Earnings Top-up

HC Deb 24 November 1995 vol 267 cc876-900

Motion made, and Question proposed, That this House do now adjourn.—[Mr. MacKay.]

9.35 am

The Minister for Social Security and Disabled People (Mr. Alistair Burt)

The purpose of the debate this morning is to enable the House to take note of the rules that the Government propose for a new benefit, earnings top-up, which is to be introduced on a pilot basis from October 1996 in eight areas of the country. The plans for the pilot were published in July, in the Green Paper entitled, "Piloting Change in Social Security—Helping People into Work".

The intention of earnings top-up is to increase income in work for lower-paid workers who do not have children. It will operate in much the same way as family credit does for families with children and will have the same objective: simply to make it more worth while to be in work than out of it. The benefit will be claimed mainly by post, awards will last unchanged for 26 weeks in most cases and workers will find their income increased by up to £54 a week. That should provide a substantial incentive to take and remain in work.

Both the idea of an earnings top-up for all lower-paid workers and its introduction on a pilot basis mark radical new departures for the United Kingdom. No other country offers a targeted income boost to all those in work at certain incomes. There is thus no experience by which to judge the impact of such a benefit. That is why we propose to test it through a pilot, the first of its type in the United Kingdom.

Previously, social security changes have been introduced nationally or not at all. In consequence, some innovative ideas have not been tested. Meanwhile, practical difficulties in other proposals may emerge only after they have been introduced. Now we are moving to a different approach. The earnings top-up scheme is temporary and experimental. It will last for three years, although individual recipients may continue to be paid for a further two years, and it will take place in only eight pilot areas. It will be introduced on an extra-statutory basis, but we want everybody to be absolutely clear about what its rules are. We have therefore laid before the House the draft rules of the scheme. Of course, if it is eventually decided to implement earnings top-up nationwide, we shall return to Parliament with the necessary legislation.

I would like first to say why we believe it right to try out such a benefit and how the pilot will be conducted. When we look at the characteristics of unemployed people, we find that 60 per cent. of them—1.35 million out of 2.32 million—are without dependent children. Experience shows that many of these will move back into work quickly, but it is apparent that some people still face disincentives to move into work. With their skills at their disposal, the income that they can command in work is not enough to provide an incentive to work.

The existing family credit scheme makes work more rewarding. It removes any disincentives to work which might arise from the gap between earnings and out-of-work benefits. It has proved successful in a number of ways: it has enabled the unemployed and lone parents to get a foothold on the employment ladder; and it ensures that other families are able to stay in work during a rough patch when perhaps one partner loses his or her job. But, of course, that benefit is confined to families with children. The Government now believe that it is time to test whether the principle of in-work assistance works for those without children.

The earnings top-up pilot will begin in October 1996 and will run for three years. It is an income-related benefit for people in work and in that respect it is like family credit, but without the necessity of children being involved. The extension of in-work assistance to this group is almost wholly unprecedented and there is little evidence either here or abroad to tell us what might happen. For that reason we believe that it is right to test earnings top-up before taking any decision to implement it nationally. That would be an unacceptable risk with taxpayers' money—perhaps more than £500 million for the higher rate of the two models that will be piloted.

We do not know categorically that increasing in-work income will be as effective a work incentive for people without children as it is for families with children. However, research by the Policy Studies Institute clearly shows that family credit helps people with children to move into work and, crucially, to stay there. The Centre for Labour Market Studies has also found that the amount of in-work income has a positive effect on the decision to take up work and that that influence is strongest for married men. But we do not know whether people without children will respond in the same way. That is why we need to pilot earnings top-up before we commit resources on a large scale. It is also the reason for piloting two different rates of benefit—to examine whether it is the existence of help or the amount that has the greater effect on work.

Piloting an in-work benefit is a new venture and we want to get it right. Therefore, we set out our proposals in detail and canvassed views in a consultation document before finalising the detail of the proposals. The consultation produced a high standard of response, and a summary of the points that were made has been placed in the Library. I thank all those who contributed to that consultation. During the consultation both employer and employee representatives expressed concern about the suggestion that we might also test the feasibility of payment through the wage packet. This probably attracted more responses than any other single aspect of the scheme. There were concerns about the cost, the loss of confidentiality for employees and the increased risk that wages might be depressed.

As well as canvassing views through the Green Paper, the Benefits Agency was busy holding discussions with employers and payroll experts on the costs and feasibility of the proposal. In the light of that study and the representations that were received we have decided not to pursue payment through the wage packet for the present. I am sure that that decision will be welcomed by all those who were concerned on that point.

The question whether employers might depress wages in response to earnings top-up is important: perhaps it is the most crucial issue. The best way to see whether they do and the effect is to pilot the measure and find out, which is exactly what we intend to do. We have no evidence that employers have reacted to family credit by reducing wages, but the position may be different in some employment sectors where all employees are potentially eligible for a benefit top-up. The effect on wages will be one of the most important questions to be tackled in evaluating the results of the pilot exercise.

We intend to test earnings top-up in eight areas and the consultation document explained how those would be chosen. My right hon. Friend the Secretary of State announced the final selection on 6 November. It includes areas in north Wales, central Scotland, the south coast, Newcastle, Sunderland and South Yorkshire. The areas that have been chosen reflect different types of labour market, but they all have high unemployment rates and a high proportion of vacancies. They are the sort of areas in which we would expect earnings top-up to be successful and they have been selected quite deliberately to maximise the chances of obtaining a clear outcome.

We are now in the process of tendering for the research that will enable us to evaluate the outcome. The research project will be detailed and complex—perhaps the most complex that the Benefits Agency and the Department have undertaken. We acknowledge that it will be no easy task, but we propose to collect a great deal of information about the labour market in the pilot areas before, during and after the pilot project. We shall be able to compare that with what happens to employment in four matched control areas and we will know a great deal about the individuals who claim the benefit. From the research it will be possible to evaluate the effects of earnings top-up in the pilot areas and extrapolate the findings nationally.

Mr. Denis MacShane (Rotherham)

It is a remarkable breakthrough in Government theory to try something before putting it into national practice. As the Minister responsible for the Child Support Agency, does the hon. Gentleman think that the experience of that and previous examples of Government policy might have been happier if they had been tested through similar pilot schemes before being put into national practice? The Minister does not have to answer.

Mr. Burt

In lieu of anything else to do of course I will answer if you, Mr. Deputy Speaker, will allow us to digress for a moment. The issue of pilot schemes is interesting but the crucial question is whether, if we seek to make a change in such areas, we are prepared to run a scheme in which some people will be getting an advantage for a time while other people are not. That sometimes means that a pilot scheme cannot be undertaken. The Child Support Agency involved such a degree of change and its administration was such a distinct change to what had gone before that, although piloting was considered, it was decided that it could not be done.

There will be occasions when we plan to do something new for which a pilot would not be appropriate. The hon. Gentleman is right to speak about a breakthrough and that breakthrough involves getting the opportunity to pilot anything in the field of social security. When I came to the Department it was one of the first topics that I raised when speaking to officials. I said that it would be nice to have an opportunity to conduct pilot schemes but I was told, "But Minister, benefits are national and pilots would be difficult. We cannot have somebody in Gateshead getting a different rate of benefit from somebody in Gatley."

It is necessary to think about whether there are circumstances that make it worth conducting a pilot scheme. This is an important breakthrough, but not every scheme is appropriate for pilots. However, I hope that when the opportunities arise we will take them.

The rules of the scheme are based to a large extent on those that already operate for family credit. At least half the draft rules are identical to the equivalent family credit provisions, but, obviously, there are changes in recognition of the absence of dependent children. Other changes relate to the unique status of earnings top-up as an experimental scheme. The rules provide for what will happen when workers move into, out of or between pilot areas. These provisions have no precedent in social security.

We also propose to pay a lower benefit rate for those who are under 25. That is the case for income support but not for family credit. Younger workers, and especially those without children, have lower household costs than older workers. They quite often live at home with their parents or in shared accommodation with friends. Young workers can also more easily be better off in work because their income from out-of-work benefits is lower than that of older workers.

A further difference from family credit is that earnings top-up will be time limited for certain self-employed people. There will be an upper limit of four awards for self-employed workers whose net earnings are continuously below £20 a week. They will receive benefit for at least three years. We have decided to impose this limit because continuous very low earnings cast doubt on whether employment is truly remunerative. We do not wish to discourage self-employment—far from it—but it is not the role of a social security scheme to prop up failing businesses indefinitely.

The final published version of the rules and any future amendments will be placed in the Library. The Social Security Advisory Committee will also be kept informed. Earnings top-up is yet another example of our commitment to create a better social security system. Social security costs each working person £15 every working day. That is £92 billion a year or 30 per cent. of all Government expenditure. The nation's resources are not infinite and that is why our reforms have focused benefits on those who need them most. We are encouraging incentives to work and personal responsibility.

As we approach the end of the century the social security system is evolving into an efficient machine that protects the most vulnerable, adapts to changing need and does not outstrip the nation's ability to pay. Our reforms are beginning to take effect and they will continue to flourish. By the year 2000 growth in social security spending is projected to be down by £4 billion. Total savings in the next century will amount to more than £14 billion a year. We have a clear set of principles, we have translated them into action, and they have worked. One proof of that is our record on unemployment which, as I have said, is better than the European Union average. That proves that our strategy is working. In the United Kingdom the proportion of the population of working age who are unemployed is lower than the proportion in Germany, France or Italy.

A key element in our strategy is the belief that helping people back into work is the best way to improve their living standards. It is the best way to improve people's prospects and to help them become independent. The benefits system can be an important springboard to take people out of dependency. Last year's Budget unveiled a comprehensive package of work incentives, into which the pilot scheme fits very well. From April 1996, housing benefit will be extended at the full rate for an extra four weeks for people moving into work. A national insurance holiday of one year will apply for employers taking on long-term unemployed people. Family credit payment will be speeded up to remove the gap between the end of income support and the first family credit payment.

From October 1996, we estimate that earnings top-up will reach 20,000 people throughout the country. The Conservative party is the party of real work incentives. Many of the measures to which I have referred have been announced against a backdrop of carping criticism from Opposition Members—it says here. They are now beginning to speak of using the benefit system to help people into work. The earnings top-up scheme is a vital part of our strategy to do just that.

The labour market is changing—

Mr. Keith Bradley (Manchester, Withington)

The Government have a great deal of support for these measures.

Mr. Burt

Of course we have. Unfortunately, we do not have support from Opposition Members when things get difficult and it is necessary to take difficult decisions. They find it much easier to carp.

Mr. Denis MacShane (Rotherham)

The Benches behind the Minister are full.

Mr. Burt

My colleagues' support in spirit for these measures is massive.

The labour market is changing, as we all know. Comparing the same parts of the economic cycle between 1979 and 1990, overall employment has increased by 6 per cent. Female employment and part-time employment have both increased, but demand for unskilled labour has decreased. More and more, employers are looking for people with higher skill levels. That renders vulnerable the workers who do not have such skills and risks trapping them in unemployment. That is a worry for us all. Earnings top-up is part of our answer to that problem.

We know of one answer from the Opposition—"Let's impose a statutory minimum wage."

Mr. Bradley

That is right.

Mr. Burt

The House will not be surprised to hear—

Mr. Malcolm Wicks (Croydon, North-West)

Skip the next bit.

Mr. Burt

The House will not be surprised to hear that we do not accept that the minimum wage offers a solution. Compelling employers to pay unrealistic wages would put people out of work, not help them into it. The worst hit would be precisely those whom earnings top-up is designed to help, the young and the unskilled. Study after study confirms that. What is more telling, a minimum wage would not help the worst off.

The Institute for Fiscal Studies found that the poorest 30 per cent. of families would benefit less than the richest 30 per cent. That is because many people earning low wages are second or even third wage earners in more prosperous families. In its report, the institute stated that those people most affected would be young single people living at home with their parents and the wives of working husbands … This means that the effects on poverty and inequality would be small". In-work benefits can be effectively targeted. Earnings top-up, for example, will assist single people whose income from work is up to £125 a week, and couples whose income is up to £164. It will give them a weekly income boost averaging about £19 for single people aged 25 and over, and £24 for couples. The gain could be up to a maximum of £54 for a couple, and about half that for a single person.

Those who advocate a minimum wage despite all its shortcomings might also claim that in-work benefits transfer to the taxpayer costs that could or should be borne by employers. We want to see all people better paid. The way to achieve that is to improve standards in education and enhance skills to boost productivity. Then, and only then, can employers afford both to invest and to pay more. Increasing wages without productivity would merely replace low pay with no pay.

There is a further point to make about the introduction of the pilot scheme. It represents another stage on a consistent pathway of social security reform. The Government consider the effective reform and control of the social security system to be a distinguishing feature of a party's fitness to govern in modern society. The Government have led social security reform by way of a series of coherent principles. Encouragement to work by way of the development of in-work benefits, such as earnings top-up, has been crucial. It has played its part in the success of the United Kingdom's overall employment strategy. At the same time it has contrasted sharply with one of the fundamental characteristics of Opposition Members, which is their failure to contribute anything to the social security debate.

Commentators and politicians agree world wide that welfare reform is a matter for keen and important debate. If control of social security is lost, the impact on the economy is devastating. We cannot, of course, have debate if there is only one voice. Plenty of contributions are made by Back-Bench Members, but when it comes to the Front Benches the debate is in danger of being seriously lopsided.

After its most recent electoral defeat, the Labour party privatised its policy making and hived off social security reform to the Commission for Social Justice, with a remit to think the unthinkable. This move, launched in a blaze of publicity, to boldly think where no think tank had thought before, led to an even higher profile. The right hon. Member for Sedgefield (Mr. Blair), the Leader of the Opposition, no less, hailed that it was a new Beveridge. After that, the small print was read, and there was a great deal of it. We have heard no more.

The able and canny hon. Member for Glasgow, Garscadden (Mr. Dewar) wrestled with social security reform as a member of the Opposition Front Bench. When he might have mentioned the unmentionable, he was moved to other responsibilities. The hon. Member for Islington, South and Finsbury (Mr. Smith) now has the social security job. How we all regret that it is not the hon. Member for Islington, North (Mr. Corbyn), who at least has a programme for social security reform. As I have said, the hon. Member for Islington, South and Finsbury has been given the baton and given six months to think the unthinkable. By 8 May 1996, all will be revealed. Thinking the unthinkable nowadays in the Labour party means having a proper, costed and well-thought-out policy. For years past, we have been tackling problems, and throughout we have faced opposition to our measures and demands for more money.

The public know nothing about the Labour party's plans. They do not know whether Opposition Members intend to find the extra £4 billion a year that we have been saving, let alone whether they can find the extra £14 billion a year that our measures will save by the next century. The Opposition do not tell us whether they consider social spending to be too high, too low or just about right. They do not tell us where they would pitch it. They can oppose in that way and they can protest that way. I suspect that it is possible to campaign that way. But no party is fit to govern that way.

The aim of the earnings top-up pilot scheme is to help people with low earning power to move into work and stay there. We are testing the scheme—at a cost of £25 million in a full year—to be sure that it will help people with low earning power in the way that I have described without adverse consequences. We are breaking new ground. I am grateful for the way in which our proposals have been received up to now. I look forward to the debate. I am glad to have had the opportunity to confirm our position.

9.56 am

Mr. Keith Bradley (Manchester, Withington)

The

purpose of the debate, which the Minister started to outline clearly before he went into his flights of fancy about the development of Labour party policy, is to consider the draft rules on the earnings top-up, which have been laid before Parliament. As the Minister rightly said, they reflect the consultation that took place following the publication in July of the Government's paper entitled "Piloted change in social security: helping people into work".

It could be argued that with 2.5 million people registered as unemployed, the debate might have focused more clearly on what positive measures the Government are taking to create real long-term jobs, to tackle skill shortages and to give some hope to the thousands of long-term unemployed and to the thousands of young people who have never had a job. If we were enjoying full employment, or something approaching it, or if employment was adequately paid, there would not be such a problem with those needing benefits and the amount of money spent on providing benefit would be relatively small. The social security system would not have to take the strain of low-paid employment.

It is worth repeating that there are 2.5 million registered as unemployed. It should be remembered also that I million have been unemployed for more than one year. About 250,000 have been unemployed for more than four years. We know that 1 million earn less than £2.50 an hour and that 300,000 earn less than £1.50 an hour. Those are scandalously low wages. The issue today, however, is more about a clear statement of the failure of the Government's economic and employment policies.

We are discussing proposals—I cut through the Government's wider comments—to increase family credit payments or wages top-up to single people and childless couples.

It is worth noting that the cost of family credit for families with children has risen dramatically over the years from a mere £42 million in 1980–81 to £1.48 billion in 1994–95 and an estimated £1.682 billion in 1995–96. That is partly explained by increased take-up over the years, from about 50 per cent. when the scheme was first introduced to almost 70 per cent. now, and partly to changes in the rules on working hours eligibility. There are now almost 600,000 people claiming the benefit.

The rate of increase in take-up has slowed down in recent years, which gives clear credence to the view that a significant factor in the considerable budget increase is that the benefit is really subsidising bad employers paying low or poverty wages. Unless a floor is set to the extension of the family credit scheme in the earnings top-up, the problem will be exacerbated. I shall return to that point later.

The Government's statistics, published in their expenditure plans 1995–96 to 1997–98, show that over those four years there has been an increase of about 75 per cent. in the number of people claiming family credit, but during the same period the cost has risen by a staggering 300 per cent. It would appear that the same people are receiving more money. Why should that be? I again suggest that the real reason is that family credit is taking the strain for very low or poverty level wages.

On the Government's specific proposals, we welcome their decision to pilot the new earnings top-up in eight areas, with four control areas, and to monitor the scheme. We recognise the value of applying different rates to test the real validity of the proposals. As my hon. Friend the Member for Rotherham (Mr. MacShane) said in an intervention, the Government have at long last learnt that introducing new policy on a national scale immediately, as happened with the Child Support Agency—which I mention for the Minister's benefit—is fraught with danger.

I want to ask a number of questions about the pilot scheme. However, as I have mentioned the CSA, one other question immediately comes to mind. I note in the draft rules that when a childless couple have a child during any six-month period of claiming the top-up, they can immediately move to family credit because that is more generous. It is right that that should happen. However, when we moved amendments to the child support legislation which would have given the same facility in child support cases where maintenance had been withdrawn during a six-month period—and people need to move quickly to family credit so that they do not lose out—the Government said that it was not possible to do it so quickly. However, such a facility is now being piloted with the Government's proposals. Will the Minister comment on that and agree to rethink child support so that mothers can be treated in the same way, thereby ensuring that they receive the maximum amount of benefit at any particular time?

I come now to my substantive questions about the draft rules. There does not appear to be any requirement on the employer to include any element of education or training with the job being offered through the top-up scheme. In view of the appalling lack of skills training in this country, are not the Government missing a real opportunity to encourage employers to take training seriously? Should not it be included as a requirement of participation in the top-up scheme? The Government's Green Paper states: The most desirable way to increase earnings capacity is to improve skills through education, training and experience. The Minister may argue that the job provides experience, but there seems to be no requirement to include education and training, which should form part of the scheme.

It is clearly envisaged that once a person has entered the scheme, he will be entitled to the top-up benefit throughout the three-year pilot period and then for a further two years if appropriate. What safeguards will the Government introduce to ensure that people taken on to the scheme are not merely replacing existing employees, thereby enabling the employer to substitute an existing wage rate for a lower wage rate and gaining from that?

What monitoring will be undertaken to ensure that wages are reasonably increased, with a consequent reduction in the benefit top-up, during the pilot period? Monitoring all the pilots is essential to ensure that the quality of jobs on offer is retained. What sanctions will the Government introduce to ensure that employers do not exploit the new payments to reduce wage levels? Can we have more details about the cost of monitoring? We already know the cost of the scheme. I recognise that evaluation of the scheme is absolutely crucial, both between pilot and control areas and within pilot areas. Can the Minister give more details of the criteria that will be employed by the researchers to ensure that evaluation is sensitive to the real needs of the project? We welcome the fact that the researchers will be independent.

One important consequence of using the pilot approach to test earnings top-up is that there will be no independent tribunal to determine questions of eligibility or right of appeal. Is the Minister satisfied that the procedures outlined in the draft rules are sufficient to ensure that employees are properly protected where there are disputes about eligibility or the right to participate in the scheme?

On the question of payment method, I heard in the other place—and the Minister repeated it today—that the discussions with employers on payment being made through the wage packet have now been dropped. We share the concerns expressed, in response to the consultation, about confidentiality and the potential for the employment details of the partner of the claimant to be given to the pilot scheme employer. I want to be sure about that point, because not only could the benefit calculations have been passed to that employer, but other details of the relationship. Will the Minister confirm that such matters will now be dealt with through the Benefits Agency and that the employer will have no role to play?

To what extent are the Government committed to the proposals? We note that the scheme will not be introduced until October 1996—more than a year from now. What is the reason for the delay in introducing the pilots if the Government are committed to the measure forming a key part of their welfare to work policies? We also note that the pilot schemes will run for three years. We understand the need for proper monitoring and evaluation, but as the pilot period will not be completed until 1999, other matters may stop the scheme being introduced.

On a more important point, the cost of the pilot scheme is £75 million over three years and is expected to cover 20,000 applicants. If it were extended nationally to all those who are eligible, it could involve an estimated 500,000 people at a cost of £1.5 billion over three years. Can we be clear that if the pilots are successful, the scheme represents a spending commitment by the Government, or should I take a more cynical view and rely on the Government's own consultation paper, which states: it cannot be assumed that it will lead to national implementation or that the range of people covered and the benefit rates would remain the same". Will the Minister clarify the Government's position? We would expect at least the rates in the pilot scheme to be introduced, with the subsequent £1.5 billion spending commitment.

An issue that was discussed in another place, but was not answered satisfactorily, is the 24-hour working rule. I remind the House that under the jobseeker's allowance, if a person works more than 24 hours, for whatever pay and even if it is below JSA benefit levels, his or her partner loses eligibility for the means test for JSA. Will the same apply to the earnings top-up rules? If a partner not only earns more—which would clearly take him or her out of the top-up—but works for more than 24 hours, as with the jobseeker's allowance, would that make the other person ineligible for in-work benefit, whatever the joint income might be? Will the Minister look at the inter-relationship between the hours rule and the hourly paid rate?

Finally, I touch on the poverty trap, which is an important issue. The Government accept that the introduction of earnings top-up cannot avoid creating a poverty trap. They acknowledge the problem inherent in income-related benefits of high marginal withdrawal rates of benefit as earnings rise. Like family credit, earnings top-up will have a taper of 70 per cent. so for each £1 of extra income, earnings top-up entitlement will decrease by 70 per cent., albeit at the expiry of the 26-week award. It will clearly interact with other benefits, national insurance and the tax system and, although it is unlikely that many cases will involve a tax rate in excess of 100 per cent., the combined impact will be a real disincentive to increase hours of work.

I note from the Government's rules that they hope that the £10 full-time work supplement will help to overcome that problem, but clearly there is still a disincentive to work. Does the Minister have any other proposals to tackle that problem? Unfortunately, the structure of the new benefit will do little to tackle the serious poverty trap and disincentive created by in-work benefits, especially for couples and home owners.

Will the Minister look again at page 15 of the Government's consultation document, which outlines the effects of the top-up on certain categories of people and identifies some discrete examples? Will he do what was done successfully during the passage of the jobseekers Bill and place in the Library additional examples of how the benefit will impact on other benefits and on earnings, extending the benefits to different categories of families, increased hourly rates and different households. The assumption behind the examples in the consultation document is that all the people involved live either at home or in rented accommodation, but the impact on home owners is not clear when they are in the benefits system. Can the Minister extend the range of examples?

The poverty trap issue has to be addressed more fully. When I tabled a Parliamentary Question asking how many families faced a marginal deduction rate of 70 per cent. or higher for each £1 earned as a result of benefit tapers, the Minister told me in a letter that the Government estimated that 600,000 people faced a marginal deduction rate of 70 per cent. or more. Clearly that is not acceptable and we have to find other methods of mitigating the effects of the poverty and employment trap.

It is clear that after 16 years, the Government are at last attempting to tackle the welfare to work problem. We welcome that and we have welcomed the introduction of the pilot schemes. However, I repeat the Labour party's view that, without a real floor on wage levels through the introduction of a national minimum wage, the real scale of in-work benefits cannot be tackled.

We all know that, following the abolition of wages councils, many people, such as cooks and carers in residential homes, receive poverty pay levels because of the lack of a national minimum wage. The Government argue that by letting wages fall, people will price themselves into work and more jobs will follow. The evidence suggests quite the contrary. It shows that the same people are in the same jobs but they are paid less. In the industries that were covered by wages councils, wage rates have fallen by up to 25 per cent. and there has been a net loss of 18,000 jobs.

Using the figures for the pilot schemes, if a national minimum wage were introduced at however modest a level, many of the people included in the scheme would be floated off in-work benefits. Obviously, we have to link a national wage to other positive employment measures and to look at the way in which the benefits system interacts with the tax system to ensure that there are positive measures to overcome the poverty and employment trap. If through those combinations we could reduce the massively escalating costs of in-work benefits, we could more closely target the money to where it is really needed—helping people in the employment market.

The Labour party has already announced a series of imaginative and comprehensive measures on welfare to work such as our eight pathways into employment for the long-term unemployed and, more recently, a more imaginative package of opportunities for the under-25s, which will have much greater impact and represent a more effective welfare to work policy.

Although we welcome the introduction of the pilot schemes today, we shall monitor their impact as closely as the Government. In conclusion, I repeat that as the pilot schemes will not commence until 1996, we look forward to introducing our own package of effective welfare to work measures well before the pilot schemes come to fruition.

10.19 am

Ms Liz Lynne (Rochdale)

I welcome the proposed pilot scheme to study the earnings top-up for two main reasons. First, I welcome any pilot scheme in social security. Too many changes in the Department of Social Security have been introduced without having been thought through adequately and have resulted in problems, mainly with implementation. The jobseeker's allowance, for a start, has had to be delayed. I understand that Benefits Agency doctors are having great problems meeting deadlines on medical tests for incapacity benefit, and, of course, there is the discredited Child Support Act 1991, under which only 29 per cent. of cases dealt with in the past year were correct. Therefore any large-scale pilot scheme is extremely welcome. It should reduce disruption and chaos, and I hope that it will reduce mistakes.

The second reason why I give the pilot scheme a cautious welcome is that the principle of the policy is absolutely right. No one should be worse off by taking a job. The Liberal Democrats fully support that principle and have long advocated one low-income benefit, combining family credit and income support.

But simply being in favour of the principle does not mean that the scheme should be implemented without careful consideration. I know that the Minister has made that clear. The potential for an earnings top-up being an open cheque for low-paying employers must be monitored extremely carefully. The record on family credit is far from encouraging. The cost has grown considerably over the past few years. I know that there are many reasons for that rise—the most important being the level of take-up, since £8 of every £10 available is now claimed, compared with £7 in 1992.

In addition, since the 1994 Budget, the welcome £28 disregard for child care has contributed to that bill. I honestly believe that £28 is not enough, but we are not debating that today. That positive development alone, even together with the other developments, does not explain the growth in the family credit bill. Part of that growth must be down to lower wages brought about by the abolition of the wages councils.

The crucial difference with the earnings top-up is that, unlike family credit, everyone over the age of 18 will be entitled to it depending on their wage—even though, as the Minister stated, those aged between 18 and 24 will get less; the same as they do on income support. I have never been able to understand that distinction and I sincerely hope that the Minister will take the opportunity to look at it. I do not accept his arguments that costs for those aged between 18 and 24 are necessarily lower than those for people over the age of 24.

A further difference is that the employer does not automatically know that the employee is in receipt of family credit. Although the earnings top-up will not be paid through the wage packet, if low wages are being paid, the employer will obviously know that the majority of the employees will be receiving a top-up. That could exert a downwards pressure on wages which must be monitored very carefully.

I obviously cannot mention the earnings top-up without talking briefly about jobseekers. The Government rigged the market in favour of employers when they brought in the jobseeker's allowance and they even refused to accept a House of Lords amendment which would have given a person the right to turn down a job if it paid wages below income support level. So employers know that a person who does not take a job offer risks losing benefit. Therefore employers have a double incentive to push wages down. Again, the taxpayer will pick up the bill. Such a downward trend on wages must also be monitored carefully.

A further point that the Government need to address is that, as I understand it, people in receipt of the earnings top-up will lose their passported benefit in free prescriptions and dental and eye check-ups during the pilot scheme. Will the recipients of the earnings top-up receive those benefits if the scheme goes nationwide?

Although, as I said, I give the pilot scheme a cautious welcome, it must be considered carefully and not again used to save the employer money at the expense of the taxpayer.

10.24 am

Mr. Denis MacShane (Rotherham)

This has been a very interesting debate on a very important subject. Yesterday, the Prime Minister told the House that wage earners' incomes and employment had increased substantially under his stewardship. Yet this morning—how can I put it—the acceptable, human face of the Department for Social Security has told us that we have a great national crisis and taxpayers' money has to be shelled out, on a pilot scheme to begin with, to subsidise low pay. There is therefore a fundamental contradiction between the fantasies that we heard yesterday and the ginger exploration of the truth that we have heard this morning.

I am fascinated that although the hon. Member for Bury, North (Mr. Burt)—the hon. Member for marathon running—is with us this morning, not one Back-Bench Member is behind him, despite the fact that this is supposed to be a five-hour debate on social security called in Government time. Sitting on the Labour Front Bench are our shadow spokesmen Nos. 1, 2 and 3—or Nos. 1, 3 and 2; I am not sure of the running order.

The Secretary of State for Social Security is not present. When he is in the House, he spends most of the time decrying Europe, the minimum wage and social security systems over there, and when he is not in the House, he spends most of his time living in his chateau in France. I find some contradiction in a man who continually rubbishes France when he is sitting on the Government Front Bench, yet loves the country so much—its minimum wage and its social security and health systems—that he likes to spend as many weekends, as much of his holidays and perhaps his retirement there, which of course will not be long coming.

Mr. Burt

And skiing.

Mr. MacShane

He will have time to learn to ski quite soon.

We have had a beguiling debate and a soft presentation of the pilot scheme by the Minister, but the core problem is that there is a fundamental divide between the two sides of the House. The divide can be put very simply: Labour Members believe that the question of pay in the labour market is a matter of economic efficiency and justice, and the Conservatives believe that it is a matter of employer power and charity.

We want to move from a system of taxpayers' charity to sustain employer power and low wages in the labour market to one of justice and economic efficiency, so that instead of the taxpayer having to subsidise the employer, we can ensure that wages and incomes are properly paid and people earn a fair share of the value that they contribute to the wealth they create in different forms of the national economy.

I have here a wage slip which was handed to me in my constituency. It is a proper wage slip and not black money or informal cash. It shows a hourly rate of pay of £1.80 an hour. After the national insurance and so forth is deducted, it shows that, for a 53-hour week, the take-home pay is £99. That, under any sense of justice or national morality, is a scandal and a disgrace.

If hon. Members went to the job centre in Rotherham, they would find that there are a number of jobs paying £2.30, £2.40, £2.50—under £3—an hour. That is not a living wage; it is barely a dying wage. It is a wage of miserable, mean and minimal existence brought about by the deliberate structural policy of 16 years of this Conservative Government, aimed at widening the wealth gap in our society and the difference between those in work and the power that they have to contribute through negotiation and partnership to the determination of their wage, and the power of their employers.

Will the Minister guarantee that the trade unions, if they exist in the firms involved in the pilot scheme, will be allowed to monitor it? If they do not exist in those firms, what steps will he take to ensure that there is proper employee consultation and involvement in the monitoring of the scheme?

How can we put matters right? How extraordinary it is—how politics have changed—that Labour Members now pray in aid Winston Churchill.

Ms Lynne

A Liberal.

Mr. MacShane

As the hon. Lady points out, he was a Liberal. Winston Churchill introduced wages councils because he saw the downward spiral of bad wages driving out good and wages going endlessly down, and he realised that national regulation was needed.

One can see different examples of the minimum wage around the world. The Secretary of State for Social Security, who lives in France for some of the year, always talks about the high unemployment in Spain and France. We can cite America where there is a national minimum wage and where far more jobs have been created than in the European Union. If the Minister will leave Europe alone, I shall leave America alone.

I have just come back from Taiwan, a fascinating country. I examined the two areas of employment about which I have some detailed personal knowledge—journalism and the steel industry. Journalists and steel workers in Taiwan earn more than their equivalents in the United Kingdom. The statutory minimum wage in Taiwan—here I have to be a little cautious with regard to my Front-Bench colleagues—is 70 per cent. of average male earnings. Such a minimum wage is not on the policy cards in this country.

In Taiwan and in other dynamic Asian economies, there is a commitment to three things: first, to full employment; secondly, to a compression of wage ratios so that there is not an ever-widening gap between top pay and bottom pay, as is happening in the United Kingdom; and, thirdly, a strong commitment to manufacturing instead of the front-loading to the City and to the financial sector which has been the aim of Tory employment policy over the past 16 years.

The fundamental point is that we must move from taxpayers' charity. Everyone in the House pays money to low-paying employers and the evidence of that is growing day by day. We recently had a meeting of the all-party transport group. The managing director of one London bus company told us that when he took on people, men mainly, who had families, the first thing they did in addition to filling in the employment forms was to fill in the appropriate benefit claim forms. The Government have turned employers into welfare agents. They have made it clear to employers that they can pay low wages because the state and the taxpayer will pick up the difference.

I welcome the pilot scheme. However, as my hon. Friend the Member for Manchester, Withington (Mr. Bradley) said, it will not come into operation until the end of next year. Before then, at that time or shortly afterwards, there may be a decision of the people that will, thank goodness, mean that those sitting on the Government Bench take decisions more in the national interest. A fundamental divide remains between the two parties. We need a national minimum wage and we need a commitment to making work something from which people draw not only personal value, but an income that corresponds to their needs. We must move away from the ever-widening wage gap and ever-increasing poverty in work. However well intentioned the pilot schemes are, they cannot make a significant contribution to the widening wage gap, the wealth gap and the poverty in work problem that we have today.

10.34 am

Mr. Burt

With the leave of the House, Mr. Deputy Speaker.

I thank the hon. Members who have contributed to such an interesting debate. I am especially grateful to the hon. Member for Rotherham (Mr. MacShane), who was the only Back-Bench contributor, and I appreciated his remarks very much. They may detain me for a little while later in my speech because I want to get into the meat of the minimum wage versus other policies argument. It is an extremely important debate. I suspect that not all of the hon. Gentleman's colleagues share his view on the minimum wage, especially not his view on the rate. The minimum wage raises crucial questions. I think that the hon. Gentleman is profoundly wrong and I believe that any minimum wage scheme at the level that he and some of the biggest unions want would have disastrous effects on the United Kingdom in terms of employment opportunities, differentials and competitiveness.

We do not have a social security system like the ones in the far east; we have a European one. Europe and the United Kingdom must work out how we can remain competitive while ensuring that we have a decent welfare and social security system.

Mr. MacShane

indicated dissent.

Mr. Burt

The hon. Gentleman shakes his head because he thinks that the answer is simple. I suspect that the hon. Member for Islington, South and Finsbury knows that the matter is far more complex. I suspect that one of the reasons for his silence this morning is that he prefers to concentrate on these matters for a little longer rather than making a speech like the one made by the hon. Member for Rotherham.

I shall deal first with the easier issues and then I shall get on to the more detailed questions. The House agrees on one point; helping people to move from unemployment into work and then ensuring that they stay in work is a key priority. In-work benefits have a role here and that has been acknowledged by all parties. We do not agree on the minimum wage and I shall return to that subject.

I am grateful for the fact that the experimental, piloting approach has been broadly welcomed. When I came to the Department of Social Security, I could not understand why such an approach had not been national policy before. My right hon. Friend the Secretary of State broke new ground through the jobseeker's allowance and this scheme goes a little further. I welcome this approach because it provides new opportunities and I suspect that it will be used more in the future. Dealing with the complexities of the benefit system is extremely difficult and finding ways in which to test out ideas is helpful.

To meet the challenges of the changing labour market, we have to be flexible and innovative. Although we are willing to embrace new ideas, we must be sure that they will work. A piloting approach is, therefore, a far more effective way in which to introduce experimental changes. It not only allows the value of new ideas to be assessed, but enables operational procedures to be tested and problems to be ironed out before any wider introduction.

I turn now to the pilot areas, how they were chosen and what happens after we have evaluated the pilot projects. It is important that the pilot areas for a scheme such as this one should be selected on an objective and rational basis which maximises the chance of obtaining clear results from the experiment. As we are putting more than £70 million over three years into the earnings top-up, we want to have the best chance of obtaining a result. Whether we decide to extend the scheme or not, at the end of three years, we shall have a great deal of knowledge under our belts. The key to getting it right, therefore, will be careful evaluation.

Preparing the ground for evaluation was just as crucial. To do that, we agreed a range of objective criteria which were then used to choose the pilot areas.

As the building block for pilot location, we have used travel-to-work areas—a statistical tool that identifies self-contained labour markets by considering the proportion of people living in an area who work there, and the proportion who do not. Using those self-contained labour markets will minimise positions in which neighbours would be treated differently and workmates would be treated differently.

Our basic approach has been to identify places where we predict that earnings top-up will work. Therefore groups of travel-to-work areas with relatively high unemployment and a relatively high proportion of vacancies were placed on a short list. We reckoned that if ETU was not successful there, it would be safe to assume that it would not work elsewhere. We published that list in July and asked people to tell us what they thought.

A number of factors influenced us in assessing the suitability of the short-listed places. We needed to find places in the group that were similar enough to be compared, and at that stage we considered factors such as labour market type, population density, size and type of firms and operational feasibility. We are testing the scheme in several different labour markets, as may be seen from the consultation documentation—major urban areas, large towns and rural areas as well as seaside communities, which have a characteristic pattern of employment. That will allow us to consider the impact of the initiative throughout a range of communities.

We have selected three major urban areas. One will test scheme A, one will test scheme B and there will be one control area. We have selected three large towns, three rural areas and three seaside towns.

A couple of arguments were made about what we shall do afterwards and a couple of arguments were made about the evaluation of the pilot.

I shall say a little more about evaluation. The pilot may be small in scope, but it has big potential. It has the potential to provide a wealth of information to inform the future direction of our policies. To assess that potential, independent researchers will evaluate and analyse the scheme on an on-going basis.

We shall monitor the impact of the scheme in a variety of ways. Interviews with employers and employees will provide details of what people think about the benefit. Longitudinal studies in the pilot areas will build up an increasingly detailed picture of the impact on local labour markets over time. The Benefits Agency will keep extensive management statistics. A 100 per cent. database will record the details of all claims and renewals and provide a unique record of the client group of the benefit.

Monitoring the effect on wages and on employers' wage-setting behaviour is one of the most important reasons for piloting ETU. The hon. Members for Rochdale (Ms Lynne) and for Rotherham, as well as the hon. Member for Withington, mentioned that as a crucial issue.

The research process as described has been designed to enable us to examine that matter closely. We shall be able to draw comparisons between the wage-setting behaviour of employers in pilot areas and those in control areas; that is why they have been so carefully matched. We can use the longitudinal analysis in the pilot areas, tracking patterns of wage-setting behaviour over time, and we can set up interview surveys with employers to focus on their attitudes and behaviours. The pilot gives us the opportunity to look closely at the interaction between the benefit system and employer behaviour.

Mr. Bradley

Although I understand the monitoring and evaluation during the process, I repeat my question: what sanctions would the Government introduce to prevent employers from cutting wages by participating in the top-up scheme?

Mr. Burt

The very nature of the pilot is that one cannot have sanctions. We do not know whether sanctions would be needed. We do not know what employers' behaviour would be. There might be a position, in a specific industry or industries, that would require no growth in wages for a couple of years, and we are as likely to observe that in a control area as in a pilot area. All that the pilot studies can tell us is how wage-setting behaviour in the pilot areas compares with wage-setting behaviour elsewhere.

Obviously, if one of the major effects is that in all the pilot areas, wages are massively reduced in order to balance the amount of benefit that comes in, we shall all have learnt a big lesson. That is what we are trying to discover. We do not believe that that will be the case.

Obviously, another crucial aspect will he the interaction between wages set, jobs created and the amount of benefit spent. We all agree that the worst of all options is for a person to do nothing and rely solely on social security. The next worst option is for a person to be in a low-paid job, but that is better than doing nothing. We all want people to be in higher-paid jobs.

The issue that comes between us is that the hon. Member for Rotherham and others believe that the Government can artificially set those floors—the hon. Member for Withington believes the same thing—and that that will prevent low pay. We do not believe that, and we believe that there is therefore a greater danger in trying to do that than in creating jobs in the first place. All that the pilot seeks to do is provide us with further information about the way in which that will work.

We would prefer people to get into work at more or less any wage than to do nothing. Pay is better than no pay, and the pilot helps us to go along that route. However, if it turns out that employers merely regard it as a huge subsidy and axe people's pay, we know that the taxpayer will not stand for that. We have no evidence that that is the case with family credit. We shall find out what happens.

The hon. Member for Withington asked whether employers would be involved. The answer is no. Employers would only have to check from time to time what a specific wage might be, if that information needed to be collected. The employer will not be directly involved.

The hon. Member for Rotherham asked about trade unions' involvement in the evaluation. I am not aware of a problem. If trade unions want to keep a monitoring eye on wages in an area, they are free to do so. I am not aware of a problem with that. I do not believe that they play a part in our research studies because they are independent research studies, but if they have any comments to make about what they observe and they want to feed them into the research process, they are free to do so. I envisage no problem with that.

A couple of issues were mentioned in relation to family credit—first, the way in which the family credit scheme works at the moment and, secondly, whether we can make changes to child maintenance similar to the ones that we are making with ETU.

I feel strongly that the hon. Member for Withington was wrong with his estimates about family credit. Take-up is increasing steadily. It is 81 per cent. by expenditure and it is likely to continue to increase steadily. More than 370,000 people have moved from income support to family credit in the past three years, showing its effectiveness at moving people into work.

It is not right to say that family credit is taking the strain for lower wages. The average wage in family credit is about £3.80 an hour and most couples need family credit for only six months or a year to tide them over a bad patch. We know from other manpower surveys that we have made that employers are indifferent to the level of family credit because it does not affect all their employees. Family credit has been a tremendous success, and should not be given a had write-up.

The hon. Member for Withington asked whether we would make in child maintenance the type of change that we are making with ETU. First, my memory of child support tells me that the specific change that he suggests will work both ways. Some people are advantaged by family credit carrying on at the same rate. If we were to make a change in one direction, I would be under pressure from other quarters to make changes in the other direction. We feel that, on balance, it is better to leave family credit as it is for child maintenance.

However, we can do things operationally in the pilot that we cannot do nationally, That is why we are taking the opportunity to make the change in family credit, to the advantage of those who are on it. It is a beneficial move. We do not have the ability to do it nationwide, but we shall take the opportunity of the pilot to test it out.

The hon. Member for Withington argued about the lack of an education and training component in jobs. The scheme that we are discussing is not the right place and the right scheme to tackle that issue. We all know the importance of increased training for youngsters, in the form of further education in the classroom environment and by training in employment. The Government's record in that has been exceptional, as shown by the range and number of schemes that they have run and the quality of the schemes that have been introduced.

We do not believe that it is appropriate under the scheme to require employers to provide training for their ETU recipients. Employees will have a range of skills and, where skills training is needed, a variety of programmes will continue to be available, under schemes run by my right hon. Friend the Secretary of State for Education and Employment, which can help them. Some recipients of ETU will already be in jobs. It is not a question of the measure being excluded from the scheme. It should be available anyway, although it is not a requirement in the scheme.

A contradiction came up in the question of sanctions, as well as in this case. If we want the scheme to work, we must make it as easy as possible for employers to take part. If we set a series of conditions by which employers must abide before they can take part, we will lessen the effect. Let us give it a run. It is a very bare pilot which aims to give employers and employees an opportunity. Let us look at the scheme for three years and see how it works before making value judgments about what we need to load on top of it. I suspect that the way in which the hon. Member for Withington—under pressure from his trade union paymasters and others—might have wanted the scheme to run would have made it over-complicated.

I have dealt with the sanctions and safeguards point—

Mr. MacShane

And with the trade union paymasters.

Mr. Burt

Well, it is Friday morning. What I said was true, and I see no reason to exclude it from my remarks.

Mr. Bradley

Just so the record is absolutely clear, I should declare that I am not a trade union-sponsored Member of Parliament.

Mr. Burt

I am delighted that the hon. Gentleman is not sponsored by a trade union. It places him in a minority among all his colleagues, but it is nice to know.

Mr. Robert Jackson (Wantage)

Is not the point that it is not the hon. Gentleman but his whole party that is sponsored?

Mr. Burt

I am grateful to my hon. Friend for making such a valuable point which, I am sure, will not have been missed.

The delay in the introduction of the scheme until October 1996 was raised. We have referred to the difficulty of introducing some of the other changes in social security, and it is important to get these matters right. The only reason for the delay has been to give us extra time to make sure that all the necessary administration is in place. We will be busy next year as other changes in social security come through, and there is a danger of overload. We want to be sure that the scheme is off and running to the best of our ability.

Consideration must be given to Benefits Agency staff who must implement the scheme and who already do a tremendous amount of work in delivering the social security changes and basic social security work. We must take account of the pressures that they are under, and respond to them with a measure that has the approval of the whole House. I always feel strongly about that when I visit the staff, who do a great job. We are often asked by them to give extra time to implement the various changes and proposals that we have brought in over the years, and we have done so on this occasion.

The extra time allows us to undertake an evaluation prior to the introduction of the pilot scheme. We want to find out what employers are up to, and we want to get benchmark wages evaluated over a period of time. The delay gives us extra time to do that evaluation research, and I hope that I have made clear that the evaluation will not just run from the start of the pilot. It must be done beforehand, and there will be extra time to do it.

The hon. Member for Withington asked whether there was a commitment to spend on the national scheme after the pilot project is finished. That is a question to be considered at the end of the pilot scheme by my right hon. Friend the Secretary of State and my colleagues. We will take that decision in the light of circumstances at that time.

Mr. Bradley

The Minister should be consistent.

Mr. Burt

The whole point of the pilot is to try to find out precisely what will happen. There is no comparison between the two sides of the House when it comes to consistency, as the Government explain what we do and the principles upon which we work. It is cheek of the highest order for the hon. Gentleman to encourage me to make a financial commitment for the future. The Government clearly lay out their policies and financial commitments in Budget projections, and the total absence of any similar projections from the Opposition gives us a lopsided argument.

If the hon. Gentleman would like to take this opportunity to describe a whole range of policies and predictions for the post-election period should he sitting on this side of the House, we will be riveted. If he were to do that, I suspect that the House would be much fuller than it is now. But we will have to wait six months for the hon. Member for Islington, South and Finsbury to think the unthinkable again. The Government have 8 May 1996—which marks the expiry of that six-month period—marked in our diary, and we shall be looking forward to that date.

To return to the details of the scheme, the 24-hour rule has been mentioned. We have introduced the easement from 16 hours to 24 hours in the jobseeker's allowance and income support for the future, but I did not understand the hon. Gentleman's point, as it is not relevant to earnings top-up. All that is needed is that at least one partner should be working for 16 hours or more, and the hours worked by the other partner are not relevant.

Rather than reducing incentives for partners of unemployed people and jobseeker's allowance and income support claimants to work, we are increasing them. From October 1996, we are increasing from 16 hours to 24 hours a week the number of hours that partners of jobseeker's allowance and income support claimants can work. That ensures that partners do not lose contact with employment. We are increasing the earnings disregard for couples on income support and jobseeker's allowance to £10 a week, and the back to work bonus lump sum is to be increased to £1,000 if either partner moves into work that takes them off income support or jobseeker's allowance.

For couples receiving in-work benefits, any increases in income by either the claimant or the partner will reduce benefit, but that does not mean that there is no incentive to increase the hours of work or to start work. For example, family credit or earnings top-up continues at the same rate as the 26-week award, irrespective of any increases in wages or even if a new second wage comes on-stream. Family credit and earnings top-up pay an extra £10 premium if a person's working hours increase to 30 a week or more, and having two partners in work will, in most cases, increase income sufficiently to lift them off benefit altogether. That is an aim we should all share.

A particular point connected with this matter is the poverty trap, to which the hon. Member for Withington referred. The hon. Gentleman asked if we could provide further examples, and I will be happy to do so. The Government looked into the matter when it came up. A small number of people will be affected, but the hon. Gentleman was right to draw attention to the matter. The problem arises in cases of payment of the 30-hour premium where earnings top-up falls below £10 a week. The premium is disregarded in housing benefit and council tax benefit, but an increase in earnings that leads to lower earnings top-up is not recognised in housing benefit and council tax benefit, and a claimant's net income can be reduced as a result of an increase in earnings. But the numbers of applicants who will be affected are negligible because it will affect people who are paying higher than average rents and who are entitled to very small amounts of earnings top-up.

The changes required to overcome the problem would introduce complexity, and the cost cannot be justified because of the number of people involved. I will exemplify the matter further to seek to reassure the hon. Gentleman. We looked at the matter when we saw that a problem could arise, and it was something that we would have liked to have tackled. The general trend since 1988 has been substantially to reduce the poverty trap, and while we do get some high marginal rates at the top end, there are substantially fewer people affected than before. We are anxious to eliminate the poverty trap wherever we can, but we feel that the numbers involved in this matter will not cause an over-riding problem.

I conclude by referring to a national minimum wage and in-work benefits.

Ms Lynne

Will the Minister answer my question about the loss of passported benefits, such as free prescriptions and free eye and dental check-ups, which will happen as a result of the pilot test for earnings top-up? If the scheme goes nationwide, will that be changed? Will people still get those passported benefits?

Mr. Burt

I apologise to the hon. Lady for not answering her question earlier. I cannot give a commitment on that matter. The hon. Lady knows that we have to have a line for passported benefits to be applicable, and that line is income support. It would be difficult to consider at this stage expanding the scheme further to include earnings top-up. But the hon. Lady asked us to look at the matter during the pilot process, and we will. We must take account of whether passported benefits are an incentive or a disincentive to work. We do not believe that the benefits are as important as getting a job and having the right wage in the first place, but we will take the matter into account.

There remains a fundamental difference between the Government and the Opposition on the question of a minimum wage. I repeat the claim made by the Institute for Fiscal Studies that the richest 30 per cent. of the population would have a larger net gain from the minimum wage than the poorest 30 per cent., because the large majority of those on very low wages are members of families or households in which other members are earning higher wages.

Mr. Bradley

Does the bottom 30 per cent. to which the Minister referred include all pensioners who are not in work?

Mr. Burt

I think the quote must be about wage earners. From the context of the article, it must include all wage earners, but we will check that. There is no substance to the distinction that the hon. Gentleman is seeking to make, but I would be interested in the response to that point.

The claim made by the IFS is that the richest gain from the minimum wage rather than the poorest. That cannot be the hon. Gentleman's objective, but I believe the claim to be true. The people most affected would be young, single people living at home with their parents, and the wives of working husbands. The effects on poverty and inequality would be small.

We also know, from our experience of other European countries with a national minimum wage such as France, Belgium and Spain, that they all have rates of unemployment significantly higher than the United Kingdom. The DTI economists estimate that a national minimum wage of, say, £4.15 an hour as advocated by a number of larger trade unions could cost some 950,000 jobs with half restoration of pay differentials and 1.8 million jobs with full restoration of pay differentials.

Mr. MacShane

Can we move away from simply citing three or four European countries that have higher unemployment rates than the UK and have a minimum wage. Can we look, for example, at America or at Asia? Few Opposition Members are in favour of setting the rate that the DTI has plucked from the air. In speeches and papers, speaking only for myself, I have insisted that a minimum wage must be flexible, must be arrived at after consultation and should seek not to have any negative employment consequences.

Mr. Burt

One can seek to have no negative employment consequences from a minimum wage, but one will have them. That is the point. The figure has not been plucked out of the air—

Mr. MacShane

What about Asia?

Mr. Burt

I shall come to Asia in a minute.

I suspect that the figure of £4.15 commands quite a lot of attention from Labour party members in the hon. Gentleman's constituency, even if it does not command the attention of the Opposition Front Bench. I still believe that the fundamental questions are not being answered by the Opposition. It is a huge con to say that the rate will be set should the Labour party ever come to Government. The Opposition have not told people what the rate will be and have not dealt with the point about differentials. Those matters will be crucial and have never been dealt with seriously by the Labour party.

The hon. Member for Rotherham (Mr. MacShane) would like this country to have a social security system equivalent to those in the United States or Asia, but I do not think that the hon. Member for Islington, South and Finsbury will take account of that in his deliberations. We have a European welfare structure, and Europe will have to compete with Asia and the United States for manufacturing jobs in goods and services, which means that our competitive edge must be excellent. We will not achieve that through the introduction of a minimum wage that would lose jobs, push up pay differentials and ruin competitiveness.

The hon. Member for Rotherham should talk to European employers and understand their concerns about continental Europe's competitiveness for the future. We are attracting investment because we have not signed up to the social chapter, and a number of our colleagues in Europe are only too sorry that they did not take the opportunity that we did.

When the Leader of the Opposition spoke to the Confederation of British Industry, he chronically misunderstood the social chapter when he declared that it was a set of principles from which Britain could pick and choose. Everyone knows that that is not the case. The social chapter is a commitment by majority voting to policies that might seriously damage employment prospects in this country. That misunderstanding combined with the minimum wage would be devastating for the United Kingdom. The Government want jobs to be protected, preserved and improved. The social protection measures proposed by the Opposition, however well meaning, could not do anything other than cause enormous harm.

We have had a good debate this morning which has ranged widely. A good pilot scheme is being introduced, which will tell us a great deal. I look forward to giving more information and advice. If Opposition Front Benchers would like the opportunity to meet officials over the next few months for a detailed briefing on the practicalities and operations, I would be happy to set that up. I think the whole House welcomes the scheme. The Government are making progress in improving in-work benefits as the best way of getting people into work. We have proved our success in the past with family credit, and the success of the pilot scheme will prove that the Government have their fingers on the pulse of employment, jobs and benefits.

I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.