§ The Minister for Social Security (Mr. Tony Newton)
I beg to move,That the draft Social Security Benefits Up-rating Order 1986, which was laid before this House on 8th May, be approved.I understand that it will be for the convenience of the House if we take with this order the four following motions and the prayer in the name of the Leader of the Opposition.
§ Mr. Speaker
As that is the wish of the House, we shall be debating as well the following motions:That the draft Supplementary Benefit Uprating Regulations 1986, which was laid before this House on 5th June, be approved.That the draft Family Income Supplements (Computation) Regulations 1986, which was laid before this House on 8th May, be approved.That the draft Child Benefit (Up-rating) Regulations 1986, which was laid before this House on 8th May, be approved.That the draft Pensioners' Lump Sum Payments Order 1986, which was laid before this House on 8th May, be approved.That an humble Address be presented to Her Majesty, praying that the Housing Benefits Amendment (No. 2) Regulations 1986 (S.I., 1986, No. 852), dated 14th May 1986, a copy of which was laid before this House on 16th May, be annulled.
§ Mr. Newton
These instruments, together with the regulations against which the prayer is made, put into effect the proposed uprating of social security benefits that was announced by my right hon. Friend the Secretary of State in the House on 24 February. They also provide for the payment of a £10 Christmas bonus and make a minor technical change to housing benefits that will ease the burden of administration on local authorities without affecting claimants. The social security benefits uprating order is accompanied by a report from the Government Actuary on the effects of our proposal on the national insurance fund. In accordance with his statutory requirements, my right hon. Friend the Secretary of State has also made a statement explaining the reasons behind the proposed uprating of mobility allowance.
I shall remind the House briefly of some of the main features of the proposed upratings, which are set out in full detail in the schedule published at the same time as my right hon. Friend's statement on 24 February. Most benefits, including retirement pension, widows' benefit and unemployment benefit, are going up by 1.1 per cent., which accurately represents the increase in prices between May 1985 and January 1986, which was the relevant period for this uprating. This means, for example, that a married couple's retirement pension goes up from £61.30 to £61.95, and that for a single person from £38.30 to £38.70 a week. The long-term rate of supplementary benefit and the housing benefit needs allowance will go up by the same cash amount as the relevant contributary benefit. Child benefit will go up by 1.4 per cent. from £7 to £7.10 a week, and mobility allowance will be increased in line with the retail price index to £21.65 a week. I make it clear that the increase in mobility allowance has come at a time when the cost of transport, which is one of the elements that needs to be taken into account, fell in the relevant period for the uprating.
332 As the House knows, one important feature of the uprating is that it covers a period of only eight months instead of the normal period of a year. This arises from our intention, which has been almost universally welcomed, to change the annual social security uprating cycle from November each yeat to April each year, so that the benefit year is brought into line with the tax and national insurance year and with the time at which local authority rent and rate alterations normally occur. When it is completed, this change will avoid a great deal of unnecessary confusion and difficulty to all concerned, not least, as many hon. Members will know from their postbags and advice bureaux, among pensioners who have suddenly found their tax codes adjusted in the middle of the tax year following the pension increase.
In this transitional year, that problem will be avoided by the provision that my right hon. Friend the Chancellor of the Exchequer has included in the Finance Bill, which means that the pension increase that the uprating order will bring about in July will not be subject to tax in the present tax year of 1986–87. Therefore, the pattern is this. Last November there was a normal annual uprating based on the measured increase in prices from May 1984 to May 1985. This July there will be a further uprating after only eight months, based on the rise in prices in the eight months from May 1985 to January 1986. In April 1987 there will be another uprating, again after only eight months, based on the increase in prices in the eight months from January 1986 to September 1986. Thereafter, there will be annual upratings in April each year. At every stage, pensioners are being compensated for the actual increase in prices that has taken place using the latest actual figures available when the uprating announcement has to be made in order to implement it on time.
It follows from what I have said that the 1.1 per cent. figure on which the present uprating is based, being related to price increases over eight months rather than 12, cannot be compared with annual rates of inflation, as some have sought to do. But as well as the shorter period involved, this figure undoubtedly reflects an achievement that of itself is of great importance to pensioners and other social security beneficaries — the Government's success in cutting back the rate of inflation.
If the hon. Member for Oldham. West (Mr. Meacher) is expecting me to apologise for this uprating, he has another think coming. Nothing in decades has done as much harm to pensioners as the inflationary surge created by the Labour policies of the 1970s. Nothing has been more important to the financial welfare of retired people than what the present Government have done to bring inflation to its lowest level for nearly 20 years, and nothing is more important to their long-term well-being than that this achievement of steadier prices should be maintained.
In a world of uncertainty I am willing to make two clear predictions. One is that if the hon. Member for Oldham, West were let loose to spend as he promises, we should have the inflation back. The other is that. when he comes to speak, we shall hear nothing whatever of the context in which these uprating orders should properly be placed.
Let me sum up this part of my speech by making six sinple points. First, pension and other increases come four months earlier than usual with this uprating. Secondly, when taken together with the increase last November, they mean that the pension for a married couple will be increased by £4.65 a week in less than a year. Thirdly, there will be another increase only months later, thus bringing 333 three increases in a period that would normally have seen only two. Fourthly, those increases come with greater price stability than we have seen for decades. Fifthly, they help to give us a more sensible framework for further increases in the future. Sixthly, they are fully in line with our firm and continuing commitment to maintain the pension's value.
With the forthcoming increase in July, the value of the pension will have increased by some 98.5 per cent. since the last uprating before the present Government came into office, and over the same period the rise in prices is expected to have been something around 92 per cent. There has therefore been a real increase in pensioners' purchasing power. In a period when the number of pensioners has itself risen by 850,000—from just over 8.5 million to just under 9.5 million—that is no mean achievement. On the contrary, it is one in which the Government can and do take pride.
§ Mr. Tony Marlow (Northampton, North)
It might be helpful to reinforce the point that my hon. Friend made about inflation, given that the Labour Opposition seem to be bent on policies that will increase inflation yet again with devastating effects on elderly people. Do not a large number of elderly people save for their old age and retirement, and with the sort of policies that the Opposition have pursued in the past, and will wish to pursue in the future, we shall again have very heavy rates of inflation which will mean that year after year swathes of hard-earned savings will be taken from these people by such an uncaring Government?
§ Mr. Newton
My hon. Friend has emphasised the point in words more eloquent than I can command, and I can only agree with everything that he said.
§ Mr. Frank Field (Birkenhead)
I do not want to tackle the Minister on changing the date of the general uprating and the effect that that must have if a series of upratings quickly follow each other. Clearly, the size of the increase will be much smaller than if it were to be done on an annual basis, and I believe that the Government have difficulty in convincing people that they are being generous and fair.
I expect that the Minister has seen the Child Poverty Action Group brief. The CPAG does not dispute the calculation for the eight-month period. However, it says that, given the dramatic fall in inflation during the period in which the calculations were made, a married pensioner couple on supplementary benefit will lose about £8.80 over the whole year — almost as much as the Christmas bonus. Do the Government intend to make that up by doubling the Christmas bonus this year?
§ Mr. Newton
I shall make two points, one rather aggressive and one more in tune with the way in which the hon. Member for Birkenhead (Mr. Field) put his argument. First, under the last Labour Government, pensioners twice lost their Christmas bonus, while this Government have written the Christmas bonus firmly into the law. Secondly, no doubt to my disadvantage, I have not so far been vouchsafed the brief and I am hesitant to be drawn into comment without seeing the basis on which the figures are calculated. As things turned out, because of the falling inflation rate the 7 per cent. increase in pensions last November was larger than the increase in 334 inflation which proved to have taken place by November. The increase was related to the increase in prices over the year until May.
One can play games with statistics, but I am glad that the hon. Member for Birkenhead has acknowledged that the pension upratings have at every stage been firmly and fairly based on the measured increase in prices over a historic period at the latest date available to carry the upratings through.
§ Mr. Newton
I shall of course undertake to look at the CPAG brief and to consider any points that arise from it. I shall now give way to the hon. Member from the housing benefit world.
§ Mr. Nick Raynsford (Fulham)
I want to ask a question relating to the Minister's earlier remarks about the increase in the value of pensions in this Government's lifetime. What would be the pension value now if the increase in the pension had been related, as it was under the previous Labour Government, to the increase in earnings or inflation, whichever was the greater? By how much are pensioners now worse off because of that unlinking?
§ Mr. Newton
If I were to be drawn in that way I should want to give the figures for the increase in the national insurance contributions which would have to take place, the numbers of additional people who would be made unemployed as a result and the increase in inflation, which would create hardship for pensioners by a different route.
§ Dr. Norman A. Godman (Greenock and Port Glasgow)
On the so-called well-being of pensioners, is the Minister satisfied with the way in which applications for exceptionally severe weather payments were made in Scotland and elsewhere?
§ Mr. Newton
The Department did all that it could to make clear the system for exceptionally severe weather payments and to process applications as efficiently as possible. There are a series of anxieties about the working of that regulation and the Government are reviewing the operation of the scheme to see what changes, if any, are required.
§ Dr. Godman
The Minister allowed my hon. Friend the Member for Birkenhead (Mr. Field) to put a supplementary question, and I should like to do the same. A goodly number of pensioners have already approached me about the circumstances surrounding the regulation for next winter. What is the probability of a change in the working of the regulation to deal with the very severe weather that we shall experience in Scotland next winter?
§ Mr. Newton
The hon. Gentleman's confidence in his weather forecasting is greater than mine and of forecasters generally. I hope that we shall not have a third successive winter like the last two. Whether or not we have a severe winter, we have made it clear that we are looking again at the regulation in the light of the two winters' experience, which was not entirely satisfactory. I cannot make a definite commitment about the outcome of our investigations, but I am aware of the anxieties which the hon. Gentleman has properly expressed on behalf of his constituents. I do not dismiss those anxieties.
§ Mr. Newton
This is a relatively short debate. Although, with my customary good nature, I am giving way to all and sundry, there must come a point at which I allow the hon. Member for Oldham, West to have his say—unpalatable though that will be to me.
§ Mr. Frank Field
When visiting our constituents, many of us have noticed that, because of the poor weather, they are still using their heating. Is it not during the summer months that many pensioners and families hope to make savings on their fuel bills towards their winter fuel bills? To what extent will the Government take that into account both when making changes in the weekly additions for heating and in their flexibility on severe weather payments?
§ Mr. Newton
If the hon. Gentleman is inviting me to go down a path whereby exceptionally severe weather payments are paid regularly throughout the year, I am sure that he will understand my hesitation in commenting too far. However, I note his point.
§ Mr. Newton
I think that perhaps one of my hon. Friends deserves an opportunity to intervene. I hope that he will ask a more helpful question.
§ Mr. Tony Favell (Stockport)
Indeed, I have a helpful question. Is not the greatest help that we can give to old age pensioners for their fuel bills to hold down inflation and fuel bills—and, indeed, even reduce them—not only during hard weather in Scotland but throughout the year?
§ Mr. Newton
I very much agree with my hon. Friend. Indeed, during recent weeks it has been striking that there has been held out the possibility of lower fuel hills. I invite Opposition Members to cast back their minds to the last time that that happened.
I wish to make one general and one specific point before I sit down. The general point is that we have not, on this occasion, followed the practice of using different formulae for uprating the different main elements of the benefits system. In particular, the uprating of supplementary benefits has been kept in line with the cash increases in the relevant contributory benefits so as to minimise the problem of people being floated on and off supplementary benefit by tiny variations of a few pence between the supplementary benefit scale rates and the rates of other benefits received by supplementary beneficiaries.
I do not put that before the House in anything other than a spirit of pure pragmatism. We thought that with three upratings in 16 months it was sensible neither for claimants nor for the administration of the system to shuffle people on and off supplementary benefit on each occasion. For similar pragmatic reasons, the regulations do not provide for general changes in the additional amounts paid with supplementary benefits, but only for increases in the adult and children scale rates, the various personal expenses rates and the limited number of additional requirements, but including — this is very important—the higher rate of heating addition that goes to the very elderly, the severely disabled and those with homes that are especially difficult to heat. That heating addition is increased from £5.45 a week to £5.55 a week.
We have adopted a similar approach — this will interest the hon. Member for Fulham (Mr. Raynsford) —to housing benefit needs allowances, partly to avoid 336 changes in other benefits triggering changes in housing benefit and partly because this year the timing of the uprating period meant that it was not possible to apply straightforwardly the normal housing benefit uprating formula, which is of such arcane complexity that I suspect that only the hon. Member for Fulham, to whom I pay full credit, is fully conversant with its ins and outs. However, I do not want that to be seen as an encouragement to him to deploy his expertise at length this afternoon—
§ Mr. Newton
It is obvious that my hon. Friend's enthusiasm for that prospect is even less than mine.
The arrangements set out in these uprating regulations represent what we believe to be a practical compromise that will cause the minimum of administrative problems for local authorities and beneficiaries alike.
My more specific point, which again is connected with housing benefit, relates to the Housing Benefits Amendment (No. 2) Regulations 1986, which contain some provisions apart from those that simply uprate the housing benefit needs allowances. Those other provisions relate to benefit periods—the period of time for which a housing benefit award is allowed to run before it has to be reviewed by the local authority.
The maximum benefit period for a pensioner is usually 12 months and for a non-pensioner seven months. The existing regulations embodying those benefit periods were drafted with annual upratings in mind and local authorities have always planned their review of cases accordingly.
The pattern of upratings during this period of faster and more frequent than usual upratings would cause many local authorities considerable operational difficulties by requiring them to review the circumstances of claimants twice within a relatively short period and at considerable administrative cost. At the request of local authorities, therefore, we have agreed to ease the benefit period regulations to avoid that. The regulations in question include that beneficial change.
I remind the House that even this uprating, after a period of only eight months, will cost some £420 million in a full year, in addition to the £2,000 million cost of last November's uprating. Total spending on social security will thus stand at almost £43 billion in 1986–87, which is more than 30 per cent. of all public expenditure. That is a massive sum in anyone's book, and a clear demonstration of the Government's commitment to fulfil our obligation to pensioners and others depedent on social security benefits.
In view of what the hon. Member for Oldham, West may want to say in a few moments—I guess that it will include fairly repeated use of the word "cuts"— I must say that the broader context in which this occurs, as is shown in the recent public expenditure White Paper, is that between 1980–81 and 1985–86. far from falling in real terms, social security expenditure rose by £9,500 million in real terms — a real increase of more than 30 per cent. That includes — with many other factors, as I acknowledge — an improvement in support for low-income families in work, a number of important improvements for disabled people — including a real increase in the mobility allowance, the introduction of the severe disablement allowance and the abolition of the 337 invalidity trap—significantly increased help with heating costs for the less well-off, abolition of the married women's half test, which did so much injustice to a number of women, and, not least, that real increase in pensions—and for almost a million more pensioners.
It is not a record for which I will apologise to the House; it is a record that I put before the House with pride. I invite my hon. Friends to endorse the motion and to reject the Opposition prayer.
§ 4.7 pm
§ Mr. Michael Meacher (Oldham, West)
A few weeks ago the Top Salaries Review Body report was published. The batch of social security orders that we are debating might well be described as the bottom salaries review body report. It certainly highlights the huge contrast in treatment meted out to pensioners, to mothers on child benefit and to unemployed families on supplementary benefit when compared with the plush and velvet glove handling of top civil servants, top judges and top military officers.
For the latter in the elite ranks of society the increase this year is £46 a week. For the average-paid worker, earnings this year will rise by £14.50 a week. For low-paid workers, such as those in the ancillary grades in the National Health Service, the increase currently on offer is about £3.25 a week. For a pensioner in retirement, the increase proposed is just 40p a week. For mothers on child benefit, it is precisely 10p a week — an amount so piffling that I suspect most people would scarcely bother to stoop down in the street to pick it up.
I think that the message is not lost on Ministers. I have not before heard the Minister in quite such a defensive mood as he was today. Perhaps he protests too much. I listened to all his caveats, and there could scarcely be a more eloquent testimony of this Government's obsession with one law for the rich and another for the poor.
The Government argue that they have increased pensions and benefits — the Minister, predictably, brought forward the argument today — strictly in line with the retail price index over the relevant period. So they have. That is the reason for the minuscule increases. The Government's argument is wholly fallacious. There is no statutory requirement that benefit increases should be limited to the RPI over the review period. All there is is a floor, a statutory minimum, for increases in benefit. The Government have said from time to time that they would like to improve the basic pension in real terms. In 1980, the Secretary of State for Social Services stated explicitly that it was the Government's intention to allot pensioners a share in rising national prosperity. This year, when the retail price index increase is so minute, the Government were offered a perfect opportunity to achieve that alleged intention. They have ostentatiously turned it down.
This year's increase is the most insulting one for decades. It is worse than that. The Government, by changing the operating periods this year, have cheated pensioners out of a bigger increase that they would have received if the uprating periods had remained unchanged. I shall explore that point which was made earlier. If the uprating had taken place at the normal time in November 1986, single pensioners would have received double the extra cash from a 4 per cent. increase paid for only four months thereafter up to the April 1987 changeover than they will receive under today's uprating from a 1 per cent. increase paid for eight months until April 1987.
338 The Secretary of State, when he introduced the changes in the uprating periods, chose to present them in terms of simplification, as he so often does. Pensioners have learned from bitter experience that whenever the Government speak of simplification they generally mean a cut. I will not apologise for the use of that word because that is exactly what people's experience is. The present position is no exception. As I said at the time of the announcement of the uprating arrangements on 24 February, the Government's sleight of hand with the arrangements will mean a loss to pensioners of around £120 million, which they will not recover.
The new arrangements matter in view of other aspects of Government policy on pensioners. The critical point in the debate is that, every year, the break in the upratings link with earnings which the Tory Government carried through in 1980 bites ever deeper. The loss grows much more in years in which earnings significantly outstrip prices. This year is a prime example. Earnings are rising at about 7.5 per cent. compared with prices which are rising at about 3 per cent. In other words, if the Government had not broken the link with earnings, and if they had not fiddled the uprating period, the pension increase this year would have been more than double, as it would under Labour's formula, even for the full year. That is a significant difference.
§ Mr. Martin M. Brandon-Bravo (Nottingham, South)
I do not think that the House disputes what Labour party policy was eight years ago. Can the hon. Gentleman guarantee that that policy would not have changed had the Labour party been in office for the past seven years? His party's track record on pensions, the Christmas bonus and the real cuts in the National Health Service might lead people to believe that the Labour party ditched that policy long ago.
§ Mr. Meacher
It is a bit rich for the hon. Gentleman to challenge us on our record on the National Health Service. If he had considered the views of the electorate on cuts in the National Health Service, he would not have taken that as an analogy. I invite him to listen to the end of my speech when I shall make absolutely clear the full assurance that he seeks, perhaps contrary to what he expects.
The exact figures regarding the earnings link have been provided by the Library. Since the Minister was so coy about the figures, I shall cite them. The statistical section of the Library calculates that if the link had not been broken by the Government in 1980, the single pension, which is £38.30 a week, would have been £42.30 —exactly £4 a week more. The married pension, which is £61.30 a week, would have been £67.60 a week—£6.30 a week more. For millions of pensioners who are forced to eke out their lives never far from want or financial hardship, those are substantial and serious losses.
The size of the loss to pensioners can be seen from the fact that it represents savings to the Government this year at the expense of pensioners of no less than £1.8 billion. That is the total value of the cut in pensions this year as a result of the break with the earnings link.
§ Mr. Newton
As the hon. Gentleman has accused me of being coy, can he tell me whether the Library has also calculated what increase there would have been in national insurance contributions, how many more people would 339 have been placed out of work as a result, and how much higher the rate of inflation would have been if we had gone down that track?
§ Mr. Meacher
Coming from a Government which has tripled the rate of unemployment, that is another pretty rich question. As the Minister knows only too well, we are talking about transfer payments between the working population and those who are retired. I think that the Minister knows that we would have run a different kind of economic policy — not the kind of monetarist contractionary policy which has produced a level of manufacturing output that has still not reached its 1981 level. Out of that extra output, it would have been relatively easy to pay a significant increase in pensions.
The link with earnings was instituted by the Labour Government in 1975. That is the fundamental reason for the huge difference in the pensions record between the Labour Government and the Tory Administration. In six years of Labour Government, the pension increased by 20 per cent. in real terms. In seven years under the Tory Government the pension has increased by just 3 per cent. in real terms. I suggest that the difference between the parties in terms of priorities for the pensioner could scarcely be plainer than those figures show.
§ Mr. David Lightbown (Staffordshire, South-East)
Can the hon. Gentleman say what the rate of inflation increased by in the period that he is stressing pensions have increased?
§ Mr. Meacher
The hon. Gentleman has missed the point that what matter to pensioners is the overall increase in their income after taking account of inflation. I do not know whether he knows the meaning of the words "in real terms". "In real terms" means after taking account of inflation. The inflation rate, at 26 per cent. in Labour's worst year, was too high, as was 22 per cent. in the Tory Government's worst year. Taking account of both of those facts, pensions increased six or seven times more in real terms under Labour than they have, alas, under the present Government. That is the key point.
§ Mr. Michael Forsyth (Stirling)
Can the hon. Gentleman say what happened to the savings in money that pensioners had put aside in real terms?
§ Mr. Meacher
The same thing happened regarding the too-high rate of inflation in 1975 as happened regarding the too-high rate of inflation in 1981. Of course, inflation damages pensioner savings. We accept that there is a need to reduce the rate of inflation for that reason. Pensioners with significant amounts of savings are in the minority. The real point for the majority of pensioners is the real increase in pension over and above inflation. The record of the present Government is tenuous compared with the record of the Labour Government. In no other respect is the difference between the parties so stark.
It is proposed this year to pay the pensioners' Christmas bonus at a rate that has been unchanged for 14 years. If the £10 rate paid in 1972 had been uprated each year—no matter which party was in power—in line with prices, it would now be no less than £44. I submit that, apart from the huge shrinkage in value to pensioners because the bonus has been kept at the original £10 rate, there is another strong reason why the Government should 340 increase it this year. Each year until now, the annual pension increase has been paid in the month before Christmas. Pensioners therefore have some extra resources with which to meet Christmas costs and some protection against increasing winter fuel bills. This year, that extra pension increase, which is now being paid in July, will not be available as a new increase to pensioners. That is why the failure to increase the Christmas bonus this year—when it has already lost more than three quarters of its real value since 1972 and when this year's pension increase is merely a pathetic 1 per cent.—is so regrettable.
Therefore, our charge is that the Government are treating pensioners extremely shabbily. Of course the Government state that they cannot afford to do more. They always say that. But they can certainly find big money for other, favoured causes. There is a great deal of talk during the run-up to the general election about the Government cutting the basic rate of income tax from 29 per cent. to 25 per cent. That would cost nearly £5 billion. If such amounts can be found, why are pensioners fobbed off with this cheap and insulting option of a 40p pension increase?
Then there is the £3.64 billion—the Treasury's figure — by which taxes have been cut since 1979 for the richest 5 per cent. That is twice as much as would be needed to restore the earnings limit for pensioners. Why should directors on £30,000 or more a year get a huge cash bonanza while pensioners are left out in the cold, literally as well as metaphorically?
It is all a matter of priorities. Our priority, as we have demonstrated, is for the pensioner. The Government, as they demonstrate each year, are for the wealthy and the privileged. By contrast, we shall take back the £3.64 billion which has been handed out to the rich and distribute it instead to the beneficiaries — perhaps I should say victims — of these social security measures. We shall increase the single pension by £5 a week and the married pension by £8 a week.
§ Mr. Meacher
It shall be done in the first Labour Budget. We shall increase child benefit by £3 a week. We shall extend the long-term rate of supplementary benefit to all of the long-term unemployed. All of those major improvements for people on some of the lowest incomes can be afforded without any increase in taxation for 95 per cent. of our people. That can be done simply by making the top 5 per cent. hand back what they should never have been given in the first place.
§ Mr. Frank Field
I am sure that people outside the House will he following this part of the debate more carefully than most of our debates. My hon. Friend has referred to the Labour commitment of a £3 a week increase in child benefit. Is the Labour Front Bench giving a clear commitment that that increase will be given in the first year of the next Parliament?
§ Mr. Meacher
Yes. They are all straightforward, redistributionable changes, which we intend to make in the first year in our first Budget.
§ Mr. Favell
My hon. Friend the Minister for Social Security said that the bill to the nation for the uprating will be £420 million. If the hon. Gentleman were standing at the Government Dispatch Box, what would his bill be?
§ Mr. Meacher
Clearly, the hon. Gentleman was not listening. My point was that we will take back the £3.5 billion, or slightly more, that has been handed out in tax cuts—income tax, capital transfer tax and capital gains tax, the abolition of the investment surcharge to the richest 5 per cent. of our society—and use that money to pay the pensioners, the mothers with young children and the long-term unemployed. We believe that those are the right priorities, and we shall soon take that message to the nation.
Our second major objection to these measures concerns the 10p increase in child benefit, which is derisory. We object to it for several reasons. First, it makes no effort to restore the 35p cut made last year—a cut to mothers of £175 million in real terms. Secondly, the Prime Minister again trumpeted recently her support for a family policy; yet this tiny increase of 10p shows that her actions belie her words. Thirdly. there is no commitment to index child benefit in line with prices, let alone earnings. The Government Whips organised a filibuster a few weeks ago to prevent the proposal of the hon. Member for Kensington (Sir B. Rhys Williams) from even being debated. That reveals the depth of the Government's opposition to any such notion. Fourthly, there is no assurance that the extra £64 million expenditure on child benefit—due to a reported underestimate of the number of children—will not lead to cuts in other benefits or child benefit, as the Government's record might lead one to suspect. I should be pleased to allow the Minister to intervene if he wishes to deny that.
§ Mr. Newton
It is simple. The £64 million to which the hon. Gentleman refers and which I think surfaced in a report in The Guardian is additional expenditure that was incurred in 1985–86. Obviously, there can be no question of compensating changes to offset expenditure that has already been met.
§ Mr. Meacher
I am glad to hear that. That will be a welcome announcement, given the suspicions that we hold for genuine reasons, that that type of overrun is always met by corresponding cuts.
Fifthly, over the past 25 years, the fiscal system has moved steadily against families with children. No attempt is being made this year, when there is such a small increase, to reverse that. That is a great pity. Sixthly, and most importantly, bearing in mind that child benefit is widely agreed by both sides of the House to be by far the most effective device to remedy family poverty, it is surely tragic that the Government apparently still intend to phase it down in favour of family credit. which is footling by comparison.
In case I am unfair about this—I should be glad to give way to the Minister again—I ask this one modest question: Will the Minister give an assurance that the real value of child benefit will be maintained at least until 1988? Would the Minister like to give an assurance on that point?
§ Mr. Newton
All I can do is give the hon. Gentleman the assurances that we have already given and have shown by uprating child benefit in the motions. We continue to attach great importance to child benefit as a universal benefit normally payable to mothers, but we shall continue to take decisions about child benefit in the context of policies as a whole, including the universally supported 342 desire to do more for low-paid families with children, whether in or out of work. That involves from time to time taking decisions about the balance.
§ Mr. Meacher
That is a carefully worded answer. The implications are clear—we can expect either a freezing or a small increase in child benefit, as there was last year. That is a very unwise decision.
I turn now to the general uprating implicit in these motions. I have already referred to the fact that the switch to a July uprating means a loss to claimants in general over the year. My hon. Friend the Member for Birkenhead (Mr. Field) made the same point. Although it may not be a large loss, the real point is that this year there should not be a loss at all because, at this point, the country can afford a more generous uprating.
With average earnings now rising at 7.5 per cent. a year, as I have said, fully six percentage points above the tax and prices index, it is only fair that the poor and the weak should obtain the same benefits as the rich and the strong. A benefit uprating in line with earnings rather than prices would have been a tangible expression of that sentiment and it would have been supported by the majority of the electorate. When asked whether priority should be given to a 1p cut in the basic rate of tax in the Budget or to increasing benefits for the poor, a recent poll I saw showed that 61 per cent. favoured an increase in benefits compared with 48 per cent. who favoured the tax cut.
I would like briefly to add two other points on housing benefit. This year—the Minister made brief reference to this—supplementary benefit and needs allowances have not been increased by the formulae the Government introduced in 1982. The supplementary benefit formula would have given an increase of 1.2 per cent. Instead, the pension uprating formula has been applied, which yields 1.1 per cent. The difference is, of course, marginal but I would say that it is all the more symbolic for that. If the difference between the two formulae is minute, why do the Government always unerringly choose the lower one rather that the higher one?
No new awards of the supplementary benefit non-householder rent addition will be paid to persons under 25 after July. I realise that that is an order that will come before the House later, so I am making no more than a reference to it. However, it is relevant when we discuss supplementary benefit. I believe that that is a retrograde step. It will further erode the independent status of young people and it is to be condemned as another example of the creeping implementation of the social security review before the Bill is even through Parliament and as another device to save money on transitional protection.
These are not dry or routine social security orders, as I think that the Minister tended to introduce them. We are debating the incomes and livelihood of millions of Britain's poorest families. We will certainly not vote against any improvements proposed in their standard of living, however meagre or limited we might believe them to be. However, I want to put firmly on the record that the incoming Labour Government, which we shall soon see, will take a radically different and more just view of the proper distribution of this nation's wealth between rich and poor. Indeed it is because all of those who are the subject of these orders today — the pensioners, the mothers, the unemployed and the low paid—have a vote that that Labour Government will not be long in coming.
§ Sir Brandon Rhys Williams (Kensington)
I have a feeling that a number of hon. Members were not certain what the nature of the debate would be when they came into the Chamber this afternoon, because it is extremely difficult to vote against a series of orders and regulations which have the effect of increasing the amount of benefit that will be available to millions of people. Therefore, if the House is to make constructive use of this short debate we should try to focus our minds on some of the longer-range issues behind the system, which has surfaced again this afternoon, where Ministers have to come to the House at stated intervals to recommend changes in the level of benefit that will be available to different classes of people through our various systems for the redistribution of income.
I think that it might be worth while for the House to consider the ways in which we redistribute income and whether these upratings, and the way in which we calculate the right amounts and the people who will be eligible for the benefits, are what we want, and whether this is a permanent system that will remain in place year in, year out. From the speech that we have just heard from the hon. Member for Oldham, West (Mr. Meacher), from the Opposition Front Bench, it seems that the Opposition are determined to make major changes. However, they have not escaped the criticism that major improvements in the system have to be paid for from somewhere.
My first point is that when we talk about the redistribution of income we have not only to consider who the money is going to and how much it is to be, but to decide where the money is coming from and who will make contributions to the system.
I think that it is worth considering the basis for the entire redistribution of income, because I want to do something that I have done many times before in the House, which is to emphasise that we must look at the income of the redistributive system as well as the outgoings. That leads me to the same conclusion as I have always been led to before, which is that progressively we must move towards integration of the income tax system, national insurance contributions, national insurance benefits, supplementary benefits and the rest. We must work towards the integration of the tax system and the benefit system so that both sides are seen to be fair and administratively comprehensible and simple.
I do not think that anyone on either side of the House would disagree that, for the majority of citizens, the present system is arbitrary, incomprehensible and a disincentive for the millions, divisive in a way that is socially extremely dangerous and on the verge of administrative collapse. The House cannot be satisfied simply to approve the uprating regulations and allow a situation to continue in which there is general agreement on the underlying state of affairs. I do not think that hon. Members would challenge me on those accusations.
It seems that we have never really clarified our thinking on the basis of entitlement to benefits. We are talking about millions of people who will receive benefit as a result of these measures, but we do not really know precisely why we are giving them the money. Is it because we are trying to provide them with a basic income guarantee that is sufficient to live on? If that is the case, in many aspects the amounts that we are paying will not be enough. Is it because there is an actuarial relationship with the 344 contributions that they have made during the course of their working lives which decrees that certain payments must be made?
That certainly is not so, not just because inflation is making all our figures turn to jelly, but because we have changed the basis of entitlement to claims for pensions, and so on, as the years have gone by, so that what people have paid into the system in the past and what they are paying now and what they are entitled to draw out of the national insurance system have no actuarial relationship whatsoever. Therefore, we are not relying on arithmetic.
I believe that the system can be divided into four. First, there are the universal benefits. Some of them began to be instituted in the 19th century. I am thinking particularly of public education. In the 20th century there have been great strides forward. The National Health Service is a universal benefit, broadly speaking, and of course there is child benefit, which is a universal benefit, which is paid in cash. I think that there is a considerable degree of public dissatisfaction about all the major universal benefits. I do not think that people are happy about the administration of the Health Service, they are not happy about the administration of public education and there is a considerable degree of opinion that child benefit is not at a sufficient level, considering the real cost of raising a child. There is plenty of room for debate on this subject, and the debates are going on.
Secondly, there are the contributory systems. As I have mentioned, the figures have turned to jelly and nobody has any idea of the relationship between obligation and entitlement in national insurance.
Thirdly, there are the means-tested benefits, not just supplementary benefit, but the housing allowances, which differ very much in different parts of the country. I was given an appalling figure in a parliamentary answer a few weeks ago. I asked how many people in this country were living in families which were dependent, in one way or another, on support obtained through proof of need. The answer was 14 million. As far as I am able to ascertain, that number is rising. There can hardly be a more desperately divisive state of affairs than having 14 million people who are dependent on proof of need to sustain their living standards.
The fourth welfare state that we operate—it is less obvious than the others, but none the less real—is the tax concession system, which produces differentiations of hundreds of pounds a year between people with identical incomes on account of their different commitments and marital circumstances.
I have had the feeling for a number of years that no serious thought has been given, either in the Treasury or the DHSS, to the way in which the redistribution of income is to be handled.
Where are we heading? It seems that there is a steadily rising number of people who are dependent on proof of need. I do not think that many Members realise that the figure has risen to 14 million. My interpretation of trends that can be observed is that that figure is likely to rise. In making an effort to provide a minimum income guarantee so that no one slides into destitution we are dependent increasingly on the old-fashioned means test in various forms. This is disastrous. It means that millions know instinctively, or because they have made the necessary calculations, that there is not too much point in working or in saving.
345 Hon. Members in all parts of the House, and especially those on the Government Benches, know that the success of our economy, and of living together as a society, depends on people recognising the value of thrift and hard work. If 14 million come to realise that there is something wrong with those motives and that they are not borne out by the way in which life treats them in practice, that is disastrous. If it is true that the number in that position is rising steadily, it is a matter that requires the urgent attention of the House.
§ Mr. Frank Field
Does the hon. Gentleman accept that there is another rather dangerous tendency, which is that of individuals continuing to recognise the value and importance of hard work, but not that of combining hard work with honesty? In other words, they are not declaring their incomes. The more we push people towards means testing, the more we shall increase the incentive to engage in deception.
§ Sir Brandon Rhys Williams
That is an important part of what I have described as the approaching administrative collapse. The black economy is attracting people more and more because they are losing their sense of honour as a consequence of the Government's system of redistribution. They know that more and more people are breaking the rules, and they are becoming increasingly disposed to break the rules themselves.
Another trend is reflected in the rising proportion of the population who want to have cash resources of their own. It is possible that this has something to do with long-term social changes, especially, perhaps, with female emancipation. In Victorian times women were willing to be dependent on the breadwinner, the male head of the household, to provide them with the money that they needed or such comforts as they required. They want now to be able to make their own choices. That is a phrase that the Prime Minister uses with considerable effect. People want to be able to make their own choices, but in the life that we lead we must have our own resources and have command over our own finances, if we are to make our own choices. That is one reason why there is increasing pressure for women to have their own special tax relationship. Many do not want to be regarded as chattels or adjuncts of their husbands. They want to have a one-to-one unisex relationship with the tax inspector, and I think that they are right in that.
If there are an increasing number of people who want to have discretion in the way in which they handle their own affairs, we must adapt our administrative system to meet that wish. Hon. Members on both sides of the House know that I am enthusiastic about child benefit. I believe that the rate of child benefit should be increased, and should certainly not be diminished. One of the reasons why it is such a popular benefit and has an almost universal take-up is that it is paid normally to the woman in the household, which allows her to exercise her own discretion and make her own choices, at any rate with that small part of the family's overall resources. The Government are fighting against a trend that will prove to be stronger than the Government if they think that they can eat slowly into child benefit and dimish it. I hope that they will not make that serious mistake.
Perhaps more important is the fact that millions of people are restrained from entering the working population, and even from taking on part-time work, 346 because they will commit an offence if they take part-time work at the same time as drawing various benefits. We must work our way towards a wholesale reform. I am disappointed that the Government do not appear to be doing any fundamental thinking on this subject.
I was a member of the Committee which considered the Social Security Bill, which has now gone to another place. I was even more convinced at the end of our deliberations than I was at the beginning that the Bill did not represent final answers to the various questions which I have posed and was not enough. I could not do more than vote against the Bill. At any rate, hon. Members know what I think.
What are we asking the Government to do? We must not lose sight of the fact — Opposition Members are open to serious criticism because they do lose sight of this—that one of the Government's primary requirements is to secure the good health and expansion of the economy so that there are resources to be distributed. All too often Opposition Members forget that and call for increases in benefits without explaining how the money is to be generated.
Much of what the Government are doing is right, but I believe that the changes that they are making in the tax system and the provisions that they are making for investment are not sufficient. I hope that they will find ways of breaking through the social security system quickly and introducing a radical overhaul of the system and its administration. It is not good enough to continue from month to month and year to year with DHSS officers being required to make more than 90 million manual entries every week to keep the administrative system going. A much more urgent matter than Ministers recognise is to get something done about that appalling state of affairs.
I understand that progress with the computerisation of the pay-as-you-earn scheme is going very well. Much of the hardware is well on the way to being installed. The restraints that have held us back from a radical reconstruction of the system of income tax and social security are being eliminated at a practical level. The development of the necessary software for the pay-as-you-earn system is still taking a long time. The work should never have been embarked upon before thinking had been done about the sort of service that was wanted.
I ask my right hon. and hon. Friends in the DHSS and the Treasury to think again about the way in which the long-term evolution of the redistribution of incomes is heading. I am sure that it will be agreed that as individuals increase their income they cannot face a sharp reduction in their entitlement to benefit. Millions are entitled to benefits through one or another of our various systems. and we recognise that whenever they lose their benefits sharply there is a disincentive to increase their resources beyond that point. Tapering has become the order of the day. Rather than taking away their benefit on a taper, surely it would be simpler to make them contribute more as their incomes rise through the income tax system. Let them retain their benefit and require them to make a greater contribution through the income tax system. The loss of benefit must be partial if there are not to be disincentive effects. Let the loss of benefit express itself through the payment of more income tax. That would avoid the problems that arise when benefit is eliminated stage by stage as someone's circumstances improve. May we have a promise today, or very soon, that the Government will reconsider this problem in the 347 recognition that the various measures which they have brought forward in recent years are not sufficient to meet the case?
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I enjoyed listening to the speech made by the hon. Member for Kensington (Sir B. Rhys Williams). He has a distinguished history and reputation and he argued the case for wholesale reforms. As the hon. Member for Birkenhead (Mr. Field) recognised, the hon. Member for Kensington voted accordingly in Committee. I certainly pay great attention and regard to that.
I agree with many of the arguments presented by the hon. Member for Kensington on the need for wholesale reform. I accept the mild rebuke that he made in the direction of the Opposition Benches about the source of the resources needed to generate the money to enable the redistribution of benefits. I hope that all hon. Members will address that point.
When the Minister of State introduced the debate on the detail of the uprating orders, he mentioned the current context. That is an important element in the equation which we must not ignore.
I begin by admitting that the reduction in the rate of inflation to the present level of around 3 per cent. is a valuable contribution to those people who rely on benefits for their income. However, I am worried about the disparity, which has continued to widen since the Government came to office, between the best-off and the worst-off in our society. I eschew the sophisticated statistics that can be floated about that argument from both sides of the House. I am worried about the distance that now exists. In spite of the Government's best endeavours to try to improve the position, there is evidence that persuades me that the gap between the best-off and the worst-off is becoming worse.
§ Mr. Michael Forsyth
Would the hon. Gentleman be worried if the gap between the worst-off and the best-off was widening if the consequence was that more wealth was created in order to meet the benefits bill, to which he referred at the beginning of his speech? Will he acknowledge that that is happening?
§ Mr. Kirkwood
That is not happening. We could have an interesting discussion about the relative positions of the lowest 10 per cent. of our society in terms of generating income and their available disposable income and as to whether they are worse off now than at the beginning of the Government's term of office, but I would like to return to my second point in the context of today's debate.
The Government seem to be set on the road to further tax cuts as opposed to the redistribution and increased transfer of payments. The DHSS should make the position clear. The Liberal and Social Democratic parties voted against the 1p reduction in income tax, as the Parliamentary Under-Secretary of State will be aware. That is only a partial answer to the problem, but we should go further than that. I do not know how the figures match up, but we must be prepared to face the fact that we may need to maintain levels of taxation to obtain the money to redistribute benefits.
The formulation of the Government's policy on that question is absolutely crucial. I hope that we will hear from 348 the Parliamentary Under-Secretary of State when he replies that he will ensure that resources are found even if that involves forgoing the Government's present policy.
§ Mr. Favell
We never hear the Opposition referring to the question of incentives on these matters. Does the hon. Gentleman accept that tax cuts produce an incentive to work harder and to save more for old age and bad times? The greater the tax, the less incentive there is to work. What does the hon. Gentleman think about that?
§ Mr. Kirkwood
I agree that a balance must be struck. That balance has gone wrong in terms of the amount of income that we are asking pensioners to live on. I hope that the Parliamentary Under-Secretary of State will comment on that.
There is a fear across party lines about the operation of child benefit. The hon. Member for Oldham, West (Mr. Meacher) referred to that point and I want to support his comments and those comments made on the matter by other hon. Members, including Conservative Members, in previous debates. There must be a commitment at least to retain the value of child benefit in future. I understand the Minister of State's reply to that point, as he has the Treasury Ministers at his shoulder and he may not be able to go further than that this afternoon. However, I warn the Under-Secretary that if there are cuts, such as the 35p reduction, he will face a major rebellion from the Opposition Benches and from the forces that sit behind him.
I hope that the Under-Secretary of State will be able to clarify matters about the retail price index. That is a rough and crude instrument to measure the increase in prices. Has the Minister had a chance to examine a report commissioned by the Chartered Association of Certified Accountants and carried out by the Institute of Fiscal Studies called "The RPI and the cost of living"? The report reached several conclusions. It stated that the Government had been paying more than they needed in terms of uprating benefits for substantial periods during the past 10 years. To support my argument, the report states that the poorer families in our society suffer more and the real costs of inflation, rather than the statistical calculations, are significantly higher than the general increase in the RPI. I hope that the Department will study the report with care. The Department needs to refine the retail price index in a way that would benefit the least advantaged families in society.
Under what circumstances does the Under-Secretary of State believe that the Social Security Advisory Committee report's recommendations will be implemented when it states that there should be not every year, but occasionally, a linking of increased benefits to earnings so that an inexorable disparity does not appear between the increase in the cost of living enjoyed by people in work and those who are dependent on benefits? There was a case to consider this year for moving towards the average earnings increase.
We have heard that there has been almost a 7.5 per cent. annual earnings increase, which is 6 per cent. higher than the tax and prices index. Can the Under-Secretary of State tell us whether these figures, like the figure of £8.80 annual loss caused by the disposition of the timing of the payments of the increase, will be made good in the round eventually? It is very important that losses sustained because of the timing of the uprating—which was unfair —should be made good.
§ Mr. Michael Forsyth
I have been waiting so long to intervene that I have nearly forgotten my point. However, if the hon. Gentleman is so concerned about wealth creation and finding the resources to meet a decent social security system — which we all want—how does he reconcile that with the view that benefits should be indexed according to earnings if the earnings are over and above the country average? That would be a recipe for creating a benefit system which we could not possibly afford. That is the opposite to what he was arguing for.
§ Mr. Kirkwood
I do not understand why it is difficult, improper or in any way impossible to increase benefits according to the increased average earnings. If average earnings are increased, the tax take increases and that would mean more money to be redistributed. There is no difficulty about that.
§ Mr. Forsyth
The difficulty is that, if, as is happening at the moment, the country is paying in wages more than is being earned and we index benefits accordingly, we will have a monstrous bill which will he paid for only in the destruction of other people's jobs and a higher bill which we will not be able to meet. That would be the consequence of the hon. Gentleman's policy.
§ Mr. Kirkwood
I fully accept that. The hon. Gentleman takes us into public sector pay and price and incomes policies. We would face up to that by ensuring that there is a system that ensures that people do not get paid more than the country can afford.
The hon. Member for Oldham, West mentioned the Christmas bonus, which is being substantially eroded. Do the Government have any plans to try to make it as valuable as it would have been if it had increased in line with prices or earnings? Its value has been largely discounted. Something must be done about that.
The Government could have done a bit more without breaking their back. I am most anxious that the Minister should be prepared to go into the current public expenditure round with some of the issues that I have outlined in the front of his mind so that he will fight for his Department's budget and so that he can redistribute more in future.
§ 5.1 pm
§ Mr. Kenneth Carlisle (Lincoln)
I should like to make my speech in the context of the general background to the proposed increases. It is generally recognised that the Government promised to ensure that benefits would increase at least in line with inflation. What is proposed accords precisely with our promise to the country at the general election, which has been repeated during the past few years.
We should consider the overall level of inflation. The increase in benefits must be related to the increase in prices. There is no doubt that inflation is the greatest threat to people in receipt of benefits. They are generally those who most need support and they are often the weakest. High inflation and rapid price rises undermine people's confidence. When they go to the shops to buy the necessities of life they see increases each day, but the increase in benefits lags well behind price increases, so people do not understand how they can possibly keep up. The elderly who have some savings see high price increases destroying their life's work. Price increases eat away at savings that have been made over many years of work.
350 Inflation has a bad effect on people who both major parties say they want to help. The hon. Member for Oldham, West (Mr. Meacher) was completely wrong to say that inflation does not matter and that the important thing is the increase in benefit after taking account of inflation. He showed a great misunderstanding of the worry caused by inflation. It is a matter of peace of mind. In a period of high inflation, the confidence of pensioners, one-parent families on benefit, the unemployed and people in receipt of housing benefit is greatly affected, as they simply do not know how they will meet increased prices in the shops.
In times of high inflation, the weakest suffer most. That has been proved time and again. It is important to such groups, therefore, that inflation is kept low and that price increases are conquered. There are other effects of high inflation. Declining currency value and rapidly rising prices destroy the morality of a country. We get used to, a declining currency and become cynical about it, and we no longer pursue sound values which give hope for the future.
Another effect is unemployment. There is no doubt that the inflation of the 1970s and early 1980s bred unemployment. Businesses found that they could not sell their goods competitively on world markets, and they continually sought more cash to replace stocks to make products. The strains on business, failures and a fall in growth, or even decline, have an inevitable effect on jobs. All those effects of inflation can be seen throughout the country, but it is the weakest who suffer most. That is why the Government should take credit for keeping price rises low, and why their main aim should he the continuing control of inflation.
It is important that people who are in receipt of benefit have confidence in the system that is used to calculate increases. In that respect, I echo what the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) said. Are we certain that the system is as good as it should be? Does it reflect the costs that people on benefit and the elderly have to meet every day? Such expenditure is quite different from that of someone in a well-paid job. I am aware that our statisticians refine the system occasionally, but it should receive continual examination.
We must also consider the economy as a whole. As my hon. Friend the Member for Kensington (Sir B. Rhys Williams) said, we must pay for the increases. It is no good promising the world. Indeed, it is evil to promise the world when one does not have the means to provide it.
§ Mr. Marlow
My hon. Friend mentioned increases. Is he aware that, despite the massive increase of last year, the value of child benefit and child tax allowance — the benefits that we give per child—is now £2.70 less than it was in 1955? Whereas there have been increases in some areas, assistance for families with children, especially those with significant numbers of children, is now much less than it was in 1955.
§ Mr. Carlisle
My hon. Friend has gone back to 1955. I suppose that I must have been in receipt of child benefit then. I cannot recall what the level was. Matters have changed so much that it is not very helpful to go back that far, but I believe that since 1979 the real value of child benefit has increased.
Before my hon. Friend the Member for Northampton, North (Mr. Marlow) made that rather interesting 351 intervention, I was considering the overall economy. When promising massive increases in social security payments, the Opposition have a responsibility to consider what they hope to achieve. They must face the reality of how they will pay for the increases. They have promised increased social security payments and increased expenditure on the industrial front, the Health Service and education. There is not a programme that has not been promised extra money.
My right hon. Friend the Chief Secretary has estimated that to pay just for the Opposition's firm promises would require £40 billion of additional expenditure each year, to be carried on year after year. To pay for that, the Opposition would, for example, have to increase VAT to 42 per cent. Such an increase would have a devastating effect on a whole range of people who receive benefit. If the Opposition do not pay for that expenditure by increasing VAT, they will have to raise the money, if they are honest, by some other form of tax, which will have to be paid by all taxpayers, including those in receipt of benefit. The alternative is to borrow. In that case, inflation and interest rates would increase, with all the evil effects that I have already mentioned.
The Opposition's promises are given blandly, but no doubt with genuine sincerity. However, any analysis leaves one sceptical of them, especially given the havoc that would be wrought on the country's economy if those promises were carried out.
Our record of controlling inflation and of trying to get the economy on a course for growth has not been bad and should not be scorned. My hon. Friend the Minister described how we now spend £43 billion a year on social security. That is 30 per cent. of all public expenditure. All benefits have increased by more than the rate of inflation since 1979. The new benefits have also substantially helped the worst off. As my hon. Friend the Member for Stirling (Mr. Forsyth) said, one has to tie any increase in social security directly to the economy's ability to earn the resources to make those increased payments.
I now wish to concentrate on the reform of the social security system. We are talking about one of three upratings over 18 months. The uprating will move forward to April. Thus, we are looking not at an annual uprating but at one for a shorter period when the rate of inflation is low. We are honouring our promise. Many of my constituents will welcome the annual upratings when they move forward to April. I have always received many complaints about the fact that the upratings have been delayed until the autumn. We genuinely welcome the move to April.
I also welcome the reform of social security that is being undertaken. It is generally recognised that, despite the thousands of millions of pounds spent on our social security system it is not directed at the right people. For example, it is accepted that one-parent families and families on low earnings have fallen behind. It is right that we should undertake a substantial review of the social security system so that the large resources available are directed to the right people.
My hon. Friend the Member for Kensington, who has given deep thought to this issue, raised an important point, with which I agree, when he said that the present social security system is far too complex. Even when it has been reformed, it will be difficult to understand it. I urge the 352 Government to reconsider the reforms to see whether, with the aid of computers, they can link tax and social security. In this way we could avoid the absurdity of people receiving social security and paying tax. Given the will and the technology that we now have, it must be within our means to devise a much simpler system.
I am glad that I have taken part in the debate, and I shall end by returning to my main theme. Inflation is the worst enemy. Indeed, rapidly rising prices are the worst enemy of all those on social security. If inflation stood at 100 per cent., we could easily double social security benefits annually. That would look very good on paper, and the hon. Member for Oldham, West clearly would not mind that, but I assure him that much agony would be caused to those of our constituents who are on benefit and who are poor. It is they who would suffer most.
The Government's aim to increase social security at least in line with inflation is good. We have honoured our promise. I have no doubt that when the economy generates the necessary wealth those on social security will in turn benefit in a far more stable way, which will give them, not worry, but more security in future.
§ Mr. Frank Field (Birkenhead)
I am sure that the hon. Member for Lincoln (Mr. Carlisle) will understand if I do not take up all the points that he covered in his wide-ranging speech. However, I should like to comment on a few of them. He concentrated on inflation. I hope that hon. Members will read carefully the speech of my hon. Friend the Member for Oldham, West (Mr. Meacher). I thought that for the first time I noticed a much greater realisation of the importance of inflation in terms of both crude politics and votes, and of what it means to our supporters.
I do not follow the line that a Labour Government need worry only about those on statutory benefits. Many of our supporters have only small savings by comparison with the Government's supporters. One could easily construct an argument that those small savings are more important to the saver. Indeed, those of greater means have more expertise available to them and are far more able to protect their wealth than those with small savings.
I therefore took the speech of my hon. Friend the Member for Oldham, West to be very coded. I understood that he was coming round to the view that a Labour Government would not embark on public expenditure policies and discussions on wage levels that would lead to a rapid increase in prices. We need to think that through carefully and to put it with care to the electorate so that those who vote for our package know the price and the responsibilities that will have to be paid by them in seeing that programme through. It will come as no surprise to those who have heard me speak before that I believe that that means that part of our programme must involve policies on levels of prices, wages and salaries. I make no excuse for that. It is crucial. No one in his right mind would want to return to the inflation levels that existed under this Government and under the previous Labour Government.
Rising prices have a terrifying effect on those at the bottom of the pile. The closest analogy is perhaps with totalitarian regimes which want to create such uncertainty that people do not know what will happen to them next. That is the effect of rapidly rising prices on those who have least. I therefore welcome what I understood to be a coded 353 message from my hon. Friend the Member for Oldham, West. I hope that we shall become clearer as the election approaches.
§ Mr. Field
The hon. Gentleman may entice me to give way later. Many hon. Members wish to speak in the debate. I enjoy interventions, but I am aware that time is limited.
The hon. Member for Lincoln echoed the comments made by the hon. Member for Kensington (Sir B. Rhys Williams). It is rare for me to disagree with the hon. Member for Kensington, who is held in an esteem in the House on a par with few other hon. Members. That is not just because of the knowledge which he brings to our debates, but because of the firm resolution with which he is prepared to see those views through in the Lobby, even if it means voting against the Government. It is easy for Opposition Members to do that, but it is much more difficult for a Government supporter.
The hon. Member for Kensington said that we should aim for a system of combining taxes and benefits. I wonder whether that is the best way forward. Those who set the policies for benefits and those who set our tax policies should know what each is trying to achieve. Have we reached the stage when we can move safely towards combining taxes and benefits?
My hon. Friend the Member for Fulham (Mr. Raynsford) will no doubt talk about housing benefit. It is worth remembering that, when that reform was introduced, we were told that it was a simple reform. That simple reform has become a nightmare for our constituents and ourselves. If our ability to understand the world is so limited that this simple reform became such a God-almighty cock-up, what will happen with a big issue such as combining taxes and benefits? Most of us would be resident seven days a week in our surgeries trying to answer queries. I will not support the growing consensus for a combination of taxes and benefits. I want both sides of government to talk to each other occasionally, to understand what their objectives are and not to have contradictory policies.
I shall present in straightforward Tory language some of the arguments which I hope the Government are presenting to the Treasury on child benefit. The DHSS has had and will continue to have a battle with the Treasury over child benefit. That is why, when the uprating statement was made, I welcomed the 10p increase in child benefit. I was mindful of the Government's record the previous year, but, given that the Treasury was aiming for child benefit not to be increased this year so that it could be established that child benefit was not normally increased when other benefits were increased, that was a crucial battle won by the DHSS.
When we debate next week the private Member's Bill to be introduced by the hon. Member for Kensington, we shall have an opportunity to vote on child benefit. Although Ministers may protest otherwise, if many Conservative Members joined us in the Lobby, especially those who have registered their views in early-day motions and in letters to pressure groups in support of child benefit and its automatic uprating, it would massively strengthen the Department's hand with the Treasury.
The arguments that the Department should pursue with the Government in Tory terms are as follows. First, among 354 all benefits, child benefit strengthens the family. The Conservative Government say that they are about strengthening the family, not in a paternalistic way with officials putting their sticky fingers into people's private lives, but by giving them the resources to build the lives that they want. That would add massively to people's dignity.
Secondly, for a Government who believe that they should not interfere with wages, at least not in the private sector, child benefit is important in lessening the pressure for massive wage increases by family wage-earners, who are often men, but sometimes women. Thirdly, the bigger the child benefit, the bigger the incentive to work, for the reasons that were outlined by the hon. Member for Kensington.
Fourthly—this is the flip side of the coin—the bigger the benefit, the easier it is for people to remain honest. I note the decline in standards of honesty in our society, and it is harder for people at the bottom of the heap to abide by public notions of morality than it is for people who have bank balances. It is absurd for us to expect the poor to be more righteous than others. One reason why I want a Government who will campaign against poverty is that poverty is not some warm overcoat in which people happily shuffle round, but an evil that destroys them. That is part of the reason why people behave less honestly than they might otherwise do.
The fifth Tory reason for indexing child benefit along with other benefits is that it maintains tax equity. The only way in which we can ensure that we do not shift the tax burden from single people and childless couples to people with children when we increase personal allowances is to increase the tax-free income of those with children by a similar amount.
The sixth reason is the effectiveness of child benefit in tackling poverty. Although I would have put that at the top of the list, it does not come first on the list of Tory priorities.
§ Mr. Marlow
Could I add a seventh reason why Conservative Members should support child benefit? That is the paradox that those in work used to receive a child tax allowance. Child tax allowance no longer exists; we have child benefit instead. The reality is that, when there was child tax allowance, Conservative Members would accept its indexation and thought it was right and proper. Now some Conservative Members feel that child benefit should be given only to selected members of society. If we move in that direction, as the hon. Gentleman said, we would be taking money out of the pockets of families and putting it elsewhere. I believe, as the hon. Gentleman believes, that that is no thing for a Conservative Government to do.
§ Mr. Field
All that I would add to the hon. Gentleman's helpful intervention is that it would not just be taking money from the pockets of families; it would be putting money into the pockets of single people and childless couples. I said earlier that the Government told us proudly that they support the family.
I disagree with the hon. Member for Lincoln on another point. As I walk round Birkenhead, I am not set upon by many people who say that they long for the uprating date to be changed to April. I have had no inquiries about that. The Government are changing the uprating date to April because it is more convenient for 355 them, not for my constituents or those of other hon. Members. That being so, the Government are duty-bound to ensure that, in the changeover to April, no beneficiaries will lose in the process. I do not argue that it is a mean-minded, miserable little uprating. If inflation was a little more than 1 per cent., and we linked benefits to prices, benefits would increase by only a small amount. However, some of my hon. Friends feel strongly on that point. As the change is for the Government's convenience, they are duty-bound to ensure that people will not be made worse off as a result of the move.
The evidence that I presented earlier from the Child Poverty Action Group brief — the hon. Member for Northampton, North (Mr. Marlow) has a copy with him — shows that there will be a small, but significant, reduction in the increase in benefit as a result of the changeover. A married couple in receipt of supplementary benefit will be a little less than £10 a year worse off. We must tell the Government that losses of that size, which may be unimportant to hon. Members but are crucial to many of our constituents, should be made up. The most effective way of doing that would be to grant an additional Christmas bonus or to introduce a new summer bonus.
§ Mr. Michael Forsyth (Stirling)
I look forward to studying in the Official Report tomorrow the speech made by the hon. Member for Oldham, West (Mr. Meacher). I listened to it carefully, but I could not break the code to which the hon. Member for Birkenhead (Mr. Field) clearly has access, which apparently tells us that the hon. Member for Oldham, West is in favour of keeping down inflation and recognises, if I may say so without embarrassing the hon. Member for Birkenhead, the powerful argument that he advanced that high inflation hurts most the poorest and the pensioners in our society. The name of the game in this debate is not to argue about which Government would give the largest upratings in benefit, but which Government are capable of producing the largest increases in real terms and creating the conditions which enable the private sector to generate the wealth necessary to meet the bills.
When listening to the hon. Member for Oldham, West, I thought he was saying that inflation was not important in considering those who were poorest in our society because they are covered anyway by indexed benefits. At the risk of saying something that has been said many times, the hon. Gentleman—he is not here, but I dare say that he will study the Official Report—would do well to read again the remarks made by the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) who pointed out that inflation is the father and mother of unemployment. While the hon. Member for Oldham, West is happily creating inflation in order to fulfil promises rashly made, he will be putting more and more people out of work, who will present yet further demands upon the social security system.
I want to explore the central part of the argument of the hon. Member for Oldham, West, which was whether it was better to have a system which indexed benefits according to prices or according to earnings. Of course, he said earnings because the Labour party is the caring party and is therefore in favour of providing more. That is the deception which he presents to the House and to the 356 country. The reality is that if we were to embark on that path—to his credit, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) changed his view half way through his speech, having started off on that path himself — it would result in our having commitments to the poorest in our society which we simply could not meet.
The reality is that even under a Conservative Government, who are determined to control inflation and public expenditure, we are paying ourselves more than we are earning. We are paying ourselves, as we have done for more than a generation, well beyond what we are producing as a nation. If we continue to do so, it will be the poorest who will suffer most and more people will lose their jobs. If we were to follow the prescriptions of the hon. Member for Oldham, West, we would be asking my right hon. Friend the Chancellor of the Exchequer to add to the burden on the wealth-creating sector. We would be penalising those elements in our economy which are capable of generating the resources which we need to meet our obligations.
§ Mrs. Margaret Beckett (Derby, South)
I am listening with great care to the hon. Gentleman, just as I listened with great care to his interventions in the speech of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). I should be grateful if he would explain a little more the point that he is making. On the one hand, he is saying that there should be more wealth creation. He raised that first in his point on greater incentives. Therefore, he is presumably arguing that people in work should be paid more and that the tax burden should be less, and so on. On the other hand, he is lambasting people who are in work for being paid too much. It is not clear to me how he reconciles those two sides of his argument. I am sure that he does, but I am fascinated to know how.
§ Mr. Forsyth
I am grateful to the hon. Lady. I think that I can help her out, and I hope that she will abandon the policies which are based on such ignorance. The position is simple. I am arguing, not for higher pay, but for higher take-home pay by reducing taxation. If the Government succeed, as I am sure they will, in reducing the basic rate of income tax still further, the effect will be that those on average or below average earnings will have higher take-home pay and the pressure on employers to provide inflationary pay increases which are more than has been generated by increases in productivity will be reduced. One of the key reasons why it is important to reduce the burden of taxation on those in work is to moderate wage demands,. If we succeed in moderating wage demands, we shall be more competitive as a country, we shal generate more wealth and, in turn, increase the overall revenues from a lower rate of taxation. That is the first side of the equation.
§ Mr. Forsyth
I should be happy to follow the hon. Gentleman down that road.
The crucial part of the argument is surely that to increase Government commitments in the form of increases in national insurance or taxation in line with artificial increases in pay is to store up problems for the future. The gap will be filled only by borrowing or printing money, which in turn will create more inflation, which in turn will mean that more money has to be found to meet the indexing of benefits which are the consequence of a rise 357 in prices. That is a spiral of decline. That is exactly the position in which the previous Labour Government found themselves.
The sheer hypocrisy of the hon. Member for Oldham, West takes the cake. He comes into the Chamber and berates the Government for not increasing the Christmas bonus. I should be happy to see it increased by 10,000 per cent. plus £10 on the levels that were paid by the Labour Government in 1976 and 1977, because a 10,000 per cent. increase on nothing is nothing.
§ Mr. Marlow
Was there not another misunderstanding in what the hon. Member for Derby, South (Mrs. Beckett) implied? I think she was saying that there was no difference between increased pay and reduced taxation because the benefit to the worker is the same, but there is a massive difference. If pay is increased, the cost of production is increased and unit costs are increased. We become less competitive and lose masses of jobs. is that not one reason why the Labour party seems to be at odds with any understanding of economic policy?
§ Mr. Forsyth
I am grateful to my hon. Friend. I completely support his analysis, although I would not go along with the views that he expressed earlier on child benefit. I shall come to that.
The other extraordinary thing about the views of the hon. Member for Derby, South (Mrs. Beckett) on tax cuts—
§ Mr. Forsyth
I shall gladly give way to the hon. Lady so that she can give us her views on tax cuts, if she cares to do so, but I understand that the position of her party, which I assume she supports, is that it does not think there should be tax cuts. Indeed, several Opposition Members have argued that tax cuts are irrelevant and that what we should do is help pensioners. They all seem to have forgotten that 2.4 million pensioners in Britain pay tax totalling £2.9 billion, which is 9 per cent. of the total tax take.
Yet again we see an inconsistency in the Opposition's argument. which was clear in the promises made by the hon. Member for Oldham, West. He was busily telling us how he would take back all the money that the Government had given away in tax cuts and use it to fund his promises. He mentioned directors earning over £30,000 a year. If we tax people with earnings of over £30,000 a year at 100 per cent., it will be done once, because on the whole people do not work for nothing, as one of my hon. Friends has pointed out, and that will raise £1.8 billion, which will not get anyone very far down the road towards meeting the cost of the bill which would arise from the promises made this very afternoon alone by the hon. Gentleman. Opposition Members must come to terns with the fact that there are simply not enough of the Tory fat cats whom they dream about to meet the bills which a Labour Government would generate. Indeed, the hon. Member for Birkenhead was moving in that direction in his speech.
§ Mr. Forsyth
When the Labour party does that, it will end the whole process of wealth creation, making life even more intolerable for those whom it seeks to represent.
§ Mr. Frank Field
The hon. Gentleman's argument that if we reimpose the level of taxation that existed under the Labour Government we will receive no additional revenue in year two is clearly fallacious, because the Labour Government continued to raise revenue. The hon. Gentleman shakes his head. It is disconcerting to stand up and face the Tory Benches, only to see brightness and light. Normally when I face Tory opponents that is the last thing I expect to see. To correct the hon. Gentleman through the sunlight, we are thinking not of imposing a 100 per cent. tax on incomes above £30,000 a year, but of reverting to the previous level of taxation, which continued to raise a certain sum even under the Labour Government.
The argument that cutting taxation would lead to lower output puts the hon. Gentleman into equal difficulties, because there is not much difference between the growth rate under the Labour Government and that during the whole period in office of this Government. It may be that tax cuts are not the panacea for a relatively high growth rate in the British economy.
§ Mr. Forsyth
The hon. Gentleman is asking me to resolve a difficulty which exists in the Labour party. The Leader of the Opposition has said that a Labour Government would not increase taxes for those earning less than £30,000—he started with £20,000 and changed the figure to £30,000. Having set those guidelines, I am merely pointing out that if one taxes all earnings above £30,000 a year at 100 per cent. that will raise £1.8 billion, which does not go far towards the £25 billion programme of additional expenditure to which the Labour party is committed. Nor does it go far towards meeting the promises made this afternoon.
I agree with the hon. Gentleman that if one wishes to embark on a programme such as he would wish one must tax people who at present are paying tax at the basic rate. There are 18 million people on or below average earnings who, as it is, face penal rates of taxation. It is not in the interests of the country or of eliminating poverty to increase the tax burden on them which would be the consequence of the policies to which the hon. Gentleman is committed. He must address himself to that.
The hon. Gentleman argues that wealth will be generated despite penal rates of taxation on the rich. That is an ideological difference between us and he will have to work extremely hard to convince me that people who pay 98 per cent. tax, as they did previously, will continue to work within the white economy. I thoroughly agree with the hon. Gentleman's emphasis on declining moral standards and the increase in the black economy. That is a consequence of high taxation, and the hon. Gentleman must face the fact that if the Labour party's policies are pursued people will have a greater incentive to work in the black economy and to make demands on the social security system. The hon. Gentleman raised an extremely good point, but it is one which his party needs to resolve and which it has singularly avoided doing today.
I disagree with what my hon. Friend the Member for Northampton, North (Mr. Marlow) said about child benefit. My hon. Friend the Member for Darlington (Mr. Fallon) put it in a nutshell when he asked why we should pay tax-free benefits to duchesses. It is a monstrous waste of money and resources to tax people who pay high marginal rates of tax only to pay their wives child benefit. I am happy to declare an interest, in that I receive child benefit. It is an immense tax-free perk, for which I am 359 grateful, but to have many bureaucrats collecting revenue from, and many others dishing it out to, the same family is not a sensible way to run a country. I would far rather see child benefit being taxed or not being available to those who earn high incomes and pay high marginal rates of tax, and instead being directed to families in greatest need. As an across-the-board benefit it is completely unacceptable at a time when we have finite resources and considerable demands.
§ Sir Brandon Rhys Williams
Does my hon. Friend agree that the simplest way to increase the tax burden on people earning high incomes is to increase the higher rates of tax, not to take away their child benefit? To take away child benefit simply means that they are less well off. If one wishes to penalise high earners, which seems to be the gist of what my hon. Friend is saying, the simplest way to do that is to raise their rate of tax.
§ Mr. Forsyth
Clearly I have picked up some of the code of the hon. Member for Oldham, West, because my message was somewhat different. I am not in favour of increasing the tax burden on anyone. On the contrary, I should like to see it reduced, because that will result in an increase in the wealth generated. I believe that by reducing tax rates we can increase Exchequer revenue, which has been the United States' experience.
My desire to see child benefit not being paid to those on high incomes is not based on a desire to see those people paying higher rates of tax. I simply think that it is madness to have two bureaucracies involved in transferring money from one pocket to the other. Most families with high incomes—I gave the example of duchesses—do not need child benefit to look after their families.
§ Mr. Frank Field
Fortunately or unfortunately, depending on one's political perceptive, the country is not made up of duchesses. First, there is a difference between making child benefit selective — in other words, only paying it to poor families — and taxing it. There may well be a case for taxing child benefit, provided the revenue goes back into child benefit and increases its value. Secondly, if the hon. Gentleman wants to abolish child benefit—this question was implicit in the intervention of the hon. Member for Northampton, North (Mr. Marlow)—how will he maintain tax equity between those with children and those without children? In other words, how does he propose to increase the tax-free income of those two groups on a par? How will he avoid transferring the tax burden to those with children?
§ Mr. Forsyth
Through family income. [Interruption.] I agree with the hon. Member for Birkenhead that the country is not made up of duchesses. The hon. Gentleman is something of an expert in this area and he knows the figures. He knows that we are paying well over £1 billion in child benefit to people on well above average earnings. I should like to see that money redistributed to those in greatest need. I do not have a strong view about whether 360 that should be done through taxation or by some other process. At present the system is wasteful and creates an unnecessary dependancy.
§ Mr. Forsyth
I may be short in the tooth, but I know what I am interested in. I give way to the hon. Gentleman.
§ Mr. Frank Field
The hon. Gentleman says he does not have a strong view on this issue. I do not want to be unkind to the hon. Gentleman, because he has given way to me, but the feeling that I had was that on this matter he did not have a view at all. When pressed to take his argument beyond the slogan, he was hard pushed, to put it politely, to suggest how his alternative would work. I urge him to think carefully after the debate about the points that he is putting to the House and about how in practice his suggestions could be implemented. I do not believe that they could be.
§ Mr. Forsyth
If the hon. Gentleman is pressing me to express a view, I have to say that I would prefer a tax on child benefit, but that has the great disadvantage that it does not overcome my principal objection, which is that we would still have large numbers of bureaucrats giving out and taking back money. That would mean that less money would be available for the pockets of the families who needed it.
I should like to return to my broad theme, which arises from the speech of the hon. Member for Oldham, West. The Opposition make promises which they cannot possibly fund or keep, and they direct the whole of their energy to misrepresenting the real benefit achievements and the benefits to the Health Service that have been made by the Government.
The most astonishing thing about this uprating is that it costs £420 million, and we are being attacked by the Opposition and by people outside the House over the small percentage increase which arises as a result of our success in reducing inflation. If Britain were ever to be "blessed" with a Labour Administration with a commitment to create inflation of the sort that we heard about from the hon. Member for Oldham, West, the cost of simply meeting the obligations to keep up with prices would be so enormous that the Labour Government would be unable to meet the existing commitments to the benefits system.
The hon. Member for Oldham, West told the House that the Government's record on the Health Service was a disgrace and that it was repudiated all over Britain. To say that shows as much nerve as the nerve that he had when he spoke about the pensioners' Christmas bonus. The last Labour Government made cuts in the Health Service capital programme and cut the spending programme. That is in contrast to the present Government's record. I did not intend to speak in this debate until I heard the hon. Gentleman's speech, but perhaps I could conclude on a lighter note. I obviously missed the code defined by the hon. Member for Birkenhead, but as I listened to the Opposition speeches I was reminded of the lines by Kipling:Dreaming of things they meant to do,All complete in a minute or two,Something noble and grand and good,Won by merely wishing we could.
§ Mr. Nick Raynsford (Fulham)
I shall confine my remarks to the upratings in the housing benefits scheme and ask for the indulgence of the House for going into relatively complex and difficult calculations. I have to do that because this is a difficult and complex subject. The increase in the needs allowance under the statutory instrument that we are considering is substantially less than it would he if the traditional formula that applied in previous years had been adopted. Therefore, it will be necessary to outline the traditional formula.
The needs allowance that has existed effectively since 1972, when a Conservative Government introduced a rent rebate and allowance scheme, has four elements. The first element is the supplementary benefit long-term scale rate; the second is 40 per cent. of the average council house rent; the third is 40 per cent. of the average rates; and the fourth is 100 per cent. of the average water rates. The logic behind that is that people who receive standard housing benefit, as it is now known, have an income that is generally above the supplementary benefit scale and have to meet a proportion of their rent and rates and 100 per cent. of their water rates. The formula was calculated to try to ensure that they are left in a broadly comparable position to people on supplementary benefit who receive a larger amount of assistance towards those housing elements.
This year the traditional formula has not been applied and the Government have said that they are applying the same increase to the housing benefit needs allowance as they have applied to the increase in the pensions, that is, 40p for a single pensioner and 65p for a couple. Let us leave aside for the moment the fact that that increase is insulting and derisorily small and has been almost universally condemned by people interested in the welfare of pensioners.
The critical question to be asked is: what would the increase in the needs allowance have been if the traditional formula had been applied? This is relatively easy to establish. We know that the supplementary benefit long-term scale rate being put forward by the Government for a single person is £37.95. Forty per cent. of the average council house rent, which is currently £16.57 a week, amounts to £6.63, and 40 per cent. of the average rates, currently around £7.50 a week, is £3, and 100 per cent. of the average water rates is £1.78. That gives a total of £49.36. Allowing for the normal practice of rounding that to the nearest 5p, we arrive at a figure of £49.35. That is the figure for the needs allowance of a single person had the traditional formula been adopted.
Instead of applying the traditional formula, the Government have brought forward a statutory instrument proposing that the actual needs allowance will be £48.10. That is, £1.25 a week below the amount that it ought to be. There has been no explanation from the Government about this shortfall and no apology for it. It has simply been presented to us in the hope that the obscure nature and complexity of the formula will result in no one noticing the difference. It is not a shortfall of a few pence, as one might have inferred from the speech by the Minister who opened the debate. He implied that there were various adjustments because it was only an interim increase, and that the amounts involved were only a few pence. By no stretch of the imagination is £1.25 a week a few pence: it is a significant shortfall.
362 What are the implications of that £1.25 shortfall? According to the last answer given by the Minister to a question that I put to him about a month ago, approximately 3.99 million households receive standard housing benefit. That is one in five of the population and represents a significant number of people. What is the average loss to those people because of this strange change in the formula for uprating their benefit? It is not £1.25 because, of course, the formula is complex. The £1.25 is the amount of the needs allowance, but the actual benefit depends on the amount of a person's income in relation to the needs allowance. If a person's income is exactly equal to the needs allowance, he will receive 60 per cent. of his rent and rates.
Someone whose income is exactly equal to the needs allowance will suffer a loss of 75p, which is 60 per cent. of £1.25. For those people whose incomes are above or below the needs allowance, the loss will vary, partly depending on how far the income is above or below the needs allowance, and partly depending on other factors. It is impossible to give an overall figure for every claimant, but. I should like to come back to certain parameters. For a person on the needs allowance, the average loss will be 75p a week, equal to £39 a year. That is the sort of loss that these people will suffer as a result of the Government's increase and the Government have not had the honesty to tell anyone about that loss.
§ Mr. Raynsford
I will give way to the Minister in a moment if he wants to reply.
If that loss of £39 a year applied to every housing benefit recipient—and I do not claim that it does—the total saving to the Government would be £155 million a year. That is a significant amount. In reality, I expect the Government's savings will be less because of the complex formula. I have consulted the Library on this, and it gave me the estimate that the total savings for the Government are likely to be about £100 million in the course of a year. We are dealing with a Government who are making covert savings of between £100 million and £150 million without having the honesty to tell the House about it. That is a serious matter.
I put these figures forward not in the confidence that they are precisely accurate because, as I have explained, a complex formula is involved and it is difficult to be precise, but because I have no other option. A month ago, I asked for detailed figures on this. I asked the Secretary of State for Social Services:what savings in expenditure on housing benefit he expects to make in the 1986–87 and 1987–88 as a result of his proposal to increase the main housing benefit needs allowance in July 1986 by the same cash amounts as the retirement pension rather than according to the normal uprating formula.The hon. Member for Huntingdon (Mr. Major) replied:No comparison is available since the traditional uprating formula, which has sometimes produced reductions in entitlement in the past"—that is an interesting comment because in my memory there has never been a reduction in the needs allowance—could not be used on this occasion because the measurement period for the transitional July uprating covers only May 1985 to January 1986."—[Official Report, 12 May 1986; Vol. 97, c. 381.]That was a convenient answer for the Minister because it allowed him to avoid facing the fundamental question about the amount of the saving.
363 Our complaint is that, because the Government have gone away from the traditional uprating formula, there has been a significant cut in housing benefit and a significant saving for the Government, about which they have not come clean. I notice that the Secretary of State is seeking advice on this point. I hope that he gets good advice so that he will be able to inform the House of it.
Who will lose as a result of these changes? In total, about 3,990,000 households receiving standard housing benefit will be affected. Of those, 2.63 million pensioner households will be affected, and will have losses inflicted upon them because of this covert cut in benefit. Some 1.5 million home owners and 1.85 million council tenants will suffer losses because the Government have chosen, secretly and furtively, to cut housing benefit, but have not had the honesty to admit to the House that that is what they are doing.
§ Mr. Major
Before the hon. Gentleman proceeds with categorical assertions such as this, I point out that it is within the recollection of the House that a few minutes ago he said that he does not have confidence in his figures. Until such time as he does have that confidence, I hope that he will make it clear to the House that his assertions are based on figures that have not yet been examined, and certainly not conceded by the Government.
§ Mr. Raynsford
As the Minister will also recall, I was talking about the number of households that will suffer losses. I have been able to give these figures categorically because the Minister gave me these figures in answer to a question that I posed a month ago. The figures that I said that I could not give precisely are of the total savings to the Government, because he declined to give me that answer. Therefore, I can state on the basis of his answers that about 4 million households are affected, including about 2.5 million pensioner households, 1.5 million owner-occupiers and 1.8 million council tenants. Those are the Minister's figures. The extent of the loss and the total savings to the Government I cannot give because those figures have been denied me. I hope that the Minister will answer that challenge.
I remind the House that this is not the first time that recipients of housing benefit have suffered loss at the hands of the Government. Some 2.2 million households lost benefit in April 1983 as a result of changes to the housing benefit formula at that stage. In April and November 1984, a further 2 million households lost as a result of further adjustments — cuts imposed by the Government that some Conservative Members had the courage to oppose. In April 1985, a further 90,000 households lost as a result of further changes involving people in areas with high rents, and in November 1985 a further 2 million households lost because of changes to the rate rebate taper formula, a complex issue.
The Government's cuts to the housing benefit scheme have caused extensive losses involving hundreds of millions of pounds. Additionally, the Social Security Bill, which the House recently considered, proposes further swingeing cuts in housing benefit, which will reduce benefit to millions of households and will give the Government a saving of about £450 million. On top of that, we have an unannounced cut that could involve the Government in savings of upwards of £100 million, about which they have not come clean.
364 What is the Government's case? The two possible answers that I sensed from the opening speech made by the Minister for Social Security were that the increase has been done in a way aimed at preventing administrative problems to local authorities and the DHSS caused by having different upratings for different benefits. That is a somewhat unconvincing argument coming from a Government who have consistently adjusted the formulae for housing benefit—often at short notice and involving considerable administrative problems for local authorities—to make cuts. Why is it that, on this occasion, when doing the thing properly would have been to the benefit of households in receipt of housing benefit, the Government are not prepared to do so? If they can make administratively difficult adjustments to make cuts, can they not do the same to be fair to claimants? Going on the basis of their previous cuts in housing benefit, that argument seems pretty crude and unconvincing.
The second argument that the Government may advance is that they could not adopt the formula because the uprating came earlier than usual and they did not have the information on the increase in rent and rates to make the assessment. This would be a convenient argument if it carried water, but it does not because the Ministers in the DHSS had only to ask their counterparts in the Department of the Environment what sort of figures they were anticipating for average rent increases in April this year and they would have had an answer. When the new needs allowance was announced by the DHSS, the Department of the Environment was giving advice to local authorities that it was expecting—and this was the basis on which subsidies to local authorities were being calculated—an increase in rents of about 65p.
It would be nice if there were more co-ordination between the Government Departments and if the DHSS actually spoke to the Department of the Environment and asked about these figures. Had it done so, it would have had a solid basis on which to make the uprating assessment. Sadly, this appears to be yet another occasion when the DHSS did not speak to the Department of the Environment about matters that require co-ordination for social policy purposes. One thinks of the long, sad history of the board and lodging allowance cuts, of the proposed cuts on mortgage support in supplementary benefits. In particular, one thinks of the housing benefit cuts, in which the DHSS appeared to be taking unilateral action that had a serious impact on housing policies, but did not have any discussion with the Department primarily concerned with housing policy before making its announcement. Those arguments are unconvincing. If there were a will, undoubtedly a way would be found to ensure that the proper uprating would have been given.
If the Government wanted to apply the normal formula, they could have found a pretty sound basis for doing so. Instead, they chose conveniently to ignore the traditional formula. It was convenient to them because their alternative formula cut benefit increases and substantially reduced expenditure. I shall be interested to hear what the Minister has to say about this.
This occasion contrasts markedly to what happened a year ago, when the DHSS made a swingeing increase in the non-dependent deductions under the housing benefit scheme of some 18 per cent., far ahead of the uprating in benefits. They justified it on the ground that there is an arcane formula used for assessing non-dependent deductions, although anyone in the know knows that that 365 is based entirely on owner-occupier costs and the majority of housing benefit recipients are tenants, so it is a most dubious formula. However, the Minister justified the increase on the basis that his time-honoured formula had to be adopted. If that logic was good enough when cuts were in the wind, why is it not acceptable now when claimants have a right to receive a proper and reasonable increase?
The Minister's arguments were unconvincing. A third argument that may be advanced is that this is only temporary because next year, when the April increase takes place, the rent increases that apply this April will be taken into account and it will all catch up in the end. That argument is equally unconvincing on two counts. Why should claimants have to wait that length of time in order to catch up and, secondly, in effect it will not be catching up because by that stage it will be a year after the rent increase before the formula comes into effect. In other words, there will have been a one-year time lag, as a result of which claimants will have lost money.
I can find no justification whatsoever for the Government's action. This proposed increase, which breaks the traditional formula, is a dishonourable action. I am concerned about the lack of any frank information and the Government's unwillingness to answer my questions. The House deserves proper answers from Ministers. In the absence of such answers we should insist on these regulations being annulled and instead insist on a fair and proper increase in the housing benefit needs allowance.
§ Mr. Martin M. Brandon-Bravo (Nottingham, South)
I deeply regret that the hon. Member for Oldham, West (Mr. Meacher) is no longer present, because it was obvious from the way in which he delivered his speech that he believes his brief. He must also believe that the British people are just about the most gullible in the world if he thinks that they will swallow what he said. We were treated to a stream of telephone numbers in relation to the kind of money that the hon. Gentleman would spend if he became Secretary of State.
The hon. Gentleman ignores—and I know that his leader tries to ignore—the fact that he is not the only shadow spokesman who talks in telephone numbers when informing us of what Opposition Members will spend when they come to speak—I hope that they never do—from the Government Dispatch Box. Depending on which newspaper one reads, the figure varies between £24,000 million and £30,000 million more in a financial year—
§ Mr. Brandon-Bravo
My lion. Friend is quite right.
The hon. Member for Oldham, West ought to note what was said by his right hon. Friend the Member for Manchester, Gorton (Mr. Kaufman) just after the general election in 1983. I hope that the House will forgive me, because I do not have the Hansard with me, but I think that I paraphrase the right hon. Gentleman correctly. He said that his party had pledged additional spending of £17,000 million a year, that the British public would not be fooled and that his party's policy therefore lacked credibility. We are going through that same process again, and the Labour party's case lacks the same credibility.
I wish to speak about our pensioners, who constitute a substantial part of our population. They also will not 366 have been fooled by the speech of the hon. Member for Oldham, West. After all, those people grew up with very different values from those that the hon. Gentleman would support. They valued thrift and independence rather than dependence, a philosophy of which the Labour party seems to make a virtue.
The Labour party also seems to dismiss as irrelevant and unimportant those pensioners who have savings. I think the comment was made that there were not many of them.
§ Mr. Brandon-Bravo
Not duchesses, Mr. Birkenhead, just ordinary working class pensioners who have put a little bit by for the eventual rainy day, and who after five years of Labour rule found that their little nest egg had become worthless.
§ Mr. Brandon-Bravo
I shall not give way for the moment, because we are running short of time. We are not going down that road again —
§ Mr. Brandon-Bravo
The hon. Gentleman spoke for a long time and another of my hon. Friends or perhaps even another Opposition Member may still be waiting to speak.
All too often we tend to forget that at long last, after many years, people's savings that are locked away in building societies are now earning a greater return than the rate of inflation. That is important to many of our pensioners who want their savings protected and who rely on the little extra that building society interest gives them. As my hon. Friend the Member for Stirling (Mr. Forsyth) pointed out, it is foolish to talk as though squeezing the rich will be sufficient to deliver all the fancy promises that we have heard from the Labour party.
I think that it was at the Labour party conference in 1976 — [HON. MEMBERS: "Were you there?"] We all watched the television—that the right hon. Member for Leeds, East (Mr. Healey) then used the phrase that the Labour party would squeeze the rich until the pips squeaked. But as my hon. Friend the Member for Stirling said, he discovered that there were not enough such people to deliver the kind of promises that had been made by the Labour party, and at the end of the day everyone was paying more.
§ Mr. Andrew Rowe (Mid-Kent)
It should not escape our attention that the view of the shadow Chancellor about who would need to be taxed more heavily changed markedly when he discovered the average take-home pay of a prison officer.
§ Mr. Brandon-Bravo
My hon. Friend makes a valid point. Indeed, the figure identifying the wicked rich has been raised from £20,000 to £30,000, because people do not have to hold very important posts for a husband and wife to discover that they are over the £20,000 limit. Those are the very families that the shadow Chancellor would wish to squeeze.
I hope that the hon. Member for Birkenhead (Mr. Field) does not think me patronising, but I believe that he was the first Labour Member at least to have the honesty to say that one must present a balanced package. Labour Members must be honest enough to say that, if they wish to spend astronomical sums, they must come to terms with 367 how they would raise them. The honesty of the hon. Member for Birkenhead is perhaps the reason why he speaks from the Back Benches rather than from the Opposition Front Bench.
Like Ministers, I share a sense of unease and uncomfortableness about the 40p adjustment. I know the reasons for it. I was delighted, as was everyone, at just how low inflation had fallen. On that basis, the 40p was technically correct. Some said that it was so small a sum that perhaps it should not have been paid at all and that the payment should have been left until April. I have no doubt that if the Minister had taken that view we should have heard an even louder squeak from the Opposition Benches because pensioners would have had to wait for 18 months. It was the classic Catch 22 — the no-win situation.
If we can maintain that very low rate of inflation—as I believe we can — and if the economy continues to grow, I hope that Ministers will persuade senior colleagues that we should do a little more for our pensioners next April than merely deliver our promise. I am glad that we made that promise and that it has been kept, but we should offer pensioners a little more out of the growth of the economy so that they can enjoy some of the benefits flowing to those in work.
I say that because I am conscious that the cost of living for our pensioners is different from that shown in the conventional cost of living index published in newspapers. I have no figures to prove my assertion, but I guess that the average pensioner does not benefit from a fall in the mortgage rate or from a fall in the cost of petrol. I do not know by what mechanism we can truly establish the cost of living for the bulk of our pensioners, but if it can be established, I hope that my senior colleagues will try to make some move towards delivering a rise next April for our pensioners in line with their cost of living, which is so different from ours.
§ Mr. Raynsford
In view of what I said earlier about 2.5 million pensioners suffering losses because of the failure to uprate housing benefit needs allowance properly, does the hon. Gentleman accept that an effective improvement could be made for pensioners, including those with savings whose income is above the supplementary benefit level, by pressing the Government for a proper increase in housing benefit this July?
§ Mr. Brandon-Bravo
When the hon. Gentleman rose and apologised to the House for getting involved in technicalities, I guarantee that, 30 seconds later, he had lost the attention of most hon. Members. That happened not only on the Government side; I saw blank looks of amazement on the faces of most of his hon. Friends.
In Nottingham this winter the local newspaper ran a magnificent campaign for the old and cold. It raised a lot of money, with which it made specific grants to people identified by their neighbours as being in trouble over heating payments. It was with a sense of unease that I accepted that the newspaper had to conduct such a campaign, but I was glad that it did. It was good to see the public responding so well to the appeal.
An interesting sidelight on that campaign for the old and cold is not addressed by all the arguments about additional heating payments. Two or three weeks ago Nottingham university staged an open day. One of the 368 exhibitions was about cold and its effect upon human beings. I suppose that I was subconsciously aware of what the exhibition demonstrated, but it had never been brought to my attention in such a forceful way.
The exhibition was about the effect upon our elderly of a poor diet. The professor at the university said that poor diet probably had a greater impact on death through hypothermia than the temperature in an elderly person's home. On reflection, most of us will realise older people want a higher temperature in their homes than we find comfortable. Many elderly people have the strange belief that they do not need to eat as much as most of us. They eat less and less as they get older, and that is one of the major causes of the tragic loss of life through hypothermia.
Perhaps the Government can do something about that. I hesitate to make suggestions because it is difficult to persuade an old person that eating properly is as important as keeping the gas fire on all day.
I agree with hon. Members on both sides of the House that the weakest in our society are affected by inflation. It is no good saying, as members of the Labour party and of the alliance say all too often, that a few extra points on the cost of living index do not matter. They really do. We do no service to our community by arguing that it does not matter if inflation is a few points higher so long as benefits go up in line with that inflation. We cannot have it both ways. If we accept that philosophy, we shall be back to the earnings-related benefits argument. I hope that the Government continue to make inflation their top priority. If we can keep inflation down to tiny percentages, even if we cannot achieve zero, we shall do the greatest service to those at the bottom of the income scale and to our pensioners.
§ Dr. Norman A. Godman (Greenock and Port Glasgow)
I wish to speak briefly to the second order, on supplementary benefit uprating, but first I should like to respond to what the hon. Member for Nottingham, South (Mr. Brandon-Bravo) said. Surely he was not saying that research at Nottingham university demonstrated that diet is more important for the elderly than a warm house. I should have thought that a sensible diet and a warm house are very important to the elderly. The hon. Gentleman might not have said that, but that is what I understood.
The hon. Gentleman spoke about people in work. I am sure that he does not need to be reminded that the numbers of people in work and out of work are not evenly distributed throughout the nation. A large proportion of my constituents are utterly dependent on supplementary benefit and other payments. Indeed, over the past six years there has been a 94 per cent. increase in the number of supplementary benefit claimants in Greenock and Port Glasgow.
About 21 per cent. of the population in Scotland live on or below the supplementary benefit level. In Strathclyde the figure is 26.8 per cent.; in Glasgow 39.5 per cent. of people with dependants live on social security payments, while in my constituency about 33,000 people live on or below the supplementary benefit level. Therefore, upratings are of great importance. It is both inevitable and predictable that there will be pronounced and profound differences in this House on the means by which we reform the system of social security. As I said 369 many times in the social security Bill Committee, we have a ramshackle system of social welfare, of which these upratings are a part.
The Minister said that the regulations covering severe weather payments were being reviewed. I hope that it will not he too lengthy a process. I have spent some considerable time arguing the case for these payments. My hon. Friend the Member for Birkenhead (Mr. Field) asked whether those payments could be made to those saddled with additional fuel bills because of the past few weeks of unseasonably cold weather. He was not being facetious. The severe weather payment is based upon the additional costs brought about by the additional fuel consumed in unseasonably cold weather. Indeed, the Minister said that in February such payments were made to 57,000 pensioners and others in Scotland. It is an important issue and my hon. Friend was right to request payments because of our exceptionally cold summer. Despite what the hon. Member for Nottingham, South said, people need warm rooms, and this has been a dreadful summer.
I also agree with much of what my hon. Friend the Member for Birkenhead said about the dangers of inflation. He made sound sense. However, as well as the spectre of inflation and the distress caused by constantly increasing prices to those on low incomes, especially pensioners, we also have the problem of structural unemployment. More and more people are deeply affected by economic decline. The male unemployment rate in my constituency is at the scandalously high level of 26 per cent., and there has been a 94 per cent. increase in the number of supplementary benefit payments during the past six years. To some extent, that has been generated by the disastrously inadequate and antiquated economic policies of this Government.
It is right and proper that we should all put our minds to the reform of the system of social welfare, although there are bound to be differences across the House. We must consider an increase in taxation for some of those in work, especially the better off. We all have an obligation to protect and promote the interests of the needy in our constituencies. As I have already said, 33,000 people in my constituency are on or below supplementary benefit level — yet it is not the area most heavily affected by structural decline on the Clyde or in other parts of Scotland. It is right that we should examine ways to change the system. I believe that the Labour party system is much better than that supported and promoted by the present Administration.
§ Mrs. Margaret Beckett (Derby, South)
This has been an extremely interesting debate. I apologise for not having been present throughout, although I have been here for the larger part. I have certainly been here long enough to realise how many of the main points of concern have been ably expressed by hon. Members on both sides.
My main point, which has been made already but bears repeating, is the extent to which our debate is about an opportunity lost. The hon. Member for Lincoln (Mr. Carlisle) suggested that the Government should take credit for the lower levels of inflation that we now enjoy. Over the past few years they have done nothing else, although they have not wanted to take the blame for some of the problems that have accompanied that.
Because the rate of inflation is comparatively low, it gives the Government a great opportunity to do more than 370 the rate of inflation and to do so, relatively speaking, inexpensively. It has been an extraordinary feature of this and other uprating debates that Tory Back Benchers, clearly following the arguments put to them, speak as though it would be inconceivable generosity were the Government to do rather more than increase benefits in line with the increase in prices—as though the standard of living of the poorest members of the community was being fully protected by this and other upratings.
It is important to remember that when in 1980 the Government decided to break the link between earnings and benefits and to retain only the link between benefits and prices the then Secretary of State, in specific and unqualified terms, said that the Government's intention was not merely to increase benefits in line with prices year after year but to take the opportunity — this is his argument, not mine — presented by the economic difficulties in which the Government found themselves to break the link with earnings that was at that time a statutory and bounden duty on the Government and to retain only the statutory duty to increase in line with prices.
I was under the impression that the Chancellor of the Exchequer, let alone the Secretary of State for Employment, believes that we are now in a time of prosperity — that there has been great success in the Government's economic and industrial policies and that things are now substantially better than for many years past. On the basis of the argument put forward by the previous Secretary of State in 1980, surely it is now opportune for the Government to do as they indicated in 1980 they had every intention of doing—from time to time to make a one-off increase in benefits in line with earnings, although they did not intend to do that every year.
The reason that the Secretary of State of the day gave that assurance was a reason of importance which stands today. His recognition that to link benefits only with prices meant, as it means now, a steady and inexorable decline in the standard of living of the poorest members of the community. That is clearly evident now regarding pensioners. The figures are known. A single pensioner has lost about £4 a week through the break with earnings, and a married couple have lost about £7 a week.
It is evident how much people have dropped behind in terms of living standards when one looks at the long-term predictions of the Government Actuary regarding pensions. Even before the Government got their grubby hands on the state earnings-related scheme, the: Government Actuary showed that over a period of years the basic pension so declines in value when linked only with prices that even with the addition of an untouched earnings-related scheme the total pension gradually declines until it is below that of a basic pension today. Those are the Government's own figures and predictions.
The value of child support is being eroded. Not even the £175 million cut last year from child benefit has been restored. The value of child support is now less than it was 30 years ago.
I could not say that one would welcome a decision to leave non-dependent deductions in housing benefit where they were but, as my hon. Friend the Member for Fulham (Mr. Raynsford) said, the Government, having introduced that deduction at an exorbitant and unjustified level, disproportionate to the cost of rent and rates, increased it last year by an amount substantially above the rate of 371 inflation. The fact that the Government did not choose to increase it this year is, I suppose, to be welcomed, but it does not mean that we have forgotten how much they took from such families last year. The deduction affects poor families with young adults who are in work. The decision to scrap the non-household rent addition is a blow to many needy families with young adults out of work. It is a further blow to their independence.
It has been said that, since the Conservative party has been in government, about £1.5 million has been saved at the expense of the young in particular and that substantial savings along those lines are likely in the Social Security Bill. How much do the Government expect to save from the change? We know that, when the Government made similar changes in 1983, they saved £20 million. A further set of changes in 1985–86 saved another £45 million. We shall be interested to learn how much has been saved at the expense, in particular, of young people forced to depend on benefits.
My hon. Friend the Member for Fulham, in an interesting and excellent speech on housing benefit, not only educated many hon. Members — as the hon. Member for Nottingham, South (Mr. Brandon-Bravo) conceded — in the intricacies and byways of housing benefit but put most pertinently to the Government a number of questions on the impact of their changes. It remains for me only to say that I hope that on this occasion the Minister will say whether my hon. Friend the Member for Fulham was correct in asserting that savings of £100 million or £150 million will be made. If he says that my hon. Friend is incorrect, he might tell us the order of magnitude of the sums involved.
The Government have lost an opportunity to restore some of the determination in living standards over recent years for the poorest members of the community. They have seized an opportunity to make more savings along the way, hoping that, because they are made by way of obscure technical adjustments, no one will notice—that is, no one other than the 4 million households which will be affected by the changes in housing benefits. They have seized an opportunity to make the minimum possible increase in benefits.
Much has been said in the House about the amount of the social security budget, implying that the Government are being generous. It should be clearly on record that every year since the Government broke the link with earnings they have given the minimum possible — the minimum that they are forced to do by law — to the poorest members of our community, whereas in every Budget they have brought in they have been generous to those whose needs are least.
My hon. Friend the Member for Fulham said that the Government could have taken account of changes still to come and not made the full savings that they can make because of the time of the uprating, if they had consulted their colleagues in the Department of the Environment. If not this year, in which year will the Government make up the losses? The hon. Member for Nottingham, South said that he hoped the year would come when the Government felt able to give back to the poor some of the living standards that they have lost over recent years. We all hope that that year will come, but since it has been six years since the change was made, we wonder when that will be. Perhaps the hon. Member for Nottingham, South 372 should pin his hopes, as should the pensioners and the unemployed, on a pre-election giveaway. Judging from the Government's track record so far, I am not sure that even those hopes should be strong.
The Government say that the poor are being protected in the uprating just as they say that the National Health Service is prospering, the economy is booming and everything is for the best in the best of all possible worlds. Even Conservative Members clearly realise that that is not the reality of how the Health Service or much else is perceived. There have been some signs in today's debate that they are beginning to realise that the same is true about the rest of the welfare state. We welcome their conversion. We hope that the pressure that they bring to bear will mean that next year's uprating will, for once, implement the pledges given by a former Secretary of State six years ago.
§ The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Major)
This has been an intriguing debate, spiced with assertion that has, as is traditional on these occasions, ranged far further than the question of uprating. I have no objection to that. As usual, there has been a mixture of informed and constructive comment, and other comment which it would be kindest to characterise as unhelpful. What has been consistent about the contributions from the Opposition Benches is that there have been times when one might been forgiven for believing that the debate was about reductions in benefits rather than orders which increase the main benefit rates and add some £420 million in a full year to social security spending. As I noted what was said, I wondered whether we were debating the draft regulations that I have considered carefully over recent days.
It is worth re-emphasising at the outset that the uprating fulfils our undertaking to increase pensions and other linked long-term benefits in line with the movement of prices. It is an oddity that the pursuit of low inflation, which has been the prime aim of Governments for 20 years, should, once achieved, give rise to criticism over benefit increases.
If the Opposition were presiding over, say, a 16 per cent. inflation rate—I pick the average rate during their last term of office, fearing that their spending plans would re-create that wicked cycle of rising prices and falling prospects—they would no doubt regard it as a matter of pride to protect benefit values by increasing rates by a similar amount. But when we protect benefit values, and savings too—as one of my hon. Friend's trenchantly pointed out — by bringing down inflation, that is a matter for criticism regarding benefit increases.
In reality we must get used again to living in a world of low price rises, when neither benefits nor, I hope, earnings need to go up by enormous amounts simply to keep up with the cost of living. Clearly, it will take some psychological adjustment. I am sorry to see that many Opposition Members are clearly maladjusted in that respect. The only logical conclusion one can draw from much of what they said was that they would like inflation to be higher so that pensioners and others can be given a larger increase.
Although the circumstances of the uprating are exceptional, and the small increase in benefits is due partly to the interim nature of the uprating, it is clear that the downward path of inflation, which thankfully looks as if 373 it will continue, means that it is possible for future uprating debates to be held against a background of low inflation. I am grateful to my hon. Friends the Members for Stirling (Mr. Forsyth) and Lincoln (Mr. Carlisle) and the hon. Members for Birkenhead (Mr. Field), and Roxburgh and Berwickshire (Mr. Kirkwood) for acknowledging clearly and without equivocation the full value of low inflation for those on modest incomes.
The hon. Member for Oldham, West (Mr. Meacher) made a rather expensive speech. No doubt it was enjoyed by Labour Back Benchers but it will conceivably mean misery for that unlikely creature of the future, a Labour Chancellor. I was concerned, not just with what the hon. Gentleman said, but, substantially, with what he left out. He talked of what the Christmas bonus would have been worth if it had been index-linked, but he certainly did not mention what it was worth in the years when a Labour Government found it impossible to pay it. He talked of the level of pensions and what it would have been if pensions had been index-linked to earnings, but, despite being challenged, he did not say what the cost would be in national insurance contributions, lost employment and increased inflation.
The hon. Member for Oldham, West did say — I acknowledge this—that he would claw back £3.6 billion in tax from what he loosely called "the rich" to pay for his new spending programme. I must tell him that £3.6 billion may seem a large sum to him, but his promises would cost a minimum of £4.6 billion in the very first year, of which £1.5 billion would be for child benefit. The Opposition will need to look far wider than the hon. Gentleman suggested if they are to fund their promises.
§ Mr. Major
To be accused by the hon. Gentleman of citing fantasy figures is surely one of the delights of life.
My hon. Friend the Member for Stirling successfully exploded the myth that these benefit increases could be paid for by taxes on the rich. I commend his speech to the hon. Member for Oldham, West, who was unavoidably absent at that time.
The hon. Member for Oldham, West compared the Government's record with that of their immediate predecessor. Again, there was much that he neglected to say. For example, he did not say, although it is highly relevant to pensioners, that the real value of savings for a pensioner with a building society account fell by 33 per cent. during the period of the last Labour Government, largely because of precisely the same policies that the Labour party now proposes and precisely the same policies that it would use to pay for the better provision about which the hon. Member for Oldham, West talked. Some help that would be to the pensioners. I shall with relish refer the hon. Gentleman's remarks to the tender researches of my right hon. Friend the Chief Secretary, who will doubtless check carefully to ascertain whether the hon. Gentleman's promises are within the £24 billion cost of Labour's programme to date or are a substantive addition to that sum.
The hon. Member for Derby, South (Mrs. Beckett) suggested that, as inflation was now so low — I am grateful for that acknowledgment—we might have done better and that it was trivial of us not to increase benefits by a larger sum. I must say to her, because arithmetic is not a strong point on the Opposition Front Bench—
§ Mr. Major
It is non-existent. My hon. Friend is characteristically less generous than me. Each increase of 1 per cent. in benefits costs some £360 million, which is in no sense a trivial sum.
My hon. Friend the Member for Kensington (Sir B. Rhys Williams) made a typically thoughtful and constructive speech on a theme that he has pursued valiantly for many years. He will not expect me to respond to his philosophical observations, and I shall not disappoint him. But I shall confirm that we are making giant strides towards—
§ Mr. Major
The hon. Lady should wait to hear what I say before she disputes it. I was going to say—I shall repeat it from the beginning so that she may have its full rich flavour—that we are making giant strides towards the efficient computerised system in the Department of Health and Social Security that my hon. Friend the Member for Kensington seeks so that we can deliver an accurate and swift social security service to the public. That is what we seek and what our operational strategy seeks to deliver. I hope that my hon. Friend the Member for Kensington, who, I understand, has some objections to the social security reforms, will appreciate the structural changes in the Social Security Bill which will make a significant contribution to the increased efficiency that he seeks.
§ Mr. Major
I hope that my hon. Friend will forgive me, but I must respond to a large number of points and I want to deal with as many as I can.
The hon. Member for Roxburgh and Berwickshire invited the Government to re-examine the retail price index. [Interruption.] No doubt he is now examining the Liberal party's defence policy! The hon. Gentleman invited the Government to examine the retail price index in the light of the results of recent reports by the Institute for Fiscal Studies. My hon. Friend the Member for Lincoln raised the same question and added that the RPI needed continuing investigation. It gets that. The construction of the RPI is the responsibility of a committee of statistical experts. At present, the retail price advisory committee is sitting. It will consider the RPI and the special pensioners' price index. I assure the hon. Member for Roxburgh and Berwickshire that the committee will take full account of the type of criticisms made by the Institute for Fiscal Studies and, as normally happens, any recommendations for re-weighting will be taken into account in the RPI from January next.
The hon. Member for Roxburgh and Berwickshire may not be aware that the RPI has done much better for pensioners than the index of changes in their spending arrived at through the special pensioners' index—the so-called pensioners' price index. The RPI has risen by some six percentage points more than the pensioners' index and the level of retirement pension by 16 percentage points more in the period from November 1978 to November 1985. Whatever criticism there may be of the RPI, it has delivered a fairer level of benefit to many people than might have been the case with other, apparently more selective, examinations of their spending patterns.
The hon. Member for Roxburgh and Berwickshire raised a number of other matters concerning future 375 upratings, but I shall not surprise him by responding to them, because he would not realistically have expected me to do so.
The hon. Member for Fulham (Mr. Raynsford), with his special expertise in housing benefit, suggested — "accused" would perhaps be too harsh a word—that the Government had made covert savings in housing benefit as a result of changes in structure. I shall examine the hon. Gentleman's speech carefully, because I appreciate his depth of knowledge, but I do not for one second accept the assertion that that was a covert cut or the charges that he sought to make.
§ Mr. Major
I hope that the hon. Gentleman will forgive me and hear what I have to say. In any event, he will notice that time is pressing. I shall carefully examine his comments. However, I do not believe that he was accurate.
If the Opposition vote for the prayer, they will vote against the expressed wishes of local authority associations, which were consulted and which advised us to make the change. They will vote for a reduction in help for many standard housing benefit recipients. I shall await their decision on that point with some interest. That is precisely what will happen, whether the hon. Member for Oldham, West likes it or not.
The hon. Member for Oldham, West made a great deal of the standard of living of 9.5 million pensioners and many millions of other beneficiaries. My hon. Friend the Minister for Social Security said that our record was substantial and beneficial. I confirm that. It is a record of which we are proud. It is demonstrably the case that retirement pensions have kept appreciably ahead of inflation since 1979, and it cannot be denied. It is demonstrably the case that total benefit spending on elderly people has increased in real terms by 26 per cent. in the past five years, and it cannot be denied.
That is not all. Taking together cash benefits and other programmes supporting elderly people, our spending in relation to gross domestic product is the third highest in the European Community. The hon. Member for Oldham, West chose not to mention that. Perhaps he did not know it, or perhaps he simply did not like the fact that it reflected the Government's commitment to the elderly. It is vital to consider pension levels not in isolation but in the context of all the services provided. It is those which, taken together, set the standard of living. It is those facts which the Opposition perennially ignore. The problem with the hon. Member for Oldham, West is that his spending plans are index-linked to his own verbocity. Every speech he makes has a substantial price tag.
We have carefully weighed the resources available to us and been able to achieve many key objectives without damaging the economic aims that make all social security payments possible. Without economic success there are no resources for those social security payments and that might be borne in mind. Economic success benefits nobody more than social security beneficiaries. It is reflected substantially by the uprating orders before the House and I invite my right hon. and hon. Friends to reflect upon that success and give the orders their support, and defeat the prayer should it be moved to a Division.
§ It being Seven o'clock, MR. SPEAKER proceeded, pursuant to the Order [9 June], to put forthwith the Questions necessary to dispose of the motions.
That the draft Social Security Benefits Up-rating Order 1986, which was laid before the House on 8th May, be approved.