Social Security (Contributions) Bill

HC Deb 16 December 1993 vol 234 cc1301-94

Order for Second Reading read.

Madam Speaker

I must make it clear to the House that I have not selected the amendment.

5.10 pm

The Minister for Social Security and Disabled People (Mr. Nicholas Scott)

I beg to move, That the Bill be now read a Second time.

The House will be aware that the Bill concerns the national insurance fund, which provides finance for the range of contributory benefits, the most notable of which is the retirement pension, but which also includes widows' benefits, sickness, maternity and unemployment benefits. Nearly half the total expenditure on social security is met from the national insurance fund—more than 80 per cent. is contributed by employers or employees and less than 20 per cent. is made up by Treasury grant.

The thrust of the Bill is to increase employee contributions by 1 per cent. I recall that the great Irish-born statesman, Edmund Burke, who contribued so much to political thinking in general and particularly to thinking within the Conservative party, once said: To tax and to please … is not given to men. If I cannot bring pleasure to the House, I hope that I will at least be able to persuade hon. Members that what we are proposing is both a rational and a prudent measure for the Government to take at this time.

The other day the hon. Member for Glasgow, Garscadden (Mr. Dewar) reminded me of my previous appearance, about a year ago, at the Dispatch Box in connection with a social security contributions Bill, when I referred to the concept of a contributory scheme being firmly embedded in the collective mind of our nation. That leads me to believe that most people will recognise that at a time when benefit expenditure is still expected to rise and contribution income is not keeping pace with cyclical pressures, an adjustment in contribution rates should be made. It is implicit in the contributory principle that contribution rates will fluctuate either up or down.

It is worth reminding the House that the contribution increase proposed in the Bill is the first since 1983. The Government reduced employees' contributions in 1985 and again in 1989. Both changes were particularly targeted at helping lower-paid workers. After the 1 per cent. increase has been set, many people will still pay less from next April than they would have done under the flat 6.5 per cent. which applied under the Labour Government.

The Government, of course, have no money of their own. They simply redistribute money collected through taxes and contributions in the way that Parliament prescribes. It is self-evident that no one would volunteer to pay extra contributions or taxes. Last year, we avoided an increase in national insurance contributions by introducing the facility for a Treasury grant to the fund to help sustain its balance.

The House will be well aware that my right hon. Friend the Secretary of State for Social Security has found it possible to announce the full uprating of all benefits for 1994–95 in line with inflation, as well as extra help with fuel costs for pensioners, widows and people receiving invalidity benefit. For the national insurance fund alone, that help will take expenditure to about £40 billion in 1994–95, an increase of about £1 billion on this year's expenditure.

Income to the fund from national insurance contributions is not, however, keeping pace with expenditure. For instance, if contributions were kept at existing levels we would continue to spend between £4 billion and £5 billion more on benefits than our net contribution receipts. As the House will be aware, the Social Security Act 1993 introduced the facility for a grant from the Treasury to the national insurance fund. The grant will continue to be an intrinsic part of our strategy for balancing that fund, but we nevertheless consider it right that, in the medium term, contributors should be expected to bear a somewhat greater proportion of the cost of benefits rather than taxpayers generally being expected to make up all the deficit.

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

I am grateful to the right hon. Gentleman for displaying his characteristic courtesy in giving way. Is it his Department's intention to publish an explanatory leaflet about the details of the increases which would be available to anyone who is affected by the Bill? If so, will he seek to explain to all employees the obligations of the Government towards them in terms of the payment of such benefits?

Mr. Scott

I will ensure that the usual information on the workings of the national insurance fund and the contributions paid by employees and employers is made available. When we return to the House after the Christmas recess, there will be an opportunity for the House, provided that we complete proceedings on the Bill today, as we must, to consider the regulations that will cover the detail of the Bill. That would be an appropriate time for us to consider the advice that we will give to employers and employees for the arrangements that will exist in the new financial year.

The detail of the Bill deals with a single substantive measure—the 1 per cent. increase in employees' national insurance contributions. I shall mention two subsidiary items later.

The proposed increase in contributions has been public for a considerable time, having been announced in the March Budget by the former Chancellor, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont). Earlier this week, when the House discussed the Bill's timetable, my right hon. Friend the Leader of the House said that, since then, at least 15 days had been available for discussion of the proposal.

The increase in employees' national insurance contributions requires social security legislation separate from the Finance Bill, because it is not a taxation measure, but a national insurance fund income measure under the care and management of my right hon. Friend the Secretary of State. The other detailed aspects of the annual contributions rerating, which my right hon. Friend announced on the day of the Budget, will be dealt with, as I said a few moments ago, in the usual regulations and the affirmative order at a later date. I can confirm—in response to a point raised yesterday—that that order will, as is statutorily provided for, be accompanied by the customary report of the Government Actuary.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

Can the right hon. Gentleman clarify whether there will be an opportunity to discuss the uprating statement, as in the past? Do the new Budget procedures preclude the ability to have a proper debate in the House on the details of the uprating statement?

Mr. Scott

There was ample opportunity for hon. Members to respond when my right hon. Friend made the uprating statement. As we have moved to a unified Budget, immediately followed by an uprating statement and then by legislation giving effect, where necessary, to any of the announcements, including the uprating statement, I do not believe that there is any shortage of opportunity in the House to discuss the impact of measures.

I am aware that, during the debate on the timetable of the Bill, hon. Members wondered whether the general arrangements of the House needed to be looked at in the light of the arrangements for the unified Budget. That is not a matter for me to settle, but I know that those who are responsible for the business of the House are giving some thought to it. That is the greatest comfort that I can give the hon. Gentleman at the moment.

I should emphasise that the increase applies only to the main rate of contributions—earnings over £57 a week—and does not apply to the lower rate of contributions; so lower-paid workers will pay proportionately less at the new, higher rate and the greatest increases will be for those on higher levels of pay at or near the upper limit. The increase across the range of earnings, on which the state-earnings related pension scheme accrues, maintains the contributory principle of the scheme as a whole. The 1 per cent. increase will assist the national insurance fund to the tune of £1.9 billion in the first year.

We are aiming—subject, of course, to parliamentary progress—to achieve Royal Assent by the end of January or early February, to allow time for details in the separate re-rating order to follow on and to ensure that employers can plan on the revised rates being firm when they receive the new contribution rates, which will be mailed out in February.

I shall touch on two subsidiary measures in the Bill. Last night, there was, if I may use the vernacular term, a bit of a son and dance about the national health service provisions in the measures that we are considering. It was built up, no doubt for reasons best known to those in charge of the response to business on the Opposition Benches, with a good performance by the Labour Members who sit below the Gangway. The provision is a minor corrective measure, and I am sure that when it is explained it will be supported on both sides of the House.

We currently allocate about 10 per cent. of all contribution income to the health service under a principle dating back to the inception of the contributory scheme as we know it. However, we have uncovered a minor ambiguity in the legislation that split employees' contributions in 1989 into an initial rate of 2 per cent. and a main rate of 9 per cent. which, as the House will be aware, is to be increased to 10 per cent. I am entirely clear that it was always intended that the NHS allocation should, from 1989 onwards, be paid out of the main rate and not out of the lower 2 per cent. rate, because that would have left only about half the 2 per cent. contribution rate to go into the national insurance fund.

As drafted, the legislation certainly excludes calculating the allocation on the 2 per cent. rate and it could be interpreted as excluding an allocation to the NHS on variants of the main 9 per cent. rate—for example, where employees are contracted out of SERPS and a rebated main contribution rate is paid. That was never the intention and the allocation has been paid all along to the NHS from all contributions from employees above the initial 2 per cent. rate. That simple addition to the Bill is a small amendment to ensure that legislation and time-honoured policy and practice properly coincide.

The third provision of the Bill is a simple clarifying amendment, which involves no change in policy. It will not change in any way the assessment for class 4 contributions and no one will be any worse off. It aims to put beyond doubt the existing policy that payments made to approved personal pension schemes by the self-employed are not allowable as relief in the computation of profits on which class 4 contributions are charged. It is in line with the basic principle that only genuine business expenses, not personal expenses, are allowed.

My right hon. Friend the Secretary of State has made it clear on a number of occasions that the Government are committed to the welfare state, but to one which will not outstrip the nation's ability to pay for it in the longer term. However, I believe that the levels of expenditure to which we are committed for the immediate future require a readjustment of the balance of expenditure met by the taxpayer and the contributor. The increase in contributions is modest in terms of our past record, which is that we have twice reduced contributions and saved most people about £3 a week. I commend the Bill to the House.

5.24 pm

Mr. Donald Dewar (Glasgow, Garscadden)

I thank the Minister for his courteous explanation of the Bill. I must confess that he reminded me that he is not a man given to raising the temperature. I suspect that that is why he has been put up to speak on this occasion. I especially appreciate the way in which he referred with slight distaste to the uncovering of a minor ambiguity—as if he were the proprietor of a bungalow and had found a worm on his lawn. I assure him that I do not intend to pursue that matter and follow the ingenuity of my colleagues that night.

I am more interested in what the Minister presented as an almost technical adjustment—in the increase in the basic national insurance contributions for employees. It is a short and simple Bill, which is to some extent brutal. Undoubtedly, it will be unpopular and will have unpleasant consequences. It is full of somewhat sinister possibilities for future policy.

I am genuinely a little surprised that the Secretary of State has decided to sit this debate out, although I understand that he is here and available to comment. However, I regard the Bill as an important measure; it is part of the central budgetary strategy of the Government and will raise a great deal of money. I do not want to make a war dance, but it is remarkable that the Secretary of State does not wish to explain the measure to the House himself and put it in the wider context—the Secretary of State is a great man for his wider context.

The Government strategy is built on taxes, which have increased over recent times, are increasing and, if the Chancellor has his way, will go on increasing dramatically. I would never criticise the Chancellor's commitment to the policy that he has chosen—to set about raising taxes with vim, vigour and a fair degree of imagination. We know from his evidence about which there has been a good deal of talk already, that the Chancellor told the Treasury Select Committee yesterday that there was no dispute and that it was common ground that what would be raised in the coming financial year would be the equivalent of 7p on the standard rate of income tax.

That is a pretty staggering figure for Conservative Members of Parliament—especially for those who have unusually long memories and can remember what they said during the general election campaign. The fact that the Chancellor has confirmed that his proposals will add the equivalent of £9 or £10 to the bills of an average family and that in the following year that £9 or £10 will escalate to £16 is, to put it charitably, food for thought among Conservative Members of Parliament and voters.

We are considering £24 billion over three years—a massive hike in taxation and one of the greatest in modern times. In the grand design, which was hidden with remarkable tenacity during debates on the general election, the Social Security (Contributions) Bill has a key and rather dishonourable role.

The Minister was careful to make a technical distinction about the adjustment in the contribution rate and he said that it was not a matter of taxation. I understand why he wants to clutch to that fig leaf—fig leaves were mentioned in the debate last night and I am glad to adopt that metaphor. It is a rise in taxation—a substantial rise—which affects the vast majority of the working population. I quote in evidence of the fact that it is taxation a speech made on 7 October 1993—to which I am sure the Minister listened —at the Conservative party conference by the present Chancellor of the Exchequer. He said: Most of Norman Lamont's tax increases will come from higher National Insurance Contributions, cuts in income tax allowances and a clampdown on tax avoidance".

We know that Ministers now rather belittle the idea of clamping down on tax loopholes and tax avoidance. The point I stress is that the Chancellor straightforwardly said that his predecessor's tax increases would come mainly from three areas, and the one area that led the list was higher national insurance contributions.

Mr. Nigel Evans (Ribble Valley)

The hon. Gentleman is obviously an expert on increasing taxation. Perhaps during his speech he will refer to Labour's policies and proposals for taxation and national insurance. Does Labour still have the policy of adding 10p to the top rate of tax, whatever that would be, and of removing the ceiling from those on the top level of national insurance? For many workers earning modest sums, the increase in income tax would be 20 per cent.

Mr. Dewar

I am always glad when the hon. Gentleman comes seeking the truth, although I am a little puzzled by his statement. My hon. Friend the Member for Dunfermline, East (Mr. Brown), the shadow Chancellor, has outlined a specific list of proposals on many occasions, usually with a certain air of embarrassment because he is greeted with shouts of "Boring!" from hon. Members such as the hon. Member for Ribble Valley (Mr. Evans). It is not a case of the hon. Gentleman not knowing; it is a case of his not wanting to listen or to learn.

The Chancellor spoke at the conference about loopholes and about tax avoidance. A list of specific loopholes, including corporation tax loopholes, executive share options, advance corporation tax and scrip dividends, has been put on the table by my hon. Friend the shadow Chancellor. It would greatly improve the knowledge of the hon. Member for Ribble Valley—I have no doubt that he would enjoy the task—to read some of my hon. Friend's speeches.

There is a great deal of concern about the shadow Budget and about national insurance contributions—[Interruption.] I am glad that the hon. Member for Langbaurgh (Mr. Bates) appears to be about to raise the matter. It fills two whole pages of the defensive briefing which was prepared for this debate by Conservative central office. The briefing contains a little calculation of the impact of Labour's proposals on an especially sensitive group of voters—those who earn just over £22,000. We were told that they would be especially victimised and that it was unthinkable that the shadow Chancellor could impose such a burden. We have the figure here. It is said that someone who earns £22,000 would have to pay £2.98 more a week under Labour's proposals. That is terrible, unthinkable and cause for outrage.

I do not know whether, in his deep researches into the matter, the hon. Member for Langbaurgh has taken the trouble to look at the briefing on the Bill prepared by the Library. If he takes that trouble, he will see someone earning £430 a week will pay far higher national insurance contributions than those proposed by the Labour party before the general election. I am very puzzled. I took the Conservatives' outrage and concern about the impact of those proposals as wholly genuine.

I am sure that the hon. Gentleman does not dispute the arithmetic of the House of Commons Library. The figure will not be £2.98, as suggested in the shadow Budget and as quoted by Conservative central office. People in the category I have mentioned will face an increase of £4.56 a week. As there was outrage at the proposition produced before the general election, I confidently look forward to seeing the hon. Gentleman in my Lobby tonight. He must now be experiencing the most appalling difficulties of conscience about how he can support an imposition on those people which is far larger than any previously proposed.

Although the Secretary of State for Social Security is technically in charge of the Bill, it is, of course, part of the central Budget strategy, with its proposal of the equivalent of 7p on the standard rate. It was interesting that the Chancellor told the Treasury Select Committee yesterday that although all that was true, he was not raising money by putting 7p on the standard rate of income tax because there were better ways in which to do it. He said: I think it's been raised in a much more desirable fashion myself. I suppose that if he did not think that, no one would think that, so we should be grateful for his remark.

In the cheerful and chattering Sun, which always has helpful information on these matters, we get further assistance. The article says: Treasury experts"— fancy that: The Sun has been talking to Treasury experts— believe increased income tax discourages hard workers while VAT-style rises make people feel better off.

I confess that as I move round my constituency and talk to people who are worried about increases in VAT, about national insurance contributions and other indirect taxation rises, they express a wide variety of sometimes irritated opinion on the matter. I have not yet come across anyone who has said, "I feel better off as a result of these increases in taxation." If The Sun has that odd animal in captivity, Treasury expert or not, it would be helpful for that person to be produced for inspection and analysis.

The Chancellor is reported in the Daily Mail as saying, when describing how he went for the better methods of raising the money: I looked for those increases which would be most accepted and supported by the public. We know now that the Chancellor had a pick-and-mix approach to the matter. What he picked and what he mixed were his proposals on mortgage interest relief at source, VAT on domestic fuel, holiday tax, car insurance tax and home insurance tax. He homologated—I accept that he was not the parent of this—the national insurance increase which had been put on the table by his predecessor, the right hon. Member for Kingston upon Thames (Mr. Lamont).

No one in his right mind believes that the taxes will be popular. I believe that many Conservative Members hoped that they would not be noticed. They hoped that they could be smuggled through without any great public concern. That may be one reason why the Prime Minister used to say—the best known occasion was 28 January 1992—that the Government had no plans to raise the level of national insurance contributions. I confess that when I hear the Prime Minister or any of his senior Ministers saying that he has no plans, I run for cover. That is increasingly the public's attitude to these events.

The chairman of the Conservative party at the time of the election, when ruling out an increase in national insurance contributions, said—it was a nice phrase—that it would be a "stealth tax". "Stealth" is not a word that I associate easily with the knockabout style of the Chancellor. I do not regard him as a stealthy figure; he falls into the category of the cheerful spiv in his general approach to these matters.

The stealth factor was a military metaphor. We all know that the Conservative party is much given to military metaphors. The idea was that the Conservatives would smuggle in the increase at low level and undetected. My message to the Minister is that there is nae chance. The increase will be very much resented, and even when broken promises have been very much devalued by the frequency with which they have occurred, many people will see it as offensive.

I shall explain why, apart from broken promises, we believe that the Chancellor made an unfortunate choice when he decided to lay aside any direct taxation and to go for this form of indirect taxation. The Minister will know that the increase bites further down the income scale than income tax does. There are about 500,000 people who do not pay any form of income tax, but who pay national insurance contributions. Let us consider a shop assistant earning £6,000 a year. That person will pay another 38p a week—not a lot—as a result of the increase in national insurance contributions. If there had been an increase in direct taxation, that person, probably although not necessarily a lady, would have paid nothing because she would have been above the tax threshold.

I made the point about a different situation, where the increase will hit hard those earning just above £22,000, £23,000 or £24,000. I understand from my Conservative aquaintances that they are archetypal election fodder for the Conservative party. That is a strong contender for the most shameless broken promise of this Parliament, but I accept that some of my hon. Friends may disagree, because it is such a formidable field. The one thing on which we can all agree is that this is part of a Budget and it illustrates the principle that we are being asked to pay more and get less.

I have read Conservative material that suggested that national insurance contributions should go up. I pay tribute to the Minister, who did not try to argue that, although it has been argued by some of his colleagues, who say that it should go up because of the increase in benefits. In a sense that is true. Benefit costs have risen because we are funding unemployment and the recovery that has never come. It was a recovery that so excited the Chief Secretary at the time of the election that he failed to notice that we were heading for a £50 billion public sector borrowing requirement, as he rather disingenuously explained in a recent debate.

We must look at the balancing account—what people will get in return for the increase in national insurance contributions. It is particularly relevant, because if—it is a bit of an "if"—the Minister is right that it is not just general taxation, it would not be unreasonable to assume that there would be some sort of balancing improvement in benefit provision. The tragedy is that, over the years, many of the entitlements that arise from national insurance contributions have deteriorated.

Dr. Godman

Surely it is not just a question of deterioration in those benefits. There is a serious case, is there not? The Department is refusing to honour obligations to persons who have legitimate claims for contributory pensions. The Minister is still refusing to accede to a decision taken by a commissioner 18 months ago that women aged between 60 and 65 should be paid invalidity benefit. The Department is still refusing to honour that decision, which was taken in April 1992. Surely that is dishonourable.

Mr. Dewar

I admire—I use the word in no loose sense—the tenacity with which my hon. Friend has pursued that matter. He was temporarily out of the Chamber yesterday when the shadow of Mrs. Rose Graham fell across our proceedings. I agree that the way in which these matters get bogged down in litigation is alarming. As I understand it, there is now a suggestion that the Court of Appeal should remit the case to the European courts. We do not know when we will get a specific result.

Dr. Godman

I am sorry that I was absent yesterday when Mrs. Rose Graham was mentioned. In the case of a constituent of mine, I have made a formal complaint to the parliamentary ombudsman, accusing Ministers and their officials of maladministration in the matter.

Mr. Dewar

I know that my hon. Friend is knocking tirelessly on every door, and I endorse—

Dr. Godman

It is the Court of Session next.

Mr. Dewar

My hon. Friend and I look forward with interest to the unfolding drama.

I endorse my hon. Friend's general point. There are problems about obligations and worries about the way in which they are being eroded and disregarded.

I shall now use as an example the right to unemployment benefit, which is directly linked to national insurance contributions. It is interesting. In 1980—there will be people here with more detailed knowledge than myself—the abatement of unemployment benefit against occupational pension income was introduced. In 1989, that abatement was applied at the age of 55 rather than at 60. In 1984, the child dependency additions were abolished. In 1992, the earnings-related supplement was abolished. During those years, benefits were taxed.

A raft of new regulations—I do not think that anyone would quarrel with me about the matter—was specifically designed to disqualify and obstruct those trying to claim the benefit. The Government have a history of removing entitlements, weakening their obligations under the contract that is implicit in the national insurance scheme and trying to ensure that people did not draw unemployment benefit as they once would have done.

In his famous Mais lecture—famous because it is now read by many of my colleagues—the Secretary of State argued that one of the reasons for success in job creation in the United States—I hope that I do not misinterpret or misrepresent him—was that people had far less generous unemployment cover there. Presumably one might say that that physically and metaphorically cracked the whip behind the unemployed and persuaded them back to work. The implication clearly spelt out by the Secretary of State was that, if we could further weaken unemployment cover, we might get the same reaction.

It should not come as a surprise that, when we look at that long list of weakening of the unemployment benefit system, we now see a further move in that direction with the jobseeker's allowance. I find it illogical, ironical and slightly offensive, in view of the Government's record, that one of the reasons given for the job seeker's allowance is that so many unemployed people—I think that 70 per cent. was mentioned—are not getting unemployment benefit that it might as well be virtually abolished.

Of course a large number of people are not getting unemployment benefit when they are not working. In large part, that is because of the rule changes for which the Ministers who advance that argument have been responsible. It is a piece of sophistry to conduct the argument on that basis.

Whoever winds up the debate may wish to deal with this—perhaps the Under-Secretary of State, the hon. Member for Richmond, Yorks (Mr. Hague), who seems to be the winder-up-in-chief. The job seeker's allowance is a cutting of an automatic entitlement in one's own right, on the basis of the contributions paid, to support when unemployed for between six and 12 months. My understanding from a written answer that came through the House a few weeks ago, is that if that was applied to unemployment benefit now, 240,000 people would no longer be entitled. That seems to be a real example of the "pay more, get less" theme, which is a mark of the Administration, the Bill and the Budget.

When the Minister winds up, I would like him to say a word or two about that. We know that the Chancellor said that the whole point of the job seeker's allowance was to align rates and rules between income support and the job seeker's allowance when it came to replace unemployment benefit. Another point that was made, and I understand it, was that one is a contributory benefit and the other is non-contributory.

Therefore, the contributory benefit would be uprated on the retail prices index, and the other on the Rossi index. If we are to have harmonisation on that point, it would be useful to know at this stage, as we prepare for the debates later, whether the new job seeker's allowance will be uprated on Rossi or on the RPI. It is a little like the problem that Members have when their constituency is halved by the Boundary Commissioners. Which way will they go? When it comes to the uprating, which way will the Secretary of State go?

I shall ask the Minister two specific questions. There will be wide interest in the response. I have heard—the Minister will be listening to me on this—rumours that, under the cover of introducing the job seeker's allowance, additional payments for adult dependants will be abolished. As the Minister knows, that is a feature of the contributory rights built up at the moment and honoured in the unemployment benefit scheme. Can he offer reassurance—or, if it is wrong, can he deny it—that the additional payments for adult dependants, at £27.55 a week at present, are not going to disappear and be quietly dropped overboard, thus representing a significant cut in benefit under the repackaging that the job seeker's allowance represents?

I am anxious, because I missed it—I make no apology for that—about something that the Secretary of State said in his uprating statement. He spoke of a personal rate in the first six months of the job seeker's allowance—the period of benefit as of right. I am beginning to suspect that the word "personal" was carefully chosen and that may give support to those who fear that the additional payment for adult dependants will go.

Secondly, when we align the rates and the structures, what will happen to those aged between 18 and 24? They are dealt with in a different way under income support than they are under unemployment benefit. Under the latter, there is a flat rate throughout the age range. There is no difference between the young person who is unemployed and the older one. However, under income support there is a smaller payment for those under 25. In April 1994, someone who is 24 and on unemployment benefit will get £44.45 a week, but someone who is 24 and on income support will get £36.15—a substantial difference of £9.30.

I fear that talk about aligning the rates means that people who have built up a right and an entitlement to the new job seeker's allowance will get a lower rate because they are under 25, as they would have done under income support, and will therefore be discriminated against and victimised. That is a specific question which the Minister should be able to answer easily. I shall press him to answer it when he replies.

I fear that there will be another substantial reduction in entitlement at the same time as the Government are raising contributions. It will again be pay more and get less, again robbing Peter, or almost anybody else, to pay Kenneth. The House should not nod through a Bill that does that, while assuming that there are no concerns.

I know that it is always irritating—I have always found it irritating when it happens to me—to have something one has said quoted at one. The Minister will remember that, in the social security debate earlier in the year, he said: I do not think that my right hon. Friend has been sufficiently congratulated on the successful outcome that he has achieved—a very full uprating of benefit across the board, and no increase in national insurance contributions. I consider that a remarkable achievement."—[0fficial Report, 10 February 1993; Vol. 218, c. 1082.] He cannot say that now. I hope—perhaps I give him credit to which he is not due—that he will continue to fight the good fight against the Secretary of State and the Treasury, trying to preserve a decent level of return for entitlement built up through the payment of contributions.

I must draw to a conclusion, but many points need still to be explored.

Mrs. Alice Mahon (Halifax)

Before my hon. Friend moves on, will he confirm that the 200,000 people whom he said would lose as a result of the change in unemployment benfit and the reduction in entitlement as a result of the six months' change, will also disappear into a black hole in the unemployment statistics?

Mr. Dewar

My hon. Friend is right. I shall probably have little difficulty in persuading her that that is not an accident. It is not just a chance. I am sure that that factor occurred to Ministers as a useful by-product of the whole exercise.

Mr. Michael Bates (Langbaurgh)

The hon. Gentleman has asked some specific questions. I have one for him to answer. If there were to be a future Labour Government, would they restore unemployment benefit to a universal nature and over 12 months?

Mr. Dewar

We shall have to wait and see what is proposed. [HON. MEMBERS: "Ah!"] We shall also have to see what our inheritance is. One of the features of the Government is that, every time someone invites us to put right a particular outrage, we discover that there are another six growing alongside it, and it becomes difficult to give pledges.

Let me make it clear to the hon. Gentleman that, unlike Ministers, we are concerned about preserving the proper balance between those who are in difficulty, through unemployment, sickness or disability, and those who are not. We are concerned about the way in which the balance is being tilted, with entitlements being weakened. That will be the basis from which we shall approach the problems.

I know that the hon. Gentleman takes an interest in those matters and I am sure that we shall have his support when the time comes. I do not know enough about his majority to know whether he will be here on the Opposition Benches to support us in Parliament, but I feel confident that, even in the community, he will be explaining the difficulties that we shall have to face and justifying our actions.

Mr. Oliver Heald (Hertfordshire, North)

Will the hon. Gentleman give way?

Mr. Dewar

The hon. Gentleman came into my life for the first time yesterday. He was hyperactive. We had several speeches and a petition from him. I had a letter about him from the Secretary of State at lunchtime. I do not want to encourage him overmuch, but I gather—he tells me so—that he is the bearer of good news about the social fund. I hope that that will prove to be not a minor cosmetic change, but something substantial, dealing with the problems of the social fund.

When I spoke in the Budget debate, I drew attention to what seemed like difficult times in the Treasury. There is always a changing scene and at one point it seemed as though the Chancellor had cracked the whip and exercised his authority. I do not intend to go through it in great detail, but he gave an on-the-record briefing, much reported in the press, in which he made it clear that the back-to-basics move was nonsense, because any attempt to use the social security system to engineer social change, or to restrict or shape it, was not a practical proposition. He went on to make some trenchant comments about those misguided enough to suggest that the middle-income group should be invited to contract out of the basic state pension.

The Secretary of State took his cue—I congratulate him on that—and spoke about it in a "Walden" interview which I particularly enjoyed. I am afraid that I missed it visually, but I read the transcript afterwards. The Secretary of State made it clear that only over his dead body would anybody be contracted out of the basic state pension. As I said the other day, he is now the "never, not ever, man". We should be grateful for that.

I do not want to rehearse all that and perhaps intrude upon private grief, but I am interested—they are relevant to the debate—in certain events since then. Although the Secretary of State for Social Security has fallen into line with the Chancellor, rather interestingly it turns out that the Chief Secretary is made of sterner stuff and has not caved in. In a key part of his briefing, the Chancellor said: I do not see that"— the basic state pension— as being opted out or left as a vestigal remnant for those who cannot provide for themselves. Only a few days later, as hon. Members will know, the Chief Secretary appeared on "Westminster Live" and said: My worry about the state pension"— I thought the word "worry" a little surprising, but perhaps I should welcome small mercies— is that it is going to be worth a nugatory amount in the coming century. I am not suggesting that pensioners all over the country, as they gather around the yuletide log and over Christmas dinner, are anxiously discussing whether a pension can be "nugatory" without being "vestigial", but that is a matter of considerable importance. My fear is that the resistance that may still exist in the Department of Social Security, and that is clearly alive and all too well in the Treasury, may win the day.

What may happen is that the Chancellor will merely deny what is happening, but national insurance contributions will increase in the way that we are invited to authorise in the Bill. As I have illustrated fairly on unemployment benefit, there will also be a substantial rundown continuum in the worth of the basic state pension as against average earnings, so that it becomes, in that pretentious but significant word, "nugatory" by the time that we reach the next century.

When I was young, the next century seemed aeons of time away. It is now less than a decade away. Perhaps I shall even live to see it and to have that nugatory pension. Therefore, I take a personal interest in the matter. I shall watch for increasing public signs of how the debate progresses. Its significance is that it is again a clear sign of a danger of the wrong balance—tilting against entitlements, which many people imagined that they were building up as they made their contributions. It is further evidence of pay more, get less.

Mr. Heald

Will the hon. Gentleman give way?

Mr. Dewar

As I am coming to what I think the Secretary of State rather hopefully calls his "peroration" in his printed speeches, I shall allow the hon. Gentleman to intervene.

Mr. Heald

How would the hon. Gentleman make up the deficit in the national insurance fund?

Mr. Dewar

That is a good and interesting question. The hon. Gentleman will remember that, some time in the late 1980s, it was not the present Secretary of State for Social Security but some other optimist who announced that the national insurance fund was balanced and removed the statutory opportunity of making up a deficit. In 1992, the Government found themselves 20 per cent. short of the sum that they needed to meet their current obligations and had to come to the House.

We were helpful. We did not make much of it. We passed a Bill in one day because we were anxious to repair the damage and get them out of that particular embarrassment—not their embarrassment, which did not matter to me, but the embarrassment of not being able to pay people's benefits. As a result, there will be a shortage of up to 20 per cent.—it is likely to settle at about 17 per cent. Perhaps the Minister could say a word about how the figure may be influenced. Now, there is room for a Treasury subvention. That will have to happen, and I am. sure that the hon. Gentleman would expect it.

It might be helpful if we had a Government with ambitions to see a growth rate rather above the 1.6 to 1.7 per cent. annual rate of the past decade, which has left us struggling behind many other European countries. As the Social Security Advisory Committee said in a report published yesterday, which I am sure the hon. Gentleman will have taken the trouble to read, much of the Government's talk about the inability to fund the present level of social security is unjustified and can be maintained only if one takes an extremely gloomy view of our economic prospects. That is a useful corrective and is perhaps also part of the answer to the hon. Gentleman's question.

Mr. Paul Flynn (Newport, West)

My hon. Friend may recall that the Treasury supplement was 18 per cent. in 1979 and continued at that level for many years. In the late 1980s, the Government decided that they would not pay it, because the national insurance fund was so high. Does my hon. Friend agree that the situation today is the reverse of the days when David Lloyd George said that the national insurance scheme would involve paying in fourpence to get out ninepence? Now, we pay in ninepence and get out fourpence.

Mr. Dewar

That neatly puts the argument. [Interruption.] Let me make a sympathetic suggestion to the Minister. To be fair, the problems of the national insurance fund are partly due to economic failure, which has reduced income from national insurance contributions.

I have taken up sufficient time. The Minister of State is an extremely well-intentioned man. He has never been accused of reaching for the glittering prizes. Whether he did or not, I know not, but he certainly did not grasp them. He has had an honourable career in Northern Ireland and at the Department of Social Security. It is rather sad to find him now reduced to the role of a tax collector and general demolisher of entitlements that flow from contributory benefits.

I recognise the Government's difficulty—I would be silly if I did not. If one needs to borrow £1 billion a week merely to balance the books, clearly that cannot be entirely shrugged off. I suspect that if the Chancellor of the Exchequer were in private industry, he would go bust in a big way—with style. That is my worry. I only hope that he does not take quite the same risks in future years.

The PSBR suggests that we have had some profligacy and certainly some incompetence. The one certainty is that people will have to pay dearly: £10 in the coming year or £9—I will not split hairs over that—and £16 the following year. That is an extraordinary contrast to the promises, pledges and, indeed, boasts of early 1992 when right hon. and hon. Gentlemen were on the hustings. Theirs has been a crashing fall. The trouble with politics is that once the election is over, one can lose all dignity and all claim to respect, yet survive. That is one of the ironies of British politics. The worse the Government and the more bedraggled their record, the less likely they are to be forced to go to the country. As unemployment stares Back Benchers in the face, they tend to rally to the colours.

I must content myself by saying that the measure is misconceived. It represents part of a trend to undermine the understanding, and some would say the contract, between Government and the governed which guarantees help in times of need—adequate help, as of right. The Government are embarked on a destructive course and there will be great anxiety and anger in the years ahead.

The Bill is dishonourable, not because it raises revenue—all Governments have to raise revenue and it would be silly to argue against that—but because it is part of a dishonourable package. The Government are asking people to pay more at a time when they are stripping down and undermining what people get in return. We will have none of it—and we will vote accordingly tonight.

6.6 pm

Mr. Michael Fabricant (Mid-Staffordshire)

The hon. Member for Glasgow, Garscadden (Mr. Dewar) has had a lot of fun with Conservative party documents stolen from the Conservative research department. He has had fun, too, talking about the Government's taxation record.

The hon. Gentleman was selective in his quotes from the document. For example, he did not mention that, according to page 10, in the past three months alone the Labour party has suggested a tourism tax, a pollution tax, a payroll tax, a health tax, a road pricing tax and, heaven forbid—I cannot believe this, having heard the hon. Gentleman's talk—even an entertainment tax, as well as an education tax and a windfall tax. Yet he dares to suggest that we are the party of taxation.

Mr. Dewar

rose—

Mr. Fabricant

I am delighted to give way to the hon. Gentleman.

Mr. Dewar

I must confess that I read that page with great interest and some amusement. To say that those allegations are on thin ground and have poor foundations would be an understatement. Even if the hon. Gentleman takes them at face value, does he find them entirely ludicrous when he is about to go into the Lobby in favour of a car insurance tax, a home insurance tax, a travel tax, VAT on domestic fuel and an increase in national insurance contributions? Over the next three years we are to see the biggest tax increase that we have ever seen in the history of this country.

Mr. Fabricant

rose—

Madam Deputy Speaker (Dame Janet Fookes)

Order. Before the hon. Gentleman continues, I remind the House that we are considering a narrow Bill on Second Reading and that these exchanges could properly have taken place during the Budget proceedings.

Mr. Fabricant

Thank you, Madam Deputy Speaker, for your advice. Obviously, I would have given a devastating reply.

To return to the narrow subject of social security contributions, hon. Members will be aware that the main provision of the Bill is contained in clause 1. Its effect is to increase the rate by 1 per cent., from 9 per cent. to 10 per cent., for national insurance contributions paid by employees on earnings between the lower and the upper earnings limits. The Bill also clarifies existing national insurance contribution policy in two important areas. The first concerns how part of the national insurance fund is allocated to health service funds and the second reaffirms that self-employed people have to pay class 4 national insurance contributions on payments to personal pensions, an important element which has not been taken up so far.

There are two other important measures that do not require primary legislation: first, an increase in contributions for self-employed people on their class 4 contributions and, secondly, reductions in contributions payed by employers. The overall effect of the legislation is to simplify the administration of the fund and to make significant changes to the way in which it operates.

The most contentious aspect of the Bill is the increase in national insurance contributions, and I shall deal with that first as it has clearly not been addressed by Opposition Members. The Government, like those in all other western countries, where the old live longer and all are provided with state health care, face a huge and ever-increasing bill for social security expenditure. It now tops £70 billion. The trends behind that increase have continued unabated for decades and I think that that is accepted by hon. Members on both sides of the House. There has been an enormous increase in the costs of health care. The growth in the number of single parents and the increase in the number of working women, who rightly expect a pension on retirement, have also contributed to the huge and ever-increasing bill.

We are concerned today with trends in expenditure on contributory benefits alone, and here the story is much the same. Expenditure on those benefits rose by almost £10 billion in the four years to 1992–93 and it is expected to rise further still. Even as the world faces a wintry economic climate, and Germany and Japan continue their nose dive into recession, the Government—

Mr. Flynn

Will the hon. Gentleman give way?

Mr. Fabricant

I am delighted to give way to my honourable sparring partner.

Mr. Flynn

The hon. Gentleman, who is clearly, from his authoritative words tonight, an expert on social security, talked about the increased expenditure on national insurance. Will he give us the percentage figure by which employees' national insurance contributions have increased since 1979?

Mr. Fabricant

Anyone know? [Interruption.] My right hon. Friend the Secretary of State says 53 per cent.

As Germany and Japan have continued their nose-dive into recession, the Government have not flinched from their commitment to the needy and most vulnerable members of society. Retirement pensions alone rose by £2.5 billion during the past four years, and now social security benefits have been uprated across the board. Our social security budget will rise by some £11 billion during the next couple of years, which I know will interest the hon. Member for Newport, West (Mr. Flynn). This is a Government who recognise their responsibilities and, unlike the Opposition—whose talk is cheap—we will deliver.

Moreover, in 1985 and 1989, Government reform of national insurance saved the vast majority of employees about £3 a week. At the previous election, Labour proposed that the upper earnings limit on national insurance contributions should be abolished. What a disincentive to work. What a disincentive to the most able in our society. That measure would have increased by 9 per cent. the tax paid by everyone earning more than about £20,000. Before Opposition Members laugh, may I say that £20,000 is not that much more than the average working wage now.

With more people than ever before claiming pensions, invalidity benefit and unemployment benefit, the national insurance fund has moved from surplus to deficit. Expenditure is outstripping income. The principle behind the scheme is that of pay-as-you-go, with this year's expenditure being funded by this year's taxes. The insurance contribution of today is not for the pension of tomorrow.

The Treasury grant that was introduced this year was a sensible measure in these difficult economic times when stimulating the economy has been of overriding importance, but it can be only an interim measure. The Treasury grant is payed for by the general body of taxpayers. Some of those, such as pensioners, have already made a full contribution towards the national insurance fund. With expenditure rising and the national insurance fund running into deficit, the fund must be topped up by increased contributions.

At this juncture, I want to give a warm welcome to a Government omission. The Government have resisted any temptation to increase national insurance contributions by employers. That makes sound sense. Alone among those in Europe, our economy is recovering, but the recovery is fragile and any measures that would hit employers could jeopardise the rebirth of our nation's wealth.

Mr. Dewar

What about statutory sick pay?

Mr. Fabricant

I shall come to the subject of statutory sick pay shortly.

Our employers could ill afford the extra costs that raised national insurance contributions would represent. Our wealth creators have been, and must be, protected to such an extent that a reduction in employers' contributions has recently been announced. The standard rate of contribution is to fall from 10.4 to 10.2 per cent. Equally significant is the reduced rate for employers of lower-paid workers—a reduction of 1 per cent.

I acknowledge that, as the hon. Member for Garscadden said, employers will have to bear the extra costs of funding statutory sick pay, but those costs have been more than offset by the cut in employers' national insurance contributions.

It is my experience that businesses that provide a pleasant working environment suffer less from employee absenteeism, whether the sickness if genuine or feigned. Putting the responsibility for sick pay back on to the shoulders of employers will give them a major incentive to motivate the loyalty of their work forces. Opposition Members should welcome a move that would improve workers' health and well-being. Moreover, putting the burden of sick pay on employers will significantly save time on the Department of Social Security paper-shuffling that company wages clerks have to endure. That too will be an economic saving to employers.

The Government's approach to the national insurance fund and their way of dealing with the deficit is practical, imaginative and realistic. The Government are clearly aware of the need to create a strong and lively economy in order to finance welfare provision. In reducing employers' contributions recently, and employees' contributions a few years ago, they have realised the importance of keeping taxes as low as possible and are doing everything within their power to protect the motivation and enterprise of the work force.

One of the most attractive features in the approach to tackling the national insurance deficit is the care with which our lowest-paid have been treated. Even after the increase in contributions set out in the Bill, employees who earn less than £130 a week will still pay less national insurance than they did under the Labour Government in 1979. That is an impressive statistic.

The lowest-paid employees will be affected least of all by the rise in contributions. Those under the lower earnings limit will continue to make no contribution to the national insurance fund and, above that limit, those who are paid less will make a smaller contribution to funding the increase, as the hon. Member for Garscadden knows, having read the Conservative research department brief.

An employee earning £60 a week will pay just 3p a week extra, while someone earning £200 a week will have to pay £1.43 a week extra. There is a maximum of £4.56 a week. Labour would have abolished that ceiling.

The lower-paid have always contributed less to the national insurance scheme. That is right and proper. It is admirable that the Government have accentuated that feature of the system. The changes to the national insurance scheme introduced in 1985 and 1989 provided that result. The reduced rate of contributions, which was enacted in 1985, means that the lower the pay, the greater the proportion of earnings that is assessed at the lower rate.

The Government's emphasis on the needy has been demonstrated by the extra help with fuel costs being made available to pensioners. I expected Opposition Members to intervene at this point but, as none is doing so, I shall point out that although the Opposition talk about small sums being given, £120 billion is being made available to just 15 million needy and pensioners. Clearly, that figure has got through to Opposition Members—

Madam Deputy Speaker

Order. There is about to be an intervention from the Chair. How do the hon. Gentleman's comments relate to the Second Reading of the Bill under consideration?

Mr. Fabricant

I bring to the attention of the House the Government's general policy on social security and care of the needy, but I shall endeavour to confine my remarks to the more narrow subject.

Mr. Heald

Does my hon. Friend agree that one possible relevant point is that pensions are paid from the national insurance fund and they are being uprated to help pensioners and the needy? Does he recall the hon. Member for Glasgow, Garscadden (Mr. Dewar) saying, before the Budget, that 50p compensation per pensioner would be more than adequate? The hon. Gentleman changed his tune after the Budget. Perhaps he would like to intervene on that subject.

Mr. Fabricant

I await a further intervention, but I see that there is none forthcoming.

The Government have given much encouragement to people taking out pension schemes funded by this contribution. Behind that lies the Government's aim to construct a welfare system that gives incentive to personal responsibility. It has been eminently successful, with some 15 million people—three quarters of those eligible—opting out of the state earnings-related pension scheme. Some 5 million people have private pensions, including 1.4 million self-employed people. I am pleased to note that the present arrangements, confirmed in the Bill, are working so well. They are appreciated by the self-employed, and I am glad that no attempt has been made to change them.

Mr. Bates

Before my hon. Friend leaves the subject of the state earnings-related pension scheme, and national insurance generally, may I ask whether he accepts that one of the principal advantages of private pensions is that the money put into them can be invested, thereby helping the economy to continue to grow?

Mr. Fabricant

I absolutely agree with my hon. Friend. As he says, money from pension funds has been used in ventures that have created employment for people who might otherwise be unemployed and have to draw from the very fund for which the Bill provides.

Mr. Flynn

Did the hon. Gentleman say that 15 million people have opted out of SERPS and into private personal pension schemes? I do not rise to query the figure, but I believe that it is massively inaccurate. Now that it is becoming apparent that at least 500,000 people who opted out of occupational pension schemes face poverty and old age and 1.5 million people who have opted out of SERPS also face disaster, there will be an enormous scandal because of the inherent waste of personal pension schemes. The money invested is gobbled up by huge commissions, administrative charges and profits for the company concerned. The national insurance scheme is efficient and cost-effective.

Mr. Fabricant

I am grateful to the hon. Gentleman for his speech, which enabled me to have a breather. I confirm that 15 million people have opted out of SERPS and into various schemes. If he would like to check the figures, he can read them in the Conservative party brief which the hon. Member for Garscadden clutches and will no doubt use in his wind-up speech.

The measures in the Bill will naturally be viewed in the wider context of the recently announced changes to national insurance benefits, such as the replacement of unemployment benefit with the new job seeker's allowance and the replacement of invalidity and sickness benefits with incapacity benefit.

In "Social Insurance and Allied Services", Beveridge, the founding father of the welfare state, who acknowledged that state provision should be limited, wrote: The State in organising security should not stifle incentive, opportunity, responsibility; in establishing a national minimum for himself and his family.

Provision for the sick and elderly is absolutely necessary and a national minimum is, and always will be, provided.

Even the hon. Member for Sheffield, Brightside (Mr. Blunkett) said, in The Guardian on 18 January 1993: It is the Labour Party that is seen as in favour of molly-coddling people. We have to be tough with ourselves and ask why that has happened. We have to convince people that we are not a tax and spend party. Clearly, the Labour party continues to fail to get that message across.

Unconditional and long-enduring benefits for the unemployed are superficially attractive—

Madam Deputy Speaker

Order. I have already warned the hon. Gentleman to relate his remarks to the Bill under consideration. The more general remarks that he is now making could have been made in previous debates in the House in the past fortnight or so.

Mr. Fabricant

The Government's policy has been very different from that of the Opposition and has yielded spectacular results. Britain is the only nation in Europe that is not sliding deeper into recession. The Labour party is wringing its hands with pity for the needy but, whenever it has been in power, it has been unable to deliver the goods.

The provisions that we are considering reflect the Government's emphasis on sound finance and an unwavering commitment to those in need. For that reason, I commend the Bill to the House.

6.27 pm

Mr. Malcolm Wicks (Croydon, North-West)

I wish to raise some fundamental questions about the future of national insurance, and shall not therefore follow the speech by the hon. Member for Mid-Staffordshire (Mr. Fabricant), although I am bound to say that I could just about tell where Beveridge ended and the hon. Gentleman carried on.

Despite the giggling on the Conservative Benches, we are dealing with some serious questions. I make a plea that, at some stage in the debate, the Minister should present us with a statement about the Government's view on the future of national insurance. Clearly, many different factors affect national insurance now, on both the contributions side and the benefits side. What is lacking from the Government is an overall statement about how they see the future of national insurance—if they see a future for it at all. It is difficult to understand that because we face, on the one hand, higher contributions—hence today's debate—and, on the other, lower benefits in real terms for many people who draw from the fund.

Mr. Bates

The point has been made several times that the amount spent on social security this year is about £74.5 billion. Over the next three years, it is due to rise to about £92 billion. That is not less out for more in.

Mr. Wicks

Obviously, we are spending more for a range of reasons, some good and some bad. Many people are living longer and are rightly drawing their pensions, although in real terms those pensions are far lower than they would have been if they had not been de-indexed from earnings in 1980. The hon. Member for Mid-Staffordshire, who described trends affecting social security expenditure over many decades, was having us on, historically speaking.

Unemployment has been the feature of the past decade and a half, coinciding with a particular political epoch. Since the war, wise Governments—both Conservative and Labour—have pursued policies of mass employment. There was lower social security expenditure because of that macro-economic policy. I do not concede, therefore, that high public spending on social security is necessarily an indicator of sound social policy. In part, it is a sign of bad economic policy.

Mr. Fabricant

rose—

Mr. Wicks

Does the hon. Gentleman have more to say?

Mr. Fabricant

I am grateful to the hon. Gentleman. He blames unemployment, yet Germany, Greece, Ireland, Italy, the Netherlands and Spain—once again, we are grateful to the Conservative party briefing for this information—are all having to introduce measures similar to the one that we are debating.

Mr. Wicks

I do not think that leadership in Britain means following bad practice abroad. As we did in the war and thereafter, we should renew our national determination to move back to full employment. As the hon. Gentleman will see, he is not the only one who can support Beveridge. I, too, have read the Beveridge report and I intend to quote from it.

I renew my plea to the Government to make a strong statement on their vision for the future of national insurance. If we agree today—we may not—to increase contributions by 1 per cent., we should know the context of that decision and the strategy behind it. I want to spend some time outlining the changes that have affected Britain in the post-war period—how the risks have changed and how new risks have materialised as a result of social and demographic change. We need to ask how those risks will be dealt with in future.

In a sense, the modern history of social insurance starts with William Beveridge. It has, of course, a much longer history in the voluntary and state sectors here and in other European countries such as Germany. But we start, conveniently, with Beveridge who, in many respects could be regarded as a dreamer of dreams, a reverist, a man who had a vision for the future.

Equally, in many important respects Beveridge was a superb technician. He was a planner. Many of his wartime speeches are well known and oft recited, even today, because they had more to say about the 1990s, perhaps, than about the 1940s—not least on unemployment. The man's planning and technical abilities were impressive.

One of the strengths of the Beveridge report lay not in the technical detail or the broad policy but in how Beveridge and his colleagues came up in the midst of a war with a view of society, demography and employment, and of the roles of men and women. Some of his assumptions, not least about the role of women, turned out to be wrong—a good thing, we might say. Still, he had a vision, and Parliament and the Government also need a vision when they set national insurance in the context of social and economic change.

What has changed since Beveridge? First and foremost, unemployment has changed. Beveridge assumed, in line with the Keynesian thinking of the time, that we could move towards full employment. He did not underestimate the difficulties, but that was his vision. In the simple, powerful language that he used in many wartime speeches, he spoke of the five giant evils that Britain needed to destroy if we were to construct a decent society for ourselves. He spoke of the evils of want, disease, ignorance, squalor and idleness. Many modern politicians would do well to copy Beveridge's language and adapt it. Too often these days, our debates get bogged down in detail and jargon. The landmarks are never clear.

William Beveridge had something important to say about the giant evil of idleness, by which he meant unemployment: Idleness is the largest and the fiercest of the five giant evils and the most important to attack. That is our text for the future of national insurance and for the 1990s. We are learning in many areas, not least those of crime and education, that unless our vision demands a move back to full employment we will always face difficulties with social security expenditure and with meeting needs that must be met through the social security system. If we lack that vision, we shall have to spend billions of pounds keeping people out of work. Macro-economic policy should make it its main business to put people back into work.

What is the Government's vision, or assumption, about full employment and unemployment? I am genuinely pleased that unemployment is falling. I see too many victims of it in my surgeries. Each time we hear of someone getting a job it is a victory for that person and that person's family, and for our community and economy—

Mr. Fabricant

On a point of order, Mr. Deputy Speaker. I was reprimanded three times by Madam Deputy Speaker for not confining myself narrowly to the subject of the Bill. Has not the hon. Gentleman allowed himself to stray?

Mr. Deputy Speaker (Mr. Michael Morris)

I can assure the hon. Gentleman that, if the hon. Member had deviated by even a quarter of an inch, I would have reprimanded him. I find his speech extremely interesting so far.

Mr. Wicks

And I write my own speeches, Mr. Deputy Speaker.

Mr. Fabricant

So do I.

Mr. Wicks

Do not admit too much, my friend.

If we cannot grasp the relationship between national insurance and methods of ensuring ourselves against modern risks and against unemployment, we in this House will have a problem. I ask the Government in all sincerity why, if we can set targets and bands for inflation, we cannot set them for full employment, too. The Red Book seems to assume that there will be 2.75 million unemployed for the foreseeable future. Is that a technical assumption? Is it the Government's judgment? If it is the former, what does it mean? Will the Government tell us today what they think unemployment will be like in two years' time, or by the year 2000? My worry is that, welcome as the fall in unemployment is, it may not be enough. Do the Government believe that unemployment will fall to 2 million? What are their assumptions? A Government's assumptions about these matters were vital to Beveridge's social insurance plan, just as they are vital to social insurance today.

Mr. Simon Burns (Chelmsford)

Does the hon. Gentleman agree that it is extraordinarily difficult to make realistic calculations of unemployment? Many economists believed that unemployment probably would not start to fall until next spring, yet since February this year, each month, including this month, unemployment has consistently fallen. That highlights how difficult it would be to make a meaningful or realistic calculation of that sensitive economic indicator.

Mr. Wicks

The hon. Gentleman is right, of course, but it seems to me that we have a Parliament and a Government because things are difficult. The more fundamental point is whether the attack on idleness and the achievement of full employment is a real objective—not a wish, because we all wish it—of economic policy. Wise people in the past from all parties—Keynes, Beveridge, Attlee and Macmillan—felt that full employment was vital. Do the Government feel that it is vital? What policy tools do they have to achieve that in the coming months and years?

The second change which has affected the landscape of national insurance, and which is therefore crucial to consideration of the Bill, is in employment patterns. We have seen the rise of the two-worker family and a massive increase in female employment, which is so important to social security. Indeed, the increase in female employment is one of the most important social security factors in this country. Mothers are able to work, although not enough can find work. There would have been far more family poverty if it were not for the employment of mothers. That is more important than child benefit and family credit combined.

I will highlight another change which affects any national insurance scheme. Although we live longer nowadays, we are employed for a smaller proportion of our lives, because we enter the labour market later. Many working-class boys and girls will not get jobs when they are 16, some perhaps never, although I hope that most will. They may get jobs when they are 17, 18 or 19. Who knows when the children of middle-class, professional people—I have two children at university now—will get jobs? They may be in their early or mid-20s. That must have implications for the contributions and benefits that we are discussing today.

I should like to relate another interesting feature of the Government's proposal that women should be able to get pensions at the age of 65. We are leaving the labour market earlier. One of the great myths about society, social security and pensions is that men work until they are 65. Many do not, and the data show that the changes have been dramatic.

In 1951, in the first census after the war, 88 per cent. of men aged between 60 and 65—the pre-retirement group—were economically engaged or active. The Beveridge assumption that men worked from when they were boys until they retired at 65 was then more or less true. The 1991 figures for that age group showed that just 57 per cent. were economically active, to use the economists' unhelpful jargon. I say unhelpful because the "economically active", according to economists, include some of the unemployed. In practice, just 49 per cent. of men in that age group were employed in 1991, and the percentage may be less now.

Should we now build contributions and benefits for men and women based on their eventual entitlement at 65, when the trends are going the other way? Why have the Government hit on 65 suddenly when so many have retired for good reasons or ill, be it voluntary retirement or redundancy, long before that age? That is an important question which I should like put to the Government.

The third change affects the caring role of the family. Any national insurance scheme which relates to social security must have a grasp and a concept of the caring role of the family, which is its most important function. Today, families have fewer children. The average is about 2, or 1.8 per woman. However, children are dependent on their parents for longer than in the immediate post-war period. As has been said, gone are the days when most young people would leave school at 16 to get things called "jobs". Most do not do so now, for good, bad and ugly reasons.

How does the social security system deal with that? How does it deal with the emerging role of the family in caring for its elders and betters? The figures show that 6.3 million people are family carers who look after elderly parents or another relative. Given that many of those carers are women, some of whom, although not all, must leave employment, what are the implications for social security?

I know that the Government have some answers—for example, that national insurance contributions have been allowed for. However, any future strategy for national insurance must pay more attention to the role of people, many of whom are in their 50s or early 60s, who are carers or workers, or both. National insurance must reflect those trends. Were he alive today, William Beveridge would have looked at that issue when framing a social policy. We should do the same.

The fourth change is in the risks which people face in their lives, and the implications for national insurance and other parts of the social security system of family change and family breakdown. Looking again at the Beveridge report—as one does most evenings—one sees that Beveridge said little about one-parent families. He talked mainly about widowhood and the need to have a national insurance system to look after widows and the few widowers. The phenomenon of the large proportion of single unmarried mothers—probably 18 per cent. or almost one in five of our children live in one-parent families—is a key challenge for social security, as the Government recognise. What are the implications for national insurance? Are there any implications?

It is fascinating that Beveridge with his sexist view, as we would say now, of the role of men and of national insurance, nevertheless recognised that, when a marriage ended, a new risk of poverty was presented. He toyed with the idea in his report that perhaps a national insurance scheme should recognise the risks that many women faced when a marriage ended through no fault of their own, as he put it.

Beveridge could not frame detailed policies and, of course, the national insurance system, as opposed to other parts of social security, never recognised the risks of divorce. If the Beveridge questions about changes in family life and the risks that we face were asked today, a latter-day Beveridge would accept that almost four in 10 of recent marriages would end in divorce. More and more men and women, but particularly children, become victims of the social revolution and of family change. That revolution has not been bloodless. How are we to socially secure people? Is it through social insurance, or through other aspects of social security?

Mr. Burns

Has the hon. Gentleman read Philip Ziegler's biography of Harold Wilson, in which the author goes into great detail on putting together the Beveridge report and Harold Wilson's work on it? I suspect that the hon. Gentleman may not like the answer that Beveridge would have come up with to the question that he is posing.

Given that Beveridge was very much a figure of the 1940s, would he not find the situation in Britain in the 1970s, 1980s and 1990s with regard to single-parent families somewhat incomprehensible?

Mr. Wicks

I understand the point that the hon. Gentleman is making, but Beveridge understood rather more than the hon. Gentleman implies. In the report, he said that a housewife's loss of home maintenance without her consent and not through her fault was one of the risks of marriage against which she should be insured, and that she should not depend on assistance. However, that did not lead to legislation.

The hon. Gentleman suggests that Beveridge would be disturbed by some of the family changes which affect us. I am sure that he would be disturbed. We should be disturbed that seven out of 10 one-parent families depend on income support. Eighty-five per cent. of one-parent families depend on income support at some stage. I am disturbed about that, because it leads to massive public spending which, in a better world, we would spend elsewhere. It also means that too many of our children and our citizens live in desperate poverty. With Christmas coming, I do not relish that fact. It is a challenge to us all. We not not be so far apart on that one.

In addition to the social changes that I have outlined, there have been changes in social security benefits such as the rise of non-contributory, non-means-tested benefits which challenge the concept of national insurance.

I end by repeating my plea. We could have a relatively narrow debate today on whether the 1 per cent. increase is too much or too little. We could argue about the benefits to be cut. However, unless we place the measure in a wider context, as my hon. Friend the Member for Garscadden has done, and unless we talk about the Government's vision and strategy for the future of national insurance when we face new risks in the light of social change, we shall not be able to debate and make the decisions on what many regard as a grey and boring area of public policy, but one that may have more impact on the life of our nation and the welfare of our people than even the GATT round.

We are discussing vital matters which affect millions of people, many of whom face enormous risks. I encourage the Minister to make a strong statement about the future of national insurance and its strategy today.

6.50 pm

Mr. Nigel Evans (Ribble Valley)

I am extremely grateful for the opportunity to speak in tonight's important debate. We have heard from hon. Members on both sides how important the welfare state is to Britain. It is the cornerstone for people who need benefits and require help from those who can afford to pay.

Mr. Flynn

The hon. Gentleman has illustrated a fundamental division between the two sides of the House. Beveridge wanted a system of national insurance in which people paid contributions and claimed them back as a right. The hon. Member refers to a poor law scheme under which people had payments as a charity.

Mr. Evans

Obviously I disagree with the hon. Gentleman. The measures are a safety net for those in need; however, other Government policies provide a trampoline for people who want to spring up and help themselves. They represent a self-help philosophy, as well as supporting those who cannot help themselves.

Mr. Bates

My hon. Friend has touched on a key point. Is it not the case that the Labour party Social Justice Commission was instructed to consider whether we ought to means-test all benefits? Is that not at odds with the Beveridge principle about which we have heard so much?

Mr. Evans

I am grateful to my hon. Friend for that intervention. I am not sure where the Labour party thinks it is going or whether it knows where it is going on social security. I asked the hon. Member for Glasgow, Garscadden (Mr. Dewar) some questions and I did not receive sensible replies. When we ask what policies we could expect from the Labour party, we receive blank stares. One of my hon. Friends asked the hon. Member for Garscadden a specific question, but he was unable to respond.

The Government have increased massively the money being provided through the social security system. In 1979, it was just over £40 billion. We are now talking about £74.5 billion and rising, as the Government are absolutely certain to ensure that the increases will stay ahead of inflation to ensure that those on benefits will not suffer.

Mr. Heald

One of the criticisms by the right hon. and learned Member for Monklands, East (Mr. Smith), the Leader of the Opposition, was that the Conservative party is committing a fraud on the nation by abandoning the contributory principle. Yet David Blunkett said recently: The Inland Revenue and Benefits Agencies should be amalgamated"—

Mr. Deputy Speaker

Order. The hon. Gentleman must do a little more homework and refer to the hon. Member for Sheffield, Brightside (Mr. Blunkett).

Mr. Heald

I was carried away with the exuberance of my own verbosity, and I apologise.

The hon. Member for Brightside said that we should abandon the contributory principle in favour of automatic eligibility. What does my hon. Friend consider to be Labour party policy on this?

Mr. Evans

My hon. Friend has put his finger on it. I am at a loss to establish what Labour party policy is. Labour Members are behaving like Liberal Democrats, in that they say one thing to one group of people and something else to another. Perhaps, before the end of the debate, the hon. Member for Garscadden, or another Labour Member, will explain to us in detail the Labour party policy on social security.

The social security system is the cornerstone of the welfare state, but the most important principle of the national insurance fund is that we pay out what we put into that fund.

One of the greatest commitments that the Government have made to national insurance and social security is to the elderly. We have heard all sorts of things this evening from the Labour party about why the Government are spending more money on social security. Under the Conservative Government, people are living longer than ever before. That is another great achievement of the Conservatives.

The 14 years of Conservative government have witnessed a real increase in expenditure on benefits to pensioners of 33 per cent. Labour Members talk sincerely about caring for elderly people, but during their last period of office the increase was about 3 per cent. That shows the difference between the words of the Labour party and the action of a Conservative Government.

My hon. Friend the Member for Langbaurgh (Mr. Bates) reminded me that, on two occasions when the Labour party was in government, it stopped the Christmas bonus. It is useful to remind ourselves of that.

An increasing problem with national insurance is that, because people are living longer, there are far more people of pensionable age. When people reach retirement, they are living longer in retirement, so the bill is forever increasing.

The deficit which characterises the national insurance fund is made up by the Treasury grant which was mentioned as £7.5 billion for the current year. That has to come from the hard-earned money of taxpayers, and we are talking about hard-pressed budgets. That money could be used in other Departments, or even to help relieve the stress on the budget deficit.

The contributory benefits are available to all who contribute, so if the levels of benefit are uprated, surely it is reasonable to ask that the rise be reflected by a comparable rise in the contributions.

Benefits have been rising dramatically, while national insurance contributions have been frozen as a percentage for more than a decade. The readjustment of the level of contribution is inevitable, and must be keenly anticipated by anyone who favours sound economic policy as a foundation for our country. If we are to maintain benefits at their current satisfactory rates, more funding must be found.

Mr. Flynn

Will the hon. Gentleman give way?

Mr. Evans

I was talking about sound economics, and I would be rather surprised if anyone on the Opposition Benches knew anything about that.

Mr. Flynn

I sympathise with the hon. Gentleman. It is clear that the Government are fielding people who are reading their briefs and have no knowledge of social security. It is a great shame that we have not heard from the hon. Member for Havant (Mr. Willetts), who does know something about it.

Has the hon. Gentleman read the report published yesterday by the Social Service Advisory Committee—the Government's own advisers? After looking at several models of what is likely to happen in future, it stated that only by using the most pessimistic assumption will the percentage of GDP spent on social security rise to the year 2000.

The hon. Member for Havant also said that the demographic time bomb has been vastly exaggerated. Instead of listening to Conservative Members speaking from prepared briefs that they barely understand, why can we not hear from those who understand social security?

Mr. Evans

I gave way in the hope that I would hear something useful from the hon. Member for Newport, West (Mr. Flynn). I should have known better. It is a shame that the hon. Member still comes out with that sort of slur.

We feel strongly about the system of social security payments. We are here to ensure that the amount of money paid out of the national insurance fund will be met from the contributions of those people who pay into it. It is only in the Walt Disney world of designer socialism, in which the hon. Member for Newport, West lives, that other people pick up the tab.

There will come a time when the hon. Member will understand that the bill will have to be paid. He talks about more money for this sector and more money for that sector, but somebody has to pick up the tab. The Government have that responsibility, and that is why we are here this evening.

Mrs. Jane Kennedy (Liverpool, Broadgreen)

The hon. Member has spoken about the need to ensure that those contributing to the fund contribute enough to pay benefits. Why is it that the Government's proposals retain the ceiling on national insurance contributions, which throws the greatest burden on people on lower earnings?

Mr. Evans

I am grateful to my hon. Friend—to the hon. Lady. I almost said "my hon. Friend"—[HON. MEMBERS: "You did".] I would not like to put an end to her career within her party.

Are we getting closer to what the Opposition believe? Do they still have a policy to abolish the ceiling on upper earnings? That would mean, effectively, an increase in taxation for a lot of people earning more than £20,000 or £22,000 per annum. I was under the impression that the Labour party decided it would no longer go along with that policy. I will gladly give way to the hon. Member for Liverpool, Broadgreen (Mrs. Kennedy) if she will tell me what the Labour party's policy is in regard to the upper earnings limit, over and above a contribution of £430.

Mrs. Kennedy

It is a question of fairness and the importance of ensuring that people contribute fairly to the national insurance fund.

Mr. Evans

We will not get an answer to our question. The hon. Lady talks about fairness, but with these national insurance contributions, the Government have ensured that those on the lowest level of earnings pay nothing towards national insurance. People start to pay only above the £57 level. There is a £430 ceiling on national insurance contributions, and we are more than happy to stay with that.

A contributory factor in the Labour party's defeat at the last election is that its members paraded around the country and told people on modest incomes that they wished to put up their income tax by 10 per cent. and their national insurance contributions by 9 per cent. People would not tolerate that.

Mr. Bates

I may be able to help my hon. Friend about the information that he tried to get from Opposition Members. I asked the same question of the hon. Member for Dunfermline, East (Mr. Brown) during the debate on the Address. I asked him if he still stood by his policy of abolishing the upper earnings limit. His reply was: Our policies are going before the Commission on Social Justice".—[Official Report,25 November 1993; Vol. 233, c. 597.]

Mr. Evans

That comes as no surprise to me. We will not get any answers to any of the questions that we ask the Labour party.

The Labour party was so embarrassed by the message that it paraded throughout the country during the last general election, that it decided to get rid of its shadow Chancellor and promote him to leader of the party. If that is what he said when he was shadow Chancellor, I cannot wait for the next election to find out what he will say as leader. He will get into all sorts of problems.

People on lower earnings will be protected. Only those earning more than £57 will pay national insurance contributions. Before Opposition Members uncharacteristically intervene yet again to say how hard done by people are because of the increase in national insurance contributions, they should know that, even with the increase, people earning approximately £130 a week will be paying lower national insurance contributions under the Government than they were under the last Labour Government, and will receive far more in benefits.

The Labour party's offerings on national insurance at the last election provided no surprises. If we ask people in the street what the Labour party means to them in taxation policies, we will be told that it stands for higher taxes.

The Labour party stands for economic stagnation and general colourless misery. It has no ideas about the economy, and that is one reason why Labour has been out of power for the past 14 years.

Mr. Deputy Speaker

Order. I do not mind how wide the debate is on social security, but we really ought to be debating social security and not general taxation.

Mr. Evans

I was trying to demonstrate that the problem with the message that the Labour party is trying to sell—whether it is about taxation or national insurance—is that, if the ceiling on the top rate of national insurance were removed, the two might as well be merged and called a general taxation, which would simply be increased by 20 per cent. for people earning over those modest levels.

Dr. Godman

Will the hon. Gentleman give way?

Mr. Evans

Let me make a little more progress.

The hon. Member for Broadgreen talked about removing the ceiling on national insurance contributions. Once a Government went above a certain level, they would have the problem of disincentives, which would encourage a brain drain, or a fame drain. People who earned a certain amount of money would want to look at the opportunities before them, particularly within the single European market. During the 1970s, under the last Labour Government, people were leaving the country in droves because of the high rates of tax and national insurance.

Mr. Fabricant

My hon. Friend is far too young to recall this, but in 1979 the top rate of tax was about 98p in the pound.

Mr. Deputy Speaker

Order. I have just ruled that general taxation matters are out of order.

Mr. Heald

The great rip-off in the Labour party's scheme to abolish the upper earnings limit was that it was prepared to agree that the people paying the highest contributions should get the highest earnings-related additions and long-term benefits. That was a complete abolition of the contributory principle. If it was not, there was no point in it.

Mr. Evans

I thank my hon. Friend for making that important point. It is clear that the contributory principle means nothing to the Labour party. It is interested only in grabbing as much money as possible from as many people as possible. It is not just the top earners who would be hit by increases in national insurance contributions: other earners would be hit by it or by other taxes.

As well as ensuring that as many people as possible contribute to the national insurance fund, we must ensure that those who ought to be contributing to it are doing so. A certain group of people tend to exploit loopholes in the system to avoid payment—whether of income tax or national insurance on eligible income. That includes the giving and receiving of non-pecuniary bonuses, in the full and certain knowledge that the purpose of such schemes is the avoidance of national insurance payments. That cannot be permitted; such loopholes must be blocked as much as possible.

We must deal with those who try to claim exotic goods as payment in kind instead of bonuses. Not only are such people avoiding national insurance payments; others who need the benefits are not receiving them.

In his Budget speech, my right hon. and learned Friend the Chancellor spoke of ensuring that such loopholes are filled; it is estimated that, by filling them, the Government will reclaim £15 million per week. Nor do I believe that it stops there. I believe that the cheats and fraudsters have had their day. This unwelcome industry is not new, but it has become increasingly conspicuous as the level of abuse has risen.

My right hon. Friend the Secretary of State has made his position absolutely clear on both the loopholes and the fraud. If we can tackle both, there will be far more money for those in need.

Dr. Godman

The hon. Gentleman has spoken of abuses of the system. Does he support the decision of Social Security Ministers not to pay invalidity benefit to women aged between 60 and 65, many of whom are suffering severe hardship? That decision contravenes a decision by a European Commissioner, who has said that the Government are in breach of EC directive 79/7, dealing with equality of payment of pensions to men and women.

Mr. Evans

I am sure that my hon. Friend the Minister will mention that in winding up.

Dr. Godman

What does the hon. Gentleman think?

Mr. Evans

I understand what the hon. Gentleman is saying; but given the kind of benefits that the Government are paying out, it is amazing that he should try to pick holes in certain cases. The Government are paying out a vast sum of taxpayers' and national insurance payers' money, and they are keen to ensure that it is targeted on those who desperately need it. I believe in that principle, and I am sure that the Government will continue to operate it.

Dr. Godman

What about all those women?

Mr. Evans

I wonder whether the hon. Gentleman is really interested in hearing what I have to say about cracking down on national insurance fraud. If not, perhaps I should proceed to my next point.

The Government have embarked on an anti-fraud strategy to ensure that the money in the national insurance system goes only to those who need and deserve it. That strategy is absolutely right.

Mr. James Clappison (Hertsmere)

The exchange that we have just heard illustrates the width of definition that sometimes applies to loopholes and fraud. However, many of our constituents—including both small business men and employees—will understand full well what my hon. Friend means. As people who play by the rules and pay their tax and national insurance contributions, they are caused great anxiety by such activities.

Mr. Evans

I thank my hon. Friend for making that point. It does not really matter whether we are talking about business men and others with money who try to avoid paying their dues, or about those who defraud the system; the net outcome is that the money is not going into the system to be paid to those who need the benefits.

We need to take fraud seriously, and the Government are doing so. They want to ensure that money lost through fraud is recovered: their current target is over £1 billion. It is very ambitious, but I believe that they can achieve it. They are considering the introduction of identity cards, and have already introduced bar coding.

I believe that the Bill is all about ensuring that those who need benefits receive them, and that those who are able to pay are made to do so. That is why I support it.

7.14 pm

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

I am grateful for the opportunity to speak briefly in this important debate. If ever there was an argument against guillotine motions, it is provided by the requirement for Opposition Members to come in and make 25-minute speeches—all of them repeating the arguments of the last general election—during debate of a serious social security Bill. That has increased my distaste for the guillotine. I hope that the Minister will relay my view to the Government's business managers.

I believe that one of the most important principles enshrined in the contributory system set up by Beveridge is the principle of redistribution. What he was trying to achieve was not necessarily vertical redistribution, but redistribution throughout life: he sought to establish a system that would allow people to put away amounts to provide for untoward events such as sickness, invalidity, childbirth and old age during the economically active periods of their lives.

For the reasons stated so eloquently by the hon. Member for Glasgow, Garscadden (Mr. Dewar) and amplified by the hon. Member for Croydon, North-West (Mr. Wicks), I feel that the Bill takes a serious step towards eroding that important element in our present social security system. If the 1 per cent. that it introduces had been raised and redeployed to improve the organisation of the system of redistribution throughout the lifetime, I for one would have been very much in favour of it; but it does not.

As far as I can see, that 1 per cent. is an instrument of economic management, intended to deal with the public sector borrowing requirement. Of course I accept that there is a problem—

Mr. Fabricant

Will the hon. Gentleman give way?

Mr. Kirkwood

No. I want to allow as many other hon. Members as possible to speak, and I hope to make a short but relevant speech.

My objection to the Bill, then, is that it is intended to raise money for economic and financial purposes. The public sector borrowing requirement certainly needs to be addressed, but it should be addressed in other ways. It is disingenuous, to say the least, to start tinkering with the national insurance contributory system in this way.

The Bill contains some tidying-up provisions—I think that that is the best way in which I can paraphrase the Minister's introductory remarks—in the form of changes in the formula for the element that goes from the national insurance fund to the national health service.

In parenthesis, I object strongly to clause 2(3), which makes those changes—not because I object to an important and beneficial clarification of the position, but because it is retrospective. If we look at the provision in detail, we see that it goes back to the Social Security Act 1989. It deals with amendments that shall be deemed to have had effect as from the commencement of the 1992 Act"— that is, the Social Security Administration Act 1992.

The Minister is relatively new to his job. Let me say to him what I have said to Social Security Ministers before him, and will no doubt say to his successors. The way in which we are scrutinising this legislation does not give us a proper opportunity to deal with the matters that I have raised.

It is black marks for the parliamentary draftsmen and departmental lawyers if they make mistakes allowing legislation to be capable of misinterpretation or misconstruction. If the Minister wishes to earn his pay as an Under-Secretary of State, he should go back to the Department and tear strips off those who produced this ambiguity. He should remind them of their duty to ensure that such things do not happen again.

Of course, our legislature has a duty to ensure that legislation is scrutinised properly; but guillotine motions do not help us to ensure that legislation is dealt with by the House in a proper and orderly fashion.

While welcoming the change, I think that it should not have happened in the first place. I consider that to be a serious point to which attention should be given.

The context of the debate is better informed as a result of the ninth report produced by the Social Security Advisory Committee. I quote from a press release dated 15 December: In a final chapter of the report, the Report questions the view that social security spending"— which comes from the national insurance fund— is out of control, but suggests that a fair, adequate and affordable social security system for those in need is essentially the preservation of the social fabric of the nation. I strongly believe that that is true.

If we are getting into some of the cruder and more ideological comments made by Tory Members behind the Minister about the need to curtail expenditure and so on, that is a proper matter for political debate. However, I would prefer to focus carefully, as the SSAC report does, on examining how we plan the future growth of social security expenditure. There is a debate to be had about the growth of social security spending in the past because I want to ensure that every penny is used properly.

To give an example, at my party's last conference it was decided that if there is to be an increase in the pension provision, that increase should be targeted at and linked to the earnings of those who are on income support and means-tested benefits. We are struggling to see how we can constrain the growth of social security spending from the national insurance fund.

There are some worrying implications in what Tory Members said about not believing in growth. I am prepared to argue about how we spend the growth in social security expenditure. However, if we are starting to talk about real cuts in social security provision, the SSAC report is right: we start looking at the "social fabric of the nation" and how it will be eroded.

If the Government do not pay through the benefit system, they will need to pick it up through criminality, drug abuse and all the other downstream effects that will result from taking money out of the pockets of those who need it most. I recommend the Social Security Advisory Committee report. I know that the hon. Members for Ribble Valley (Mr. Evans) and for Mid-Staffordshire (Mr. Fabricant) are experts on social security. I hope that they will examine the report.

Mr. Bates

rose—

Mr. Kirkwood

I will not give way.

There are some unfair, hidden tax increases in the Bill. The hon. Member for Garscadden deployed the case eloquently. I shall reinforce what he said, but I will not repeat his comments. The vast majority of people do not think all that far ahead. Low-income families have a week-to-week view of life, because that is the way in which their finances stretch. I do not think that they are properly apprised of the sort of difficulties they will face when the tax increases bite in the new financial year. To start thinking about increases of the level of £9 per week in 1994–95 and £16 per week in the 1995–96 fiscal year will not provide difficulties only for low-income families. It will bite into the disposable income that is available for middle-income families.

We tend properly to concentrate on financially disadvantaged households in social security debates, and it is right that we do so. But looking at the changes that will flow after 6 April 1994, I think that many middle-income families will have real difficulties. Although they may have reasonably big incomes in terms of their net take-home pay, they also have a corresponding level of commitments.

I do not know whether the Government have done any research on this. When they make changes of this magnitude, I certainly hope that they do research so that they can measure the exact impact of such changes on the balance of disposable income for middle-income families.

I am nervous about how the changes will play out for middle-income groups. I hope that the Minister will say something about that later. Low-income and middle-income families will find it difficult to cope with the totality of the tax increases—something like £15,000 million in 1995–96, and the national insurance increases provided in the Bill are about one sixth of that tax take.

Earlier, I said that, if the national insurance fund is increased, it should be increased in order that benefit expenditure can be correspondingly increased. In the Bill, we see changes in the benefits that are available. Those changes are an important element of it. The job seeker's allowance will be means-tested after six months.

Mr. Bates

The hon. Gentleman has made some prize comments about the speeches of my hon. Friends. I draw his attention to something that he said: The national insurance contribution system is now so shot through with anomalies and piecemeal reforms that we should start again from scratch."—[Official Report, 30 November 1992; Vol. 215, c. 73.] Is that still the hon. Gentleman's view?

Mr. Kirkwood

I know I should not have given way, because the hon. Gentleman has anticipated the final part of my speech.

I said that the Bill provides for cuts in benefit. The job seeker's allowance will be means-tested after six months. Sickness benefits and invalidity benefit will be translated into incapacity benefit. That benefit will be liable to tax, and there will be tighter medical tests.

Another matter that must be taken into account is that the age of eligibility for the state pension for women is being changed to 65 years. As hon. Members know, that is being phased in between the years 2010 and 2020. Savings are being made simultaneously with an increase in national insurance contributions of about £2.5 billion by 1996–97 for the job seeker's allowance and the sickness benefit and invalidity benefit changes, and about £5,000 million by the year 2025 for the change in the pension age. Increasing national insurance contributions at the same time as making those swingeing reductions in benefits is adding insult to injury.

Anyone who studies objectively the imbalance that has occurred in the national insurance fund can see clearly that it has been occasioned by a combination of lower earnings and increased unemployment. The obvious answer to that strays outside the scope of this debate. Urgent attention is needed to promote growth and generate more employment.

I ask the Minister to consider that one of the consequences of the increases will be that people will start to examine ways of getting round them. There are many benefits in kind which do not apply to national insurance contributions. I shall list a few of them for the Minister's consideration. For example, company cars, beneficial loans, private medical and dental attention, general expenses allowances, travel and subsistence allowances, entertainment, home telephone expenses which are paid or reimbursed and mobile telephone expenses escape national insurance contributions.

If the Government are going down the road of not increasing general taxation—I think that would be a much more honest and straightforward way of raising public expenditure— they will need seriously to examine some of the benefits in kind which people will start to use or misuse in the future. We should pay attention to that matter.

I should like to conclude by considering the future of the contributory principle of the national insurance fund, as I promised the hon. Member for Langbaurgh (Mr. Bates). I agreed with what the hon. Member for Croydon, North-West (Mr. Wicks) said in his interesting speech. He knows a great deal about the subject, and we have had many discussions about it over the years.

I believe that we need to reform the national insurance contributory fund fundamentally. My opinion is reinforced by the Bill, because it is quite unforgivable for the Government to raid the national insurance fund in this way.

I know that any reform would take time and would be difficult to introduce. It would take some explanation for people to understand that they no longer had entitlement to benefits. We must, however, consider how we plan to finance social security expenditure. There is a case for doing away with the contributory principle.

We should be more honest and say that the future system should be based on a pay-as-you-go principle. The necessary money should be taken out of general taxation. That would make it easier for Governments of whatever political stripe to make better future provision, which is intelligible to ordinary people.

The Bill is important. It deserves serious scrutiny, and I am sorry that it has been guillotined. The Government, however, have not made their case properly, although I believe that it is difficult for them to make a legitimate case for increasing the costs of employees through their national insurance contributions while using other mechanisms to reduce the benefits available through that very same fund.

7.31 pm

Mr. Oliver Heald (Hertfordshire, North)

I do not pretend to be an expert in social security, but it would be a poor day if hon. Members could not consider legislation that is important to their constituents unless they were experts in it. I found the comments of certain Opposition Members extremely patronising.

It particularly ill behoves the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) to make such comments when his party cannot come up with a consistent policy if it tries. In the Budget debate, the Liberals' Treasury spokesman, the right hon. Member for Berwick-upon-Tweed (Mr. Beith) emphasised the importance of the contributory principle, but the hon. Gentleman has just suggested that it should be abolished. That inconsistency demonstrates that we are back on the old Liberal game of a thousand blooms on every branch.

What has been startlingly absent from the debate is an appreciation of the difficulties of funding the type of system that we want for the future. I asked the hon. Member for Glasgow, Garscadden (Mr. Dewar) how he would fund the deficit in the national insurance fund. He did not offer a proper answer but gave a bit of fudge here and a bit of mudge there. It is all very well to speak in lofty tones about Beveridge, full employment and other vital issues, but if one cannot say where the money for all that will come from, one is dead.

In the 1992–93 report, the Government Actuary said that the fund required extra money and that one way of providing that would be to increase national insurance contributions. There may be alternative means of raising that money, but the Opposition cannot criticise the Government's proposals in the Bill unless they have such an alternative.

It is not right to argue that full employment will be provided by increasing benefits. When Beveridge looked at the system he said that the starting point was full employment. These days, those countries with full employment are not those with the most over-weighty social and welfare provisions; they include Japan and Taiwan, not France and Germany. Today in Europe, 20 million people are unemployed. We must consider the future. If we want to return to full employment, we must ask ourselves how to achieve that. One way of doing so is to keep the social burden off employers' backs.

Ms Ann Coffey (Stockport)

Such as sick pay.

Mr. Heald

I did not catch that sedentary intervention.

We are trying to remove the burdens on business so that it can be more competitive. Every major employers' group argues that that is necessary. Opposition Members argue that employees' national insurance contributions should remain at their low level, but that is not possible to achieve unless we increase taxation. If we did that, it would be extremely damaging to British industry.

It is typical that the overlap between national insurance payments for unemployment benefit and income support hardly rates a mention in Opposition Members' speeches. Of those who are unemployed and receiving benefit, 70 per cent. are on income support. The rules governing income support and unemployment benefit are inconsistent, cumbersome and dealt with by different offices. Surely it is right that that system should be reformed. I cannot believe that Opposition Members would disagree.

The Government have grasped the nettle to make that change and, at the same time, they have targeted the new job seeker's allowance in order to help people to get back to work. It is not as though anyone will lose as a result of that; rather they will gain, because the job seekers agreement will set them clear targets. The hon. Member for East Kilbride (Mr. Ingham) may smile, but the success of the job club scheme shows that such measures work. Under the job seeker's grant, people will be given the help they need to go out to look for work.

Mr. Wicks

Is there not an inconsistency in the hon. Gentleman's argument? He seemed to argue that mass unemployment is now a fact of life and that, as testimony to that, it exists in foreign parts. He also supports the idea of the job seeker's allowance. Surely the notion behind it is that there are enough jobs out there to be sought, if only we got the benefits and the help right. The hon. Gentleman cannot have it both ways. Does he see a future of mass unemployment or does he genuinely believe that we can provide a system under which people can not only seek jobs but find them?

Mr. Heald

I am optimistic about the future, so long as we take the right measures. We must remove the burdens from business and train young people and those in work. We should give them the help that they need to find the jobs for which they are suited. The Government are taking such measures, but too often without the support of the Opposition. Their support should be forthcoming because those measures are in the interests of everyone.

When the Labour party was in office, its record on national insurance was appalling. Under the Labour Government, employers' national insurance contributions stood at 13.5 per cent. and those of employees stood at 6.5 per cent. According to today's national insurance figures, someone earning £70 a week would, under Labour, have total costs of £14, whereas under the Conservatives that person costs £4.96. Under Labour, someone earning £130 would have total national insurance costs of £26, whereas under the Conservatives he costs £15. That shows that the Conservatives have removed the burden from businesses.

The Labour party has not changed its spots. One need only study the shadow Budget, produced before the general election, to see that, because it proposed to remove the upper earnings limit. That would have meant that people who would have to pay higher contributions would be ripped off because they would not get the earnings-related addition to which they were entitled. That proposal was also fundamentally unpopular because people do not want to pay higher taxes. They want a liberated economy in which taxes are lower so that they can reap the benefits of their enterprise.

Mr. Wicks

The comparisons with the previous Labour Government are helpful. Can the hon. Gentleman inform the House of the cost of public spending on unemployment under that Labour Government compared with the costs under the Conservative Government? Would he care to speculate about how high expenditure on unemployment now impacts on taxes? What is the overall burden of taxes on the average family now compared to what it was under the Labour Government?

Mr. Heald

I do not think that I shall have time to do that. I shall be happy to discuss that afterwards with the hon. Gentleman. If we had a socialist Government in the country now, we would have the same sort of system as in socialist countries abroad. If one considers what is happening in France—high unemployment and rising youth unemployment—it is not difficult to see that we do not want that in Britain, and that we must continue with the vigorous policies of this Conservative Government.

7.39 pm

Mr. Keith Bradley (Manchester, Withington)

The Second Reading speeches have been somewhat uneven and they have been worsened by a guillotine on this important Bill. In the time that we have available, we cannot go down the route of further criticism of that Government decision, but it has rather curtailed an important debate that I hope that we can continue in Committee.

The speeches by some hon. Members have been extremely eloquent and thoughtful. I pay tribute to my hon. Friend the Member for Croydon, North-West (Mr. Wicks) especially, as well as to my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) who opened the debate.

In the short time available I would like to reinforce some of the points that have been made and to demand answers to some of the questions that have been asked, which I would like the Minister to answer in winding up. It is important to note that most people in the country believe that the national insurance scheme is a partnership between the individual and state. Most individuals who contribute to the scheme do so on the understanding that it establishes, in principle, their entitlement to benefits if earnings are interrupted. The average man or woman, who has contributed to the fund during their working life, is being conned by the Government. The view of national insurance as a tax equivalent means that, contrary to the theory, the Government are able to increase contributions without introducing corresponding increases in benefits and, at the same time, erode the value of those benefits.

As we have heard, this one-clause Bill is about the 1 per cent. increase in national insurance contributions from 9 to 10 per cent. and is on top of the previous increase in the standard rate of national insurance contributions from 6.5 per cent. to 9 per cent. and the abolition of the ceiling on employers' contributions. Overall, the amount raised in contributions has increased relative to other forms of tax and in terms of the percentage charged on most earnings. Much of this year's tax revenue will come from higher national insurance contributions and, as we know, the 1 per cent. increase in rates for employees and the self-employed will raise a staggering £2.26 billion in revenue in a full year. Significantly, that is £360 million more than a penny rise in the basic rate of income tax.

National insurance is a regressive tax and will hit those much lower down the income scale than income tax, so that half a million people who are too poor to pay income tax will nevertheless pay national insurance. As we have already heard, a good example of that is the nursing auxiliary who earns around £6,000 a year and will pay an extra 38p a week in national insurance. However, if there were a penny rise in the basic rate of tax, that person would pay absolutely nothing more.

The Government explain the increase in terms of the cost of contributory benefits. They put forward the view that it is right, in principle, that existing contributions should pay for contributory benefits. I do not dissent from that view. However, it is interesting to note that, in an interview on "Newsnight" in July, the Secretary of State for Social Security admitted that he had great sympathy with people's gut feeling of having paid for something through their national insurance contributions. Yet that has not prevented the Government from reducing the real value of national insurance benefits time and again since 1979.

For example, the flat rate pension has been degraded by indexing its growth to prices rather than wages.

Mr. Heald

Will the hon. Gentleman give way?

Mr. Bradley

I shall give way once.

Mr. Heald

The hon. Gentleman will obviously remember the point that I made—how would the fund be paid for in future? Is the hon. Gentleman saying that Labour would reintroduce the link with earnings and, if so, how would it pay for it?

Mr. Bradley

We have heard the Back-Bench Conservative Members attacking the Labour party time and again. We are debating a Government measure. The Government have time and again broken their manifesto commitments—on VAT on fuel, on mortgage tax relief and on home insurance. We are here to debate Government policies and I intend to do so.

The House of Commons Library has estimated that the process of degrading pensions has knocked £19 off the value of a single pension. Had the same process been practised since 1948—we have heard much of Beveridge —today's single pension of £56.10 would be worth only £23 a week. Imagine an elderly person trying to live on that; yet, that is now the Government's chosen course.

The build-up of earnings-related supplements has also been virtually eliminated. The earnings-related supplement paid with unemployment benefit was abolished in 1992, while child dependency additions were abolished in 1984.

While SERPS entitlements remain, the adequacy of them is far from assured. Research shows that under the current rules, a person with a lifetime average earnings equal to the national average for males and retiring after 2009, would retire on a combined flat rate and a SERPS pension equal to 33 per cent. of gross earnings. That compares favourably with gross replacement rates of around 56 per cent. in Germany and between 59 per cent. and 71 per cent. in France. If the national insurance pension follows the declining course that is projected by Government's own figures, it is estimated that the gross replacement value for a state retirement pension will fall to between 33 per cent. and 27 per cent.

On top of all that, eligibility for benefits has become harder for individuals to establish. Partial benefits in return for a partial contribution have been virtually abolished. Payment of reduced rates of unemployment benefit for those with less than a full contribution record was abolished in 1986 and qualification for short-term benefits has been made more difficult by a recent contribution record via paid employment now being absolutely essential.

Numerous new regulations have been imposed to disqualify the jobless from receiving benefit. Unlike income tax, national insurance contributions which are overpaid—in that they are not sufficient to meet the declining eligibility for benefit—are not refunded and therefore a person wastes their individual contributions.

We have also heard questions about the new job seeker's allowance, which is the latest change that the Government are making to break the link between contributions paid and the rights to a contributory benefit. The allowance reduces the entitlement to benefit from 12 months to six months, which will remove 90,000 people from entitlement to any benefit after six months—50,000 men and 40,000 women. The means test involving six months rather than one year means that people will also lose entitlement to benefit as a result of spouses' earnings.

We must ask serious questions on that. Will the Secretary of State confirm whether there will be additional payments for adult dependants with the contributory job seeker's allowance? Will he clarify the plans to base the rate of the job seeker's allowance on income support rates for those under 25 years? Does not that mean that there will be a reduced rate of benefit for all unemployed people under the age of 25 years, as pointed out by my hon. Friend the Member for Garscadden? We need clear answers to those questions.

The new incapacity benefit will be taxable and subject to more stringent medical tests than is the case for invalidity benefit. It will be harder to get than invalidity benefit and it will be paid at a lower level. Will the Minister explain the principle that lies behind this contributory benefit? Two people living in the same street, in the same financial and social circumstances, and in the same physical state, could receive two different benefits. One could receive invalidity benefit and the other could receive a substantially reduced incapacity benefit. One benefit is taxed whereas the other is not. That will not only make a farce of the contributory principle, but will be a slap in the face of social justice.

Like my hon. Friend the Member for Garscadden, I raise the point about the future of the basic pension, which we have mentioned already. I refer to the recent comments by the Chief Secretary to the Treasury which may confirm our worst fears about the future of the pension. If his comments are anything to go by, no one under the age of 40 should expect to have a state pension on which to rely in old age. I know that that view differs from the Chancellor's view. Will the Minister make clear tonight on which side of the debate the Social Security team sits? Do the Secretary of State and his team support the undying principle of basic pension or do they support the Treasury team's view that it will ultimately wither and die, and that everyone will make alternative provision? Where do the Secretary of State and his team stand on that matter?

All the cuts have been made in spite of the increase in national insurance contributions, which the Government claim has occurred to pay for contributory benefits. People are effectively told to keep on paying higher national insurance contributions, but not to expect anything in return. Understandably, such a policy is a cause for concern for those anxious about their future security. People must wonder where their years of contributions are rapidly disappearing. At the least, people should be informed of the reality of national insurance contributions, which is that they provide the Government with a means of raising taxation by the back door. They have little to do with the national insurance scheme as people understand it.

People can no longer have confidence in the Government's claim to be the party of low taxation. Over and over again, the promises made in the election about the Conservatives the party of low taxation have been broken. The Tory manifesto says: We will maintain mortgage tax relief. What have we had? The value of mortgage tax relief has been reduced in this Budget since the election. The manifesto says: We are the only party that understands the need for low taxation. What has happened? We have had the biggest hike in taxation in history. We have had the biggest hike of 7p in the pound, to which the Chancellor himself has admitted. People will be paying on average an extra £9 a week in taxation next year and an extra £16 a week the year after. They need an explanation.

We will oppose the Bill tonight because the changes in national insurance contributions are part of the way in which the Government are getting out of the hole caused by their economic mismanagement. The changes are a way in which to try to dupe the public into believing that national insurance is making a contribution to real benefits in the future rather than an effort to plug a hole in the Government's finances.

7.52 pm

The Parliamentary Under-Secretary of State for Social Security (Mr. William Hague)

For the second day running, we have had an interesting debate, with many varied contributions. I shall try to answer many of the detailed points put throughout the debate, including the questions asked by the hon. Member for Glasgow, Garscadden (Mr. Dewar).

The hon. Gentleman began his speech with a number of clear truths. He said that it was a short, simple Bill; indeed it is. He said that it could be argued that the Bill was needed simply to pay for increased expenditure out of the national insurance fund. He said that, in a sense, that was true. It is true in every sense.

The Bill's purpose is to bring the national insurance fund nearer to balance. The expenditure of the national insurance fund is much higher than its income—£5 billion higher. Its expenditure next year will be higher than it has been in the current year. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) said that national insurance contributions should be increased only so that expenditure on benefits out of the fund could be increased. That is the purpose of the increase. Expenditure out of the fund will be higher in 1994–95 than in 1993–94. That is why we seek to put more money into the fund for the financial year 1994–95.

The hon. Member for Roxburgh and Berwickshire raised a point about the retrospective provisions in clause 2. Interestingly, he was the only hon. Member to raise that point—a point that we shall remember when we deal with some of the amendments in Committee. Like him, I am not enthusiastic about retrospective legislation. The provisions arise from the Social Security Act 1989, in which a drafting error was clearly made. There was an error by the Government and then an error by Parliament in passing the Act.

I welcome the hon. Gentleman's recognition that a change needs to be made. It needs to be made to give proper legal cover for the money that passes out of the national insurance fund to go towards the costs of the national health service. Ministers decided, as soon as we were aware of the mistake, that we should take the first opportunity to correct it. That is what we are doing in the Bill and that aim should be supported by the whole House.

The hon. Member for Roxburgh and Berwickshire also raised the important questions of benefits in kind and differences between the income tax system and the national insurance contributions system. He may have seen the recent report of the tax and national insurance contributions working group which was established by my right hon. Friend the Secretary of State.

Mr. Kirkwood

indicated dissent.

Mr. Hague

The hon. Gentleman obviously has not seen it; I strongly commend it to him because it makes extremely good reading. My right hon. Friend published the report in October. One of the working groups's main suggestions was that the definition of earnings should be aligned on the tax base, which would make subject to national insurance contributions all taxable benefits in kind and any vouchers regarded as earnings for tax purposes. We intend to consult the business community far more widely about the proposals next year and to discuss how they might be implemented. The working group outlined several different ways in which one might approach the alignment of the two systems. We recognise the importance of what the hon. Gentleman has said; he made an entirely valid point.

My hon. Friend the Member for Mid-Staffordshire (Mr. Fabricant) made an entertaining and well-informed speech, drawing in much detail from the briefing used to a much greater extent by Opposition Front-Bench spokesmen. Yesterday, they used CBI briefings; today, they employed briefings from the Conservative research department. I do not know what has gone wrong with the services of Labour party headquarters. Clearly, they are not supplying much material to Labour Members at the moment.

My hon. Friend the Member for Mid-Staffordshire pointed out that, after the increase, the lowest-paid would still pay lower national insurance contributions than the contributions that they paid in 1979. That is an extremely important point. He also reminded the House that the Bill reflected the Government's commitment to sound finance, a commitment that was also clear in the Budget.

The hon. Member for Croydon, North-West (Mr. Wicks) made a thoughtful speech, as the hon. Member for Manchester, Withington (Mr. Bradley) said. I did not agree with all of it. He said, for example, that the basis of indexation of pensions increases should not have been changed. We all have to consider that the implication of not changing the basis of indexation would be that expenditure from the national insurance fund would be £8.5 billion more than it is today. The hon. Gentleman and the Labour party in general must consider how they would have financed that increase through the 1980s. That is the problem that the hon. Member for Roxburgh and Berwickshire had at his party conference. He was overruled by the Liberal Democrats of the nation, despite his insistence on a particular pensions policy.

The hon. Member for Croydon, North-West referred to the future state pension age. There are powerful reasons for equalisation at 65, including the position of occupational pension schemes, international trends and the need to ensure that the system is affordable in the future. That issue runs through many of our deliberations about the national insurance fund and the social security system. It is our responsibility to ensure that the system is affordable in the future. Although some hon. Members argued that there should be no difficulty with that, the simple projection is that, although expenditure on pensions is just under £60 billion a year now, it is likely to be more than £60 billion in the 2020s and 2030s. That is only on the basis of indexation with prices. Those issues must be borne in mind.

The hon. Member for Croydon, North-West made two important points. One was about the level of unemployment in the future. He asked how much we could predict the future level of unemployment. My hon. Friend the Member for Chelmsford (Mr. Burns) pointed out the difficulties faced by economists in forecasting future levels of employment. All that we do in the Government forecast is make stylised assumptions about the needs for next year. The assumption for next year is 2.75 million. Today, unemployment fell to lower than the stylised assumption in the Government's forecast. That is the limit of what we can forecast in calculating what we need next year, and for the national insurance fund, which is what the debate is about.

My hon. Friend's most important point was to show how the social security system needs to change over time. There is a fair amount of common ground in some parts of the House on the idea that the system needs to change and evolve, and sometimes to be reformed. Sometimes it has to be refocused. We have to check that it is meeting the needs of society in the right way. That has important implications for the national insurance fund.

The national insurance fund cannot be compared to a single-risk commercial insurance system. It cannot operate like a funded insurance system in which a specific contribution buys an absolute right for ever to a specific return. The national insurance fund is a pay-as-you-go system which relies on the ability of current contributors to pay in a sufficient amount to provide for expenditure on benefits which are currently payable. Social security schemes must be able to evolve, and as such, any Government must be able to make adjustments to the structure of the system to meet changing circumstances.

That is the point with which many people agree, including the hon. Members for Birkenhead (Mr. Field) and for Croydon, North-West and the Government. The only people who do not recognise that the social security system sometimes needs to be reformed are Opposition Front-Bench Members who, in these debates, often remind me of the Duke of Wellington in 1832 telling the other place that the British constitution had been created so perfectly in the first place that no improvement on it could possibly be devised.

Yesterday, Opposition Front-Bench Members came to the House to defend the statutory sick pay system, the establishment of which they opposed 10 years ago. They have opposed every change to it. There they sit, glumly, a range of exhausted volcanoes, unable to come up with any ideas for the future, having privatised that activity and farmed it out to the Commission for Social Justice.

Dr. Godman

When will the English Court of Appeal hear the appeal lodged by the Secretary of State and the chief adjudication officer against the decision taken by Commissioner Skinner on 1 April 1992 about the payment of invalidity benefit to women aged between 60 and 65? Is it likely that the Secretary of State will seek a referral to the European Court of Justice?

Mr. Hague

On 26 July, the Court of Appeal adjourned the hearing of the appeal, which will now take place on either 14 of 15 February 1994. The listing of the hearing date is a judicial matter for the Court of Appeal. Obviously, we shall have to await the outcome before we decide how to proceed.

Dr. Godman

Will the Minister give way?

Mr. Hague

I must press on with the rest of my speech. I was referring to the need for change—

Dr. Godman

On a point of order, Mr. Deputy Speaker. May I point out that I suspect that the Minister, adventitiously, is misleading the House, because the Secretary of State and the chief adjudication officer asked for the postponement?

Mr. Hague

If I am misleading the House, I am certainly not doing so deliberately, but I am happy to talk about the matter. I gave the hon. Gentleman a straight answer and I shall be happy to discuss it with him on all other occasions.

Let us return to the Bill and to its purpose. It recognises that any responsible Administration must take action to ensure that they meet commitments and obligations, such as to pay pensions and to pay the benefits that come out of the national insurance fund. It is critical to ensure that enough money goes into that fund to pay those benefits.

It is important to recognise, when we make the change that we are debating tonight, that we have greatly improved the national insurance system since 1979. We have introduced a 2 per cent. rate that applies under the lower earnings limit for the lower paid. We have made huge reductions in the national insurance contributions paid by employers, which were a tax on jobs in 1979 of 13.5 per cent. The contributions are now 3.6 to 10.2 per cent. and are lowest for the lowest paid.

Opposition Members are often content to mouth concern about the low-paid, but tax them out of work when they get into power. Has it ever occurred to them that one reason why unemployment is falling, to the utter astonishment of economists and Opposition Members, is that we do not have a tax on jobs to the extent that we had in the 1970s under Labour Governments?

Let us compare the total level of employees' and employers' national insurance contributions in 1979 and now. Next year, the employers' and employees' contibution for someone earning £250 a week will be £46. What was it in 1979? Opposition Members should know. It was £50. What about the low-paid? For someone on £130 a week, the contribution next year will be £16. The contribution in 1979 was £26. Let us look at the really low-paid. For someone on £70 a week, the contribution next year is £5. In 1979, it was £14. That is how the level of national insurance contributions has changed over that time.

Opposition Members have failed to face up to the fact that if one does not pay for national insurance benefits by increasing the income of the national insurance fund directly, one must pay it in some other way. That is a truth that they shy away from and do not like to discuss.

We waited to hear in the speeches of Opposition Front-Bench Members what their proposals were. The hon. Member for Garscadden referred to a larger Treasury grant, as though it were a huge pot of money into which hon. Members or Governments could dip their sticky fingers whenever they wanted. The Treasury grant can be increased only if the extra money comes out of other forms of taxation.

The Opposition have said that they are opposed to an increase in national insurance contributions, but they have set no alternative before the House. They have come here with a sense of grievance and outrage at the measure. The sense of outrage is so strong that when the hon. Member for Garscadden launched his speech, fully 14 of his hon. Friends made the long journey to the Chamber to hear his attack. It was an attack so impressive and dramatic in its content that 10 of his hon. Friends were still here at the end of his remarks. That shows the intensity of the outrage felt by Opposition Members.

How would the hon. Gentleman fill the gap? Would he raise the money in a different way? Would he abolish the upper earnings limit, as the hon. Member for Liverpool, Broadgreen (Mrs. Kennedy) suggested? Evidently, she did not clear her lines with Opposition Front Benchers, who say that that is no longer appropriate, that they have modernised their policy. They will have to modernise one or two of their Back Benchers if they are to make their argument stick together.

Would the Opposition pay for it from general taxation? Perhaps they would, but they forget that a large percentage of pensioners pay general taxation. Why should pensioners have to pay for the contributory benefits for which they have paid throughout their working lives? There is a powerful case for having contributory benefits funded by people who pay national insurance contributions.

Would the Opposition fund the system by closing a loophole? The hon. Member for Garscadden referred to a loophole—the idea put about by the shadow Chancellor that everything, including the funding of the national insurance fund, the general burden of taxation and every crackpot project thought up by Labour Members, can be funded by closing some vast and previously unsuspected loophole that has escaped the attention of everyone else in the nation, and of every Chancellor in recent decades.

It being three hours after the commencement of proceedings on the motion, MR. DEPUTY SPEAKER put the Question already proposed from the Chair, pursuant to the Order [14 December].

The House divided: Ayes 310, Noes 259.

Division No. 54]	[8.10 pm
AYES
Ainsworth, Peter (East Surrey)	Baker, Rt Hon K. (Mole Valley)
Alexander, Richard	Baker, Nicholas (Dorset North)
Alison, Rt Hon Michael (Selby)	Baldry, Tony
Allason, Rupert (Torbay)	Banks, Matthew (Southport)
Amess, David	Banks, Robert (Harrogate)
Ancram, Michael	Bates, Michael
Arbuthnot, James	Batiste, Spencer
Arnold, Jacques (Gravesham)	Bellingham, Henry
Arnold, Sir Thomas (Hazel Grv)	Bendall, Vivian
Ashby, David	Beresford, Sir Paul
Aspinwall, Jack	Biffen, Rt Hon John
Atkinson, David (Bour'mouth E)	Blackburn, Dr John G.
Atkinson, Peter (Hexham)	Bonsor, Sir Nicholas

Booth, Hartley	Gardiner, Sir George
Boswell, Tim	Garel-Jones, Rt Hon Tristan
Bowden, Andrew	Garnier, Edward
Bowis, John	Gill, Christopher
Boyson, Rt Hon Sir Rhodes	Gillan, Cheryl
Brandreth, Gyles	Goodlad, Rt Hon Alastair
Brazier, Julian	Goodson-Wickers, Dr Charles
Bright, Graham	Gorman, Mrs Teresa
Brooke, Rt Hon Peter	Gorst, John
Brown, M. (Brigg & Cl'thorpes)	Grant, Sir A.(Cambs SW)
Browning, Mrs. Angela	Greenway, Harry (Ealing N)
Bruce, Ian (S Dorset)	Greenway, John (Ryedale)
Budgen, Nicholas	Griffiths, Peter(Portsmouth, N)
Burns, Simon	Grylls, Sir Michael
Burt, Alistair	Gummer, Rt Hon John Selwyn
Butcher, John	Hague, William
Butler, Peter	Hamilton, Rt Hon Archie(Epsom)
Butterfill, John	Hampson, Dr Keith
Carlisle, John (Luton North)	Hannam, Sir John
Carlisle, Kenneth (Lincoln)	Hargreaves, Andrew
Carrington, Matthew	Harris, David
Carttiss, Michael	Haselhurst, Alan
Cash, William	Hawkins, Nick
Channon, Rt Hon Paul	Hawksley, Warren
Chapman, Sydney	Hayes, Jerry
Churchill, Mr	Heald, Oliver
Clappison, James	Heathcoat-Amory, David
Clark, Dr Michael (Rochford)	Hendry, Charles
Clarke, Rt Hon Kenneth (Ruclif)	Heseltine, Rt Hon Michael
Clifton-Brown, Geoffrey	Higgins, Rt Hon Sir Terence L.
Coe, Sebastian	Hill, James(Southampton Test)
Colvin, Michael	Hogg, Rt Hon Douglas (G'tham)
Congdon, David	Horam, John
Conway, Derek	Hordern, Rt Hon Sir Peter
Coombs, Anthony (Wyre For'st)	Howard, Rt Hon Michael
Coombs, Simon (Swindon)	Howarth, Alan(Stat'rd-on-A)
Cope, Rt Hon Sir John	Howell, Rt Hon David (G'dford)
Cormack, Patrick	Howell, Sir Ralph (N Norfolk)
Couchman, James	Hughes Robert G.(Harrow W)
Cran, James	Hunt, Rt Hon David (Wirral W)
Currie, Mrs Edwina (S D'by'ire)	Hunt, Sir John (Ravensbourne)
Curry, David (Skipton & Ripon)	Hunter, Andrew
Davies, Quentin (Stamford)	Hurd, Rt Hon Douglas
Davis, David (Boothferry)	Jack, Micheal
Day, Stephen	Jackson, Robert (Wantage)
Deva, Nirj Joseph	Jenkin, Bernard
Devlin, Tim	Jessel, Toby
Dicks, Terry	Johnson Smith, Sir Geoffrey
Dorrell, Stephen	Jones, Gwilyam (Cardiff N),
Douglas-Hamilton, Lord James	Jones, Robert B.(W Hertfshr)
Dover, Den	Jopling, Rt hon Michael
Duncan, Alan	Kellett-Bowman, Dame Elaine
Duncan-Smith, Iain	Key, Robert
Dunn, Bob	Kilfedder, Sir James
Durant, Sir Anthony	King, Rt Hon Tom
Dykes, Hugh	Knapman, Roger
Eggar, Tim	Knight, Mrs Angela (Erewash)
Elletson, Harold	Knight, Greg (Derby N)
Emery, Rt Hon Sir Peter	Knight, Dame Jill (Bir'm E'st'n)
Evans, David (Welwyn Hatfield)	Knox, Sir David
Evans, Jonathan (Brecon)	Kynoch, George (Kincardine)
Evans, Nigel (Ribble Valley)	Lait, Mrs Jacqui
Evans, Roger (Monmouth)	Lang, Rt Hon Ian
Evennett, David	Lawrence, Sir Ivan
Faber, David	Legg, Barry
Fabricant, Michael	Leigh, Edward
Fairbairn, Sir Nicholas	Lennox-Boyd, Mark
Fenner, Dame Peggy	Lester, Jim (Broxtowe)
Field, Barry (Isle of Wight)	Lidington, David
Fishburn, Dudley	Lightbown, David
Forman, Nigel	Lilley, Rt Hon Peter
Forsyth, Michael (Stirling)	Lloyd, Peter (Fareham)
Fowler, Rt Hon Sir Norman	Lord, Michael
Fox, Dr Liam (Woodspring)	Luff, Peter
Fox, Sir Marcus (Shipley)	Lyell, Rt Hon Sir Nicholas
Freeman, Rt Hon Roger	MacGregor, Rt Hon John
French, Douglas	Maclean, David
Fry, Peter	McLoughlin, Patrick
Gale, Roger	McNair-Wilson, Sir Patrick
Gallie, Phil	Madel, David

Maitland, Lady Olga	Skeet, Sir Trevor
Major, Rt Hon John	Smith, Sir Dudley (Warwick)
Malone, Gerald	Smith, Tim (Beaconsfield)
Mans, Keith	Soames Nicholas
Marland, Paul	Speed, Sir Keith
Marlow, Tony	Spencer, Sir Derek
Marshall, John (Hendon S)	Spicer, Sir James (W Dorset)
Marshall, Sir Michael (Arundel)	Spicer, Sir James (S Worcs)
Martin, David (Portsmouth S)	Spink, Dr Robert
Mates, Michael	Spring, Richard
Mawhinney, Dr Brian	Sproat, Iain
Merchant, Piers	Squire, Robin (Hornchurch)
Milligan, Stephen	Stanley, Rt Hon Sir John
Mills, Iain	Steen, Anthony
Mitchell, Andrew (Gedling)	Stephen, Michael
Mitchell, Sir David (Hants NW)	Stern, Michael
Moate, Sir Roger	Stewart, Allan
Monro, Sir Hector	Streeter, Gary
Montgomery, Sir Fergus	Sumberg, David
Moss, Malcolm	Sweeney, Walter
Needham, Richard	Sykes, John
Nelson, Anthony	Tapsell, Sir Peter
Neubert, Sir Michael	Taylor, John M. (Solihull)
Newton, Rt Hon Tony	Taylor, Sir Teddy (Southend, E)
Nicholls, Patrick	Temple-Morris, Peter
Nicholson, David (Taunton)	Thomason, Roy
Nicholson, Emma (Devon West)	Thompson, Sir Donald (C'er V)
Norris, Steve	Thompson, Patrick (Norwich N)
Onslow, Rt Hon Sir Cranley	Thornton, Sir Malcolm
Oppenheim, Phillip	Thurnham, Peter
Ottaway, Richard	Townend, John (Bridlington)
Page, Richard	Townsend, Cyril D. (Bexl'yh'th)
Paice, James	Tracey, Richard
Patnick, Irvine	Tredinnick, David
Patten, Rt Hon John	Trend, Michael
Pattie, Rt Hon Sir Geoffrey	Trotter, Neville
Pawsey, James	Twinn, Dr Ian
Peacock, Mrs Elizabeth	Vaughan, Sir Gerard
Pickles, Eric	Viggers, Peter
Porter, Barry (Wirral S)	Waldegrave, Rt Hon William
Porter, David (Waveney)	Walden, George
Portillo, Rt Hon Michael	Walker, Bill (N Tayside)
Powell, William (Corby)	Waller, Gary
Rathbone, Tim	Ward, John
Redwood, Rt Hon John	Wardle, Charles(Bexhill)
Renton, Rt Hon Tim	Waterson, Nigel
Richards, Rod	Watts, John
Riddick, Graham	Wells, Bowen
Rifkind, Rt Hon. Malcolm	Whitney, Ray
Robathan, Andrew	Whittingdale, John
Roberts, Rt Hon Sir Wyn	Wiggin, Sir Jerry
Robertson, Raymond (Ab'd'n S)	Wilkinson, John
Robinson, Mark (Somerton)	Willetts, David
Roe, Mrs Marion (Broxbourne)	Wilshire, David
Rowe, Andrew (Mid Kent)	Winterton, Mrs Ann(Congleton)
Rumbold, Rt Hon Dame Angela	Winterton, Nicholas (Macc'f'ld)
Ryder, Rt Hon Richard	Wolfson, Mark
Sackville, Tom	Wood, Timothy
Scott, Rt Hon Nicholas	Yeo, Tim
Shaw, David (Dover)	Young, Rt Hon Sir George
Shaw, Sir Giles (Pudsey)
Shepherd, Colin (Hereford)	Tellers for the Ayes:
Shersby, Michael	Mr. Timothy Kikhope and
Sims, Roger	Mr. Andrew McKay.

NOES
Abbott, Ms Diane	Bayley, Hugh
Adams, Mrs Irene	Beckett, Rt Hon Margaret
Ainger, Nick	Beith, Rt Hon A.J.
Ainsworth, Robert (Cov'try NE)	Bell, Stuart
Allen, Graham	Benn, Rt Hon Tony
Anderson, Donald (Swansea E)	Bennett, Andrew F.
Anderson, Ms Janet (Ros'dale)	Benton, Joe
Armstrong, Hilary	Bermingham, Gerald
Ashton, Joe	Berry, Dr. Roger
Austin-Walker, John	Betts, Clive
Banks, Tony (Newham NW)	Blair, Tony
Barnes, Harry	Blunkett, David
Barron, Kevin	Boateng, Paul
Battle, John	Boyes, Roland

Bradley, Keith	Hanson, David
Bray, Dr Jeremy	Hardy, Peter
Brown, Gordon (Dunfermline E)	Harman, Ms Harriet
Brown, N. (N'c'tle upon Tyne E)	Hattersley, Rt Hon Roy
Bruce, Malcolm (Gordon)	Henderson, Doug
Burden, Richard	Heppell, John
Byers, Stephen	Hill, Keith(Streatham)
Caborn, Richard	Hinchliffe, David
Callaghan, Jim	Hoey, Kate
Campbell, Mrs Anne (C'bridge)	Hogg, Norman(Cumbernauld)
Campbell, Menzies (Fife NE)	Home Robertson, John
Campbell, Ronnie (Blyth V)	Hood, Jimmy
Canavan, Dennis	Hoon, Geoffrey
Cann, Jamie	Howarth, George(Knowsley N)
Chisholm, Malcolm	Howells, Dr. Kim (Pontypridd)
Clapham, Michael	Hoyle, Doug
Clark, Dr David (South Shields)	Hughes, Kevin (Doncaster N)
Clarke, Eric (Midlothian)	Hughes, Robert(Aberdeen N)
Clarke, Tom (Monklands W)	Hughes, Roy (Newport E)
Clelland, David	Hughes, Simon(Southwark)
Clwyd, Mrs Ann	Hutton, John
Coffey, Ann	Illsley, Eric
Cohen, Harry	Ingram, Adam
Connarty, Michael	Jackson, Glenda(H'stead)
Cook, Frank (Stockton N)	Jackson, Helen(Shef'ld, H)
Cook, Robin (Livingston)	Jamieson, David
Corbett, Robin	Janner, Greville
Corbyn, Jeremy	Johnston, Sir Russell
Corston, Ms Jean	Jones, Barry(Alyn and D'side)
Cousins, Jim	Jones, Jon Owen(Cardiff C)
Cox, Tom	Jones, Lynne(B'ham S O)
Cryer, Bob	Jones, Martyn (Clwyd,SW)
Cummings, John	Jowell, Tessa
Cunliffe, Lawrence	Keen, Alan
Cunningham, Jim (Covy SE)	Kennedy, Jane (Lpool Brdgn)
Cunningham, Rt Hon Dr John	Khabra, Piara S.
Darling, Alistair	Kilfoyle, Peter
Davidson, Ian	Kirkwood, Archy
Davies, Bryan (Oldham C'tral)	Lestor, Joan (Eccles)
Davies, Rt Hon Denzil (Llanelli)	Lewis, Terry
Davies, Ron (Caerphilly)	Litherland, Robert
Davis, Terry (B'ham, H'dge H'l)	Livingstone, Ken
Denham, John	Lloyd, Tony (Stretford)
Dewar, Donald	Llwyd, Elfyn
Dixon, Don	Loyden, Eddie
Dobson, Frank	Lynne, Ms Liz
Donohoe, Brian H.	McAllion, John
Dowd, Jim	McAvoy, Thomas
Dunnachie, Jimmy	Macdonald, Calum
Dunwoody, Mrs Gwyneth	McFall, John
Eagle, Ms Angela	McKelvey, William
Eastham, Ken	Mackinlay, Andrew
Enright, Derek	McLeish, Henry
Etherington, Bill	McMaster, Gordon
Evans, John (St Helens N)	McNamara, Kevin
Fatchett, Derek	McWilliam, John
Faulds, Andrew	Madden, Max
Field, Frank (Birkenhead)	Maddock, Mrs Diana
Fisher, Mark	Mahon, Alice
Flynn, Paul	Mandelson, Peter
Foster, Rt Hon Derek	Marshall, David (Shettleston)
Foulkes, George	Marshall, Jim (Leicester, S)
Fraser, John	Martlew, Eric
Fyfe, Maria	Maxton, John
Gapes, Mike	Meacher, Michael
Garrett, John	Michie, Bill(Sheffield Heeley)
George, Bruce	Michie, Mrs Ray (Argyll Bute)
Gerrard, Neil	Milburn, Alan
Gilbert, Rt Hon Dr John	Miller, Andrew
Godman, Dr Norman A.	Moonie, Dr Lewis
Golding, Mrs Llin	Morgan, Rhodri
Gould, Bryan	Morris, Rt Hon A.(Wy'nshawe)
Graham, Thomas	Morris, Estelle (B'ham Yardley)
Grant, Bernie (Tottenham)	Morris, Rt Hon J.(Aberavon)
Griffiths, Nigel (Edinburgh S)	Mowlam, Marjorie
Griffiths, Win (Bridgend)	Mudie, George
Grocott, Bruce	Mullin, Chris
Gunnell, John	Murphy, Paul
Hain, Peter	Oakes, Rt Hon Gordon
Hall, Mike	O'Brien, Michael (N W'kshire)

O'Hara, Edward	Smith, Rt Hon John (M'kl'ds E)
Olner, William	Smith, Llew (Blaenau Gwent)
O'Neill, Martin	Snape, Peter
Orme, Rt Hon Stanley	Soley, Clive
Parry, Robert	Spearing, Nigel
Patchett, Terry	Squire, Rachel (Dunfermline W)
Pendry, Tom	Steinberg, Gerry
Pickthall, Colin	Stevenson, George
Pike, Peter L.	Stott, Roger
Pope, Greg	Straw, Jack
Powell, Ray (Ogmore)	Taylor, Mrs Ann (Dewsbury)
Prentice, Ms Bridget (Lew'm E)	Thompson, Jack (Wansbeck)
Prentice, Gordon (Pendle)	Tipping, Paddy
Prescott, John	Turner, Dennis
Primarolo, Dawn	Tyler, Paul
Purchase, Ken	Walker, Rt Hon Sir Harold
Quin, Ms Joyce	Wallace, James
Radice, Giles	Walley, Joan
Randall, Stuart	Wardell, Gareth (Gower)
Raynsford, Nick	Wareing, Robert N
Reid, Dr John	Watson, Mike
Rendel, David	Welsh, Andrew
Robertson, George (Hamilton)	Wicks, Malcolm
Robinson, Geoffrey (Co'try NW)	Wigley, Dafydd
Roche, Mrs. Barbara	Williams, Rt Hon Alan (Sw'n W)
Rogers, Allan	Williams, Alan W (Carmarthen)
Rooney, Terry	Wilson, Brian
Ross, Ernie (Dundee W)	Winnick, David
Rowlands, Ted	Wise, Audrey
Ruddock, Joan	Worthington, Tony
Salmond, Alex	Wray, Jimmy
Sedgemore, Brian	Wright, Dr Tony
Sheldon, Rt Hon Robert	Young, David (Bolton SE)
Short, Clare
Simpson, Alan	Tellers for the Noes:
Skinner, Dennis	Mr. Alan Meale and
Smith, Andrew (Oxford E)	Mr. John Spellar.
Smith, C. (Isl'ton S & F'sbury)

Question accordingly agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House, pursuant to the Order 114 December].

[Mr. Geoffrey Lofthouse in the Chair.]

1. Clause 1
cc1347-61
1. INCREASE IN PRIMARY CLASS 1 CONTRIBUTIONS 7,805 words, 1 division
2. Clause 2
cc1361-7
1. NATIONAL HEALTH SERVICE ALLOCATION 3,595 words
3. Clause 4
cc1367-70
1. CORRESPONDING PROVISION FOR NORTHERN IRELAND 1,845 words
4. New clause 1
cc1370-91
1. ANNUAL REPORT TO PARLIAMENT 11,034 words, 1 division
cc1391-4
5. EUROPEAN COMMUNITY DOCUMENTS 15 words
cc1391-4
1. OWN RESOURCES 1,770 words, 1 division