject to income tax, pay income tax under the Tories—the party of unemployment. Given that income tax is potentially more progressive than indirect taxes, it is far better to finance the National Health Service through income tax than through national insurance contributions. To reduce the Treasury supplement to finance the National Health Service is a regressive step, that entirely conforms with the Government's attitude. They wish to shift the cost of the National Health Service away from the public purse towards any source of revenue that they can get hold of. In the fullness of time, the Government will no doubt be anxious to abolish completely the Treasury supplement and to replace it with charitable resources. The friends of hospitals will have to help to finance the National Health Service by holding jumble sales or bingo evenings. That is the way that the Government are going.

The legislation is regressive, because it places a greater and unfair burden on the employed. It reflects the Government's disastrous and failed economic policies and their continuing attack on those who are in receipt of benefits—those who are least able to withstand such attacks. Therefore, together with my right hon. and hon. Friends, I shall vote against the Bill.

7.37 pm

Mr. Reg Race (Wood Green)

My hon. Friend the Member for Keighley (Mr. Cryer) referred to early-day motion 127, which is of key importance to the debate. We have often drawn attention to the outrageous way in which the then Social Security (No. 2) Bill was reported by the press, and that affects our deliberations tonight. The cuts in benefits that have now been implemented as a result of that Act are referred to in the motion.

I well recall going to the BBC radio studios in Bridge Street to argue the toss about the "Yesterday in Parliament" programme, which had said that the Social Security (No. 2) Bill cut strikers' benefits. I had a substantial public row with one of the BBC's senior reporters, who refused to acknowledge, at that stage, that reporting had been anything other than fair. As a result of the Government's actions the contents of the Social Security (No. 2) Act are being implemented in their entirety. The consequences for beneficiaries and their families are set out in the early-day motion. We only hope that the media and the BBC—who are not represented in substantial numbers tonight, as is usual when we discuss social security matters—will report the proceedings fairly, impartially and properly.

The Bill contains many important features, one of which—the 2 per cent. shortfall—is important for beneficiaries. I understand that the Minister made no firm commitment to making good the 2 per cent. shortfall, which will save the measly £65 million about which the Minister's own Back Benchers are fed up. I hope that before the end of the debate there will be a clear assurance from the Government that the 2 per cent. cut in benefits next November will be reinstated. There will be enormous difficulties for the Government and the Civil Service in implementing the proposal for three rates of supplementary benefits. There will be great hardship for those on supplementary benefit who will have to ask for additional payments for such things as clothes, shoes and furniture and so on because their benefits have been cut in real terms.

There is no justification for certain people suffering a permanent cut of 2 per cent. in benefit while others will have that shortfall in benefits from this November reinstated to their benefit rates from next November.

Mr. Cryer

My hon. Friend may recall the Under-Secretary of State for Health and Social Security saying: For the sake of the record, I shall go further and list the other benefits that are not pledged by my right hon. and learned Friend the Chancellor of the Exchequer—unemployment benefit, sickness benefit, injury benefit, maternity allowance, child benefit—including one-parent benefit—family income supplement, mobility allowance and supplementary allowance."—[Official Report, 3 December 1981; Vol. 14, c. 485.] All those people will be attacked by the Government and not receive the 2 per cent. shortfall.

Mr. Race

That is right, and I well remember the Minister reading out the list of benefits that were not to be uprated. The question that was being posed by the Opposition—no one else was asking it—was which of the benefits will be uprated in line with inflation and protected and have the shortfall put back, and which will not. It was only by Opposition pressure that we obtained an answer to that question.

This winter the problems for beneficiaries will be far greater than they have been for a long time. Benefit rates are now far too low. That needs to be said because there are hon. Members who say that benefit rates ought to be kept low, either because the claimants are scroungers, or because the Government want to pursue a particular economic policy. People must be priced into jobs by lowering the real rate of wages, and hence the real rate of social security benefits, otherwise it would be more profitable for people to be out of work than in work.

Ministers constantly tell the House that it is no good increasing wages and the demand in the economy because we have to improve the competitiveness of our industry in relation to that of our major foreign competitors. The problem with that thinking which is a central plank of the Government's policy, is that they are arguing that people will price themselves into jobs if they have reductions in their real living standards. The answer to the Government is that jobs will only be created, as my hon. Friend the Member for Keighley (Mr. Cryer) pointed out, by increasing demand in the economy.

The quarterly report of the National Institute for Economic and Social Research, published in November, argued that only a major reflation of the economy could put back into the economy the jobs that had been lost. It criticised the Government's argument that only reductions in real wages could price people back into jobs. That is of relevance to what we are discussing tonight, because the Government feel that they have to keep social security benefits low in order to justify the relationship between benefits and wages. If the Government say that wages ought to be reduced in real terms in order to price people back into jobs, it follows from their own logic that social security benefits must also be restricted in their real value in order not to have the problem of disincentive arising in relation to those who are in work and those who are out of work and potentially seeking jobs.

When we criticise the Government's level of real social security benefits, we are implicitly attacking the Government's major economic policy. We are saying that the only way out of the hole that the Government have dug for themselves is to reflate the economy and go forward to create a more planned economy, along the lines that my hon. Friend the Member for Keighley described a Few moments ago.

It is not only to the general economic problems that we are referring in criticising the Bill; we are concerned specifically with the low paid. The hon. Member for Truro (Mr. Penhaligon) rightly referred to the problems of the low paid in his constituency. The Government have abolished the 25 per cent. rate of income tax—the £750 band that was put in by the Labour Government to reduce the sharpness of the move into income taxation at the bottom level of the wages ladder. I draw attention to another major scandal in the treatment of the low paid.

The Government Actuary's report is on the table with the Bill that we are discussing tonight. We are talking about increasing the lower earnings limit for class 1 contributions. It can be seen from page 3 of the report that the lower earnings limit is going up from £27 to £29.50 a week. The low paid are clobbered when they exceed that limit. Not only do they start paying national insurance contribution upon that part of their income above £29.50 a week; they have to pay it on the whole of their income, including everything up to £29.50 a week. That is horribly regressive to people earning tiny incomes. The sooner we get away from that policy and the sooner we say to the low paid that they do not have to pay national insurance contributions up to the level of the lower earnings limit, the better.

The term "poverty trap" is used to describe the situation in which people get an increase in their wages and lose a certain amount of social security and means-tested benefits as a consequence. There is also a national insurance trap, whereby people have to pay their national insurance contributions on the whole of their income below the lower earnings limit and not just on that part which falls above it.

Mr. Andrew F. Bennett

Will my hon. Friend accept that there is a double trap? People are caught for the full rate as soon as they go over the lower earnings limit, but if the rate is then put up and they drop out, it may well mean that they will pay anything up to six or nine months of contributions, but because they have not paid for the full 12 months they will get no benefit. Does my hon. Friend agree that it is a double trap, because people pay Put may still get no benefits?

Mr. Race

As usual in these matters, my hon. Friend is correct. If a low-paid worker goes over the top of the lower earning limit, begins to pay national insurance contributions and pays them on the whole of his weekly income, it is possible for him not to build up a proper contribution record because he may not earn that sum for a long time—he may earn it for only one or two weeks. Therefore, the whole basis on which the national insurance system is built—the establishment of a contribution record that entitles people to claim benefit when sick or unemployed—is substantially undermined.

Another matter in the Government Actuary's report that we ought to discuss—I hope the Chief Secretary deals with it when he replies, because it is an important point—is the point I made to my hon. Friend the Member for Keighley a few minutes ago about appendix 3, which shows that in the financial year 1981–82, £1,983 million was to be expended from the national insurance fund for unemployment benefit. The next column shows that in the financial year 1982–83 that sum has risen to £1,996 million—an increase, of only £13 million. I ask whether that figure was a printer's error or, as I suspect, that there is a logical reason for it. I hope that the Chief Secretary can tell us the reason for that and whether most of the report's predicted 300,000 increase in the wholly unemployed—a figure inserted on the Government's instructions—will have to rely on supplementary benefit rather than the national insurance unemployment benefit. It cannot be that the predicted increase in unemployment will cost only £13 million.

Mr. Cryer

Is one possible explanation the fact that the long-term unemployed will be shifting after 12 months of unemployment benefit to supplementary benefit? Is it not a terrible indictment of the Government's policies that they are planning to maintain a large proportion of long-term unemployed and are recognising that, without any palliatives such as foundation courses which they are producing for the young unemployed? The Government recognise that their economic policies create a pool of long-term unemployed labour which will be forced to exist on supplementary benefit.

Mr. Race

That is true, and the numbers unemployed for more than six months and a year are increasing as a proportion of the whole. The position of the young unemployed who have been on the unemployment register for a considerable time is also very grave.

The point that my hon. Friend the Member for Keighley did not raise concerns long-term rates of supplementary benefit paid to those who are unemployed for more than a year. The Government have not kept their promises because all that they have done is to say to workers over 60 that they can move on to the long-term rate of supplementary benefit if they are unemployed. However, the rest of the unemployed cannot do that. If they are not eligible for national insurance unemployment benefit, they do not get the long-term rate of supplementary benefit, which is the higher rate. I hope that the Chief Secretary will answer that point because we want to know why only a tiny increase is allowed for in appendix 3.

Mr. Andrew F. Bennett

My hon. Friend is giving some of the unemployed false hopes because, as I understand it, those over 60 do not get on to the long-term rates automatically—they have to have done a year on the short-term rates. There are those who are not eligible for the short-term rate, possibly because of a wife's earnings, but who would be eligible for the long-term rate, but they can never get to that.

Mr. Race

That is true. A point not stated in the table on appendix 3 is how the figures are calculated—whether on 1980 prices or on another basis. That is a major deficiency, because we cannot tell whether the figures are in real or cash terms and I am sure that it would be helpful to the House if that point were clarified.

My hon. Friends have already referred to the Government Actuary's estimate of the increase in the level of unemployment. I have been considering the quarterly reviews, not only of the national institute but of the Cambridge Economic Policy Group and others, which have predicted increases in the level of unemployment substantially greater than the predictions included in the Government Actuary's report on instructions from the Ministers.

I hope that when the Government discover that the level of unemployment is increasing more rapidly than they had predicted they will not return to the House and ask for further increases in national insurance contributions to pay for the shortfall in the national insurance fund which would be their fault because they had instructed the Government Actuary to take into account a lower increase in unemployment.

If the Government Actuary had been instructed to make an assumption of a higher growth of unemployment the Chief Secretary would have had to come to the House and say "We need a higher national insurance contribution increase from employees and employers". The 300,000 increase assumption is in the report because the Government did not want to ask for a higher increase in national insurance contributions.

The Bill is linked with the cuts in benefit implemented by the Government over the past two and a half years and it increases the level of taxation. It is astonishing that Ministers still have the gall to say at the Dispatch Box that their party is in favour of cutting taxation when their record in Government is that taxation—including national insurance contributions and income tax—has increased by 5 per cent. in real terms during their period of office.

Mr. Cryer

Before my hon. Friend leaves the question of benefits, will he comment on the refreshing honesty shown by the hon. Member for Kensington (Sir B. Rhys Williams) when he said "We are definitely taking money away from the children", referring to the effects of cutting back benefits in the Bill? Does my hon. Friend agree that it is a pity that there are not more Conservatives who take an interest in this legislation, because the hon. Member for Kensington has been the only Back-Bench Conservative speaker and it is a pity that there are not more Conservatives who are honest enough to recognise the serious attacks that the Government have made on children in our society.

Mr. Race

The absence of Conservative Members traditionally interested in these issues has been noted and we have had only one contribution from a Back-Bench Conservative. Where are the other Tory Members who were in the House when the recent Adjournment debate was promoted by my hon. Friend the Member for Stockport, North (Mr. Bennett)? They may have some covert deals with the Government over the 2 per cent. shortfall. If they have, the Government should come clean with the Opposition and tell us what that deal is. They must have done something of that sort or Conservative Members would not have been so cowardly as to refrain from being in the Chamber tonight. I hope that the Government will tell us what deal has been reached.

Not only have the Government not increased child benefit in line with inflation, and Tory Back Benchers are angry about that, but they have reduced the real value of the child dependency additions to many benefits that are still available. It is common knowledge among those who are interested in social security matters that the Government intend to phase out the additions. Their record of support for families with children is not good and that is a further excellent reason for opposing the Bill and the consequences of the Government's action.

The cuts in the Exchequer subsidy to the national insurance fund are important because the Government are saying that general taxation is not a suitable vehicle for financing social security benefits—in other words, those in work must pay for the unemployed and the sick. The Opposition do not entirely support that principle. We favour contributions systems under which people build up an entitlement to benefits through their contributions, but we also favour subsidising the national insurance fund from general taxation.

Those who draw social security benefits, whether national insurance or supplementary benefits, are the poorest in society. They are subsidised by the poorest and the middle-ranking groups in society. Those who are not subsidising the national insurance fund through general taxation are companies, because company taxation is virtually voluntary. I read in the Financial Times recently that capital transfer tax has become a voluntary tax, just as the old death duty was voluntary.

When the Government say that they intend to remove part of the Exchequer grant to the national insurance fund, they are introducing a much more regressive method of financing the social security budget. We do not support that. We favour paying for benefits through general taxation and sharing the burden equitably.

A scandalous view of social security benefits emanates from Ministers. They say that they have protected the NHS and social security benefits from the worst ravages of public expenditure cuts and point to the increases in absolute sums that Parliament has voted for social security and that have been spent on paying benefits, but they ignore the reasons for that. The increased social security budget, which the Government are having to defend to the Treasury, is a direct consequence of the depth of the recession. If we moved back to full employment and a reflationary economic strategy that budget would be cut in real terms. In their hearts, the Government know that that is so.

I hope that we shall get no more of the silly remarks that have disfigured our social security debates when Ministers have said that they cannot allow real increases in social security benefits because we pay too high a proportion of public expenditure and GDP on benefits.

I hope that the Bill will be defeated. We oppose taxation increases in the form proposed by the Government. Let us have a social security system that is paid for by everybody out of general taxation. Let us stop attacking the low paid and stop abusing the national insurance lower earnings limit. Let us get back to increasing the level of social security benefits in real terms and away from the cuts that the Government have been imposing in the past two and a half years.

8.5 pm

Mr. Ioan Evans (Aberdare)

The Bill is not the legislation that was envisaged in the Queen's Speech. It may be included in the reference to other measures being laid before us, but nothing in the Queen's Speech suggested that there would be an increase in national insurance contributions.

The Bill was the result of the Chancellor of the Exchequer's public expenditure statement on 2 December. I was interested to hear on the radio this morning that the Chancellor's speech in our debate on public expenditure was written by the Prime Minister. That report has not been denied. If the speech of the Chancellor, who deals with the nations's finances, was written by the Prime Minister, it is a significant development. If that is not so, I hope that the Chief Secretary will deny the report. [Interruption.] I understand that it was not the Prime Minister who wrote the speech, but her economic adviser, Professor Walters.

The Government have got into a hopeless financial mess. We all know that. Monetarism is failing and the Tory Party, which has tended to accept the consensus of the Welfare State, is seeking week by week measures to undermine it. On the establishment of the Welfare State there was a general recognition by all parties that we should care for people and that Governments should be compassionate in meeting people's needs. The Bill and other measures show that the Government are seeking to undermine the basis of the Welfare State.

Professor Walters is suggesting where cuts can be made and the chap from Marks and Spencer is going round Departments to find out where cuts can be imposed. It is deplorable that the Government's policies result in the least well off being hit hardest.

We should look at the Bill not in isolation, but in the context of everything that the Government have done since taking office. The mini-Budget, of which the Bill is a part, should be considered in the light of the first Budget of the Chancellor in which the wealthy were given tremendous benefits. Tax on the highest income groups was greatly reduced.

If Professor Walters is behind all this, we should remember that he is on the top Civil Service salary and finds that insufficient. It is supplemented by income from the Centre for Policy Studies.

Mr. Michael Brotherton (Louth)

Hear, hear.

Mr. Evans

I am glad to carry the hon. Member for Louth (Mr. Brotherton) with me and I am pleased to see him in the Chamber. The only Conservative Back Bencher who has spoken so far is the hon. Member for Kensington (Sir B. Rhys Williams), who was critical of many aspects of the Bill. That shows the support of Conservative Back Benchers for the measure. Where are the wets? Where are those Conservative Members who are highly critical of the onslaught that the Government are making on the Welfare State and the financial policies that undermine the whole economy? They are in deep freeze this evening. They are not here to participate. Since they are critical of other aspects of Government policy, they should have been expressing their views here tonight.

Mr. Brotherton

They are not here. The hon. Gentleman argues that they are not here.

Mr. Evans

I think that the hon. Gentleman is not quite all here.

This is part of the Government's monetarist strategy. We have been told that the aim was to reduce inflation, interest rates, taxation and unemployment. We were not told that the Government would reduce social benefits. That is what the Bill does.

The Government have increased inflation. It has increased by over 40 per cent. since the Government came to power. That fact is relevant to the Bill. Wage earners and workers are told by the Government that they must not expect a wage increase that is equivalent to inflation. They are told that they must expect a cut in their living standards. On top of that, there is to be a further deduction in order to meet the insurance burden.

The Government have failed to reduce inflation. Yet this was apparently their main strategy. All the sacrifices and the cuts were designed to bring down inflation, but inflation has persistently increased. The Chancellor himself talks about 12 per cent. inflation in relation to the retail price index. That is higher than when the Government took office. The Government choose to use the tax and price index, devised in the Treasury by one of the Treasury Ministers who has now moved to the Department of Energy. This index not only measures retail price increases but also takes into account the tax burden and insurance burden. I should like to know from the Chief Secretary the effect of the Bill on the tax and price index. That index already shows an inflation rate approaching 15 per cent.

The Government's strategy was also to reduce interest rates, but they have been persistently higher under this Government than under the Labour Government. The Government's approach was that sacrifices would have to be made to bring down interest rates. One should try telling that to people with mortgages who have been warned by building societies that the rate may go up. That has happened as a result of the Government's financial policy.

The Government pushed up interest rates more than need have been the case through the withdrawal of exchange controls. Other countries have followed that example. The process has now developed into a vicious circle.

According to the Government, the public expenditure statement was the bad news and the good news will come with the Budget. I hope that the next Budget will not produce further concessions for the wealthy. That was the main purpose of the Government's first Budget. National insurance is as much a part of taxation as income tax. When he receives his pay slip, the worker looks at what he has earned and what he is taking home. People are paying more income tax under this Government than they were under the Labour Government.

The Government promised that they would reduce unemployment. In fact, unemployment has more than doubled. The Secretary of State for Employment states that unemployment is 12 per cent. In my area it is over 20 per cent. among male workers. Unemployment has increased substantially over the length and breadth of the British Isles. Its size affects the amount paid in unemployment benefit. I have seen no denial of an estimated cost to the Exchequer of £6,000 for every unemployed worker, assessed on loss of productivity and payment of benefits. If 1 million people were unemployed, the cost would be £6 billion. With the present figure of 3 million unemployed, the cost amounts to £18 billion, more than the total paid in social benefits.

Mr. Bill Walker

The hon. Gentleman describes the 20 per cent. male unemployment in his constituency as resulting from Government policy. How does he explain the 20 per cent. male unemployment in part of my constituency that occurred as a result of closures before the Government came to office?

Mr. Evans

Is the hon. Gentleman saying that male unemployment was 20 per cent. before?

Mr. Walker

Yes.

Mr. Evans

In that case I should like to look at the figures, because I doubt that very much. I should be very surprised if that were so. There are areas in the United Kingdom with unemployment of 40 per cent. The figures are there to prove it. Unemployment has gone from 1,300,000 to 3 million. Over 1,700,000 people have become unemployed since the Government took office.

I do not want to weary the House by giving a catalogue of manufacturing industries that have closed in my constituency. I have met industrialists who have told me categorically that unemployment is not due to wages or bad industrial relations but is a direct result of the financial and economic policies pursued by the Government—

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. I remind the hon. Gentleman that we are discussing the Social Security (Contributions) Bill. I hope that he will speak to it.

Mr. Evans

I was responding to the question put to me, Mr. Deputy Speaker, but I shall not develop it. However, perhaps I may say, in passing, that one of those firms was a part of Tube Investments. That company was a large contributor to the Tory Party.

Many firms have suffered as a direct consequence of the Government's policies. The point I am making is that, with 3 million unemployed instead of 1,300,000, the total of public expenditure is consequently increased. The Government are saying "We have got it wrong. We have made a mess of the economy. There is a recession and that is partly to blame". But Britain is in a far worse position because Government strategy has been bad. So the Government are now saying that, because there are more people drawing insurance benefit, they must ask the workers to make increased contributions.

The Government have got the wrong strategy and need to change it. In a recession it is wrong to take more money from the people's pockets when there is no demand in the economy. That is why I believe that on economic grounds alone we should object to the Bill.

At a time of recession the Government are reducing capital projects when they should be expanding them. They should be getting the unemployed back to work and promoting various projects in the public sector. That area has been neglected.

Those are the things that should be done. The amount that we would then be spending on unemployment benefit would be far less than is spent at present. It is wrong to increase the burden upon unemployed persons when that burden has already been increased by the Government's policy and to tell workers that they must have a cut in their living standards, particularly when wage increases are restricted to 4 per cent. and inflation is at 12 per cent.

This is the wrong time for the Government to decrease the Treasury contribution to the national insurance fund. If they have their sums wrong, this is the time to increase the Treasury's contribution. I say that not only about employees but also about the employers. The employers have been making representations to the Government to reduce their part of the national insurance contribution. At a time when the Government should be seeking to encourage employers to maintain people in employment, it is wrong to think of increasing the employers' as well as the employees' contribution. That should not be done when the real value of benefits is being cut. That is why the Opposition are right to decline to give a Second Reading to the Bill.

We have talked about the cuts in benefits. It is highly deplorable to expect working people to pay an additional contribution to the National Health Service. Incidentally, I do not know whether prescription charges are included in the taxes and prices index, but we had a categorical statement from the Government before the election that they had no intention of increasing the prescription charge, which at the time was 20p.

Mr. Race

Six "Labour lies."

Mr. Evans

I believe that there were 12 "Labour lies". A Daily Mail article said that there were 12 Labour lies and one of them was that a Tory Government would increase prescription charges. I put that to the Prime Minister recently and she said that she had not said it. Was the Daily Mail lying? The Daily Mail said that she said it, and that the Tory Party said that the prescription charge of 20p would not be increased. What have the Government done? The prescription charge has risen from 20p to 60p, from 60p to £1, and from £1 to £l.30. I know that there are exemptions.

Mr. Eastham

It is a 650 per cent. increase.

Mr. Evans

That is right. My hon. Friend takes the words out of my mouth.

What a deplorable record. The Government have picked on the sick and those in need of help to treat most adversely. Let us see that the prescription charge is included in the taxes and prices index.

At present we have very severe weather conditions. We do not know how long the winter will last. Some old-age pensioners are living in very difficult conditions. Those dependent on benefits are beginning to wonder how they will be able to pay for their electricity, gas and coal. This is not the time for the Government to be taking from those who have so little.

I ask the Government to think again about this measure. We shall be returning to it on Thursday. We have heard talk about the old Tories of the 1930s having changed and that at present the Tory Party is the party of not two nations but one nation. Let not that be told to the people, because only a very small proportion of the British people have benefited substantially under the present Government, but the vast majority have seen their living standards whittled away. Many have had their jobs taken from them. Those in greatest need have experienced the greatest suffering in this country for many years.

8.27 pm

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

I do not think that I shall be accused of overstating the point if I say that this has been a wide-ranging debate. Basically, I intend to confine my remarks to one part of the Official Opposition amendment—the real cuts in the value of many benefits. I suspect that on Thursday we shall look at the clauses in greater detail. I make no apology for saying that I do not intend to refer very much to the Bill.

The Secretary of State read out a brief. He sounded a bit like a civil servant when reading it.

The Chief Secretary to the Treasury (Mr. Leon Brittan)

Oh no.

Mr. Rooker

The Secretary of State seemed to say that the Government were doing a good job on benefits. It was a speech which, in manner, could have been delivered by anyone sitting in the Officials' Box, rather than a practising politician. My hon. Friend the Member for Pontypridd (Mr. John) made a coherent case against the Bill.

There is a problem regarding the cuts in benefits. Concern has been expressed by Conservative Members—although not in the Chamber this evening. From reading some of their comments in the last four or five weeks and, more particularly since the Chancellor's statement a couple of weeks ago, it seems that it has suddenly dawned on some Tory Members that there have been some cuts in social security benefits. Unfortunately, the view that there have not been any cuts until now is shared beyond the Conservative Benches. In The Economist of 10 October there was a fairly lengthy article entitled "Thatcher at mid-term". Buried in that was a sentence which takes some believing: The Thatcher government has not cut benefits". At least they had the good grace to publish a letter from me two weeks later detailing some of the real cuts, in both cash and percentage terms, that the Government have put through the House during the past two and a half years.

The Chief Secretary will be expecting my first point because he has been pressed on it during the debate. We wish to know what exactly is the position about the shortfall in the short-term benefits. Unfortunately, the Secretary of State, in opening the debate, clearly did not have either Cabinet approval or Treasury knowledge about what will happen. However, someone has knowledge, in The Observer on Sunday the headline was "Howe in benefits retreat". The headline in The Times yesterday morning was "Howe 'will not cut benefits'". Both articles alleged that the Government Chief Whip had promised privately to Conservative Back Bench Members that in the Budget the Chancellor would make a different statement from the one that he made recently.

It is no good for Conservative Members to be told something in private, which has directly caused their absence from the debate. If those Conservative Members were sincere in their beliefs and in what they have said during the past two weeks, they would have been here today to press the Government about the 2 per cent. cut. If they have been reassured privately—it has been published in the press—why cannot the Chief Secretary have the good grace to say that the press reports are accurate? He clearly wishes to have the opportunity to make the Government's position clear. However, we wish to have the answer tonight, because it is not good. enough that Conservative Members should be given information privately. It could be argued that they have failed in their parliamentary duties. They believe sincerely that the Government's policy on unemployment benefit is wrong, but they have not come to the Chamber to make the case for their constituents. They may have done so by private agreement. If they have, we must know why.

I wish to deal with two or three benefits in some detail. The first is unemployment benefit. It is well known to anyone who was in the Chamber last week at Prime Minister's Question Time that on two occasions, on Tuesday and Thursday, the Prime Minister tried to deny the challenges from my right hon. Friend the Leader of the Opposition that, for the man on average earnings with two children who became unemployed in May 1979 or who becomes unemployed in January 1982, there will be a real I cut in unemployment benefit of £13 a week. That cannot be denied. However, the Prime Minister denied it twice last week.

I wish to give the brief background to that. The information was given in an answer to the hon. Member for Anglesey (Mr. Best)—a Conservative Member—on 20 November. Of course, the answer did not put it in those terms. It was not admitted bluntly that £13 a week had been lopped off. The question is on the record in columns 225 and 226 of Hansard. The key figures are that, in May 1979, a man on average earnings with two children would receive total social security benefits of £48.49. In January 1982 his social security benefits will be £55.20. There is no denying the fact that between May 1979 and January 1982 there has been about a 40 per cent. increase in the retail price index. The figure of £55.20 for January 1982 should be increased to £68 if it is to equal the real value of the benefits received in May 1979.

The Prime Minister was invited to subtract £55—which is what that man will receive next January—from £68—which is what he would have received had the value of unemployment benefit been maintained between May 1975 and January 1982. That subtraction leaves £13 per week. How that came about is irrelevant. Those were his benefits. It is not good enough for the Prime Minister or other Ministers to say that earnings-related benefit must be subtracted. Who abolished the earnings-related supplement? Twice last week the Prime Minister, at the Dispatch Box, ran away from the facts because she did not want to confirm that a man in that position would lose £13 a week from next January. The same figure will apply to anyone on average earnings with two children who had an industrial accident between May 1979 and January 1972.

Another aspect of the cuts in unemployment benefit is the 5 per cent. abatement. The Government call it a 5 per cent. saving. The Opposition know that it is 5p in the pound off unemployment benefit. During the past couple of weeks Tory Members have made a fuss about the 2 per cent. shortfall, yet every one of them voted for a 5 per cent. cut. That 2 per cent. represents one week's benefit over a year. We are talking not about statistics but about men and women who have to live on £37 a week. The 2 per cent. shortfall means that they will lose a week's benefit. It affects millions of people and their families. All Tory Members voted for that 5 per cent. abatement as a substitute for taxation.

When the Social Security (No. 2) Act 1980 passed through the House, I asked the Secretary of State to detail the full effect of the cuts on the benefits affected by the 5 per cent. abatement. I was told that £45 million in unemployment benefit would be saved by that change. Yesterday, I asked for that figure to be updated because of the massive increase in unemployment. The figures show that unemployment benefit has been cut by £80 million because of the 5 per cent. abatement for which every Tory Member voted. Tory Members moaning about 2 per cent. do not have the good grace to admit that they voted for a 5p in the pound cut off the uprating in 1980.

I wish to give a further example of the real cut in benefits by cutting widow's allowance. I was interested in the form of the answer given to the hon. Member for Anglesey. A week later I tabled a question about widows' benefit. I did not receive my answer in the same form so I could not discover the total cut. Yesterday, I asked for my original answer on 13 November to be given to me in a similar form to that given to the hon. Member for Anglesey on unemployment benefits. I was told in a written answer that in May 1979 a widow aged between 50 and 59 years at widowhood with no dependants, whose late husband's earnings were at average levels, would have received a widow's allowance of £40.59. I was told that in January 1982 she will receive £41.40. In other words, in two and a half years there will be an increase of less than £1 a week.

As I have said, in May 1979, a widow received £40.59. Since then there has been a 40 per cent. increase in the retail price index. In January 1982 she should be receiving £56 to £57 a week. Instead she will be paid £41.40. We have not heard too many complaints about that. There has been a real cut in the widow's allowance of about £15 to £16 a week.

When the Secretary of State introduced the Bill he made great play about the Government's commitment on pensions. No one denies that the Government have a pensions commitment. They are committed to keep pensions in line with prices. Such a pledge is merely a commitment not to increase the real value of pensions. In a recent answer the Minister of State tried to take credit on behalf of the Government for keeping pensions 2 per cent. ahead of the increase in prices since the Government have been in office. If I remember rightly, the hon. Gentleman claimed that from November 1978 to November 1981 pensions increased by 52 per cent., and that the RPI had increased by 50 per cent. I was surprised to learn that the Government had been doing more for pensioners than even the Prime Minister's pledge. Where did the 2 per cent. come from?

The Minister's figures went back to November 1978, and we all know that the November 1979 uprating was based on the Labour Government's formula of "Prices or earnings, whichever is the higher". We know also that earnings were higher than prices that year. I asked the Minister to explain the 2 per cent. increase and I imagine that his civil servant said "Minister, you have been caught. Do not bother to waffle." The answer to my question was one word. It was "Yes." The reason for the extra 2 per cent. lies in the spillover from the Labour Government's formula, which the Tories changed when they took office. There is a real cut when earnings increase in excess of prices.

The Minister knows that the earnings limit was to be abolished according to the Tory Party's manifesto. The freezing of the limit in 1981–82 has cost pensioners £25 million. The limit has been frozen for two years. Men over 60 years with occupational pensions have lost £25 million in unemployment benefit in 1981–82 as a direct result of the Social Security (No. 2) Act 1980. There has been a real cut in their benefits since the Government came into power. The Government have not given pensioners the good deal that appears on the surface.

Tory social security policy seems to be the abolition of the earnings related supplement and increased contributions for contributory benefit. In January someone who becomes sick and who is in receipt of average earnings will lose £13 a week in sickness benefit because of the abolition of the earnings-related supplement. From January 1982, the loss in real terms on injury benefit will be £14.10 a week. I agree that that is only for 26 weeks, but everyone understands that. However, that amounts to a great deal of money when the weekly figure is multiplied by 26. From January 1982, maternity allowance will amount to £8.80 a week because of the loss of earnings-related supplement. I have already referred to the cut in the widow's allowance. I received the information in a recent answer. The average widow's allowance cut is £14.90 a week. That is a real loss because there is nothing to replace it unless the widow in question is so poor that she can claim supplementary benefit from the Department of Health and Social Security. I understand from recent answers that, as a direct result of the Social Security (No. 2) Act, at least 135,000 more of our fellow citizens will have to claim means-tested supplementary benefit because the Government have abolished benefits for which people have paid contributions in the past. What is so galling and hypocritical is that Tory Members have never complained about that.

The hon. Member for Truro (Mr. Penhaligon)—who has returned to the Chamber—made the point quite effectively about the increase in the marginal rate of tax. That same point was made on Second Reading of the Social Security (No. 2) Bill last year. The figure that he did not quote, which would have made his point more effectively, is that the increase under this Tory tax-cutting Government in the marginal rate of tax on the low paid will be 23 per cent., following the passage of this Bill. That is the difference between 31½p and 38¾p at the margin. The figures are well known. We talk of national insurance as a tax. Ministers and former Ministers clearly understand that national insurance is regarded as a tax by the working population. I do not intend to delay the House by repeating the speech that I made last year in which there were many quotes from hon. Members on the Government Benches who said in the past that national insurance was treated as a tax. One has simply to add the 25p in the pound, which was the lowest rate of tax for the low paid when Labour left office, to the national insurance rate at the time, to get the 31½p. Now, we are up to 38¾p. That comes from a Government who had the brass neck to say in their manifesto, on page 27: Income tax starts at such a low level that many poor people are being taxed to pay for their own benefits. Now, I shall quote the Tory Chancellor of the Exchequer who said recently: It is, moreover, right that those in work should shoulder the additional costs."—[Official Report, 2 December 1981; Vol. 14, c. 239] Those in work, of course, can be those on family income supplement who are paying income tax and receiving a social security benefit. Therefore, in some ways, the Government have made a complete turnabout. They have come full circle. I do not know of any more benefits that they can abolish. I suspect that there are more benefits that they can cut in real terms because there are not enough Tory Members with the guts to vote for their constituents' interests or vote for what they were elected on—their manifesto. It is futile for me or any other Opposition Member to expect any Conservative Member to enter our Lobby tonight.

I repeat what was said by my hon. Friend the Member for Pontypridd at the beginning of the debate, that unless there is a clear commitment from the Government about the 2 per cent. cut in unemployment and other short-term benefits, the Opposition guarantee to give the Conservative dissidents the opportunity to register their dissent. There will be no chance to vote against the order, because the order will increase benefit. It must be accepted or rejected and, nobody in his right mind will vote against an increase of 10 per cent. in unemployment benefit simply because it should be 12 per cent. An order cannot be amended. There will be a further opportunity on the Social Security Housing Benefits Bill, which is presently in Standing Committee. Its long title is drafted in wide enough terms for the Opposition to ensure that on Report on the Floor of the House, in peak time, there is no excuse for any Tory Member to run away. They will have the chance to put that 2 per cent. back.

I conclude with this consideration, which should be placed on record. With one exception, not one Conservative Member has come to the House to talk about cuts and unemployment, not as statistics but as they affect real people and their families. We shall make sure that the electorate fully understands that when the opportunity comes.

8.50 pm

The Chief Secretary to the Treasury (Mr. Leon Brittan)

The hon. Member for Birmingham, Perry Barr (Mr. Rooker) was most candid in making it clear at the outset that he had not the slightest intention of talking about the Bill. None the less, with the assiduity and skill that we have come to admire, he contrived to remain within the rules of order while making a general political speech about the Government's social security record. Indeed, he covered a wide range of matters which were covered in the debates on the legislation of which he now complains with regard to the earnings-related supplement.

It will, I suppose, be equally within the rules of order for me to rake over the coals and talk about the social security record of the Labour Government and to refer to the scandal of 1976 when, in order to save £500 million, a switch was made in the method of uprating from the historical method previously used to the forecasting method. The hon. Member for Truro (Mr. Penhaligon) thought that that was a mistake. It was more than a mistake. It was a deliberate act designed to save the Exchequer at the expense of pensioners.

I mention those facts only to demonstrate that there are other ways of looking at history.

Mr. Andrew F. Bennett

rose—

Mr. Brittan

I have only just begun my speech. I should like to elaborate a little on this.

It is also worth mentioning that prior to the 1981 uprating there had been only three occasions since 1948 when the pension uprating did not fully compensate for price increases—in 1951, 1969 and April 1975, An elementary knowledge of political history in this country will show which party was in power then.

Mr. Bennett

If the Minister is arguing that things went wrong in 1975–76, as many of us would accept, what did the Tory Party do to put them right as soon as it came to office?

Mr. Brittan

That observation comes better from the hon. Gentleman than from Front Bench spokesmen seeking to make a case about the comparative records of Governments.

I hope that I shall be forgiven if I commit the unpardonable offence of actually talking about the Bill. In speaking of the history of social security matters generally, it was perfectly natural that hon. Members on both sides should raise more general questions about the system. I refer particularly in this regard to my hon. Friend the Member for Kensington (Sir B. Rhys Williams). I am not a Minister at the Department of Health and Social Security. I have not even been a Treasury Minister for very long. I assure the House that I personally do not regard the present system as sacrosanct or as a faultless method which has stood the test of time and must endure as a monument for ever. I understand my hon. Friend's argument about the flaws in the system and the argument that there could be better alternatives to secure the kind of social security benefits that we want and can afford.

I must tell the House, however, and I am sorry that I must advise my hon. Friend yet again, that this debate is not designed to review the entire system. Even if we took the view that it was right to change the system, this would clearly not be the occasion on which to do so. The Bill is designed to operate the existing system, which is primarily the system which has been in existence for a generation but which in its most modern form was created in the 1975 legislation by the Labour Administration. Therefore, whatever long-term changes may be desirable, this is not the occasion to implement them, and I am not pretending that this legislation is a wide ranging social reform of that kind.

In listening to the various suggestions about long-term reform, one could not help being deeply interested in the contribution from the Social Democratic Party in the form of the hon. Member for Newcastle upon Tyne, East (Mr. Thomas). He seemed somewhat hesitant in his recommendations on the financing of the social security system. At one point it sounded as if he was suggesting a new form of tax to finance the system, but when he was pressed and probed further we learnt that he was referring to income tax, an old form of taxation. The hon. Gentleman was suggesting that that great engine rather than national insurance contributions should deliver the goods for the social security system.

Mr. Mike Thomas

rose—

Mr. Brittan

If the hon. Gentleman bears with me, I shall certainly give way, but there is more.

We then had the pleasure of listening to the hon. Member for Truro, one of whose most engaging characteristics is his candour. He told us a thing or two about the impact of income tax—the very tax that the hon. Member for Newcastle upon Tyne, East wished to see as the foundation of the SDP's new social security system.

One arm of the alliance does not seem to have consulted the other. The speech of the hon. Member for Newcastle upon Tyne, East started with the promise of a new tax, but stumbled into a promise of a vastly increased old tax that his Liberal colleague finds extremely inimical. That perhaps illustrates that there should be some more thinking before we can seriously accept what the SDP says on this issue.

Mr. Thomas

I have no doubt that when the right hon. and learned Gentleman reads my speech in Hansard he will find it a less dramatic affair than he is trying to portray. Does he not accept that the regressive effect of the Bill in terms of the marginal effective tax rate on the low paid has now reached the point where the system should be reviewed and an alternative form of financing found? One alternative is certainly income tax, but there may well be others. I assure the right hon. and learned Gentleman that my hon. Friend the Member for Truro (Mr. Penhaligon) and myself are united in the view that any alternative would be better than the system we are now stuck with.

Mr. Brittan

I welcome the fact that the hon. Gentleman's views on this matter have become progressively more tentative during the evening. It is wise to downgrade them in that sense.

Mr. Thomas

rose—

Mr. Brittan

I am sorry, but I cannot give way a second time because I am trying to confine my remarks to the subject matter of the debate.

I was about to say that the Bill deals with the financing of the expenditure to be incurred in 1982–83 as a result of extra expenditure on social security benefits. That is what the Bill is about, and that is what it does.

Plainly the system will not be reformed tonight, and, even if one were to follow the suggested route of the hon. Member for Newcastle upon Tyne, East, it would be a major reconstruction, but within the present system, it is not unreasonable to say that, broadly speaking, if we increase benefits we must increase contributions. I do not think that it is oversimplifying the matter to put it in that way. We can talk about the details and the Treasury supplement, but that is the essence of what we are doing. The financing of it is a matter that the House is right to put in order before the benefits become payable.

Opposition Members seem to be saying, in effect—they never quite spell it out—that they would like the benefits to be higher. If we increase them, the need for financing the benefits within our present system becomes all the greater. Therefore, I cannot accept that there is anything improper or surprising about a perfectly normal piece of legislation within the present system for providing the money to finance the extra benefits.

Some hon. Members, such as the hon. Member for Keighley (Mr. Cryer) and my hon. Friend the Member for Kensington, were tempted, understandably, to range wider in their consideration of the economic issues. My hon. Friend the Member for Kensington asked whether this expenditure and this revenue raising by means of the contributions is reflationary. He put his case in an interrogatory form, but the hon. Member for Keighley castigated the measure as being deflationary. If one analyses the position, whatever one's views about whether the Government should seek to reflate the economy, this legislation and the decisions to which it relates on benefits are not inflationary, deflationary or reflationary. On the one hand, it assumes a certain increase in benefits and, on the other hand, it provides from the contributors the money to finance those benefits. In that sense it is neutral. If one goes for fine economic analysis, to the extent that it is refiationary, deflationary or whatever, I suppose it could be said to be mildly reflationary, in the sense that those who contribute are likely to save a higher proportion of their income than those who receive benefits. It is broadly neutral, and I am trying to present a fair view.

Mr. John

The right hon. and learned Gentleman has talked many times about a higher contribution to pay for higher benefits. He has been asked specifically about the shortfall of 2 per cent. May we now hear whether the Chief Secretary has promised dissident Tory Back Benchers that that will not be proceeded with? If he has told them that, will he now tell the House?

Mr. Brittan

I welcome the opportunity to deal with that matter. The answer to the hon. Gentleman's question is "No". No such assurance has been given and the hon. Gentleman should not believe what he reads in the press, however many newspapers report such a story and however reputable they may be.

The position on this matter is the same as it was stated to be by my right hon. and learned Friend the Chancellor of the Exchequer and me only a week ago. My right hon. and learned Friend said that the final figure will not be determined until the spring of next year, and that the Government will listen carefully to hon. Members' views on the matter. I have said that, too, and my right hon. Friend the Secretary of State for Social Services used almost the same words in his speech.

Let us not forget that the point of controversy just raised by the hon. Member for Pontypridd (Mr. John) represents but a small part of the total. We must decide an important, but limited question. I refer to the way in which the extra benefits should be financed. I must make clear the nature of those benefits. Much has been said about unemployment and the recession. If hon. Members consider the extra expenditure that we seek to finance, they will see that the overwhelming balance of that money will be spent on increased expenditure on retirement pensions. That is what we are talking about.

The figures show that of a total increase in benefit expenditure between 1981–82 and 1982–83 of £1,632 million, about £1,450 million extra will be spent on retirement pensions.

Mr. Cryer

Is the right hon. and learned Gentleman confirming the Minister's statement that the shortfall would not be made good in unemployment benefit, sickness benefit, injury benefit, maternity allowance, child benefit—including one-parent benefit—family income supplement, mobility allowance and supplementary allowance."—[Official Report, 3 December 1981; Vol. 14, c. 485.] If so, does not the right hon. and learned Gentleman feel ashamed?

Mr. Brittan

The hon. Gentleman well knows that he has read out a list of the benefits in respect of which pledges were not given by my right hon. and learned Friend. If it is put in context, it can be seen what it means. The overwhelming balance of the money that we seek to raise will be spent on retirement pensions. Therefore, the legislation should commend itself to the House. I do not accept for one moment that we are financing the consequences of the recession, or anything of the kind. We are providing the money to pay for increased benefits.

The Treasury supplement has been the subject of considerable controversy today. Perhaps I am speaking now because it is called the Treasury supplement. Hon. Members will know the extent of the extra benefits and contributions provided by the Bill. We should put the Treasury supplement's contribution into perspective. The change in the Treasury supplement consists simply of £261 million—a comparatively small proportion of the total. My right hon. Friend the Secretary of State pointed out clearly that we must consider the percentage of benefits met from general taxation. That is the key point. It is not only contributory benefits that should be considered. Social security expenditure must be considered as a whole. There is nothing magical about a national insurance benefit or a benefit financed from the Consolidated Fund.

All the benefits introduced since 1948—mainly for the disabled—have been financed from the Consolidated Fund, although they could have been introduced as national insurance benefits. Those new benefits now cost about £6 billion. Therefore, it is not unreasonable—looking at the whole picture—to ask what the total level of benefits met from general taxation should be.

Mr. Ennals

rose—

Mr. Brittan

I was about to deal with the right hon. Gentleman's point. It is in that context that my right hon. Friend said that in 1975–76 37 per cent. of total benefits were met from general taxation. In 1980–81 it was 45 per cent. and in 1981–82 it was also 45 per cent. In 1982–83 it will again be 45 per cent.

The right hon. Member for Norwich, North (Mr. Ennals) asked whether it was caused simply because of the change in the comparative amount being spent on supplementary benefit, and whether, if supplementary benefit continued to increase as a proportion of the total, the Treasury supplement would be correspondingly reduced. That is pushing the logic too far. It does not follow that because one is entitled, in fixing the Treasury contribution, to look at the percentage of benefits met from general taxation, one must regard that as a formula to be stuck to and assume that there is a percentage that is for all time the right one.

Mr. Ennals

In that case, there is no logic at all. If the right hon. and learned Gentleman is saying that I was pressing the logic too far, I was only presuming that that was the logic of what the Secretary of State had said. Is there any logic in setting the figure of 13 per cent. rather than a higher one?

Mr. Britton

If the right hon. Gentleman will forgive me, whereas before he was pressing the logic too far, he is now not pressing it far enough. It is not a formula but it seems to me that the percentage of benefits met from general taxation is a relevant and proper consideration to take into account in a substantial way as being one of the factors determining what the Treasury contribution should be.

Although this debate provides a happy opportunity to canvass the record of the Government and their predecessor in social security generally, and at least to touch on the possibility of fundamental changes in the system, its purpose is to enable the House to give authority—

Mr. Ennals

rose—

Mr. Brittan

—to the legislation required to raise the contribution. It is in that sense that I commend it to the House.

Question proposed, That the amendment be made:—

The House divided: Ayes 207, Noes 286.

Division No. 26]	[9.12 pm
AYES
Abse, Leo	Fraser, J. (Lamb'th, N'w'd)
Adams,Allen	Freeson, Rt Hon Reginald
Allaun,Frank	Garrett, John (NorwichS)
Alton,David	George, Bruce
Anderson,Donald	Ginsburg, David
Archer, Rt Hon Peter	Golding.John
Ashley, Rt Hon Jack	Graham, Ted
Barnett, Guy (Greenwich)	Grant,George(Morpeth)
Barnett, Rt Hon Joel (H'wd)	Grant, John (IslingtonC)
Bennett,Andrew(St'kp'tN)	Hamilton,James(Bothwell)
Bidwell, Sydney	Hamilton, W. W. (C'tralFife)
Booth, Rt Hon Albert	Harrison, Rt Hon Walter
Boothroyd, MissBetty	Hart, Rt Hon Dame Judith
Bottomley, RtHonA. (M'b'ro)	Heffer, Eric S.
Bray, Dr Jeremy	Hogg, N. (EDunb't'nshire)
Brocklebank-Fowler,C.	Holland,S. (L'b'th,Vauxh'll)
Brown, HughD. (Provan)	HomeRobertson,John
Brown, R. C. (N'castle W)	Homewood, William
Brown, Ronald W. (H'ckn'yS)	Hooley, Frank
Brown, Ron (E'burgh, Leith)	Howell, Rt Hon D.
Buchan,Norman	Howells,Geraint
Campbell,Ian	Hoyle,Douglas
Campbell-Savours,Dale	Hudson Davies, Gwilym E.
Carmichael,Neil	Hughes, Robert (Aberdeen N)
Cartwright,John	Hughes, Roy (Newport)
Clark, Dr David (S Shields)	Jay, Rt Hon Douglas
Cocks, Rt Hon M. (B'stol S)	John,Brynmor
Cohen,Stanley	Johnson, James (Hull West)
Coleman,Donald	Johnson, Walter (Derby S)
Concannon, Rt Hon J. D.	Jones, Rt Hon Alec (Rh'dda)
Cook, Robin F.	Jones, Barry (East Flint)
Cowans, Harry	Jones, Dan (Burnley)
Craigen,J.M. (G'gow,M'hill)	Kaufman, Rt Hon Gerald
Crawshaw, Richard	Kilfedder,JamesA.
Cryer,Bob	Lambie, David
Cunliffe,Lawrence	Lamborn,Harry
Cunningham, G.(IslingtonS)	Lamond,James
Cunningham, Dr J. (W'h'n)	Leadbitter,Ted
Dalyell,Tam	Leighton,Ronald
Davidson,Arthur	Lewis, Ron (Carlisle)
Davies, Rt Hon Denzil (L'lli)	Litherland, Robert
Davis, Clinton (Hackney C)	Lofthouse, Geoffrey
Davis, T. (B'ham, Stechf'd)	Lyons, Edward (Bradf'dW)
Deakins,Eric	Mabon, Rt Hon Dr J. Dickson
Dempsey, James	McCartney,Hugh
Dewar,Donald	McCusker,H.
Dixon,Donald	McDonald,DrOonagh
Dobson,Frank	McElhone,Frank
Dormand,Jack	McKay, Allen (Penistone)
Douglas,Dick	McKelvey,William
Douglas-Mann,Bruce	McNally,Thomas
Dubs,Alfred	McNamara, Kevin
Duffy, A. E. P.	McTaggart,Robert
Dunn, James A.	McWilliam,John
Dunnett,Jack	Magee, Bryan
Dunwoody, Hon Mrs G.	Marshal I, D(G 'gowS 'ton)
Eadie,Alex	Marshall, DrEdmund(Goole)
Eastham, Ken	Marshall, Jim (LeicesterS)
Edwards, R. (W'hampt'n S E)	Martin,M(G'gowS'burn)
Ellis, R.(NED'bysh're)	Mason, Rt Hon Roy
Ellis, Tom (Wrexham)	Maxton,John
English,Michael	Maynard, MissJoan
Ennals, Rt Hon David	Meacher,Michael
Evans, Ioan (Aberdare)	Mellish,RtHonRobert
Evans, John (Newton)	Mikardo,Ian
Ewing,Harry	Millan,RtHonBruce
Faulds, Andrew	Miller, Dr M. S. (E Kilbride)
Fletcher, L. R. (Ilkeston)	Mitchell,Austin(Grimsby)
Fletcher,Ted (Darlington)	Molyneaux,James
Ford, Ben	Morris, Rt Hon A. (W'shawe)
Foster, Derek	Morris, Rt Hon C. (O'shaw)

Morris, RtHon J. (Aberavon)	Snape, Peter
Mulley,Rt HonFrederick	Soley,Clive
Newens,Stanley	Spearing,Nigel
Ogden,Eric	Steel, Rt Hon David
O'Halloran,Michael	Stewart, Rt Hon D. (W Isles)
O'Neill,Martin	Stoddart, David
Orme, Rt Hon Stanley	Stott,Roger
Palmer,Arthur	Strang,Gavin
Park, George	Taylor, Mrs Ann (Bolton W)
Parker,John	Thomas,Dafydd(Merioneth)
Parry, Robert	Thomas, Mike (NewcastleE)
Pavitt, Laurie	Thomas, DrR. (Carmarthen)
Penhaligon,David	Thorne, Stan (PrestonSouth)
Powell, Rt Hon J.E. (S Down)	Tilley.John
Powell, Raymond (Ogmore)	Tinn,James
Prescott,John	Torney,Tom
Price, C. (Lewisham W)	Urwin, RtHon Tom
Race, Reg	Varley, RtHon EricG.
Radice, Giles	Wainwright,E.(DearneV)
Rees, Rt Hon M (Leeds S)	Walker, Rt Hon H.(D'caster)
Richardson,Jo	Watkins, David
Roberts, Albert(Normanton)	Weetch,Ken
Roberts, Ernest (Hackney N)	Welsh,Michael
Roberts,Gwilym (Cannock)	White, Frank R.
Robertson,George	White, J. (G'gowPollok)
Robinson, G. (Coventry NW)	Whitehead,Phillip
Rodgers, RtHonWilliam	Whitlock,William
Rooker, J.W.	Wigley,Dafydd
Roper,John	Williams, Rt Hon A.(S'sea W)
Ross, Ernest (Dundee West)	Wilson, Gordon (DundeeE)
Ross, Stephen (Isle of Wight)	Wilson, RtHon SirH.(H'ton)
Ross,Wm.(Londonderry)	Wilson, William (C'trySE)
Rowlands,Ted	Winnick, David
Sandelson,Neville	Woodall,Alec
Sever, John	Woolmer,Kenneth
Shearman,Barry	Wrigglesworth, Ian
Silkin, RtHon J. (Deptford)
Silkin, Rt Hon S. C. (Dulwich)	Tellers for the Ayes:
Silverman,Julius	Mr. Joseph Dean and
Skinner,Dennis	Mr. Frank Haynes.

NOES
Adley,Robert	Bryan, Sir Paul
Aitken,Jonathan	Buck,Antony
Alexander,Richard	Budgen,Nick
Alison, RtHon Michael	Bulmer,Esmond
Amery, RtHon Julian	Burden,SirFrederick
Ancram,Michael	Butcher,John
Arnold,Tom	Cadbury,Jocelyn
Atkins, Robert(PrestonN)	Carlisle, John (LutonWest)
Atkinson, David (B'm'th,E)	Carlisle, Kenneth (Lincoln)
Baker,Kenneth(St.M'bone)	Carlisle, Rt Hon M. (R'c'n)
Baker, Nicholas (N Dorset)	Chalker, Mrs. Lynda
Banks,Robert	Channon, Rt. Hon. Paul
Beaumont-Dark,Anthony	Chapman,Sydney
Bell,SirRonald	Churchill,W.S.
Bendall, Vivian	Clark, Hon A. (Plym'th, S'n)
Bennett, Sir Frederic (T'bay)	Clark, Sir W. (Croydon S)
Benyon,Thomas(A'don)	Clegg, Sir Walter
Benyon,W. (Buckingham)	Cockeram,Eric
Berry, HonAnthony	Cope,John
Best, Keith	Cormack, Patrick
Bevan,DavidGilroy	Corrie,John
Biffen, RtHon John	Costain,SirAlbert
Biggs-Davison,SirJohn	Cranborne,Viscount
Blackburn,John	Critchley,Julian
Blaker, Peter	Crouch,David
Body, Richard	Dean, Paul (NorthSomerset)
Bonsor,SirNicholas	Douglas-Hamilton,LordJ.
Bottomley, Peter (W'wichW)	Dover, Denshore
Bowden, Andrew	du Cann, Rt Hon Edward
Braine,SirBernard	Dunn, Robert(Dartford)
Bright,Graham	Durant,Tony
Brinton,Tim	Dykes, Hugh
Brittan, Rt. Hon. Leon	Eden, RtHon Sir John
Brooke, Hon Peter	Edwards, Rt Hon N. (P'broke)
Brotherton,Michael	Eggar,Tim
Brown, Michael(Brigg&Sc'n)	Elliott, SirWilliam
Browne, John (Winchester)	Emery, Peter
Bruce-Gardyne,John	Fairbairn,Nicholas

Fairgrieve,SirRussell	MacKay, John (Argyll)
Faith, MrsSheila	McNair-Wilson,M.(N'bury)
Farr,John	McNair-Wilson, P. (NewF'st)
Fell,Anthony	McQuarrie, Albert
Fenner, Mrs Peggy	Madel, David
Finsberg,Geoffrey	Major,John
Fisher, SirNigel	Marland,Paul
Fletcher, A. (Ed'nb'gh N)	Marlow,Antony
Fletcher-Cooke,SirCharles	Marshall, Michael(Arundel)
Fookes, Miss Janet	Marten, RtHon Neil
Forman,Nigel	Mates,Michael
Fowler, RtHon Norman	Maude, RtHon Sir Angus
Fox, Marcus	Mawby, Ray
Fraser, Peter (South Angus)	Mawhinney,DrBrian
Gardiner,George(Reigate)	Maxwell-Hyslop,Robin
Gardner, Edward (SFylde)	Mayhew, Patrick
Garel-Jones,Tristan	Mellor,David
Glyn, DrAlan	Meyer, SirAnthony
Goodhew,Victor	Miller,Hal(B'grove)
Goodlad,Alastair	Mills, Iain (Meriden)
Gow, Ian	Mills, Peter (West Devon)
Gower, Sir Raymond	Miscampbell, Norman
Grant, Anthony (HarrowC)	Moate,Roger
Gray, Hamish	Monro,SirHector
Greenway, Harry	Montgomery, Fergus
Griffiths, E. (B'ySt. Edm'ds)	Moore,John
Griffiths, Peter Portsm'thN)	Morgan,Geraint
Grist, Ian	Morris, M. (N'hamptonS)
Grylls,Michael	Morrison, HonC. (Devizes)
Gummer,JohnSelwyn	Morrison, Hon P. (Chester)
Hamilton, Hon A.	Mudd, David
Hamilton,Michael (Salisbury)	Murphy,Christopher
Hampson,DrKeith	Neale,Gerrard
Hannam,John	Needham,Richard
Haselhurst,Alan	Nelson,Anthony
Hastings,Stephen	Neubert,Michael
Havers, Rt Hon Sir Michael	Newton,Tony
Hawksley,Warren	Onslow,Cranley
Hayhoe, Barney	Oppenheim, Rt Hon Mrs S.
Heddle,John	Osborn,John
Henderson,Barry	Page, John (Harrow, West)
Heseltine, RtHon Michael	Page, Richard (SWHerts)
Hicks,Robert	Parkinson, RtHonCecil
Higgins, RtHon Terence L.	Parris, Matthew
Hogg,HonDouglas(Gr'th'm)	Patten,Christopher(Bath)
Holland, Philip (Carlton)	Patten,John(Oxford)
Hooson.Tom	Pattie,Geoffrey
Hordern,Peter	Pawsey, James
Howe, Rt Hon Sir Geoffrey	Percival,Sir Ian
Howell, Ralph (NNorfolk)	Peyton, RtHon John
Hunt, David (Wirral)	Pink, R.Bonner
Hunt, John (Ravensbourne)	Pollock,Alexander
Irving,Charles(Cheltenham)	Porter,Barry
Jenkin, RtHon Patrick	Prentice, Rt Hon Reg
Jessel, Toby	Price, Sir David (Eastleigh)
JohnsonSmith, Geoffrey	Prior, RtHon James
Jopling, RtHonMichael	Proctor, K. Harvey
Joseph, RtHon Sir Keith	Pym, Rt Hon Francis
Kaberry,SirDonald	Raison,Timothy
Kershaw,SirAnthony	Rathbone,Tim
Kimball,SirMarcus	Rees-Davies, W. R.
King, RtHon Tom	Ronton,Tim
Kitson,SirTimothy	Rhodes James, Robert
Knight, MrsJill	Rhys Williams,SirBrandon
Knox, David	Ridsdale,SirJulian
Lamont,Norman	Rifkind, Malcolm
Lang, Ian	Rippon, RtHonGeoffrey
Langford-Holt,SirJohn	Roberts, M. (Cardiff NW)
Latham,Michael	Roberts, Wyn (Conway)
Lawson, RtHon Nigel	Rossi, Hugh
LeMarchant,Spencer	Rost, Peter
Lennox-Boyd,HonMark	Royle, SirAnthony
Lester, Jim (Beeston)	Sainsbury,HonTimothy
Lewis,Kenneth(Rutland)	St. John-Stevas, Rt Hon N.
Lloyd, Ian (Havant& W'loo)	Shaw, Giles (Pudsey)
Lloyd, Peter (Fareham)	Shaw, Michael (Scarborough)
Luce,Richard	Shelton,William(Streatham)
Lyell,Nicholas	Shepherd, Colin(Hereford)
Macfarlane,Neil	Shepherd,Richard
MacGregor,John	Shersby, Michael

Silvester, Fred	Viggers,Peter
Sims, Roger	Waddington,David
Skeet, T. H. H.	Waldegrave,HonWilliam
Smith,Dudley	Walker, B. (Perth)
Speed, Keith	Walker-Smith, Rt Hon Sir D.
Speller,Tony	Wall,SirPatrick
Spence,John	Waller, Gary
Spicer, Michael (SWorcs)	Ward,John
Squire,Robin	Warren,Kenneth
Stanbrook,Ivor	Watson,John
Stanley,John	Wells,Bowen
Stevens, Martin	Wells,John(Maidstone)
Siewart,A.(ERenfrewshire)	Wheeler,John
Stewart, Ian (Hitchin)	Whitelaw, RtHon William
Stokes, John	Whitney,Raymond
StradlingThomas,J.	Wickenden,Keith
Tapsell, Peter	Wiggin,Jerry
Taylor, Teddy (S'end E)	Wilkinson,John
Temple-Morris, Peter	Williams, D.(Montgomery)
Thomas, Rt Hon Peter	Winterton,Nicholas
Thompson,Donald	Wolfson,Mark
Thorne, Neil(IlfordSouth)	Young, SirGeorge(Acton)
Townend,John(Bridlington)	Younger, RtHonGeorge
Townsend, Cyril D,(B'heath)
Trippier,David	Tellers for the Noes:
Trotter,Neville	Mr. Carol Mather and
van Straubenzee, SirW.	Mr. Robert Boscawen.
Vaughan.DrGerard

Question accordingly negatived.

Main Question put forthwith pursuant to Standing Order No. 39 (Amendment on Second or Third Reading):—

The House divided: Ayes 288, Noes 228.

Division No. 28]	[11.17 pm
AYES
Alexander, Richard	Goodhew,Victor
Ancram,Michael	Goodlad,Alastair
Atkinson, David(B'm'th,E)	Grant, Anthony (HarrowC)
Beaumont-Dark,Anthony	Gray, Hamish
Benyon,W. (Buckingham)	Griffiths, PeterPortsm'thN)
Berry, HonAnthony	Grist, Ian
Bevan, David Gilroy	Gummer,JohnSelwyn
Biggs-Davison,SirJohn	Hamilton, HonA.
Blackburn, John	Hampson,DrKeith
Bonsor,SirNicholas	Hannam,John
Boscawen,HonRobert	Hawksley,Warren
Bottomley, Peter (W'wich W)	Heddle,John
Bright,Graham	Henderson,Barry
Brinton,Tim	Hogg,HonDouglas(Gr'th'm)
Brooke, Hon Peter	Howell, Ralph (NNorfolk)
Brotherton,Michael	Hunt,John(Ravensbourne)
Brown, Michael(Brigg&Sc'n)	Jopling,RtHon Michael
Browne,John(Winchester)	Kershaw, SirAnthony
Bruce-Gardyne,John	Kitson,SirTimothy
Buck,Antony	Knight, MrsJill
Budgen,Nick	Lester, Jim (Beeston)
Bulmer,Esmond	Lloyd, Peter (Fareham)
Butcher,John	Luce,Richard
Cadbury,Jocelyn	Lyell, Nicholas
Carlisle, John (Luton West)	Macfarlane,Neil
Carlisle,Kenneth(Lincoln)	MacGregor,John
Carlisle, Rt Hon M.(R'c'n)	MacKay, John (Argyll)
Chalker, Mrs. Lynda	McNair-Wilson,M.(N'bury)
Clark, Hon A. (Plym'th, S'n)	McQuarrie, Albert
Cockeram,Eric	Major,John
Cope,John	Marlow,Antony
Costain,SirAlbert	Mates, Michael
Cranborne,Viscount	Mather,Carol
Douglas-Hamilton,LordJ.	Maude, Rt Hon Sir Angus
Dover, Denshore	Maxwell-Hyslop,Robin
Dunn, Robert(Dartford)	Mayhew, Patrick
Dykes, Hugh	Meyer, SirAnthony
Fairgrieve,SirRussell	Mills, Iain(Meriden)
Faith, MrsSheila	Mills, Peter (West Devon)
Fenner, Mrs Peggy	Moate, Roger
Fletcher, A. (Ed'nb 'gh N)	Monro,SirHector
Fletcher-Cooke,SirCharles	Mudd, David
Forman,Nigel	Murphy,Christopher
Fraser, Peter (South Angus)	Myles, David
Garel-Jones,Tristan	Neale,Gerrard

Need ham, Richard	Speller,Tony
Nelson,Anthony	Spicer, Michael (S Worcs)
Neubert,Michael	Squire,Robin
Newton,Tony	Stanbrook,Ivor
Onslow,Cranley	Stevens,Martin
Osborn,John	Stewart, A. (ERenfrewshire)
Page, John (Harrow, West)	StradlingThomas,J.
Page, Richard (SWHerts)	Taylor, Teddy (S'end E)
Patten, John (Oxford)	Thompson,Donald
Pattie,Geoffrey	Thorne, Neil (IlfordSouth)
Pollock,Alexander	Waddington, David
Prior, Rt Hon James	Waldegrave,Hon William
Proctor, K. Harvey	Walker, B. (Perth)
Rathbone,Tim	Waller, Gary
Rees-Davies, W. R.	Ward,John
Rhodes James, Robert	Watson,John
RhysWilliams,SirBrandon	Wells, Bowen
Rifkind,Malcolm	Wheeler,John
Roberts, M. (CardiffNW)	Wiggin,Jerry
Roberts, Wyn (Conway)	Wilson, Gordon (DundeeE)
Rossi, Hugh	Wolfson,Mark
Rost, Peter	Young, SirGeorge (Acton)
Sainsbury,HonTimothy	Younger, RtHonGeorge
Shepherd,Colin (Hereford)
Silvester, Fred	Tellers for the Ayes:
Sims, Roger	Mr. David Hunt
Speed, Keith	and Mr. Ian Lang.

NOES
Allaun, Frank	Cook, Robin F.
Bennett, Andrew (St 'kp 'tN)	Cowans, Harry
Booth, Rt Hon Albert	Craigen, J. M. (G'gow, M'hill)
Brown, Hugh D. (Proven)	Cryer,Bob
Brovm,Ron(E'burgh,Leith)	Cunliffe,Lawrence
Buchan,Norman	Dalyell,Tam
Campbell,Ian	Davis, T. (B'ham, Stechf'd)
Campbell-Savours,Dale	Deakins,Eric
Canavan, Dennis	Dean, Joseph (Leeds West)
Cocks, Rt Hon M. (B'stol S)	Dempsey, James
Concannon, Rt Hon J. D.	Dewar,Donald

Dixon,Donald	Marshall, DrEdmund(Goole)
Dobson, Frank	Marshall, Jim (LeicesterS)
Dormand,Jack	Martin,M(G'gowS'burn)
Douglas,Dick	Maxton,John
Dubs,Alfred	Maynard,MissJoan
Duffy, A. E. P.	Mikardo, Ian
Dunwoody, Hon Mrs G.	Millan,RtHonBruce
Eadie,Alex	Miller, Dr M.S. (EKilbride)
Eastham, Ken	Palmer,Arthur
Evans, John (Newton)	Parry, Robert
Ewing,Harry	Pavitt, Laurie
Freeson,Rt Hon Reginald	Penhaligon, David
George,Bruce	Powell, Raymond (Ogmore)
Hamilton, W. W. (C'tral Fife)	Prescott,John
Haynes, Frank	Richardson,Jo
Hogg, N. (EDunb't'nshire)	Robertson,George
Holland,S.(L,b,th,Vauxh,ll)	Ross, Ernest (Dundee West)
HomeRobertson,John	Sandelson, Neville
Hooley, Frank	Silkin, Rt Hon S. C. (Dulwich)
Hoyle, Douglas	Skinner,Dennis
Hughes, Robert (Aberdeen N)	Smith, Rt Hon J. (N Lanark)
Kilfedder,JamesA.	Snape, Peter
Lambie, David	Soley,Clive
Lamond, James	Strang,Gavin
Lofthouse,Geoffrey	Tinn,James
McCartney,Hugh	Welsh,Michael
McElhone,Frank	White, Frank R.
McKay, Allen (Penistone)	White, J. (G'gowPollok)
McKelvey,William	Winnick,David
McNamara, Kevin
McTaggart,Robert	Tellers for the Noes:
Magee, Bryan	Mr. Walter Harrison and
Marshall, D(G'gowS'ton)	Mr. James Hamilton.

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Committee of the whole House.— [Mr. Brooke.]

Committee tomorrow.