§ Mr. Andrew MacKay (Berkshire, East)Despite the lateness of the hour, it is important that the House be given an opportunity at the end of the year to debate the options which my right hon. Friend the Chancellor of the Exchequer might have in his 1986 Budget. I believe that that debate will continue throughout the country and the House for several weeks until my right hon. Friend rises in his place in March and tells an expectant nation how large the tax cuts will be. Because of the considerable economic recovery, which has now been sustained over a number of years, almost all neutral independent economic observers believe that the Chancellor will have room for substantial cuts in taxation in his next Budget.
I wish tonight to discuss some of the options available to the Chancellor. He has the option of cutting the basic rate of tax, the option of increasing thresholds, he could cut national insurance contributions for employers or employees, he could restrict any cuts in those contributions to the lower paid in the bottom three bands, or he could choose to have a lower rate of tax for those earning below average incomes.
I immediately dismiss the last option, because that would cause structural difficulties for the Inland Revenue, and therefore is not a practical option even though it is superficially attractive.
I and many of my hon. Friends believe that certain important factors must be considered when deciding on which option. We strongly believe that the the lower paid should obtain the maximum benefit from any cut in income tax or reduction in national insurance contributions. There are several reasons for that belief: first, it is a matter of equity, secondly, because it is in the interests of the economy; and, thirdly, because it will increase employment opportunities and encourage many of those who currently choose not to work to find employment.
Currently, the basic rate of tax is 30 per cent. The great majority of us, if we are not on the bottom two bands, pay a national insurance contribution of 9 per cent. I suggest that that, in practical terms, means that we are paying 39 per cent. tax at basic rate. I do not believe that people notice on their pay slips how their deductions are divided between taxation and national insurance contributions.
The Chancellor, in his imaginative Budget this year, set the precedent for a varying level of taxation by reducing to 7 per cent. the national insurance contribution paid by band 2 earners—those earning between £60 and £95 a week—and by reducing to 5 per cent. the contributions paid by band 1 earners—those earning under £60 a week. Therefore, their real tax is 37 per cent. and 35 per cent. respectively.
My hon. Friends and I believe that a sensible option would be, first, further to reduce the national insurance contributions that we are paying, and secondly, to increase the level of thresholds and not change the basic rate of tax. Let us assume for the sake of argument—and it is not an unreasonable assumption—that the Chancellor has £2.5 billion to play with, and that is a conservative estimate. We could allow a 6 per cent. rise in thresholds, which would take 500,000 workers out of having to pay tax, and, more important—because we should not by and large be in the business of taking people out of tax 474 brackets altogether—it would help considerably many low-paid workers, who would then pay only a small amount of tax.
The other half of the £2.5 billion could be used for reducing national insurance contributions. We could cut contributions by 2 per cent. in band 1, 4 per cent. in band 2, and 6 per cent. in band 3. There would be real tax rates of 32 per cent., 34 per cent. and 36 per cent. together with the standard rate of 39 per cent., when including national insurance contributions.
The Chancellor, in his forceful and well-received speech at the Conservative party conference in October, hit a chord to which many people could respond when he referred to the single nurse earning £140 per week. He rightly said that deductions of tax and national insurance contributions amount to £41 per week, and her take-home pay is only £99 a week. If we reduced the basic rate of tax by 2 per cent., as many people suggest, that nurse would be only £2 a week better off. On the other hand, if we followed our proposals of reducing her national insurance contribution and raising thresholds, she would be £5 a week better off—in other words, over twice as much better off under our proposals.
There are dangers of fiddling with the basic rate of taxes, of helping the better off in the community, while the benefits to those whom we are most anxious to support, the lower paid, would be minimal. That is why we feel strongly that whatever assistance is available should go towards the lower paid as the most deserving in the community, who will improve employment prospects and the economy by having that extra boost.
§ Mr. Tim Yeo (Suffolk, South)I congratulate my hon. Friend the Member for Berkshire, East (Mr. MacKay) on securing the debate and on the extremely eloquent way in which he put all the points that I was intending to make. I do not think that I would be betraying any confidence if I said that I have enjoyed working closely with him on the subject during the past few days and weeks, and with several other hon. Friends whom I am delighted to see in the Chamber at this early hour of the morning.
The concern of political parties about the problem of low pay is clearly illustrated by the number of hon. Members in the Chamber. There are no fewer than five Conservative Back Benchers present, but only one Labour Member and no Members on the Liberal and Social Democratic party Benches. That typifies the cynical way in which the latter two parties are willing apparently to express emotional concern about the problems of the low paid, but when they have the chance to take part in potentially a three-hour debate, they cannot produce a single representative, at a time when there is not even a by-election.
§ Ms. Clare Short (Birmingham, Ladywood)I make it clear that we in the Labour party have agreed that it is foolish for large numbers of us to stay up all night when there is no vote, and I shall speak for the Labour party. We are aware that a private argument is going on the Tory party. Staying up all night to make speeches on which there is no vote does not mean that there is a serious commitment to the low paid. The hon. Gentleman's points are cheap and have no significance.
§ Mr. YeoI find that a most extraordinary attitude towards the process of parliamentary debate. Any 475 argument is far from private. We are having a constructive public discussion about some of the options open to my right hon. Friend the Chancellor. The fact that the alliance cannot produce one representative suggests a lack of real interest in this subject.
I endorse everything that my hon. Friend said. My experience during the past few months has convinced me of the political wisdom of following the route that he described. I have been struck during my constituency duties by the fact that people on average or even above average earnings, who would benefit substantially from a cut in the basic rate of tax, say as clearly as anyone that they believe that resources should be devoted to the low paid in the 1986 Budget.
Many people find that it is not worth their while taking up employment. I admit that it is often low paid, as many unemployed people's first opportunity of work is likely to be low paid. We are anxious that the next Budget helps them. My hon. Friend gave the example of the nurse earning £140 a week. Someone earning £100 a week provides an even more dramatic illustration. For such a person, a 2 per cent. cut in the basic rate of tax would be worth 60p, whereas our proposals would be worth £4.27 a week. Such a decision would be politically wise, and there is ample economic justification for it.
We are not advocating a specific level of tax relief. We do not know what the Chancellor's judgment will be. He does not know himself, as variable factors must be assessed nearer Budget day. Employment can be stimulated by means other than tax cuts—we must also consider employers' national insurance contributions. If they could be further reduced, the cost of employment would also be reduced. Other steps were initiated in the autumn statement. There is to be additional expenditure on housing, roads and hospital building, all of which is good for employment.
I am delighted that my hon. Friend the Member for Huntingdon (Mr. Major) is the Minister who is to reply. His experience as a Whip means that he is quite familiar with my views on these issues. I should like to take this opportunity to congratulate him on achieving his new position. We are fortunate to have him here, because he has been deeply involved in the social security White Paper. If he had had the choice, I dare say he would not have chosen this morning to reply to a debate. He spoke of national insurance contributions only last week.
The changes introduced in last year's Budget were of historic proportions. The Budget introduced reduced rates in bands 1 and 2 for employees and in bands 1, 2 and 3 for employers. It has already done much to improve incentives for the low paid, and in 1986 we want to build on that start. If we follow the route that my hon. Friend the Member for Berkshire, East signposted, we shall target the available relief towards more than 6 million full-time adult workers, that is, those who earn up to £140 a week. It is a way of introducing a reduced rate of tax. I hope that during the coming weeks my hon. Friend the Member for Huntingdon and my right hon. Friend the Secretary of State will urge their colleagues in the Treasury to adopt that course.
Finally, I strongly welcome the social security White Paper proposals on family credit. My only anxiety is that the possible shift of child benefit from being paid directly to the mother may mean that some benefits will not reach her. As family credit is based on net rather than gross income, it represents a major step forward and opens the 476 way for large-scale tax cuts at the lowest end, because those tax cuts will be partially self financing. The Government have a chance to move into a genuinely virtuous cycle. This is an important debate, and I commend my hon. Friend's ideas to the House.
§ Mr. Steve Norris (Oxford, East)If it was difficult for my hon. Friend the Member for Suffolk, South (Mr. Yeo) to follow my hon. Friend the Member for Berkshire, East (Mr. MacKay), whom I congratulate on initiating this important debate, it is even more difficult for me to follow my hon. Friend the Member for Suffolk, South. As my hon. Friend the Member for Suffolk, South frankly pointed out, many hon. Members have worked on this subject for some time, and it is fairly obvious that our views generally accord and run along similar lines. I am encouraged that the foundation of my hon. Friend's logic on why it is important to direct any available spare finance in the next Budget follows exactly the same lines as mine. There are two strands of argument. One is about social equity, and the other is about the practical consequences of the measures available to the Chancellor.
I congratulate my hon. Friend on the excellent article called "Tax cuts that would make jobs" which was published in The Times of 16 December. Ai hon. Members will recognise that it was an important, and a welcome, contribution to the debate. My gloss on my hon. Friend's arguments is as follows. It may be uncomfortable for many Conservative Members to accept that a written answer on 29 March makes it clear in a stark and tabular form that the direct tax burden on a family of four who are on two thirds of average earnings has increased since 1978–79 by 10 per cent., while for the same family on 10 times average earnings the burden of taxation has fallen by 22 per cent. It is equally true that the highest marginal rates of tax—the sort of rates that used to have Conservative business men jumping up and down in the aisles—are more than 90 per cent., and are, sadly, being paid by the low paid. No Conservative Member could welcome that. I recognise that it is the product of a complex relation between tax and benefits, and that even those who find that the burden of tax on them is proportionately greater than it is on those on higher incomes are, nevertheless, in many ways significantly better off then in 1978–79. However, an unforeseen by-product of some of our more positive financial and fiscal changes was the present position, and the low paid now rightly demand our attention.
I endorse in the strongest possible terms the point made by my hon. Friend the Member for Suffolk, South about the extent to which, in Conservative circles, people who earn many times average earnings and for whom the concept of average earnings has no relevance are saying that they do not need reductions if the alternative is that the money can be better expended in alleviating the plight of the unemployed, creating jobs, and getting industry and the economy moving more quickly. It is to their credit that they say that.
This strand of representation made to me and to many hon. Members runs counter to the traditional, Labour-inspired image of Conservative business men as unmitigatedly venal and avaricious. The reality surprised many of us, but the message is clear and unequivocal: in terms of social equity, the point is accepted even by those 477 who would have most to gain from the alternative—one among those put forward by my hon. Friend the Member for Berkshire, East—of a direct cut in tax rates.
As powerful as the arguments about social equality, to which I hope I have added in some small way, are the arguments about the practical effectiveness of direct tax reduction as against threshold and national insurance adjustments. The hon. Member for Birmingham, Ladywood (Ms. Short) will forgive me if I indulge in some private grief this morning and discuss the fortunes of the Conservative party with some of my hon. Friends. It may be believed that reductions in income tax rates have a dramatic quality, in terms of their perception by the electorate, which make them especially valuable and desirable.
I question that conclusion. It has been my consistent experience that when the Government knock 1 per cent., 2 per cent., or even 7 to 8 per cent. off income tax, those who are paid on PAYE will find that almost no difference has been made to them. Therefore, even on the grounds of its supposed marketing effectiveness, I do not believe that the 2p argument—I am using 2p, because I agree that we should suggest a figure of £2.5 billion as being available to the Chancellor, because it is a figure that has been used before and because it is as convenient as any other for the purposes of this argument—bites at the level at which it is suggested it should.
In addition, what I know with even greater certainty and clarity, because it is a conclusion that I can draw for myself, is that while I am sure that every hon. Member welcomes 2p in the pound off tax and would not look a gift horse in the mouth, it will not get me to work much earlier than I do, nor will it make me stay there all that much longer. In addition to my duties in the House, I spend every other waking and breathing moment trying to earn a decent living. In so doing, the rate of tax that I pay is in common with that of a number of my hon. Friends—we seem to share much personal experience in the debate, never mind our confluence of thought.
I simply do not buy the argument that 2p off income tax will give the average business man the greater incentive with which he not only becomes richer, so the theory runs, but goes out, works harder, innovates, invests and produces more jobs at the end of the day. Unless I am mistaken, the thrust of the argument about incentives to the better off, to those with intitiative and entrepreneurial skill is that as one reduces tax and makes them perceive a greater reward for their labour, they are inspired to greater effort to work harder and, in so doing, to produce more jobs. I do not believe that that argument works in relation to the amount of money that my right hon. Friend the Chancellor of the Exchequer is likely to have, on even the most optimistic forecasts of what is available for this year. I do not believe that 2p in the pound is effective as a mechanism either in terms of its marketing impact or of its impact on incentives.
Secondly—here I express a different view from some Labour Members as to its impact—I take the view that it is reasonable for any person on unemployment benefit, faced with the prospect of low-paid employment, to say that it is simply not worth his while taking a low-paid job at less—for example as a married man with two children—than £120 a week when that amount will be available on benefit. One of the most unhelpful and 478 unrealistic comments that is occasionally heard from these Benches is that such people are drones on the system, and that they are morally reprehensible because they are seeking to live on benefit and not to get jobs.
If I were offered the choice between bringing into my household £120 in benefit for not working and any significant smaller amount if I took a low-paid job, I would be likely to take the former course, and I suspect that that is a rational and reasonable choice to make. In a positive sense, not a condescending or critical sense, I believe that the relationship between unemployment benefit and low paid jobs is crucial.
It follows that when my hon. Friends adduce the example, much quoted in the newspapers, of the nurse on £140 a week, I would infinitely prefer to see that nurse, if a single person, £5 a week better off as a result of adjustments to the national insurance rate and thresholds rather than be £1.90 better off if she gets a 2p tax reduction.
One always feels reticent about employing such a phrase, because it is hackneyed, but anybody who has employed people in low-paid jobs will recognise that a constructive contribution can be made by employers who are prepared to take on people in low-paid jobs. There are jobs that it is not worth an employer's while to offer if he has to pay high wages for them, but if he can offer a real, realistic wage for them that can allow him to be profitable it will at least enable him to offer some person, perhaps on a part-time basis, employment at a low wage. Such jobs exist, and the money that an employer is prepared to pay out is as real as any other amount of wages that he is prepared to pay.
Therefore, it is of crucial importance to recognise that the trigger mechanism of national insurance which operates not necessarily at the top band but at the £35.50 and the £55 marker on present rates is a significant factor in determining what kind of low-paid employment will be offered. National insurance is different in this respect from the thresholds. The irony is that this is because it is in the interests of both employers and employees that wages should be kept below the trigger figures. Above those figures one reaches the ridiculous position that one earns an extra 50p but loses £2. That cannot be sensible.
The longer-term goal is the complete reform of national insurance charges. If one were to delve into the matter, I suspect that one would find that there is no significant justification for the principle of national insurance charges. The principle that there is any direct relationship between what one pays and and what one gets out of the system has been blown to smithereens time after time by successive Chancellors of the Exchequer, of either political colour. The crucial argument about triggers is whether their impact will encourage or discourage employment. Anybody who has offered salaries or wages of around that figure knows that they are a discouragement.
Last year my right hon. Friend the Prime Minister said frequently and, I thought, to some considerable effect, particularly at Budget time, that her concern was to address precisely the anomaly that my hon. Friends and I have addressed this evening: that there is a significant number of people who, quite rightly, do not seek employment and who, for other reasons, may not be offered employment by employers because of the mismatch between the social security arrangement, such as it is, the taxation arrangements and the availability of 479 low-paid employment. That was a crucial part of my right hon. Friend's explanation of the Budget strategy last year. I hope that the Parliamentary Under-Secretary of State for Health and Social Security, my hon. Friend the Member for Huntingdon (Mr. Major), will convey to my right hon. Friend the Prime Minister and to my right hon. Friend the Chancellor of the Exchequer the view that what was good for the country 12 months ago in relation to this argument is good now.
To that may I add a final rider. To imagine that either the mood of the nation, or the logic of the argument, or the rules of arithmetic have changed in the last 12 months would be a profound misjudgment, the consequences of which would be extraordinarily far-reaching for this Government.
§ Mr. Bowen Wells (Hertford and Stortford)I believe that in this debate we are addressing one of the most crucial and difficult matters that could be discussed at this time in the morning. I join in congratulating my hon. Friend the Member for Berkshire, East (Mr. MacKay) on raising this subject for debate. His heretical views have been echoed by my hon. Friends the Members for Suffolk, South (Mr. Yeo) and for Oxford, East (Mr. Norris). I join them also in welcoming the Parliamentary Under-Secretary of State for Health and Social Security, my hon. Friend the Member for Huntingdon (Mr. Major), to his post. It is the first time that I have spoken in a debate when he has been sitting on the Treasury Bench. I congratulate him upon his appointment. We are glad that such a sensitive, sensible person is holding that position at this particular time.
The really important issue that has to be addressed is one of the absurdities of our national life today. My hon. Friend the Member for Oxford, East said that it would be logical and sensible for a married man with two children to remain on benefit rather than to work. That is because we have not tackled the inter-relationship between our tax system and our benefits system. The Conservative party, in the run-up to the general election in 1970 and during the lifetime of that Government, have had as one of its objectives the establishment of a system that took account of both the tax system and the social security system. We have lamentably failed to follow that argument through, but we must continue to aim for that solution. It is crucial to getting employment going, particularly for young people, and to providing the human energy necessary to expand the nation's economy. That is why this discussion is so important.
The review by the Department of Health and Social Security was heralded as the "new Beveridge", but it does not take account of the fact that child benefit is paid universally regardless of need and it does not tackle the stupidity of paying supplementary benefit to people leaving school at 16 years of age. If we do not tackle those issues, we cannot begin to tackle the whole crucial problem.
If we fail to combine the social security and tax systems and compound that by trying, through a miasma of seeking popular support by reducing the tax rate from 30 per cent. to 28 or 25 per cent., we are seriously mistaken.
We must remove from tax large numbers of people in the lower income tax brackets. But we have no mechanism by which we can do that. If we raise income tax bands, we shall benefit the whole of the tax-paying community. 480 That is desirable, but it is not crucial to those on above average earnings. The higher the earnings, the more senseless that becomes. We have no mechanism by which we can pinpoint taxpayers in the lower bands. That is because we have not related the social security system to the income tax system.
We must certainly use the thresholds and the fact that the employees' national insurance contribution has been increased by the Government, resulting in the absurdity of increases in tax for the lower paid. I support my hon. Friend the Member for Berkshire, East in saying that we must adopt a mixture of increased thresholds and decreased national insurance contributions for employees.
I hope that we have an imaginative Budget. The Chancellor of the Exchequer wants to reform the tax system . I hope that his Green Paper shows how far he is prepared to adopt radical solutions. I hope that we can establish a mechanism that will allow us to take the low paid out of tax to make it worth their while to go to work and to use their brains and energy to expand the country's wealth so that we can afford social security benefits for those truly in need.
While my wife and I enjoy drawing child benefit and spending it without having to pay tax, we do not need it, yet there are men and women looking after children on their own who need double the child benefit amount to provide a decent standard for themselves arid their children. It is absurd that we should still be giving child benefit free of tax to households such as mine—the same must apply to the majority of hon. Members—without giving adequate benefit to those who are truly in need.
We should make it our objective—an honourable objective that would attract the support of the vast majority of people—to produce an equitable tax and social security system that gave an amount of which we could be proud to those in need. We would, in the process, make it more profitable for people to go to work and provide for their families.
§ Mr. Lewis Stevens (Nuneaton)I join others in congratulating my hon. Friend the Member for Berkshire, East (Mr. MacKay) on choosing this important topic for debate. In addition, I congratulate the Minister and his Department on the social security review that has been conducted and the White Paper that has recently been produced.
That White Paper looked at the possibility of putting all types of benefit on the same basis. It also uses the net income for income support and family credit systems, rather than the gross wage, which has in the past caused distortions. That may conflict somewhat with the view that some of us have in relation to tax benefits for the low paid, in that they may lose benefit under the new system compared with the present gross wage.
That, however, is for the future—because the new system does not take effect until1988—and it is now, or at least in the next Budget, that we seek benefits for the low paid. We urge the Chancellor to increase the thresholds and reduce national insurance contributions, particularly for the three low bands. That would achieve benefit for people on low pay, and we must concentrate on that section.
Reference was made to the nurse on 140 a week gaining by £5 through tax threshold changes, as against 481 gaining £2 through a 2p standard rate reduction. It is more beneficial for those on £60 to £70 a week. The proportion that they gain is most important to them, remembering the total amount on which they must live.
People often become confused in that connection. Because people are in receipt of a low wage, it is thought that they automatically get family income supplement, but that is not the case. They may not qualify for that benefit. The position is that people who earn more and pay higher rates of tax all benefit by roughly the same, in cash terms. on the tax side, but not on the national insurance side. Because of that, we should be directing benefit to the low paid. We want people to be encouraged to work, especially the young, and it has been pointed out that, for various reasons, many youngsters have tended to price themselves out of work. The situation is changing for the better, but if that is true they will form quite a large part of the low paid. They will not receive benefits, and so young people need more encouragement.
Pensioners form another group that may be helped by altering thresholds. When they receive a state pension plus a small private pension, they may find themselves having to pay niggling little bits of tax. It is important to remove as many of those people as possible from the tax bracket.
According to the autumn statement, if my right hon. Friend the Chancellor goes along with an indexation of the thresholds in all cases, that will cost about £1.25 billion. The figure of £2.5 billion has been mentioned, which would be double. However, I would go further. It would not matter if we did not increase all the thresholds and increased only those of the personal allowances; in other words, the bottom threshold for the single person and the married person's allowance.
Why should the married person's allowance go up automatically? There may be a case, although perhaps not in this Budget, for looking more closely at the benefits of the married man's allowance and considering whether it should not be an allowance for those who work. Perhaps non-working dependent wives could have some special tax concession. At the moment, some people have a double advantage. I am not suggesting that it should go back to the Exchequer, but it should be distributed across the thresholds. Again, that would have the benefit of pushing the threshold as high as possible. It is still very low.
A single person starts to pay tax on earnings of about £40 a week. Below that figure such a person is already paying national insurance contributions. When earnings reach half the average, at about £90 a week, there is a lot of taxable income in that chunk. By pushing up the tax threshold we improve the situation of that group.
A large number of low earners are in jobs where they are likely to remain low paid. People can move through the different strata, and many of the Government training initiatives have given great encouragement to people to retrain to move out of those lower brackets, but it is still a relatively low wage for such a large proportion. For a single person on half average earnings the figure is about 25 per cent. That is a substantial amount of tax to pay, with national insurance included. The more we can move our tax position away from that £40 level, the more will people be encouraged into lower paid jobs.
The self-employed will also be encouraged. It is easy to think of the self-employed as well off. The enterprise allowance lasts only 12 months. It is not an indefinite 482 subsidy and they are not necessarily earning a lot of money. In those early years they would benefit from such an increased threshold. We sometimes forget how important the self-employed are. That might encourage people to have a go. They might think that it is worth while to work for themselves if there is a lower tax penalty.
Many years ago, when the west midlands was a very prosperous area, it was not uncommon for people to say that overtime was not worth doing because the taxman took all the money. I am sure that the same could be said about some jobs today. It is discouraging, and anything that my right hon. Friend the Chancellor can do in the Budget to improve the lot of the low paid—to give them better opportunities and some extra money to achieve a real improvement in their standard of living—will be well worth while. Moreover, because the money will go to the lowest paid it will almost inevitably be transmitted directly into goods and services, thus increasing the demand for products, with consequent effects on employment. I believe that that is what we ought to do and I congratulate my hon. Friend the Member for Berkshire, East on raising the subject today.
§ Ms. Clare Short (Birmingham, Ladywood)Despite the lateness of the hour, I welcome this opportunity to debate incentives for the low paid. I am sorry to break the mood of mutual self-congratulation among the Conservatives, but I am surprised at the narrow attitude that they have taken, isolating the taxation aspect only and not considering the cumulative effect of Government policies on the low paid which has been to drive many more workers into poverty since 1979.
Even on the narrow tax point, the House should appreciate that, despite the 1985 Budget being heralded as a Budget for jobs, there has been only a marginal impact on the large increase in tax burdens faced by low-paid workers since 1979 and a negligible effect on the poverty trap. Despite increasing the tax threshold beyond the rate of inflation for the second consecutive year, the overall tax burden for those on low and average earnings remains significantly higher than it was before the Government took office in 1979.
Because increases in tax thresholds are worth much more to higher rate taxpayers, the 1985 Budget continued the trend of earlier Conservative Budgets in concentrating the benefit of tax concessions on those with already high incomes. The average cut in income tax since 1979 has been £246 per week for a person earning more than £50,000 per year, but for low wage earners it has been little more than £1 per week, which is immediately wiped out by the increases in indirect taxation in the 1985 Budget alone. Therefore, we have a very long way to go before we even get back to where we were in 1979 in terms of the effect of taxation on the low paid. The situation is actually very much worse than that, and concentrating on the narrow point of taxation will not cater for the needs of the low paid in Britain today.
As I said in my intervention, Labour Members welcome the chance to discuss low pay and I discussed with some of my comrades whether it was worth their while to stay up late to put our view. Ever since I was a civil servant and had to run around waking Ministers to reply to debates on the Consolidated Fund, I have taken the view that this is one of our sillier ways of organising our business and, as Labour Members all agree, in our view on the subject 483 of low pay I believe that it is better for other Labour Members to go home to bed so as to work more efficiently for their constituents or do their Christmas shopping rather than sitting here debating at great length and repeating one another. I should therefore make it absolutely clear to Conservative Members that lack of attendance on the part of Labour Members implies no lack of commitment to the low paid.
§ Mr. NorrisI hope that the hon. Lady is not suggesting that those Conservative Members who are present are in some way in dereliction of their duty to their constituents.
§ Ms. ShortIndeed not. I would not wish to suggest that for a minute. I am aware that a healthy argument is going on within the Conservative party, and I respect those within that party who are willing to give up their sleep to press the case for the low paid upon their uncaring Government. I do not for a minute suggest that those Conservative Members who are present are neglecting their duties in any way.
The Opposition want to put on record the fact that we are aware that the increase in poverty wages in Britain since 1979 is no accident. It has been a deliberate part of the Government's philosophy to increase the disparity in incomes between the rich and the poor, and they have been enormously successful in achieving that aim.
One of their methods has been to increase massively the rate of unemployment, which has made workers in secure trade unions weak, as a result of which they have accepted lower pay. From 1979 to the present time, unemployment has increased from 1.2 million to 4 million, and that has caused enormous hurt to individuals and incredible economic waste.
During this period, the rich have got richer and the poor have got poorer. The figures are startling. The proportion of adult men working in manual jobs for low pay—defined as two thirds of average income, which is the internationally recognised definition of low pay—has more than doubled since 1979 from one in 10 to one in five. For full-time women in manual jobs, the proportion on low pay has increased from 66 per cent. to more than 75 per cent. In total, the proportion of all adult workers, including part-timers, earning poverty pay has increased from 36 per cent. to 41 per cent.
The pay of young workers has fallen by almost a third, while youth unemployment has doubled. The poorest tenth of male workers have seen their real pay fall by 5 per cent. while unemployment has trebled to well over 3 million. Low-paid workers are worse off now in real terms than they were in 1886.
As for the high paid, the best paid tenth have received real pay increases of 13 per cent. In 1984, the pay of the top 100 company directors rose by 25 per cent. following an increase of 61 per cent. between 1981 and 1983. The chairman of ICI was given a 68 per cent. pay rise in March 1985, taking his salary from £171,000 to £287,000 a year—and increase of £2,200 a week.
According to the Financial Times on 20 July 1985,
the pay of chief executives in industry has recently gone up very fast and in a good many cases bears little relation to performance".The top directors of former nationalised industries which the Government have privatised have given themselves average pay rises of more than 85 per cent. in two years, In British Telecom, top pay has gone up from £68,000 to £160,000; and in Amersham International, from £30,000 484 to £130,000. On top of this pay windfall the Government have given the high paid generous income tax cuts amounting on average to £246 a year compared with a mere £1.06 a week for the low paid.That is a pattern of an enormous increase in income and cuts in tax for the very highly paid, but the very reverse for the low paid. This redistribution is quite deliberate, and the Government have taken a series of measures to bring it about.
§ Mr. Lewis StevensIs not the hon. Lady aware that during the time of the last Labour Government the real pay of many industrial workers dropped very rapidly, particularly in the car industry in the west midlands, where relative pay dropped rapidly during the early 1970s.
§ Ms. ShortI am aware that there were some difficulties under the last Labour Government in the west midlands, but the people there who used to work in the car industry do not work at all now. All the figures that I have quoted of relative movements in pay since 1979 stand absolutely. It is no good the hon. Member referring back to the previous Labour Government. Under the two successive Tory Governments since 1979 there has been a massive redistribution in favour of the rich and away from the poor. Inequality in Britain for those in work, let alone the unemployed, has increased massively. It has been deliberate and is part of the Government's philosophy and ideology. They have gone to enormous trouble to try to drive down the wages of the lowest paid.
The Government have abolished the fair wages resolution which existed in Britain since Victorian times to ensure that contractors bidding for Government contracts would not bid each other down by offering lower wages. It has had bipartisan support until recently, when the Government got rid of it.
The Government introduced the young workers' scheme. It is now to be abolished because it has been so unsuccessful. The Government have been paying a huge subsidy of £15 a week to anyone who would employ a young worker at less than £50 a week. The scheme has been heavily criticised by the Public Accounts Committee because it is so wasteful and because 80 per cent. of the jobs so subsidised would have existed anyway. Its whole purpose has been to drive down young people's wages.
The youth training scheme has been used in exactly the same way. In some of our arguments across the Chamber about the youth training scheme, Conservative Members have deliberately misunderstood our criticism. We all share the aim of improving the training system, but we do not share the aim of using schemes for the young unemployed to drive down the wages of young workers.
If the old youth opportunities programme allowance had been uprated in line with inflation, it would now be about £40 a week. The youth training scheme currently pays £27.50. The community programme for the long-term unemployed has been used in exactly the same way.
§ Mr. NorrisOne matter that the hon. Lady raised which has always concerned me greatly is the idea that young workers—those serving their apprenticeship or just out of it—can realistically expect pay which is very closely related, as my hon. Friend the Member for Nuneaton (Mr. Stevens) will confirm, in engineering at least, to the pay of a fully skilled man with 10 or 15 years' experience.
485 I hope that the hon. Lady will recognise the genuine difficulty that an employer who is faced with the prospect of either paying 90 per cent. of the skilled rate to a lad who has only just finished his apprenticeship, or paying 100 per cent. of the skilled rate to someone who has 10 or 15 years' experience is almost certain to say that it is not worth his while to go through the apprenticeship process, because he is much better off, in terms of sheer productivity, in taking the fully skilled person.
Is it not in the interests of young people in the long term that we should recognise that experience after qualification and after apprenticeship or training scheme counts for a good deal, and that there has to be a realistic differentiation between the wage rates paid at qualification and after considerable industrial experience?
§ Ms. ShortI agree absolutely with the hon. Gentleman that there has to be a difference between the wage rate paid to the trainee and that paid to the fully qualified and experienced worker, but I do not agree that we have that problem. It is another of the myths that have been propagated so assiduously by the Government. All the studies of levels of youth unemployment and its relationship to wage levels show that movements in wages levels are not the explanation of the great rise in youth unemployment. The rise in youth unemployment parallels absolutely but rises faster than the general rise in unemployment. Indeed, when unemployment is falling, youth unemployment falls more rapidly.
There is no way in which the movement of wage levels for young people in Britain can explain the ups and downs from the 1950s onwards of youth unemployment in Britain. That myth has been put about and the Government went to a lot of trouble to commission research to try to prove their case—they were unsuccessful—and to undermine the famous Makeham study, which is the authoritative study in this area. I agree with the broad principle but not with the implication that the movement in youth wage levels explains high levels of youth unemployment.
Just as the Government have used the youth training scheme to work on the degradation of young people so that they take work, accept low allowances and receive a general rate for a job—they are levering young people down—the community programme has been used to work on the desperation of the long-term unemployed to try to lever down acceptable rates for the adult unemployed. Recently, yet another scheme was announced. It parallels the young workers' scheme and is to be called the job start scheme. It will be piloted in January in six areas. The new scheme will pay £20 a week to an adult worker who has been out of work for 12 months or more if he accepts a wage of less then £80 a week. One million workers work for less than £80 a week. It is a myth that reducing wages will generate jobs.
The Government's proposals on wage councils will exempt young people from their protection and weaken the protection afforded to adults. Recently, the regional low pay units conducted a competition to discover which unit had the lowest paid worker on its books. The west midlands won the competition with an Asian female machinist working in a factory for 15p an hour. That is how bad conditions are getting in Britain generally and in the west midlands in particular.
486 Another measure that has been adopted to bring about more low pay is the cut in the wages inspectorate. This is an incentive to employers not to pay the minimum legally required rates. The number of people who are not paid the legal rates has increased. Privatisation is part of the process. It saves money if it is used to get workers to do the same job for much lower wages. That is the pattern throughout Britain.
It has been suggested that there is a problem in providing incentives to work and that benefits are so high that large numbers of people are not willing to work. That does not stand up to scrutiny. For example, when the Department of Health and Social Security, the Treasury and the Department of Employment were giving evidence to the Select Committee on the Treasury and Civil Service in 1982, they all agreed that the vast majority of people were better off in work than out of work. Large numbers of people work for wages lower than the amounts that they would receive in benefits because of the sense of commitment to the dignity of work.
Another excuse is the argument that cutting wages will create jobs. The Government have made an enormous effort to prove that thesis but have been unsuccessful. In a consultative paper on wages council abolition or reform—"reform" should be read as meaning "weakening"—the Government referred to a Treasury paper on the relationship between employment and wages and suggested that it provided proof that a cut in wages would increase employment. That whole document is entirely disreputable. In "Pay and Jobs", Treasury Economic Progress Report, No. 174, January 1985, the Treasury suggested
as a rule of thumb that if money wages were to grow less rapidly so that real wages were one per cent. less than otherwise, the gain in jobs might ultimately be between ½ per cent. and 1 per cent., that is between 110,000 and 220,000 jobs".The Select Committee on Employment was sceptical of those estimates, and said:The results of the econometric exercises underlying the argument used in the evidence submitted are not of themselves sufficiently convincing without strongly supporting evidence.Treasury officials admitted thatthe simulation results depend critically on a system of adjustments which is entirely arbitrary and has no empirical basis. Without this system of adjustments the model would have produced a smaller rise in company sector expenditure on stock building and employment, and on dividend payments, and hence a smaller rise in employment.I realise that it is late in the night to quote such a serious document, but that document, which is so flawed, is the theoretical basis for the Government's case that cuts in wages will create more jobs. That case does not stand up to scrutiny.Nevertheless, the Government continue to pursue that policy. Conservative Members have referred to the 1985 Budget with approval. The new lower national insurance rates are thought to be encouraging employment but, instead, they have brought in a series of new poverty traps for low-paid workers. When they move up slightly from one wage level to another, they move into a higher band of national insurance. The system provides new poverty traps and I am sure that it was designed to do so. It is designed to hold workers down in lower bands of pay, and it will do that successfully. The move from family income supplement to family credit, which is proposed in the White Paper on social security, will undoubtedly 487 encourage more low pay by paying the benefit to the worker through the employer instead of direct through the DHSS.
§ Mr. YeoWhen the Labour Government were in office they had an employers' rate of national insurance contributions running at over 13 per cent., including the surcharge, compared with the 5 per cent. to which the Government have reduced the rate for the lowest paid. Was the Labour Government's policy likely to encourage employers to pay higher or lower wages?
§ Ms. ShortI can tell the hon. Gentleman that when the Labour Government left office in 1979 unemployment stood at 1.2 million. That is when the Conservative party fought an election under the slogan "Labour isn't working". If we calculate unemployment on the same basis now, 4 million are unemployed. His argument does not stand up to scrutiny.
I was saying that the new family credit that will replace FIS is likely to be an incentive to even more low pay. It will be paid by employers to workers, and as employers become familiar with the scheme they will realise that if they bring workers into a low-paid category their wages will be subsidised through the state. Experience will tell us whether that happens, but it seems enormously likely that it will.
The Government have set out deliberately—it is part of their ideology to increase inequality in Britain. They argue that this will create incentives and increase efficiency. It is a strange argument and it has been said frequently that it rests on the assumption that to get the rich to work harder they have to be paid more, and to get the poor to work harder they have to be paid less.
The position is serious for many working people. It should be understood that 35 per cent. of Britain's poor are working poor. The percentage has increased under the Government. The small issue to which Conservative Members have drawn attention is only a small part of the problem and will not solve the problem of low pay. We need to consider a series of measures to deal with it. We need to develop a strategy that seeks seriously to bring us back to full employment. We need to move towards a national minimum wage. We must increase child benefit rather than cut it. That was the call of Conservative Members.
The road that we are on is leading us to a low-paid, divided and inefficient sweat-shop economy. The one small improvement that Conservative Members called for will not succeed in reversing that trend.
§ The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Major)Before I take up some of the contentious matters raised by the hon. Member for Birmingham, Ladywood (Ms. Short), I congratulate my hon. Friend the Member for Berkshire, East (Mr. MacKay) on raising an important subject and on the manner in which he did so. Perhaps his only failure was to come fourth in the ballot rather than first. I wish him slightly better luck next year, so that we may conduct the debate at a slightly earlier hour of the morning.
My hon. Friend, and my hon. Friends the Members for Suffolk, South (Mr. Yeo), for Oxford, East (Mr. Norris), for Hertford and Stortford (Mr. Wells) and for Nuneaton 488 (Mr. Stevens), together with the hon. Member for Ladywood, touched on a number of issues with clarity and conviction.
The hon. Lady at the beginning of her remarks referred to what she called a mood of mutual self-congratulation among my hon. Friends. I must tell her, with the best of good will, that it was not mutual self-congratulation, but unanimity that she perceived among my hon. Friends. I can understand why she, as a member of the Labour party, does not recognise unanimity. However, for the Conservative party it is a fairly familiar sensation. She may have noticed that this evening, both in their concern about the issue and in some of the solutions that they proposed.
The Government share the concern that my hon. Friends expressed about the importance of incentives for the low paid. Our concern is reflected not just in words but across a wide range of Government policies, all of which indicate clearly that we respect what the hon. Lady called the dignity of work, and wish, so far as we can, to price people into it.
My hon. Friends spoke of tax and national insurance changes. They know that a considerable amount has been done in those respects in recent years. My right hon. Friend the Chancellor has diminished the burden of income tax both by cutting the basic and higher rates and by substantially raising personal allowances. Indeed, the last Budget—which was referred to on a number of occasions—included the fourth successive real increase in tax thresholds. As a result, personal allowances are now above 20 per cent. higher in purchasing power than they were in 1978–79. I suggest that that is welcome easement that has been of particular help to the low paid, and which has taken 1.25 million of the lower paid entirely out of tax—with, I hope, the support of every hon. Member, from whatever party.
I rather regret that the hon. Lady neglected to mention those matters in her lamentable catalogue, which lasted for more than 20 minutes, of the Government's alleged sins. Much of what she said was highly contentious. She certainly included some quite extraordinary assertions. If I understood her correctly, she said that low-paid workers were worse off today than in 1886. I can only say that if she really believes that, she has entered a fantasy world from which no words of mine will rescue her.
§ Ms. Clare ShortI wish to correct the Minister. I began my speech by referring to the 1985 Budget and the changes that it made, and said that it still failed to bring low-paid workers back to as good a position as they were in 1979, and that they are still more highly taxed than they were in 1979. Those were the remarks with which I began my speech.
§ Mr. MajorI shall regard that as something rather less than a wholehearted endorsement of the Government's taking 1.25 million people out of tax. I have nothing to add on that point.
I hope that the hon. Lady will understand that many of her contentious remarks at this late hour are matters which I do not wish to pursue as, quite frankly, they do not enter the real world of politics which any party in government must face. I understand the hon. Lady's difficulties in dealing with many of the matters that she must face to keep her position within her party. Frankly, she should not make the sort of assertions that she made this evening 489 without producing more practical evidence. When and if she can produce evidence to back her assertion that workers in 1886 were better off than workers today, I shall take more seriously some of her other remarks.
My hon. Friends will know that this autumn the Government introduced a new graduated structure of national insurance contributions which, again, are designed especially to help the low paid. They have been a matter of some comment during our debate this evening. Those tax and national insurance incentives, which have particularly concerned my hon. Friends, raise the opportunity for employers to take more people into employment and for people in employment to keep a larger share of the salary that they earn.
My hon. Friends will know also of the enterprise allowance scheme, giving new incentives for the unemployed to set up in business for themselves, and of the job start initiative, which will commence on a pilot basis next month, with the intention of giving a new incentive to the long-term unemployed to get back into employment. They will also know that earlier this week my right hon. Friend the Secretary of State for Social Services introduced the White Paper on social security reform, which incorporates the new family credit scheme, designed both to improve work incentives and to make the connection between work and the family's overall oncome in work more visible than hitherto. All those measures, in their separate ways, are part of a clear thrust of policy to improve incentives and ensure that we diminish, and if possible entirely remove, barriers to employment.
National insurance contributions, which have been the subject of some discussion, are of great importance. I share the view of my hon. Friends that the new contribution structure is one of the most imaginative initiatives taken in recent years. It was announced in last year's Budget. It should assist dramatically in pricing people back into jobs. I am pleased at the warm welcome that has been given to the measures—and I acknowledge that the hon. Member for Ladywood welcomed them as well—as I share the view of my hon. Friends that they represent a substantial, cost-effective and well-targeted boost for the low paid.
My hon. Friend the Member for Suffolk, South called them historic measures, and I am inclined to agree. They will improve employment prospects, increase net take-home pay and sharpen incentives. I suspect that they will be particularly helpful for the young looking for their first full-time job. In total, those measures for low-paid employees are worth about £1,150 million in a full year.
In addition, we have made a considerable reduction in the contribution rate for self-employed people, which is worth a further £100 million a year. My hon. Friend the Member for Nuneaton referred to that. I hope that he will be pleased that we have also allowed tax relief on half the class 4 profit-related contributions payable by the self-employed. It is pertinent to remind the House that self-employment often lifts people out of unemployment. The national insurance measures that I have listed represent a considerable incentive to people to start up in business on their own account.
The effect of the proposed changes in employers' contributions is to reduce by up to £3 per week the cost of employing over 8.5 million low-paid workers. For the lowest paid the reduction in employers' national insurance 490 contributions is almost 5.5 per cent., which is a considerable incentive to the creation of employment. Estimates made, not by the Government, but by private industry, are that between 140,000 and 400,000 jobs may be created as a result of that initiative. I hope that that proves to be the case, although I emphasise that that is not a Government estimate. In any event, there is little doubt that those measures will make a substantial difference to the employment prospects of many people.
The effect of the parallel changes to employees' contributions is to give increases to net income ranging from £1.10 a week to £2.18 a week to nearly 3.5 million workers earning less than £90 a week. As hon. Members will know, only last week we debated the Social Security (Contributions, Re-rating) Order, which further increased the bands of earnings over which the reduced rate national insurance contributions will be paid. Therefore, only six months after the new reduced rates were announced, the draft order will extend further up the earnings scale the advantages that they offer to both employers and employees. That is further evidence—if it is needed—of our wish to produce a more responsive and better targeted national insurance system and provide positive incentives for people to take up low-paid work and for employers to offer jobs to those who at present, unfortunately, do not have them.
Another beneficial effect of the graduated rates of contribution is that it reduces the much criticised "cliff edge" effect of the lower earnings limit. There is now a much more gradual increase in contribution liability as someone progresses up the earnings scale. I hope that that principle will earn the support of my hon. Friend the Member for Oxford, East, who touched on that point in his remarks.
It is worth considering who will gain from our measures. Just under 1 million families with children gain at least £1 a week, and some gain more than £2 a week. Nearly 1.25 million single people aged between 16 and 25 gain between £1.10 and £2.18 a week. About 30 per cent. of gains go to families with children, and just under half go to low-paid single people, who are predominantly under 25. One third of gains go to working wives. Those figures show how wide ranging and beneficial the measures are. They should be further enhanced when the new contribution limits and earnings brackets come into effect next April.
It is clear that there is fairly wide agreement that take-home pay is what matters to many employees. My hon. Friend the Member for Berkshire, East is aware that the Government have taken, and are taking, important steps to minimise deductions, especially from the pay of those on lower earnings. Despite that clear direction in our policy, I know that my hon. Friends will not be surprised if I decline to speculate on what steps my right hon. Friend the Chancellor might take in the Budget. Such matters are for him, and contributions are matters for my right hon. Friend the Secretary of State.
I suspect that my hon. Friends are too wise to expect a detailed response to their advocacy of Budgetary and tax matters. I believe that they were anxious to put their views on the record. The fact that they have done so at such an unappealing hour of the morning illustrates, perhaps more clearly than their words, the depth of their concern. I assure them that I shall draw what they have said to the attention of my right hon. Friend the Chancellor, but I 491 must mention the cautionary words of my right hon. Friend the Prime Minister. It might well be wise not to assume tax reductions of any sort until they are delivered.
My hon. Friend the Member for Hertford and Stortford mentioned tax and social security integration. He has passed me a note explaining why he had to leave the House and go home.
§ Mr. Jeremy Corbyn (Islington, North)He is tired.
§ Mr. MajorThe hon. Gentleman might well be right, but that is not the explanation that my hon. Friend gave in his most courteous note.
§ Mr. CorbynTell all.
§ Mr. MajorDiscretion is occasionally by far the better part of valour. Perhaps that is true on this occasion.
My hon. Friend the Member for Hertford and Stortford will know that we have announced steps that will lead to closer co-ordination between the tax and social security systems. The move to an April benefit uprating is clearly important in that context. At a practical level, we are ensuring compatibility between the computer systems being developed for tax and benefit offices.
The plan announced in the social security White Paper to pay the new family credit with wages represents a small but important step towards closer co-operation between the two systems. If we are ever to have closer integration, payment through the pay packet is an essential first step. Consideration of what further steps to take will have to await the Green Paper on personal taxation, which will appear in the next few months.
I have so far talked of only one side of the incentives equation. We are not trying to improve the incentive of the low paid only through improvements in tax and contributions, desirable though they may be. We are taking important new initiatives to provide help in other ways. Perhaps the most important example is the new social security structure, including the family credit scheme for low-paid working families with children, which we announced in the White Paper earlier this week.
I am grateful to my hon. Friend the Member for Suffolk, South for his warm welcome of the scheme. We believe that family credit will be a significantly more generous and better targeted benefit than the family income supplement which it will replace. We estimate that it will reach about 415,000 families—rather more than twice as many as those which receive FIS.
The levels of benefit will also be significantly more generous than the levels of benefit for FIS. A couple with two young children, and gross earnings of £110 a week, receive £4.50 a week FIS, plus free school meals or milk. Under the family credit proposals they would receive £17.40 a week—a substantial improvement. That illustrates that working families with children emerge from the reform package announced earlier this week as clear gainers, even when the changes in housing costs are taken into account.
I shall make that clearer with two brief examples. First, a couple with two young children who rent their home and earn £110 a week, would gain £10.45 a week net from the changes, even when their housing costs are taken into account. Secondly, a couple on the same gross earnings who own their home and have two older children would end up £8.15 a week better off overall. It is beyond dispute that those are substantial gains.
492 The social security reforms will be seen in due course to do a great deal to improve work incentives, especially by minimising the unemployment and poverty traps, and maximising the advantages of work, even work at relatively low pay. I am grateful to my hon. Friend the Member for Nuneaton for his kind words about the White Paper.
One attractive aspect of the reform proposals is that they significantly ease the unemployment trap by creating a better balance between the help available to familis in and out of work. One element of the reform of housing benefit, for example, is designed to ensure that the same level of help goes to recipients at a given income level, whether in or out of work. As hon. Members will be aware, at present unemployed people on supplementary benefit generally have their rent and rates paid in full. However, the assessment of housing benefit payable to employed people with precisely the same level of income is based on only 60 per cent. of their rent and rates. That is clearly a curious and unfair anomaly, which will be corrected under the new proposals, under which assistance will be given with up to 100 per cent. of rent and 80 per cent. of rates, whether in or out of work.
The major element, however, is ending FIS and replacing it with family credit. The merits are clearly illustrated by the examples that I gave about the net disposable income of families under the two schemes. My hon. Friend the Member for Oxford, East spoke with feeling about high marginal tax rates. He will be pleased to know that the White Paper reforms also end the worst aspect of the poverty trap—that absurd circumstance where reduced benefits, together with higher tax and national insurance contributions, can leave a family worse off overall when it increases its gross earnings.
This major improvement in work incentives will be achieved by assessing entitlement to both family credit and housing benefit on income after tax and national insurance contributions have been taken into account. Similarly, by replacing benefits in kind with cash we will not only enable working families on low earnings to provide for their families in the same way as their more highly paid colleagues, but we will end the particularly acute poverty trap problems which now arise when earnings reach the point at which entitlement to passported benefits ceases.
I recognise that by eliminating marginal tax rates of 100 per cent. or more, which are absurd and have been widely criticised, not least this evening, and which the reforms will achieve, and by providing help to a wider range of families, more families will face marginal tax rates below 100 per cent. but still, alas, at relatively high levels. As I think most commentators and every hon. Member will recognise, that is probably unavoidable if we are to target more of our available resources on those most in need.
I should add a brief cautionary word about some of the estimates that we have seen in the press about the numbers likely to be affected. The number of families with children on marginal tax rates of 100 per cent. or more would decrease from about 70,000 to nil, while the number with rates of 90 per cent. or more would fall from about 130,000 to about 40,000. The number with a rate of 70 per cent. or more would not surprisingly, increase from about 240,000 to about 490,000.
The White Paper proposals will also significantly improve the climate in which decisions on whether to work, and how hard to work, are taken. In place of the present complex range of benefits, the reforms will 493 establish a simpler structure in which the advantages of work will be self-evident. Few families would have any advantage in remaining unemployed. Once in work, it would always pay a family to increase its effort and its earnings.
Paying the family credit with wages will not only take a significant step towards the closer harmonisation of tax and social security but will make more visible the relationship between work and the total income, including the credit, which can be derived from work. It will end the absurd position where a family on relatively low earnings is paying substantial sums to the state in tax and contributions with one hand, while receiving family income supplement from the state with the other. We estimate that about 60 per cent. of family credit recipients will have their tax and contribution payments offset in whole or in part; the rest would have them offset and receive a net payment on top.
The prize of this reform is considerable: a simpler structure in which present disincentives are removed and in which enterprise and effort will be fostered and encouraged. Whatever differences we may have on some other aspects of policy, that must be the way forward. I hope that my remarks show that the Government are deeply aware of the need to improve incentives for the low paid. More important, I hope that I have shown that the Government have taken, are taking and will take across-the-board action to achieve that end. I hope that in that action we shall have the broadest possible support from the Opposition, where they can obtain it, and from my hon. Friends without exception.