HC Deb 01 December 1993 vol 233 cc1039-61 3.30 pm
The Secretary of State for Social Security (Mr. Peter Lilley)

With permission, I would like to make a statement on social security following from my right hon. and learned Friend's Budget statement.

Spending on social security this year will amount to more than £80 billion. It will increase over the next three years to £83 billion, £88 billion and £92 billion. It is the largest increase of any Department and shows our commitment to the needy, the elderly, sick and disabled people.

Despite the intense pressures on public spending, we will keep our commitment to uprate benefits, keep our pledges to families and the elderly and keep our promise to give extra help with fuel bills.

Although inflation over the past 12 months was low, the cost of uprating all benefits to offset it would have been around £2 billion next year. I am grateful to my right hon. and learned Friend the Chancellor for going beyond that, and providing substantial extra funds to help people with fuel bills.

Next year, that extra help will be worth nearly £400 million, and by the time the full rate of VAT has fed through, the total extra help will run at £1.25 billion a year. Over three years, the total additional help for VAT on fuel amounts to £2.5 billion pounds. That will be a permanent increase in the value of benefits to 15 million people.

My right hon. and learned Friend the Chancellor explained that I plan to give everyone on income support except pensioners and disabled people extra help next April before the higher heating bills arrive, so their benefits will be uprated by 3.9 per cent., which is higher than most people in work will receive. A further 2 million people above the income support level, who get housing benefits or familiar credit, will receive a similar increase.

I was also determined to help those who have worked, saved and earned modest pensions, and who normally get no extra help. So, from next April, on top of uprating for inflation, all pensions will be increased by 50p a week for single pensioners and 70p for couples. The following year, extra help for VAT on fuel will be £1 a week for single pensioners and £1.40 for couples. From the third year onwards, that extra help will be as much as £1.40 for a single pensioner and £2 for a couple. All those on widow's benefit, invalidity benefit, severe disablement allowance and disability premium will get the same extra help.

In addition, I will increase cold weather payments by 25 per cent. over two years. To help those with high heating bills, the scheme to help insulate homes and improve fuel efficiency will be virtually doubled in value and extended to all pensioners and disabled people.

Yesterday, the Chancellor announced a new national savings pensioners guaranteed income bond which will provide regular monthly payments at a fixed rate of interest.

By any stretch of the imagination, this is a substantial package. It far exceeds what most people expected, and fulfils our promise to help those most affected.

We are determined to maintain proper support for all those whom the welfare state exists to help, but given the relentless growth of spending, we have to make sure that the money is spent to best effect. That is the aim of my long-term review.

My first priority is to make savings which do not affect benefit entitlements. That is why operational costs have been kept within last year's cash limit, despite the extra work load, and why I am intensifying the battle against fraud. I have created a new fraud board to step up prevention, deterrence and detection of fraud. It will be chaired by my noble Friend the Parliamentary Under-Secretary of State for Social Security.

I am cracking down on order book fraud. The order book has been redesigned to prevent forgery. We have introduced secure delivery methods to prevent theft, and we are rewarding vigilant Post Office employees who stop false encashment of stolen order books. I am continuing to look at new ways of tackling fraud.

I am also stopping a number of abuses. I shall discourage local authorities paying housing benefit for unnecessarily expensive property. I shall stop councils paying housing benefits to people who entered this country on the express understanding that they would be no burden on public funds. I am also bringing in regulations today to prevent employers from avoiding national insurance by paying their employees in commodities like gold bullion. Those measures should save £500 million over 3 years.

We also need to make sure that benefits concentrate help on those whom Parliament wishes to help. I have been examining the social security system sector by sector. I am now able to introduce a fundamental reform of sickness benefits. The number of people on statutory sick pay, sickness benefit and invalidity benefit has almost doubled since 1979, from just over I million to almost 2 million, even though the nation has been getting healthier.

Britain has the second highest level of sick leave of any EC country. The level varies between companies even in the same business. Those differences reflect management's success or failure in motivating employees, caring for their health and monitoring absences. At present, the Government reimburse each firm 80 per cent. of the cost of its statutory sick pay. That largely removes the incentive to reduce sick leave.

From April next year, I propose to abolish reimbursement, except to small employers. Small employers usually have less sick leave but are harder hit by prolonged illness. Therefore, I intend to increase the help to small employers and extend it to more of them.

So far, we have been helping employers whose national insurance bill was £16,000 or less a year. I am raising that limit to £20,000. So far, we have been reimbursing 100 per cent. of statutory sick pay for absences of longer than six weeks. I shall start giving 100 per cent. help after four weeks. That will help an extra 50,000 employers, at a cost of £25 million. The new arrangements will help two thirds of all employers.

At the same time, I am cutting employers' national insurance rates by substantially more than they were spending on statutory sick pay. Indeed, the cut in national insurance will also offset the future extra cost of statutory maternity pay, which employers were expecting to bear without compensation. So employers as a whole will be no worse off. Indeed, their net costs will be reduced by over £100 million a year, and those who respond to the incentive to improve staff health will benefit even more.

There has been a particularly marked increase in the number of people claiming invalidity benefit in recent years. The number on this benefit has more than doubled in the past 10 years and trebled in the past 15 years. That growth is particularly surprising, given improving health and better health care.

I therefore propose to introduce, from April 1995, a more objective medical test of whether people can work. I am issuing a consultation paper today, copies of which are available in the Vote Office, and I am forming a panel of medical experts and representatives of disabled people. They will be asked to help define what constitutes incapacity to work and how it should be measured.

The new test will apply to new applicants. Those drawing invalidity benefit are already subject to regular review. Under the present test, about 100,000 people each year are found to be fit for work and have their benefit withdrawn.

After April 1995, those on the highest "care" rate of DLA, those with terminal illnesses, those on a list of specified severe or chronic conditions and those currently on invalidity benefit who are by then 58 or over will no longer be subject to any review. But the new test will be used in reviews of other existing claimants. No one who is genuinely unable to work for medical reasons has cause for concern.

I am also simplifying the structure of all sickness benefits for new claimants from April 1995. At present, there are two rates of statutory sick pay. I propose to abolish the lower rate, which means that lower-paid workers will receive the higher rate of benefit, worth an extra £3.70 a week.

I shall also replace sickness and invalidity benefit by a new incapacity benefit that will be payable at three rates—the longer the period of sickness, the higher the rate. The lowest rate will apply during the first 28 weeks; the middle rate for the rest of the first year; and the highest rate after a year.

Those who are incapacitated early in life will receive extra help because they will have had less time to make additional personal provision for ill health. Additional payments will be made to those whose spouses are caring for children or are over 60.

New claimants will no longer be entitled to a state earnings related addition. Incapacity benefit will cease at pension age. Those already drawing invalidity benefit when the new incapacity benefit is introduced will continue to draw their benefit at existing rates and will not be taxed on it. Only those who come on to incapacity benefit from April 1995 will be liable to tax.

I am making a number of valuable changes for sick or disabled people. First, people on incapacity benefit will be free to do up to 16 hours voluntary work without losing their benefit. That will be widely welcomed by potential volunteers, voluntary organisations and those they help.

Secondly, from April 1995, people taking jobs with the help of disability working allowance will automatically qualify for free prescriptions and free dental charges. Thirdly, I am increasing the level of support to Motability, whose help for disabled people is so extensive that it now runs the biggest car fleet in the country. I am making a £1 million increase in the grant to the mobility equipment fund, which adapts vehicles for use by severely disabled people.

Overall, those reforms of sickness benefits will curb their rapidly growing cost; provide a more rational structure of benefits; encourage employers to improve the motivation and health of employees; and concentrate benefit on those genuinely unable to work. I believe that they will command widespread support.

The incapacity benefits are for people who cannot work. I now turn to benefits for people who are capable of work. Clearly, the best answer, wherever possible, is to help people to find jobs, but sometimes the rules lose sight of that aim. We currently have two benefits for the unemployed—unemployment benefit and income support—and they overlap. Some people are entitled to both, many switch between the two, and the benefit levels leapfrog because they are uprated by different indices. This year, single adults on unemployment benefit will get 65p more than on income support; next year, they will get 25p less.

The two benefits cover different periods. Unemployment benefit excludes Sunday; income support includes Sunday. They have different rules, which require different bureaucracies, offices and computer systems. That results in confusion for unemployed people, complexity for staff and expense for taxpayers. It is time for reform.

I propose to replace the two benefits with a new job seeker's allowance, starting in 1996, which will be more clearly focused on helping people into work. The longer people spend on benefit, the more their motivation and skills decline, and the less chance they have of finding a job.

All unemployed people will be required to enter into a job seeker's agreement at the start of their claim, which will commit them to a plan of action to seek work. We will have a single set of measures for those who fail to take thee necessary steps to seek work, but we will give extra help to those who make the effort to find a job.

The new job seeker's allowance will have a single set of rates. We will provide help for unemployed people and their dependants according to their needs, and this will be paid for as long as they need it. People who have paid national insurance contributions will receive a personal rate for six months, irrespective of their capital or their partners' earnings.

Unemployed people currently cannot get income support if their partners are working for 16 hours or more. That problem emerged as a by-product of improvements in family credit last year. We will retain the current beneficial rules for family credit, but we will restore the limit for partners of unemployed people to 24 hours.

Going back to work can involve extra costs—for example, for clothing and transport. We will be testing a job finder's grant of up to £200 to help people who have not had a job for two years meet those costs. We said in our manifesto that we would do this, and I am pleased that we are now implementing that pledge.

I will also give very significant help to people with family responsibilities who want to return to work. Many people find it unattractive to leave benefit for a low-paid job, especially if they need to pay for child care. I propose to allow families with a child under 11 to offset up to £40 per week of child care costs against their earnings when claiming family credit and related benefits. It will be worth' up to £28 a week; it will start next October; and it will be available to couples where both are working or one is incapacitated, and to lone parents. It will cover the cost of registered child minders or nurseries.

The change will give a powerful new incentive for parents to move into work. It will provide help for up to 150,000 families, including 50,000 whom we expect to take up work as a direct result of the change. The measure has been widely welcomed.

I am today publishing a White Paper on the equalisation of state pension age at 65. Copies are available in the Vote Office. The difference in state pension age for men and women is the last glaring inequality in our benefit system, and we are committed to phasing it out. It is essential to do so in order to provide a clear framework within which occupational pension schemes can comply with the European Court ruling that requires them to equalise their benefits for men and women.

It is right to equalise at age 65, for three reasons. First, women are increasingly playing a role equal to that of men in the economy. Women live longer, and increasingly expect to be able to work as long as men.

Secondly, people are living longer, healthier lives. As a result, by the year 2030 the number of pensioners will have increased by 50 per cent., and there will be fewer people of working age to support them. At present, there are 3.3 people of working age for each pensioner. That ratio was set to decline to 2.2 to 1 by 2030, but equalising at 65 will improve the future support ratio to a more sustainable 2.7 to 1.

Thirdly, throughout the world countries are equalising upwards or increasing pension age for both sexes. The majority of European Community countries have, or are planning, a state pension age of 65 or higher, and the United States is moving up to a pension age of 67. We cannot afford to reduce our competitiveness by lowering our pension age. Equalising at 65 will eventually reduce the pensions bill by £5 billion: it is the key to ensuring that the state retirement pension remains affordable.

Our proposals contain a number of features that will make this decision widely acceptable. We have given women and employers plenty of time to plan for the future: equalisation will be phased in between 2010 and 2020.

Mr. Eddie Loyden (Liverpool, Garston)

rose—

Madam Speaker

Order. It is not the custom for a Secretary of State to give way while making a statement.

Mr. Lilley

So women now aged 44 and over will not be affected; only those now aged 38 or under will have a state pension age of 65. Furthermore, the pension entitlements of millions of people—mostly women—will be very significantly enhanced.

We plan to extend home responsibilities protection to the state earnings-related pension scheme. That will enable women—and men—who take time out of the labour market to care for children or disabled people to build full SERPS entitlement in as few as 20 working years. That will be a very substantial benefit, enhancing the value of women's pensions by around £2 billion by the year 2020.

In addition, to help those on low earnings, family credit and disability working allowance will count as earnings in the calculation of pensions. Finally, we are extending the period of flexibility during which people can choose to start drawing their pensions. At present, they can defer drawing retirement pensions for up to five years, and for each year of deferral their pensions will increase by 7.5 per cent. In future, the increase will be 10 per cent., and people will be able to defer for as many years as they like.

The best support for an improved social security system is a vibrant free enterprise economy. That is what creates the wealth to pay for benefits, generates jobs and provides opportunities for people to support themselves. To nurture economic growth, we must curb borrowing and ensure that the social security system does not outstrip or undermine the nation's ability to pay for it.

All the reforms that I have announced are intended to strengthen our welfare state, to adapt it to modern needs and to make it affordable into the next century. I have been able to announce a generous package of help for those most affected by the imposition of VAT on fuel; reforms to concentrate help on those who are genuinely unable to work; incentives for employers to improve the health and motivation of their staff; a more rational structure of help for those seeking work; help for working mothers to cope with child care costs; an equal state pension age; and help for women and the low-paid to build up better pensions in the future. I commend these measures to the House.

Mr. Donald Dewar (Glasgow, Garscadden)

My constituents will of course be grateful for the knowledge that it will be harder to avoid national insurance contributions by taking payment in the form of bullion. I must add, however, that that is not the test that they are likely to apply to either the Budget or the uprating statement.

This Budget endangers what even the most optimistic and bullish commentators have been describing as a fragile recovery. The 1993 Budget represents the biggest tax hike in history, taking £24 billion out of the economy in higher taxes in just over three years. It is, as I am sure Secretary of State recognises, a pay more, get less, Budget in which 95 per cent. of households will lose and yet see cuts in the services and benefits for which they have paid.

It is astonishing that the Minister who styles himself a low-tax advocate is partly responsible for a tax debacle. Half a million people on low incomes have been trawled into the income tax net as a result of the double freeze in personal allowances.

National insurance contributions are rising by 1 per cent.—a tax that will raise £300 million more than a penny on income tax, precisely because it bites at a lower level of income and hits half a million people who are too poor to pay income tax. In return, national insurance benefits are being cut.

There is little to cheer low-income households in the uprating statement. The Minister has done the essential minimum by uprating in line with indexation, but even here, there are hidden barbs of misery for those who look at the fine print.

Why, in the context of the general uprating, has the Minister chosen to cut the value of the severe disabililty premium paid with income support? How can the Chancellor have claimed to give extra help to the disabled on income support to compensate for VAT on fuel—a tax that we know from research hits the severely disabled more than other group?

When the right hon. Member for St. Albans (Mr. Lilley) has clawed back all that help and more with a cut of 58p' to the benefit of a single disabled adult and of £1.16 to the benefit of a severely disabled couple, does he not recognise that the country will see that as mean and unnecessary? Does not the Minister recognise that, despite his remarkable complacency, the VAT compensation scheme is a con?

Mr. David Shaw (Dover)

What a ridiculous statement.

Mr. Dewar

I shall explain that to the hon. Member for Dover. Simply, the Chancellor's 50p will not meet the extra fuel costs when the VAT bills roll in. The Clarke gap means financial pain for many. Pensioners are already saying, "I'm frightened to put on the fire." That fear will grow as the harsh arithmetic emerges. For poorer families on income support, the 0.4 per cent. uprating is a miserable prospect. Has the Minister seen the research from York university published this month that tested the 0.4 per cent. figure and found that 97 per cent. of a sample of 5,000 households on benefit lost financially?

If Conservative Members are happy with what is to happen will the Secretary of State defend the fact that a married couple on income support with two children under 11 will be struggling to make ends meet from April on £113.05 a week because they will have the princely sum of 45p to deal with VAT costs? Go and ask constituents in that situation whether 45p a week is a generous settlement that will cover additional outlays that they will face.

How does the Secretary of State defend the situation in which a single disabled person over 25, who will receive £65.15 income support a week from April, will get only the Chancellor's 50p? Can he confirm that many thousands of disabled people will get no compensation at all, such as those who are in receipt of the disability living allowance and the disability working allowance? If that is so, how does the Minister explain it?

VAT will cost the average household £l a week or more in 1994–95 and £1.30 a week if there are children in the family. Government figures make that clear. In the weeks ahead, the message that Back Benchers will get from pensioners in the country is that 50p is not enough—and they will be right. Ministers cannot buy off the old and cold for 50p.

The disabled seem to be remarkably singled out as Budget losers. I understand that the Secretary of State is obsessed with the growth in invalidity benefits. Does he remember that his own Department argued with great vim and pertinacity with the Public Accounts Select Committee that the principal reasons for the increase in invalidity benefit were demographic factors and the rise in unemployment to which it was directly linked? Perhaps the Secretary of State should re-read that evidence. He should also recognise that, if he tries to tell the House that invalidity benefit has been a soft touch, he must explain why, last year, 53 per cent. of appeals to independent tribunals against the refusal of invalidity benefit succeeded.

Does the Secretary of State recall his Department's estimates that between 10 and 20 per cent. of invalidity claimants would lose entitlement to benefit as a result of the introduction of the so-called objective test? Does he remember that the estimate was that between 30,000 and 60,000 claimants would be affected? That was a working document, but can he tell me whether that will be largely the effect of the test, as he is now introducing it? If not, how many people who would have qualified if they had applied under the old system will not qualify under the new system? We are entitled to know that.

The Secretary of State will remember the example of the 55-year-old builder with angina, who was unable to walk on the flat for more than 200 yards because of constant pain? He would be deprived of invalidity benefit. Is that the type of person who will find that he does not qualify for the new benefit?

I accept that we shall have to study the documents, but the Secretary of State will recognise that we shall want to examine closely the new test that he is introducing. I understand that it takes the form of a points league table—a form in which the Government seem obsessively interested.

In one section, we shall be invited to consider whether someone is unable to handle a book in order to read it. If he cannot, he will get 25 points. If he cannot lift and push an unladen wheelbarrow, he will get only 4.5 points. If he cannot pick up and carry a 5 lb bag of potatoes in either hand separately, he will get 9.5 points.

We shall want to examine the test. I hope that the Secretary of State accepts that objectivity sounds all very well, but that, if it translates into a lack of sympathy, there will be absolutely no public support for what I believe is ultimately a cost-cutting exercise.

How will the changes in invalidity benefit fit in with the proposed changes to statutory sick pay? The larger employers will no longer be reimbursed for sick pay costs. Does not the Secretary of State accept that that will create a disincentive to employ people who may have a bad health record? Therefore, people will lose entitlement to the new incapacity benefit and at the same time discover that another barrier has been placed in their way as they search in a difficult job market. The Government assume in the Red Book that unemployment will remain at about 2.75 million over the next three or four years.

It seems to me that a Government who are determined not to introduce anti-discrimination legislation to protect disabled people are going in for a little discrimination themselves. Did the Secretary of State see—just to reinforce the point—the Budget taster on the front page of the Daily Mail today, which carried the simple message: Sick pay: Can you afford to be ill?

That may turn out to be remarkably prescient.

The taxing of invalidity benefit is certainly not the place the Opposition would have started in looking for additional revue. Am I right in thinking that, of two people living in the same street, in the same physical state and in the same social and financial circumstances, one could be in receipt of invalidity benefit and the other could be in receipt of the broadly comparable but presumably reduced incapacity benefit? One would be taxed and the other would not. That would create a great deal of bitterness and misunderstanding. It would reduce taxation policy to something of a lottery, based on the point at which one falls ill. I hope that the Secretary of State will give some thought to that.

I turn now to the proposed job seeker's allowance. We have been told that there will be a single benefit for the unemployed. We have been told by the Chancellor, in one of his rather broad brushstrokes, that he will cut through the bureaucratic maze. I am not sure whether he was referring to the efforts of his right hon. Friend the Secretary of State for Social Security over the past few years or to his colleague in the Department of Employment, but we shall want to know in some detail whether it will mean an integration of services between the Department of. Employment and the Department of Social Security and, if so, exactly how it will work, and what the job implications will be.

Our suspicion—I think that many people share it—is that, while the ringing cry is, "It's time for reform," when that comes from the Secretary of State, it can be roughly translated into, "It's time for a cut." The people who will suffer are those who are at risk and who are looking for work.

I ask the Secretary of State to comment specifically on the impact on, and implications for, the contributory principle. He will remember that there have been many fine ministerial defences of that principle over recent months. What we have here is a situation in which people who have built up their entitlement through contributions over many years see it halved at a stroke. They will have not unemployment benefit for 12 months, but a job seeker's allowance for six months.

That seems to me to be a significant shift in Government policy, and it rather underlines what we know from documents that we have seen about a reconsideration of the Government's approach to the contributory principle. That is a serious and important point, and I hope that the Secretary of State will deal with it.

My worry is that, on the one hand, in some Bonnie and Clyde situation—I shall leave it to the two Ministers to decide who is who—people will have to pay 1 per cent. more in national insurance contributions. That is £300 million more for the Chancellor than a penny on income tax. At the same time, the unemployed and the people looking for work are being kicked as they leave by that remarkable reduction in their rights.

The new job seeker's allowance appears in a fine new livery. It has been beautifully repackaged, but at the end of the day it means paying more for less. It is a bad day for those of us who believe in fundamental and civilised provision on a co-operative basis.

How many will be removed from entitlement to benefit as a result of the cut from 12 months to six months? The figure is bound to be substantial, and has been put at 200,000. Will the Secretary of State confirm that? If I am wrong, how many will there be?

As it will be of interest to the House, will he tell us what the effect would be on the current unemployment figures if his proposed scheme were operating now? I believe, as do many, that one reason why it is so attractive to the right hon. Gentleman is that he can evict people not only from benefit, but from the unemployment totals.

I must conclude soon, so I shall deal with the massaging of figures, but in particular the assertion by the Chancellor that raising the retirement age for women to 65 will make a considerable difference to the affordability of the modern welfare state in the next century."—[Official Report, 30 November 1993; Vol. 233, c. 927.]

We shall all want to analyse that sentence in the period ahead. Perhaps the Secretary of State could draw his colleague's attention to figure 7 of his Department's discussion document "Options for Equality in State Pension Aid". It sets out the impact of the national insurance fund and national insurance contribution rates of equalising the state pension age in 2025, when the Government's proposals will be fully in force.

With a pension age of 60, the combined rate of employer/employee contributions necessary to keep the fund in balance would fall from 23.4 per cent. now to just 19.2 per cent. According to the table supplied by the Department, with a common age of 65, the combined national insurance contribution will fall to 15.7 per cent. There is an important debate about the best way forward, but it should not be taken on scare stories and inaccurate information, which are designed to stampede people in one direction.

The reason for those dramatic figures is that the Government have been cutting the basic pension as a percentage of average earnings steadily over a long period. It will soon no longer be the "cornerstone of the welfare state", as the Chancellor rather imaginatively described it the other day. It is important that we recognise that we must look at providing choice for people in retirement as in every other part of their careers.

The Government talk about choice, but all too often fail to deliver. Under the proposal, everyone will have to wait until they are 65. It is particularly worrying for women, who will have to wait an extra five years. If the Secretary of State feels that that is the last glaring example of inequality for women in the social security system, I am prepared to supply him with something of which he is quite fond—"a little list" for him to examine.

The tragedy is that there is so little evidence, even in that proposal, that he is earmarking any of the savings to help women to find their way in a system in which, because of their careers as mothers and their employment patterns, they are often severely prejudiced.

We must get away from a set retirement age, which sits ill with the modern labour market and the needs of the future. As the Secretary of State knows, the Labour party is committed to a flexible decade of retirement. The guiding principles should be choice, adequate provision and security. Those contemplating retirement should be able to decide what is right for them according to their circumstances. We shall conduct the debate on that basis.

It was a bad Budget. I do not want to be ungracious, because there were some good things in it. For example, I welcome the proposals for a child care provision for those on family credit. It is a limited concession, worth a maximum of £28 to a small client group of about 200,000 families. It is particularly welcome because it is in sharp contrast to the arid and unpleasant scapegoat politics that we have seen when we have discussed lone parents in recent months and in which, I am afraid, the Secretary of State has taken a rather disreputable role.

The final point I welcome is the fraud board. I want to mention that because I am often accused of forgetting about fraud. I do not do so. I believe that it should be struck at on all occasions. I welcome the fraud board because it is obviously needed. Will the Secretary of State say whether that move is a response to the Public Accounts Committee report of the other day, which pointed out that there was not even a decent computer system for the fraud section and that fraud was often not detected early enough?

The uprating statement is a stage in the drive towards a vision of the welfare state that nobody on this side of the House shares. It is not a case of the Secretary of State being a victim of the Chancellor. I fear that he is obtusely marching in the wrong direction. He wants to shrink the welfare state. He wants to withdraw the Government from some sectors of provision. It goes with the contracting-out move and the obsession with privatisation. That policy, unchecked, will see the basic pension fall to under 10 per cent. of the average wage. We do not share that vision, and we shall continue to fight it.

Mr. Lilley

I apologise for the fact that my statement took nearly as long as the questions from the hon. Member from Glasgow, Garscadden (Mr. Dewar). The hon. Gentleman began by ridiculing the closing of loopholes in the tax system. I agree that it would be foolish to base an entire economic policy on that, and I trust that he will have a word with the hon. Member for Dunfermline, East (Mr. Brown) about it.

The hon. Gentleman went on to attack parts of the Budget for which I am not responsible, and my right hon. and learned Friend the Chancellor is well able to look after himself. The hon. Gentleman attacked the national insurance contributions bill that is to flow from the Budget earlier this year. He then got on to a part of the Budget that I am unable to identify in any of the upratings. If he will write to me about the premium that he thinks we have cut, I shall respond to him, but I am not aware that that is the case.

At long last, the hon. Gentleman got on to the compensation for VAT on fuel bills and said that it was a con, and inadequate. I remind him of what he said in The People on 21 November: The Government has to add something on to take account of that"— the increased impact of VAT on fuel— and they could do it with an extra 50p on pensions.

We have done rather better than that. In the first year, the figure will be 70p for a pensioner couple, rising to £1.40 in the second year and £2 for the poorest pensioners in the third year. I am, of course, always sensitive to suggestions that I am spendthrift.

The hon. Gentleman then said that the Government were not giving enough help to those who are on income support. Their benefits will be increased by 3.9 per cent., which is more than most people at work are getting. The child care measure will help many people get back into work who were previously dependent on benefit.

The hon. Gentleman asked for clarification on the severe disablement allowance. That is being increased by 50p in the same way as pensions, to ensure that disabled people who are reliant on benefit will get the same help. It is nonsense to say that the disabled are losers from the Budget—far from it. It is particularly absurd to say that the reforms of invalidity benefit, and its replacement by an incapacity benefit which has a proper objective test, will harm anyone who is disabled. The test is designed to concentrate help on those who are genuinely unable to work, and to make sure that the people who are excluded from benefit are those who are able to work.

The hon. Member for Garscadden asked how many people were likely to fail the incapacity benefit test. That will depend on the precise terms of the test, and those will emerge from consultation and evaluation. It is likely in broad measure that around 70,000 people a year who would have received benefit will no longer do so.

He said that we should look closely at the test, and suggested that it was somehow to be ridiculed. I will remind him that the basis on which we are working to build a test is precisely the basis of the survey of disability by the Office of Population Censuses and Surveys. That survey has become the sacred text of those in the disability world. It is widely respected, and we are building upon it.

The hon. Gentleman described the decision not to reimburse statutory sick pay while compensating employers by reducing national insurance contributions by more than an equal amount as a disincentive to employ disabled people. I will remind him that disabled people have generally a better attendance record and lower levels of sickness and absence from work than do other people.

The Government look on the measure as an incentive to employers to improve the health of their employees, and they will realise that it is in their interests. Good employers already do it, and more will do so and take an interest in that aspect of the well-being of their employees. The hon. Gentleman has not told us what the Labour party's thinking in that area is. Does he believe that the present system should be pickled in formaldehyde, and that nothing in the welfare system should ever be changed, regardless of whether there are obvious abuses and issues which need to be addressed?

The hon. Gentleman then came on to the job seeker's allowance and asked whether we envisaged an integrated delivery. That, of course, must be the objective. My Department, together with the Employment Service, is investigating how that can be best achieved in the long term. That is in the interests of the beneficiaries, as much as in the interests of efficient delivery.

He talked about the Government undermining the contributory principle by the changes which are proposed in the job seeker's allowance. I will again remind him that the Commission for Social Justice, which was established by the Labour party, has issued a document which puts the whole contributory principle in doubt. It suggests that it should be determined whether the principle should continue at all. It is rich for him to suggest that changes to particular benefits threatens that principle.

Mr. Bob Cryer (Bradford, South)

That is not Labour party policy.

Mr. Lilley

The Labour party has not got a policy—that is the problem. The party has put it out to commission. The hon. Member for Garscadden asked how many were likely to be removed from benefit as a result of the measure. The figure is likely to be half that which he talks about. Two thirds of all unemployed people get back to work within six months. We hope that the associated changes which we are making will improve that proportion, as will the recovery of the economy.

The hon. Gentleman turned to the state pension age, and implied that somehow we could afford to equalise at a lower age, and that that would not cost much. Equalisation at 60 would cost £12 billion a year more than it would cost at 65.

If he believes that the optimum use of £12 billion is to pay out unconditionally a pension to people between 60 and 65 whether or not they are working and whatever their means, he must have a strange set of priorities, especially when he knows that the one group that will not benefit are those with the lowest means who are already on income support, which is set at a higher level than the statutory pension.

I am glad that the hon. Gentleman welcomed, albeit grudgingly, the changes that we are making to child care incentives for those on family credit. They have been widely suppprted across the board and across the political spectrum. They will show their value when they come in before too long.

The hon. Gentleman ended with the ritual accusation that I believed in shrinking the welfare state. Nothing could be further from the truth. Those who are not prepared to reform cannot preserve the welfare state and ensure that it is affordable into the next century. Because we have the courage to take the necessary decisions, we are the true friends of welfare provision in the country.

Several hon. Members

rose—

Madam Speaker

Order. Those initial exchanges have taken 50 minutes. Often, when a Secretary of State makes a statement, the House seems to believe that it can move into debate mode. Statements are not the beginning of a debate; they are made so that the Secretary of State can be questioned on what he has said. I caution the House now that I am not prepared to hear statements from hon. Members on either side of the House. I am here to listen to pertinent questions to the Secretary of State's statement. I want brisk questions and brisk answers.

Mrs. Marion Roe (Broxbourne)

I congratulate my right hon. Friend on his statement, which clearly honours the Government's manifesto pledges. In particular, I welcome the Government's decision to equalise—

Madam Speaker

Order. The hon. Lady is the first offender. Let me hear her question, please.

Mrs. Roe

I note that home responsibilities protection is to be extended to SERPS. What measures are the Government taking to help women to build up a good pension entitlement, which, of course, has been denied to them in the past because of family commitments?

Mr. Lilley

I am grateful to my hon. Friend. By extending home responsibilities protection to SERPS—it already exists for the basic pension—we will enable women who work as few as 20 years to get full entitlement to SERPS. This will be as if they had worked the same number of years as others without domestic responsibilities do to get full entitlement. That is of great value.

We will also take account of family credit and disability working allowance in assessing people's entitlement to pensions, treating both as earnings. That will help in particular those on low incomes, predominantly women, to build up their entitlement into the next century. That is worth about £100 million extra to women's pensions next century.

Mr. Don Foster (Bath)

Will the Secretary of State acknowledge that the Liberal Democrats welcome the proposals for child care allowance? Will he recognise that his compensation package for VAT on fuel is £300 million short of the figure recommended by the Social Security Advisory Committee, and that, by compensating those on benefit but not those on low pay, he is creating yet another poverty trap? Will he acknowledge that many disabled people will have additional fuel costs? Will he tell the House his estimate of the number of such people and what proportion of them will not be assisted by his support mechanism for VAT on fuel?

Mr. Lilley

I would have been happier, had the hon. Gentleman come clean on Liberal Democratic party policy on imposing taxes on energy—

Madam Speaker

Is that a statement or an answer?

Mr. Lilley

It is a riposte. I am not sure where that comes.

I am glad that the hon. Gentleman welcomes our position on child care. It is absurd of him to suggest that the VAT package is inadequate. It vastly exceeds what most people expected and asked for.

Mr. John Townend (Bridlington)

Is my right hon. Friend aware that in my constituency we have an enormous number of old people and that the proposals to compensate them for VAT on fuel will be welcomed? The proposal that compensation will not be restricted to those on income support will be particularly welcomed. In general, old-age pensioners will benefit from the proposal. Does he not agree that it is churlish of the Opposition to criticise the proposal, when the cost will be no less than £1.2 billion a year? That is a generous settlement, and it will be welcome throughout the country.

Mr. Lilley

I am grateful to my hon. Friend. I am sure that he is right about the wide welcome that the proposals will receive. It was important that help should extend beyond those on income-related benefits to include pensioners, those on invalidity benefit, widows and those on severe disablement allowance. I am glad that that has such wide support.

Mr. Frank Field (Birkenhead)

How many people would be taken off the dole queues if the new benefit were introduced today without one extra person finding a job? Given that we have a Treasury team that boasts about being so tough with the estimates put before it, is it right to assume that the Secretary of State has estimated the cost of the new scheme in 1996? If so, will he tell us what the unemployment level will be in the year that the new scheme is introduced?

Mr. Lilley

On the hon. Gentleman's last question, I am afraid that I have to rely on the fact that we work with a stylised assumption of the level of unemployment over the survey period—I think that it is 2.75 million people. That is the standard way in which it is done. Working on the assumption that unemployment will be roughly the same then as now, savings in the first year of the new job seeker's allowance, which will not start until 1996, will be about £100 million, and twice that in a full year.

Mr. Peter Thurnham (Bolton, North-East)

I congratulate my right hon. Friend on a major package of measures. Will he confirm that total payments to the long-term sick and disabled have trebled under the Government and that the new disability working allowances will benefit even more peolpe as a result of the changes that he has announced?

Mr. Lilley

My hon. Friend is right. The caseload of invalidity benefit has trebled. No Government could ignore that or fail to consider whether it was justifiable. We concluded that it was right to introduce an objective medical test. I believe that that will have the support of the medical profession.

Most doctors find it invidious that they have a responsibility to the state to act as the gateway to that benefit, while also having a duty to and natural sympathy for their patients. The new policy wil remove them from that difficulty. Disability working allowance will be enhanced by allowing people on that benefit to have free prescription and dental treatment. Those people will welcome the proposal, which will remove any hesitation that they may have about taking up a job with the benefit of the allowance.

Ms Glenda Jackson (Hampstead and Highgate)

Will the job seeker's agreement be entered into freely or will failure to sign the piece of paper mean that the unemployed applicant will be denied even the first six months of benefit? Will the £28 child care allowance be paid while parents are seeking work or only when they have obtained work?

Mr. Lilley

Obviously, the child care allowance is for those on family credit, and it influences the amount of family credit to which they are entitled. Therefore, it will be paid when people return to work or take up a job—that is the intention. The idea that we should pay child care allowance to people who are out of work would go further than anyone could reasonably suppose.

The job seeker's agreement is intended to be in the interest of job seekers and to help them systematically to get back into work. Therefore, of course it will be a requirement of the benefit that job seekers take part in that process. I hope that they would do so and would be encouraged to do so by the hon. Lady.

Mr. David Willetts (Havant)

I welcome my right hon. Friend's benefit reforms—invalidity benefit, benefits for unemployed people and the pension age. I particularly welcome the fact that he has addressed one of the most absurd features of the current—

Madam Speaker

Order. I took on the hon. Member for Broxbourne (Mrs. Roe) when she started making statements. I am asking for questions from the hon. Gentleman.

Mr. Willetts

I have a question about one of the most unsatisfactory features of the current regime for unemployed people. If one partner loses a job, the other, who may be in work, promptly has to give up work to obtain any entitlement to benefit. Will the Secretary of State explain how the new improvement in the rules on income support will help people in those circumstances?

Mr. Lilley

That problem has emerged largely as a result of the reduction in the hours rule, from 24 hours to 16. We propose to restore the rule to 24 hours so that people will be able to work up to 24 hours without their partners losing income support. Therefore, there will be no incentive for them to give up working, which was sometimes the case. That will be a sensible change when we introduce the job seeker's allowance.

Mrs. Audrey Wise (Preston)

How much good-quality child care does the Secretary of State think can be bought for £28 a week?

Mr. Lilley

The average for those paying for child care is less than that. The average for those who use registered child minders and nurseries is roughly £40 a week. That is the amount that we are allowing people to offset against their earnings. Because of the taper, they will effectively benefit to the tune of £28.

We are saying that, effectively, the working mother—it is usually the mother—will benefit from the taxpayer to the tune of £28, and will contribute up to £12. The level we have set recognises that many people do not work the full 40-odd hours a week. However, that is what they choose to do and to spend. The amount is in line with that and is reasonable. That is why it has been so widely accepted by everybody in the field, apart from the hon. Lady.

Mr. Roger Knapman (Stroud)

I congratulate my right hon. Friend on his characteristically excellent statement. Will he confirm that, once again, he has shown that the control of inflation is particularly beneficial to those on lower incomes?

Mr. Lilley

My hon. Friend is absolutely right. People do not realise that high inflation erodes benefits every month between upratings. Now that we have low inflation, benefits are holding their purchasing power between upratings, and that is good for claimants. None the less, it is still expensive to uprate, even with inflation as modest as it has been over the past 12 months. It will cost us more than £2 billion to do so next year, before the extra help that my right hon. and learned Friend the Chancellor is giving to uprate additionally to cope with VAT on fuel.

Mr. Andrew Welsh (Angus, East)

What is the difference between the compensation that is offered and the increased cost of VAT on fuel? Does the right hon. Gentleman accept that there will be an inevitable fall in fuel consumption which will hit the poorest hardest, with an estimated 9 per cent. fall among the poorest in our community, compared with only a 1 per cent. fall among the richest? How can he justify the unfairness of that?

Mr. Lilley

As I have said, we have made a generous contribution towards the cost of VAT on fuel for the least well-off, for pensioners and others. In addition, we are offering help to those with higher fuel bills by nearly doubling the home energy efficiency scheme, which helps with insulation and fuel efficiency and will help people to reduce fuel costs without reducing the temperature in which they live. That is desirable, and it is now extended to pensioners and the disabled, irrespective of whether they are on income-related benefits. They will welcome that, and it helps to square the circle to which the hon. Gentleman referred.

Mr. Alan Howarth (Stratford-on-Avon)

Will my right hon. Friend accept that there will be a widespread welcome for the measures that he is introducing to encourage employers to have a greater concern for the health of their employees and to reduce absenteeism? Does he agree that the main reason for the growth in the number of claimants for invalidity benefit has been the difficulty that people have had in getting off the benefit by returning to work?

What are my right hon. Friend's thoughts, therefore, on how employers can be encouraged to recruit and retain chronically sick and disabled employees? Will the Government, for example, reconsider the requirement that employers should pay 50 per cent. of the cost of special aids for disabled people, and will my right hon. Friend look constructively and sympathetically at the case for anti-discrimination legislation?

Mr. Lilley

Of course, we do not envisage the test forcing people who are genuinely chronically sick and disabled to give up invalidity benefit, or the new incapacity benefit to which they will remain entitled if they are medically unable to work. We envisage that those who are able to work and are receiving a benefit which is not the appropriate one would be guided and helped back into work by the new job seeker's allowance and other such arrangements.

We certainly want—there is a proposal but not yet a compulsion—employers to bear some of the costs of employing disabled people, but we are enhancing and making more attractive the disability working allowance, the principal help that we give people whose earning capacity is impaired by their disability but who want to work and who find jobs. I hope that that will be increasingly used by people in those circumstances to get back into work.

Mrs. Jane Kennedy (Liverpool, Broadgreen)

Who will administer the job seeker's allowance? Will it be the Benefits Agency or the Employment Service or some other agency that has not yet been created? Will young people aged less than 25 receive the same amount of job seeker's allowance as those aged over 25? Currently, the arrangements are that people on income support aged less than 25 receive less money than other people.

May I advise the Secretary of State that the 1991 census return demonstrated that 40 per cent. of the unemployed people in Liverpool had never worked? There is a huge number of young people who are genuinely seeking work and for whom there is none.

Mr. Lilley

In response to the first question, about who will administer the job seeker's allowance, a joint study is taking place involving the Benefits Agency and the Employment Service—our two Departments—to consider how best we can integrate the delivery of the job seeker's allowance. I envisage that they will report to me some time in the spring.

As to the value of benefits, we envisage their being rationalised on the basis of the income support levels. I appreciate the hon. Lady's concerns about people in certain regions of the country who, often for several generations, have had no employment. My right hon. Friend the Secretary of State for Employment is keen to tackle that problem, and has brought forward specific measures that will help long-term unemployed people back into work.

Ultimately, as I said, the health of the economy is vital to provide job opportunities as well as the measures that we can take through the social security system, and I believe that we are better placed to make progress on that front than any other country in Europe.

Mr. James Clappison (Hertsmere)

I congratulate my right hon. Friend on his package, and especially on the scope and extent of compensation for VAT on fuel. Can he clarify the position of a pensioner couple, where there are two entitlements to pension in the household?

Mr. Lilley

We are proposing that, in the first year, a single pensioner will get a 50p increment over and above the basic uprating to cope with VAT on fuel. When that pensioner has a dependent spouse, he or she will get 70p. When both pensioners in the same household have pension entitlement in their own right, they will get two 50ps—they will be £1 better off in the first year. There will be an increase, likewise, in subsequent years.

Mr. Cryer

Can the Secretary of State confirm that his concern about invalidity benefit is not borne out by the medical examination on which invalidity benefit depends? Can he tell us, for example, whether any doctors have been reproved, dismissed or disciplined in any way because of mistakes made in the past when they were making decisions about invalidity benefit? If that is not the case, and no one has been disciplined, why is he so anxious to change invalidity benefit and put people in jeopardy?

Does that confirm that the Secretary of State has abandoned his unscrupulous and unprincipled attack on single mothers as the sole cause of the economic ills of the Government, and that the real cost of social security is so high because of the economic failures of the Government, which have produced unparallelled levels of unemployment, which he has admitted will continue for year after year after year? Is it not true that it is a failure of capitalism?

Mr. Lilley

There we have it. The hon. Member will recall that, earlier this year, the medical journal Monitor Weekly conducted a survey of doctors, about two thirds of whom said that they had given people chits to get them on to invalidity benefit even though they knew that they were capable of work.

I, however, have never criticised doctors in that context. I have made it clear to the House that I believe that, if we create a situation which puts doctors in an invidious position; where the rules are unclear; where it is not entirely clear, as a result of the original drafting and the subsequent interpretation by the courts of the laws, quite what assessment should be made and what factors have to be taken into account in deciding whether someone is medically unable to work; it is the duty of the House and the Government to propose measures to change and improve that.

That is what we shall do by introducing an objective medical test. The proof of the pudding will be in the eating. I believe that we will produce a sensible test. It will show that some people who have been getting the benefit should not have done, and it will also ensure those who should get the benefit get it in future.

Mr. Bernard Jenkin (Colchester, North)

Does my right hon. Friend agree that it would have been impossible to provide such a generous measure of support for those who will be affected by VAT on fuel had we not also looked at measures to limit the growth of social security into the future? Do not those measures go hand in hand, and would it not be impossible to continue to care for those who need the help unless we take the tough decisions that we need to take?

Mr. Lilley

Well, yes and no. Essentially, the revenue to finance the extra VAT package comes from VAT itself. It is self-contained, and my right hon. and learned Friend the Chancellor and his predecessor considered that necessary both to raise revenue and to meet our commitments to reduce emissions under the Rio agreements. However, we certainly have to make changes in the growth of benefits to make sure that the system does not outstrip the nation's ability to pay or undermine the working of the economy on which the social security system ultimately depends.

Mr. Clifford Forsythe (Antrim, South)

While I do not wish to take away from the welcome parts of the Minister's statement, is he aware that all the insulation in the world will not be effective unless heat is already in the house? Is he happy that he has got the balance right between the amount of money that has been allowed to overcome the VAT on fuel and the insulation part of the statement?

Mr. Lilley

I believe that we have the balance right. My right hon. and learned Friend the Chancellor and my right hon. Friend the Secretary of State for the Environment have agreed to a near doubling of the money. An extra £35 million will be spent on financing additional work on insulation and fuel efficiency. That will enable us to extend it widely. It was a sensible contribution to the overall package, while the benefits system provides uniform help for all pensioners, long-term sick and other groups.

Mr. Charles Hendry (High Peak)

Does my right hon. Friend agree that people should be encouraged to take out insurance policies to provide themselves with a better standard of living in the event of unemployment or to help with their mortgage payments during such a period? What reaction has he had from charities to his welcome announcement that people on incapacity benefit will be allowed to work for 16 hours a week for a voluntary organisation?

Finally, has he seen in the booklet produced by the benefits agency that people who apply for incapacity benefit score 23.5 points for being frequently muddled and confused? Therefore, should not the hon. Member for Glasgow, Garscadden (Mr. Dewar) be eligible for the benefit?

Mr. Lilley

I cannot say precisely how the hon. Gentleman would perform under the new tests, but we could ask him to participate in the evaluation exercise. What was the first question? [Interruption.] I will participate in the evaluation exercise as well.

As far as insurance is concerned, we certainly encourage people to make provision for retirement over and above the state pension scheme. Of course, people frequently take out provision which will top up their ability to maintain their standard of living if they have any long-term sickness. That would be on top of the basic provision that incapacity benefit would provide.

There is less case for such insurance to deal with the short-term difficulties that my hon. Friend mentioned. However, when I introduced the limit on the mortgage income support help we give, I mentioned that there was a case for people looking to whether they should take out insurance of their mortgages against unemployment to make sure that they had help while they were finding their way back into work. Obviously, I hope people will do that.

Dr. Norman A. Godman. (Greenock and Port Glasgow)

If the Minister has such a genuine concern for those who legitimately claim invalidity benefit, why does he continue to refuse to accept the judgment of Commissioner Skinner in April 1992? [Interruption.] The Minister may smile, but it is an important issue.

Commissioner Skinner made a judgment in 1992 that women aged 60 to 65 should be allowed to claim invalidity benefit. He said that the Government's position infringed the European directive on equality of treatment. Why does the Minister continue to refuse to implement that sound judgment? Why has he sought a further postponement of his appeal against that judgment before the Master of the Rolls? Why this obduracy?

Mr. Lilley

We normally take decisions on whether to contest rulings of the courts and tribunals on the basis of legal advice rather than an attempt to change policy. Policy is better altered in this place, rather than by the courts reinterpreting things which originally meant something else. Obviously, we look at the results of court cases to see whether the cumulative effect would require a change in the law. It is on the basis of legal advice that particular decisions to contest are taken.

Mr. David Shaw

Can my right hon. Friend confirm that, on the basis of the plans he has announced today, social security expenditure in Britain will probably reach £100 billion a year by the end of the decade? Does that not show a substantial commitment by the Government to meeting the needs of those in genuine need? Would it be possible to meet the needs of pensioners, the disabled and others who need help and assistance without clamping down on fraud and abuse which the Government are tackling well?

Mr. Lilley

My hon. Friend is right to say that the bill for social security is still rising, despite our commitment to ensure that the money is well spent and concentrated on those in need. At present, the £80 billion bill that we have to meet means that, on average, every working person has to contribute £13 every working day just to finance social security. Obviously, it is right that we should rein in that growth before it becomes unbearable for people to pay.

In particular, we have to make sure that fraud and abuse of the system is ruled out, because no one wants to waste a penny in that way. That is why I attach such importance to bearing down on fraud, and why I have introduced reforms in the management and organisation of the fraud effort in my Department to make sure that it is as effective as possible.

Mr. Ronnie Campbell (Blyth Valley)

Is it not true that 200,000 or more working people at the lower end of the wage scale will be brought into paying at least £1 a week in tax because of the freezing of the personal allowance? Is it not also true that the Budget has been one of the biggest hikes in taxation that Britain has ever seen?

Mr. Lilley

I am not going to take any lectures on taxation from a party that is wedded to increasing taxes and expenditure and whose every proposal and question today has implicitly meant that taxes would be higher to finance higher expenditure. Where would it get the money?

Mr. Iain Duncan Smith (Chingford)

Does my right hon. Friend agree that the new single benefit, the job seeker's allowance, will help focus benefit on those most in need and make it easier for them to claim? Will he also confirm that, unlike in the Labour party, the concept of contributory benefits still exists?

Mr. Lilley

I agree with my hon. Friend that the job seeker's allowance will be more rational, better focused and accompanied by better help to get back to work, which is what the benefit should be about. As my hon. Friend rightly says, it contains a contributory element, and he is perfectly correct to say that the Commission for Social Justice, in which the Labour party privatised its policy formulation, has been considering the total abolition of the contributory principle, although it has not yet had the courage firmly to reach that conclusion.

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

Does the Secretary of State understand that disabled people are not looking for crumbs from the Tory table but are looking for a fair deal? Many of them do not wish to be a cost to the state—indeed, they would love to have the opportunity to work. Why does the Secretary of State not get together with the Secretary of State for Employment and introduce legislation to levy a charge on those employers who do not fulfil the quota under the 1944 Act? Incidentally, that would include his own Department.

Mr. Lilley

I entirely agree with the hon. Gentleman about the motivation and aspirations of most disabled people. Of course, it is to help those who are in a position to get back to work that we established the disability working allowance. We are reviewing the present quota system to see whether it can be improved or whether changes need to be made. Obviously, until that review is complete, I cannot comment on the hon. Gentleman's suggestion.

Mr. Mark Robinson (Somerton and Frome)

Can my right hon. Friend confirm that, contrary to some stories being put about today, disabled people in receipt of benefit will get the benefits of the VAT compensation package?

Mr. Lilley

I can confirm that the more generous help that we are making available will be extended to everyone on invalidity benefit, those on severe disablement allowance, or on the disability premium in income support—which automatically feeds through into other income-related benefits. That covers virtually all disabled people.

I believe that an assessment has been made which refers to people who are not entitled to the benefits that we are talking about, or indeed to any disability benefits, because they have a lower level of disability and were the group identified in the survey of the Office of Population Censuses and Surveys, which extended to a lower level of disability than is covered by DLA.

Mr. Jeremy Corbyn (Islington, North)

Can the Secretary of State confirm that it is the Government's policy to continue reducing the value of the state old-age pension as a proportion of average earnings? Can he explain why he now believes that it is necessary to raise the retirement age for women to 65, when any civilised society would look towards reducing it by equalising retirement age at 60 for both men and women?

Mr. Lilley

As for the final question, virtually every country in the world is considering, or has implemented—

Mr. Corbyn

That does not make it right.

Mr. Lilley

Of course it does not make it right. But it suggests that, as a test of civilisation, it would be unreasonable to rule out all other countries in the world from the civilised community. Other countries are doing it for sensible reasons. The number of pensioners is set to increase worldwide, and the size of the working population is set to diminish. Therefore, anyone is driven to the conclusion which we reached, that equalisation at 65 was the sensible route.

Mr. Michael Fabricant (Mid-Staffordshire)

Is my right hon. Friend aware that fuel prices have fallen by some 18 per cent. since 1983? Is he further aware that, in the midlands, prices have fallen by about 4 per cent. over the past 12 months? Does he agree that, taking this into account, the generous package that he has proposed will protect the majority of pensioners from the imposition of VAT on fuel?

Mr. Lilley

My hon. Friend is absolutely right. Over the past 10 years, there has been an 18 per cent. decline in average fuel prices, relative to the general price level. Recently, we have seen some absolute cuts in gas and other prices. Since privatisation, the trend in both gas and electricity prices is down in real terms. That is good news for the longer term. As long as those competitive pressures continue to operate, they will feed through to the benefit of pensioners and others, and will mean that the money that we have provided will go even further.

Mr. Clive Betts (Sheffield, Attercliffe)

Does the Secretary of State accept that, whatever the arguments about the inadequacy of the compensation scheme for VAT on fuel, he has offered no compensation whatever to families in which the wage earner is in low-paid employment? Those families will have to pay the full cost of VAT on fuel.

Does the Secretary of State accept that those families will have to choose next winter among paying for fuel, paying for food and paying for clothing? Does he further accept that, by doing that, he has worsened the poverty trap? People seeking work may well find that they will be worse off financially if they get a job, and the proposed measures will have contributed to that.

Mr. Lilley

No. That is not the case because the impact will feed through to those on family credit and on housing benefit, and therefore they will get extra help. By definition, those who are not on benefit cannot be helped through the benefit system. The benefit system is there primarily to help those who are least able to cope. That is what we have done.

We have done much more than the Opposition spokesman on social security, the hon. Member for Garscadden, suggested we should do. He suggested that it would be sufficient to compensate for the increase in VAT. I am surprised that he gives such a grudging welcome for something which must have exceeded his expectations and those of other people.

Mr. Malcolm Wicks (Croydon, North-West)

Does the Secretary of State agree that, notwithstanding his statement that "we keep our pledges to families", the combined impact of the cut in married couple allowance and a few pennies only for child benefit means that the Budget will hit families with children much more than single people? In a year of growing concern about the family, is this not sadly an anti-family Budget?

Mr. Lilley

No. That is certainly not the case. Of course, the married couple allowance does not depend on whether there are children. My right hon. and learned Friend made the changes for the reasons that he gave in his Budget statement. The most significant change in the package of measures announced in the Budget, which was also in my statement today, was the child care disregard in family credit, which will be of great benefit to those with family responsibilities who have the prospect of work—possibly low-paid work—and who will be enabled to work and enabled to pay their child care costs. It will be a boost to the incomes of those who are already working and will encourage perhaps 50,000 people back into work. That is good news for them and for the economy.

Mr. Malcolm Chisholm (Edinburgh, Leith)

Can the Minister tell us what effect cheating the unemployed of six months' benefit will have on the unemployment figures? Is it the case that many people will not be able to claim income support and therefore, apart from depriving them of much-needed money, this will simply be the 31st fiddle of the unemployment figures?

Mr. Lilley

I do not envisage that it will have any measurable impact on the unemployment level, because most people will be entitled to the means-tested element of the job seeker's allowance, or they will register as unemployed to get the credits for their eventual retirement and therefore will appear in the figures either way.