Social Security Review

HC Deb 03 June 1985 vol 80 cc34-51 4.20 pm

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

I will with permission, Mr. Speaker, make a statement on the review of social security.

During the last 18 months the Government have been examining the major areas of social security provision. In that time more than 40,000 consultation documents were issued, 4,500 pieces of evidence were received, and 62 organisations and individuals gave oral evidence at public sessions. The Government are today publishing a Green Paper which sets out their proposals. We will now be seeking comments on the proposals from interested organisations and will be providing an opportunity for the House to debate them.

The social security system in the United Kingdom owes a great deal to the report of Sir William Beveridge in 1942. Although much of what he proposed was changed when it came to implementation, and more has been changed since, many of the principles on which his proposals were founded remain sound. The Government remain committed to the concept of a national insurance system, under which entitlement to the major benefits is earned by the payment of contributions during a working life. The Government also believe that our tradition of state support for those in need is one which should be maintained and developed. However, social security is not a function of the state alone. It should be a partnership between the individual and the state—a system built on twin pillars.

Any review of social security must recognise its considerable achievements, but the review has shown that there are several major causes for concern. By common consent the social security system is too complex. That is to the disadvantage of both the public and the staff. In particular, the research evidence shows that substantial numbers of supplementary benefit claimants do not understand how their entitlement is worked out, in spite of the fact that 38,000 staff are now working exclusively on supplementary benefit. With the pressures now being faced there is a danger that some parts of the system will break down. It is, therefore, a matter of urgency that we devise a simpler and more coherent system.

The social security system also needs to be modernised. It is not properly co-ordinated with the tax system and operates with outdated equipment. We now need a major computerisation strategy for social security, which can link effectively with other Government systems, including that of the Inland Revenue.

In terms of spending, the cost of the social security system has increased fivefold in real terms since the war and now totals some £40 billion a year. That is over 30 per cent. of all public spending and represents over 11 per cent. of gross domestic product compared with only 4.7 per cent. after the war. Nor has the pressure for growth in spending ended. In the first part of the next century we need to provide for an extra 4 million pensioners. That, taken together with the state earnings-related pension scheme, means that spending on pensions will at least treble. We must ensure now that we have a soundly based social security system which the country can afford.

Above all, perhaps, the social security system does not always help those most in need. More than half of those living on the lowest incomes are in families with children. This affects not only the unemployed, but families where the head is working. Yet, under the present system, low income working families can face both the difficulty of escaping the poverty trap, where they may get no increase in total income when their earnings rise, and the unacceptable position that they can be better off out of work. That position must be changed.

To make better provision to meet the needs of poor working families with children has been a major priority of the review. We therefore propose to introduce a new benefit, to be called family credit, to provide better help for such families. Family income supplement will be abolished. Family credit will have three main features. First, it will be paid on the same basis as help to unemployed families, in that help will be related to the age of children. That means that families with children cannot generally be better off out of work than in work.

Secondly, family credit will be related to take-home pay, not to gross earnings, as is family income supplement. The worst effects of the poverty trap will be eliminated by making it impossible for people to face a marginal tax rate of more than 100 per cent. Thirdly, it will be paid by employers through the pay packet. Families will see their benefit as part of their income from work, whether as an offset to tax and national insurance, or, in the case of the lowest paid, as an addition to gross pay.

Family credit will be paid in addition to child benefit. The Government believe that the extra responsibilities carried by all those bringing up children should be recognised. Child benefit will, therefore, continue to be paid for all children, irrespective of the means of the family.

Family credit will be part of a coherent system of income-related benefits. That system, covering basic income support, assistance with housing costs and help for low income families, will be based on a common income test and a common structure. It will be simpler, fairer and easier to administer, and it will provide the same level of help at the same level of income for those in and out of work.

We propose to replace supplementary benefit with a new income support system. The central concept of the income support scheme is that the regular extra payments, now made on the basis of detailed individual assessment, should be absorbed into the main rates of benefit. Those rates will provide a special higher level of benefit for pensioners, the long-term sick and disabled and lone parents. Families with children will not only receive assistance for each child, but a premium to reflect the extra pressures that they must cope with. At the same time, the capital rule will be eased by introducing a taper between £3,000 and £6,000, instead of the present inflexible £3,000 cut-off. We shall also ease the earnings rule for the long-term unemployed and the disabled.

The income support scheme should provide for the needs of almost all claimants, but we recognise that the system must be ready to cope flexibly and quickly with particular problems. Instead of the present single payments system, we propose to set up a social fund which will be operated on a discretionary basis by specially trained staff at Department of Health and Social Security local offices. It will provide emergency help where needed, and help those who face particular difficulties. We also expect that the social fund will, in time, provide a better basis for contributing cash help to enable people to be cared for in the community rather than in institutions.

Today I am also publishing the report of the housing benefit review team, and have accepted most of its recommendations. The review team found that housing benefit was excessively complicated, involving six different tapers applied to different groups at different income levels. It is also expensive and poorly targeted, with more than one third of all households, some with incomes up to average earnings, receiving benefit.

We intend to move to a simpler and clearer system. It will be based on the same net income assessment basis as the income support and family credit systems. It will also provide help on the basis of rent and rates together rather than separately, as at present.

For the poorest families, housing benefit will meet 100 per cent. of rent. At present 100 per cent. help goes only to those on supplementary benefit. In future, it will apply equally to those in and out of work.

We believe, however, that the basis on which help is provided with rates needs to be changed. At present some 7 million householders receive help with some or all of their rate bills and over 3 million householders pay no rates. As a result, a large proportion of people live in households in which no rates are paid. This means that there is no effective link between payment for and use of local services. The whole structure of rates is currently under review, but the Government believe that, so long as domestic rates remain, all householders should be directly responsible for making some payment towards them. The Government have in mind a figure of the order of 20 per cent.

The review also examined the contributory national insurance benefits for unemployment, maternity and widowhood. As I have already made clear, the Government remain committed to the principle of basic provision for these contingencies organised by the state through the national insurance system. We propose no change in unemployment benefit, which will continue to be paid for 12 months.

For widows under 60, we propose to replace the widow's allowance currently payable for the first six months after bereavement by a single lump sum payment of £1,000 to give them more help when it is most needed. In addition, widowed mother's allowance will now be paid from the time of bereavement rather than after six months as at present. Widow's pension will also be paid from the time of bereavement, but the rules of eligibility will be modified to concentrate help more on older widows who are least likely to be able to resume work. The changes will not affect the benefit paid to any existing widows.

In maternity, we propose to adjust the rules governing materinity allowance so that the mother can have greater freedom in choosing when, around the time of her confinement, she wishes to be paid the allowance. We also intend to change the qualification period so that the benefit is more likely to be paid to women who have had to give up work in order to have their babies.

The maternity grant and the death grant have been left at their present level—£25 and £30 respectively—for many years and are now quite inadequate for their purpose. The average cost of a funeral is now over 10 times as much as the death grant, and it costs £20 in administration to pay out each £30 grant. We propose instead a new maternity grant of £75—three times the level of the present grant —available to all low income families. Help with the full cost of funerals will also be made available more widely than at present to anybody who has responsibility for a funeral and lacks the resources to pay for it. Help will be provided through the social fund to ensure that it can be given quickly and flexibly and with the minimum of detailed inquiry. These changes will concentrate help where and when it is most needed instead of providing a token contribution to everybody when it may be of little practical use.

The largest single area of social security spending is on pensions. The basis pension alone accounts for over £15 billion a year and is paid to 9 million people. That pension accounts, on average, for half the income of pensioners and has been a major factor in raising pensioners' living standards since the war. It is, and must remain, the basis on which individuals can build additional pension provision. The question is how that extra provision should be made.

At present only about half the working population belong to occupational pension schemes. The develop-ment of occupational pension schemes has been an important factor in improving living standards since the war, but the coverage of schemes has not increased since the mid-1960s. The development which it was hoped would follow the Social Security Pensions Act 1975 has not taken place. Nor has the forecast of cost on which the 1975 scheme was based proved sound. The analysis undertaken during the review has shown that the number of pensioners for whom we will eventually need to provide is 3 million greater than was recognised in 1974 and 4 million higher than it is today. It is clear, therefore, that the long-term costs of state pensions are set to rise steeply in the first 30 years of the next century. If the basic pension was uprated in line with prices, its cost would increase in real terms by half to £22 billion. If it kept pace with earnings, the cost would treble to nearly £45 billion. On top of that, the cost of the state earnings-related scheme will add another £23 billion. Thus, the total pensions bill will at least treble and could increase by over four times. At the same time the ratio of contributors to pensioners will worsen, and it is estimated that there will be only 1.6 contributors for each pensioner compared with 2.3 now.

As a country we cannot ignore these emerging costs. If the best estimates available to us lead us to question whether we will be able to afford the promises we are making, we have a duty to re-examine the position. It would be an abdication of responsibility to hand down obligations to our children which we believe they cannot fulfil.

The real question is not whether action should be taken on the state earnings-related scheme, but what action. There are those who argue that we should restrict the emerging cost of the state scheme by changing its provisions. The difficulty of that course is that contributions would remain the same while benefits would be reduced. There is no reason to believe that there would be any increase in occupational pensions to fill that gap. The Government have concluded that it would be better to adopt a different approach. This would be based on the aim of ensuring that in addition to the basic pension everyone has his own pension with his job—whether it be an occupational pension, membership of an industry-wide scheme or a personal pension. In all cases every employee would have the right to a contribution from his employer.

We recognise, however, that relatively older workers would have difficulty in building up adequate occupational pension cover. We have decided, therefore, not to make any changes for those within 15 years of retirement. For men aged 50 or over and women aged 45 and over at the time of implementation, the existing state earnings-related arrangements will continue. This means that no one retiring during the rest of this century will be affected by the change and nor will any existing pensioner.

All rights built up in the state scheme at the time of the change will be honoured. In addition, we also intend to give a special enhancement of rights for men aged between 40 and 49 and women aged 35 to 44. They will be given a bonus of added years of entitlement, which will give them higher pensions when they eventually retire.

For those to be covered by the new arrangements the Government will lay down a minimum contribution level of 4 per cent. of earnings, at least half of which must be provided by the employer. The new arrangements will be phased in over three years. These changes will mean that in due course all employees will be contributing to their own additional pension through their jobs. This will represent the biggest ever extension of occupational pension coverage in this country and will add to the reforms of occupational pensions, involving improved rights for early leavers and transfer of pensions, currently in legislation before Parliament.

The Government must also ensure that the social security system is managed as effectively as possible to provide the best possible service to the public. The Government's benefit proposals will in themselves make the system simpler, but we are now to embark on the largest programme of computerisation ever undertaken in this country to modernise and improve its operation.

The benefit changes and the computerisation both of my Department and the Inland Revenue will provide opportunities to achieve better co-operation and closer working between the tax and benefit systems. The Government intend to take advantage of those oppor-tunities and will be considering this further in the context of the Green Paper on personal taxation.

Meanwhile, we have decided to take a major step towards better harmonisation by aligning the tax and benefit years. Instead of benefits being uprated in November each year, the uprating date will be moved to April. This means that all tax and benefit changes will be implemented at the same time. It will also be of considerable assistance to local authorities which at present have to reassess housing benefit cases twice a year.

The change in the benefit year will be brought in at the time of implementation of the major structural reforms. We expect this to be in April 1987. After the uprating of benefits due at the end of November 1985, there will, therefore, be a 16-month period before the change in April 1987. It would clearly be wrong to allow such a gap between upratings, but it would not be practicable to have upratings both in November 1986 and April 1987. Accordingly, the Government have decided that, following the November 1985 uprating, there will be two upratings at eight-month intervals, the first in July 1986 and the second in April 1987.

The programme of reform that I have announced will provide a system which is easier to understand and simpler to administer. It will mean the most substantial changes in income-related support for 50 years, and for the first time give equal support for those in and out of work. It will provide more help for low income families with children.It will establish a better partnership between state and individual provision, especially in pensions, giving everyone the right to his own pension with his job. Above all, the reforms will provide a modern social security system to take us into the next century.

Mr. Michael Meacher (Oldham, West)

Is the Secretary of State aware that, behind all the rhetoric about restructuring, this statement represents the erosion of the fundamental principle of a welfare state for all citizens? [Interruption.]

Mr. Speaker

Order. The Secretary of State was given a fair hearing.

Mr. Meacher

Is the Secretary of State further aware that the statement represents the reintroduction, for the first time this century, of Victorian values in an invidious distinction between deserving and undeserving poor? Is he also aware that this package as a whole will bring about a net loss in the next few years to pensioners and the unemployed of at least £1,000 million a year even before the huge losses from the abolition of SERPS begin, and that the main beneficiaries, whom he did not mention, will be the rich, who will receive even bigger tax handouts in future Tory Budgets?

We welcome the Government's limited reprieve on SERPS, in response to our demand.[Interruption.]

Mr. Speaker

Order. We have a full day ahead of us.

Mr. Meacher

It is patently clear that the Government lost their nerve after their original intention had been made clear in repeated leaks. Is the Secretary of State aware that the Government's longer-term abolition of SERPS, which is the central arch of the welfare state, is still a betrayal of an unequivocal pledge by the Prime Minister three weeks before the last general election, when she said:

nor are there any plans to change the earnings-related component of the State pension. Is the Secretary of State aware that if SERPS were to continue it would roughly double the pension in the next 13 years, and that if it is abolished millions who would have enjoyed dignity and security without a means test in retirement will be forced into poverty? How does the Secretary of State justify the fact that women, low-paid workers, and the longer-term sick and disabled and the millions of carers who look after them will be shifted compulsorily into private schemes to which they will be forced to make higher contributions for less benefit?

Is the Secretary of State aware that there can be no justification for claiming that SERPS cannot be afforded in the next century, when the Government's own Social Security Advisory Committee said explicitly less than two years ago:

At this distance of time we do not think there can be solid grounds for altering the scheme now for fear of all the worst outcomes occurring steadily for 40 years. Is the Secretary of State aware that any allegations that SERPS cannot be afforded reflect not adverse demographic trends but an admission that the Government's policies will lead to longer-term economic stagnation?

Secondly, is the Secretary of State aware that the huge cuts in the housing benefit package will bring a loss to tenants of about £750 million a year, forcing up rents for tens of thousands by £7 to £12 a week? Is he aware that the poverty trap will be enormously intensified by his decision to increase the loss of housing benefit as wages rise from 38p in the pound to 70p in the pound? Is it not harshly unjust that the 7 million people receiving housing benefit, of whom 4 million are pensioners, will for the first time have to pay 20 per cent. of their rates and all of their water rates? Is he aware that nearly 2 million households now receiving housing benefit, of which the great majority are owner-occupier pensioners, especially widows with small occupational pensions, will lose it altogether?

Thirdly, this statement virtually makes the unemployed into the outcasts of society—the new undeserving poor in the Prime Minister's vision of this new Victorian poor law. Not content with clawing back £650 million a year from the unemployed by taxing unemployment benefit for the first time over the past three years, and not content with ending, three years ago, the earnings-related supplement to unemployment benefit, worth £16 a week to an average paid worker, the Government are now proposing to force the unemployed on to the lowest rate of the new income support scheme. Is the Secretary of State aware that that will take about £5 a week from those who are 25 or younger, will deprive them of all help with heating bills and of single payments for clothing and furniture, will force them, for the first time, to pay 20 per cent. of then-rates and all of their water rates, and will replace the present basic benefit safety net by a discretionary and recoverable loan? The Government have trebled unemployment. With these cuts, they are now gratuitously twisting the knife in their victims.

Fourthly, families across the nation will be hit. Will the Secretary of State confirm that child benefit will be frozen or uprated by less than inflation, so that the benefit for 7 million mothers and 12 million children will begin to decline in real value? Will he confirm, too, that the new, vaunted family credit will begin to be phased out when earnings exceed £40 a week, which is lower than for the family income supplement, and that the rate of withdrawal will be 60p in the pound, which is higher than the 50p in the pound under FIS, so that the poverty trap will be worsened? Will he also confirm that benefit will be transferred from the woman to the man, which is not publicly supported, and that entitlement to free school meals and school milk will be ended? The Prime Minister has not only become the pensions snatcher — she remains the milk snatcher that she always was. Changes such as this will not strengthen family life, but will undermine it.

Fifthly, will the Secretary of State confirm that the death grant will be abolished and that the discretionary help will be available to the deceased's relatives only on the basis of a means test? Is he aware that this means bringing back for hundreds of thousands of our poor elderly the shame and indignity of a pauper's funeral, which no civilised society should inflict on its citizens?

This is a black day for the people of Britain — a monument to six harsh years of Thatcherite rule. The themes of this statement are more means testing, bigger cuts, penalising pensioners, the unemployed and low-paid in order to enrich still further the already rich, and the privatisation of the welfare state on the American model, which the people of this country want no more than they want the Prime Minister's fancy for the Americanising of our hospital management. There is no shred of political mandate for the proposals, since they derive from partisan committees hand-picked by a partisan Government for pre-determined ends. Today's statement opens up the central issue which will dominate the next general election and, because the Government have profoundly misunderstood the commitment of the British people to the welfare state, it will pave the way for the election of the next Labour Government.

Mr. Fowler

Not on anything that we have heard from the hon. Gentleman today will it pave the way for the election of any Labour Government. We have had from the hon. Gentleman a typically hysterical response. He cannot even get his shadow Cabinet to back his own proposals, and it was clear from the response of his Back Benchers that he could get very few of them to back what he was saying.

However, I am grateful for what I took to be the endorsement of my proposals on the state earnings-related pension scheme for the rest of this century. I am grateful to the hon. Gentleman for the generous way in which he endorsed them.

The hon. Gentleman asked about the overall cost of pensions. The 1975 Act was based on the assumptions, which the then Labour Government were making, of 3 per cent. growth and 2.5 per cent. unemployment and, above all, that there would not be an appreciable increase in the number of pensioners. It is now clear that between 2010 and 2035 we shall see an increase of about 3 million in the number of pensioners, and that over the period to 2035 there will be an increase of about 4 million pensioners. In 1975 the Labour Government did not have that information, or, if they had it, they ignored it. The question before the House is whether to ignore the best advice and the best estimates that can be made today of the emerging costs of pensions.

As for the case for change, it is clear that the cost of the state earnings-related pension will increase very substantially.

In terms of income support, the new system gives a guaranteed weekly income, with higher rates for disabled people, pensioners and children. The hon. Gentleman is wrong about families, because, in addition, there will be a family premium, which families with children do not get at the moment.

At present, one in three households receives housing benefit—7.5 million households altogether. Costs have risen from £1.2 billion in 1979 to £4.2 billion today. I have made it clear, and I do so again, that we shall be looking to housing benefits to make significant reductions in the social security budget.

The hon. Gentleman asked about the social fund. I am sure that in his calmer moments he will agree that the present system of supplementary benefit is not serving well those who need special help and special care. One of the ways in which I hope that the social fund will be able to develop is to give special grants to people coming from institutions into the community, but also to pay to keep people at home and to support them, rather than their going into institutions.

The hon. Gentleman's comments on the death grant were a total travesty of our proposals. The death grant was last increased in 1967. It has remained at £30 since then. Surely no one will claim that that is adequate. The choice that has to be made is whether the country is prepared to go on with a token gesture of that kind or whether it makes more sense to give help directly to those who need it— to give full help and better help. That is what the Government want to do.

Mrs. Jill Knight (Birmingham, Edgbaston)

Bearing in mind that this is the most far-reaching and fundamental statement on social security benefits for many years and that its soundness and sense will be apparent to everyone once it is properly explained, will my right hon. Friend assure the House that he will make a similar statement to every sector of the media which makes itself available and even consider the production of leaflets for the separate groups of people involved? Will my right hon. Friend also shoot down the myth put forward once again by the hon. and boringly predictable Member for Oldham, West (Mr. Meacher) that means tests should not be employed, because unless we employ means tests we cannot be sure that the maximum benefit will go to where the maximum need exists?

Mr. Fowler

We are not means testing, but seeking to test incomes. In addition, we are making help available to people on the basis of their income, and not according to whether they are in or out of work. That is a very significant change in approach. It means that the 100 per cent. marginal tax rates, which at the moment are a scandal, can come to an end. That is one of the most significant changes in the review.

Mr. Michael Foot (Blaenau Gwent)

In view of the far-reaching nature of the proposals, and in view also of the cuts and additional means tests which they impose on some of our poorest people, will the right hon. Gentleman say, first, when the proposals were forecast and explained by the Prime Minister at the time of the last general election, and, secondly, exactly what is the saving on the social security budget which he aims to secure by these measures?

Mr. Fowler

When the inquiry into social security was set up we made it absolutely clear that the Government intended to have a fundamental review of the social security system. That has been the position throughout.

The right hon. Gentleman asks about the savings. The emphasis in the Green Paper is on the new structure. Until that is settled it is impossible to provide a detailed analysis, because clearly it depends on the benefit rates set in April 1987. However, the main direction of savings is clear. The major savings will be the long-term savings in the next century resulting from the phasing out of the state earnings-related pension scheme.

Changes in supplementary benefit structure are not intended to reduce the overall help provided. As a result of the structural changes in supplementary benefit, we shall ensure that as far as possible there are no cash losers. Support for low-income families will be increased by family credit. The Green Paper makes it clear that we expect spending on housing benefit to be reduced considerably. This will not be at once. We expect spending to be reduced eventually by about £500 million.

Several Hon. Members

rose—

Mr. Speaker

Order. I know that this is a statement of great interest to the House, but I have to bear in mind that there is another statement to follow it and that we are to have further debates in what will be a long day. The Secretary of State said that there would be a debate on this matter later. I shall allow questions to go on until 25 minutes past five before we move to the next statement. If those who are called put short questions to the Secretary of State, I hope that I shall be able to include most hon. Members who are seeking to catch my eye.

Mr. David Howell (Guildford)

Does my right hon. Friend agree that his proposals are skilfully targeted at the changing and future shape of society and that he should ignore the ridiculous cries from the past from the Opposition? Does he further agree that, whether we like it or not, there is an increasing trend towards part-time work, which inevitably means part-time incomes, and that his proposals, by concentrating on improved social provision as part of income for the low-paid, is in line with that trend and reinforces those who are most dispossessed by the trend towards part-time work? Does he agree that the change will make a major contribution to the expansion of occupation and employment?

Mr. Fowler

I am most grateful to my right hon. Friend. He is right. Family credit will bring direct help to low-paid families with children. It will prove a substantial base on which to build even further.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

Does the Secretary of State agree that it is difficult to form a detailed judgment without the figures? My colleagues and I cannot support his proposals on pensions, because they do not tackle the present problems. The pension is too low, and we would not counternance any change unless there was some recognition of that. As for supplementary benefit, we are worried that we are drifting away from the Beveridge system, which applies to all, to a service exclusively for the poor. That would be wholly wrong. We are worried that if the Green Paper is fully implemented it will fracture the all-party consensus. We must consider the detail before making final decisions.

Mr. Fowler

I accept that my documents are long and detailed, and also what the hon. Gentleman says about his party's view. Lord Banks, the Liberal spokesman on social security in the other place, has said that the Liberal party consistently opposed the introduction of an earnings-related state pension scheme. It is not clear from what the hon. Gentleman said whether that remains Liberal policy.

Sir David Price (Eastleigh)

In view of my right hon. Friend's declared intention to modernise our social security system and to make it more responsive to changing social needs, will he introduce flexibility of retirement age and equality between men and women in eligibility? He will recall that that was proposed by the Select Committee and by me in a private Member's Bill in the previous Session of Parliament.

Mr. Fowler

My hon. Friend will find that in the Green Paper we deal with flexibility in retirement. I do not pretend that there are easy answers to that matter, but, like him, I should like there to be more flexibility. We invite comments on what we have set out in the Green Paper as a decade of retirement.

Mr. Frank Field (Birkenhead)

As the Secretary of State has boasted that the four reviews will result in nothing less than a new Beveridge, will he give two pieces of information so that we can see to what extent the reviews live up to that self-imposed objective? If the Government enact all of these proposals, how many people will cease to be poor? Secondly, as the hon. Gentleman acted as co-ordinator for all four reviews, can he say how many people will gain and how many people will lose? Will he give a commitment that those who bear unemployment will not have their benefits cut further?

Mr. Fowler

For various reasons, I cannot give the figures for which the hon. Gentleman asks. As I explained to the right hon. Member for Blaenau Gwent (Mr. Foot), no detailed analysis of cost can be made until benefit rates have been set in April 1987. [HON. MEMBERS: "HOW much will it cost?"] My answer is entirely frank and reasonable.

As for help to the poor, family credit and other proposals in the review will reduce poverty. The social security system must be capable of coping with changes in the pattern of poverty. We have proposed family credit because we have considered the pattern of poverty in detail and it is clear that, in the past 15 years, families with children have been most in need.

Mr. Robert McCrindle (Brentwood and Ongar)

Will my right hon. Friend accept from one who has expressed reservations that there is a great deal to commend in these proposals and much that is long overdue? Will he confirm that those who are most likely to be affected by changes in housing benefit include widows and occupational pensioners? Is my right hon. Friend open to some suggestions on that matter, because the changes in housing benefit seem to lie strangely with his commendation of occupational pension schemes? My right hon. Friend said that on the phasing out of the state earnings-related pension people would have a right to opt for a private pension scheme. What happens if people choose not to exercise that right and reach retirement age with nothing but the basic pension?

Mr. Fowler

I am grateful for my hon. Friend's comments about the review. I hope that the Green Paper will go some way to meet the issues that he has in mind. Housing benefit goes further up the income scale than any other benefit. On that basis, it is more reasonable to look for economies there, bearing in mind the scale of the increase in expenditure on housing benefit in the past six years. There will be minimum requirements for individual pensions. Employees and employers will be required to make provision. There is no question of people in work reaching pension age without having an additional occupational, personal or industry-wide pension.

Mr. Jack Ashley (Stoke-on-Trent, South)

Is the right hon. Gentleman aware that the Government are making social security a scapegoat for the failure of their economic policies and that, instead of caring more for the growing number of casualties of their incompetence, they are planning to care less? That means that the Government are incompetent and insensitive to the poverty, degradation and suffering caused by the unemployment that they have created.

Mr. Fowler

I do not accept that for one moment. We all respect the right hon. Gentleman's knowledge and experience in these matters, and I hope to dissuade him from that view. Few people in the country or the House believe that the present social security system is capable of continuing without major change. This is the first Government to tackle that problem for 40 years. The Government and the country have a responsibility to change the social security system to provide a modern system which can be sustained by present contributors and our children.

Mr. Andrew Bowden (Brighton, Kemptown)

I am delighted to support much in my right hon. Friend's statement, but will he confirm that the Green Paper is not a White Paper in disguise and that no decisions have been made? How will the income support system affect pensioners who do not claim a supplementary pension? As to housing benefit, may I stress the grave anxiety for pensioners, the value of whose savings has been destroyed and whose financial circumstances have been undermined by their not having inflation-proof pensions? They must not be worse off as a result of these proposals.

Mr. Fowler

This is a Green Paper. The purpose of the review has been to consult the public. We shall continue to consult the public and to listen to issues that are raised with us. The simplicity of the income support scheme will bring immeasurable benefit to all. I remind my hon. Friend of what we are doing to preserve the interests of people approaching pension age. Nobody who retires this century will be affected by the changes in the state earnings-related scheme. It goes without saying that rights which have accrued and which are in payment will be honoured fully. That includes inflation-proofing.

Mr. Gordon Brown (Dunfermline, East)

Will the Secretary of State confirm that today he has praised the Beveridge report only to bury it, and that he is ratting on promises made not only about the state earnings-related pension scheme but about child benefit and help for the unemployed? Will he confirm that under these new poor laws 7 million people will receive less in housing benefit, and that 1.8 million people — 3,000 in every constituency — will lose help with rent and rates? Will the Secretary of State tell us by how much the basic pension and the supplementary pension will have to rise to compensate for the loss of heating, dietary and clothing additions and the death grant, and for his demand that the poor should pay 20 per cent. of the rates? Why is it that the poorest, the weakest and the most frail in our community have to pay the price for his Government's economic failure?

Mr. Fowler

That is not the case, and the hon. Gentleman is too intelligent to believe that it is. I have made it clear that there will be reductions in housing benefit, but I have to point out to the hon. Gentleman a fact which he probably knows well enough in any event —that housing benefit expenditure has increased from £1.2 billion in 1979 to £4.2 billion in 1985–86.

The hon. Gentleman also knows that housing benefit expenditure goes further up the income scale than any other benefit. We are spending £40 billion a year on social security. Furthermore, spending on social security by this Government has increased by about 30 per cent. The majority of that increase is spent not on unemployment benefit but on making improvements in real benefits. It helps absolutely nobody to believe that expenditure of this kind can continue in a totally uncontrolled manner. I believe that our proposals are fair to the public and will help to bring about the recovery of the economy that we all want.

Mr. Roy Galley (Halifax)

My right hon. Friend will be aware of the wide welcome that there will be for the better targeting of benefits, for the concentration of help on families in need and for basing benefit on take-home pay and reducing the poverty and unemployment traps. Does my right hon. Friend agree that one aspect of the poverty trap has been the way in which supplementary benefit has been the gateway to a plethora of other benefits? Will he elaborate upon how far these various additions will be consolidated into the income support system and upon how free school meals Will be related to the family credit system?

Mr. Fowler

As a general aim, the Government are trying to make benefits available equally on the basis of income. In other words, rather than having the distinctions that exist now between those on supplementary benefit and those in work—as my hon. Friend points out, having passports which take one to particular benefits — we shall make the same benefits available on the basis of equality of income, whether people are in work or out of work. I should make it clear that we intend to include some of the extra benefits in family credits and to pay those benefits in cash rather than in kind.

Mr. Donald Stewart (Western Isles)

Is the Secretary of State aware that the United Kingdom is lagging behind a number of other European countries in providing this type of benefit and that these proposals will push us further down the league? Is he also aware that some of the poorest people in our society will experience the rigours of the Victorian workhouse? As maternity and death grants will be means tested and paid for out of a so-called discretionary fund, does the Secretary of State not realise that people will be means tested literally from the cradle to the grave?

Mr. Fowler

There is a profound misunderstanding of the Government's proposals. They are based upon a test of net income. If one believes in trying to target help on those who need it most, it is impossible to devise any other way to bring that about. Therefore, I ask the right hon. Gentleman to study with greater care the proposals in the Green Paper. As for the social fund, I do not think that anybody would defend the present position under which additional payments are made. It does not work. It has not worked for some time. The social fund will enable us to provide a more sensitive and better targeted way of providing help for those in need.

Dr. Brian Mawhinney (Peterborough)

Does my right hon. Friend accept that his concentration of help on families with children and the testing of incomes is very welcome and will be widely supported in the country? Can he confirm that the contributions to SERPS of those who will not be retiring this century will, nevertheless, be inflation-proofed against price rises, to cover the time when they will receive the benefit of the contributions that they have made?

Mr. Fowler

The position of any man over the age of 50 and of any woman over the age of 45 is preserved. The accrued rights of people generally are also preserved in the same way.

Mr. Derek Foster (Bishop Auckland)

Is it not outrageous that the Secretary of State should come to the House this afternoon and claim to be proposing a new Beveridge and yet be quite unable or unwilling to tell us how many will gain and how many will lose under these proposals? Out of the many thousands of poor people who will lose under these proposals, will the right hon. Gentleman tell us how many pensioners with small occupational pensions will have their heating and dietary additions removed?

Mr. Fowler

I dealt with that question in some detail when I answered the right hon. Member for Blaenau Gwent (Mr. Foot). The purpose of the social security review is to put forward a new structure and to seek the views of the House and the public on that structure. It is impossible to provide a detailed analysis of the cost until the benefit rates have been set. I have been entirely frank in saying that we expect there to be significant savings in housing benefit. I gave that figure to the right hon. Gentleman.

Mrs. Edwina Currie (Derbyshire, South)

Given the huge size of the social security budget—£40 billion a year—and given also the growth of that budget, its complexity and the muddle and confusion which appear to be rife within it, does my right hon. Friend agree that it would be a thoroughly irresponsible Government who did not undertake these long overdue reforms? Does he accept that we shall all benefit — taxpayers, recipients and particularly the less well-off—and that the people of this country will have cause to give thanks to my right hon. Friend, particularly after several upratings in 1987?

Mr. Fowler

There is no question but that a re-examination of the social security system was long overdue. There is also no question but that the majority of the public share that view. I believe that many Opposition Members secretly share that view, too. This Government have had the courage to undertake that review. The hon. Member for Derby, South (Mrs. Beckett) laughs, but the only thing that the last Labour Government did was to ask a team of officials to look at the supplementary benefit scheme. That is not the way to reform social security, and that is not the way in which this Government propose to reform it.

Mr. D. N. Campbell-Savours (Workington)

Is it not clear that the Secretary of State is refusing to give these figures for singularly party political advantage? Has he forgotten what was contained in the Conservative party's manifesto at the last general election? The Conservative party gave a solemn undertaking to the British people that it would protect pensions and other linked long-term benefits against rising prices. Has not that solemn undertaking been broken today? Is it not clear that the Government do not have a mandate for pursuing this policy? Their only reason for pursuing it is that they cannot make their economic strategy work. They cannot make the nation pay the bill. They have failed.

Mr. Fowler

The hon. Gentleman has not understood a single word of what has been said today. We stand entirely by the words to which he referred. We have kept pensions up with prices, and we have also tackled inflation. Under the Labour Government inflation increased by 110 per cent., which was a cruel blow to pensioners.

Sir Brandon Rhys Williams (Kensington)

Will my right hon. Friend accept my warmest congratulations on his decision that occupational pensions should be based on real funding, and on his courage in slaying the Hydra of the state earnings-related scheme, which is not even an honest system of repartition? With regard to benefits that will still be based on a redistribution of the national income, would it not have been more logical and practical to integrate the income tax wholly with the contributory system, so that the residual welfare state, which is still concealed inside the income tax system, could be integrated into a logical new system of benefits?

Mr. Fowler

I have much sympathy with what my hon. Friend says, but we are still some distance from that position. First, we must computerise the DHSS system. We are taking several steps in a direction which my hon. Friend would support. The alignment of the tax and benefit years is a major improvement. Family credit will prove a natural system for bringing together social security and tax affairs, and computerisation will undoubtedly help. Some of the further points put forward by my hon. Friend can be examined in the Green Paper which my right hon. Friend the Chancellor of the Exchequer will introduce later this year.

Mr. Robert N. Wareing (Liverpool, West Derby)

Is the Secretary of State aware that his statement is a kick in the teeth for all disabled people, especially for the non-industrial disabled, who do not receive disablement benefit? They depend for 20 per cent. of their incomes on the additional allowances, such as the heating allowance, which, at a stroke, he is abolishing. Have the Government considered compulsory euthanasia as a way of solving their monetary problems? It seems to me and to millions of disabled people that they are being sacrificed on the altar of Conservative monetarism.

Mr. Fowler

That is a very silly intervention. The hon. Gentleman must understand — if he does not, he had better read the document — that the income support scheme will include a special premium for the disabled. I advise the hon. Gentleman to look at that.

Dr. John G. Blackburn (Dudley, West)

As someone who represents 70,000 pensioners, may I ask my right hon. Friend to accept that they will welcome his proposal for a review of the housing benefit scheme, which will be to their advantage? Does he further accept that the widow's grant of £1,000 will be widely welcomed? Will he, as he said earlier, accept further representations?

Mr. Fowler

Yes, indeed. On any of the proposals made in the Green Paper, the Government will wish to hear representations from interested organisations outside the House and from hon. Members. The widows' arrangements are more flexible and better targeted than the present ones, but I am open to suggestions on how to improve them.

Mr. Hugh Brown (Glasgow, Provan)

Does the right hon. Gentleman accept that almost everyone in the House accepts the need for some reform—[Interruption.] I shall put my question in my own way. From so many proposals, there must be one or two that can be accepted by us all. Is not the real indictment that the Government seem to be incapable of creating a society without 4 million unemployed? In those circumstances, there is no possibility of obtaining a consensus on the broad approach to social reform. Will the right hon. Gentleman confirm that the poorest section of the community—those in receipt of supplementary benefit — will not be cash losers? He used the phrase. Can he explain what he means by it?

Mr. Fowler

Exactly what I said. We shall ensure that the structural changes will not result in cash losses by those who are now in receipt of supplementary benefit. I accept the hon. Gentleman's more general point. The aim is not to increase and improve social security benefits. The aim is to reach a position whereby we can reduce unemployment and dependence on those benefits.

Mr. Roger Freeman (Kettering)

Is my right hon. Friend aware that his proposals on SERPS will be widely welcomed because they are founded on common sense? Will he confirm that the required mandatory contribution for additional pension provisions, which is set at 4 per cent.—half of which will be paid by the employer—is only one third of the contribution rate normally applicable in occupational pension schemes and, therefore, should be financially acceptable and is basically sensible?

Mr. Fowler

Yes, I can confirm that. I can also confirm — I know that my hon. Friend has expressed anxiety about this — that the contribution will be available for personal pensions as well as for occupational pensions or for membership of industry-wide schemes.

Several Hon. Members

rose—

Mr. Speaker

Order. I shall take two more questions from each side, and in the debate that is to follow I shall give preference to those hon. Members who have not been called today.

Mr. Charles Kennedy (Ross, Cromarty and Skye)

On the question of alleviating family poverty, will the Secretary of State explain why, under the proposed family credit plan, payments will go direct to the pay packet? Given that that represents a major redistribution of wealth in the family away from mothers, would it not be better to adapt that proposal before the White Paper is published so that mothers can claim it if they wish? As to the income support scheme, is not the most glaring omission the fact that the right hon. Gentleman has firmly set his face against an extension of the rate to the long-term unemployed, who are the new poor under the Government's policies?

Mr. Fowler

The hon. Gentleman must remember that we are adding a family premium to the income support scheme. The family premium and children's rates will be added to the standard rate, which will provide help where it is needed—among low-income families with children. As to the argument about the purse to the wallet, it is more sensible to make family credit part of the total income from work. That will improve the present poor take-up of family income supplement, which has caused us anxiety for a long time. Although initially it will be assessed by the DHSS, there is no reason why it should not go into the pay-as-you-earn system, which is something that the hon. Gentleman might welcome.

Mrs. Elaine Kellett-Bowman (Lancaster)

I warmly welcome my right hon. Friend's efforts to rebuild personal incentive, and especially his help to families with children, who are by far and away the largest proportion of people with below accepted nutritional standards. The new family credit scheme will help to equate those who work with those who do not, and the £1,000 grant to widows at a difficult time in their lives will be welcomed. May I also congratulate him on his efforts to co-ordinate the tax and benefits systems, which was recommended to the Chancellor of the Exchequer by the Select Committee on tax credits 13 years ago?

Mr. Fowler

I am grateful for my hon. Friend's generous welcome for the proposals. One area that caused those who conducted the review most anxiety was that of low-income families with children. That is what the proposals try to tackle, and I believe that family credit will make a great contribution.

Mr. Andrew Faulds (Warley, East)

Should not this supposed Green Paper be simply titled "Dismantling the Welfare State"? As the right hon. Gentleman claims that he cannot give figures — that has been a persistent theme of his responses today — will he publish an assessment, based on demographic developments and Treasury forecasts, of a range of likely benefit payments in the April 1987 Budget, so that the people of this country can judge for themselves the damaging implications of this developement before the next general election?

Mr. Fowler

There will be no difficulty in finding out the implications of the proposals before the next general election. In the Green Paper we have tried to set out the structural reforms and changes that we are making. That is an entirely proper and right course to take in a Green Paper. A White Paper and a Bill will follow and go into even more detail.

Mr. J. F. Pawsey (Rugby and Kenilworth)

As my right hon. Friend's Department is responsible for 43 per cent, of all Government spending, will he confirm that help will continue to be concentrated on those who are most in need and that his proposals will result in a more efficient service, which, in turn, will mean that resources are used more adequately and efficiently?

Mr. Fowler

I very much hope that we shall be able to achieve the last part of what my hon. Friend has set out. There is no doubt that we need a modern system of social security which provides a better service. The present system does not achieve that, and I believe that it is common ground on both sides of the House that we should move towards that goal.

Mr. Meacher

Is the Secretary of State aware that he was wrong when he said that the majority of increased spending on social security since 1979 has been devoted ' to improve benefits?

Will the right hon. Gentleman give the House an assurance that, given the magnitude of this exercise, we will have not merely a one-day debate, but a two-day debate, so that we may explore fully the implications of his statement?

On the funding of SERPS, does the Secretary of State recall that in 1954 the Phillips committee said that the pension could not be afforded over the next 30 years? If we had listened to that committee, the pension would be about £15 a week today and retirement ages would be 63 and 68. Does that not show the folly of making drastic decisions now about unknowable circumstances 50 years on?

Are we seriously expected to believe that the Government are launching this massive exercise without being able to estimate any costs until the benefit rates are fixed in 1987? Is that not utterly irresponsible, or is it that this Treasury-dominated cuts exercise still has a long way to run and that, given pressure from the Treasury, the overall cuts may turn out to be £2 billion or more?

Mr. Fowler

The hon. Gentleman is getting carried away again. I have already given the figure and, like everyone else, the hon. Gentleman listened to it. Since 1979 the majority of increased spending has gone on extra benefits and beneficiaries.

Mr. Meacher

Ah!

Mr. Fowler

I should point out to the hon. Gentleman — just in case he should have other ideas — that additional beneficiaries have to be paid for.

I cannot commit my right hon. Friend the Leader of the House to a two-day debate. Certainly, we are committed to a debate. The hon. Gentleman made the classic dud point about the Phillips committee. I ask him to go back to the committee. The one figure that it was able to predict with almost total accuracy was the future number of pensioners. That is the great difference between the situation in 1975 and the situation now. On the best predictions that can be made, we shall need policies for dealing with between 3 million and 4 million more pensioners in the first half of the next century. That is the best estimate, and I advise the hon. Gentleman to accept it.