HC Deb 01 March 1985 vol 74 cc565-627 9.35 am
Mr. Edward Leigh (Gainsborough and Horncastle)

I beg to move, That this House recognises that the Government has maintained all the major social security benefits at levels above the rate of inflation; notes that the social security system absorbs some 30 per cent of public spending, a proportion which is likely to increase with serious consequences for the ability of governments to reduce taxation; is concerned that because of the complexity of the benefit and tax systems care is inadequately targeted to those most in need, that benefits are difficult to understand and often to claim as well as being unnecessarily expensive to administer and that the system acts as a disincentive to work and job creation; and therefore calls upon the Government to initiate a fundamental and radical reform of the benefit and tax systems leading to their harmonisation and ultimately to their full integration, and thereby to ensure basic care for all our citizens and the abolition of the poverty and unemployment traps. I understand that the chance of drawing first place twice running in the ballot for private Members' motions is about 120,000 to one, so I feel that I am very fortunate. However, I fear that my chances of drawing first place again in the next 30 years or so, if my constituents return me to this House, are slim indeed.

Two weeks ago I asked the House to debate an issue of high moral and ethical concern. This morning I have decided to ask the House to debate what is indisputably the most expensive item of Government expenditure and, in the view of many, the most vital aspect of Government activity. I refer to the activities and the cost of the welfare state and the social security system.

In my view, society is judged not just by the opportunities that it provides for those who are most able in society but by the care it gives to those who are least able. The Government are judged not just by the amount of public money that they are prepared to spend on these activities but by the efficiency with which they disburse those public moneys. This House of Commons is judged by the ability and concern with which it is prepared to give constructive advice to the Government before the Government make up their mind on these very important issues.

Criticism of the present welfare system has come from all sides. I need only quote a few. The Institute of Fiscal Studies recently said: There are few people in Britain today with much affection for our benefit system. It has become a nightmare to administer. Its complexities and anomalies have become a byword and many people fail to get the benefits they need. The noble Lord, Lord Harris of High Cross, speaking in the other place, said of the defenders of the status quo in the welfare state: they so prostrate themselves before the sacred, if somewhat tarnished, structure that they cannot see the central reality that indiscrimate state charity has created an unsustainable burden." —[Official Report, House of Lords, 24 November 1982 Vol. 436, c. 920.] The National Consumer Council said of the benefits system that it is cracking under burdens not foreseen by its founder 42 years ago. The National Council for Voluntary Organisations said: The social security and taxation system discriminates strongly against those who have never been able to work, against the long-term unemployed, against unemployed people seeking part-time work and married women. These problems will not be resolved by a series of hasty and piecemeal reviews. In a Social Affairs Unit pamphlet the author applied these adjectives to the welfare state: incomprehensible, uncoordinated, deteriorating, discriminatory and destabilising. That is why I believe it is necessary to have this debate.

What is wrong with the present system? First, it creates the poverty trap. If a person works harder and is at the bottom end of the wages scale, he is worse off. If a married man with a wife and more than one child earns between £50 and £120 a week, he loses £1.09 for every extra pound that he earns.

That is equivalent to a marginal tax rate of 109 per cent. Paul Getty with all his millions was never asked to pay tax at such a high rate. For every extra pound that he earns, family income supplement is reduced by 50p and housing benefit by 33p, while tax goes up by 30p and national insurance by 9p. That is the poverty trap.

The system also creates the unemployment trap. If a previously unemployed person earns more than £4, he loses benefit for every pound that he earns, pound for pound.

Some people say that about 160,000 families in the United Kingdom are affected by the two traps. As a result it is impossible, or at least difficult, to persuade people to work for low wages. The effect on unemployment is unknown, but some authorities suggest that the two traps may account for one third of all unemployment.

We are creating not a society of opportunity but a society of despair. The system creates a benefit ratchet. Governments can easily introduce new benefits. Indeed, they are under constant pressure to do so. A delegate speaking at a Social Democratic party conference recently apparently looked forward to the state looking after "as yet undiscovered minorities." It is difficult to reduce benefits, because benefits are supposed to help the poor and any reduction is seen as an attack on the poor. The voter is left with an unenviable choice. Should he press for the tax cuts that he knows in his heart he would prefer so that he can spend his money as he wishes, or should he join a pressure group to enrich himself and his station at the expense of others? That is the middle-class backlash described in the letters which have filled our postbags recently.

The safety net is full of holes. One can claim for many benefits only if one has an address, but if one has no money one cannot acquire an address from which to claim. That is why, in 1985, nearly 80 years after Lloyd George introduced his pioneering Budget, people have to sleep in newspapers under Hungerford bridge, 10 minutes away from this gilded palace. That is not acceptable.

Because of the complexity of the system, many people who are entitled to benefits do not claim them. How many old people live in loneliness, poverty and despair because they are not receiving the benefits to which they are entitled? The system leads to family breakdown. It actively penalises marriage and encourages people to place the elderly members of their families in old people's homes rather than to look after them at home.

The system leads to welfare imprisonment. If a person is thrifty and saves £2,000, all benefits stop. How many budding Thatcherites are enmeshed in the net, unable even to get on to the ladder? The system leads to waste. Benefits are paid to those who do not need them. Executives in the top income bracket receive benefits in spite of the various tax reliefs which they also receive.

The present system is Byzantine in its complexity, it creates disincentives and it is expensive to administer. A person seeking benefit often has to trail around a local DHSS office which may be acting on behalf of a local Department of Employment office. How many impoverished people are forced to tread that unending maze around the welfare state?

The system is characterised by the Government's ignorance of the personal, financial state of us all. Incredibly, the state does not know whether an individual is a net beneficiary or a net contributor to the state, even in the narrow sense of net benefits and cash taxes. The state is supposed to care for the poor, but it does not know whether any individual is losing or gaining from the state's activities. All this leads to some over-payment because some benefits such as family income supplement and housing benefit are assessed over a short period but are paid over a much longer period and people can continue receiving benefit when they are no longer entitled to it.

The system creates benefit static. People who are clever enough can combine all the benefits to which they are entitled and all the tax reliefs and make large sums out of the state — legally. It creates a youth trap. Employers simply cannot afford to employ young people and to pay them the relatively high wages required to ensure that their wages are above benefit level.

In the United Kingdom, the youth wage is 70 per cent. of the adult wage. In West Germany it is only 30 per cent. of the adult wage. Youth unemployment is endemic in the United Kingdom. In Germany it is almost unknown. The state and the House of Commons are pricing young people out of jobs. We create the vacuum and then, at great cost, we have to devise schemes such as the youth training scheme to fill that vacuum.

The system leads to rising expectations and dwindling resources. As the benefit ratchet clicks on, so the money available from the taxpayer slowly runs out. It is estimated that by 1995 revenues from North sea oil will have declined by £10 billion and private revenues will have declined by £5 billion. That decline of £15 billion is equivalent to the sum spent on the Health Service today.

In every year under this Government, and under previous Governments, the state spends more on welfare in real terms. That spending goes up by 2 or 3 per cent. each year. Under the present system it is impossible for any Government to have the political will or opportunity substantially to reduce the budget. Benefits are widespread. About two thirds of council tenants receive some benefit. Housing benefit is paid to one household in three. No longer do we give benefits to the poorest alone. No longer are we fulfilling the dreams of those who created the welfare state. We are creating the habit of dependence, not the habit of incentive.

We are also creating a guilt complex. Nobody likes receiving something for nowt. We are creating depression and feelings of inadequacy. For every social security shark or no-good layabout there are dozens of people who deeply resent their dependence and who want the chance to break out of the system.

We face a considerable problem because of the increasing age of the population. Half the £40 billion spent on welfare goes to old-age pensioners. That proportion will continue to increase as the population becomes older and the birth rate declines. A smaller and smaller economically active part of the population will be paying for an ever larger share of the benefits paid to the inactive. That leads to resentment and ultimately perhaps to lower provision for the elderly. None of us wants that.

What is the cost of all this? The cost is escalating. It is going at an ever-increasing pace down an ever-steepening hill. Command 9428, containing the Government's expenditure plans, says that in 1985–86 we shall spend £38,378 million on the welfare state. In 1987–88 we shall be spending £42,372 million. That compares with £572 million spent in 1945, £813 million in 1955 and £1,362 million in 1965.

Social security now accounts for 30 per cent. of all public expenditure. Incredibly, 85,000 state employees are needed to administer it. Ten thousand employees keep the national insurance contribution records, at a cost of £100 million a year. It costs 5p for every pound distributed, compared with 2p for every pound collected by the Inland Revenue. The costs of this infernal machine are increased by duplication. Claimants are often entitled to more than one benefit. In 1983–84, 15 per cent. of pensioners were entitled to supplementary benefit. They had to undergo more than one assessment, which incurred further administrative costs. That leads to mistakes.

Over the years, we have heard a great deal about social security fraud. I do not intend to deal with that today, because I can point out that 9.5 per cent. of all supplementary benefit payments are subsequently found to be incorrect because of administrative mistakes. This arcane system leads to a lack of innovation. We do not see the innovation in the state sector as we do in the private sector for pension provision. The system actively discourages private provision for pensions and welfare. All but the best employees and most wealthy individuals pay twice into the system, once through taxes and once through private provision.

Those are the arguments that have been levelled against the welfare system by all sides, all political parties and every pressure group involved in this area. How can we improve the system, bearing in mind that the present level of expenditure is unlikely to be sustained for any length of time by any Government? I am sorry that more Opposition Members are not interested in the welfare state. It would be nice if some Opposition Members were present. I am glad that a considerable number of Conservative Members, and even a representative from the Liberal party, are present to discuss this important issue. Whatever the Labour party says, it will not be able to sustain levels of expenditure, as the experience of France shows.

We cannot deal with the problem simply by tinkering with it. At present, care is free at the point of consumption. The benefit review presents an opportunity. My message today is that the Government should be prepared to take radical steps to devise a strategic plan for the integration of taxes and benefits. That is the only solution. There is no point in half-hearted steps or tinkering with the system, because that will achieve nothing. There is no shortage of suggestions.

Mr. A. B. Atkinson, writing in New Society recently, quoted Sidney Smith's writings in the Edinburgh Review 150 years ago. Sidney Smith wrote: A pamphlet on the Poor Laws generally contains some little piece of favourite nonsense by which we are told this enormous evil may be perfectly cured. Today, Mr. Atkinson notes that the flow of proposals, more cautiously advertised, has not abated. He then lists eight serious proposals for reforming the welfare state.

I intend to deal not with the new Beveridge proposals, but with the reforms that are designed to integrate the tax and benefits systems. Some of them give a basic income guarantee. The nearest we came to the negative income tax scheme was in the 1972 Green Paper presented by the then Conservative Government, which proposed a weekly tax credit to replace the existing system of personal tax allowance, family allowance and family income supplement. It was described by the then Chancellor of the Exchequer, Mr. Anthony Barber, as representing the most radical reform of PAYE and the social security system for a quarter of a century. It is regrettable that the scheme was aborted by the 1974 general election.

More recent proposals have combined the tax credit idea with concentrating resources on those most in need. I am most attracted to a recent report produced by the Institute of Fiscal Studies which devises a benefit credit scheme. The basic thrust of the report is that the national insurance concept is more honoured in the breach now than in the performance, and that the concept of national insurance should be swept away. It states that the present tax and social security systems should be replaced by a group of tax credits, with corresponding rates on income and benefit credits and corresponding withdrawal rates on income. The underlying principle of the report is that the system should operate much more selectively.

It is interesting to note that the sweeping changes brought about by integrating the two systems, by being more selective and by preventing the rich from acquiring the benefits which Beveridge never intended them to receive immensely widen the options available to the Government. The Government could cut the number of poor households from 3 million to 400,000 with no tax increase. Alternatively, they could take 5p from the standard rate of income tax and still reduce the number of families in poverty by one third. Radical reform and integration is the only way forward.

There is one radical scheme which I shall deal with now in detail because it has not been debated by the House before — that is, the benefit-plus scheme or the minimum income guarantee scheme. For many years, my hon. Friend the Member for Kensington (Sir B. Rhys Williams) has taken a great interest in that, and I am pleased to see him present this morning. There are various permutations of the minimum income guarantee scheme, but basically every citizen would be given a basic benefit depending on his age and responsibility, not his income. The important part is that that benefit would never be taxed. It would be received as of right and in total as a complete replacement for all present tax allowances and reliefs. The citizen would pay tax at a single flat rate—I find that attractive—for every pound he earned on top of that. The tax and benefits systems would thereby be rendered radically more simple.

The level of benefit—this is where we may get into problems and from where the criticisms of the scheme come—would have to be big enough to be a subsistence benefit. It could be put at £28 for a single person, with a supplement of £10 for pensioners, a benefit of £l3 for children, a benefit of £28 for householders, and additional benefits for one-parent families, expectant mothers and the disabled. The supplementary benefit, family income supplement, unemployment benefit and housing benefit would thus be replaced with a single universal benefit, and the 1,000 or so paragraphs of social security regulations would be condensed into about 50 paragraphs. Under the scheme, the basic unit is the individual.

The scheme can be geared in a limitless number of ways. To introduce that scheme, the schemes proposed by the Liberal and Social Democratic parties, or the scheme suggested by the Institute of Fiscal Studies, we must accept the basic premise of the integration of the tax and benefits systems. On the benefit-plus scheme, a computer model can devise a level of benefit to ensure that most people are left with much the same money as they enjoy now, except that the poorest may be slightly better off and those with well above average incomes may be slightly worse off. There would, however, be no poverty and unemployment traps. Huge savings would be made in administration costs, and there would be considerably more incentives for people to go out and get all types of jobs.

The time has come for the Government to move in such a direction and to be prepared to take a radical view. The Government have increased social security benefits way above the rate of inflation, but under the present system no Government can give adequate care and support to those most in need. No Government will have the political will under the present system to end benefits to those who are substantially better off. The contributive principle has already been abandoned, and the state will now support a person whether or not he has paid contributions. We are simply maintaining a vast bureaucracy to maintain what is now fiction. We know that 53 million personal accounts are required in Newcastle to calculate benefits under the present system. Of course, we have two nations, and tax cuts will not help those at the bottom of the heap.

Until now, Governments have said that there is no alternative, but there are alternatives and the dignity of man requires nothing less. The Government have nothing to fear but reform itself. There is no point in the Government engaging in political damage limitation on this issue or, indeed, in the politics of talk rough and act soft. We can act radically and give the nation a new start. The Government can reveal their commitment to care and compassion and, above all, to initiative, enterprise and reform. The modernisation of the welfare state is the most important task of Government, and in the latter half of this Parliament the Government must not be found wanting. This is not the time for neutral Budgets in order to appease flaccid supporters on the Back Benches. Nor is it the time for a neutral benefits review in order to appease grasping pressure groups. This is the time for radical reform.

If we are not prepared to take that step, we shall not be able to meet the test created by Goldsmith in "The Deserted Village": Ye friends to truth, ye statesmen who survey The rich man's joys increase, the poor's decay, 'Tis yours to judge how wide the limits stand Between a splendid and a happy land.

10.3 am

Mr. Ralph Howell (Norfolk, North)

I congratulate my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) on the excellent way in which he introduced this all-important matter. It was a most apt time to bring this matter to the attention of the House. I hope that we can exert pressure on the Government not to listen to those who say, "Steady as she goes," and, "Let us not do anything to upset anyone." My hon. Friend is right to call for radical reform. I have tried to persuade various Governments to do that for the past 10 or 12 years, and I believe that we are getting close to the time when radical changes will be made. Indeed, radical change must come whether the Government like it or not. We cannot continue to fund an open-ended system that is completely out of control.

In a recent excellent press article Sir John Hoskyns, the director of the Institute of Directors, said that there are between 20 and 30 million recipients of welfare. Even with extensive research, it is difficult to gauge the size of the area of welfare payments because it is so complex. That proves how thoroughly uncontrolled it has become. I believe that about 22 million people receive some sort of benefit and that about 16 million wage earners receive nothing. As time goes on, the latter are decreasing, so the load on non-recipients is becoming greater. Sooner or later, the last straw will break the camel's back.

It is a great mistake to believe that those out of work are the poorest people in the country. In many cases, the poorest people are those who have work but who are taxed into poverty. Then the state comes along and gives them dribs and drabs of benefit to try to take them out of poverty. I have consistently drawn the attention of the House to a friend of mine, Mr. Peter Hamilton-Lowe, who was unemployed for two and a half years before I met him. He got a job with Norwich health authority, but he discovered that he was £10 a week worse off in work, because of his circumstances—he has a mortgage and two children. I have watched his progress. He is still working there, and he has never been less than £3 a week worse off, and sometimes as much as £12 a week worse off, because he has been working. It is a terrible indictment on the state that we cannot make the system work better than that.

The Government are fighting against themselves with index-linked supplementary and other benefits. We consider 7.5 per cent. salary increases as rather high, but we must remember that the low paid are competing with those who are protected from inflation by indexed benefits. If we increase tax-free benefits by 4.7 per cent. or even 5 per cent., we should recognise that for the low paid to keep up with their base line they must receive pay increases of more than 7.5 per cent. At some stage we must recognise that we cannot continue to increase benefits as we have done during the past five years.

I would ask for even more radical reform than that for which my hon. Friend the Member for Gainsborough and Horncastle called. He asked for a complete integration of tax and welfare benefits, but I believe that the only way to solve the problem is completely to reform all tax, welfare and employment systems. We went wrong when we failed to implement the Beveridge report in full. Beveridge knew exactly what would happen if his report was not implemented completely. He said that, after a time, people would learn to rely on benefits. He said that after three or six months—whichever period is decided—unemployment benefit should cease and work should be offered. This is where we have made a major mistake. The failure to offer work is one that needs urgent attention. Beveridge said that young people should not leave school and immediately join a dole queue; he contended that they should receive training. I take that to mean some form of compulsory training. I hope that the Government will move in that direction very soon.

If we had a system in which the jobcentre became the workcentre, we would have a base that would enable every able-bodied adult to be offered a job at £1.75 an hour—a maximum of £70 a week. That would enable us to sweep away numerous complex and complicated benefits. That would form a baseline that would eliminate the poverty trap and the unemployment trap and provide an incentive for everyone to work. Indeed, everyone would have the opportunity to work.

It is unfortunate that there are not many representatives of the official Opposition in the Chamber this morning. Now that the hon. Member for Thurrock (Dr. McDonald) has left her place on the Opposition Front Bench, we have none. However, there are those, when they are present, who seem to think that there is some merit in taxing everybody. Indeed, there are some in the Conservative party who take that view. They think that we should not worry about raising income tax thresholds and that general taxation leads to people being more involved. A man with a wife and two children—an average family—earning £110 a week pays about £25 a week in tax and national insurance and receives about £25 a week in child benefit, housing benefit and free school meals. What an absurdity. There can be no sense in that. It is only the bureaucrats who gain from such a system.

There are others who argue that tax rates are the problem and not thresholds. I believe that we should raise tax thresholds dramatically to more than £110 a week and reduce tax rates. This would mean a massive cut in revenue of about £10 billion to £12 billion. That is the money that we are taking from those who earn less than two thirds of the national average wage. We must find ways of doing without £10 billion to £12 billion. It is quite simple to find a way of achieving that economy because we are overmanned in the public sector to an enormous degree. In local government there are 1 million more employees than in 1960. They are costing over £12,000 a year each in wages and associated costs. I believe that in 1960 we had a better education service and better services generally from local government than we are receiving now. There is plenty of room to achieve a saving of £10 billion to £12 billion but it would be necessary to introduce radical change across the board to do so.

I do not agree with my hon. Friend the Member for Gainsborough and Horncastle that we should provide a minimum income guarantee. Instead, I believe that there should be an incentive to work, that work should be offered to anyone who wishes to work and that those who do not want to work should receive nothing.

Our welfare system provides many strange benefits and the system has become so complicated that many of the results are nonsensical. We have been led into a terrible trap. For example, why does everyone with a family need child benefit? Of course, there is a case for providing child benefit for the low paid and for those who are out of work, but it makes no sense to have universal child benefit. Why should the richest in the land receive child benefit? Why is there a difference in what is received for child support between those who are in work and those who are out of work? The answer lies in completely reforming child support. Child benefit should be given only to those who are in greatest need.

We have recently reformed the housing benefit system. The idea was to save manpower and reduce bureaucracy. If we tinker with the system again we shall only make it worse. The most recent reform did not save any manpower. Indeed, I believe that we are now employing an additional 3,000 to 4,000 to implement it. Why should we be giving any form of housing support to those earning over £12,000 a year? In some circumstances, it is possible to receive housing support on an income as high as £17,000 a year. What a ludicrous state of affairs.

I congratulate the Government on setting up four separate reviews of social benefits. The reviews have been a step forward and the Government have done something which no other Administration has done. However, there is no way in which those four reviews can arrive at a satisfactory answer. It is rather like fashioning four separate gear wheels in separate factories and then trying to mesh them together. I am sure that it is impossible to do that. Instead, we need a major overall reform that will produce one unified benefit — a taxation and employment system. There should be a positive gap between the level of earnings at which someone can receive benefit—an incentive gap—and the level at which tax becomes payable. We must institute a "workfare" system and a national youth training and work system so that we have one overall, comprehensive and radical reform to get Britain working once more.

10.18 am
Mr. Archy Kirkwood (Roxburgh and Berwickshire)

I listened with great interest to the contributions of the hon. Members for Gainsborough and Horncastle (Mr. Leigh) and for Norfolk, North (Mr. Howell). I congratulate the hon. Member for Gainsborough and Horncastle on choosing this important subject. There is some advantage to be gained from discussing such a subject on a Friday morning because it enables us to have a much more serious and sensible debate, although fewer hon. Members are present. Obviously, hon. Members have constituency interests which prevent them being in the Chamber. The debate is all the better for the presence of those hon. Members who have a genuine interest in the subject. I congratulate the hon. Member for Gainsborough and Horncastle on having had the good luck to draw first place twice in a row in the ballot for private Members' motions.

I have studied the motion with great interest. It states: the Government has maintained all the major social security benefits at levels above the rate of inflation". That cannot be controverted as a statement of fact, but I put it to the hon. Member for Gainsborough and Horncastle that Governments of both complexions—I do not lay the blame just on the present Treasury Bench—have significantly ignored the death grant. More than anything else, the death grant causes great distress to retired people who worry in the twilight of their years about whether they will have sufficient funds put by to see them out of this world without imposing burdens on their relatives. Past Governments have been culpable in dealing with death grant, maternity benefit and certain other benefits.

The hon. Member for Gainsborough and Horncastle will not do justice to pensioners unless he finds some way of closing the difference between the inflation rate of 5 per cent. and earnings. It is not fair to have a system that price-protects pensioners—we welcome that—but guarantees that their standard of living consistently falls behind the standard of living of those in work. If we allow that policy to develop year on year, we shall inevitably get a two-tiered society split between those who are in work and those who are not. An inexorable gap will grow. Whatever system we use—whether it is negative income tax or a fundamental tax system—we must address ourselves to that problem. Some people will be able to take advantage of the benefit of increased earnings while others will be restricted to increases as measured by the retail price index.

The Government have statistics and quantitative analyses, but they fall down on the qualitative side. Their approach to these matters leaves much to be desired. The retail price index is not an effective measure of the increased cost of living of the disadvantaged. Age Concern and similar groups have satisfied me that the retail price index is not a fair measure of the costs borne by pensioners and those who are out of work. Even though the Government have done as the hon. Member for Gainsborough and Horncastle said, we should recognise that great difficulties must still be faced.

The hon. Member will not be surprised to hear that I entirely welcome his statement about the complexity of the benefit and tax systems. I endorse what he said about inadequate targeting for those most in need, although I would not follow his analysis completely. If we pressed this motion to a Division, I would have no difficulty in voting for it. I join the hon. Gentleman in his attack on the Government Front Bench, although I do not make light of the problems faced by the Under-Secretary.

People say that £40 billion is a lot of money—so it is, but it is necessary. I am not frightened of spending large sums of public money so long as I am satisfied that that money is well spent and that it will guarantee that our nation is not divided geographically, industrially, financially, socially and politically.

Apart from being worried about the Government's legislation, proposals and policies, I am worried about the Prime Minister's approach—whether she states it or not — and the public perception that she believes in a society that either shapes up or goes under. There may be an argument for that attitude when it is applied to industry, entrepreneurs, commerce or any of the aspects about which the right hon. Lady is an expert, but, if it is applied to the type of people who are covered by the tax and benefits system, it is wholly inappropriate. Whether the right hon. Lady likes it or not, she is stuck with the reputation of caring less rather than more for those on benefits. I believe that the majority of people perceive that attitude throughout the whole of her Government and in everything she touches.

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

Will the hon. Gentleman compare the record of the Prime Minister who has presided over a Government who have increased in real terms by 28 per cent. the social security budget—that includes significant increases in all the major benefits—

Mr. Dennis Skinner (Bolsover)

More people on the dole.

Mr. Whitney

I welcome the hon. Gentleman, who has doubled the strength of the Labour party in the Chamber today. Will the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) compare the Labour Government's record with the record of this Government who have increased benefits for 800,000 new pensioners and for the unemployed and who have provided about £2.75 billion in real terms, in addition to the provision of the last Labour Government?

Mr. Kirkwood

Many more people are beneficiaries of the system. I hear what the hon. Gentleman says. It sounds as though we are lapsing back into the old party political football match. It is true that the Government are spending more money. The public expenditure White Paper clearly shows that the amount has increased. I do not think that even the hon. Gentleman would deny that many people, especially those on long-term supplementary benefit, are experiencing difficulties because of the Government's tight fiscal monetarist policy. We can argue about whether that is the right or wrong policy. It is not fair for the hon. Gentleman to say, "We are spending all these extra funds" when the Government are spending that money because they are obliged to do so. The Government have been forced to act because of the growth in the unemployment benefit queues and the increased need for long-term supplementary benefit. I am not persuaded by the hon. Gentleman's intervention.

The hon. Member for Gainsborough and Horncastle should have addressed himself to national financial policy—I accept that he could not—because we cannot take the tax and benefits system out of the context of the Government's national policies. I would be interested in persuading not only the Secretary of State but the Chancellor of the Exchequer to go for a degree of expansion. I would not go as far as some members of the official Opposition in terms of spending money and expanding the economy, but if the Government chose to go in a different financial direction at a national level it could have a significant impact. There is a great deal to be said for that.

The hon. Member for Gainsborough and Horncastle rightly said that we are at a crucial junction in terms of the direction that we shall take on benefits in the immediate future. In the middle of March the Budget will set out the Government's financial policy for the next year and we are simultaneously faced with what the Secretary of State for Social Services likes to call a new Beveridge review. I do not know what discussions the Minister has had with the Treasury, but the juxtaposition of those two will put an intolerable strain on the Civil Service.

I wonder whether the Treasury, the Inland Revenue and the DHSS have got round a table to discuss the implications. If we are to believe some of the reports in the national newspapers in the past few weeks, the social security reviews are talking about taking £4 billion out of the social security budget. That will knock into a cocked hat the Chancellor of the Exchequer's contribution on 19 March. I wonder whether the operational arrangements being made by the Treasury, the Inland Revenue and the DHSS will be co-ordinated in a way that can cope with all that.

My fear is that when the social security reviews are published we shall have precious little time before the Green Paper turns into a White Paper. We may even be lucky to have a White Paper before we have a Bill at the back end of the year. We shall be faced with a social security Bill which will be monumental in size and in the effect that it will have over the next few years. The debate this morning is crucial because if that happens, if no consideration is given to some of the options that will be discussed this morning—I look forward to hearing the rest of the debate because there are many options—and if the social security reviews do not leave open the option of integrating the tax and benefits system, the Government will be culpable of the most short-sighted piece of nonsense we shall have witnessed in this Parliament. I have no doubt that whatever refinement of the technique we adopt in the future the way forward is by integrating the tax and benefit system. It is not easy because it is a fundamental reform.

It is lunacy to have a panoply of DHSS computers chittering away to themselves in DHSS offices and an equal league of hardware in the Inland Revenue chittering away to itself. The two never talk to one another. When I go abroad, I find that people in other developed countries cannot understand why we do that.

Mr. Gerald Howarth (Cannock and Burntwood)

I seem to recall about 15 years ago when computers were first coming in — [Interruption.] There, Mr. Deputy Speaker, we see the face of true democracy. People are not interested in the freedom of expression which we in the House uphold valiantly and dearly and will continue to uphold.

Before we were so rudely interrupted, I was seeking to ask the hon. Gentleman whether he was aware that about 15 years ago, when computers were first coming in, there was great public anxiety that somehow the Inland Revenue and those responsible for benefits would talk to each other. Does the hon. Gentleman agree that the time is now right and that public awareness and anxiety about this are so great that the two should be brought together in the national interest?

Mr. Kirkwood

I fully accept that intervention. When we were initially talking about the integration and the computerisation of the two schemes, I was worried about the civil liberties implications of putting all the information together in one national data bank. The data protection laws go a long way to deal with that. There are some difficulties but I do not believe that they are insuperable. I should be prepared to pay the price of the difficulties that may arise over the civil liberties for a more integrated tax and benefit system.

My plea to the Minister this morning is that he does not close the door operationally, politically or in any other way on a system of integrated tax and benefits. If he does, he will close that option and he may do it in a way that may take years to unpick and stitch together again. We are at an important stage in the development of our tax credit system and I hope the Minister will take that on board.

Over the years, the Liberals have consistently advocated a tax credits system. It was tested by the Treasury and Civil Service Select Committee in 1982. I am aware that some Conservative Members have criticised it and said that it could not be afforded in terms of the high standard rates of tax that would be involved. The hon. Member for Kensington (Sir B. Rhys Williams) has berated me for this previously, but I am aware that it is only a system and not a panacea. If we had the system, we should have to be careful about how we set the rates to effect the redistribution that we believe is necessary. I believe that that is a sensible way forward although it is only one of many. I hope that the Minister and the House will consider it in the run-up to the Fowler reviews.

I am grateful to the hon. Member for Gainsborough and Horncastle for having raised this important subject. It was a better one than the last one he raised. I look forward to continuing debates on the subject in the House and to hearing what the Minister has to say.

10.37 am
Mr. David Heathcoat-Amory (Wells)

I congratulate my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) on introducing the subject. Its importance is plain, not just for the public expenditure implications but because the present system is so obviously unsatisfactory. My hon. Friend is right. The present social security system has few friends on the Right or Left of politics. There are other British institutions, such as the National Health Service, the BBC, Parliament, and even our education system, which are regarded with some tolerance and even affection. That is not true of the social security system, which is universally regarded as wasteful, inefficient and open to abuse. That is not the fault of those who work in the system.

Those who work in the DHSS offices are frequently dedicated and conscientious people. The fault lies with the system, which has been laid down layer upon layer over many years. The original purpose has been obscured. There is a strong feeling that many people who receive benefits do not deserve them while many people who deserve them are not receiving them. It is no good blaming the Government's stinginess, because, as the motion makes clear, most benefits have risen in real terms since they took office in 1979. Indeed, the dynamic of spending on social security threatens the Government's public expenditure strategy. I go further. Unless we address ourselves to real reform, the Government will simply fail in their efforts to control public expenditure.

What are we to do about it? I concede at once that it is a great deal easier to diagnose the disease than to prescribe a cure. However, I shall point the way to reform, and I certainly endorse the motion. I start with an observation that has already been made by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), that the tax and social security systems must be integrated. In this country there are huge numbers of people in both systems. Often they are the same people. When Beveridge wrote his report, by and large there were two groups of people — taxpayers and claimants. It was entirely appropriate to deal with them in different ways, in different organisations. However, there is now a giant overlap caused by the lowering of income tax thresholds and the proliferation of benefits. But we still have those two giant empires that do not talk to one another. We have the Inland Revenue on the one hand and the social security system on the other, consisting of the Department of Health and Social Security offices, employment offices and, indeed, the local authority offices in so far as local authorities deal with housing benefit.

It must be sensible to find a way of merging or at least co-ordinating those two organisations and their functions. After all, what we are concerned about at the end of the day is whether someone pays money to the state or receives money back from the state. It is sensible to try to do so in one calculation and one assessment. That is particularly true if we wish to concentrate benefits on those in need. The tax system, as amended, could do that because the Inland Revenue, by definition, knows about our financial circumstances, and the same information could and should be used to assess eligibility for social security benefits.

My hon. Friend the Member for Norfolk, North (Mr. Howell) mentioned child benefit. He was absolutely right to say that it is crazy that that benefit is paid in respect of about 12 million children and is costing over £4 billion a year. Most of that money goes to prosperous parents. If we could save on the money transferred to those parents, we might save about £3 billion a year. Let us compare that with the £1.5 billion a year that my right hon. Friend the Chancellor of the Exchequer is hoping to have available in this year's Budget. Of course, so that that money can be available, we need to means-test the benefit. If we could do that, the money released could be used either in increasing benefits to those in real need or in reducing taxation and raising income tax thresholds, or a mixture of both.

The phrase "means test" has notorious historical connotations due perhaps to the way in which benefits used to be adminstered before the war. However, every time I fill in an income tax return, I am undergoing a means test. Every time I am given an income tax coding, I am being given a means test. I suggest that we should use the same information, the same system, to run our benefit system, not only to assess eligibility for universal benefits such as child benefit, but to assess entitlement to benefits that are already means tested inefficiently, such as family income supplement.

I am not suggesting that those changes will be easy. The motion refers optimistically to the abolition of the poverty and unemployment traps. I say "optimistically" because that feature of our system is more deeply impacted than most people realise. These traps are an extreme example of what happens when benefits are withdrawn as income increases and as the people concerned start to pay income tax as well. Effective marginal rates of taxation of over 100 per cent. are clearly unacceptable, but any system in which benefits are concentrated on those in need and are then withdrawn progressively as income increases will, I am afraid, mean rather high effective marginal rates of taxation. That fact must be faced. Of course, those high rates can be improved by flattening out the income band over which they are withdrawn — in other words, withdrawing them more slowly. The situation can be further improved by raising income tax thresholds. I very much hope that my right hon. Friend the Chancellor of the Exchequer sticks to his strategy of raising income tax thresholds in the Budget.

The scheme that we are outlining would release the resources to enable such income tax thresholds to be raised substantially. I have mentioned a possible £3 billion that could be saved from means-testing child benefit, but the Institute of Fiscal Studies booklet, which has already been mentioned in the debate, proposes a scheme whereby £10 billion might be made available. I have certain difficulties with the more radical parts of the IFS scheme. A total abandonment of the contributive principle may be right and logical, but people are attached to the concept that they should get only what they have contributed for. There is a problem here. It is true that the national insurance fund is something of a fraud. It is not actuarily sound—it never was. Logic tells me that we should make a clean break with the Beveridge system, but it must be accepted that there are problems if, for instance, existing or potential pensioners were told that contributions that they had been building up in good faith do not entitle them to the same pension that they had been expecting. That is suggested by the IFS scheme.

There is an alternative approach, which has already been mentioned by my hon. Friend the Member for Gainsborough and Horncastle. He called it a benefit plus system. Other people have suggested a similar social dividend system whereby people should, by virtue of citizenship, be eligible for flat rate universal benefits. My hon. Friend the Member for Kensington (Sir B. Rhys Williams) has ploughed a lonely furrow over past years in suggesting similar schemes. I am glad that he is here this morning, and I look forward to his contribution. However, I have difficulties with such a concept because if benefits are made available for all regardless of means, they are very expensive and have to be funded by high rates of marginal taxation on the rest of the working population. I have outlined the problems that I have with giving child benefits to all concerned. Most social dividend schemes suggest that such a concept should be extended rather than withdrawn.

If benefits are made universal, it is almost certain that those in real need will never receive enough. Therefore, I come down firmly in favour of a selective system and using the tax system to run and administer it. I have no problem with the idea that the tax system should therefore embrace everyone. For a start, everyone is already in one system or another. Everyone is either in the tax system or in the social security system, or both, so we are not suggesting a vast extension of bureaucracy. I do not recoil from the idea that everyone in the country should sign and send in a tax return at the end of the year. That is the American system. In the United States, the tax year runs from 1 January to 31 December. By the following 15 April, everyone must send in a signed tax return. Of course, employers collect tax on behalf of employees through the year, and taxpayers also have to account for certain other sorts of income periodically through the tax year.

At the end of the year, any over or underpayment is corrected by the return that the taxpayer fills in. He computes his liability and sends in a cheque with the form or makes a claim for repayment. That system is simpler and cheaper. In 1975, the last year for which I have figures, there were 74,000 Inland Revenue staff in Britain, whereas the Inland Revenue service in the United States employed 82,000 people who dealt with about six times as many tax returns. They do that by making the system a great deal simpler and by extended use of computers.

In a simple system, computers can do the repetitive work. When people send in their tax returns in America, they are initially put on magnetic tape. The computer checks for arithmetical errors and obvious omissions, and issues a provisional tax refund if appropriate. There is, of course, a labour-intensive part of the operation when tax returns are audited and problems are investigated, but they are kept to the minimum. That cheap system should be compared with ours, which is complex and labour intensive from start to finish.

Exactly the same is true of the social security system. We make insufficient use of computers. They are good at storing and retrieving information and doing calculations. The expensive bit is employing people who must make judgments, use their discretion and interview claimants. We have built up a system that depends on people laboriously checking and assessing claims.

Mr. Kirkwood

How does the annual system deal with urgent mid-year changes in domestic circumstances, which do not run on an annual basis?

Mr. Heathcoat-Amory

The American system is different in that it does not run a PAYE system such as ours. We attempt to assess employees on a cumulative basis throughout the year whereas the American system is content to assess people weekly or monthly. That is why the year end tax return is essential to even out under and overpayments. Only at the end of the year can a taxpayer be certain that he has paid, or been refunded, his due entitlement for the previous year. If that is deemed to be a deficiency, I accept it, but I believe that the corresponding advantages of simplicity, cheapness and understandability outweigh its disadvantages.

A system that requires a signed tax return from everyone is necessary if we are to do something about the black economy. Some people are tolerant of the black economy, saying that it is the entrepreneurial economy and that we should turn a blind eye to it. I do not take that view and believe that it is frustrating for honest builders and garage owners to see work being creamed off by people who pay no tax and do not discharge their responsibilities. The least we can do for small businesses is ensure that they are not paying unnecessarily high taxes because their competitors are paying none. We shall not crack the black economy unless and until we require a signed tax return from everyone.

Taxes should be simple, low and rigorously enforced. I should be perfectly prepared to give our Inland Revenue powers similar to those enjoyed by its American equivalent if taxes were generally understood, generally accepted, and low.

Like others, I have called for a radical overhaul of the tax and social security systems. I should like the two to be merged, but above all I want simplification. I am not suggesting that the path of the reformer is easy, as there will always be net winners and net losers. We can be sure that anyone who gains from reform will keep quiet and that anyone who loses, even a few pence a week, will complain vociferously. A system in which there are no net losers would be prohibitively expensive. I urge the House not to be put off this daunting task. We must not be deterred from initiating at least public debate on these ideas. That is why this debate is useful. I again congratulate my hon. Friend the Member for Gainsborough and Horncastle on his imaginative motion.

10.55 am
Mr. Neil Hamilton (Tatton)

My hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has just made a characteristically thoughtful speech. I entirely endorse his approach to this pressing problem, as I do that of my hon. Friend the Member for Norfolk, North (Mr. Howell). My hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh), to whom we are all grateful, has done us a favour by enabling us to debate this inordinately complex topic in the relatively leisured calm of a Friday, when, as the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) said, we can conduct our debates in the rather more useful fashion that the other place employs for most of the week.

It is surprising that, when we are debating something that costs nearly one half of Government expenditure, so few right hon. and hon. Members are present. I am not making a party political point, but when the hon. Member for Thurrock (Dr. McDonald) was in splendid isolation I intended to say that she was worth all the others who are not here put together. We are delighted to have been joined since by the hon. Member for Bolsover (Mr. Skinner). We look forward to his no doubt trenchant speech.

All parties are anxious about this subject. The social security system cannot be regarded as satisfactory. I am certain that it would not have been regarded as satisfactory by its architect, Sir William Beveridge. It is worth examining the Beveridge report, now 40 years old, to see what problems that committee faced and how it tried to deal with them. When matters concerning the welfare state are debated, we often hear the myths of Dickensian England which are supposed to have predated our present system of social insurance. It is therefore somewhat surprising to read in the introduction to the Beveridge report, which surveyed social provision in advanced countries and recommended how matters could be improved, that its inquiry shows that provision for most of the many varieties of need through interruption of earnings and other causes that may arise in modern industrial communities has already been made in Britain on a scale not surpassed and hardly rivalled in any other country of the world. However inadequate the system of social provision might have been until the second world war, it compared well with what was available elsewhere. We should therefore not consider the history of the welfare state as unhistorically and emotionally as we often do.

A second point is referred to in the introduction. It is often thought the system was rudimentary in those days. But it could be said that social insurance and the allied services as they exist today are conducted by a complex of disconnected administrative organs, proceeding on different principles, doing invaluable service but at a cost in money and trouble and the anomalous treatment of identical problems for which there is no justification. If one starts from those two standpoints and examines how the system today measures up, we can come to two conclusions. First of all, unlike in 1944, the British social security system now is not one of the best in the world. Secondly, we seem to have got no further in getting out of this complex maze of administrative muddle and inordinate expense, which is the prime characteristic of our current system.

Far from moving forward in the past 40 years, in the administrative principles that underlie the system, we have moved back. The time is right — I am glad that the Government have recognised this—for a comprehensive review of the entire social security system. I applaud and congratulate my right hon. and hon. Friends in the Department of Health and Social Security on having instituted the welfare and benefit reviews that are being undertaken.

The social security and welfare system that we have today has been well described by my hon. Friend the Member for Gainsborough and Horncastle as irrational, arbitrary and unfair. I would add that it is discriminatory and anti-social. Extraordinary as it may seem when we are spending tens of billions of pounds a year on social security the benefit entitlement is based not on need but on a variety of irrelevant characteristics. That is the fundamental failure of the system, and why it fails to provide for those who are deeply in need, and wastes resources and taxpayers' money on spreading benefits far too wide among people who cannot seriously be said to be in need.

Here are some of the irrelevant characteristics found in the system. For example, if one is incapacitated at work, one is treated differently from how one would be if one were incapacitated at birth. A disabled wife is treated differently from a disabled husband. Teenagers have a variety of different characteristics that might alter the benefit entitlements that they can get. For example, the benefit entitlement of a teenager depends on whether he is in full-time education, part-time education, vocational training, in work or registered for work. These characteristics are all important, but they do not go to the heart of the problem of providing for social need, which is the need itself—the inadequacy of earning power or other resources and means available to the individual to assuage the economic problems by which he is beset. Those haphazard elements in administration of the system must be ironed out.

The system fails in a second way through the rates of benefit, which are equally anomalous and unprincipled. For example, in 1948, unemployment benefit was set at a level that equalled retirement pensions. In the past 36 years, unemployment benefit has declined as a proportion of the retirement pension until today unemployment benefit is 25 per cent. less than the retirement pension. The hon. Member for Roxburgh and Berwickshire pointed out this feature of the system when he was talking about pensions.

I do not know whether there has been a deliberate decision to reduce the unemployment benefit to that proportion of old-age pensions, and I very much doubt it One of the great problems of the system is that it has developed ad hoc over the years, with no central strategy or objective in view, as my hon. Friend the Member for Wells pointed out. We must devote our attention to this., although I doubt very much that the optimism of the hon. Member for Roxburgh and Berwickshire will be fulfilled and a Bill will be introduced in the next Session. If his optimism is well founded, it will probably be a bad Bill, because the system requires much greater examination and thought than can be put in in the time available to bring in a Bill before next Session. We need a full examination of both the administrative system and the rates of benefit to decide how a rational and logical system might be created.

The other side of the coin of the benefits system, as the motion points out, is the tax system, which is similarly a mess of incomprehensibility. I have some qualifications in revenue law, and have for a long time been aware of how many people derive large incomes out of the incomprehensibility of the present system. While I do not think that we are ever likely to introduce full comprehensibility into the tax system, or even insert much more logic into it than exists now, we need to take into account the anomalies that the tax system produces in so far as they impinge on the benefit and welfare systems.

One of the most extraordinary characteristics of the income tax system, which is supposed to be progressive, is the extent to which, in practice, it is not so at all. For example, although we have high theoretical marginal rates for income tax at relatively moderate income levels—60 per cent. — in practice, the actual rate suffered by taxpayers is less than that. On the other hand, for those on low incomes, absurdly high rates of tax are levied—39 per cent. on very low incomes. The poverty and unemployment traps that have been eloquently referred to this morning mean that on low incomes there are marginal rates of tax of well over 100 per cent.; that produces the many and severe problems about which we have been talking this morning.

An excellent review of the social security system and the various options available for reforming it was published last year by the Social Affairs Unit. It was written by Mrs. Hermione Parker, who is a well-known authority on this subject, and was entitled "Action on Welfare". She produced tables showing that poverty traps are created and how one cannot escape from a proverty trap unless one can secure employment at levels of income that are unlikely to be attained by the people in that position. They are in a trap from which they cannot escape.

For example, somebody with an ordinary family will be no better off in work than out of work unless he is receiving an income well above the average wage. To be £20 better off in work than out of work, as a single non-householder one has to have a job paying £79 a week. As a single householder, one has to earn £112 a week; as a single-wage married couple one has to earn £136 a week; if one has two children, one has to earn £165 a week; and if one has four children, one has to earn £189 a week before one can take a job and be £20 a week better off than if one is unemployed.

No system with that characteristic can be regarded as rational or sane. A system that effectively prevents people from becoming employed because they cannot afford to be so — unless they are driven into the black economy about which my hon. Friend the Member for Wells spoke—must have some major surgery carried out on it.

With our social security system, we have managed to achieve the pauperisation of a large part of the population—that is, a combination of poverty with dependence on public relief. It is that feature of our society, which makes poverty endemic and incurable in its present form, that it is the historic task of our Government to sweep away.

Our welfare state is largely an exercise in carrying coals to Newcastle, because state services are paid for by relatively modest earners and people who, by almost universal admission, could be regarded as poor. They are paying out on the one hand for services that they are receiving on the other, and the only effect of the system is to remove choice from them altogether and place it in the hands of Government officials.

I very much hope that our Government will take the kind of radical attitude that is required to change the whole system of welfare, social security, health and education provision. I am calling for an even more radical policy than that called for by my hon. Friend the Member for Norfolk, North. I am sure that, if he were here, he would be surprised to hear that statement, as he imagines that no one could possibly be more radical than he is. If the problems are to be solved, we have to look at the whole area of Government policy in the provision of education, health and welfare services and see it as a whole.

Since 1949, the incidence of taxation in Britain has changed remarkably, and in one direction: it has changed against the interests of the lower paid. In 1949, the top 1.5 per cent. of tax units contributed 51 per cent. of the revenues and income tax. In 1978–79, 30 years later, the top 13.4 per cent. of tax units contributed only 46.1 per cent. Those on low and moderate incomes have come to pay an increasing proportion of tax revenues. That is the fundamental fault and flaw of the present system. The tax system bites at far too low a level, where it competes with benefits and produces the intolerable result that people cannot afford to take work.

In the 30 years between 1950 and 1980, on the other hand, national insurance contributions revenue rose twice as fast as income tax revenue. I cannot think of a more regressive way of altering our tax system than to achieve the two factors to which I have just referred. It is partly achieved by the limit on national insurance contributions of £250 a week, but that is not the whole story.

It is because people start to pay income tax and national insurance contributions at such a low level of income that we produce the dreadful problem of there being no real safety net for working people. The safety net, in so far as it applies, applies only to those who are out of work, because the supplementary benefit regulations exclude anyone in work. On the other hand, there is nothing to stop the working poor being trapped below supplementary benefit levels by taxation.

In 1949, at the birth of the Beveridge system, a married man with two children could earn twice the supplementary benefit level before being liable to income tax. Today, by contrast, people are liable to income tax if they are earning 25 per cent. below supplementary benefit entitlement. Therefore, we are institutionalising poverty by the tax and benefit system: on the one hand, it fails to provide adequately for the needy, and on the other hand it encourages fecklessness and imprisons people in cages not of their own making.

Another appalling feature of the tax-benefit system is the way that it penalises marriage and subsidises the breakup of the family. As someone who has only recently acquired a wife, I realised, being a tax barrister, that it was not a very tax-efficient investment. Nevertheless, I was persuaded that the course in the long term might provide me with benefits which my short-term interests would not exceed. The present benefit system encourages cohabitation rather than marriage, and encourages families to split up rather than stay together. The result has been to produce the problems of one-parent families, which are now very considerable. In 1960, £15 million—a very small sum—was spent on providing for the problems of the one-parent family. That £15 million has grown to £1,000 million.

The system also encourages working wives, because they can earn up to £39 a week tax-free. In Mrs. Parker's view, expressed in the pamphlet to which I have already referred, on marriage, a British woman becomes a non-person for tax purposes and a second-class citizen for supplementary benefit purposes. I do not believe that we can tolerate that position any longer.

Supplementary benefit levels for married and cohabiting couples are lower than for two single persons sharing the same accommodation, so once again we seem to be discriminating against the family unit, which I thought it was one of the principal aims of the Government to support.

I believe that all the features that I have mentioned destabilise society and are an encouragement to fraud. I agree with my hon. Friend the Member for Wells that the black economy is not something to be admired, for the reasons that he explained. People regard it as unfair and it encourages a laxity of moral standards, and that has repercussions well outside the area of the tax system.

I believe that the present system discourages parental authority and encourages everybody to believe that the state will provide. That makes our society much more atavistic and it is at the root of many of the social and legal problems that we face elsewhere.

It is absurd that between 20 million and 30 million people in Britain qualify for benefits. That figure must surely be far beyond any genuine concept of need. There is now an absolute necessity to revise the system so as to put the searchlight on those who are in need and not to spread the benefits over the whole country, to the exclusion of those who need them.

The system must be incomprehensible, because over 1 million families below the supplementary benefit level of income are not claiming their benefits. Although it was at one time often found that people refused to claim benefits to which they were entitled because they did not want to be thought to be on charity, I cannot believe that that mistaken view of entitlement is very common today. I think that people do not understand the system, that they are intimidated by it, and that that increases their sense of hopelessness and helplessness. But those who are smart and clever can milk the system in a way that makes it more difficult for us to justify the system of social provision.

Therefore, my first criticism of the system is that it is incomprehensible, and my second criticism is that it is unco-ordinated. There is not a strategy or a definition of objectives. It accounts for about a third or more of public expenditure. If we do not have a strategy or statement of objectives for such a large tranche of public money, we can never solve the problems that the Government have set themselves the task of solving — cutting Government spending so as to cut taxation, encourage enterprise and eliminate poverty.

The system is costly to administer. We now spend over £2,000 million a year on administering the DHSS, the Inland Revenue and the Manpower Services Commission. That is equivalent to 2p off income tax, 2p off VAT or, to be controversial, the cost of subsidising the National Coal Board in a normal year. The cost of that useless administration is an absolute cost upon the people of Britain from which they derive no benefit at all. The national insurance and social benefits system involves 90 million manual entries per week; PAYE and national insurance contributions account for another 25 million manual entries.

The system has failed over the past 40 years. It needs to be swept away and reproduced in a different form to meet the fundamental objectives that Beveridge set it. In my view, the way in which we do that is to make it selective.

I agree with my hon. Friend's views about child benefit. It is lunacy that we should spend between £4,000 million and £5,000 million a year on a benefit which is universally available when probably 10 per cent. or 15 per cent. at most of the recipients really need it. This robbing Peter to pay Paul—or rather, robbing Peter to pay Peter back — produces the poverty and unemployment traps because, to pay it, we have to have unacceptably high levels of income tax and unacceptably low thresholds of income tax, so we are making the problem endemic and incapable of solution so long as we retain it. The same applies to free school meals, welfare milk and heating additions for families with children under five—all are benefits without selectivity and universally available.

The Institute of Directors, with which formerly I had a connection, has produced some responses to the consultation papers on the reform of the benefit system which I have no doubt my hon. Friend the Under-Secretary of State has seen. Calculations by the institute's policy unit show that, if child benefit were abolished for those above the tax threshold and converted instead into a tax allowance, while the cash benefit would still be available for those below the tax threshold, we could increase the tax threshold for a married man with four children to £7,303. That would be a dramatic increase in the threshold, which would remove the poverty trap for a considerable number of people. We would do it by giving a tax allowance of child benefit grossed up for tax purposes, so that it would be £1,127 per child.

All sorts of benefits are available on the same basis as child benefit. My hon. Friend the Member for Crawley (Mr. Soames) was telling me, as he is about to become a father, that his wife had just received her forms for claiming maternity grants and maternity allowances. I have no idea what my hon. Friend's financial position is, although I understand that it improved greatly as a result of his marriage—unlike mine, which went the other way—but he said to me that it was ludicrous that he should be in receipt of maternity grant or maternity allowances. He did not want them. He wanted to refuse them. He could not. There is no way in which anyone can say, "I do not want this benefit," because the computer tells the relevant Department that the money is to be paid and a cheque comes through the post.

I agree with the hon. Member for Roxburgh and Berwickshire about the death grant. Here is another benefit, if it can be so described, which is universally obtainable. It has remained at £30 for so many years that it is completely useless to most people who can qualify for it. But there is very real distress amongst old people who have very small resources of their own. If that benefit were not provided universally for everyone but targeted on those in economic need, we would be able to solve a great many of these problems. That would be a humane system, whereas at the moment we have an inhumane one.

The failure of the present Government is that they have not been able to control public expenditure and, as a result, they have failed to make any real inroads into the tax system. My right hon. Friend the Prime Minister admitted as much when she was interviewed on the Brian Walden programme just over a year ago. She said that the aim of the Government during this period of Parliament was not to reduce Government spending and taxation but to hold the totals. She said that that was the real objective that we could set ourselves, and no more.

We are in that position, where we have not been able to achieve the ideals that we set ourselves five years ago, because we have not yet got to grips with this great juggernaut of social security and the welfare state. We cannot hope to see any significant reductions in taxation unless we privatised parts of the welfare state, in the same way as we have privatised parts of the state holdings in industry.

Surprisingly, in this area we need to institute Keynesian policies. A lot of rubbish is talked about Keynes. It is not often realised that he was an opponent of the kind of system of social provision and Government intervention that we have now. In a document which is perhaps not well or widely read today but which achieved some celebrity in its day—a tract entitled "The End of Laissez-Faire"—Keynes said: The most important Agenda of the state relate not to those activities which private individuals are already fulfilling but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the state does not make them. The important thing for government is not to do things which individuals are already doing and to do them a little better or a little worse: but to do those things which are not done at all. That is the fundamental principle which should inform the welfare state and the basis of government. The Government are spending vast amounts of taxpayers' money doing worse than individuals would be able to do for themselves and what they would naturally want to do and be able to do if they were not taxed at such a rate that they no longer have the resources available to them to take their own independent decisions.

The result of this has been far from enfranchising the working class and those on low incomes. It has pauperised them through the welfare state and it has prevented them from taking independent courses of action in education and in health which are available only to those on very high incomes. That is a disgraceful state of affairs for a Conservative Government to continue to tolerate.

If large numbers of us are paying for our own benefits more or less, we have to ask ourselves why we must have them controlled by people in Government offices and why we cannot buy them ourselves. Let us consider various forms of pension, for example. The problems that will beset us over the state pension early in the next century are enormously difficult. If we are not careful and if we do not take evasive action at this stage, by the time that most of us in the Chamber are ready to claim our old-age pensions we shall have to depend upon very much higher rates of tax being imposed upon the wage and salary earners of that distant date. The difficulties that we now face in paying for the welfare state, social security benefits, and so on will affect the pensions element as well.

I think that we should emancipate ordinary people. By following a vigorous policy of private provision, subject to a real safety net provided by the state for those who are unable to provide for themselves, we should give back to individuals the right to govern their lives and take decisions on matters which are of the most fundamental importance to any individual—the provisions for health, welfare, old age and so on.

The present system also has a deleterious effect upon our political system. The electoral bribery which one party or the other has adopted as the main basis of its policy ever since the war and probably before it has had extremely bad results for the political system. It started a long time ago, with the birth of the present national insurance system. If I may say so without offending the sensibilities of the hon. Member for Roxburgh and Berwickshire, I think that it was when Lloyd George promised ninepence for fourpence in 1908. He debased the currency of British politics by promising some benefit which could not be achieved unless it was paid for mythically by someone else, whereas in practice it was paid for by the individuals themselves. He started this system of electoral bribery, from which we have suffered ever since. This is the problem that we face in pensions. We are pushing off on to tomorrow the problems which we can see will afflict us today. As a result, we hope that someone else will pay — our children or grandchildren — and that is fundamentally immoral.

We need to establish a social security system on the basis of Beveridge. At the moment we have the reverse of that. The Beveridge report foresaw the need for a social security system withering away.

Today the social security welfare system costs a hundred times more than it did in Beveridge's day. During that period inflation has gone up only by a factor of 10, so the social security welfare system today is 10 times as large, in real terms, as it was 40 years ago. In part, that is entirely supportable. It is right that as the national income grows in real terms, poverty in relative terms as well as in absolute terms should be relieved. But absolute poverty today is very much lower than it was in 1948, whereas relative poverty is ineradicable. Therefore, there is a limit to the extent to which that objective can be achieved. I very much agree on that point with my hon. Friend the Member for Norfolk, North (Mr Howell). We must institute a fundamental realignment of the benefit and tax system in the way that has been proposed by my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) and we must do so before the welfare state becomes the farewell state.

If we do not adopt the radical approach that has been adverted to by all Conservative Members in this debate, we shall bring about for the future a continuation of problems that have no cure and that will make even more intractable the other economic difficulties with which this country is beset. We cannot divorce the one from the other. If we are to reduce taxation, which I believe is essential if we are to preserve the economic prospects of this country, we must reduce public spending. If we do not tackle the problems of the welfare state we shall be unable to reduce public spending. Furthermore, if we do not tackle those problems we shall perpetuate poverty and need and we shall be unable to do what any sane and humane Government should seek to do, namely, to relieve the problems which face those in our society who are least able to deal with them.

11.32 am
Sir Brandon Rhys Williams (Kensington)

I am particularly grateful, as I am sure is the whole House, to my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) for selecting the taxation and benefit system for our debate this morning. I am rather glad that the House is not so full that hon. Members need to feel under pressure to make incomprehensibly short speeches in order to make room for the speeches of other hon. Members.

I should like to start my speech by making the point that the relationships, expressed in cash, are in fact human relationships: the expression, in concrete terms, of our sense of obligation towards one another and what is due to ourselves as British citizens. We must not allow inhuman ideas to enter into this relationship — the redistribution of income, which is the modern way of holding the whole of society together in a structure of mutual obligations and entitlements; but we have to make radical changes as quickly as we can.

We now have the income tax and national insurance contribution on the one side and the various systems of benefit operated by central and local government on the other. Each of these has reached the stage of incomprehensibility and near administrative breakdown.

We in this country have a redistribution of income industry consisting of many tens or perhaps even hundreds of thousands of people, all of whom are doing difficult and dedicated work without adding a single pound to the real value of the national product. My hon. Friend the Member for Tatton (Mr. Hamilton), who has just concluded an extremely thoughtful and interesting speech, mentioned the fact that in the administration of national insurance and supplementary benefit it is necessary every week for the staff of the Department of Health and Social Security to make more than 90 million manual entries. We cannot expect those dedicated people to achieve a really satisfactory administrative structure when we ask them to perform within the confines of such a completely out of date administrative machine. The pay-as-you-earn system is a heavy burden not only for the Inland Revenue but for employers large and small all over the country, particularly small employers and employers whose workers tend to have variable incomes from week to week for one reason or another.

The whole House, I believe, is therefore agreed upon the immediate urgency of the need for reform. The income tax system is cumbrous, incomprehensible and discriminatory. National insurance bears no relationship to a true insurance scheme because there is no correspondence between contributions and benefits. There are also three different bases for entitlement to benefit, citizenship, with particular reference to child benefit, contributions, which interfere with the calculation of pensions, unemployment benefit and sickness entitlement; and the huge supplementary benefit system underneath it all, which relates to people's proof of need. It is disastrous that at this time there should be more than 7 million people in this country who are dependent upon supplementary benefit through proof of need. That alone is a drag on society which urgently needs to be reformed. We cannot go on as we are.

I believe that in the 20th century two very important changes have taken place which, in the time-span that we can contemplate, are probably quite irreversible. The first is the coming of universal suffrage. Many people forget that universal suffrage for men was attained only at the end of the 1920s. We no longer have a society in which there is an upper crust of self-reliant, independent people with their own resources who are able to make their own choices, and a large, supportive mass of people, as in Victorian times, who had to take the orders they were given and who have very little opportunity to think or to plan their lives for themselves. In other words, because of this change, we have got to stop playing Normans and Saxons in welfare, just as much as we have in the creation of wealth.

The other major change which I believe to be irreversible, and I hope that it is, is the emancipation of women. We have to move to a single, one-to-one universal tax system. Also, in benefits, we have to treat each citizen as having equal personal obligations and equal personal rights to benefits. I would not want it to be thought that in saying that I am trying to attack the institution of the family, which I believe is vitally important and must be sustained in every way. That is one of the reasons why I do not agree with colleagues who attack the idea of child benefit. There are very many reasons why all over western Europe the child benefit system is part of the plan for the redistribution of income and there are very many reasons why we too adopted that system. Therefore, I believe that those who are campaigning against child benefit are making a very grave mistake. However, in the reform of the redistribution of income we must not only recognise these fundamental changes which have taken place in society. We must also aim at an acceptable moral basis for the transfer of resources between citizens during the whole of their life cycle. We should know why we want to help people with families, if we do. We should know why we believe it to be necessary to keep people in dignity in old age. We should have a clear idea of what obligations we have to the disabled, the chronically sick and other minority groups. The redistribution of income must be something that people accept because it gives expression to the type of society in which they wish to live.

We must also insist upon transparent, obvious simplicity of administration. I should like everybody in the country to be able to work out their income tax and their entitlement to benefits in their heads in a matter of seconds. There is no reason why we should not achieve a system of that kind if we could only start by thinking clearly when we set out on the reform. The benefits that we give must always be enough to ensure a minimum standard of living. That, surely, is axiomatic.

Dealing with the tax side, what really is the ideal for the tax system? What should we be trying to achieve? I am not sure that what we really want is the full integration of tax and benefit into a single net operation. It is possible to imagine that by the use of computers one could produce a system under which what people put in and what people drew back was calculated simultaneously so that at the end of the operation only one payment was made in one direction or another. I believe that we lose the transparency of the system if we go that far. A tax cut or a benefit increase are, of course, the same thing. A tax increase, or a loss of benefit, are also the same thing. We must add up the pluses and we must add up the minuses and see what we get at the end. We must not imagine that a tax cut is better than a benefit increase, or vice versa. But, that having been said, the payment of contributions is a separate function from the drawing of entitlements. It is helpful if that is always clear. We should, at any rate, be able to discern a bedrock of principle, even if we modify the administration to suit our convenience.

We need simultaneous reform of the income tax system and the structure of benefits rather than integration.

First, we need to end all the remaining negative tax allowances. We made a big start when we got rid of the child tax allowance. We should now get rid of all the others so that income tax becomes a flat, equal deduction from each citizen's income, regardless of age, sex or family commitment. The payment of tax is the way in which we clear our debt to society. Everyone should make whatever contribution they can through the tax system. We should make contributions according to our capacity and draw benefits according to our need.

Secondly, we must decide what to do about the national insurance contribution which is now earnings-related and collected through the same mechanism as pay-as-you-earn, yet for old time's sake we differentiate and try to pretend that the system has not changed. Should we abandon the insurance principle altogether? My personal view is that we should not, but we need to grow up in our conception of insurance. It would be better to end income tax and to call it a contribution—perhaps a national insurance contribution — so that the redistribution of income can be constituted as a self-balancing budget.

I oppose the Treasury idea that we should not introduce hypothecation in the way in which the national budget is managed. There is great merit in a system under which the yield from the taxation of income is made to balance—if possible on a year-on-year basis—with the outgoings for the payment of benefits. If we achieve a system in which the yield from tax on income is made to balance with the expenditure on benefits we shall attain two advantages. First, the average citizen over the course of his life would balance his personal account with the community. From birth to death the average citizen's contribution, when he is able to contribute, and his drawings, when he needs benefit, would come precisely into balance. Secondly, the popular demand for better benefits would come into balance with the popular demand for lower deductions from income. Discussions about the level of benefit and the rate of contributions would be held on the basis of comprehension and transparency, if the redistribution of income budget were kept separate from the rest of the Government's accounts.

My next remarks are controversial. I should like a completely non-cumulative tax system so that we do not need to keep annual, monthly or even weekly records of a person's income. The administrative advantages of abandoning higher rate tax are so great that it is worth doing in spite of the political hubbub that it would cause. It would be enormously beneficial to the economy. I cannot imagine who would lose by it. Hong Kong is an example. Why is it that in that part of the world capitalism is such an amazing, runaway success when in western Europe it is flagging, with high unemployment, failure to invest, failure to do research and a general loss of tone? If we abandoned the higher rate tax we should do something constructive to make the economy a success. However, something would have to go with that: we need a historic compromise if we are to make that change. We must have a basic income guarantee. No one should be allowed to sink through a floor which is adequate and generous and gives people their self-respect, but everyone must be allowed to rise as high as he can. That was Winston Churchill's fine concept. We should not be afraid to implement it.

Mr. Ralph Howell

What level is suggested? At a certain level it might act as a disincentive to people to work.

Sir Brandon Rhys Williams

I shall come to my recommendation about the level of tax shortly. If resentment were caused by the creation of large personal fortunes there might be a case for a steeper incidence of tax on the transfer of capital assets from one person to another.

The yield from the higher rate of tax is not very large. I tabled some parliamentary questions on the subject not long ago. If the highest rate of tax were brought down to 40 per cent. the loss of revenue would be well under £1 billion. After a year or two that loss of revenue would be more than recouped because people would set out much harder to earn more money. I cannot see that that would lead to a loss of incentive. If people had larger fortunes they would not want to stop work. I am not afraid of that.

Hon. Members on both sides of the House are clamouring for a rise in tax thresholds. In advance of almost every Budget hon. Members argue in favour of taking people out of the tax system. As people increase their incomes they rise into the pay-as-you-earn system and become an administrative burden. The next year they are thrown out at the bottom of the scale. In Budget after Budget since the war rises in the tax threshold have been made and then proved to be useless as people worked their way back up into the tax bracket.

I do not think that the Chancellor has available the revenue to reduce taxation or to reduce the tax threshold in a way that would significantly change the problems caused by the poverty trap or by the lack of incentive to increase earnings. We must do our homework on the question of thresholds. Much of the work has already been done and is well known.

The problem is caused by the double incidence of the means test, which reduces people's benefits as they increase their income, and income tax, which takes away part of their income as they improve their earnings. There is a double loss through the payment of income tax and the loss of benefit. When that happens simultaneously tens of thousands of people find that they have little incentive to increase their incomes.

Do we solve the problem by trying to take all low paid taxpayers out of tax—an expensive operation in terms of loss of revenue — or do we remove them from liability to the means test for their base benefits? At présent just under 4 million people have to claim supplementary benefit. Surely it is better to treat them selectively than to try to tackle the incentive disadvantages by taking every taxpayer out of taxation at the lower rates. There are ingenious schemes for tackling the problem by changing the national insurance contribution rather than the tax levels. But on principle there is much to be said for leaving people's benefits intact instead of trying to make two classes of earners—those on low income who do not have to pay tax and those on higher incomes who are within the tax system.

If we withdraw benefits by means of personal case work by officials we shall create a large subordinate population who regard themselves as second-rate citizens. If, however, we withdraw part of marginal income using the agency of employers through the operation of income tax we shall not humiliate those people. To take marginal income away through the income tax is not an insult to a person's self-respect.

For many administrative and social reasons we should examine more carefully the idea of taking people out of tax by raising the tax threshold. Personally, I think that we should be going the other way, and should try to ensure that every pound makes its contribution to society. We should have a basic income guarantee which is, for the most part, left intact as people improve their circumstances and increase their incomes. Leaving some people with their gross income intact but cutting into their benefit instead makes two nations—those in work and those in need. To leave people with their basic benefits intact, as they improve their circumstances, is to unite the nation both in liability for tax and eligibility for benefit. The administrative advantages in reducing the case work for supplementary benefit are overwhelming.

What should we be doing on the benefits side? We have three roots of entitlement: citizenship, contributions and need. If we amalgamated income tax and national insurance contribution, we would gain by that. Then we must try to reduce to the minimum the number of people who have to apply for help on grounds of need. If between 7 million and 8 million people are at present dependent on supplementary benefit for their living standard, we should aim to reduce that figure to one tenth as quickly as possible. Otherwise we shall again build the concept of two nations, those in work and those in need, and find ourselves back in the 1840s when Disraeli pointed to the disadvantages of that social structure.

Ideally, if we were to have a basic income guarantee, we could treat everyone in the same way for benefits. Indeed, that is not a pipe dream. Although I do not like our welfare system, it mercifully gives virtually everyone a basic income guarantee. Few people have actually to fall below the supplementary benefit level. However, we achieve that result only through an administrative and social nightmare.

I shall now clear up some misconceptions about the basic income guarantee. The first misconception is that the scheme is a lovely idea but impossibly expensive. There is no need to increase the average level of spending power of our citizens to provide a basic guarantee because we already have a welfare system which in practice provides that guarantee. We can change the administration of the redistribution of income, but we do not have to add to the overall cost in so doing. We could even alter the minimum level of income. However we set about it, it is possible to introduce a basic income guarantee on a revenue-neutral basis. Some people may gain and others lose, but the reform can be introduced so that there is no net extra burden on the Exchequer and no overall addition to spending power.

Simultaneously, we must recognise that it is unwise to imagine that by reforming the redistribution of income we shall find room for huge savings. If some taxpayers are made much better off through administrative reform, another category of people will have less money to spend. One must find out whether one should change the relative spending power of different groups, especially minorities who tend to be forgotten, when one approaches reforms of this nature. I urge all hon. Members not to hope that through the reform of the administration of the redistribution of income we can find ways of vastly reducing income tax, because that it not possible.

Mr. Heathcoat-Amory

Is my hon. Friend suggesting that every citizen, however rich, should be paid a basic benefit? Would that not be open to the same objection as child benefit, which everyone receives, and which is very expensive without solving the problem of child poverty?

Sir Brandon Rhys Williams

Child benefit is not expensive in that it could be described as a way of reducing people's income tax. We have a universal method, under which those who pay tax receive child benefit in lieu of the old William Pitt child tax allowances which were introduced at the start of the system in 1798. Those who are not lucky enough to have an income of their own receive the same amount in contribution towards the minimum income guarantee of their household. Child benefit is a simple way of giving taxpayers and those without income enough money to spend on their children's welfare without case work.

Mr. Michael Brown (Brigg and Cleethorpes)


Sir Brandon Rhys Williams

I do not think that it is desirable for me to give way as I have already spoken too long and still have many things to say.

A second misconception about the basic income guarantee proposal is that we cannot make any move until computerisation of PAYE and the Department of Health and Social Security is complete. In other words, we must postpone the idea for many years, possibly even to the Greek kalends. Both the Inland Revenue and the DHSS are completely wrong in their approach to computerisation. They are working in isolation from each other on two aspects of the same problem and, what is worse, they are asking computer operators how they can adapt the computer so that it will perpetuate our present extraordinary system, which has developed during hundreds of years. Instead, we should say, "Now that we have computers, what can we do in administration that we could not do before?" The two departments should be striking out into completely radical methods of handling the redistribution of income, instead of calling computers in to perpetuate the existing appalling muddles.

Thirdly, we must clear up the idea that the marginal tax rate for a basic income guarantee must be so impossibly high that it would produce a disincentive effect that would run the economy down. There is no reason why tax should take up more than it does at present, since we already provide a basic income guarantee. I recommend a standard basic rate of income tax — or national insurance contribution—of 40 per cent. On top of that employers should be required to pay a flat rate of 10 per cent. to the provision of income for retirement. That would make a total of 50 per cent., which people may regard as a high percentage to take from income. However, that is only what we do at present and, therefore, the change is not a sudden one. Indeed, it does not constitute a significant change except—I emphasise this necessity—that we must put aside more money from current expenditure into savings. Our children will not honour the commitments that we are writing into our present legislation. When we retire they will ask what we did in our time for pensioners that makes us insist on their meeting all these commitments for us. It is extremely dangerous to expect our children to honour the pension promises that we are making to ourselves. I strongly emphasise the need for employers' contribution to the national insurance system to be turned wholly towards the accumulation of real personal savings, not to be taken into the Exchequer and used as part of the total yield of revenue.

Regarding the level of benefits under a basic income guarantee, it would be ideal if everyone's BIG was equal to the present level of supplementary benefit. However, I do not recommend that. We do not need to pay a basic income guarantee which is equal to the present level of supplementary benefit for everyone, because of the liberating effects on the labour market of the sort of reforms that I recommend, especially the ending of national insurance restrictions on people taking work while they are still receiving benefit.

The black economy should be made legitimate, so that if people find casual or part-time work or can earn money on the side through odd-jobbing, they may. It can only add to the total wealth of society if everyone who gets an opportunity to take work can work without being told that they are scrounging, evading tax or falling into some reprobate activity.

Mr. Ralph Howell

I am sorry that I did not make myself clear when I intervened previously. My hon. Friend said that the minimum income guarantee scheme would be self-financing. Will he tell the House at what level it would be now? If we have no idea of that, the argument has little strength.

Sir Brandon Rhys Williams

It is difficult to give the figures. I have made scores of calculations, and the honourable name of Mrs. Hermione Parker has already been mentioned. It is possible to produce a budget in which there are specific figures, and I should be glad to give them to my hon. Friend. It is not that I am afraid to do so, but that I would speak until the House rises if I dealt with every aspect of these recommendations.

However, we must ensure that the present level of supplementary benefit is paid to those who cannot fend for themselves. It should be available to those who have genuinely tried but failed to find work. In some parts of the country, even the best-hearted and most willing workers cannot find work even to earn a few extra pounds a week. I do not recommend that they should be pushed below the supplementary benefit level, but speaking from my observations in central London, I believe that few able-bodied people could not supplement their incomes, if they were allowed to do so, by £10 or £20 a week, even with the present state of the labour market. They should be given every encouragement to do so, instead of being made to feel that they are doing something wrong.

We must minimise case work by seeking out the categories to which we wish to grant a higher rate of basic benefit, and that must include children, the chronically sick and the pensioners. May I say a few words about pensioners? I said that employers should put a minimum of 10 per cent. of salaries into personal pension funds for all their employees. We should aim for a money purchase build-up of entitlement founded on the system of, "save now, pay tax later."

The taxation of pension funds is a topical subject. In due course, the availability of earnings-related income from a lifetime's achievement of savings should largely replace, for retired people, the necessity to apply for special assistance with their housing costs. However, I recognise that that will not happen all at once. We must give every encouragement to the build-up of personal entitlement through savings, and employers must make a significant contribution. In my calculation, 10 per cent. is barely enough, but I hesitate now to recommend a larger proportion. Of course, many employers already put much more than 10 per cent. into occupational pension schemes, and we must do nothing to discourage that.

I shall not support the Chancellor of the Exchequer if he is thinking of introducing tax on pension schemes, except in one important respect to which I shall return. The state earnings-related scheme should be ended, and we should rely on a system of, "save now, pay tax later." There should be an earnings-related build-up of funds either through employers' schemes or through a Post Office scheme which could be made available for small employers or casual workers so that they, too, can have the benefit of a personal build-up by week on top of their earnings.

Pension trusts should be required to return their accounts to the registrar making a clear distinction between their allocated funds, which are the property of the individuals for whom the trust was set up, and their unallocated reserves, which are still in effect a part of company funds and are not allocated to individual beneficiaries. I suggest that the tax which the Chancellor is thinking of imposing on pension funds should be levied on the income derived from the unallocated reserves of the pension funds, but not, under any circumstances, on their allocated funds. By this means, we shall encourage occupational pension schemes to make full transfer values available for early leavers, including the full amount of existing accrued rights held in the pension trusts. We should also put group occupational schemes on a parity of tax treatment with all the different personal savings schemes that we wish to encourage. They include contracts for the self-employed and supplementary contracts for those in employment who wish to add to their savings while they are working. We must also encourage Monory-type schemes, which will enhance the provision of nest-eggs, investment clubs and portable pensions.

All of those schemes should be operated under the same tax regime. If the Chancellor has it in mind, I would be prepared to vote that the unallocated part of pension funds should be taxed to encourage trustees to allocate resources in the final salary schemes over time—or even at a stroke—to convert them into money purchase schemes based on individual entitlement.

If we are to put basic personal benefits on a unisex basis, we must recognise that the householder has a greater obligation than the others who live in the same house. Therefore, we must introduce a householder's allowance that can be claimed by only one member of the household but without reference to that person's income, sex or status. We do not need to know whether that person is single, married, cohabiting, widowed or divorced, but we must ascertain whether he or she is the householder. That person should then be entitled to a householder's allowance on top of their personal allowance, and preferably the scheme should be administered by local authorities.

We shall have to continue a supplementary housing cost system for some time, partly because the housing market is taking so long to free up, and partly because many retired people do not have enough income to continue the style of life to which they were accustomed while in work. I look forward to a time when the basic householder's allowance replaces all the present forms of rate, rent, and household assistance, including mortgage tax relief and local authority housing subsidies. There is an overwhelming need for rationalisation and considerable room for economies. The evidence in Kensington is that the availability of rent subsidies helps to increase rents, and why not? If a landlord can ask a tenant to pay more, and it costs the tenant nothing to pay more more because he can get it through supplementary benefit, a spiral of rising rents is created. We must handle the matter delicately, because we do not under any circumstances wish to force people into homelessness. But there is room for reform of the housing subsidy system, as I am sure my hon. Friends are aware.

In summary, I recommend that we should end the national insurance system and combine it finally with income tax. We should end the state earnings-related pension scheme and ensure that everyone has a money-purchase scheme instead, building up during their lifetimes. We should remove all restrictions on the freedom to take work. I personally recommend that we should end higher rate tax to give the greatest possible incentive to people to take risks, to create wealth and to bring back the sparkle into our economy.

I wish to make a final recommendation for a major administrative reform. I suggest that we should wind up the DHSS. It was a mistake to combine the money-handling side of the Department with the Ministry of Health. We need a separate Health Ministry, as we have a separate Department of Education. Running the two sides together places almost impossible burdens on one Secretary of State. Health and the redistribution of income are not so closely associated that they should be in one Department.

As to local DHSS offices, there are about 600 in the country staffed by exhausted people trying to handle the ghastly burden of the case work that we impose upon them. We should amalgamate them with the social and housing departments of local authorities, many of which are situated only a few hundred yards away. Either one or the other should be put fully in charge of the administration of personal case work. There is a strong case for giving all personal case work responsibility to local authorities, but some might argue that the responsibility should be taken away from local authorities and that we should have a national service under a reformed DHSS. I believe that it would be better to make it a local authority responsibility.

The remainder of the Department's work — the automatic payment of benefits and ensuring that people receive their basic income guarantees — should be combined with that part of the Inland Revenue dealing with income tax in a single computerised system.

A complete reconstruction of the relationships between the individual and the community, as expressed in terms of cash, is long overdue. We can see how to solve the problems of the welfare system. The question is: do we have the will?

12.8 pm

Mr. Michael Brown (Brigg and Cleethorpes)

It is always a great privilege and pleasure for any hon. Member to follow my hon. Friend the Member for Kensington (Sir B. Rhys Williams), who is guaranteed to enliven any debate. He has brought some interesting and characteristically individualistic ideas to our approach to this complex problem, which we are discussing today thanks to the good fortune and good choice of my hon. Friend and neighbour the Member for Gainsborough and Horncastle (Mr. Leigh).

At this stage in the debate I wonder whether there is anything that anyone can add. I think that just about everything that needs to be said in a debate of this sort has been said. When my hon. Friend the Member for Kensington suggested that the Department of Health and Social Security should be abolished, he was not being frivolous. He made the suggestion for serious administrative reasons. We all know that there is a great deal of overlap, but there is a philosophical reason why we should be seeking ultimately to get rid of the Department. The Department exists because there are too many in Britain who have to make claims upon the state because they are too poor, because they do not have an income level to justify an existence without some form of assistance from elsewhere. None of us can take any pleasure from a system in which some in our society cannot manage on their own.

The ultimate goal in an ideal society must be for a Minister from one or other political party to say, "We have been able finally to get rid of poverty. The Department of Health and Social Security"—or at least the Department of Social Security—"is no longer necessary." It might be thought initially that any suggestion to get rid of the Department of Social Security, as it were, is being made frivolously by those who have no concern for poverty. We often hear the charge from the Opposition that the Government are cutting back on social security, that the Department needs to be expanded and that we need to have more Ministers, more offices and more officers. Surely it must be our aim as parliamentarians and politicians—this will probably not happen in the 20th century—to abolish poverty so that it is not necessary for a Government to take from some groups to give to others. That must be our goal for the 21st century.

Let us consider the problems of 1985 that have been created through the misinterpretation of what Sir William Beveridge wanted to see in the early 1940s. The Beveridge report was a major contribution to social thinking at the time. It was crucial to the problems of the 1940s and the problems that it was addressed to in the light of Britain's experiences over the previous 20 years. However, if Sir William were alive today, I think that he would probably be chairing the inquiry that has been set up by my ministerial colleagues in the DHSS. If he were alive, I am sure that his approach today would be very different from the one which he adopted in the 1940s. Sir William would be the first to recognise that circumstances have changed dramatically. I am sure that he would be the first to identify the problem of the poverty trap.

I shall refer to some statistics that are in the document to which my hon. Friend the Member for Tatton (Mr. Hamilton) referred. It is a research report entitled "Action on Welfare" by Mrs. Hermione Parker. Let us consider the position of someone in work who has an income of £63 a week, or even £94 a week. What is his net spending power after deductions have been made for necessary expenditure on rent, rates, water rates and other housing costs? This is necessary expenditure that has to be made by all those on low pay, the unemployed and those in receipt of supplementary benefit. The statistics that are set out in Mrs. Parker's report make the facts stand out loud and clear. They make it obvious that there is no incentive for those at the bottom of the working pile to work unless they can derive a certain income. For a married couple with two children, there needs to be an income of £130 a week before it is worth while for one member of the household taking any form of employment.

I do not blame anyone who is at the bottom of the pile and on supplementary benefit—let us suppose that he has a wife and two children—if he chooses not to work for less than £130. No one can blame such a person at the bottom of the pile for not actively seeking work when there is no financial incentive for him so to do. The fault lies with us and not with him. The buck stops with the House and with whatever Administration is presiding over such a situation. We must deal with unemployment and the poverty trap.

How do we deal with the problem? The inquiry which has been set up by my ministerial colleagues in the DHSS should consider the cut-off point when making national insurance contributions. It is crazy that someone like myself should stop paying the traditional regressive national insurance tax payment when his income exceeds £250 a week. At the same time, a low income earner has to pay the flat rate contribution, which as a percentage of his income is a very much greater contribution than mine. As my income increases, so I keep proportionately more of what I earn. That is the position when my income exceeds £250 a week. That is not the position of the person at the lower end of the income scale.

If we have the traditional progressive tax system for incomes, surely that system should apply to national insurance contributions. Surely that should stand out a mile to my hon. Friend the Under-Secretary of State and to all DHSS Ministers, and certainly to Treasury Ministers. To introduce progression to national insurance contributions would be a major way of redistributing income and should even meet with the approval of Labour Members. That is one way in which we could make a practical contribution to transferring resources from rich to poor. I cannot understand why there is a cut-off point and an extraordinary lack of progression at the bottom end of the income scale for those who pay national insurance contributions. Some attention should be devoted to that anomaly.

My hon. Friend the Member for Kensington opened up the debate on child benefit. I desisted from intervening because I hoped that I might catch your eye, Mr. Deputy Speaker, when my hon. Friend resumed his seat. He made the straightforward point of principle, which most political parties have accepted since the introduction of child benefit, that it is a flat payment for each child, regardless of the income level of the parent.

My hon. Friend the Member for Kensington argued that the great advantage of the flat-payment system is that, whatever the parents' income level, there is a certain sum for every child in the land, and that it is exactly the same for rich or poor. I suggest to my hon. Friend that child benefit is worth more to the rich than to the poor. If someone who has an income that classes him as a middle income earner or a wealthy person, and is receiving for his or her child a fixed sum that is not subject to tax when ordinarily that income would be taxed, the benefit is worth more to him or her than to the poorer person who is not in the same tax bracket. There should be some serious thinking in the Department and the Treasury about the need to consider taxing child benefit. I would say that a case can be made if we are in the business of directing resources towards the poor, for taxing child benefit, but that is a stepping stone to getting rid of child benefit as it exists and replacing it with an alternative system.

In an article which appeared last week in the magazine "Economic Affairs" Professor Michael Beenstock of the City university business school argued that the well-off benefit from fiscal resources and that if they choose to have children they should not receive child benefit. He said: Child Benefit was introduced in 1975 when Family Allowances (in cash) and Child Tax Allowances (against taxable incomes) were amalgamated into a single benefit. Child Tax Allowances had adverse redistributive effects on people with low incomes because families too poor to pay tax could not benefit from them. On the other hand Family Allowances were taxable so that the rich paid a large proportion of them back in taxes. Child Benefit has righted the former wrong because it is received even if a family is too poor to pay tax. On the other hand, unlike the Family Allowance, because it is not subject to tax it is worth more to the rich than to the poor. It is often argued that another important reform in 1975 was that mothers could draw Child Benefit directly from their local post office instead of being dependent upon receiving Family Allowance from their husbands. It is difficult to judge whether womens' financial independence has been increased by Child Benefit since mean husbands can reduce their wife's house-keeping money by all or some of the Child Benefit she receives. Most probably this issue is not sufficiently important to be a major constraint on reform, although research into the transferability of family budgets within households is desirable.

Mr. Ralph Howell

There is some disquiet among the Opposition about my hon. Friend's proposal for child benefit. Does my hon. Friend agree that many of the problems would be solved if we converted child benefit — which is really a married woman's pocket money allowance under a different name—into a tax allowance above the tax threshold but retained it as a cash benefit below the tax threshold? It would then serve the purpose child benefit was originally designed to serve—it would be a benefit to be spent on children. That benefit should be targeted on those with low incomes who would not otherwise be able to spend their money on their children to the same extent.

Mr. Brown

I could not agree more with my hon. Friend. We know—some hon. Members may seek to deny it—that people with our income levels and above do not apply the child benefit allowance directly to their children. I shall say something that is probably controversial and which will be denied and denounced. I know it happens, because some of my constituents on higher income levels have told me what they do with child benefit. I do not blame them, because the present system encourages them to spend the money in this way. A high income earner who is able through his own provision to make substantial and satisfactory provision for his children will not spend the extra few pounds a week on the children; the money will be spent on the wife's dresses from Harrods or wherever. Some people may seek to deny that, but if we are in the business of concentrating scarce resources on those at the bottom of the pile who do not have the tax advantages of those at the higher end of the income scale, there must be another way of achieving better value for money from the £4 billion it costs the Exchequer to provide a universal system of child benefits.

Let us go back to first principles, to the idea of child benefits, to when child tax allowance and family allowance started. Let us go back to the Beveridge report in 1942. Beveridge said that a demographic dimension had to be considered. He argued: With its present rate of reproduction, the British race cannot continue; means of reversing the recent course of the birth rate must be found … children's allowances can help to restore the birth rate. I am sure that Sir William, if he were alive today, would be the first to recognise that 1985 is not 1942. The demographic case for subsidised procreation has disappeared today.

According to Professor Beenstock, the rationale of child benefit is based on four value judgments. His first value judgment is: The state has no intrinsic concern in financing the upbringing of children. This is an entirely private matter. It is presumptuous and paternalistic to think otherwise. Surely even the Opposition would agree with that.

The second value judgment is: If the economic position of the family is such that children are suffering, the state should intervene on society's behalf. Fair enough; surely the Opposition would agree.

The professor's third value judgment states: There should be no arbitrary transfers of resources to families solely because they happen to have children. The fourth value judgment states: The child benefit scheme should minimise distortions in the labour market. This reform would minimise the tax cost of providing benefits. Judgements 1 and 3 imply that the 'rich' should not receive Child Benefit. No. 2 implies that benefits should be focused on the children of 'poor' families. But there is a conflict between the first three judgements and the fourth. It may be necessary to extend benefits to families which are not 'poor' in order to minimise distortions in the supply of labour. In the end then, a trade-off has to be made. Basically, the rationale for subsidising the procreation of children has ended in the 1980s. Are the poor getting value for the money that is charged on their behalf? [Interruption.] If the hon. Member for Thurrock (Dr. McDonald) wishes to know the article from which I have quoted, I remind her that it is from the magazine Economic Affairs, published by the Institute of Economic Affairs. It was written by Professor Michael Beenstock of the City University Business School, who is a great authority on these matters.

Mr. Gerald Howarth

Professor Beenstock has five children.

Mr. Brown

He certainly has no vested interest in what he is proposing, because he benefits considerably from the present system. He is a typical beneficiary of the system. Thousands of high income earners with a number of children are also beneficiaries. My hon. Friend the Member for Tatton quoted the example of my hon. Friend the Member for Crawley (Mr. Soames) who, even though he does not wish to receive the maternity benefit, cannot stop that benefit being thrust upon him. We wish my hon. Friend and his wife every success in their family venture, but if the birth of his offspring is successful his wife will have child benefit thrust upon her. We all know that my hon. Friend will be able to make adequate and excellent provision for his offspring. He does not require child benefit. I should not blame him—

Dr. Oonagh McDonald (Thurrock)

I am most interested to learn that the hon. Gentleman and some of his hon. Friends are anxious to give away those benefits which they claim they do not require. Did they vote against reductions in taxation for higher income earners on the same grounds, or did they just go through the Government Lobby and accept the vastly increased incomes which resulted from that reduction?

Mr. Brown

Of course, everyone will vote for whatever they can get out of the present system; that is logical.

Mr. Dennis Skinner (Bolsover)

Answer the question.

Mr. Brown

I have answered it, frankly and straightforwardly. Human nature is straightforward. The trouble with the Opposition is that they try to devise systems that are contrary to the normal rationale of human nature. I seek to recognise that, human nature being what it is, of course anyone—

Mr. Skinner


Mr. Brown

Do the hon. Gentleman and Opposition Members agree that their parliamentary salary is an adequate and generous one on which to live? In those circumstances, will the hon. Gentleman confirm that vast numbers of Opposition Members do not accept child benefit? Of course they do, and I do not blame them.

Mr. Skinner

I am one of those who believes that a Member of Parliament is paid exceedingly well, not that I have had any of it this year, because of the miners' strike. It has gone to a more deserving cause. If that is the case, why are 350 Tories in the House earning an income over and above that £16,000 a year?

Mr. Brown

I cannot speak for my hon. Friends and the hon. Gentleman cannot speak for his hon. Friends who have not taken the principled stand that he has with regard to his income. We shall get into a terrible difficulty if we start comparing our hon. Friends' behaviour with our own. I know that the hon. Gentleman has taken a principled stand for a cause in which he believes, but if he applies that logic to his hon. Friends he will not get far.

Child benefit costs the Exchequer £4 billion a year. It is estimated that abolishing the child benefit system and replacing it by a system that ensures that social security benefit goes directly to those in need could save the Exchequer £2.5 billion a year. That will leave £1.5 billion to be directed towards those at the bottom end of the income scale. When the Chancellor comes to us on 19 March, he would then have £2.5 billion to apply to increasing tax thresholds to take people out of the poverty trap at the bottom of the scale. He might even have money available to reduce the rate of direct taxation.

The discrepancy that I have mentioned reflects the fact that child benefit is paid to recipients on supplementary benefit, who under Professor Beenstock's assumptions would continue to receive child benefit. As the supplementary benefit child allowance is larger than its child benefit counterpart, Professor Beenstock retains the present idea that benefit for families on supplementary benefit will go to those families with children.

The present child benefit system needs to be examined. The poor are not receiving the best value for money from the £4 billion which is being spent on their behalf but which does not go near them. No one in the House can deny that simple fact.

A number of points have been picked up by my colleagues. Let us consider the present welfare system. As my hon. Friends the Members for Tatton and for Gainsborough and Horncastle said, it is incomprehensible, unco-ordinated and expensive to administer. I was flabbergasted to hear the sum of £2 billion a year mentioned as the cost of administration. My hon. Friend the Member for Tatton said that that equalled 2p off the standard rate of tax or 2 per cent. off the present level of VAT. That is an incredibly expensive way to administer a system that does not benefit the poor. It is a system which pauperises the poor. We have had a universal welfare benefit system which has been extended and expanded over the past 30 or 40 years. At the end, we have more poor people. We have more people getting poorer. The system contributes to that debilitation and demoralisation.

The system is a cause of unemployment because of the poverty trap that it creates. It is a deteriorating system which, even if the Opposition were in control, would not be reversed in any way. It has been said that it penalises marriage and subsidises family break-up. Evidence can be adduced that that is so. It destabilises and divides society and undermines the rule of law. On all those tests, it does not work.

The system is incomprehensible. Many hon. Members do not understand how it works. We have to write letters at great length to Ministers on behalf of constituents who themselves do not understand how the system works. The argument is often put that if one simply has a system that gives welfare benefits to the poor and discriminates, one has to have a means test. I say that the present welfare system is a Heinz 57 variety of means tests. Every time I write to my hon. Friend the Minister with a constituency complaint, if the local social security office has not been able to deal with the matter, I am up against the argument that the present system has not just one but 1,001 means tests. It is incomprehensible.

The system is unco-ordinated, as my hon. Friend the Member for Kensington said at the end of his remarks. It should be co-ordinated with the local authorities, particularly now that housing benefit is payable via the local authorities. It should be co-ordinated with the social services offices of the county councils and with the Department of the Environment, the Department of Education and Science and, most obviously, the Treasury. Therefore, the charge that the system is unco-ordinated stands up.

The system is unnecessarily expensive to administer, as my hon. Friend the Member for Tatton said. It is a system of pauperisation. It must be. More than 2 million additional people are in receipt of welfare benefits today, compared with seven or eight years ago. The system has caused the poverty trap that was outlined earlier in the debate. It has caused unemployment because there is no incentive for some people who might be able to obtain work to go out and do so. It is a deteriorating system that will break down eventually. It is discriminatory, arbitrary and unfair.

We should seriously consider the fact that the system penalises morality. Tax and benefit laws encourage couples to cohabit rather than marry, to split up rather than stay together. One result is the vastly increased expenditure on single parents, as my hon. Friend the Member for Tatton said. It was £15 million in 1960 and £1,000 million in 1983. Tax laws contribute to the increased number of women in the labour force. I am not suggesting for one moment that women should not work at a time of high unemployment or that they should not seek work. Under the present welfare system of pauperisation, some women have to work who do not want to work. In those circumstances, surely we need to do something about our tax and welfare benefit system. At the bottom of the income scale, the woman is often the breadwinner when she does not want to be. There must be something wrong with a system that underwrites and encourages family destablisation.

The system also needs to be reviewed when it encourages students to take full advantage of the welfare system. I do not blame any student for claiming whatever he or she is entitled to. I remember those distant days, 15 or 16 years ago, when I was a student and there was no hint or intimation that I would be entitled to any welfare benefits during the long summer vacations. It can be argued that, in those days, students could get temporary work, whereas they cannot now. I remember having difficulty getting work here and simply packing my rucksack and going abroad to earn money. The welfare system should not be institutionalised to the extent that students, who have all sorts of benefits and privileges, should be given more.

The majority of students come from the well-off classes. If there were an education spokesman on the Opposition Front Bench, he would be the first to say that the problem with our higher education system is that not enough people from the poorer classes go to university. By definition, most students come from families with higher incomes. Why should the welfare state supplement benefits that they already enjoy? The system should benefit the poor and encourage them to go to universities.

The welfare state has failed the poor, has failed to do anything about poverty and is costly to the not-so-poor.

12.41 pm
Mr. Dennis Skinner (Bolsover)

One of the redeeming features of this debate, which has been initiated by a Right-wing Tory and backed by three more, is that whereas I thought that there might have been a Chamber full of Right-wing Tories, it looks as though they have found something more appropriate to do and have not turned up. If the Chancellor is to take any notice of what Tories have said today, he will have to take into account that only about four of them are espousing extreme Right-wing views. In 1979 and 1983, the place seemed full of Tories with ideas about cutting here, there and everywhere.

The debate acknowledges the failure of the Tory Government. In 1979, they had plans to save everyone and everything. The idea was that this would be a land flowing free of taxation and that little entrepreneurs and big entrepreneurs would come out of the ashes and create jobs all over the place. People would be hurrying and scurrying on bikes and other contraptions to find the jobs that would sprout up all over Britain. After six years, along comes a Tory Member of Parliament and, in as many words, says, "What has happened? We must now attack the very people we kidded on in 1979 and 1983." The Tories told them that they would cut taxes and generate jobs, but the truth is that the Government, aided and abetted by the few Tories who are here, are launching a campaign to put the burdens that the Tories have created further on to the backs of the working people.

I have listened carefully to what Tory Members have said. Their argument has been used for centuries by people who want to keep as much wealth as they can. They say, "We are only doing it for your good. We wealthy people are trying to give you a little bit more money. To do it in a proper and rational way, we are prepared to make a tiny sacrifice but we shall have to take it off you as well." Therefore, all the working class people must lose child benefit because a few Tory Members say that they do not want it, despite the fact that they have long been pocketing it, along with the rest of the money that they can get.

Mr. Neil Hamilton

The hon. Gentleman is mistaking the point of the speeches from the Conservative Benches. Every one of us has said that the welfare state is missing its target. It is inadequately providing for those who are really in need because the benefits are spread too widely over those who are not. We propose the reverse of what the hon. Gentleman is suggesting, which is to take away from those in the middle and upper regions of income scale to give more to those at the lower end. I cannot understand how a Socialist can object to that.

Mr. Skinner

If I thought that what the hon. Gentleman was saying was true—

Mr. Hamilton

The hon. Gentleman does not believe me.

Mr. Skinner

Of course I do not believe the hon. Gentleman, and unlike my right hon. Friend the Member for Islwyn (Mr. Kinnock) I shall not be backing down. I do not believe Tory Members. I know what their game is. These are the very people who walked through the Lobby to cut the amount paid in tax on investment from 98 per cent. to 60 per cent. I have no doubt that many Tory Members benefited from that move. I know that they did not declare their interest when they spoke and voted in that debate.

Who do they think that they are kidding? All that Tory Members are about is lining their own pockets, as they have always done. The hon. Member for Tatton (Mr. Hamilton) comes here as a Tory Member and picks up his £16,000 a year. Not content with that, he does a bit of moonlighting on the side, not at £10 or £20 a week but at rates of pay of about £10,000 for every directorship. The right hon. Member for Hertsmere (Mr. Parkinson) who left the Tory Cabinet 18 months ago and who used to be Secretary of State for Trade and chairman of the Tory party, had not been out of office for 12 months before picking up four directorships. That was not out of character with the rest of the Tories, and I am not making a special point about him, but he picked up so many directorships that some of the Tory Members who want to get rid of child benefit and attack women in our society, as they have been this morning, were complaining because the right hon. Gentleman had got too many directorships. I heard one in the Tea Room saying, "It's not fair that Cecil should get all those directorships and pinch them from us." What we have heard this morning is a lot of claptrap. They want to put the burden of the massive cost of the dole queue more and more on to those who are least able to carry it.

The Government have failed, and the DHSS offices are burdened with work because there are 4 million to 5 million people on the dole. Is it any wonder that the welfare state is under pressure, as Tory Members have been saying that it is? When the Government came into office there were about 1.25 million out of work—too many. That figure has been more than trebled, despite all the fiddled statistics issued by Tory Ministers. Is it any wonder that civil servants in these offices, with so many claimants for supplementary benefit, do not know which way to turn? Is it any wonder that the Under-Secretary of State for Health and Social Security says that the increase for supplementary benefit and social services generally has been 28 per cent. in real terms under the Tory Government? Of course it has, because there are more than 2 million recipients of various benefits, because of the massive dole queue. The Government have created that increase. It is no wonder that the welfare state is beginning to creak.

Mr. Whitney

The hon. Gentleman has changed fundamentally the character of what has hitherto been an interesting debate. He constantly runs away from the fact that, in 1983 figures, our social security benefits across the board have increased by £7.25 billion, of which £2.75 billion has been used in making substantial increases in the major rates of social security payments.

Mr. Skinner

This is a Minister who has gone into the Lobby to vote for four separate social security Bills, and every one of them has been used to take away benefits from low-paid people. He is the Minister who walked through the Lobby to rid several thousand recipients of earnings-related supplement of up to £14 a week — people who had been crippled, women who had been at work and were getting maternity benefit, and so on. He also took it away from women who had lost their husbands. That earnings-related supplement was taken away by the Minister and his hon. Friends, yet he has the cheek to say that the Government are in business to help the low-paid and those who are on various social benefits. Who does he think he is kidding? [Interruption.] I shall read Hansard. I know what the debate is about. It is to try to launch an argument for getting rid of child benefit and various other benefits. That is what Tory Members have been up to this morning.

Mr. Heathcoat-Amory

Has the hon. Gentleman not been listening, or can he not understand that the scheme we are outlining would concentrate benefits on those of modest means and those who need them, and withdraw the benefit from the better off?

Mr. Skinner

I understand the kidology, but what I am trying to explain to the hon. Gentleman and others is that I have seen through it. The Tories throughout the centuries have always talked the same language—"We are trying to help you". In 1979, on the steps of 10 Downing street, the Prime Minister spoke about compassion and hope. Does anybody now believe that that was her real intention?

The real intention of the Government was to throw a lot of people out of work, and then introduce an incomes policy based on the insecurity of those who had jobs. The Government's intention was to frighten the people who had jobs into thinking that they had better not put in pay claims of whatever percentage because there were people waiting round the corner to take their jobs.

Tory Members talk about the low paid, and this morning they have poured out their crocodile tears. They are the same people who are now signing a motion to abolish the wages councils. The wages councils exist to protect those at the bottom of the wages league. The same people who are pouring out crocodile tears want to send workers unprotected into the labour market. Those same Tory Members want to take away union protection if they get half a chance to do so, and they have succeeded to some degree. As a result of their policies they are putting people further and further into the poverty trap.

Mr. Neil Hamilton

Once again the hon. Gentleman entirely misunderstands the argument.

Mr. Skinner

No, I have listened to it.

Mr. Hamilton

Because of the existence of wages councils, a floor has been placed on wages which keeps people unemployed. We seek to enable people to price themselves back into work and to top up their incomes through the welfare and social security system. In that way we can reduce unemployment and yet provide people on low incomes with decent standards of living. Therefore, what is suggested is the reverse of what the hon. Gentleman is saying.

Mr. Skinner

I heard all that in 1979. At that time the whole tenor of the Tory Government's policy was along those lines. They said that if only there were lower wages, all the little busybody entrepreneurs would be able to pick up people and provide them with work. But instead of that we now have between 4 million and 5 million people on the dole. The hon. Gentleman is on to a new tack but it is the same old principle—trying to kid the people on.

Let me put a question to the hon. Gentleman. If he is concerned about the low paid and about the massive amount of money being spent to keep a dole queue costing, according to official figures, between £18,000 million and £20,000 million, taking into account lost tax and insurance contributions, will he guarantee that on Monday, when the Government put before the House a proposition to introduce further cuts extending over the next four years and resulting in the creation of further unemployment, he will vote against that White Paper which will put even more people into the poverty trap and send them to the DHSS where the already overburdened civil servants will have to deal with more claimants? What will the hon. Gentleman do?

Mr. Hamilton

For at least the fourth time, the hon. Gentleman is entirely mistaken if he thinks that the Government have cut expenditure since taking office in 1979. Public expenditure has increased by 1.5 per cent. a year. The argument that unemployment results from a failure in demand is quite wrong. Unemployment results from microeconomic causes such as wages councils. We must seek to reduce unemployment and improve benefit levels for those who cannot find jobs or otherwise cannot support themselves without state assistance.

Mr. Skinner

Then I take it that the hon. Gentleman will vote for cuts in housing benefit, for example, resulting in more people becoming homeless, and that he will not support the idea of getting people back to work building houses and thereby providing more money for the economy, paying taxes, national insurance and the rest of it. If the hon. Gentleman really wants to help people at the lower end of the scale, he will not do that. The same applies to the rate capping proposals, of course.

The hon. Member for Kensington (Sir B. Rhys Williams) has left the Chamber, but I wanted to refer to his fantastic policy called BIG. He was asked one question: how much will it be? One thing is certain. The hon. Gentleman dodged the question. It will not be big. The idea that it is possible to fashion a super family income supplement on to the social service system and thereby solve everyone's problems is nonsense.

The debate has shown that the Government have gone very badly off course. It has shown that there are a lot of Tories who are no longer prepared to defend the Government's record and that there is just a little hard core of Right wingers saying, "There is a way out from all the mess that we have created and this massive dole queue. It is to cut back even further and kid people that we are helping them at the same time." The Government are now in the process of wanting to throw more people out of work. They have just got rid of another several thousand shipbuilders. When the miners are fighting to retain jobs in their communities, the Government say that they want to throw more of them on the dole. It has cost £6,000 million to finance the strike —and it will have to be found by the taxpayer—with the intention of throwing more people in mining communities out of work and sending them to the social security offices.

Mr. Gerald Howarth

The hon. Gentleman said that the purpose of the Government's response to the miners' strike was to throw people out of jobs. Is not he aware of the remark of both the Secretary of State for Energy and the National Coal Board, repeated again and again, that if any pit closes any man wishing to continue to work in the industry has the guarantee of a job? Is not that the most generous job offer of any industry, here or in Europe?

Mr. Skinner

That is another of the lies that have been trotted out in this propaganda exercise. The Tory Government have been assisted in it by the media. Sadly, the BBC, which is supposed to be impartial and which has 20 or 30 uneconomic units of production—not one of them makes a penny of profit—has been pouring out the same propaganda about there being a job for everyone. If the three pits in Kent are closed, which pit are the Kent miners to go to? It is a load of nonsense. The hon. Gentleman knows that it is a load of nonsense but the Government control the media and are able to get these lies across thick and fast.

This Government created 21,000 bankruptcies and company liquidations in the year ended 31 December 1984. That is a record over and above the previous four years and is another reason why more people are going to social security offices in order to have the means to live. The black economy is supposed to be running at over £8,000 million a year. That figure of £8,000 million could be taxed but is not being taxed because of this Government's approach. When they came to power this Government said that they would cut income tax for everybody, but the first thing they said to low paid people was, "Yes, we know that you have an income rate band of several hundred pounds at 25 per cent., but we are going to put a stop to that." Those Tory Members of Parliament who were elected in 1979 filled the Lobby and said to low paid people, "We shan't let you keep your 25 per cent. tax band; we are going to put it up to 30 per cent." That was the very first act of this Government. They very nearly doubled value added tax, thus imposing a very regressive system of taxation on the low paid.

This Government have presided over an increase in income tax and national insurance, which is roughly the same thing, from 31.5 per cent. in 1979 to 39 per cent. This Government, who are supposedly looking after the interests of the low paid, have introduced a gas tax and an electricity tax, and a few weeks ago they introduced a water tax which no doubt will be copied up and down the land. Although the Government have talked about cutting taxation, they have done the very opposite. Since 1978–79, the tax burden on a family of four on two thirds average income is calculated to have risen by 9 per cent. while a similar family of four with an income of 10 times the national average has had a tax reduction of 23 per cent.

Tory Member of Parliament after Tory Member of Parliament has stood up this morning and tried to kid people that they are in business to try to provide more benefits for those at the lower end of the wages scale by taking benefits away from those at the top end of the scale. I judge people by what they do, not by what they say. During the last six years, the Tories have allowed well paid people, those with an income of over £19,000 a year, to pay less tax while those with a family of four on low incomes have had their tax burden increased by 9 per cent. Before the general election in 1979 the Conservatives said that they were going to change the tax system in Britain so much that Mick Jagger, Tony Jacklin and all the rest of the tax exiles would come back to this country to live. The Government did not satisfy even them. In fact, I believe that Tony Jacklin went to live in Spain or Gibraltar. He was only in the Channel Islands when this Government came to power, but he moved further away.

The Government have increased the dole queue massively. There is an aging population, with 9.5 million pensioners, and by the next general election there will probably be 10 million pensioners. Because they are living longer many of them are disabled. The National Health Service has been run down by the Government. There is a waiting ist of 750,000 people. Last year 1,000 people died of kidney failure because there were not enough kidney machines to save them. Some of the potential workers who are stuck in the dole queue cannot build kidney machines because the Government will not finance the National Health Service properly and allow them to be built. Young lads and lasses coming out of school with O and A levels and then going to university afterwards go straight into Mrs. Thatcher's Yosser land because they are unable to find jobs.

Thousands of young people are leaving school without the prospect of work and yet there are many jobs to be done. Every one of those young people could be paying tax and national insurance if they were provided with work. Instead, they are pushed on to cheap labour schemes to work for multiple stores which claim to operate the Thatcher philosophy, and pick up £25 a week for each employee.

That is what the Government have done. It is at the root of the argument about social security and taxation. The Government have put a burden round their own neck. It is the job of my right hon. and hon. Friends and myself to see to it that they do not get a chance to hand it round their neck much longer. The people are beginning to sus the Government. They are beginning to find the Government out. It is conceivable that at the last election people thought, "We'll give her a bit of a chance. It looks as if inflation has come down temporarily, even though the index has been fiddled. Taking all things into account perhaps unemployment will diminish." Now the people know that the Government are not in the business of getting rid of that pool of unemployed. They are using that pool to depress wages even further. That is why Government Members want to get rid of wages councils and trade union restrictions—that is how they describe them—whenever possible.

That is also why the Government have introduced a review of social security. They do not kid me when they say that they want the review of pensions and social security entitlements because they want to examine them. The Secretary of State for Social Services has set the review in train, with the Prime Minister's backing, so that he can slash pensions and other benefits. The Government have tied themselves in a knot which they cannot unravel because of the massive amounts of money that have to be paid as a result of throwing people out of work when they should be doing useful jobs. Millions of jobs could be created if only the Government had the will to ensure that people are given a chance.

Government Members are using this debate to attack people at the bottiom of the ladder receiving social security benefit. They are using it to attack child benefit and all women who receive it. Some disgraceful statements have been made by Tory Members against women drawing child benefit. Those hon. Members should be ashamed of themselves. The debate is being used to launch a counterattack against those on the Tory Benches who have been making noises about cuts in housing benefit.

It is nauseating. Government Members talk about cuts in housing and other benefits. They are the same Government Members who the other week were rushing and racing to see the Leader of the House so that they could receive £6,500 to set up a second home in London. How many Tory Members are involved in that? Stand up!

Mr. Neil Hamilton

The recent announcement by the Leader of the House will not alter public spending one iota. All that it does is to correct an anomaly. Instead of paying hotel bills or rent for a flat an hon. Member can now offset mortgage interest—not the capital—against the additional costs allowance. That does not alter the amount of money that can be claimed.

Mr. Skinner

The hon. Gentleman rose to the bait. It is scandalous that in the month when the Government announce that Members of Parliament can pick up a further £6,500 to buy a second home — that is the principle behind the matter—Tory Members spend this morning attacking poor people. They do that on behalf of a Prime Minister who talks about people being subsidised, while she has three subsidised homes—Chequers, No. 10 Downing street and the flat in Kent which is subsidised by the National Trust. It is scandalous to hear words emitted from the mouths of Tory Members attacking those at the lower end of the income scale, when they are pocketing money left, right and centre, get on every gravy train to Brussels, Luxembourg or anywhere else, and go on fact-finding tours at everyone else's expense to have a decent fortnight away.

During a year of rate capping, that same Government have allowed the Prime Minister to increase the amount of money for the Private Office at No. 10. According to a parliamentary answer that I received recently, when my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan) left No. 10, the Office cost £1,229,000, yet during the past financial year to 31 March 1984 the sum spent was £2,850,000. This year it looks as though the figure will go above £3 million.

Mr. Leigh

On a point of order, Mr. Deputy Speaker. Is the cost of the Prime Minister's Office relevant to the motion that I tabled this morning?

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. I am following the hon. Gentleman's speech carefully. We are talking about taxation and benefits and the debate is ranging wide. I think that the hon. Gentleman should return to the motion on the Order Paper.

Mr. Skinner

Every penny of the threefold increase in the sum spent on No. 10 Downing street, which is in complete contradiction to the philosophy that the Prime Minister espouses for local authorities and everyone else, comes from taxation. The one matter about which the Prime Minister is right is that the Government have no money and that it belongs to the taxpayers. Every penny that the Government use to look after their own comes from the taxpayers' pockets. The £3 million or more that will be spent this financial year to finance No. 10 also comes from the taxpayers' pockets. So does the £75 million, with which the Government, through the Bank of England — the taxpayers' bank — bailed out Johnson Matthey a few months ago, although it went under, had no reserves and was an uneconomic unit of production.

When we debate taxation and social security, I do not look through the narrow eyes of Tory Members. They try to see how they can cut and carve to hammer the working class and poor people. There is plenty of money, but it is being spent on the wrong causes. About £20,000 million is being spent on the dole queue. With the proper political will, that could be changed. We could get those people back to work and paying taxes to help all the mothers and fathers who are pensioners and the disabled to have a better standard of living. That would help to provide a better National Health Service, all the proper benefits, and pensioners, instead of being on the poverty line and putting up with miserly sums, could have half average wages when they retire. If we had full employment we could do all that. We are having the debate this morning because the Government have got themselves in a mess with all the money that is expended in those directions.

The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) mentioned the death grant and, obviously, I should like to see it increased to more than £200. One Friday morning a few years ago, my hon. Friend the Member for Dundee, West (Mr. Ross) introduced a Bill that would have increased the death grant to more than £200, but Tory Members were brought in between 1.30 pm and 2.30 pm to talk it out. They did not have the guts to vote against it, but they brought in one or two Tory Members to stop the death grant being increased. The hon. Member for Watford (Mr. Garel-Jones) was one of them. He was paid off for talking out my hon. Friend's Bill by being made a Whip a few months later.

Mr. Michael Brown

Why did the Labour Government not increase it?

Mr. Skinner

The Labour Government did not increase it, and I blame them as well. The hon. Gentleman should know as well as anyone here that I did not vote against the Labour Government 150 times because I enjoyed it. I did so because I could not stomach much of what they were doing. I tell my hon. Friend the Member for Thurrock (Dr. McDonald) that the next Labour Government will have many other jobs to do. If they do not carry out the policies included in the manifesto that will be put before the people, I shall do the same again. I am not searching for records; I shall do it because it is the right thing to do.

There has been much talk in the debate about helping the low paid and pensioners, and there is plenty of money around to help them. Not very long ago the House debated the possibility of sending several hundred million pounds to bail out the Common Market, which has been the largest white elephant of the past few decades. We have had 10 years of misery and of the Community being a debilitating drain upon our resources. If the Government can find money for the Common Market, I say that they can find it for child benefit, for pensioners and for other deserving people in society. If they can find another £10,000 million — or is it £12,000 million — to finance the latest American weapon, Trident, I say that they should use the money to create a better life for all our people.

The debate has been wide-ranging, and when one talks about taxation it could hardly be anything else. I am pleased to have this opportunity to ensure that at least one voice puts across a different argument. The low paid have suffered under this Government, and the Low Pay Unit has produced statistics to prove it. We do not need lessons from Tory Members, who are trying to kid us on that they want to help the low paid. Tory Members are more concerned with lining their pockets and those of their friends than they are with looking after the deserving people of our country.

1.18 pm
Mr. Gerald Howarth (Cannock and Burntwood)

It is one of the engaging characteristics of the hon. Member for Bolsover (Mr. Skinner) that he can be guaranteed, on such an occasion, to tap that rich seam of rhetorical nonsense and fiction which is his permanent baggage and which is wheeled out on every possible occasion. I had wondered why so few Labour Members were present for this important debate, although I am delighted to see the hon. Member for Thurrock (Dr. McDonald) here, until I realised that the hon. Member for Bolsover was planning to speak. Now I know why the Opposition Benches are empty.

The hon. Member for Bolsover made several interesting points, and I could spend at least half an hour dealing with them. He said that he judges people on what they do, not on what they say. That is interesting, given that in his pit of Bolsover more than 90 per cent. of the men are at work. That must be a clear sign of their views on the terms offered by the National Coal Board, and the hon. Gentleman is clearly out of step with the feelings of local people.

Mr. Skinner

The Bolsover pit is part of the Nottinghamshire NUM, and from the beginning of the dispute the Notts NUM called upon its members to go to work. In my view it was wrong. I say that even today. I do not believe in dodging the column. As a Member of Parliament it would have been easy for me, seeing more of my constituents going to work during the dispute than on strike, to say to myself, "I had better change my mind. I had better put my head below the parapet." I made my decision a long time ago; it has not changed and it never will. Even if all the miners went back, I would not change my point of view. The great majority of British miners have been fighting for a decent principle, which is to save jobs. It has not been a dispute that sprang from greed and materialism. It has been concerned with saving jobs and not about wages. The saving of jobs will lead to the provision of taxation. The proceeds of that taxation can be used to provide social security payments and many other benefits. I shall never change my mind about the NUM's dispute.

Mr. Howarth

I am grateful for that intervention, although I thought that the hon. Gentleman might develop it into a further speech. I shall not pursue the hon. Gentleman's stand on the miners' dispute, save to say that the whole country is aware that it is a political strike, aimed at bringing down the Government, and nothing else.

My hon. Friend the Member for Brigg and Cleethorpes (Mr. Brown) spoke about child benefit. My wife is now the beneficiary of child benefit for three children and I would be less than honest if I were not to advert to this matter. My wife is a reader of Hansard and I cannot escape the truth in the end. I understand that there is widespread concern about the possibility of child benefit being withdrawn. I believe that the answer lies in the observation made by my hon. Friend the Member for Tatton (Mr. Hamilton), who suggested a simple way of overcoming the problems concerned with child benefit. He said that those who are below the tax threshold should continue to receive benefit in the way in which it is currently paid. He argued that there is every reason why those who are above the tax threshold should have the child allowance reinstated as it was prior to 1977. If that system had continued, child allowance would be worth £520 a year today. As a tax-free benefit, it is worth about £1,127 per annum. Therefore, the greatest benefit has been to the taxpayer rather than the non-taxpayer. My right hon. and hon. Friends are, of course, interested in those who are not paying tax, especially in the context of this debate.

The previous Socialist Government followed the practice of increasing the number of benefits paid universally through the Post Office. This was met with a great deal of abhorrence among the general public. It seemed that it was necessary to queue in a post office to receive a benefit that was being handed out, indirectly, by the hon. Member for Thurrock and her right hon. and hon Friends as though it was their largesse.

The Labour party is in the business of buying votes. Despite all the remarks of the hon. Member for Bolsover about Conservative Members, his party is more in the business of buying votes than the Conservative party. Conservatives do not believe in that game. It was the practice of the Labour party to increase the number of universal benefits paid out through the Post Office and I am glad that this Government have not gone down that road. I hope that we can remove ourselves from that practice. It is merely a way of recycling people's cash from their pocket, through the system and back out at the Post Office, invariably with a long queue.

I congratulate my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) on his magnificent achievement in introducing the motion. I am sorry that I missed the first part of his speech. I look forward to reading it when the report in Hansard appears on Monday. I agree with the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) that it has been a useful debate. It is one from which the House may well benefit. It is only right that we should have the time to debate these complex and important matters in the slightly less rarefied atmosphere of a Friday debate. I am disappointed that there are not more Members on both sides of the House to participate in what I think is a useful discussion.

The Government were elected to do two principal things above all others. First, they were elected to control public expenditure so that a greater volume of resources could be released to the wealth-creating private sector. Secondly, the Government were elected to reduce the burden of taxation to provide greater incentives to work harder and to accept increased responsibilities. The hon. Member for St. Helens, South (Mr. Bermingham) nods.

Mr. Gerald Bermingham (St. Helens, South)

Does the hon. Gentleman agree that, although there has been a reduction in the standard rate of taxation, an increased number of items have suffered the imposition of the value added tax method of raising taxation? Any honest broker looking at what has happened during the past six years would see that taxation has been shifted from direct to the indirect. Invariably, that hurts the poor rather than the rich.

Mr. Howarth

I believe that the tenor of speeches by Conservative Members has shown our concern about the fact that we have not been able to move faster down the road towards reducing the tax burden. That is why this debate has been initiated. I accept that there has been a certain shift from direct to indirect taxation. I welcome that move, because it gives people the opportunity to decide where they want to spend their money—whether it be on a foreign holiday or on fish and chips. I supported the imposition of VAT on fish and chips because I believed that buying fish and chips was similar, in many respects, to going out to restaurants.

This debate is important because it tries to get to the heart of the issue — public expenditure and levels of taxation. The Government are facing a problem because it is proving much more difficult to control public expenditure than we had hoped. We have gone through many traumas, most recently with the reduction in student grant for a saving of £39 million. That proposal caused me and some of my hon. Friends considerable difficulties. The saving was but a drop in the ocean; it was peanuts. That example illustrates the difficulties that we face in matching our desire to reduce taxation and our desire to implement policies aimed at achieving our objectives.

Some advances have been made in direct taxation. Penal taxation at the top end—it is not designed to raise money; it is merely a political tax aimed at making the pips squeak—has been ended. The highest level of marginal taxation is now 60 per cent., and I warmly welcome that. It has had an unquantifiable effect on talent and enterprise. It has kept people in Britain who would otherwise have sought jobs in more healthy and sunnier climes. The effect is unquantifiable.

Another advance on the taxation front was the move in the last Budget to take 800,000 people out of taxation. I warmly welcome that move. I understand the arguments of my hon. Friend the Member for Kensington (Sir B. Rhys Williams) who felt that everyone should pay something into the system, to feel part of it. I respect that point but, on balance, I believe that it is better to take those at the bottom of the scale out of taxation altogether.

Despite the advantages of the Government's policies, the overall effect has been to increase the burden of taxation. That is why my hon. Friends and I are trying to persuade the Treasury Bench that action is required. Our numbers may be small, but I assure my hon. Friend the Under-Secretary of State that we are but the tip of a large iceberg and that the rest of the iceberg is dispersed across the United Kingdom doing its constituency business. My hon. Friends are certainly here with us in spirit. We need to take a radical look at the costs and benefits of taxation, not least because the present system is not only highly complex but extremely unfair.

A quick look at housing benefit shows that its cost has increased rapidly in recent years. It has increased by 140 per cent. in real terms over the past 10 years. So much for the Government grinding the faces of the poor. Housing benefit has increased 10 times in cash terms.

The hon. Member for Bolsover deals in fiction. I am sorry that he has left his seat, because I could have drawn the facts I have given to his attention. I do not say that he would have been wiser, but he would have been better informed.

Since the Government took office, expenditure on housing benefit has risen from £1.4 billion in 1979–80 to an estimated £3.9 billion in the current financial year. That is an increase of 182 per cent. in six years. The rub is that that benefit goes to nearly one in three of this country's 19.5 million householders. Both sides of the House agree that it is nonsense for people to pay tax and then receive a handout. The more across-the-Floor agreement we can reach on this issue, the better the chance of tackling the root problems and alleviating poverty. That is what we all wish.

I hope that it will not be imputed by the Opposition Front Bench—as it has been by the hon. Member for Bolsover— that Conservative Members do not have a genuine, heartfelt and deep-seated interest in trying to eradicate poverty.

I have too great a respect for the hon. Member for Thurrock to believe that she does not understand the motives of Conservative Members. Housing benefit is an example of taking money with one hand and dishing it out with another via a £2 billion bureaucratic system.

The Conservatives are interested in getting people back to work, but today there is little financial incentive in working. There is a compelling moral incentive. The vast majority of people who are out of work want a job, but the system is against them. I should like to give an example. I am sure that all of us in our surgeries are faced week in week out with a series of examples that enable us to deduce that the system is not working.

I wanted some work done in the garden of my London house. I live in London and Staffordshire because I work in both places. Given the pressures of my parliamentary commitment, I did not have time to do it, so I looked around for someone to come and do the job. A chap came along. He did an excellent job. I asked him what his business was, and he told me that he was unemployed. I asked him whether there were any jobs going. He said, "Yes, there are plenty going, but at £70 a week it is not worth my signing on for one of them." He was better off under the system, being paid in cash through the black economy for doing odd jobs, than if he were properly employed in a job in the white economy—if one can call it that.

It is not for me to sit in judgment on that individual. That is not my job. As my hon. Friend the Member for Brigg and Cleethorpes said, it is not his fault. It is not the fault of such people. It is our fault in Parliament. We make the rules. People simply operate them as we make them. Many of them are much brighter than we are at working out how the rules can be avoided.

As my hon. Friend the Member for Tatton said, the system is against people in that position. It is our job to try to make things better. Equally, some of those people who are in work look enviously at those who are not in work and who do not want to find a job because they are better off on the dole. [Interruption.] The hon. Member for St. Helens, South can laugh, but that is a fact of life.

Only last weekend, one of the helpers at my surgery, who earns about £38 a week—admittedly in a part-time job, but that is her only source of employment—was upset. A constituent who was divorced from his wife and had been set up in a council house came to see me because his application for DHSS single payments had not been met in full. He showed me the letter from the DHSS, with his request. There was a veritable inventory of goods that my constituent believed he was entitled to, to be paid for out of the system. There were things such as a sideboard, a clock and an ironing board as well as a host of cutlery, bedding and so on. In the end, he picked up £69.50 to buy three blankets, a pillow, three pillowcases and some sheets.

I am not saying that in itself the system of single payments is wrong. That man, who has responsibility for his family, put himself at the mercy of the state and everybody else while at the same time others who were working had not much more money than he was taking from unemployment benefit, supplementary benefit and so on. My helper, who was in work, found it pretty galling that not only did she have to work, which she was pleased to do, but she paid her rent, rates and so on out of her income. Therefore, it is necessary for us to try to establish a clear advantage in being employedx2014;

Dr. McDonald


Mr. Howarth

My hon. Friends and I have explained how that can be done. It can be done by raising tax thresholds and making it worth while for people to work. If the hon. Lady wants me to quote them again, I can give examples. To be £20 a week better off than unemployed people, a single wage earner in a married household has to earn £136 a week. That speaks for itself. There is something wrong with the system and it must be changed. Therefore, I warmly welcome the initiative taken by my hon. Friend the Member for Gainsborough and Horncastle in moving the motion. I hope that action will be taken on that front.

I should like to return to one other matter of fiscal policy. Across the party divide in Parliament, we have encouraged home ownership through mortgage interest tax relief, which effectively is taxation forgone at the rate of £3,500 million a year. Equally, we have encouraged provision for private pensions, which is the equivalent of between £900 million and £3,400 million in forgone taxation. I am not against either, because both policies have been successful. They have relieved the burden that might otherwise have fallen on the state and have encouraged people to make private provision, with all that that implies for a greater interest in looking after their own homes, for example. Therefore, that has been beneficial.

However, I should like to ask the Ministers to have a look at other areas where similar incentives could produce the successful results that we have seen in housing and pensions. Private health insurance is the first example. In 1948 there were about 70,000 subscribers to BUPA. In 1981 the number of people covered by private health insurance schemes was 4,116,000, which is a substantial increase. Despite that, the underlying rate of growth has fallen.

The boom year of 1980 was followed in 1981 by significantly slower growth, when the number of subscribers and those covered grew by 14 per cent. Expansion of such health provision would alleviate the burden on the NHS. We know from experience that, when people provide for themselves, they take a closer interest in the service being provided. I must emphasise, however, that there is no question of not providing a safety net. That is the basis of our social security system. The argument is about how that net might be achieved. Everyone should have access to good health care, but there should be a larger injection of funds into health care. Giving people an incentive to make private provision would achieve that end.

Some incentive could be given to those who want to contract out of the state education system. About 7.5 million children are in maintained schools and about 500,000 are in non-maintained ones. More could be encouraged into private provision, thus relieving some of the burden on the state sector, making the systems more competitive and providing greater choice for parents. All of that would be highly beneficial.

The current welfare system is too complicated, does not concentrate resources on those who need it, encourages the black economy and. operates as a disincentive to work. I hope that my hon. Friend the Minister will give his colleagues in the DHSS the message that we want some radical reviews and I hope that we have encouraged him to be radical and bold. Unless the burden of taxation is reduced, we shall have an ever-increasing spiral of heavier taxation and greater handouts from the DHSS. We do not want that. We can get people back into work by increasing tax thresholds. I hope that my hon. Friend has noted the arguments that have been deployed—this is but the tip of the iceberg.

1.43 pm
Mr. Gerald Bermingham (St. Helens, South)

I apologise to the hon. Member for Gainsborough and Horncastle (Mr. Leigh) for not having been able to be here for his speech. Many thoughts have crossed my mind in the past hour during which I have been here as there seems to be some illogicality in what I have heard from Conservative Members.

I do not wish to enter a discordant note when hon. Members talk about putting more people back to work and removing poverty, as that is a common aim. The only trouble is that, in the past six years, there has been little effort to achieve anything in that regard. The hon. Member for Cannock and Burntwood (Mr. Howarth) said that 800,000 people have been taken out of the structure in the past few years. Two or three million have been taken out of the tax structure — they have simply been made unemployed, and the Government made little effort to put them back to work.

In my constituency there has been a classic example of the stupidity of the change of taxation from direct to indirect in the last Budget. The tax threshold was raised, and I welcome that, but at the same time VAT was imposed on building repairs, double glazing, insulation and so on for the first time. In the months following the imposition, there was a 30 per cent. fall in the number of orders placed. That meant that the amount of glass and fibreglass that had to be made fell—these products are made by companies within my constituency, as the House is aware. Those companies found that their order books were decreasing and therefore the number of people who needed to be employed decreased.

In my constituency there are already pockets with unemployment rates of 20 and 30 per cent. and the loss of any job is a tragedy. We were losing jobs hand over fist as a result of the Chancellor's shift of taxation from direct to indirect. What is more, the process did not stop there. Unit costs increase when the amount of orders available decreases, which makes our goods less competitive against the French, the Belgians and the others and there is then a further loss of jobs following because we are no longer competitive.

There is another spin-off. The more that we fail to insulate houses and new build, the more heating allowances are needed because heating costs are higher and more money is paid out. The more people who are put on the dole, the more will be paid out in state benefits. The illogicality of it all is that we go back to encouraging unemployment.

I am all for encouraging employment, and perhaps we should take a leaf out of the books of other countries for ideas to stimulate our economy. In the past few months, the pound has sunk almost out of sight against the dollar. I shall not trespass into that subject too much because I appreciate that we are debating taxation and benefits. What efforts have been made to do anything about the fall of the pound? Do the Government and the Prime Minister wring their hands and say, "Woe is woe"? They do nothing about it. We are then told that that makes exports cheaper, but they forget that it also increases the cost of importing raw materials.

Mr. Neil Hamilton

As 70 per cent. of the unit costs of production is labour, does not a lower pound increase the opportunities for employment rather than decrease them? Should not the hon. Gentleman be welcoming this as a good thing?

Mr. Bermingham

I do not know whether the hon. Gentleman's mathematics and mine come out with the same total. However, as most of our raw materials have to be brought in, they are more expensive. The pound has fallen relatively against the dollar and has not fallen relatively to any great extent against the European basket of currencies, a fact that even Treasury Ministers will accept. Our greatest competitors are now in Europe, but let us not worry too much about that.

The realities are that the way to remove poverty is to create a climate of employment. To do that, one has to stimulate industry. It has been found in the Americas that one can stimulate industry—everybody keeps telling us that we should look to the United States—simply by a policy of public investment. People then come off the dole and one stimulates the economy by a policy of encouraging industrial investment. We shall not encourage industrial investment at interest rates of 14 or 15 per cent., or effectively 15 or 16 per cent. The Government have got it all wrong.

If the hon. Member for Cannock and Burntwood wants us to remove poverty and reorganise our taxation system, he should bring pressure to bear on his right hon. and hon. Friends in the Treasury to reduce the burden of interest paid, stimulate the economy by public sector investment and investment within the private sector from public funds to create jobs. More people will then be working and the taxation burden can be effectively alleviated because if more people are paying tax, the Government will not need so much from every one of them. We should equalise the tax system to shift some of the burden of taxation away from the poor and back to the rich. Then we can care for those who need care, those at the bottom.

Perhaps the hon. Member for Cannock and Burntwood and his hon. Friends can bring a little pressure to bear on their right hon. and hon. Friends over the 19 March Budget. Were VAT to be extended to things such as children's shoes and clothes, and the other suggested items for indirect taxation, the poor would pay.

Many of us in this House are fed up to the back teeth at seeing that everything the Government do seems to benefit one tiny section of society at the expense of the rest of it.

1.50 pm
Dr. Oonagh McDonald (Thurrock)

Much of this morning's debate has been taken up by Conservative Members proposing alternative systems of taxation and social security, with the aim of making those systems much more efficient in delivering benefits to those who need them. Nobody will quarrel with those aims. We are all agreed that we want to see poverty reduced and employment increased but, that having been said, suspicions begin to spring to mind.

Alternative schemes have been described in some detail, but two important features have been left out of the description. The first is the amount of money to be spent on whatever new system of social security Conservative Members have in mind. Secondly, under the proposed unified system, at what level of earnings will a person cease to receive benefit? Unless those two questions are answered, no one can have any idea whether such schemes will do any more than is done under the present scheme to relieve and eliminate poverty.

In listening to some of the points made about the social security review and about child benefit, our suspicions become a reality, for none of the proposals of Conservative Members has had anything to do with relieving poverty; a straight cut in benefits is what they want to see.

Our suspicions concerning the social security review are strengthened every time we open our newspapers. We read of the rumour that the Government might want to do away with the earnings-related pension scheme and restrict pensioners once again to a flat-rate pension, undoing all the good work that was done, by consent from both sides of the House in 1975, when the new system of pensions was introduced. When we read that sort of thing in the newspapers, we wonder whether the review is just a fancy exercise to cut public spending on benefits once again. Judging from the Government's record since 1979, I have a shrewd notion of the answer to that question.

The attacks on child benefit—particularly from the hon. Member for Brigg and Cleethorpes (Mr. Brown)—have been little short of disgusting. I am sure that every mother in the country will listen most carefully to the claim of the hon. Gentleman and his hon. Friends that child benefit is the married women's pocket money, or that it is used by the wife to spend on dresses from Harrods. I do not know what kind of cloud-cuckoo-land the hon. Gentleman and his hon. Friends live in, but I can understand why they are here on a Friday morning and not in their constituencies listening to mothers who can tell them how they spend child benefit.

I can tell the hon. Gentleman that most mothers spend child benefit, on the day on which they receive it, on the family food bill for the week. If they do not do that, they save up the child benefit to buy a pair of shoes for one of the children, and that takes a considerable time. If the hon. Gentleman thinks that child benefit is the married woman's pocket money, or that that happens on any considerable scale, I do not know who he thinks he represents or what he is doing in the House of Commons. Certainly I do not think that mothers in his constituency will make the mistake of voting for him again when they hear that sort of nonsense from him. It is utterly disgraceful to suggest that child benefit is used on any scale for any such purpose—[Interruption.] There is no point in the hon. Gentleman sitting muttering. He has done the damage himself. He has said what he thinks child benefit is used for, and I am sure that many people will be extremely interested in his views. Child benefit is certainly not used for that purpose, and its introduction was one of the most important changes made in family support.

Having mentioned family support, perhaps I should remind the House that family support, through child benefit, has two purposes. One is to relieve poverty. The other is to redress the balance between families with children and those without children and single taxpayers. The burden of taxation has fallen more heavily on families with children than on those without and on the single taxpayer for a number of years. The purpose of child benefit in the form of a cash payment was to alleviate that.

The second reason why the Opposition were so sceptical about what Government supporters said when explaining their desire to reduce poverty by changing the system and the taxation of benefits was that, if that had really been their aim, and since the word "taxation" appears in the title of the motion, we would have expected a trenchant and thorough-going criticism of all the changes in taxation since 1979 which have let the rich off paying tax and increased the burden of taxation on the poor. We have heard hardly a word about that other than from the hon. Member for Brigg and Cleethorpes who is more honest than most and was prepared to say that he was happy to go into the Division Lobby to reduce the burden of taxation on the better paid, amongst whom he included himself, as a matter of self-interest. The hon. Gentleman was not even prepared to dress it up in the way that the Prime Minister does and pretend that all this had to do with increasing incentives, putting people back to work and getting entrepreneurs to produce jobs. If that was the intention, experience since 1979, as unemployment has climbed continually, shows that that was a grave mistake and that it is high time that taxation policies were changed. There was not a word of criticism of what has been happening to taxation since 1979 and the way in which the burden of taxation on the poor has increased.

Let me give one or two examples. Since 1978–79, a family of four on two thirds average earnings has seen its direct tax burden rise by more than 9 per cent. A similar size family earning 10 times the average wage now pays 23 per cent. less than in 1978–79.

I give another example. Of the £4.5 billion real income tax cuts since 1978–79, almost half—44 per cent.—have been enjoyed by the richest 5 per cent. of taxpayers. Overall, the annual rate of spending on tax cuts, capital gains tax, capital transfer tax, the abolition of the higher rate band of income tax and the abolition of the investment income surcharge amounts to £3.5 billion. That sum of money would go a long way towards alleviating poverty and helping families. It would, for example, increase child benefit by £6 a week. However much Government supporters may dislike this method, it assists families who face poverty and the unemployment trap and it also assists families with children. Currently £3.5 billion is being spent upon ongoing tax cuts which benefit people who have well above average incomes. Why was not a single word said about that? There was not a peep out of them. They usually have a lot to say about £3.5 billion when it is being spent on hospitals, schools, and social security benefits of one sort or another. But not a word was said this morning by Tory Members about that.

Tory Members suggested that they are worried about the increase in poverty, but they did not produce any figures. The number of families caught in the poverty trap has trebled since 1978–79 from 90,000, which we thought was quite bad enough in former days and I spoke against it then, to 270,000. Each of these families stands to lose more than 75p out of each extra pound that it earns. As for the increase in the absolute number of people caught in the poverty trap, by 1981 the total amounted to 15 million. Those figures are based upon the Government's family expenditure survey for 1981, which was published in 1983. In his recent Fabian pamphlet on poverty Peter Townsend suggested that 18 million people could now be living in poverty in this country. Part of the reason for that increase is the substantial increase in long-term unemployment. Therefore, the number of people who are obliged to resort to supplementary benefit has increased from less than 5 million to well over 7 million.

That is not the only reason for the increase in poverty. It also arises from the increasing number of people who are faced with low wages, even when they are in full-time work. Hon. Members are familiar with the work of the Low Pay Unit. It estimates that several million people do not receive decent wages, even though they undertake a full week's work. The hon. Member for Gainsborough and Horncastle (Mr. Leigh) complained about the fact that young people in particular could price themselves out of work. He bemoaned the level of wages received by young people and suggested that they, too, are caught in the unemployment trap.

Other people always attack the wages councils, which try to protect people in notoriously low-paid occupations, but what interests me is that although they refer to the wages councils and to the wage levels set for young people they never mention the figures. The reason why the figures are never mentioned is obvious. Let me take the typical wages set by the wages councils in November 1984. In textiles, the wage for a 16-year-old is £43.52 a week to £45.07 a week. For a 17-year-old the wage level is £49.72 a week to £52.01 a week. In the retail food industry, for general assistants in the London area, which means that their wages will be well above those offered in other parts of the country, 16-year-olds receive £47 a week. That figures rises to £62 at 18 years old. They cannot be described as high wages.

I agree that some young people in receipt of such wages will live at home. But some 16 and 17-year-olds will have left home abruptly because of family problems and be homeless. Young people living at home are cushioned, but nobody could describe such wages as fantastic. The hon. Member for Gainsborough and Horncastle mentioned the supplementary benefit rates, but did not give the figures. The 16 to 17-year-olds receive £17.30 a week if they live at home. Between the ages of 18 and 21 they receive £22.45 a week. Wages are low but there is a substantial gap between wages and benefit payments, and one is therefore discouraged from taking the view that young people will refuse jobs because they would rather lounge around at home and live on the amazing sums of £17.30 or £22.45 a week. A young person who has left home receives only £28 a week, although in some circumstances more money might be paid in benefits.

Government Members attack the wages councils and talk about people pricing themselves out of work. They talk about the amount of money paid in benefits and the wage levels, but they never provide the figures. The reason for that is that once the figures are mentioned their case is shown for what it is—an attack on miserable wages, which they want to reduce even more. The way that Government Members talk about high wages and people pricing themselves out of work is almost beyond belief.

Government Members have referred to the proportion of the adult wage paid to young people under wages council agreements. The highest wage under such agreements is £76 a week. When I hear Government Members talk about those wages I think of how many of them spend that amount on a meal for two, and think nothing of it. That is the comparison that we must keep in our minds when they make their disgusting attacks on wages.

Mr. Skinner

They get someone else to pay for the meal, anyway.

Dr. McDonald

That is true. The point is not who forks out the cash, but that none of the hon. Members who have spoken today would feel guilty about a meal costing between £40 and £76. It would not cross their minds, when they returned to the Chamber and decried the high level of wages and the wickedness and stupidity of people in pricing themselves out of jobs, that they had consumed the equivalent of a person's wages for a whole week in one evening. That would not enter their heads. We have to keep that comparison firmly in our minds when listening to Government Members talking about their desire to deal with poverty.

I wanted to say more about child benefit but in my remaining two or three minutes I shall summarise the arguments. The unemployment trap is not as extensive as Government Members would like us to believe it is. The Institute of Fiscal Studies' careful analysis shows that only a tiny minority of social security benefit recipients—4 per cent. in 1983–84—can almost replace lost earned income when they are unemployed.

Conservative Members like to attribute the cause of unemployment to the unemployment trap. To a large extent it exists in their imaginations. When they talk about the trap, as they have done in a more extensive way than I have, the question that occurs to me and to which I have never heard an answer is, what do they want? Do they want wages to increase substantially, or benefits to fall? We never get an answer to that question. They claim that they do not want wages to rise. Do they then want benefits to be reduced, thus increasing, not so much the incidence of poverty, as the amount of suffering and misery of those out of work through no fault of their own, who find that they have even less to live on?

The poverty trap, which largely afflicts families with children, is greatly eased by an increase in child benefit simply because that benefit is not taxed, and does not enter into the calculation of income for family income supplement. Child benefit may not alter the numbers of people caught in the poverty trap, but for those caught in it the benefit increases the amount of money that they have per week. That is why it is so important.

When Conservative Members wanted child benefit to be means tested or taxed, various alternatives were proposed. They must know that means testing is afflicted with inefficiency and low take-up. If we taxed child benefit, whose income would be taxed? The benefit is paid to mothers and, in some cases, to the father if he happens to be primarily responsible for the care of the children. However, essentially, it is paid to mothers, it is their income and it relieves stress in many families because the women know that they have an income with which to care for their children. It belongs to them and no one can take it from them. If child benefit were taxed, it might become regarded as part of the husband's income and, therefore, women would no longer have the right to that money.

Conservative Members have short memories. In 1973 the Tory Government discussed introducing a tax credit scheme that would have taken away the then family allowance from women and given it to their husbands. I remind hon. Members that the massive public opposition to that proposal—I played a part in organising it—meant that the Tory Government had to abandon it. When ultimately the Labour Government introduced child benefit it was given to the mother or the person with the prime responsibility for caring for the child. Women will certainly resist any effort to reduce that income or take it from them. They regard it, not in the trivial fashion in which some hon. Members do, but as a serious contribution towards the care of their children.

The debate has been characterised by a pretended anxiety for poverty and the amount of poverty. If it were serious, Conservative Members would not be dreaming up fancy new schemes of taxation and social security but would be down on their knees imploring their Government, and especially the Chancellor of the Exchequer, radically to redirect his economic and taxation policies.

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

I join my hon. Friends in congratulating my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) on his good fortune in coming top of the ballot for the second time running. Let us hope that it will not be 30 years, much as I look forward to those 30 years, before he has the good fortune again. My hon. Friend chose a subject of great importance, and the opportunity to discuss it was clearly welcomed by many of my hon. Friends. My hon. Friend will understand that, for various reasons, I cannot offer such a substantive reply as he might have wished to all the points that have been raised, not least because the social security reviews are still under way.

This has been a fascinating debate, and I have no doubt that my right hon. Friends the Secretary of State for Social Services and the Chancellor of the Exchequer will study carefully everything that has been said as the Government bring to a conclusion the exhaustive work of the reviews of social security which have been in train for the past year.

Before I respond as positively as I can to the points made by my hon. Friends, I should deal with some of the points made by the Opposition, notably during the only contribution from the Labour Back Benches, that by the hon. Member for Bolsover (Mr. Skinner)—

Dr. McDonald

There were two.

Mr. Whitney

The hon. Member for St. Helens, South (Mr. Bermingham) joined us late in the proceedings and cast a somewhat different light on the matter.

The hon. Member for Bolsover, who seems impervious to facts, may wish to reflect — I know that it is an optimistic hope—on the pressure on public spending that is caused by the billions of pounds that have been invested in the coal industry, and the significance of that to the social security budget and to any worthwhile objectives which many Conservative Members might wish to pursue. The Government's record is one of which we should be extremely proud, and any suggestion that the Government or my right hon. Friend the Secretary of State are uncaring and lacking in compassion, as was said by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood)—

Mr. Kirkwood

I said that the Secretary of State was lacking in perception.

Mr. Whitney

I ask the hon. Gentleman to join me in casting aside that misperception, because the facts show otherwise. Since we have been in office, the major benefit scale rates have increased, at 1983 prices, by £2.75 billion. Our record cannot be challenged by the Opposition.

As my hon. Friend's motion recognises, social security now accounts for about 30 per cent. of public expenditure. I suggest that that reflects credit on the Government in two ways. First, it shows that we have been successful—not as much as we could have hoped or as much as we shall achieve in the future — in controlling and containing overall public expenditure. All Conservative Members recognise the importance of achieving that objective, but, sadly, it is not recognised by the Opposition. The hon. Member for St Helens, South wanted us to spend more, but at the same time was worried about the level of the pound. I ask the hon. Gentleman to reflect on what might happen to the pound if we heeded the siren voices of most of his hon. Friends.

Secondly, the fact that we spend 30 per cent. of our overall budget on social security demonstrates the strength of our commitment to protect the least well-off in society. We know that for too long the burden of Government spending on the economy was too heavy for it to support. That realisation finally dawned in 1976, during the administration of the previous Labour Government, when the International Monetary Fund had to come in to ensure that public spending was reined back. It is sad that comprehension disappeared quickly from the Labour Benches thereafter. However, we have not forgotten those times and we continue to emphasise the importance of controlling public expenditure. Despite that concern, we have found the resources to provide for a greater number of pensioners. Extra resources have been found for the unemployed, the long-term sick, the disabled and single parents. At the same time, we have maintained, and often improved, the real value of social security benefits. That is a substantial achievement and the cost has been significant.

As my hon. Friend the Member for Gainsborough and Horncastle suggests in his motion, the effect on public expenditure and the burden of taxation has been profound, with all the significance that that has for our economy and inflation. My hon. Friend the Member for Tatton (Mr. Hamilton), in another important speech from the Conservative Back Benches, offered the House an important, seldom heard and useful quotation from John Maynard Keynes. He reminded us that much nonsense is talked about Keynes. I offer the House another Keynes quotation on the impact of inflation. It runs as follows: There is no subtler or surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose. Fortunately, the Government diagnose and recognise that danger but it seems that those who are calling for higher Government expenditure from the Labour Benches do not. They do not understand what inflation does for the poor or for pensioners. I remind the House that over five years the Labour Government achieved inflation of 112 per cent. We are all aware of what that did for those on low incomes, especially the retired. We have worked to lighten the burden of tax and at the same time we have achieved real increases in personal allowances of about 16 per cent. As a result, no fewer than 750,000 have been taken out of tax. We are proud of this record. Of course, the most effective piece of simplification for any taxpayer is to be taken out of tax. The increases that we have introduced to tax thresholds and real increases in earnings mean that those whose earnings have increased in line with the national average have enjoyed significant increases in take-home pay since 1978–79.

The hon. Members for Thurrock (Dr. McDonald) and for Bolsover talked about those on low incomes. We recognise the problem, but I remind the House that benefits as a percentage of earnings — I refer to the supplementary benefit scale rates, taking into account rent allowances, child benefit net of tax and national insurance deductions—have increased.

Mr. Kirkwood

The Minister is justifying the Government's record and I have heard Ministers do this on many occasions. The thrust of the debate — this includes the contributions of Back Bench Conservatives — has been directed to ascertaining whether the Government are sympathetic to the idea of integration. I hope that the Minister will deal with that before he resumes his seat.

Mr. Whitney

I hope to do so if I have enough time. It is important that I should deal with the issues that have been raised but it is impossible to deal with them all in the time that is available to me. I wish to make it clear that the Government are not complacent about the level of tax that weighs upon us. I hope that Labour Members will understand that their suggestions, if implemented, would greatly increase the tax burden. At present, a single person earning £50 a week pays £8 back in tax and national insurance contributions.

Much has been made of the complexity of the system. I heartily endorse, as does my right hon. Friend the Secretary of State, the need to reduce its complexity and that is one of the important objectives of my right hon. Friend's reviews. We have heard a good deal about the number of paragraphs in the instruction manual. My hon. Friend the Member for Gainsborough and Horncastle said that there were 1,000 paragraphs. Inflation has set in—there are now 16,000 paragraphs in the handbook on supplementary benefit alone and 39,000 staff are required to operate that part of the system. We are definitely seeking an improvement in the system so that it is made simpler and ordinary people can understand it.

We claim progress in improving administration. We have reduced delivery unit costs, although not as much as we would wish. We hope that those improvements will accelerate as we introduce more computers and make better use of information technology.

I should like to endorse the statements of my hon. Friends the Members for Wells (Mr. Heathcoat-Amory) and for Kensington (Sir B. Rhys Williams) about the staff in local offices of the DHSS. In my brief tenure in the Department, I have made a point of visiting as many of the offices as possible. I should like to pay a sincere tribute to the admirable dedication of the staff in dealing with this complex system.

My hon. Friend the Member for Gainsborough and Horncastle called for the harmonisation of our tax and benefit systems. For many years, that holy grail has been sought by many people. I believe that we all need to read the debate carefully, because so many views have been offered. There are as many solutions as protagonists. Each protagonist sees problems in his own solution. The tax scheme proposed in 1972 would, in today's terms, cost about £8 billion. The basic income scheme is well known. The proposal of my hon. Friend the Member for Kensington who made a classic contribution has its critics — not least my hon. Friend the Member for Norfolk, North (Mr. Howell).

The Basic Income Research Group acknowledged: a basic income scheme would be no panacea—and there are many unknowns. That is why considerable work needs to be done to explore the implications and test the feasibility of a basic income scheme. My hon. Friend the Member for Gainsborough and Horncastle was attracted to the Institute of Fiscal Studies scheme. That scheme would seriously aggravate the poverty trap about which we are all concerned. I believe that the hon. Member for Thurrock exaggerated the size of the poverty trap. Our estimate is that about 150,000 people are affected by it. That is too many, but any of the solutions—

Dr. McDonald

Will the hon. Gentleman give way?

Mr. Whitney

No, I do not have time.

The hon. Lady offered a figure of 270,000. Our estimate is 150,000. We have done our best to improve the position with our various taxation changes. Many of the schemes to improve the system have been submitted to my right hon. Friend the Secretary of State in the voluminous evidence offered to the social security reviews. I hope that my hon. Friends will understand that, at this stage, I can do no more than say that the contents of the various pieces of evidence have been carefully noted. Those who have submitted schemes will have to be patient and await our conclusions.

I stress that we have been undertaking the most fundamental and thorough review of the social security system since Beveridge introduced it. I am sure that it is right to do so. All the evidence that we have heard from hon. Members on both sides of the House today has underlined the need for it. Our social security policy has to adapt to the needs of today rather than those of the 1940s.

It being half past Two o'clock, the debate stood adjourned.

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