§ I now turn to social security. This is much the biggest single element in public expenditure—more than one-quarter of the total.
§ About half of social security expenditure is on benefits for pensioners. The costs are borne mainly by contributors and we had in November to announce further increases in national insurance contribution payments, which take effect from next month.
§ The House will remember that, because prices have been falling faster than expected, the provision in last November's uprating for the rise in prices in fact exceeded it by 2ֵ7 per cent.
§ The forecast method of uprating, which gave rise to this situation, has never worked well, for a forecast made at Budget time of what the rate of inflation will be at the time the uprating takes place in the following November is necessarily uncertain. Increases can therefore be larger or smaller than intended. There have been years when prices 143 have been under-estimated, as in 1981, when there was a 2 per cent. underprovision, which we made good in the following year, and other years such as 1980 and 1982, when the error has gone the other way. In each case there has necessarily been a year's delay before the error of the previous year could be corrected.
§ The system of trying to forecast inflation, introduced in 1976, is a fragile basis for calculations of such importance to millions of our fellow citizens. Given the experience of the past seven years, the Government believe that it would now be right to restore the more certain system that prevailed before 1976. This is the system by which benefit upratings are calculated on what has actually happened to prices, rather than on what might happen in future—if the forecast proves right.
§ From this November, therefore, we shall return to the historic, or actual, method. The necessary legislation will be introduced immediately.
§ The uprating this November will be based on the rise in prices in the 12 months to May of this year. That figure will be announced by the Department of Employment in the usual way, and will be the basis for the uprating statement as soon as possible after that. We have chosen the May figure because it is the latest month we can use as the basis of the calculation and still make sure that all recipients get their increase in November.
§ The uprating will be based on whatever the May figure turns out to be. At this stage, of course, it is impossible to say exactly what it will be.
§ It seems likely, however, to be in the region of 4 per cent. Of course, in November, as I have already told the House, the annual rate of inflation may for a time be running at about 6 per cent., but if we had retained the old system, and taken full account of last year's 2ֵ7 per cent. overpayment, the increase in benefits would have been significantly smaller than is now proposed.
§ There will be no question of asking pensioners to return any of the pension money they have already received, no question of any so-called clawback. Beneficiaries will retain the full benefit of the extra payment they are now receiving; and part of it is likely to continue into 1984.
§ Linked public service pensions will be raised in November by the same percentage as benefits. For unemployment benefit, the increase will be in addition to the restoration of the 5 per cent. abatement which I have already mentioned.
§ On the basis I have described, the position for pensioners over the lifetime of this Government is this. Between the November upratings of 1978 and 1983 prices are likely to have risen by some 70 per cent. and pensions by some 75 per cent. Our pledge to maintain the value of the pension over the lifetime of this Parliament will thus have been more than fulfilled.
§ There is one other social security benefit to which we attach no less significance. It plays a major part in easing the unemployment trap, and so in our strategy of improving incentives for everyone. It is important for families, and particularly for the low paid. Indeed, it is the benefit which provides the greatest help to many of the poorest families in the country. I refer, of course, to child benefit.
§ I am glad to be able to tell the House that from November 1983 the rate of child benefit will be increased from £5.85 to £6–50. One-parent benefit will be 144 correspondingly increased to £4.05. On the basis of our inflation forecast, both benefits will then be worth more than ever before. I know that the House, and the country, will welcome this news very warmly.
§ The Government also give special priority to help for the sick and disabled, and for widows, and I am proposing further measures to increase that help.
§ In my first Budget I exempted from tax war widows' pensions and widows' child dependency allowances. In 1980 I introduced a bereavement allowance to benefit widows in the tax year of their husband's death. However, because their income in that year is already covered by other allowances, many newly widowed women receive no financial benefit from that allowance. Accordingly, it will now be extended to cover the year after the husband's death as well, at a cost of some £30 million in a full year. This means that more than twice as many widows will benefit.
§ We also intend to provide significant new help for about 55,000 invalidity pensioners. Until now the so-called invalidity trap prevented them from receiving the longterm rate of supplementary benefit. I announced earlier that the unemployed over 60 will now be entitled to the long-term rate. We shall extend this concession to those over 60 who are sick and disabled, so that they, too, will qualify straight away for the long-term rate. In addition, I am glad to be able to tell the House that people under 60 who have been on incapacity benefits for a year will also qualify for the long-term rate. This will get rid of the invalidity trap—and quite right, too. There will also be an increase from £20 to £22ֵ50 in the amount which disabled and chronically sick people can earn before their benefit is reduced.
§ While we need to ensure that social security benefits go to those most in need, I am concerned that we should not discourage people from saving. We shall therefore increase from £2,500 to £3,000 the limit above which savings disqualify people for supplementary benefit. There will be an additional disregard of £1,500 for the surrender value of life assurance policies. We shall also increase to £500 the corresponding limit for single payments of supplementary benefits to help with exceptional expenditure.
§ We will also help over 11,000 war pensioners by replacing the existing vehicle scheme by a more flexible and equitable cash allowance, set at a rate which will preserve the war pensioners' traditional preference over civilian benefits.
§ These measures, taken together with the increase in child benefit and one-parent benefit and the ending of the abatement of unemployment benefit, will cost over £140 million in 1983–84 and around £400 million in 1984–85. The increases over the existing provision in the social security programme will be charged to the contingency reserve. This is in addition to the cost of the extension of the long-term rate of supplementary benefit to the over-60s, to which I referred earlier.
§ But caring means more than cash. Many of the key needs, for example, of the elderly, are met by voluntary groups and charities. If they are to do all they can, we must help the helpers.
§ Once again we have been pressed to reimburse charities for VAT on their taxable purchases. But, however exhaustively and sympathetically we examine this proposal, the difficulties remain and cannot be swept aside. I have been able in previous years to extend VAT 145 reliefs for the disabled and charities serving them. But a VAT refund scheme would be expensive to operate and indiscriminate in its effects, benefiting not only those charities which do valuable work in the community but also—and sometimes disproportionately so—many other bodies with very limited or controversial aims which do not command public support. So, as before, I have been forced to conclude that we are right to channel our help in other ways.
§ But I intend to give some extra help. In 1980 I introduced substantial new tax reliefs for convenanted donations to charities, by allowing relief against higher rates of income tax up to a ceiling of £3,000 a year; and last year I increased the limit on exemption from capital transfer tax for gifts made within a year of death from £200,000 to £250,000. I propose now to carry these two measures further by raising to £5,000 the ceiling on higher rate relief for gifts made by deed of covenant and by abolishing the ceiling on exemption from capital transfer tax for charitable bequests. All outright gifts and bequests to charities will now be entirely free from CTT.
§ I have had representations about the position of companies which would like to second their staff, with pay, to charities. At present the employee's salary is not allowable for tax because it is not an expense incurred by the company wholly and exclusively for the purpose of its business. For normal business expenses we must continue to stick to that general principle. But I am satisfied that it is right to make an exception in this limited case. Companies which lend staff to work for charities and continue to pay their salaries will now be able to treat the cost as an allowable expense for tax purposes.