HC Deb 18 December 1986 vol 107 cc1395-408 6.11 pm
The Minister for Social Security and the Disabled (Mr. John Major)

I beg to move, That the draft Social Security Benefits Up-rating (No. 2) Order 1986, which was laid before this House on 1st December, be approved.

Mr. Deputy Speaker (Mr. Harold Walker)

I remind the House that the Question on motions Nos. 2, 3, 4, 5, 6 and 7 and motion No. 8, the prayer on housing, if moved, will be put together at the conclusion of the debate. Therefore, it may be for the convenience of the House if the following motions are taken with motion No. 2: That the draft Supplementary Benefit Up-rating (No. 2) Regulations 1986, which were laid before this House on 28th November, be approved. That the draft Family Income Supplements (Computation) (No. 2) Regulations 1986, which were laid before this House on 24th November, be approved. That the draft Statutory Sick Pay (Rate of Payment) Regulations 1986, which were laid before this House on 1st December, be approved. That the draft Social Security (Contributions, Up-rating) (No. 2) Order 1986, which was laid before this House on 24th November, be approved. That the draft Social Security (Treasury Supplement to and Allocation of Contributions) (Re-rating) Order 1986, which was laid before this House on 24th November, be approved. That an Humble Address be presented to Her Majesty, praying that the Housing Benefits Amendment (No. 5) Regulations 1986 (S.I., 1986, No. 2183), dated 11th December 1986, a copy of which was laid before this House on 11th December, be annulled.

Mr. Major

The House will know that the Social Security Act 1986 and the Social Security Act 1975 require the draft uprating and contributions re-rating orders to be accompanied by a report from the Government Actuary on the effects of our proposals on the national insurance fund. That report has been laid today.

These statutory instruments, together with the regulations against which the prayer is made, put into force the proposed uprating of social security benefits announced by my right hon. Friend the Secretary of State in the House on 22 October. They will take effect from 6 April 1987 and will complete the process of transition to annual increases of benefit in April. In future, benefit changes will take place at the same time as other major financial changes, such as the changes in national insurance contribution rates also provided for here. I believe that this innovation will be generally welcomed. The instruments also provide for the changes in the statutory sick pay scheme which I announced on 6 November.

This is the first time—certainly in recent years—that it has been possible for the House to debate together both a benefit uprating and the changes in contributions which pay for more than half of all benefits. I hope that, if nothing else, debating these instruments together will remind those tempted to forget it that social security benefits, and their upratings, all have to be paid for by the country's working population. There is no fairy gold even for good causes. This uprating adds over £700 million, in addition to the £420 million extra provided in July, to the substantial sums already devoted to those who need support from our social security system. The total cost of the benefit system from the Consolidated Fund and the national insurance fund together will amount to a staggering £46 billion in 1987–88. This represents over 30 per cent. of public expenditure and it is an excellent discipline to consider together both acquisition and expenditure of this enormous sum.

I should like to remind hon. Members briefly of the main features of the proposed upratings. Most benefits, including retirement pension, widows' benefit and unemployment benefit, will rise by 2.1 per cent. to reflect the increase in prices between January and September 1986, the relevant period for this uprating. This means, for example, that a married couple's retirement pension rises from £61.95 to £63.25 and that for a single person from £38.70 to £39.50. Housing benefit needs allowances will rise by the same cash amount as the relevant contributory benefit, thus minimising administrative difficulties for local authorities. This is particularly important at a time when they are preparing for the introduction of the reformed housing benefit scheme in April 1988. Supplementary benefit scale rates are to be increased by 2 per cent.—the amount of increase in the retail prices index minus housing—which, as the House will know, is the normal index used for this benefit. Child benefit and family income supplement will both be increased in line with inflation to sustain our support for families with children.

This will be the third increase in social security benefits within 16 months. The House last debated an uprating as recently as June. The increase this time, which because of the transition to an April uprating date covers eight months only, cannot be directly compared with upratings over the usual 12-month period, or with annual figures of inflation. A truer perspective perhaps is to point out that pensioners, for example, have received increases of £5.95 for a married couple and £3.70 for a single person since November 1985. These are substantial and welcome rises and no less valuable for having come in three tranches. I stress this point to forestall the predictable observations that may litter the speeches of those hon. Members who may care to join us in the debate later.

I stress also that the uprating is in line with the rise in prices as measured by the retail prices index, which, as the Retail Prices Index Advisory Committee continues to advise, is the best measurement available. The difference between these increases and the big cash increases given during the late 1970s is that inflation has now been dramatically reduced and smaller increases can now keep pace with the changing cost of living. Not only do benefits hold their value better between upratings but pensioners in particular will no longer see their savings destroyed by unrestrained inflation.

It is worth illustrating the relevance of that point. A pensioner who put his savings into a building society would have found that, between 1974 and 1979, their value had declined by as much as one third, even taking account of the interest received on the deposit. The same pensioner would find today that his savings are increasing in real value because of the reductions in inflation which have been achieved. This considerable achievement needs to be borne in mind when people sometimes criticise the levels of uprating, perhaps with something of a one-eyed stance.

The increases in this uprating are fully consistent with our undertaking to protect pensions and other long-term benefits against price rises. I make the point, too, because it is important, that over the past eight years there has been an increase of almost 1 million pensioners who deserve and will have our support in their retirement. We are determined to continue to maintain the purchasing power of their retirement pension, and I am pleased to reiterate that pledge.

By the time the increases take effect, we will have completed the move to an April timetable for upratings. Beneficiaries have been protected against inflation at each stage of the transition and from next year will see, I think, the advantage of this more sensible timing of increases. Apart from getting higher benefits at the time when other financial changes take place, no longer will pensioners, widows and disabled people find their tax codes readjusted in the middle of the year following their pension increase. As all hon. Members will know, for many that has been a cause of frustration, which, happily will be removed. Moreover, because the uprating coincides with the general increases in rent and rates in April, local authorities will also find that they need to assess a claimant's right to benefit only once a year instead of twice as in the past, thus reducing the burden on them. This is a welcome improvement, too, for local authorities and those who seek rent and rate rebates.

The changes in the uprating timetable are further evidence of the determination that we have shown in a variety of ways to reduce the undesirable complexity of the present social security system. Changes resulting from the Social Security Act 1986 are an important part of this policy, and the Statutory Sick Pay (Rate of Payment) Regulations 1986 that are before the House today continue this move towards greater simplicity.

There are at present three separate rates of benefit under the statutory sick pay scheme, but 85 per cent. of spells of sickness qualify for the top rate. Every indication is that that percentage continues to rise. The remaining 15 per cent. have to be divided between two lower rates. We have decided therefore to merge the middle and lower rates to produce a simple two-band system. We believe that that more logically reflects the current position as well as reducing the burden on employers who administer the scheme. I hope that hon. Members will agree that administratively that is a sensible improvement.

Mr. Frank Field (Birkenhead)

I am sure that before the Minister finishes this part of his speech he will refer to the burden on claimants who will lose out. Has he had pressure from employers for this change, or has it been thought up by the Government?

Mr. Major

The hon. Gentleman will know that the Government are under repeated pressure from the large and small business lobby about the burdens on business. That is a matter of repeated pressure over the whole gamut of burdens that businesses feel have been placed on them by the Government. Undoubtedly within that the statutory sick pay scheme would have been one of the matters that employers had in mind.

The hon. Gentleman referred to the merging of the three rates and clearly has in mind the fact that the merging is effectively an abolition of the lower rate. He must bear in mind that the increase of the lower rate under the proposed abolition has a beneficial knock-through to statutory maternity pay. Many women will consider that a welcome change.

On the hon. Gentleman's specific point, those receiving the middle rate at the time of the change will, of course, be protected. I am grateful to the hon. Gentleman for raising that point. In future we will increase statutory sick pay levels in the uprating order, although a separate instrument is necessary on this occasion precisely because of the reduction in the number of rates from three to two.

As well as increasing housing benefits needs allowances, the Housing Benefits Amendment (No. 5) Regulations 1986 also provide for an increase in the rent taper, by which benefit is reduced for those with incomes above the needs allowance level, from 29 per cent. to 33 per cent. Housing benefit now goes to one household in three in Britain, at an anticipated cost of some £5 billion this year. We have made it perfectly clear beyond doubt in the past that this level of spending, and the rate at which it is accelerating, is difficult to sustain. What we have sought to do by increasing the taper in this fashion is to restrain expenditure without causing hardship to those less well off who rely on housing benefit.

These changes will not, therefore, affect anyone who is on supplementary benefit or whose income is slightly above that level. Indeed, no pensioners with an income up to £10 above supplementary benefit level will lose benefit and the average loss for this group will be only about 47p. The expected saving from this change is about £28 million in a full year. In addition, the changed method of uprating the needs allowances, to which I referred earlier, means that spending will be some £40 million less than it would have been. Moreover, the Alice-in-Wonderland nature of this benefit is such that most people on housing benefit, including pensioners, will actually experience cash increases next April because rent and rate increases will trigger higher benefit payments.

In view of the demands for increased expenditure on benefits which I anticipate hearing about later from the hon. Member for Derby, South (Mrs. Beckett), I should like to remind the House of a point of principle upon which I touched earlier—that of the balance which must always be struck between providing for those who need our help and support—the elderly, the disabled, lower-income families with children—and the need to provide for a healthy economy which allows us to accept and meet those commitments. Our record shows that we have given serious attention to the needs of social security beneficiaries and have provided for substantial improvements to the system through which help is made available to them. At the same time, we have sought to ensure that a stable and expanding economy which benefits everyone, perhaps especially those beneficiaries, continues to be encouraged.

This brings me naturally to the second main element in these instruments—the means by which national insurance benefits such as pensions, unemployment benefit, invalidity benefit and others are actually financed. The Government's proposals for national insurance contributions were announced by my right hon. Friend the Secretary of State on 6 November. I hope that the House will acknowledge the Government's considerable achievement in keeping the rate of class 1 contributions unchanged for the fourth successive year. I cannot recall when that previously happened. As required by statute, the lower earnings limit for class 1 contributions will be £39 per week from next April. As the House will know, this is linked to the basic retirement pension rate rounded down to the nearest pound. The upper earnings limit, which may be between 6½ and 7½ times the basic retirement pension, will be £295 per week from next April, nearly 7½ times the basic pension level.

Right hon. and hon. Members may well have noted that the regulations bringing these proposals into effect have not yet been laid. The fact is that they cannot be until the draft benefits uprating order has been approved by Parliament because of the statutory link between the lower and upper earnings limits and the basic retirement pension. The regulations implementing the earnings limits will be laid as soon as Parliament has approved the benefits uprating order.

With reference to the instruments before us today, I want first to comment on the proposals contained in the draft Social Security (Contributions, Re-rating) (No. 2) Order 1986. The House will recall that in 1985, in order to help lower-paid workers and to reduce employment costs, we introduced graduated class 1 contribution rates, which came into effect in October 1985. The reduced contribution rates change significantly the impact of national insurance contributions on those receiving lower earnings, but did not in any way affect their benefit entitlement. The net annual cost of this change, reflected in lower receipts from national insurance contributions, is expected to be £500 million in the current year, which is its first full year of operation.

We propose to maintain the value of the earnings brackets at which lower contribution rates are paid by uprating their earnings limits. The lowest earnings bracket, on which contributions will be payable at the 5 per cent. rate, will run from £39—the new lower earnings limit—to £64.99 per week. The 7 per cent. bracket will run from £65 to £99.99 per week, and the 9 per cent. bracket will start from £100 per week and end at £149.99 per week for employers, and £295 per week for employees. Employers will pay contributions at the 10.45 per cent. rate where a person's earnings are at or above £150 per week. The proposed increases in the earnings brackets are greater than strict inflation indexing would have required.

Our proposals for class 1 contributions will thus further ease the contributions burden of some lower paid workers and their employers, where they are affected by the changed earnings brackets. Most other employed earners, and their employers, will be affected only slightly. People earning £295 per week or more will have to pay a maximum of 90p per week extra, if they are not contracted out from the state earnings-related pension scheme.

These perhaps are the proposals of most interest to most workers, but a growing number are self-employed and I wish to mention specifically our proposals for them. We attach great importance to the self-employed and their contribution to the economy. We welcome their growth in numbers and we are delighted that our steps to encourage this have been successful—particularly our earlier changes to their national insurance liability. The House will be aware that self-employed people pay their national insurance contributions in two parts—the flat rate class 2 contribution and the profits-related class 4 contributions. We do not propose to change the class 4 rate, which will remain at 6.3 per cent. from next April. The profits limits for class 4 contributions rise automatically each year broadly in line with the earnings limits for class 1 contributions. The annual profits limits proposed for 1987–88 are £4,590 and £15,340 respectively. The upper profits limit is exactly 52 times the proposed class 1 upper earnings limit.

We also propose to continue the abatement to the self-employed class 2 rate, which was introduced in 1985. Accordingly, we propose to increase the class 2 contribution rate by only 10p to £3.85 per week from next April. The small earnings exception from class 2 will also rise automatically by £50 to £2,125. The effects of our proposals are that class 2 contributors will pay £5.20 per year extra in 1987–88. For those self-employed people with profits at or above the proposed upper profits limit to £15,340, class 4 contributions will be £23.94 per year higher in 1987–88.

The proposed voluntary class 3 rate, which protects those who have breaks in their contributions record—for example, students or those who have worked abroad,—is being set at 10p less than the class 2 rate—that is, a rate of £3.75 per week from next April. The difference between the class 2 and class 3 rates, therefore, has been kept unchanged.

I mentioned earlier that national insurance contributions pay for only a proportion of benefits. The changing balance between the cost of contributory benefit and the cost of non-contributory and income-related benefit leads to the proposals in the Social Security (Treasury Supplement to and Allocation of Contributions) (Re-rating) Order, which is before the House. We propose to reduce the Treasury supplement to the national insurance fund by two percentage points to 7 per cent. from April 1987. Social security expenditure is financed by contributors, including employers, and by taxpayers who pay for non-contributory benefits, whether income related or not.

It is relevant that between 1981–82 and the current year, expenditure on contributory benefits as a share of total social security expenditure, has fallen from 60 per cent. to 54 per cent. for a variety of reasons. By contrast, the share of social security expenditure devoted to income-related benefits has increased from 19 per cent. to 26 per cent. over the same period. We have to strike a balance between revenue from taxation and contributions, and we decided that the taxpayer should pay less to the national insurance fund, in recognition specifically of the increasing costs of non-contributory benefit expenditure which are met wholly by taxpayers.

This draft order also increases the proportion of contributions which are allocated to meeting the costs of the National Health Service. Many people believe, mistakenly, that the whole cost of the NHS is met by contributions. That is far from true, but because of the great increases in expenditure on the NHS over recent years, we think it is right that those who pay national insurance contributions should meet a slightly higher percentage of the cost than at present. In 1987–88, expenditure on the NHS in Great Britain is planned to rise by no less than £1.1 billion to reach a total of £19.9 billion. So much for cuts, one might say, but I have no wish to be combative this evening. Our proposals for the employment protection allocation enable us to achieve a higher contribution allocation to the NHS to meet this extra cost without increasing overall contribution rates. Therefore, we propose to increase from April 1987 the employees' NHS allocation to 0.85 per cent. and the employers' NHS allocation to 0.7 per cent. of earnings, in respect of which class 1 contributions are paid. Corresponding changes in the NHS allocation are proposed for the other classes of contributions.

I wish to turn briefly to the employment protection allocation itself. The House will be aware that a small allocation is paid to the redundancy fund, and a still smaller allocation is paid, from employers' contributions only, to the maternity pay fund. Since August 1986 the redundancy rebate has ceased to be paid from the redundancy fund to employers with more than nine employees. The level of redundancy rebates had already fallen to levels lower than in the early 1980s. As a result, there are lower demands on the resources of the redundancy fund. In addition, the introduction of statutory maternity pay has led to the maternity pay fund being wound up from April 1987. We therefore propose to abolish the allocation of employers contributions to the maternity pay fund, and to cut the allocation that is paid to the redundancy fund.

As I mentioned earlier, a report by the Government Actuary on our proposals has been laid before the House. Total income received by the national insurance fund is estimated to be £26.3 billion in 1987–88 and total expenditure is estimated to be £25.6 billion, giving an expected surplus of £742 million for the year. At this stage, about four months before the start of the financial year and about 16 months before its end, it is difficult to be certain that the estimated surplus will be realised. The balance in the national insurance fund at the end of the next financial year is expected to be £6,359 million, equivalent to nearly 13½ weeks benefit expenditure. We regard this balance at this stage as a prudent objective which exceeds the Government Actuary's minimum working balance of one sixth of the year's estimated benefit expenditure.

In one way or another these orders will affect the lives of almost everyone and, although they are technical, they deserve serious attention. However, I want to make again the point that social security benefits must be met by tax and national insurance payers and cannot be paid for in magic gold. Their costs, and the costs of increases in them, always come out of the pockets of those in work, their employers and national insurance contribution payers. Many people are both beneficiaries and contributors. We believe that the instruments before the house tonight strike a fair and reasonable balance between protecting the beneficiaries against the rise in the cost of living and protecting the workers and employers who generate the resources needed, not only for contributions, but also for the tax revenue which finances the rest of the social security programme.

Therefore, I invite the House to endorse these motions and to reject the prayer in the name of the Opposition against the Housing Benefits Amendment (No. 5) Regulations.

6.36 pm
Mrs. Margaret Beckett (Derby, South)

Since this is the time when we are all urged to think of those less fortunate than ourselves, it is particularly appropriate that this is when we debate this year's package of what the Government decide can be spared for the poorest members of our community.

Three characteristics of the package, sadly, are shared with packages proposed in previous years. First, the package will ensure a continuation of the steady decline in the standard of living of those unable to work compared with those in work, as has happened every year since 1979. Secondly, the package is full of little titbits of ingenuity —little changes here and there which all happen to produce savings for the Government. They produce a few tens of millions here and there by picking away, bit by bit, at incomes which are already too low. Thirdly, the package shows how shamelessly the Government shift their ground, denying now what they stalwartly affirmed a few months ago because any old justification will do and will be supported by Tory Members, so long as it saves public expenditure.

Two days ago the Government told us how worried they were about the low paid, but in these regulations 400,000 of the low paid will lose when the middle rate of statutory sick pay is abolished at a saving of £19 million. As the Minister said in a written answer in column 602 of Hansard on 6 November, it "overcomplicates the administration" of statutory sick pay to have the middle rate. We were surprised to hear that because last year when the Government decided to extend statutory sick pay to cover illnesses of 28 rather than eight weeks, the Minister assured us that the scheme was working superbly. He said: There is growing evidence … that the scheme is working in general very well … there is substantial evidence that it is working satisfactorily."—[Official Report, Standing Committee E, 17 and 22 January 1985; c. 254–270.] The Secretary of State gave similar assurances on the Floor of the House.

On 24 November 1986 I asked the Under-Secretary of State how many representations he had had about the administrative difficulties which have been given as a reason for the change that the Government are making this evening. He answered that there had been no complaints specifically about the structure of the re-rating, although some employers' representatives have mentioned them when pressing generally for a simplification of the scheme. Once simplification was mentioned the Government, always anxious to please, found a way not only of simplifying the scheme, but of saving money at the same time. That is what always seems to happen when the Government simplify matters.

An even more blatant piece of chicanery involves the housing benefit changes. Once again, the Government have increased the rate at which benefit is lost. As a result of that change alone, they have saved £28 million at the expense of nearly a million households—620,000 of them pensioner households, of whom 60,000 will lose all entitlement—and 120,000 of them families with children, of whom 20,000 will lose all entitlement to benefit.

In addition, the Government are saving £23 million on rents and £17 million on rates by increasing the housing benefit needs allowances by less than the rate of inflation and by using a formula which appears to break an undertaking given by the Minister. Again, it is simplicity that is called in aid.

At the last uprating, the Secretary of State announced that the needs allowance would be increased, not by the usual formula but by linking it to the then cash increase in pensions. It was pointed out that this would mean a smaller increase in the allowances but the Minister wrote to my hon. Friend the Member for Fulham (Mr. Raynsford) saying that the actual rate of increase would be taken into account at this uprating. Instead, once again, the link is with the cash increase in the pensions—which is not exactly generous at 80p for a single pensioner—and as a result of this change some 3.5 million households will be losers.

On 6 November I asked the Under-Secretary to estimate the loss of benefit for pensioner households, single person households, couples and couples with children. Although he told me that the reply would be made available as soon as possible, so far that has not proved to be the case. I should be grateful, if those figures are available, if he would give them to the House tonight. The total savings from the housing benefit package are some £68 million.

Mr. Jeremy Corbyn (Islington, North)

Is my hon. Friend aware that there are many problems for households in receipt of housing benefits when the Department of Health and Social Security is inefficient in passing on the payments to the local authorities concerned? Tenants are often accused of being in rent arrears when that is not the case.

Mrs. Beckett

My hon. Friend is absolutely right. There are difficulties caused at both ends of the chain. In a case concerning a constituent of mine, the DHSS did notify the local authority of changes in the housing benefit allowances but no action was taken for some weeks. Arrears of some £90 built up through no fault of my constituent.

At the last uprating, housing benefit needs allowances were uprated, as I mentioned, in line with cash pension increases. The same principle was used for supplementary benefit increases. By that change the Government made a saving on supplementary benefit of £11 million in a full year. This time, again for simplicity and despite the contradiction of the Minister's statement, the same approach has been used as last year for housing benefit. The Government have also returned to the previous formula for supplementary benefit, which, surprise surprise, gives a lower increase than would have been paid if, again, housing benefit and supplementary benefit had been treated alike. When the Minister replies, perhaps he will tell us what the saving will be this time.

In our earlier debate this evening, a great deal was said about the Government's record on heating allowances. My hon. Friend the Member for Oldham, West (Mr. Meacher) quite properly pointed out that what pensioners might gain on the swings of heating allowances they have lost tenfold on the roundabouts of lower pensions.

In this year's uprating, heating allowances are not being touched because the Government say that fuel prices are stable. However, today's heating allowances reflect the fuel prices of May 1985 to January 1986—they are already nearly a year out of date. They will thus be payable at current levels until April 1988, by which time they will be over two years out of date. We seek an assurance from the Under-Secretary that if there is a substantial movement of fuel prices over that period—perhaps because the Government put a special tax on fuel, they have done it twice before—these allowances will be reviewed.

With regard to the general level of increases to be applied, we welcome, of course, the 15p increase in child benefit. That does not make good the cuts that the Government made in 1985, for which the increase would have to be 50p. Since it is generally accepted that child benefit is the best way of helping family poverty it is especially worrying that there are rumours of a further potential threat to the strength of this means of support. It is because child benefit is a universal benefit that it is of such value. It is now suggested that, when the universal maternity grant is abolished, mothers will have to make a special application for child benefit.

I have written to the Minister to ask for an assurance that new ways will be found of issuing forms automatically, perhaps through the general practitioner or a hospital maternity unit. I would welcome that reassurance tonight. Child benefit is now worth £2.70 less for the second and subsequent children than the equivalent allowances were in 1955. That is a sad commentary on the current state of affairs, when some 4 million children now live in families in poverty.

Whatever the questions and criticisms we raise about the details of particular benefit increases, our major concern is that, once again, the standard of living of those dependent on pensions and benefits is falling compared to those in work. In his remarks, the Minister said—I do not recall the exact phrase—that the Government had given assurances that they would protect the value of pensions and that those assurances hve been maintained. That is not the assurance that the Government gave—it is an assurance which has been more convenient for the Government to make in recent years. The assurance given when the link between pensions and earnings was broken was that pensioners and other long term beneficiaries can confidently look forward to sharing in the increased standards of living in the country as a whole".—[Official Report, 13 June 1979; Vol. 968, c. 439.] That has not happened in any year since 1979. In this year alone the gap is widening by £1 for a single pensioner and £2 for a married couple. That is on top of the gap that has already been established.

In 1978 the pension was worth 20.4 per cent. of average male earnings. In 1986 it is estimated to have fallen to 18.4 per cent. In 1978 supplementary benefit for a couple with two children aged four and six was 45.9 per cent. of average net incomes. In 1986 it is estimated to be 43.1 per cent. This year alone, supplementary benefit would have to rise by over £2 for such a family to match the rise in earnings. If earnings continue to rise so much faster than prices, as they are doing this year, the basic state pension will steadily fall over the next 10 to 20 years until it falls to half of what it would be if it were linked to earnings. That is a steady and accelerating increase in pensioner poverty.

The Minister referred to the balance in the way in which money is raised for these benefits between taxes and through national insurance contributions. The Minister made an extraordinary point when he said that the level of contributory benefits paid for from the fund was falling as a proportion of those pensions and benefits raised. We do not disagree, as that is unquestionably accurate. However, as the level of contributory benefits is falling, the level of income to pay for those benefits raised from contributions rises. In other words, the benefits are being paid for, disproportionately, by contributors although their share of benefits is falling. How the Minister makes that a justification for the change the Government are making is frankly beyond me, as it seems to point in exactly the opposite direction.

The money that is raised to pay for pensions and benefits will continue to be raised, disproportionately, from the less well off. The Minister referred to beneficial changes made to national insurance contributions and we do not dispute the figures he gave. Such contributions remain a heavier burden on the poor than the rich. The further reduction in the contribution to pensions and benefits made from general taxation, but cutting the Treasury supplements—now standing at 7 per cent. compared to the 18 per cent. at which it stood in 1979—means that in the future, as in the past, the cost of pensions and benefits will fall more and more heavily on the poor rather than on the rich.

Today, the Child Poverty Action Group published a document called "Christmas on the Breadline". It quotes the comments of those striving to give their children a decent Christmas on the inadequate level of benefits that these upratings perpetuate. It draws a contrast, among others, to the availability at Harrods of some rather bizarre items such as bridal outfits for one's dog at only £100 and a mere £20 for a track suit for a cat, with a quotation from a letter of a single mother who wrote to the Child Poverty Action Group following publicity in the Daily Star. It was one of many touching and alarming quotations but a simple one. It reads: For us it is a worry just to pay for food and heating over the holidays. There is no mention there of anything which makes Christmas special.

As unemployment continues to rise and as the standard of living of the unemployed, pensioners, the sick and the disabled continues to fall, as it will under these upratings, exhortations about the spirit of Christmas ring ever more hollow in our ears.

6.49 pm
Sir Brandon Rhys Williams (Kensington)

The hon. Member for Derby, South (Mrs. Beckett) made a good point when she referred to Christmas. It is right that the House should bear in mind what my hon. Friend the Minister said when he opened the debate—many millions of people are affected by what the House is proposing to do by passing these orders.

This is not just a matter of benefits for a fringe element in the population—it affects many millions of people. At Christmas time I hope that we will remember that, because we have not yet got our system for the redistribution of income right, our society is divided into those in work and those in need. The very large number of people who, in one way or another, are dependent on means-tested benefits now constitute about one quarter of our population.

I hope that the remaining three quarters of the population who are able to enjoy their Christmas with the rising living standards of the nation as a whole will not be unmindful of the needs of the one quarter of the population whose income has to be supplemented by some means or another because their own resources are not enough.

It is right that the House should take some time to look at what is happening in these orders, not just because millions of people are affected but also because very large sums of money are involved. In general, I think that we can congratulate ourselves that we are living in a civilised society which provides a basic income guarantee.

Speaking broadly, we can say that nobody has to drop into total destitution in Britain today. I am one of the hon. Members who are old enough to remember what the distressed areas, as they were called in those days, were like before the war, because I was brought up in Glamorgan. I remember very well the look of the streets, the look of the shops and the look of the people where there had been long-term unemployment and people were living on very small incomes with very little shred of hope that they would be able to get back into work and recreate the family circumstances which they had enjoyed at the height of the incomes that they earned when coal was at its best.

In Britain today we do not see the sort of harrowing scenes which were commonplace in large parts of the country before the war. So much has been achieved that we can be proud of and I am not entirely a critic of what the present Government are doing because I think the Minister is right to point out that we are raising benefits—national insurance benefits and supplementary benefits—at a rate which is faster than the rise in the cost of living. So, to some extent, we are taking with us the people in this unhappy subculture—people who are not able to rely on their own resources.

There is, as the Child Poverty Action Group has pointed out, a widening gap between those in work and those in need. I quote the figures that it has given to lion. Members in its briefing. I must say that I would like to pay tribute to the quality of the briefings that we get from the Child Poverty Action Group, which get better and better and are really quite important contributions to our thinking on these subjects. It points out that there is a widening gap for people on supplementary benefit, A couple with two young children in 1978 had 46 per cent. of the average wage. Now, in 1986, as it calculates, they get only 43 per cent. Matters are not improving where the building of one nation is concerned.

I have very often drawn attention to the fact that we are still in a muddle as to the reasons why we pay benefits to people whose income we wish to support. We have never clarified our thinking in this House on the grounds of entitlement and I think it really is worth going over this ground briefly again.

We have one system of universal benefits of which the principal example is child benefit—the only benefit of which is that there is virtually 100 per cent. take-up. Then we have the national insurance system which has slowly evolved during the 20th century and has many merits because people are able to draw their benefits without feeling that they are insulting their self-respect by doing so. National insurance provides pensions, unemployment benefit, invalidity and certain other benefits which people are not ashamed to draw. National insurance benefits, unfortunately, are not enough to cater for the needs of very many people and therefore we have to introduce a casework system based on proof of need—what we used to call the means test.

Mr. Corbyn

Does the hon. Gentleman agree that the growth in the number of supplementary benefit claims during the past 20 years is indicative of the absurdly low level of basic benefit entitlement and that the real problem is that poverty has increased despite there being a social security system because the benefit levels are inadequate to solve the problems of poverty?

Sir Brandon Rhys Williams

The hon. Gentleman has just drawn attention to a point that I was coming to and I think it shows that there is an identity of thinking among students of this subject on both sides of the House.

Mr. Major

I suspect that what the hon. Member for Islington, North (Mr. Corbyn) has in mind is an interpretation of the low income figures which have featured from time to time during the past few months. Such is the weird manner in which those figures are constructed that, whenever the Government increase the real purchasing power of supplementary benefit, more people become entitled to it and the figures grow. It is an inaccurate and malicious interpretation of people who are in severe difficulty. I hope that my hon. Friend will not be tempted into agreeing with what I suspect underlay the hon. Gentleman's intervention.

Sir Brandon Rhys Williams

I may have misunderstood what the hon. Gentleman said, so it may be better to make my own points in my own way.

We have three grounds of entitlement—universal benefits, national insurance benefits and benefits based on casework and proof of need. In my view, the experiment with relying increasingly on casework in order to make certain that we do provide a basic income guarantee has failed. Selectivity has failed for many reasons and I should like to come to them briefly if time allows.

The big social developments, which are irreversible and which have taken place in the 20th century are the coming of universal suffrage, which means that we are no longer prepared to accept that our society is divided into two classes of people, and, of course, female emancipation.

I believe that, within the time span that we can contemplate, these major 20th-century changes are irreversible but we have not adapted our benefit systems to accord with those developments. We are still operating a redistribution of income in such a way that it does not take note of the fact that Britain has to be a united and equal society and it has to be a society in which women are treated on the same footing as men and are not left often in the condition in which they were in the middle ages.

Another reason why I am saying selectivity has failed is not only because it is out of tune with modern thinking, but because it is totally out of tune with the thinking of the Government. The Government quite rightly place emphasis on incentives to work and the value of thrift and the importance of saving and self-reliance. Well, we now have 14 million people in this country at any one time who are dependent on one form or other of means-tested benefit. That is, of course, taking into account people who need to rely on housing income support. But even if we eliminated that number, we have got, I believe, about 8 million people who are reliant on supplementary benefit.

Those are people who know by instinct, even if they have not actually made the calculations, that there is not too much point in having savings because if one has savings, when one falls into need, one has to run them down before one is entitled to benefit; and there is not too much point in working because, for all too many of them, the sort of work which is available yields only about the same income after they have paid for their travelling expenses and their clothing and the rest as they can get if they remain out of work and simply rely on means-tested benefit.

We have about 14 million people on the large calculation and at least 8 million on the minor calculation, if we are dealing only with supplementary benefit. People who know that what the Government are preaching, and which it is right that the Government should preach, does not somehow apply to them. I urge my right hon. and hon. Friends who are responsible for the various aspects of the redistribution of income, please to think again before bringing to the House once more upratings of the existing system which do not introduce some completely new elements.

If time allows, Mr. Speaker, I am hoping to deal briefly with ways in which I recommend that we should reduce the numbers drastically of people who are reliant on supplementary benefit. It is not enough to aim to reduce the figures by—

Mr. Speaker

Order. Before I call the right hon. Member for Llanelli (Mr. Davies) to move the Adjournment motion, perhaps I should make it clear that the business postponed as a result of the debate under Standing Order No. 20 may be resumed and continued for a period equal to the amount of the time lost. That is, of course, if the House does not agree to the right hon. Gentleman's motion.

It being Seven o'clock, and leave having been given to move the Adjournment of the House under Standing Order No. 20 (Adjournment on specific and important matter that should have urgent consideration), further Proceeding stood postponed.