§ Mrs. Golding
I beg to move amendment No. 4, in page 2, line 14, leave out from 'determine' to end of line 16.
The Second Deputy Chairman
With this we may take amendment No. 5, in page 2, line 17 leave out subsection (3).
§ Mrs. Golding
Clause 2 provides for Treasury grants to the national insurance fund. As the Government Actuary puts it,The amount of such payments will have regard to the expenditure of the Fund in future and will be limited to a specified maximum percentage of estimated benefit expenditure in the relevant financial year. For 1993–94 this maximum is set at 20 per cent. For 1994–95 and later financial years, the prescribed percentage may be amended by the Secretary of State with the consent of the Treasury but will not exceed 17 per cent.The amendment attempts to probe the thinking, assumptions and calculations behind the figures. One difficulty we face is that of having no firm actuarial statement for 1994–95 and, because of that, we are limited to approaching the matter through the 1993–94 figures. For 1993–94, the maximum Treasury grant to the national insurance fund is set at 20 per cent. of the estimated benefit expenditure. Will that be sufficient to achieve the Government's objective of ensuring that the estimated balance in the fund at the end of the year equals one-sixth of benefit expenditure?
The Government Actuary has reported that, on certain assumptions, the figure needed will be 19.6 per cent. The assumptions are extremely important in assessing the whole operation, but what are they? I quote from paragraph 10 of the Government Actuary's report, Cm. 2097, which states:The income from contributions and the expenditure on benefits in the remainder of 1992/93 and 1993/94 will depend inter alia on the level of unemployment and the rate of increase of earnings. In accordance with the normal practice, working assumptions have been given to me by the Government in regard to these factors. The assumptions I have been instructed to use"—not merely given but "instructed"— 620for the purpose of the above estimates were set out in the following terms in the Chancellor of the Exchequer's Autumn statement: the number of the unemployed [Great Britain] averages 2.74 million in 1992/93 and 2.8 million in 1993/94; the increase in average earnings on a year earlier is 5¼ per cent. in 1992/93 and 5 per cent. in 1993/94.Those figures form the basis of the Government Actuary's assumptions. They are interesting and very revealing—it is no wonder that the junior Minister ducked, dived, dodged and weaved and resorted to abuse when my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar), who is very sensitive, shy, retiring and easily hurt, asked her whether she was confident that the forecast of 2.8 million in 1993–94 would be held. Instead of coming clean and admitting that she was stuck with the figures because they were part of the autumn statement, she said:Our job is not to second-guess the Government Actuary but to respond to him."—[Ofacial Report, 30 November 1992; Vol. 215, c. 107.]Fancy blaming the Government Actuary for the Chancellor of the Exchequer's actions! What a nerve! No wonder she did not want to answer my hon. Friend the Member for Garscadden.
§ Mr. Corbyn
My hon. Friend the Member for Newcastle-under-Lyme (Mrs. Golding) makes an extremely valuable point. The Bill hides an attempt to control the independence of the Government Actuary when he makes rational assessments of the future. The Government have never forgiven him for the way in which he exposed their spending projections and proved the unviability of some of their proposals.
§ Mrs. Golding
That is a valid point. The Actuary is not merely given information but instructed to make his assessments on the basis of Government figures.
However, it is possible that the estimates may prove to be correct—by the laws of chance the Chancellor of the Exchequer must get something right sooner or later. I am sure that my hon. Friend the Member for Islington, North (Mr. Corbyn) will concede that.
Very few people have confidence in the Government's estimate of unemployment, which has been forced on the Actuary. If unemployment is higher than estimated, the cost of benefits will go up accordingly. if the estimates of the increase in earnings do not rise as much as predicted, the contribution income will be so much lower. Do the Government believe that, despite the public sector wage freeze, there will be a 5 per cent. increase in earnings in 1994, which is the figure that the Government have forced on the Actuary? Will the Minister remind us how the figure has been calculated?
If unemployment is above 2.8 million and the increase in earnings is below 5 per cent., the Treasury grant required would be greater than 19.6 per cent. The Actuary himself refers to the uncertainty about the future level of unemployment and increases in earnings. If the Treasury grant were greater than 20 per cent., what action would the Government take? The figure is questionable but it is at least based on published figures.
What of the reduced figure of 17 per cent. for 1994–95 and subsequent years? How was that figure reached? What are the estimates for unemployment and earnings? We need to know such figures before we proceed. Surely the figures were not produced out of a hat in the Treasury. If 621 they were, the Minister for Social Security and Disabled People should admit it. If they were not, he should tell us how they were arrived at.
§ The Minister for Social Security and Disabled People (Mr. Nicholas Scott)
We are discussing two amendments and if they were accepted, I think that hon. Members would accept that they would mean that from 1994–95 no maximum would apply to the grant which my right hon. Friend the Chancellor of the Exchequer could determine to draw from the money provided by Parliament and into the national insurance fund. I believe that the issue would be better discussed when we debate the next group of amendments dealing with the rules that apply to the Government Actuary or his deputy and the assumption that he is allowed to make.
I have done some research and, as far as I can ascertain, the establishment of the rule about the assumptions which the Government Actuary and his department—let us put them together in this case—go back to 1945 and have been pursued by successive Governments since then. That means that there is a sensible rule that standard assumptions across Government are practical and understandable by the public and the specialists involved.
In this case, the Government Actuary uses the same assumptions as the Treasury about future policy. I hasten to say that the assumptions are not forecasts—they are, in essence, working assumptions which are essential. It would be a receipt for chaos if different arms of Government were to make different working assumptions, and the most sensible——
§ Mr. Scott
If I may finish the sentence I shall of course give way—perhaps I shall even anticipate the hon. Gentleman.
All types of assumptions are made, not all of which turn out to be correct and many vary in one direction or another, but it would make sense to have a common set of assumptions for the purposes that we are discussing.
§ Mr. Dewar
I accept that, but perhaps the Minister will say a word or two on behalf of the Chancellor—I know that the Government speak with one voice so I can invite the Minister to deal with this issue. A 5 per cent. increase in earnings between 1992–93 and 1993–94 is a rather puzzling figure in view of the Government's public sector pay policy. Surely that should have been taken into account and an adjustment made.
§ Mr. Scott
I do not accept that. The assumptions are made a number of years ahead but they are reviewed annually and new assumptions made. It is most important that there is a common set of figures on which all those involved can work. We are sometimes wrong and sometimes right and there will of course be variations. I repeat the point, which is broadly accepted by Opposition Front-Bench Members, that the value of having a set of common assumptions outweighs any shortcomings of the system.
§ Mr. Malcolm Wicks (Croydon, North-West)
Was the 5 per cent. assumption made before or after the public sector pay policy was devised? May I tease out a little more 622 the Minister's idea of the difference between an assumption and an estimate? Have I understood correctly that one is false and one is true?
§ Mr. Scott
I am not going to be drawn into becoming a Treasury Minister at the Dispatch Box. I am talking not about estimates or assumptions generally, but about assumptions that are read in across the board of public expenditure assumptions for the years ahead as against firm forecasts, which are wholly different. We all know how many different forecasts are made from different areas, not only in Government, but outside.
§ Mr. Corbyn
§ Mr. Scott
I will return to the main thrust of what I was saying rather than get bogged down on this point as I am sure that the Committee wants to come to a decision on the amendment and on the clause. The main thrust of the amendment was not assumptions, which we shall discuss when dealing with another amendment, but the Opposition's concern, which I well understand and which was expressed on Second Reading, that if the outturn is different from the planning assumptions underlying the decision to set the maximum for the grant at 17 per cent. for successive years, it will not be possible to keep the fund in balance. I welcome the concern of Opposition Front-Bench Members and I understand their wish to press that concern by means of the amendment. I hope that I can ensure that I set their minds at rest.
On Second Reading, the hon. Member for Glasgow, Garscadden (Mr. Dewar) drew attention to the high level of grant assumed for 1993–94 by the Government Actuary which, at 19.6 per cent., is very close to the maximum of 20 per cent. for that year, as we all recognise. My right hon. Friend the Secretary of State pointed out in that debate that the level is high in 1993–94 because of the need to make up ground lost by the fund in 1992–93.
The Committee will be aware that the Government Actuary recommends a prudential minimum balance for the national insurance fund of around two months' of benefit expenditure. A Treasury grant of up to 20 per cent. aims to ensure that the prudential minimum is maintained throughout 1993–94, but in the event that the outturn is different from the assumptions, the figure of £6.5 billion, for which we have planned as the end year balance for that year, provides in my view and in the view of most people an entirely adequate safety margin which will prevent the fund from exhausting its resources. That is the purpose of setting the figure as we have. I believe that it protects the fund and provides an ample cushion against any exigencies.
Looking beyond 1993–94, it is obviously more difficult to see where we will be. The potential shortfall in the fund should be considerably less than the amount that we need to make up next year—well below 17 per cent. of annual benefit expenditure. The purpose of the grant in future years is to provide some flexibility in the management of the fund and not to guarantee its solvency under all conceivable circumstances.
It must be recognised that Parliament does not provide a bottomless pit of money on which my right hon. Friend the Secretary of State can draw. We believe in the principle that an overall limit should be set on the Treasury grant, just as it was set in the days of the old Treasury supplement, which is sensible and prudent.
623 I hope that I have been able to assure Opposition Members that the ceiling that we propose for the amount of grant for the immediately following year and for successive years is sensible and prudent. It can, of course, be adjusted if needed. I do not believe that we shall have to return to it.
§ Mrs. Golding
I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Dewar
I beg to move amendment No. 6, in page 2, line 22. leave out'or the Deputy Government Actuary'.
The Second Deputy Chairman
With this, it will be convenient to take the following amendments: No. 7, in page 2, line 22, after 'Actuary' insert'on the basis of such assumptions as seem appropriate to him'.No. 8, in page 2, line 23, leave out from first 'be' to second 'the'.
§ Mr. Dewar
We have already had a preliminary canter round part of this course in the past few minutes. The amendment is inevitably connected with the previous group. The amendment goes back to the vexed question about the duties of the Government Actuary and the assumptions on which he works. The key amendment is amendment No. 7. Clause 2 suggests that "'estimated benefit expenditure—meansthe amount estimated by the Government Actuary".We seek to add the words:on the basis of such assumptions as seem appropriate to him.We seek to charge the Government Actuary with taking on board the proper basis on which to make forecasts rather than taking instructions from the Treasury. I understand that the Minister is likely to say that Government Departments must work on the same basis and must speak with one voice, and that that applies to the Government Actuary as certainly as it applies to the Under-Secretary of State.
The Minister's argument may be superficially plausible. However, there is a public interest, which I pray in aid, in having forecasts that are plausible and which can be taken at face value as genuine attempts to predict what will happen. I realise that the Government are bound to insist that the projection is 2.8 million for the seasonally adjusted unemployment figure in the coming year because that was the figure in the autumn statement. However, it is not unfair to say that if I and the Minister were sitting over a cup of coffee in the Smoking Room—an unlikely scene—[Laughter.] I did not say which aspect of the scene was unlikely. I leave it at that. In those circumstances, the Minister and I would agree that there is no reasonable prospect of the seasonally adjusted unemployment figure for next year being down at 2.8 million. Most forecasters are looking at a seasonally adjusted figure of about 3.2 million and some have suggested more alarming scenarios. I am not in the business of spreading dissension and dismay in Government ranks. I am prepared to assume that the figure may be around 3.2 million.
If the figure is 3.2 million, the whole arithmetic of the national insurance fund will be affected. To that argument can be added the other point made in the past few minutes—the assumption that earnings between 1992–93 and 1993–94 will rise by 5 per cent. If that happens, it will be a considerable defeat for the Chancellor of the Exchequer 624 and for the Government as a whole as they are clearly looking for a very low round of wage settlements and are taking energetic steps to ensure that that occurs, at least in the public sector over which, as employer and paymaster, they have some control.
I protest mildly to the Minister that there is a certain unreality about his defence. Although he shows admirable loyalty to the Chancellor, he does no great service to the compilations on which we have to consider policy and to the projections of what is likely to happen in the national insurance fund.
I accept that the Minister is anxious to be helpful. He does not believe in the form of timidity practised by his colleague the Under-Secretary of State in her exchanges. The hon. Lady sometimes does herself an injustice because there is some evidence that she has a romantic side of her temperament——
§ Miss Widdecombe
§ Mr. Dewar
There is some evidence. I cannot go into that. I am spluttering—[Laughter.] I am spluttering with the excitement of it all. I have been following with great interest the hon. Lady's dealings with the present crisis in the Church of England. In her style and stance, she has taken a rather romantic approach of High Church principle. In some of the reference books that we occasionally look at to while away our time, I notice that she lists as her principal interest research into the escape of Charles II after the battle of Worcester. That certainly suggests a romantic turn of mind. Sometimes the hon. Lady does herself little good by adopting the somewhat confrontational style that she affects—and I use the word affects——
The Second Deputy Chairman
Order. The hon. Gentleman will not do himself much good if he does not come to the point.
§ Mr. Dewar
The material that I was dealing with was probably considerably more interesting than the arithmetic of the national insurance fund.
§ Mr. Dewar
I understand your stern duty, Dame Janet, to drive us back to the national insurance fund.
I hope that the Minister for Social Security and Disabled People will deal with my point because there was a certain reluctance to do that on Second Reading. The Under-Secretary of State complained—and I can use that term fairly—that I raised the point no fewer than three times. Indeed I did and I did that because I strongly suspected that I was not going to get a satisfactory answer. That turned out to be the case. I would like a better response today.
When I first raised the point, I was told, in short order, that I wouldget an answer, but it will be in my good time and not at his request.That was a little peremptory. The hon. Lady occasionally sounds like an old-fashioned school teacher of the kind who used to imagine that if the children enjoyed their lessons, one lost half the disciplinary profit. I do not like to be scolded in that way. However, I tried again on Second Reading, as those who follow the minutiae of our exchanges will recall. In a most inadequate reply, the hon. Lady said: 625I have already taken care of that point. One of the reasons that those on the Opposition Front Bench get so muddled sometimes is that they do not listen to what is said."—[Official Report, 30 November 1992; Vol. 215, cc. 106 and 108.]I have reread what was said because I am always willing to be corrected if that is justified. However, I can find absolutely no evidence that the hon. Lady had produced an explanation.
It is significant that the Under-Secretary of State was not prepared to express a personal or ministerial opinion that the 2.8 million or 5 per cent. earnings figure was likely to hold during the next year. She was prepared to tell us where the figure came from and to point at the guilty party. However, she was not prepared to say that she believed a word of it and I do not blame her. She is not foolish. She recognised that it is extremely unlikely that those figures will survive to the end of the year.
I hope that the Minister for Social Security and Disabled People will accept and concede that. Once we have that concession, I hope we can consider the interesting debate that would follow about what we should do about it and how we can place the earnings figure and unemployment projection on a more realistic basis.
I am sure that you, Dame Janet, appreciate that this is an important point. Clearly if unemployment rises, contribution incomes inevitably fall and the pay-out demands on the national insurance fund increase. That is like the displacement theory when, in the fourth form, one puts things into a bath and watches the water overflow. The impact can be quite serious. I hope that the Minister will be prepared to consider those points.
The other two amendments do not require great examination. They were tabled simply to allow a slightly broader platform to allow us to make one or two points. However, perhaps the Minister will deal with one or two little matters. The Minister will recall that there is an instruction in respect of the Government Actuary's report to the House. Does "instruction" have a specialist and technical meaning? Or does it mean that the poor man was told, "However squiffy this may make your calculations, this is your starting point and you had better not complain."?
I want also to refer to the inclusion in subsection (4) of the reference to Deputy Government Actuary. I have no objection to the Deputy Government Actuary having his moment of glory and appearing in statute. I know who the Government Actuary is, but I do not know who his deputy is. If the Minister tells me, his name will appear in Hansard and that might be some consolation.
Although I do not want to detain the Committee or the Minister, I have a serious point. Why is the reference to the Deputy Government Actuary necessary? I would have presumed that all the work was carried out by the Government Actuary. However, there is of course a power to delegate to others, as there is in every Department. If the Government Actuary says to the Deputy Government Actuary, "Would you like to go and do these calculations because I really cannot bring myself to do that, given the false nature of the starting point", he is entitled to do that. If the poor man has a cold and the work must be carried out in his absence surely the Deputy Governor Actuary becomes the Government Actuary. The specific reference to Deputy Government Actuary seemed a little odd.
626 That was the kind of point that, in my younger days in Standing Committee, might have run for a very long time. However, perhaps I should leave it at that. In respect of the other amendment that I have decided to duck, the reference to the aggregate of the amounts seemed otiose and unnecessary. No doubt that refers to the fact that the fund is an aggregation from a variety of different sources. While I doubt whether the words are necessary, I do not believe that even I could elevate that into a matter of principle.
§ Mr. Wicks
I want to contribute to the debate about the assumptions and to the subsidiary debate about the association between the Government and the role of the Government Actuary because that raises important points.
Like my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar), I question the unemployment assumptions. I understand the Minister's point that we need to make assumptions and that they must presumably be common assumptions across Government Departments if social planning is to be effective. However, assumptions should bear a close association to reality. Like my hon. Friend the Member for Garscadden, I have examined the figures in detail and I want to question the assumption that in 1993–94 unemployment will be 2.8 million in Great Britain and compare that with independent forecasts for the United Kingdom. In order to make the comparison, I assume that the Government's assumption is 2.9 million for the United Kingdom as I am advised that unemployment in Northern Ireland is 100,000.
While the Government's assumption is 2.9 million unemployed for 1993–94, Phillips and Drew estimates the figure at 3.3 million; County NatWest estimates it at 3.2 million; the National Institute of Economic and Social Research estimates a lower figure of just over 3 million; the London Business School estimates a figure of 3.2 million; Liverpool university—the Government's favourite university at one stage—estimates the figure to be 3.2 million; and the ITEM Club—with which I am not too familiar—estimates the figure to be 3.3 million.
Although the estimates vary, as one would expect, between the Government and the independent forecasters, the differences, of 200,000 to 300,000, are often very substantial. The significance of those differences is spelt out in great detail by the much-quoted Government Actuary in his report when, I suspect, questioning the Government's assumption, he stated:if the average number unemployed were to be 100,000 higher … the contribution income in 1993–94 would be £150 million lower and expenditure would rise by £100 million.Obviously contributions will decline if people become unemployed and need national insurance benefits. For every 100,000 unemployed, we are talking about a public expenditure cost—or a cost, anyway—of £250 million.
The debate may seem rather technical or even pernickety—the Minister is certainly finding it amusing—but it is important in terms of public expenditure. For every 100,000 unemployed by which the Government make a wrong assumption, the cost to the public, one way or another, is £250 million. Therefore, if some of the independent forecasters at the extreme are right in saying that unemployment next year could be 3.3 million, the difference between that and the Government's costs will be £1 billion. The costs are very important. It is therefore appropriate for one to detain the Committee again to question the Government about the nature of their 627 assumptions. If the Government's assumptions were out by 50,000 or 60,000, although the human cost of that would be large, we might forgive them statistically, but to be wrong by such a large figure—perhaps 200,000, 300,000 or more, who knows—would undermine the Government's assumptions that they gave the Actuary.
I join my hon. Friends in challenging the wage assumptions that have been made. The Minister was not able to answer my question because he dealt with another part of my intervention, but again it is not unfair to ask whether the wage assumptions were built into the analysis before the Government announced the public sector pay policy or after that. It must make a difference to the calculations. What was the difference? If I am assured by Ministers that they fully allowed for the public sector pay policy, what were the working assumptions before that policy came in? Given what we know about public sector pay, what assumptions are the Government therefore making about private sector pay? It is presumably quite a bit higher than 5 per cent.
If it is right for the Government to assume a 5 per cent. norm, would it be right for trade union shop stewards and workers to assume that figure when bargaining? If the Treasury can make that assumption, why cannot wage and salary earners make that assumption? It would seem to be fair to do so.
I now refer to the association between the role of the Government Actuary and that of Her Majesty's Government. There is some difficulty about that, because I notice that in the Bill the Government are happy to talk about the amount estimated by the Government Actuary or by the Deputy Government Actuary. There is an assumption in the Bill that they are the Actuary's figures, whereas the poor old Actuary himself, in words already quoted by my hon. Friend the Member for Garscadden, says:working assumptions have been given to me by the Government in regard to these factors. The assumptions I have been instructed to use for the purpose of the above estimates were set outby the Chancellor of the Exchequer.
Given that the amounts of money are so vast, even with a variation of 1 per cent. or 2 per cent. in wages or unemployment, thus affecting Government arithmetic on public expenditure and the Committee's understanding of the Bill, in future it would not be unreasonable if the Government Actuary were able to make his or her own assumptions about those important matters. To put the matter delicately, there is always the possibility that Government assumptions about unemployment owe less to projections and more to propaganda. If the Committee is to have presented to it figures for the national insurance fund which are basically propagandist, the Committee is being misled to the tune of millions and millions of pounds, and possibly 0.75 billion.
Those are serious matters in terms of public expenditure and our understanding of the national insurance fund. I again urge Ministers to cut out the nonsense about assumptions and the differences between estimates. Why cannot the assumptions be based on truth and on what, sadly, independent forecasters in their hearts know will be the likely rates of unemployment next financial year?
§ Mr. Scott
I understand the imperative of the Opposition to talk at length about economic forecasting at 628 the moment. I hope that, in my few remarks in drawing the debate to a conclusion, I can prove that the Opposition's comments are largely irrelevant to this matter.
I should like to refer to the Deputy Government Actuary's department and the question whether he is instructed. "Instructed" has no force whatsoever in law. He could be asked the same thing and would no doubt deliver his duty against the same background as having been instructed. In essence, one contribution outlined the considerable variation of the forecasts or assumptions, or whatever one cares to call them, from a number of independent forecasting bodies, how they vary across the range and how important it is, if we are to have a single approach to Government assumptions, that there is a single assumption by those who are playing their part.
The Treasury assumptions are the ones that should be taken across the range of Government, otherwise, as I tried to show before, there would be a considerable opportunity for misunderstanding by those who look at Government assumptions as a whole. Perhaps there is that variation in outside forecasting, but, since 1945, Governments have always taken the view that there should be a single assumption.
I have to confess that it comes as a surprise to me that there is not one but several Deputy Government Actuaries. That provides fairly sensible cover in case the Government Actuary is unable to perform his duties because he is indisposed or actively engaged in other tasks. Indeed, we have the same system in Government. There is a Minister, but there are three Under-Secretaries of State who fulfil that role within the Department of Social Security. A collective approach—the language at least might appeal to the Opposition—by the Deputy Government Actuary may not be entirely unacceptable to the Opposition.
I now refer to the assumptions. I understand the political imperative for the Opposition to concentrate overwhelmingly on unemployment and perhaps on earnings. In terms of the overall balance of the national insurance fund, the assumptions are marginal to the calculations that are being made. The overwhelming factor when we consider the balance in the national insurance fund year on year is the payment of retirement pensions. That is the largest single factor. For example, were calculations on unemployment to be, say, 200,000 too low and earnings to be, say, 1 per cent. awry, the balance in the fund might turn out to be 14 per cent. as opposed to 17 per cent.
We are not talking about the fundamental undermining of the state of the national insurance fund. I repeat that the basic calculations about a prudent approach and a comfortable cushion against the fund, protected by the grant, going into crisis are very much overstated. Certainly, the grant levels that we will apply will allow for variations in the assumption year on year.
The hon. Member for Glasgow, Garscadden (Mr. Dewar) intimated that he would not press amendment No. 8, but I rest on the central argument that the assumptions would be very unlikely to alter the estimate of benefit expenditure to any significant degree. In the circumstances, I hope that the amendments will not be pressed.
§ Mr. Dewar
I can give the Minister that assurance. However, I am intrigued by the thought that the three Ministers who are gathered are so similar in personality and approach that they are interchangeable in every sense.
629 [Interruption.] I am sorry. The hon. Member is not a Whip; he just happens to be sitting there. Before I get into trouble, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Question proposed, That the clause stand part of the Bill.
§ 6 pm
§ Mr. Dewar
This will probably be the last substantive debate, but one or two matters are worth raising. Clause 2 deals with the whole problem of the fund and the Treasury contribution which the legislation authorises. There is no doubt that the Labour party accepts the need for a subvention to balance the books. As I said on Second Reading, it would be unacceptable for any benefits to be substantially cut to balance the accounts. Given the deterioration in the economy and the troubles that have attended the Government's efforts in the past few months, it would not be sensible to advocate a major increase in national insurance contributions. There is nothing between the Conservative party and the Labour party on that matter.
We broadly support the thrust of the clause. The sums are substantial—£7,500 million is not to be sniffed at. I am aware that there will be play in the figures, as we have been discussing. We might find that the 17 per cent. or, certainly, the 20 per cent. ceiling in 1993–94 will be under considerable pressure if our scepticism about the starting point of the forecast is justified. We will simply have to wait and see. Undoubtedly, we can return to the matter if the result confirms my suspicion.
I should like to ask the Minister about one or two much more general matters connected with the clause and how he sees the national insurance fund. I have not re-read the Minister's speech, but I have re-read the speech of the hon. Member for Havant (Mr. Willetts), which I found interesting. I did not hear the hon. Gentleman's speech because I was absent from the Chamber at that time; however, I have taken the trouble to re-examine it. The speech raised some substantial issues which I should like the Minister to examine.
There was an exchange, and hon. Members will remember that there has been continuing controversy, about the cost to the national insurance fund and the public purse of the contract-out principle and the incentive which was introduced in 1988 and which runs until 1993. I quoted in my speech the figures produced by the National Audit Office, and was taken to task by the hon. Member for Havant for relying on them. He took a poor view of that. I understand from the other remarks that have been made that it is the conventional wisdom on the Conservative Back Benches—I suspect, encouraged by those on the Front Benches—that the National Audit Office calculations were badly flawed.
I invite the Minister to say a few words about that matter because I genuinely disagree with the hon. Member for Havant, whom I welcome to the Chamber, about the National Audit Office. I am not silly enough to deny that I may have misunderstood the basis of his objection, in which case I have no doubt that the Minister will be able to put me right.
As I understand it, the hon. Gentleman was saying that the difficulty with the calculations was that they were a 630 calculation of the cost of revenue forgone in the pay-as-you-go pension and benefit equation because of the money that was passed to private providers for occupational and personal pensions in the form of the contracting-out payments and the initial incentive over and above them. The hon. Gentleman gave the impression that the incentive stopped in 1993, although it could have continued. There was a slight implication that the National Audit Office was using something almost akin to sharp practice because it should have projected beyond 1993. If the NAO had projected beyond 1993, it would have come up with a different picture.
The hon. Gentleman also complained that the calculation was based on the assumption that everyone would come back into SERPS in 1993, which he said was a ludicrous proposition. I agree that that is not likely to happen, and I make no complaint about that. The computation that was carried out was legitimate within the limits in which it was done. The National Audit Office took the cost of the APP rebates for the period to 1993. It did not go beyond 1993 for the simple reason that it did not have an announced contracting-out percentage figure—we now know that the figure is 4.8 per cent.—and it did not have any information about what would happen to the incentive. It might have assumed that the incentive would disappear altogether. If it had made that assumption, it would have been wrong. That underlines the difficulty of projecting beyond 1993.
The National Audit Office took the cost of the APP rebates for the 1988–93 period and the current value of the futures of SERPS pensions which would not have to be paid because of the rebates, the opting out and the purchase. It came up with the figures which showed a deficit of close to £6 billion in the public purse. That seems to be a respectable enterprise, and is not undermined or invalidated by any argument about what might happen after 1993 if the information had been available. The calculation tells us what happened in those five years. Therefore, it is valid in those terms, and that is what it was represented to be.
§ Mr. David Willetts (Havant)
I entirely agree with the hon. Gentleman's account of how the National Audit Office set about its calculations. If I gave the impression in my speech a week ago that I thought sharp practice was involved in the calculations, I welcome the opportunity to correct that impression. I do not think that there was any sharp practice. However, it is unfortunate that the assumptions on which the calculations were based were not clearly stated. I am sure that the National Audit Office took those assumptions for the reason that the hon. Member for Glasgow, Garscadden (Mr. Dewar) has just set out—because it was the clearest basis on which to do the calculation, effectively assuming that everyone would be back in the scheme in 1993. Any other assumptions would inevitably have been speculative. To have carried out the calculations on a different basis, assuming, for example, that many people who left SERPS——
The Second Deputy Chairman
Order. This is becoming a speech, not an intervention. The hon. Member may seek to catch my eye at a later stage if he wishes.
§ Mr. Dewar
The hon. Gentleman may want to catch your eye, Dame Janet, because I am about to say a few words about some of his other thoughts on the national insurance fund. Before he came into the Chamber, I said 631 that I found his speech interesting. I do not know whether he would claim to be a representative Conservative Member, but he is credited, if that is the right word. to use—I use the word in a technical sense—with having some influence.
§ Mr. Dewar
The hon. Gentleman can do more than that. I was interested in what he said. We can continue the argument about the NAO report on another occasion, and I have no doubt we will.
I think that we are near agreement. My point is that the figures are valid, although they are limited in the sense that they are for a specific time slot. My real objection is directed not perhaps at the hon. Member for Havant but at some of his colleagues who gave the impression that, because the calculations do not continue beyond 1993, they are invalid and are not justified. The calculations are not valid in terms of the figures that were known at the time. My point is that, in any event, as we use revenue to pay pensions, invalidity benefits and unemployment benefits and if we forgo £9 billion over a five-year period, a considerable strain is placed not necessarily on national insurance contributions—we can hold them—but on general taxation revenue, which is perhaps the reason that we have the startling figures in the clause.
Perhaps the Minister will comment on the National Audit Office report. It is important that proper weight is given to it. It should not be rubbished because it tells us an important part of the story so far. It may not give us the history or the future, but it brings us significantly up to date.
What is the Government's view on the national insurance principle? The hon. Member for Havant expressed strong opinions about it. Those of us who were present on Second Reading will remember that he started by reminding us that under the Beveridge scheme a substantial part of the funding of the benefits came from a Treasury subvention. There was a somewhat technical argument about whether the subvention was 50 per cent. or 67 per cent. Those figures were offered to the hon. Gentleman by my hon. Friend the Member for Birkenhead (Mr. Field) in a bidding match. However, the subvention was clearly substantial. None of us objects to returning to a stage at which that level of help is necessary.
The hon. Member for Havant asked some important questions about the national insurance principle. He went on to say that SERPS was a quid pro quo for getting away from the principle of flat rate contributions. He said that it was introduced merely to give some reward to those who would have to contribute more heavily according to income when previously there was a flat rate contribution.
The hon. Member for Havant also said that the Government had held national insurance contributions steady, thereby putting the fund under the present strain. I give him credit for a phrase which I shall probably use at some future date about other aspects of Government policy. He said that the Government were following a policy of "purposeful immobilism". That phrase is worth preserving. I see evidence of purposeful immobilism in bodies other than the Conservative party, but it will do for a start. Such a policy has interesting consequences.
The hon. Member for Havant put what he described as an unashamedly ideological view. He said that private pension provision was better. He went on from there to 632 argue a fairly hostile case for the continuation of SERPS. He also seemed to make a hostile commentary on the national insurance contributions system. If one assumes that SERPS was introduced because it was the only way of justifying a progressive tax element, one may come close to arguing that contributions are not necessary and pensions should be entirely funded out of general taxation. My analysis may be unfair but it is an interesting line of thought.
I wonder whether the Minister—I put this innocently to him—has any thoughts about the future of the national insurance principle. The hon. Member for Havant said that we were driven to a second contributory top-up pension, making it clear that he did not like such a system. I know that the Government share his dislike of that aspect of the matter, but I wonder whether they have any thoughts about the national insurance principle—or is this a matter on which no consultations are taking place and no change is expected?
The Minister will be familiar with the interesting speech which Sir Peter Barclay made at a conference at York university a few months ago. I do not need to rehearse it in detail, but he put on the agenda the future of the national insurance principle. For example, he suggested that the contributions record had become a barrier for many people, especially women. Although they were entitled in every sense to a benefit, they might not have the contributions record to open the door to the benefit.
I do not suggest that there are any plans afoot to abolish contributions but I thought that the matter was worth raising. That train of thought was started by reading the speech of the hon. Member for Havant. I should be glad to have the Minister's thoughts on the matter. I hope that he can oblige.
§ Mr. Kirkwood
I welcome the suggestion of the hon. Member for Glasgow, Garscadden (Mr. Dewar) that the future of the contributory principle should be put on the agenda for discussion. My party has always advocated an integrated tax and benefits system. That would entail abolishing the contributory principle. However, we are not necessarily thirled to that. If there is scope for discussions at any level, we should be interested in taking part. I agree with the hon. Member for Garscadden that if the Government are examining the background to the national insurance scheme, it would be valuable for Opposition Members to know whether the Government have commissioned any research. I also noticed what Sir Peter Barclay said. It was a valuable contribution to the debate. It would be helpful to know whether the Government have any thoughts on the matter.
I wonder whether the Minister could help me. In my usual daft laddy way—referring to the Treasury research note—may I ask how it came about that in 1980–81 the Treasury supplement was 18 per cent. of the fund but a few short years later, in 1988, Lord—[HON. MEMBERS: "Lord Moore."] The hon. Member for Garscadden said that old age made one forget names, but it is dealing with social security that does it; it causes amnesia. It happens to us all sooner or later.
In 1988, Lord Moore announced the abolition of the Treasury supplement. In 1988 the supplement had collapsed to 5 per cent. In the Social Security Act 1990 we took industrial injury benefit, statutory sick pay and 633 statutory maternity pay out of the fund and made it a charge on the Consolidated Fund. Large sums were taken out of the national insurance fund. Only two years later we are suddenly putting another large tranche of up to 20 per cent., representing £7,500 million, into the fund by way of grant.
The Minister must explain why, if it was right to abolish the supplement in 1988, there has been a huge turnaround in the way in which the Government deal with the fund. It has happened in a relatively short time in relation to the development of social security policy. The Government owe us an explanation of the rationale and thinking behind the sequence of events that has produced these circumstances.
It is not inappropriate in a "clause stand part" debate to ask the Minister how the Government expect the grant proposed in the clause to operate and how it will differ from the previous supplement. One relates to levels of contributions and the other relates to levels of benefit. What are the differences in effect compared with the old supplement?
My next question should perhaps be more properly addressed to Treasury Ministers. What significance will the grant have on the public sector borrowing requirement? The grant can be drawn upon after consultations with the Treasury. I shall ask a question about that in a moment. Does not the £8,000 million feature as an increase in the PSBR? Is it hidden because it is not used unless it is called upon? Does it not affect the total PSBR for that reason? It is a big sum of money and if it does not show up as an explicit addition to PSBR totals, we should be told about it.
Clause 2 talks rather glibly about the Secretary of State consulting the Treasury before exercising his powers, and two cheers for the fact that the orders introduced under clause 2(8) will be subject to the affirmative procedure. Can the Secretary of State say a few words on what consultation will amount to? Is it merely a question of referring to changes of the sort that we have been discussing which concern the Government Actuary? Or, for example, could the Secretary of State decide that if he had a wee bit of extra money he could valorise the Christmas bonus, which is only £10 this year, and double it? Could he consult the Treasury about the possibility of using the grant to increase the bonus? That seems a seasonal enough suggestion.
If we have £7,500 million floating around, why do we not use some of it for retirement pensions, invalidity benefits, widows' pensions, sickness pay and all the other wonderful goodies that are available to the Government via the national insurance fund? What will constitute the consultation? Can the Treasury refuse a request by the Secretary of State? If so, on what grounds? Those are important issues.
I also hope that the Minister will explain why, in such a short time, there have been such momentous changes in the amounts of money—in the form of supplements or grants—flowing in and out of the national insurance fund.
§ Mr. Scott
I shall be delighted if I can bring this short debate to an even quicker conclusion. Although I shall refer to the issue of the national insurance fund in my concluding remarks, I believe that that question contains substance for a debate which would occupy more time 634 than we are likely to have this evening—[Hots. MEMBERS: "Take as long as you like."]—and in which other Ministers might wish to play a part.
The debate about the Government grant is set against the background of the announcement by my right hon. Friends the Chancellor of the Exchequer and the Secretary of State that there would be no increase in national insurance contributions this year, and that there would be a full uprating of benefits. Clearly, in those circumstances, resources had to be found to balance the two items.
The grant from the Treasury is simply a transfer of resources that are already within the Government. A sum of money from within the Consolidated Fund can easily he transferred from the Treasury to ourselves without any increase in Government borrowing or any alteration in public finances.
The hon. Member for Glasgow, Garscadden (Mr. Dewar) drew attention to the distinguished and important speech by my hon. Friend the Member for Havant (Mr. Willetts). In no sense would I wish to rubbish the National Audit Office report, not least because the distinguished Comptroller and Auditor General was a senior civil servant in the Northern Ireland Office when I was privileged to serve there and I have personal as well as professional respect for his judgment.
The calculations commissioned by the National Audit Office were based on assumptions which will not necessarily prove to be valid in the longer term. The report took into account only the first six years and it did not take into account the contribution that personal pensions will make to a strong pensions industry in the next century, and the element of choice to which the personal pensions initiative has contributed. The office was hampered by the assumption that it was a short-term phenomenon and that a substantial number of people who had taken out personal pensions would contract back into SERPS.
Personal pensions provide people with influence over their contributions, and I believe that my hon. Friend the Member for Havant said that we were working with the grain of society by providing that choice. I think that that philosophy will endure and will be important in the next century.
§ Mr. Dewar
I accept that the Government are anxious to encourage personal pensions, which may or may not be a good thing, but that is a different issue. I want to know whether the Minister accepts the validity of the National Audit Office figures for 1988–93 in terms of their impact on the profit and loss account of the public purse—if I may put it that simply. Having taken some advice, I am led to believe that the calculation is perfectly valid, as one would expect given the source. It would be helpful if the Minister could confirm that that is his view. If it is not, presumably the Government can produce a counter set of figures, which we would look at with interest.
§ Mr. Scott
I am not quarrelling with the short-term judgment of the National Audit Office. It is right that Parliament, when looking ahead to the pattern of pension provision for future years, should take a broader judgment. Therefore, short-term calculations about profit and loss in that short time span should not determine our judgments on whether we should continue the personal pensions initiative.
§ Mr. Dewar
If I put it to the Minister another way, we can, I hope, reach agreement. Is it the case that he does not 635 dispute that there will be a loss to the public purse or a gap of getting on for £6 billion during the period concerned? The Minister is arguing that that is a price worth paying—as he is entitled to do.
§ Mr. Scott
I would not choose those words. It is an investment in the future and in a pattern of pension provision which is likely to work with the grain of personal choice. As my hon. Friend the Member for Havant said, increasingly people wish to make pesonal choices about their pension provisions for the next century.
It is all very well for those of us with a clear entitlement to occupational pensions, who may not sufficiently take into account the position of manual workers and those who sometimes work irregularly. We must remind ourselves that one of the main results of the personal pensions initiative is that they have been able to make proper provision for their retirement, outside the basic state scheme, for the first time. That is much to be applauded and is well worth whatever investment we have made in launching the scheme.
I said that I would mention the principle of national insurance. I believe that on Second Reading the hon. Member for Croydon, North-West (Mr. Wicks) mentioned the Gallup survey about national insurance costs prior to the 1985 reforms, in which 59 per cent. of those asked about national insurance contributions thought that they were a good thing.
The Government have no plans to drop the concept of the national insurance scheme. A philosophical question is involved. We must consider whether the taxpayer alone should pay or whether there should be a system of contributions which could be adjusted to reflect changing patterns in the workplace and in society. Having grown up in the days of stamps on cards—I know that the system is more sophisticated these days—I think that many people feel that they are contributing towards their short-term benefits, health care and so on, which are based on the national insurance principle.
§ Mr. Kirkwood
I am following carefully what the Minister is saying. The vast majority of people to whom I speak think that the scheme is a funded one, but we all know that it is not.
§ Mr. Scott
That is true. Many people may not even understand the concept of a funded scheme, but they believe that it represents value for money. They pay a certain amount each week or month and for that they get the guarantee of certain benefits when they need them. That concept is firmly embedded in the psychology of the country and to drop it would be a grave mistake, unless we were absolutely certain that we had something a great deal better to put in its place.
I understand that there will be a debate about this issue. I, too, have had moments of agnosticism about it in my time at the Department. However, I have tried to think it through and I believe that it would be a great folly to abandon the scheme unless we were absolutely certain that we had something better to put in its place. I have read Sir Peter Barclay's speech and a number of other contributions on the matter and no doubt we shall return to it from time to time.
I hope that the Committee will now be prepared to give the clause a fair wind.
§ Question put and agreed to.
§ Clause 2 ordered to stand part of the Bill.
§ Clauses 3 to 5 ordered to stand part of the Bill.
§ Schedule agreed to.
§ Bill reported, without amendment; read the Third time, and passed.