Social Security (Contributions)

HC Deb 22 November 1984 vol 68 cc506-18

Resolved, That the draft Social Security (Contributions, Re-rating) (No. 2) Order 1984, which was laid before this House on 12th November, be approved.

Resolved, That the draft Social Security (Treasury Supplement to Contributions) (No. 2) Order 1984, which was laid before this House on 12th November, be approved.—[Mr. Newton.]

10.25 pm

Mr. Michael Meacher (Oldham, West)

I beg to move, That an humble Address be presented to Her Majesty, praying that the Social Security (Contributions) Amendment (No. 2) Regulations 1984 (S.I. 1984, No. 1756), dated 8th November 1984, a copy of which was laid before this House on 12th November, be annulled. Although other recent changes in the social security rules as announced in the Chancellor's autumn statement —I refer to changes such as the flawed restoration of the 5 per cent. cut in invalidity pension, the restrictions on board and lodging charges claimed by private home owners and restrictions on young people leaving home and claiming benefit—have had a great deal more publicity, the changes proposed by the regulations are much more significant and, in one case in particular, much more damaging. That is why the Opposition have sought to pray against them this evening.

By far the most serious and reprehensible change is the proposal to reduce the Treasury's contribution to the national insurance fund from 11 per cent. to 9 per cent. That seemingly small switch conceals a cut in potential benefits of no less than £530 million. The background to that lies in the Government Actuary's report on the financial state of the national insurance fund, which shows an estimated surplus for the current financial year 1984–85 of £661 million. That favourable position is expected to continue into the next financial year 1985–86 so it is not short-lived and it is in no way an aberration.

Since the contributory principle is presumed to operate —the Government have never formally denied that—and since contributors have therefore paid into the fund with a contractual expectation that those on benefit will receive commensurate benefits, the only reasonable course for the Government to take would be either to increase benefits or to reduce contribution rates or to adopt some combination of the two. In fact, the Government have chosen the one alternative that is not reasonable, which cheats those on benefits of their entitled rights, which goes against the whole post-war tradition of the fund—to cut yet again the Treasury supplement.

I cannot protest too strongly to the House this evening that that is a gross abuse of the national insurance fund. The fund is being transformed into a Treasury lapdog in order to serve the function of making the Treasury's revenue-raising role so much easier. In practice, it means that the Department of Health and Social Security is no longer operating an insurance system; it has opened a bucket shop for the Treasury.

The Chancellor of the Exchequer has raided the national insurance fund in order to scrounge £0.5 billion this year to assist with reducing, in as secret and furtive a manner as possible, his notorious over-run on public expenditure. Every hon. Member knows that he overshot his target this year by more than £1.5 billion, and has screwed back one third of it at the expense of those on benefit who are mainly pensioners and who would otherwise be getting higher pensions, which have been paid for. That is the meaning of the regulations.

This is the fourth time that the Government have played that trick on pensioners. In 1980, they reduced the Treasury supplement from 18 per cent. of contributions to 14.5 per cent. Then they reduced it to 13 per cent. Last year the Chancellor did it again, and reduced it by a further 2 per cent. to 11 per cent., thereby saving the Treasury £450 million. The other side of the coin is that he was cheating pensioners of £450 million which they could otherwise have received. Under these regulations the supplement has been reduced by yet another 2 per cent. to just 9 per cent., which is half the level that this Government inherited from the previous Labour Government.

In all, therefore, by 1985 the Treasury will be paying into the national insurance fund a sum that is £2,000 million less, on an annual basis, than it would have been if the 18 per cent. level inherited from Labour in 1979 had not been tampered with. That is the significance of the regulations. That is either a measure of the cut that the Government have brought about in benefit levels which would have been achieved if the arrangements inherited from Labour had simply been continued, or it is a measure of the deliberate shift a more regressive system of taxation, in the form of national insurance contributions which have had to be raised much higher than would otherwise have been necessary. It is because the Government's policy in that respect is unjust—and gratuitously unjust, because it is not necessary — because it is yet another redistributive device by this Government that favours the rich by hitting further at the poor, and because it subverts the national insurance fund into an instrument for pegging public expenditure rather than meeting need, that we feel we must pray against the regulations.

I repeat that higher pensions and other benefits have been budgeted for and paid for. It is only the Treasury's deliberate intervention in the form of this hole-in-the-corner device that is preventing higher pensions from being paid. If DHSS or Treasury Ministers had any guts—I say that to the Secretary of State, and am glad to see him here—they would have come to the Dispatch Box and made the following public announcement: "Contributors have paid for higher pensions but we have decided not to increase pensions in line with the contributions made. We have decided instead to use the money for other purposes. Instead we have sacrificed the pensioners' money to maintain the Chancellor's puff that he is controlling public expenditure." That is what the Secretary of State should have told the House.

I cannot say too strongly that it is iniquitous that pensions are not being raised higher when the Government Actuary estimates that, even after this lower Treasury supplement is paid into the national insurance fund there will still be a surplus on the national insurance fund of £834 million for the next financial year. That sum, plus this reduction in the Treasury supplement, could have been used to increase pensions next Monday by an extra 50p a week for every single pensioner and by £1 for every married couple in retirement. That is the measure of what the Government are denying the pensioners, partly by these regulations.

We have a further reason for opposing the regulations. A second order amends the lower and upper earnings limits in line with inflation. The national insurance contribution is a regressive means of raising revenue. The lower earnings limit is substantially lower than the tax threshold. Moreover, as soon as earnings exceed the limit—this affects low paid, part-time women workers — contributions are levied on earnings below the limit and above it, thereby imposing a greater burden on the low paid. We are talking about the national insurance contribution trap in the same way as we talk about the poverty trap.

An upper earnings limit above which contributions are not levied — at about one and a half times average earnings — means that a much lower burden is placed upon the high paid. The relevance of what the Government have done is that the lower earnings limit is linked to the flat-rate retirement pension. Had pensions under this Government still been uprated in line with average earnings and not with prices, as they were under the previous Labour Government, the pension would now be about £36.85 a week for a single pensioner instead of £34.05. That would have meant rather higher upper and lower earnings limits.

The fact that the lower earnings limit is lower than it would have been means that the poor are forced to pay more for their benefits. The fact that the upper earnings limit is lower means that the well-off pay less for their benefits. That is the other reason why we object to the regulations and believe that they are unfair.

The regulations abuse the role of the national insurance fund for the purpose of counterfeiting lower public expenditure targets. They deny benefits to pensioners and others who have paid for them. As part of this Government's redistributive programme from the poor to the rich, the regulations increase the contribution burden on the poor and reduce it further for the rich. For those reasons we strongly oppose them.

10.38 pm

The Minister of State, Department of Health and Social Security (Mr. Tony Newton)

Before I deal with the comments by the hon. Member for Oldham, West (Mr. Meacher), I shall outline the purpose and main features of the regulations associated with the prayer.

This is a regular, annual, exercise in which the Government bring before the House their proposals for national insurance contribution rates and related matters.

I had hoped that the hon. Gentleman would acknowledge that for the second successive year there is to be no change in the rate of class I national insurance contributions. I understand the complaints when national insurance contributions are increased. It would have been pleasant if some reference had been made to the fact that this year they are not to be increased. The lack of increase benefits both employees and employers and reflects something which the hon. Gentleman's speech conspicuously failed to reflect—a determination to keep the tax contributions burden as low as possible.

I also hoped that the hon. Gentleman would mention that the year under discussion will be the first in which employers will receive full benefit from our abolition of the huge burden placed on them by the last Labour Government in the form of the national insurance surcharge. [Interruption.] I wonder how many jobs in the constituency of the hon. Member for Oldham, West were lost as a result of the national insurance surcharge. If the hon. Gentleman represents a constituency in which no jobs were lost because of the imposition of the national insurance surcharge, he must be unique among Members of Parliament. The abolition of the national insurance surcharge is alone worth more than £800 million to employers in the full year 1985–86. That, too, is part of the background to what we are debating.

The hon. Member said that, although the rate of class 1 contributions remains constant, there is, as usual, a change to the lower and upper earnings limits for employees' and employers' contributions. We are simply fulfilling the requirements laid down in the Social Security Pensions Act 1975 which requires the lower earnings limit to be equal to or no more than 49p below the basic rate of retirement pension and the upper limit to be between 6.5 and 7.5 times that rate. A pension rate of £35.80 next year — it will represent a real increase in the value of retirement pension in the period during which the Conservative party has been in office — points unavoidably to a lower earnings limit of £35.50, if we follow the usual practice of dealing in multiples of 50p.

The upper earnings limit permits a little more discretion. It would have been possible to extend it to £268.50, but the figure that we have chosen—£265 — represents a 6 per cent. increase on the current limit of £250 and is broadly the same as the general increase in the level of earnings. It is equivalent to 7.4 times the basic pension rate and therefore is close to the maximum legally permitted within the range of 6.5 to 7.5 times that limit, again as laid down in the Social Security Pensions Act 1975.

I do not think that any of us would say that we think that the existing limits for lower and upper earnings are perfect and should stand unquestioned for all time. Clearly, the operation of those limits is one of the aspects that we shall be considering in relation to the social security reviews. Everyone would acknowledge that some features of the lower earnings limit, including the bunching of quite a lot of employment aspects which bring one just below the earnings limits—for example, hours and pay rates—raise some question marks.

I hope that the hon. Member, if he follows the full logic of his remarks, will acknowledge that merely to sweep away the existing arrangements and, for example, to exempt all earnings below the lower earnings limit from contributions payable by those whose total earnings are above the lower earnings limit would cost, according to the last estimate that I saw about £6 billion in revenue. Where then would all the hon. Gentleman's commitments about higher benefits and the rest go? I hope that the hon. Gentleman will at least acknowledge that, whatever the criticisms that may be made about the operation of the present system, a number of difficult questions are involved in considering how best the system might be altered. I hope that the hon. Gentleman will simply accept from me that we shall be looking at these problems in a constructive spirit—I am especially glad to see my right hon. Friend the Secretary of State nodding his head in what I take to be agreement—in the social reviews that we are undertaking.

Most people earn between the existing lower and upper earnings limits, and so will be virtually unaffected by these changes. Their contribution will rise only in so far as their earnings rise. The contributions of employees with weekly earnings of over £250 will increase by up to £1.35 per week, and up to £1.05 in the case of contracted-out employees, because of the increase in the upper earnings limit. For the same reason, employers will have to pay increased contributions for employees with high earnings. The maximum increase will be £1.57 per week. Again, that will be slightly different for contracted-out employees for whom they will be £1.01.

If there are those in the House—I sense that there will not be too many on the Opposition Benches—who are worried about the additional burden that may represent for some employers, I should also observe that another significant factor in the proposals that the Government are currently putting—if I may stray a little, Mr. Deputy Speaker, from the proposals that we are debating—is that we intend alongside the proposed extension of statutory sick pay, to relieve employers of the cost of the secondary contributions that they make on payments under that scheme. We intend to introduce that relief on existing statutory sick pay in advance of our proposals for extending the scheme as a whole from April, 1986.

That will mean savings to employers of up to £40 million a year from their national insurance contributions on their payments for spells of sickness pay up to eight weeks—as well as meaning in the longer term that they will not bear the costs of employers' contributions on the additional payments of SSP which they would make from April 1986 if Parliament endorses the proposals in the Social Security Bill that we shall be debating on Monday.

Mr. Tim Smith (Beaconsfield)

I was most encouraged to hear what my hon. Friend said about the lower earnings limit. There is now a widening gap between the starting point for the payment of national insurance contributions and the payment of tax. It seems that if we do nothing about it that gap will widen judging from what my right hon. Friend the Chancellor said recently. In his review, will my hon. Friend consider the possibility of removing the link with the single person's pension to see whether we could substitute a new link perhaps with the starting point for tax?

Mr. Newton

I note my hon. Friend's suggestion. He will understand that while we are studying thoroughly and, I hope, reasonably openly, many social security issues, I do not wnat to be taken too far down the path of commenting on that in detail.

I ask my hon. Friend and perhaps the hon. Member for Oldham, West to recognise that, apart from the financial consequences that might flow from alterations in the existing arrangements which would plainly have to be taken into account, raising the lower earnings limit in a way that leaves more people outside the national insurance system means also leaving them outside the rights conferred by that system to receive benefit in certain contingencies. If people are freed from paying national insurance contributions, they are in certain circumstances paying a price as well as gaining the immediate benefit of not having to pay the contributions while they are employed. There are many people for whom that balance would be difficult to draw, a fact which Ministers and Opposition spokesmen should take into account.

Hon. Members will be aware that self-employed people pay their contributions in two parts—the flat rate class 2 contribution and the profits-related class 4 contribution. As it is not proposed to increase the class 1 rate, it follows that no increase is needed in the class 4 rate which is derived from it. The profits limit for class 4 contributions rises automatically each year like the earnings limit for class 1 contributions. The figures proposed this year are £4,150 and £13,780, the latter figure being 52 times the upper earnings limit.

The formula for determining the class 2 rate gives a figure of £5.05 a week. However, for the past few years we have set that rate at a figure 20p below the one given by the formula as a deliberate and modest but helpful incentive to small businesses. I am glad to say that we have been able to increase that abatement to 30p so that the new weekly rate of class 2 contribution will be £4.75—an increase of only 15p a week.

The effect of the changes is that for self-employed people who pay only class 2 contributions there will be an annual increase of £7.80. But for those with profits between £4,150 and £13,000 there will be a reduction of £4.80 a year, assuming the same level of profits as in 1984–85. Like employees who earn more, those self-employed who make higher profits will, of course, pay more. For those with profits of or above £13,780, the new upper profits limit, the increase will be £44.34 a year—less than £1 a week. The small earnings exception from class 2 liability also rises automatically—in this case from £1,850 to £1,925 a year. Lastly, the proposed voluntary class 3 rate is, as usual, 10p below the class 2 rate, giving a figure of £4.65 a week from next April.

I should like to refer to some of the remarks that the hon. Member for Oldham, West made about the Treasury supplement to the national insurance fund. Without attempting to engage in a lengthy debate with him about the philosophy and purpose of the fund, I must observe that his remarks appeared to show a misunderstanding of the fact that the national insurance scheme, whether in relation to pensions or anything else, is not a funded scheme; it is a pay-as-you-go scheme.

The implication of the hon. Gentleman's approach to the scheme appears to be that, if there is more money in the fund, that should automatically be paid out to the beneficiaries. The more normal way of looking at the position would be that if the fund is taking in more money than it needs to pay the benefit rates, the benefit should accrue to contributors. I do not want to engage at great length now in that argument, but I do not believe that the Government of whom the hon. Gentleman was a member, or any other Government of whom I am conscious in the years since the national insurance fund was set up, has operated the fund on the basis that if the income from contributions rises at any time, the automatic consequence of that is to increase the benefits that are paid out. I do not believe that the fund could sensibly operate on that basis.

Mr. Meacher

The Minister has not answered my point. Where there is a substantial surplus running into several hundred million pounds, and where there has always been a Treasury supplement substantially larger than the Government are now permitting it to be, there could be a significant increase in pensions, which I estimate to be 50p a week per pensioner, or there could be a cut in contribution rate. My objection is that the Government have done neither of those things but have used the opportunity to grab back the money so as to pretend that they are holding public expenditure in check.

Mr. Newton

I move on to the point which I think is most significant in relation to the hon. Gentleman's remarks—his apparent belief that the way in which the expenditure on benefits is being financed represents a steady reduction in the burden on the taxpayer in comparison with the burden on the contributor.

It has to be recognised that: in recent years the tendency has been for a growing amount of social security expenditure as a whole to be met directly by the taxpayer out of the Consolidated Fund—in particular, as the hon. Gentleman has rightly acknowledged, in respect of supplementary benefit, but also to a significant extent as a result of the growth in non-contributory benefits of various kinds.

In his remarks the hon. Gentleman also appeared to fail to acknowledge that the proportion of benefit expenditure met by general taxation has risen substantially overall in recent years—from about 40 per cent. of total benefit expenditure in 1976–77 to about 49.5 per cent., estimated, in 1984–85. Against that background, it does not seem unreasonable—I accept that this is a matter on which there can be differences of judgment—to say that it is appropriate to maintain a balance which is less heavily weighted to increase the burden on taxpayers given the developing structure of the payment of the benefit system itself.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

If we follow the Minister's logic, should we expect him to take another 2 per cent. next year? As the hon. Member for Oldham, West (Mr. Meacher) has said, the Government have halved the contribution since 1980. Is he implying that he will take another 2 per cent. next year?

Mr. Newton

I am not implying or intending to imply anything for the future. Given the way in which the burdens of social security expenditure have changed in recent years and the way in which the pattern of social security expenditure has changed in recent years between contributory and non-contributory benefits, it does not seem to be unreasonable to say that the funding of contributory benefits paid out of the national insurance fund should be met increasingly by contributions directly from contributors rather than from contributors' contributions from the taxpayer. The taxpayers' effort should be directed increasingly at the benefits which properly and rightly fall on the taxpayer, which is the growing part of benefit expenditure which has nothing to do with the national insurance fund. I do not want to be taken as saying anything about what conclusions might be drawn from that in any other year as that will be a matter of judgment at the time. I merely say that a reasonable set of judgments have been taken over a period.

Mr. Tim Smith

What is the theoretical justification for the Treasury supplement? Why do we have one? Es there a historical explanation?

Mr. Newton

The theoretical justification goes right back to the Beveridge report and the concept that the national insurance system was a tripartite collaboration between employees, employers and the taxpayer. That concept was based on contributions from the first two and general taxes from the third. When we consider how the world, the social security system and the pattern of national insurance contributions has changed since the Beveridge report was published, we quickly come to the conclusion that to lean on that original concept some 40 years later would be to lean on a stick so far bent as to be on the verge of breaking. Indeed, I would say that the stick would be broken already.

The speech of a Minister on such an occasion is geared inevitably towards employers and employees, those who are concerned with the existing labour market and especially those who are employed within it. I hope that the House will not forget, especially certain Labour Members who have challenged me from a sedentary position, that national insurance can be a significant factor in influencing the level of employment. Employment is rising—

Mr. John Prescott (Kingston upon Hull, East)

Part-time employment.

Mr. Newton

Employment is rising against the background of a rising population of working age. The burdens of the national insurance system are an important factor in that. When considered in the wider perspective, the most important single feature of the order, together with the other matters that I have referred to such as the abolition of the surcharge and our proposals for contributions and statutory sick pay, is that the burden of contributions on employers next year is expected to be significantly less in real terms than in the current year despite the rising labour force. We believe that that will be a significant contribution to one of the aims that we all share, which is to improve the prospects for jobs.

11 pm

Mrs. Margaret Beckett (Derby, South)

I followed the Minister's argument with great interest. It could be summarised as follows. The Government's economic policy is failing, has failed and is seen to fail. There is mass unemployment, which they expect to continue to rise. The burden of that mass unemployment will fall increasingly not on the portion of the burden borne by the taxpayer, which is a relatively fair way for the burden to fall, but on this regressive form of tax—that is, national insurance contributions. As mass unemployment rises, the burden will fall more on the poor and less on the rich. That is the logic of the Minister's argument.

If we look at the Government's record during the past year or so, we realise that, as the Minister pointed out, employers' contributions in the coming year will be significantly less. That is in line with the pattern of the Government's record which has meant a rise in the contribution of employees.

There has been reference to the level of the lower earnings limit — substantially less even than the supplementary benefit level for a couple, let alone a couple with a family, and less than half the level of supplement for a one-child family. It is an indication of how regressive is the tax and how much it falls on the lower paid.

The balance of the fund is rising as contributions rise and benefits fall. We hear a great deal from the Government about value for money and efficiency. As my hon. Friend the Member for Oldham, West (Mr. Meacher) has said, the surplus in the fund in the present year will run at £661 million. He has dealt admirably with that point, and I do not propose to dwell on it.

However, I propose to refer briefly to the balance in the fund. The Government are, characteristically, showing some divergence between their actions and their words. They speak constantly of efficiency. They speak of how they are against waste. They speak of taking the advice of those who tell them what the balance of expenditure should be. But the advice of the Government Actuary is, and has been for many years, that the minimum level of the balance in the fund should be maintained at 16.6 per cent.

We recognise that the Government might want to run it a little above that figure. Indeed, last year, when similar orders were debated in another place, the Government spokesman said that the balance was running comfortably above what the Government Actuary had recommended — it was scheduled to run at 21.7 per cent. of the benefits payable from the fund. Next year, the Government propose to run the balance at 27 per cent. of the benefits payable from the fund — 10.4 per cent. above what the Government Actuary recommends. That may sound a rather obscure figure, but if we recognise that it is £2,348 million more than the Government Actuary said was prudent to keep in the national insurance fund, it makes the constant claim not only by Ministers from the Department of Health and Social Security but by the Chancellor that there is not enough money to pay benefits look more than a little ludicrous.

For £2,348 million we could pay not only the increase in benefits to the unemployed, and put them all on the long-term rate—which the Government continually say that they cannot afford—but also the full increase in child benefit that the TUC sought at the time of the last Budget, and the increase that my hon. Friend the Member for Oldham, West identified as an additional 50p for every pensioner and £1 for every married couple. We could probably throw in the invalid care allowance as well. That is not, by anybody's standards, prudent management—it is waste, and inefficiency at the cost of the most vulnerable in our community.

We are running somewhat late and I know that hon. Members do not want to dwell on the details of the order. I ask the Minister to deal with one further point. I note that even with this level of surplus and balance in the national insurance fund, the Government hope that the further changes will increase those balances even more. I wonder why. The Government's record and rhetoric make two possible answers spring to mind. One of them is that the Government are seeking to promote the argument that we cannot afford the pension scheme introduced with all-party consent in the social security legislation of 1975, because of the burden that will fall on contributions. It will enhance that argument if the Government shift the burden of social security expenditure towards contributions and away from the taxpayer. I wonder whether it is in support of their argument that the pension scheme must be cut back that the Government wish to see the balance and the surpluses continue?

The other possibility is just as likely, or even more so. It is that the Government themselves do not believe their own forecasts of economic prosperity. I note from the Government Actuary's report that he costs out every increase in unemployment of 100,000 at an extra cost of £190 million in public expenditure. I therefore again ask the Minister to tell us whether the excessive surplus and the excessive balance that the Government keep in the fund reflects their actual expectations of economic prosperity and the future trend in unemployment.

The Government must tell us one way or the other. Either all their words about greater efficiency mean nothing or their words about an expectation of reduced unemployment and an increase in economic prosperity mean nothing. They cannot believe in both. The Government must choose which explanation they prefer.

11.7 pm

The Parliamentary Under-Secretary of State Health and Social Security (Mr. Ray Whitney)

This is the first time that I have had the privilege of speaking from this Dispatch Box as a junior Minister at the Department of Health and Social Security, and I am happy to have the opportunity to do so. I have found the debate a somewhat surprising experience. The hon. Member for Oldham, West (Mr. Meacher) seemed to be describing a world that I found difficult to understand.

Mr. Tony Banks (Newham, North-West)

The real world.

Mr. Whitney

It has little to do with the reality of the financial position of the country, or the excellent management of the social security system by my right hon. Friend the Secretary of States

The hon. Gentleman commenced by talking about what he called the notorious over-run in public expenditure. It was difficult to imagine that those remarks could be coming from the Opposition, because we constantly hear Opposition Members demand greater and greater over-runs in public expenditure. The number of tens of billions of pounds which they demand seem to depend on what day of the week it is.

To hear a complaint about a notorious over-run in public expenditure—a far cry from accurate complaint, in any case—was my first surprise. The second was the hon. Gentleman's colourful comment that my right hon. Friend was operating a bucket-shop for the Treasury. Only 10 days ago, my right hon. Friend announced an addition, over the public expenditure White Paper, of nearly £0.5 billion on the social security budget, taking it to nearly £40 billion a year. He can hardly therefore be described as running a bucket shop for the Treasury. It is a record which has added, since we came to power, 27 per cent. more in spending in real terms. Of course, that is accounted for in part by the existence of 700,000 more pensioners and in part, sadly, for reasons that we all understand, by an increase in unemployment. We on the Government Benches realise, though the Opposition may not, that there are also real increases in the rates of benefit. It was surprising to hear the Opposition use that particular attack.

The main concern was of course the question of the Treasury supplement and the role that it plays in the calculation of the social security budget. That point was dealt with by my hon. Friend the Minister of State, but, as the hon. Member for Derby, South (Mrs. Beckett) also touched on it, perhaps I should seek yet again to make the point clear. We have to examine both the Treasury supplement and the contributions from the Consolidated Fund. It is therefore essential to take account of what has happened in recent years: — the Treasury contribution has increased greatly. It was interesting to examine the time when the hon. Member for Oldham, West was a Minister in the Department of Health and Social Security as, at that time, some 40 per cent. of benefit expenditure came from the Treasury. It will be 48.5 per cent. in the next financial year. The arguments that my hon. Friend the Minister advanced clearly show why it is right that, in this re-rating, we take the opportunity to reduce the Treasury supplement from 11 per cent. to 9 per cent. That is especially so as, for the second year running, we have held the employer's and the employee's contribution steady. That is an important record, especially when it is set against the fact that this is the first year in which employers will benefit from the abolition of national insurance surcharges, which Labour introduced.

The hon. Member for Derby, South mentioned the size of the national insurance fund. A careful balancing act is involved. The Labour Government recognised that but they forget the case for the upper and lower limits, for example, when they were happily transferred to the Opposition Benches. The balancing act with the national insurance fund involves keeping a prudent head of benefit as a working reserve. In March 1986 it looks as though we shall have something like 14 weeks head of benefit. That can be regarded as par for the course. In March 1981 the national insurance fund stood as high as 17 weeks head of benefit and in March 1983 it went as low as 10 weeks. We are proceeding along a middle course above the level of any incipient danger, considered by the Government Actuary's Department to be about nine weeks head of benefit, but well below the more cautious reserve which has been thought right at other times.

That is an adequate state of affairs and I hope that, with the benefit of the explanation offered by my hon. Friend the Minister of State and that which I have offered, the Opposition will accept it has been a considerable achievement to have held steady the Class 1 national insurance contributions, to have increased the levels of benefit ahead of prices, to have protected pensioners and all other beneficiaries and, above all, to have held the balance of the national insurance fund so that employers are helped. We have avoided the notorious over-runs of expenditure of which the Opposition are so fond which would sound the death knell of our hope and intention to restore employment and prosperity. I therefore urge the House to reject the prayer.

Question put:—

The House divided: Ayes 58, Noes 162.

Division No. 16]	[11.14 pm
AYES
Alton, David	Hogg, N. (C'nauld & Kilsyth)
Banks, Tony (Newham NW)	Home Robertson, John
Barron, Kevin	Hughes, Dr. Mark (Durham)
Beckett, Mrs Margaret	Hume, John
Beith, A. J.	Kirkwood, Archy
Bell, Stuart	Leadbitter, Ted
Boyes, Roland	Lloyd, Tony (Stretford)
Brown, Gordon (D'f'mline E)	Loyden, Edward
Brown, Hugh D. (Provan)	McDonald, Dr Oonagh
Brown, R. (N'c'tle-u-Tyne N)	McGuire, Michael
Brown, Ron (E'burgh, Leith)	McKay, Allen (Penistone)
Canavan, Dennis	McKelvey, William
Clark, Dr David (S Shields)	McNamara, Kevin
Clarke, Thomas	McWilliam, John
Clay, Robert	Marek, Dr John
Clwyd, Mrs Ann	Marshall, David (Shettleston)
Cocks, Rt Hon M. (Bristol S.)	Meacher, Michael
Cohen, Harry	Meadowcroft, Michael
Corbett, Robin	Miller, Dr M. S. (E Kilbride)
Corbyn, Jeremy	Nellist, David
Craigen, J. M.	Pike, Peter
Davis, Terry (B'ham, H'ge H'I)	Powell, Raymond (Ogmore)
Deakins, Eric	Prescott, John
Evans, John (St. Helens N)	Rogers, Allan
Gould, Bryan	Ross, Ernest (Dundee W)
Hamilton, James (M'well N)	Rowlands, Ted
Hancock, Mr. Michael	Skinner, Dennis
Heffer, Eric S.	Smith, C.(lsl'ton S & F'bury)

Spearing, Nigel	Tellers for the Ayes:
Welsh, Micheal	Mr. Don Dixon and
	Mr. Frank Hayes.

NOES
Alexander, Richard	Garel-Jones, Tristan
Amess, David	Gregory, Conal
Arnold, Tom	Griffiths, Peter (Portsm'th N)
Ashby, David	Ground, Patrick
Atkinson, David (B'm'th E)	Gummer, John Selwyn
Baker, Nicholas (N Dorset)	Hamilton, Neil (Tatton)
Baldry, Tony	Hanley, Jeremy
Banks, Robert (Harrogate)	Hannam, John
Batiste, Spencer	Hargreaves, Kenneth
Bellingham, Henry	Harris, David
Benyon, William	Harvey, Robert
Best, Keith	Hawkins, Sir Paul (SW N'folk)
Bevan, David Gilroy	Hayward, Robert
Biggs-Davison, Sir John	Heathcoat-Amory, David
Boscawen, Hon Robert	Heddle, John
Bottomley, Peter	Henderson, Barry
Bottomley, Mrs Virginia	Hickmet, Richard
Bowden, Gerald (Dulwich)	Hind, Kenneth
Braine, Sir Bernard	Holland, Sir Philip (Gedling)
Bright, Graham	Holt, Richard
Brinton, Tim	Howarth, Alan (Stratf'd-on-A)
Brooke, Hon Peter	Howarth, Gerald (Cannock)
Brown, M. (Brigg & Cl'thpes)	Hubbard-Miles, Peter
Bruinvels, Peter	Hunter, Andrew
Buck, Sir Antony	Johnson Smith, Sir Geoffrey
Burt, Alistair	Jones, Gwilym (Cardiff N)
Butterfill, John	Jones, Robert (W Herts)
Carttiss, Michael	Key, Robert
Cash, William	King, Roger (B'ham N'field)
Channon, Rt Hon Paul	Knight, Gregory (Derby N)
Chope, Christopher	Knight, Mrs Jill (Edgbaston)
Clark, Dr Michael (Rochford)	Knowles, Michael
Clarke, Rt Hon K. (Rushcliffe)	Lang, Ian
Colvin, Michael	Lawler, Geoffrey
Conway, Derek	Leigh, Edward (Gainsbor'gh)
Coombs, Simon	Lennox-Boyd, Hon Mark
Cope, John	Lester, Jim
Couchman, James	Lilley, Peter
Cranborne, Viscount	Lloyd, Peter, (Fareham)
Dorrell, Stephen	Lyell, Nicholas
Dover, Den	MacGregor, John
Dunn, Robert	Major, John
Durant, Tony	Mather, Carol
Evennett, David	Mayhew, Sir Patrick
Eyre, Sir Reginald	Montgomery, Fergus
Fallon, Michael	Morrison, Hon C. (Devizes)
Favell, Anthony	Murphy, Christopher
Fenner, Mrs Peggy	Needham, Richard
Forsyth, Michael (Stirling)	Newton, Tony
Forth, Eric	Normanton, Tom
Fowler, Rt Hon Norman	Norris, Steven
Fox, Marcus	Page, Sir John (Harrow W)
Franks, Cecil	Pawsey, James
Fraser, Peter (Angus East)	Peacock, Mrs Elizabeth
Freeman, Roger	Prentice, Rt Hon Reg
Gale, Roger	Rathbone, Tim
Galley, Roy	Rhodes James, Robert

Rippon, Rt Hon Geoffrey	Thompson, Donald (Calder V)
Roberts, Wyn (Conwy)	Thompson, Patrick (N'ich N)
Roe, Mrs Marion	Thorne, Neil (Ilford S)
Rossi, Sir Hugh	Thurnham, Peter
Rowe, Andrew	Tracey, Richard
Ryder, Richard	Trotter, Neville
Sackville, Hon Thomas	Twinn, Dr Ian
Sainsbury, Hon Timothy	Viggers, Peter
Shelton, William (Streatham)	Waddington, David
Shepherd, Colin (Hereford)	Walden, George
Silvester, Fred	Waller, Gary
Smith, Tim (Beaconsfield)	Ward, John
Speller, Tony	Wardle, C. (Bexhill)
Spencer, Derek	Watson, John
Spicer, Michael (S Worcs)	Watts, John
Stanbrook, Ivor	Wheeler, John
Steen, Anthony	Whitfield, John
Stern, Michael	Whitney, Raymond
Stevens, Lewis (Nuneaton)	Wilkinson, John
Stevens, Martin (Fulham)	Wolfson, Mark
Stewart, Andrew (Sherwood)	Wood, Timothy
Stradling Thomas, J.	Yeo, Tim
Sumberg, David
Taylor, John (Solihull)	Tellers for the Noes:
Terlezki, Stefan	Mr. Michael Neubert and
Thomas, Rt Hon Peter	Mr. Archie Hamilton.

Question accordingly negatived.