Social Security Contributions (Transfer of Functions, Etc.) Bill [Lords]

HC Deb 08 February 1999 vol 325 cc35-82

Order for Second Reading read.

4.23 pm

Mr. Quentin Davies (Grantham and Stamford)

On a point of order, Madam Speaker. Before we start the debate, I should draw your attention to a rather serious matter. The explanatory notes relating to the Bill, which have been distributed throughout the House, contain the following important statement: The Chancellor of the Exchequer announced in his Budget speech on 17 March that the CA"— the Contributions Agency— and its operational functions would transfer from the DSS to the Inland Revenue in April 1999". The notes continue on the basis that the decision has already been made.

Once again, the Government are taking Parliament for granted. They assume that they can announce decisions when Parliament has made no such decisions. Would not a slightly greater degree of democratic modesty be becoming on the part of the Government, even if they do have a vast majority at present?

Madam Speaker

The hon. Gentleman is aware that that is not a matter for the Chair.

4.25 pm

The Secretary of State for Social Security (Mr. Alistair Darling)

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

As the hon. Member for Grantham and Stamford (Mr. Davies) says, the Chancellor of the Exchequer announced in his last Budget statement to the House that the Contributions Agency would transfer from the Department of Social Security to the Inland Revenue in April 1999. He did so because it is normal to announce such things in Budget statements to the House. Most impartial observers will think that the Chancellor did entirely the right thing.

Mr. Davies

Will the right hon. Gentleman give way?

Mr. Darling

Not at the moment.

The transfer that the Chancellor announced is provided for by the Bill. Perhaps I will give way now because I want to refer to something completely different, as they say.

Mr. Davies

It seemed the right moment to intervene again to try to set the record straight. What the Chancellor actually said in his Budget statement, perhaps ill-advisedly, was that he had already agreed with the right hon. Member for Camberwell and Peckham (Ms Harman), the right hon. Gentleman's predecessor, to make that transfer. Presumably, the Chancellor did not realise at the time that primary legislation would be required, which the Government are now introducing. Now that the Government have discovered that such legislation is required, it is not for them to assume what Parliament's decision on the Bill will be.

Mr. Darling

If the hon. Gentleman looks at the accompanying press releases that are traditionally issued with Budget statements, he will find that it was always anticipated that primary legislation would be required, so that is not a good point. Perhaps he has some other points to raise in the debate. I hope that they are better than that one.

The House will be aware that, at the moment, national insurance contributions are administered by the Contributions Agency, which is part of the Department of Social Security. Income tax is administered by the Inland Revenue. The reason that NICs are collected separately from income tax goes back to the origins of the modern welfare state. Those historical divisions are no longer sensible.

In 1948, workers did not begin to pay tax until they were close to average earnings. On the other hand, national insurance was designed as a universal, flat-rate scheme, so nearly all workers paid their national insurance stamp. Many had no contact with the Inland Revenue.

Two developments have changed that. First, in 1961 and again in 1975, contributions by employees and employers became earnings-related. Because of that, a majority of NICs began to be collected under the pay-as-you-earn system. Profit-related class 4 NICs for the self-employed were introduced and collected alongside schedule D income tax. As a result, the Inland Revenue now collects 94 per cent. of NICs and the Contributions Agency collects only about 6 per cent. of NICs, principally the flat-rate class 2 charge on the self-employed.

Secondly, more and more of those paying NICs are also paying income tax. Eighty per cent. of employees who pay NICs also pay income tax.

Mr. Andrew Rowe (Faversham and Mid-Kent)

Surely the right hon. Gentleman is really admitting what Governments of all persuasions should have been prepared to admit many years ago, that the term "national insurance" is a complete con. It was never a serious insurance scheme. It has never provided any serious insurance against misfortune. It was merely a form of taxation, whatever its original intentions were. Would it not be more sensible to abolish the term altogether?

Mr. Darling

As the hon. Gentleman knows, the national insurance system, which was established in 1948, was conceived by its authors as a type of insurance. Of course, it is not insurance as most people understand it today, in that it is funded as a pay-as-one-goes system. The contributions that are paid today depend on the taxpayers of today, not on contributions that were paid perhaps 10 or 20 years ago, but the idea was that, if people paid into the national insurance fund, they would receive certain benefits.

Of course, most of the benefits that people receive are pensions; the vast majority of the contributions go on them. The national health service, which I suspect many people think is partly funded by national insurance contributions, is financed largely by current taxation. However, that is not the point that I am arguing today.

All I am saying is that, although one can understand why historically, over the years, national insurance contributions and tax were treated differently, I do not believe that the case for such treatment endures.

The hon. Member for Faversham and Mid-Kent (Mr. Rowe) said that successive Governments have perhaps not rationalised the system. I do not disagree with him, but whether previous Governments were, at the time, right not to rationalise does not matter. The point is that, today, the current Government are dealing with what we consider to be an anomaly. Moreover, the developments that have led to closer co-operation between the Contributions Agency and the Inland Revenue have made change necessary.

Closer co-operation has already brought some benefits to business. For example, a joint annual information pack has been provided for employers and a single leaflet and registration pack has been provided for the newly self-employed. However, such benefits can take us only so far. Employers still have to deal with separate Departments on their tax and national insurance contribution queries. The Government therefore believe not only that we can go further, but that we should go further.

In our Green Paper on welfare reform, we stressed the importance of a modern system of delivering government—a system that is not only flexible and efficient but easy for people to use. Too often, our current procedures are designed for the convenience of government and not for the convenience of the public.

Employers do not understand the logic of keeping separate the administration and structure of national insurance contributions and tax. Just over 1 million employers are liable to pay national insurance contributions for their employees, and have to deduct both tax and national insurance contributions from employees' pay. However, they have to cope with two separate sets of rules. Moreover, if they have questions, they have to deal with two separate Departments. Those starting out on their own—perhaps starting up their own business or in other self-employment—also have to deal with separate Departments on tax and on national insurance. I therefore believe that the case for change is overwhelming.

I should tell the hon. Member for Faversham and Mid-Kent that Ministers are not the only people who believe that change is inevitable and right. Last week, in the Opposition Supply day debate on pensions, the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) had some fun with the fact that, for some reason, my name had not been included in the list of those who supported the Government amendment to the Opposition motion. I can tell the House that whoever was responsible for the omission was, apparently, very contrite about it—not that it bothered me. Nevertheless, as the hon. Gentleman raised the point, I thought that I should take the trouble—which, I must confess, I do not always take—to read the Opposition's so-called reasoned amendment to today's motion. I noticed that one name was missing from their list.

The omission struck me as curious, given the nature of the proposals to transfer the Contributions Agency. Moreover, when I noticed the missing name, I was reminded of the deregulation task force, which was established by the previous Government. I therefore looked at the task force's report for 1994–95—here it is, with a nice red strip across it, and with an illustration of scissors cutting red tape—and found something very interesting. On taxation and national insurance, the report states: Ministers should commit themselves now to a merger of the field forces of the Inland Revenue and Contributions Agency. Apart from saving public money, this would eliminate the burden of double accountability and interference for employers, and reduce the time needed to cope with workplace taxation. It continues: This issue has been endlessly debated in Whitehall. A decision should be made now. That is all good, sensible stuff.

As I thumbed through that piece of bedtime reading, I was interested to see that, on page 3, it was signed by someone called "Maude". I began to ask myself whether that was not the same Maude who is now the shadow Chancellor. It was the very same one—the right hon. Member for Horsham (Mr. Maude)—and his name is not listed in support of today's Opposition amendment. I suspect that it has been omitted because the shadow Chancellor—having so cogently made the case for transfer only a couple of years ago—might be in some difficulty if he included his name in favour of an Opposition amendment that opposes the transfer of the Contributions Agency.

It is curious that Conservative Members oppose the Bill whereas it was not opposed in the other place—where, as we know, the Conservatives have a 3:1 majority over Labour. What is more, its thrust to transfer the Contributions Agency to the Inland Revenue was warmly endorsed by the shadow Chancellor when he was formulating the deregulation task force. Why are those Members opposing it today? It is clearly because of the difference of opinion between the shadow social security spokesman and the shadow Chancellor. I read that the Leader of the Opposition is off to America to look for some good ideas. That is not surprising. Before he goes, perhaps he might like to end the confusion among his colleagues, who clearly do not know whether they are coming or going.

Mr. Iain Duncan Smith (Chingford and Woodford Green)

There is no confusion. My right hon. Friend the shadow Chancellor will demonstrate that when he votes tonight. [HON. MEMBERS: "Where is he?"] I am sure that he wants to join us as soon as possible, but he has been somewhat delayed.

In 1995, my right hon. Friend the Member for North-West Hampshire (Sir G. Young), now shadow Leader of the House, comprehensively dismissed the argument once he had looked at it, saying that it was not feasible or worth while. The Secretary of State should check Hansard a little more rigorously.

Mr. Darling

I am sorry if yet another Conservative has sought to rubbish the good work done by the right hon. Member for Horsham. What was good enough for him in 1995 must be good enough for him today. I dare say that even now frantic telephone calls will be going out to get the man into the Lobby tonight, perhaps to spare his blushes. If he is watching the debate on the monitors, he will see that there is plenty of room on the Conservative Benches. If this is a great issue of principle for the Conservatives and they think that what we are doing is wrong, evil and an example of the heavy-handed government that they are always criticising, more of them should have turned up. I understand that they are having trouble getting speakers.

Mr. Duncan Smith

There are not many Labour Members here.

Mr. Darling

As ever, my right hon. and hon. Friends agree with what the Government are doing. Whatever the Government are doing, they are right behind us.

The Government's proposals are supported by business across the board. The Institute of Directors, the Chartered Institute of Taxation, the British Chambers of Commerce and the National Association of Pension Funds—

Miss Anne McIntosh (Vale of York)

rose—

Mr. Darling

I shall give way in a moment. All those organisations believe that the Bill will reduce burdens on business and individuals by enabling them to sort out their taxes and contributions through a single organisation. Will the hon. Member for Vale of York (Miss McIntosh) tell us what is wrong with easing the burdens on business and simplifying the way in which the Government go about their business?

Miss McIntosh

I do not wish to detract from the speech that I hope to make later. Will the Secretary of State help me? We seem to be reading different messages from the same businesses. The same United States companies that he believes welcome the Bill have told me that if the programme is on PAYE the Government must make a contribution to the cost from the money that they will be saving. Giving evidence to the Social Security Committee for its first report of this Session, the Institute of Directors clearly said that the measure would be an unacceptable burden on business. Some of us referred to that last week. Are the Government considering an alternative to putting such a burden on business through PAYE?

Mr. Darling

I may be wrong—if I am, I shall deal with the issue later—but I think that the Institute of Directors was talking about a different measure. The IOD thinks that bringing together the Contributions Agency and the Inland Revenue is good because it lifts burdens. It is easier for business to deal with one body rather than two. The Bill will also enable the two Departments to combine their efforts to improve their service to customers, which is important.

Although full operational integration in both Departments will take some time, plans are already in place to improve service. Employers will begin to see a better service from April. They rightly complain about getting two visits to check their payroll records from inspectors who ask much the same questions—one from the Contributions Agency and one from the Revenue. From April, we shall provide a single audit examination of PAYE and national insurance contribution records. We are also integrating customer assistance teams from both Departments from April to support business while providing unified training and education on tax and national insurance contributions. We shall produce single leaflets on both matters from April.

Mr. Steve Webb (Northavon)

I am sure that the Secretary of State is familiar with the work of my former colleagues at the university of Bath on the burden of income tax and national insurance on firms. Firms said that most of all they wanted a single tax—not just unified administration, which we welcome, but one tax in place of two sets of rules. The Bill is a welcome step towards that. How much further down that track does the Secretary of State expect to go?

Mr. Darling

All that the Bill does is to integrate the administration of national insurance. As I have said on a number of occasions, the Government are looking at the contributions system, and any reform would have to await the conclusion of that study. In the meantime, this is simply an administrative measure—I make no bones about it. This highly technical Bill will improve the administration of government and lift burdens on business. Those are the driving forces behind it. The Government are always studying the contributions system, but the Bill is not a part of that process.

We are improving the service provided to business and, in addition, we will extend access to the information available in Inland Revenue tax inquiry centres and elsewhere so that national insurance information will be available in more than 300 extra local centres this year. We are looking also at improving the specialist helplines so that we can deal with both tax and national insurance inquiries in one call.

Finally, we are unifying the appeals process so that if someone has a dispute about his tax or national insurance—which is often the same issue, and often concerns whether someone is employed or self-employed—he will be dealt with under one appeal. The reforms have been much sought by business, and they are in line with the recommendations of the tax law review committee, whose work we supported in opposition and continue to support now that we are in government.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

Anyone looking at the reply that the Secretary of State gave to my hon. Friend the Member for Northavon (Mr. Webb) could draw a strong inference that the Bill was only a first step, and that the national insurance contributory principle was under scrutiny by the Government in the longer term. What is the Government's long-term intention for the principle? Is the Bill part of longer-term reform, or is it tying up what the Secretary of State has reasonably described as a series of anomalies which may need attention?

Mr. Darling

I will turn to that in a moment. The transfer is entirely independent of any other consideration. It is necessary and desirable on its own merits, and that is why we are pressing ahead with it. As far as I know, only the Conservative Opposition are opposed to it. They are entitled to take that position—they do not mind being on their own on the outer fringes of acceptable opinion. They have every right to be there, and I am quite happy to leave them there.

On policy transfer, the position has changed in the past week or so. Bringing the Contributions Agency and the Inland Revenue together still leaves different Departments responsible for policy. We have decided to transfer policy responsibility for national insurance contributions from the Department of Social Security to Treasury Ministers and the Inland Revenue.

At the time of the last Budget, my right hon. Friend the Chancellor made it clear that we intended the Contributions Agency to transfer this April, at the start of the new financial year. However, we did not then propose a date for the transfer of national insurance contributions policy functions.

I have decided that the simultaneous transfer of operational and policy functions is necessary. It is undesirable to consider whether a matter is operational or policy before determining which Minister is responsible for it. Simultaneous transfer will mean clearer accountability to the House. The explanatory notes to the Bill say that the transfer of policy responsibility will take place from an appointed day. I can now tell the House that that appointed day will be 1 April.

The Chancellor and I will continue to have access to each other's officials for developing and discussing policies. However, by transferring those officials who develop and manage policy on national insurance to the Inland Revenue, business and other representative bodies will be given one focus for the discussion of improved legislation, procedures and guidance.

Business is rightly concerned about the technical differences in tax and national insurance contributions practice and law that add complexity and increase costs. We want to consider the scope for further alignment in discussions with representative bodies. As a first step, we have already announced a review of the inquiry powers that will be available to Inland Revenue staff. We are considering how best to provide a wider unified consultation process to ensure a productive environment for discussing the improvements.

Mr. Frank Field (Birkenhead)

Would it not be possible to interpret the decision taken in the past week as a fundamental change and a proposal to abolish my right hon. Friend's Department? We are talking about half his budget, and the policy decisions will now be determined in the Treasury.

Mr. Darling

It occurred to me over the weekend that someone would ask such a question, but I had not quite anticipated that it would be my right hon. Friend. With respect, what he says is simply not true. We are talking about ensuring that those who are responsible for the policy and operations of the Contributions Agency should be housed under one roof, as otherwise all sorts of difficulties arise when trying to distinguish between policy and operations.

The Department of Social Security is not being abolished, or anything like it, as my right hon. Friend will appreciate when he reflects on these matters. In any event, it is important that all Departments should work together, and especially the Treasury and the Department of Social Security. Perhaps because of what I used to do, I have absolutely no difficulty with that. Frankly, the departmentalitis that so afflicts Whitehall, and that anyone coming into government is struck by very early on, is something that the Government should strive to break down.

We are talking about ensuring that operational and policy responsibility are under one roof, but of course the Chancellor needs access to Department of Social Security officials, just as I need access to Inland Revenue and Treasury officials. That close working relationship seems to me to be entirely desirable. The public do not ask themselves which Department is operating a policy; they ask themselves what the Government are doing to make life better for them. The Bill is a step change in improving public service, which is why I believe it should be supported.

Mr. Duncan Smith

The Secretary of State started by saying that the Bill was essentially straightforward and small, mainly involving administration, and did not portend anything, but he now seems to have revealed, partly under probing from others and partly from his own inclination, that it is more than that: it is a paving Bill leading to major changes. If he would admit that, we could have the proper debate, about which he has talked endlessly, about means testing and the contributory principle.

Mr. Darling

I repeat that I am more than happy to discuss the contributory principle, means testing and the other ways in which we provide benefits, but the hon. Gentleman must be a subscriber to the conspiracy theory of policy to read into the Bill anything more than sensible administration and the delivery of good government. I know that conspiracy theories are attractive to the extremes of politics, on both left and right, and I am sorry that the hon. Gentleman is falling into that trap.

The Bill is a sensible measure to deliver better administration and a better service to the public. That is why the hon. Gentleman's colleagues in the House of Lords did not oppose it and why the vast majority of people who have studied the measure support it. As he will well know, from time to time all Governments move policy consideration from Department to Department. The right hon. Member for Huntingdon (Mr. Major) used to do it when he was Prime Minister.

The clear principle is that policy and operational matters are often so interlinked that it does not make sense to divide them. Of course policy matters could have remained in my Department for another year, but that would not, I believe, have made for the best administration of the Department. I have no difficulty with the fact that they will be passed to the Inland Revenue. I can still get access to the officials, just as my right hon. Friend the Chancellor can get access to my officials. That is how good government ought to work. Perpetuating needless divisions seems to me to be entirely pointless.

We ought to be discussing measures that deliver a better service to the public. The public do not care which Department deals with the matter; they are bothered about lifting the burdens on business, making it easier to set up a business and making the administration of public life better. That is what the Bill is intended to do.

Dr. Norman A. Godman (Greenock and Inverclyde)

Without wanting to appear appallingly sycophantic, may I say that I fully support the Bill? However, I have a question about clause 24. I think that I am right to say that, under the Bill, responsibility for the contributions policy covering Northern Ireland will be transferred at the same time as equivalent responsibilities for other parts of the country. Clause 24, inter alia, allows the relevant Departments of the Northern Ireland Office to be renamed and restructured. It also allows Northern Ireland civil servants to be transferred to the home civil service. Will my right hon. Friend confirm that civil servants in the Northern Ireland Office's Department of Health and Social Services, and their trade union representatives, are being fully consulted about measures that may cause a sea change in their employment?

Mr. Darling

Yes, the Government consult employees, and there may be changes. My hon. Friend will know that the question of transfer depended to some extent on the progress of other matters. There has been some slippage there, as my right hon. Friend the Secretary of State for Northern Ireland has said. However, it is important in matters such as this that our staff are included in the process. I know that my hon. Friend maintains a close interest in what happens in Northern Ireland and, once the situation is clarified, I shall be happy to write to him and set out what we intend to do.

Miss McIntosh

In reply to the right hon. Member for Birkenhead (Mr. Field), the Secretary of State was rather dismissive about the possibility of his Department disappearing. I am a relatively new Member of the House of Commons, so will he explain what his Department's role will be after the Contributions Agency and responsibility for the working families tax credit have transferred to the Inland Revenue? What will his Department and his Ministers be responsible for then?

Mr. Darling

The hon. Lady may be new to these matters, but she is not that new. She has had time to notice that the Department of Social Security accounts for one third of all Government spending—a total of just under £100 billion, to be precise. I can assure her that we will still have the odd thing to do, and that any talk of the end of the Department is premature.

There was a time when the Conservative party claimed to speak for business. Clearly, that is no longer so. What we are talking about is lifting the burdens on business. The hon. Lady should have a word with the right hon. Member for Horsham, the shadow Chancellor, who knew the importance of doing that. The right hon. Gentleman worked in the City when he took time out from Parliament between the 1992 and 1997 general elections. He was put in charge of the Deregulation Committee: he accepted that the case for change was overwhelming and urged the then Government to stop dithering and to get on with it. Well might he have done so: it has taken a new Government to do something about it.

I repeat—although it may be to the point of tedium—that the public do not care which Department delivers a service, provided that it is delivered efficiently and effectively. That is what we are doing.

Conservative Members have developed a new-found interest in the means test, as befits members of a party that in government doubled the incidence of means testing from 16 per cent. of cases to 34 per cent. The Bill makes no changes to the structure and rates of national insurance contributions. It keeps the scheme distinct from general taxation. The national insurance fund continues to exist separately from the Consolidated Fund.

Moreover, the Bill does not affect the yield from tax or national insurance contributions, nor does it affect benefit expenditure. That is a matter for my Department, and it occupies much of our time. It does not affect the qualifying conditions for any contributory benefit, and it makes no change in pensions policy. So the Bill has no implications whatsoever for the contributory principle. I should be delighted to debate that whenever the Opposition—or anyone else—would like, but the Bill does not affect the contributory principle at all.

As I have said, the Inland Revenue already collects 94 per cent. of national insurance contributions. The Bill is about modernising government to provide a better service to business and individuals. That is what makes the Conservative party's opposition to it so extraordinary.

Mr. Edward Leigh (Gainsborough)

I hope that the Secretary of State can help me on a technical point, which I raise in the presence of the Chairman of the Select Committee on Social Security, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who might be interested in the answer. The Secretary of State says that he will have no difficulty with gaining access to Contributions Agency officials, but the members of the Select Committee have been told that we cannot interview Treasury officials or bring them before our Committee, because the Treasury takes the view that it does not want its officials to be summoned to appear before all those other Select Committees. Will the right hon. Gentleman give a commitment on behalf of the Government that, once the agency has passed from one Department to another, the Social Security Committee will be able to question Contributions Agency officials, despite the fact that they are employed by the Treasury?

Mr. Darling

As the hon. Gentleman knows, I cannot give that commitment. Generally speaking, Select Committees shadow their Department. When I was Chief Secretary to the Treasury, I received warm invitations to address almost every Select Committee, but I was forced to decline those invitations because it was not possible to appear before every single one. I understand the hon. Gentleman's point and I have discussed the matter with the Social Security Committee, because, increasingly, work that historically was confined to the DSS now spans other Departments. I have made the point before that welfare is not only about the DSS, but about changing the whole culture of government. If the Social Security Committee is having special difficulties, there are channels available to be explored. I know that other Select Committees have, from time to time, been tempted to wander outside what might be considered their traditional territory. The matter is not one that I can deal with today, but I am aware of the concerns.

As the subject appears to have been raised in the reasoned amendment—it is not altogether clear—I shall say a word or two about the national insurance recording system computer. Hon. Members on both sides have, rightly, expressed concern about the effect of the difficulties. When we last discussed the subject, last week or the week before, I said that we would put into the public domain further information about the national insurance computer; that continues to be my intention. I hope to be able to do that either this week or at the beginning of next week, so that the House can be brought fully up to date on the problems that we are encountering.

It will take considerable time for the problems to be cleared up. Teams of people are working in Newcastle with Andersen Consulting, which supplied the computer equipment, and with Contributions Agency staff. They are working night and day and my hon. Friend the Minister of State receives daily reports. At this stage, I can say only that it will take time to clear up the problems, but that we are determined to get the system running properly as soon as possible. As I said, I hope to be in a position to give an up-to-date report, if not later this week, then at the beginning of next week, but if any hon. Member has a individual question, my colleagues and I shall be happy to help.

Mr. Duncan Smith

I am sure the House appreciates what the Secretary of State says, but will he consider creating the opportunity for questions to be asked across the Floor of the House by presenting a statement, either when the report is produced or immediately thereafter?

Mr. Darling

It is in the nature of the computer—indeed, of any computer, large or small—that the situation appears to change from week to week, sometimes from day to day. I am not sure whether Madam Speaker would allow me to come to the House to make a daily report on what happened in Newcastle the previous night, so I cannot undertake to make a statement. However, I shall ensure that—as is often true of answers to parliamentary questions—the answer, when it comes, is very long and sets out the position as clearly as possible. If the occasion demands it, it is always open to Opposition to ensure through the usual channels that I make a statement or find some other way to allow questions to be put to me on the matter. I would have no difficulty with doing that.

The contract was entered into in 1995, but there have been difficulties with the system under both the previous Government and the current Government. It must be the objective of all of us to get the matter cleared up as quickly as possible, so I am more than happy to answer questions about it.

The case for transfer is overwhelming. It is good news for employers and for individuals. It will bring about better government by delivering a single Department to deal with tax and national insurance questions. It will enable the best efforts of both the Contributions Agency and the Inland Revenue to be combined to provide better customer service. The Bill paves the way for better government, for the better delivery of tax and national insurance systems and for better service to employers. On that basis, I commend the Bill to the House.

5 pm

Mr. Iain Duncan Smith (Chingford and Woodford Green)

I beg to move, To leave out from "That" to the end of the Question, and to add instead thereof: this House declines to give the Social Security Contributions (Transfer of Functions, etc.) Bill [Lords] a Second Reading because the effect of the Bill will be to facilitate the ending of the contributory principle, leading to the wider application of the means test, which will have a detrimental effect on the public and particularly pensioners; and because the major practical difficulties in transferring functions relating to social security contributions to the Treasury have not been overcome. Today's debate will be seen by many as purely technical—in fact, the Secretary of State opened the debate on that basis. However, Opposition Members believe that the legislation is more than simply technical and that some elements of principle must be addressed. Although I accept that the Bill, in all its detail, is very functional, exploring that detail will require a strong and concerted effort in Committee. It is, however, a hugely important Bill, not purely a technical one, and it is a significant part of the Government's legislative programme because it deals with those matters of principle of which the House is aware.

I noted that the Secretary of State began by exploring the narrow, technical side of the Bill and then drifted into the what-ifs. In essence, he was asking, "Once this is done, where do we go from here?" The right hon. Member for Birkenhead (Mr. Field) also teased out that question with the Secretary of State, and I shall deal with some of the bigger issues later in the debate. Notwithstanding the fact that the Bill is detailed, I think that we must address some serious questions of principle. At the end of the day, it boils down to whether one believes the Government's assurances—and we shall come to that point in due course.

I shall begin with some of the misgivings that were raised in the other place by noble Lords on all sides. Let us deal with the Government's assertions about savings to business. Much has been made of the cost to business generated by dealing with national insurance contributions. The Government contend—with the support of many business leaders—that the Bill will save businesses money. The 1994 White Paper, "Competitiveness: helping business to win", contained proposals to examine how the work of the Inland Revenue, Customs and Excise and Contributions Agency can best be co-ordinated to minimise costs on business arising from tax collection and compliance. Following consultation on that basis, an amalgamation was ruled out—although closer co-operation was encouraged to reduce the general burdens. In 1995, my right hon. Friend the Member for North-West Hampshire (Sir G. Young) said: It was concluded that the overlap between the Revenue and the agency did not warrant an amalgamation of the two businesses. In addition, any efficiency gains would be outweighed by transitional costs and disruption to both departments."—[Official Report, 14 June 1995; Vol. 261, c. 516.]

Mr. Geraint Davies (Croydon, Central)

rose—

Mr. Duncan Smith

I will make this point and then give way. I accept—as would any hon. Member—that there will be some administrative savings to business.

Mr. Davies

rose—

Mr. Duncan Smith

The hon. Gentleman must be patient. We have plenty of time—judging by the number of hon. Members who wish to speak in the debate, it is not as though we are under a great time pressure. I will give way to the hon. Gentleman when I have finished making this point.

We accept that there should be some administrative savings. If those savings are to be realised, the real purpose of the transfer must be to cut the overall cost of the Inland Revenue or the Contributions Agency or both. If there is no cost reduction, businesses will continue to carry an increasing burden, which will be reflected in the cost of employing those who work for them.

Mr. Davies

On reflection, will the hon. Gentleman accept that he has completely missed the point? The savings to business are not savings to the Government in terms of amalgamation. The net present value of savings to the Government is positive—the analysis was not conducted properly. My main point is that there is no quantification of the savings to business, which are enormous and on-going and affect the competitive position of businesses across Britain.

Mr. Duncan Smith

I am coming to that. My point is that, in reality, we must question to what degree those savings will flow to business. What businesses think they will get is quite important, as is what they actually get.

Mr. Davies

rose—

Mr. Duncan Smith

The hon. Gentleman must allow me to finish developing my argument and then he can decide whether I have made my point—I dare say he will decide that I have not and I shall take another intervention from him at a later stage.

It goes without saying that, although the Government headline the transfer as a saving to business, that is debatable, given the nature of the proposal and the increasing costs to business. Businesses will be likely to secure serious and general real-term savings—this point is important to businesses, so the hon. Gentleman must bear it in mind—only by cutting overall administrative costs. That is, ultimately, about the number of personnel that businesses employ and the way in which they do business.

The only way in which the Government could achieve their aim—this is the subject of the extended debate on which the Liberal Democrats are very keen—would be ultimately to merge the two systems. That is the holy grail that would deliver huge savings that could be transferred to business through overall tax reductions. The question is how far the Government intend to go—and, whether or not they want to admit it, that is the subject of the debate.

It is worth making the practical point that the Bill will transfer the Contributions Agency at a time when the Inland Revenue faces serious challenges. The Inland Revenue has already experienced administrative problems with the introduction of self-assessment. The Secretary of State was the Chief Secretary to the Treasury in his previous life, although the less said about reincarnation, the better. He will recall that in a written answer on 28 January, the Paymaster General said, in reference to the problems of self-assessment, that of 3.4 million tax statements issued by the Inland Revenue, 870,000 contained superfluous information that it was accepted was likely to lead to failed tax returns by many people who had been misled.

The Inland Revenue has had to undertake to write to all those taxpayers to apologise for misleading them. That is all linked to the complications of self-assessment. I understand that the cost of those letters alone could be £250,000. My practical point, therefore, is that the Government are proposing hastily to transfer the agency when the Inland Revenue faces major structural upheavals in trying to cope with self-assessment.

Furthermore, costs will ultimately fall on the shoulders of business through the working families tax credit. There is no question but that the change to that structure and the transfer of that responsibility will place yet more heavy bureaucratic pressures on the Inland Revenue. In Social Security questions today, the Secretary of State referred to the report of the Select Committee on Social Security on family credit. He referred, rightly, to the desire to ensure that the mistakes that allowed fraud to be committed in the claiming of family credit would not be repeated with the working families tax credit.

There is a need to address those major changes, which are all happening at the same time as the transfer of the working families tax credit, the problems with self-assessment faced by the Inland Revenue and the Bill. They are likely to lead to greater cost pressures, which will fall on business.

Mr. Darling

Does the hon. Gentleman accept that one of the ways in which error can creep into the system—I put it no more strongly than that—is if two organisations ask an employer to provide information? The information given to the second organisation may differ slightly from that given to the first because the employer will forget something or say, "I told the other fellow all about that." Mistakes arise when local authorities collect information on housing benefit and so does the Benefits Agency. Is it not better and more efficient for people to deal with one agency that can check that all its information and the national insurance contributions are correct?

Mr. Duncan Smith

The Secretary of State makes a particular point about simplifying the flow of information for business. If it is possible to achieve that aim—that is the question—improved efficiency might result.

My question relates to the way in which the information is gathered and for what purpose. The Secretary of State knows as well as I do that matters are not as simple as they appear to be because two agencies will be gathering and holding information for very different purposes. It is too simplistic to say that it would be good if agencies collected information at the same time because, to a greater or lesser extent, they are collecting different information. I shall return to that point in a moment.

Much of the debate about savings to business is questionable. I used to run a business before I entered the House. Any business would agree to a proposal that saved it a task and therefore represented a saving, but the question is, what is the other side of that equation which may lead to other costs flowing through to businesses? They will not consider those costs because they are not their responsibility. That is what the debate is really about, not just the superficial costs.

In the other place, Baroness Hollis admitted that, over a couple of years, costs are likely to rise by £16 million or £17 million. I do not have the exact figures; I shall have to take Baroness Hollis at her word. Regardless of whether she said that, I would have estimated that there would be a problem because bureaucratic necessities will increase costs. The problem is, who bears that cost? It is not a free-as-air cost; ultimately it must be borne by the taxpayer. That is my point. The Government need to be talking about real savings.

Mr. Geraint Davies

I have just noticed, while reading about the hon. Gentleman's background, that he has no experience of setting up small businesses. He worked for very large companies. I moved from working for a multinational to setting up my own successful businesses, so I know the time that separate national insurance and pay-as-you-earn systems take. Such separate systems cost businesses because accountants have to be employed to work it out. If the Government are pursuing an amalgamated, aligned and simple system, it will result in a great saving to new small businesses, and be the engine of future employment.

Mr. Duncan Smith

I note the hon. Gentleman's advertisement for his own background, although he should have checked a little more about mine. If he had, he would have seen that the company that I was talking about is a small-to-medium-sized business, not a large business. Its turnover was not what the hon. Gentleman thinks. Most people make that mistake about Jane's. I did quite a lot in that company, but I do not want to get down to the details. That is not the debate. He makes a petty point, which I take, but I do not agree with it.

The Government face a problem of trying to figure out the savings and present them to business. It is very easy to present a superficial case, saying to business, "We will take this away from you, therefore it is a cost saving." The question is whether that is really so. On one hand, the Government are talking up the savings, but on the other, they are admitting that, even in the immediate future, there will be no savings, and, more particularly, given the disruption in the two departments, there are likely to be some increases in cost.

Businesses love to hear wonderful news about savings, but it comes ill from a Government who have significantly raised business costs. That is why I am sceptical, and why one or two businesses are beginning to question the proposals. The Government imposed the windfall tax, which cost business £5.2 billion. Independent assessors estimated that the July 1997 Budget cost business indirectly and directly £14.2 billion. The March 1998 Budget cost business £4.9 billion. It is independently estimated that the minimum wage will cost £8.1 billion. The working time directive is likely to cost almost £7 billion. The European works council will cost £0.085 billion, and this parental leave stuff will cost business £0.11 billion. Overall—admittedly it was not all imposed by the Department of Social Security—business must take into consideration a cost of £39.3 billion.

Even the CBI, which supports the measure because of the hypothetical cost saving, has some reservations. It wonders whether savings really will filter down to businesses, or instead be lost in a swamp of extra costs.

The Minister of State, Department of Social Security (Mr. Stephen Timms)

The CBI does indeed support the measure. Has the hon. Gentleman discussed his argument with the shadow Chancellor? Has he read the deregulation task force report, for which the shadow Chancellor was responsible? It says: It is a massive and unnecessary burden for employers to have to cope with two separate bureaucracies for matters concerning payroll taxes"?

Mr. Duncan Smith

I have endless discussions with my right hon. Friend the shadow Chancellor, who is both a friend and a colleague. He will demonstrate clearly that what the Government propose will not work. I know that it is always great fun in this place to try to point out supposed divisions between people; many in the House try to do so. In answer to the hon. Gentleman's question, I said that my right hon. Friend the Member for North-West Hampshire dealt with that in 1995. My right hon. Friend the shadow Chancellor has accepted—as we all do—that there are serious obstacles in the way of the Government's intention. We probed that issue in the House of Lords, but did not get satisfactory answers.

Ms Gisela Stuart (Birmingham, Edgbaston)

Will the hon. Gentleman give way?

Mr. Duncan Smith

No; I want to make progress.

The Secretary of State discussed the problems of the national insurance computer, and I am grateful for his comments. It is worth mentioning the problems that have affected that computer, but what effect do they have on the Bill? Although the right hon. Gentleman did mention the subject, he did not discuss to what extent problems with the computer may cause problems for the Government in the transfer.

In the other place, my noble Friend Lord Higgins raised the matter with the Government several times, urging them to accept that, unless the problem was resolved before the move across, there could be serious problems. The matter was again discussed on Report when, although not admitting that the computer problems would have any effect, the Government conceded that, in the interim, they would have to do something that they had not anticipated. They have now agreed to make interim payments, which I believe is a result of my noble Friend's persistent pressure. That is to be welcomed, but it shows that the situation with the computer is bound to have some effect on the transfer or on the attitude of members of the public to the transfer, who will want to know what is happening.

It is surely not good enough for the Government simply to say that, because they are making a block transfer, it does not matter whether the problems of NIRS2 are in the hands of the Department for Social Security or of the Inland Revenue. That shows some complacency—the Secretary of State did not really answer that accusation. It also shows a failure to recognise that very many pensioners are now aware what is going on and will be deeply worried lest the issue is not resolved.

I therefore ask the Government to think again about timing, even if they are set on other aspects of the transfer. I urge them—if, as expected, the vote goes their way tonight—to consider accepting the amendment tabled by Lord Higgins in the other place, which would delay the transfer until the matter is resolved. I urge the Government at least to consider that and to admit that there will be problems.

The next point that I want to make concerns confidentiality. As we know, the Inland Revenue keeps relatively short-term records on the tax paid by individuals, whereas—as the Secretary of State will know from his previous position of Chief Secretary—the records of the Contributions Agency are cumulative and, of necessity, much more detailed. It is fairly common knowledge that the Contributions Agency is responsible for maintaining the national insurance accounts for more than 65 million customers, 1.4 million employers, more than 3 million self-employed people and a personal pension population in excess of 5.7 million.

I always have an instinctive political concern when someone suggests that administrative amalgamations and transfers make common sense simply because they save money, without examining to what extent the privacy of the individual may be trespassed on. I am fully aware now, as is everyone in the House, that Governments must achieve a balance between their responsibility to the taxpayer and their responsibility to the rights and liberties of those whom they govern. That awareness lies at the heart of this concern.

Reading the House of Lords Hansard, I felt, notwithstanding the soothing words of Baroness Hollis, that that issue was not really dealt with properly. For example, clause 6 of the Bill allows information to be held by the Board of Inland Revenue to be supplied to any … person providing … services to the Board". Such an open-ended statement makes us question whether a subsection could be used to justify accessing information that is neither relevant nor necessary to the workings of the Inland Revenue. The Government are unable to give a target for savings—which they seemed to suggest that they would be able to do, and which would of course be the plus for taxpayers. In fact, it appears that the opposite is the case, as Baroness Hollis has said. The balance therefore seems to be pretty much all one way. The Government need to reconsider, in light of the concerns raised in the other place about this matter, the concerns that taxpayers may have about transfers of data. They would contend that the transfer of some data is necessary, but there is unease about the unnecessary transfer of data which may fall into the wrong hands.

That brings me to my final, and main, point. I believe that, in this case, the contributory principle is being eroded. The Government say that that is not the case, but I want to press them on that slightly. Several times I have heard the Government, in the other place and this place, seeking to reassure everyone that the transfer and the amalgamation have nothing to do with the ending of the contributory principle. The Secretary of State made great play about that in the early part of his speech. Yet there were a number of cases when Baroness Hollis stopped short of any undertakings to the contrary or when it could be seen by her words that such a process was a possibility. Today, the Government, in the body of the Secretary of State, seemed also to indicate that, which I think that the right hon. Member for Birkenhead teased out.

For example, on Second Reading in another place the noble Baroness said that the Bill would not end the contributory principle. She went on to say: This Bill is not the vehicle for major alignment of tax and national insurance contributions. We want to work through that in consultation with representative bodies. The Secretary of State made roughly the same point this afternoon. He talked about what comes next. I thought that he indicated that there were possibilities that the Government would move towards the erosion, if not the ending, of the contributory principle.

I think that that shows clearly that there are other motives. I wish that the Government were clear about these matters. I believe that they are clearly of a mind to do exactly that to which we have been referring. That would be a wrong move—and it is not only the Opposition who take that view. In a recent qualitative study of perceptions of the national insurance system, Bruce Stafford, the author, found that although the respondents lacked detailed knowledge of the benefit system, in their responses they were strongly committed to the contributory principle. So there is concern outside the House. The public find that what they feel strongly about is, without any serious or detailed debate, slowing being eroded, and that under the Bill that process could certainly be accelerated.

Mr. Geraint Davies

Will the hon. Gentleman give way?

Mr. Duncan Smith

No. I have given way to the hon. Gentleman a number of times.

There are some who openly wish to end the contributory principle, and say so. I note the Liberal Democrats on this point, which they take to its logical conclusion. I note also that in the other place Lord Goodhart said: All this emphasises both the logic and convenience of treating NICs as a tax."—[Official Report, House of Lords, 10 December 1998; Vol. 595, c. 1043–48.] I think that the Liberal Democrats would accept that.

The point of our opposing the Bill is the failure of the Government to be clear. Perhaps the Liberal Democrats are clear, but the Government are either unclear or, in reality, do not want to say what the purpose of the Bill is all about. The Government are moving quite clearly in the direction I have described. Everything hinges simply on whether they are to be believed.

Ultimately, the entire debate comes down to that. The Government say, "Trust us. We shall reassure you all by telling you what this is. We are not going to do what you say." I look at the Government's assurances and at what the Government have done since they came into office on means-testing—child benefit for 16 to 18-year-olds; widows benefit, a change to bereavement benefit, minimum pension guarantee, extended means-testing with the WFTC, incapacity benefit, winter fuel payments and tuition fees. Each of these benefits is clearly an extension of means-testing or a use of the means-testing device.

The Government have set their entire policy so that it focuses, as they say, on the bottom 10 per cent. I argue that the greater the level of means-testing, the more that that approach will act against many of those in the bottom 10 per cent. and against saving generally. That is contrary to the Government's wish. For example, with the Government's minimum pensions guarantee they will face the problem of having built a disincentive to saving for anyone below average earnings. The right hon. Member for Birkenhead has been on record many times—I make no apology for quoting him—saying that means-testing penalises honesty, discourages work and harms thrift.

The question is not whether the previous Government increased means-testing—[Interruption.] I do not deny that. My point is whether it is right to continue down that road. Will what the Government are doing deliver what they claim, which is a focus on the bottom 10 per cent., without seriously damaging those who are on marginal and low incomes who would attempt to save? They will find themselves either driven to dishonesty or to making no savings, so that they fall within the bottom 10 per cent.

Mr. Darling

In what respect are the winter fuel payments means-tested?

Mr. Duncan Smith

The right hon. Gentleman knows very well that a part of the winter fuel payments is dependent on income support. The right hon. Gentleman should check that himself.

In essence, we do not believe that the Government have in any way made their case for the transfer. We do not believe that the assurances given are sufficient. We believe that, ultimately, the Government are en route to wind the basic state pension into some overall minimum income guarantee. The Bill is part of that process. If the Secretary of State disagrees with that, will he now come to the Dispatch Box and say categorically that there is no way in which the Government would seek to means test the basic state pension after the next election? Will he tell us that there is no reality in the idea that the Government will end up reducing the contributory principle and abolishing it? I believe that the Government have a clear idea of where they are going.

Mr. Darling

The Green Paper on pensions clearly states that the basic state pension will remain universal and will not be means-tested. What is more, if the hon. Gentleman finds the time to read the Green Paper, he will see that it is very firmly rooted in the contributory principle.

Mr. Duncan Smith

The right hon. Gentleman cannot get away with that. The reality is that the Government have failed to commit themselves never to means-test the basic state pension or to wind it into any basic means-tested income. It is sophistry on the Government's part—smoke and mirrors.

Mr. Chris Pond (Gravesham)

rose—

Mr. Duncan Smith

No, I am finishing.

The Government have today set themselves on a course that will ultimately get rid of the contributory principle and end up with a means-tested focus on the bottom 10 per cent. There is no way that we can agree to that or trust them. It is a hidden measure, which will come about directly as a result of Government policy.

5.26 pm

Mr. Frank Field (Birkenhead)

I shall make only two points. The first relates to the significance, as I see it, of what the Secretary of State said about the conclusion that he had reached during the past week. In the other place, the Bill was debated as one that changed the administration and moved to the Treasury the offices responsible for administering the national insurance side. The Secretary of State told us that in the past week he had concluded that policy should be transferred as well.

When the Department of Social Security first learned of the Treasury's wish for such a transfer, there was deep unease. Unease about the Treasury's intentions was not limited to the DSS. We thought that, by the separation of administration from policy, the Department would be kept intact. The Secretary of State made light of my intervention, when I said that in effect a large part of his Department was being given away. He said that he expected someone to comment on that, but he did not expect it to be me.

When the Bill is enacted and the Secretary of State's intentions are realised, who will answer questions on the matter? I do not doubt that most people out there will still think that the DSS is paying their pension, but in this place and before Select Committees, Treasury officials will answer for the running of the national insurance scheme.

We know that the national insurance scheme accounts for 40 per cent. of the Budget. It represents a major change for the Department to lose not just day-to-day running but policy making in that area.

Mr. Webb

On a point of clarification, as I am not sure whether I understood what the Secretary of State said, does the right hon. Gentleman understand that responsibility not only for national insurance contributions but for national insurance benefits is to go to the Treasury, or will only the contributions side be transferred, leaving the Secretary of State still responsible for the benefits side?

Mr. Field

As I understand it, the contributions side will be transferred—what people are paying, when and how. That is the most crucial aspect. I do not for a moment deny that the Department will be given the job of running the benefits as an outpost, but policy decisions about who gets what, when and how—the essence of politics as we understand it in this country—will disappear from the Department.

That links up with my second point. I do not believe that all members of the Government fully comprehend the value that the country attaches to the contributory principle. Indeed, it is clear from the statements that he has made that the Chancellor does not.

Following the Budget in which the Chancellor declared his intention to make the move that has already been referred to, he went on television after making his statement, as is customary. He talked about the national insurance tax. I thought that that gave away most of the game, for, although he might think of the measure as a tax, most people out there in the country think of it as anything but.

We, as grand politicians, may think that the ordinary voters are hit with folly if they think of contributions as different from tax, but, as the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) said, the studies provide evidence that people think that, although they have to pay, they are earning something as well. The importance of that is that Labour Members are probably keener than Conservative Members—we must make exceptions for the Liberal Democrats here—to raise taxation to cover public services.

If 40 per cent. of the Department of Social Security budget is thought of not as taxation but as contributions, and the earning of benefits in the way that my right hon. Friend the Secretary of State explained at the start of his speech, and if we are lightly to dismantle that and teach people their folly—this is nothing to do with contributions and all to do with tax—Labour Members will have even greater difficulty raising the necessary revenue to ensure that we can provide the public services that we want.

About £40 billion is raised from individuals towards their national insurance benefits. They do not think of that as tax, but as separate from tax, so it is extreme folly to be considering going down a route that will drive it into people's minds that they are paying a tax.

One of my concerns is that the move is not isolated. The Chancellor said in the Budget that he would align tax and national insurance thresholds, so there will be a particular point at which people move over: the lowest rate of tax will come into play and full national insurance contributions will be levied as well.

At the moment, most people can see the difference between what is paid in tax and in national insurance, and therefore understand perfectly what the Chancellor is about in trying to establish a starting rate of tax of 10p in the pound, but they will be mightily confused when the same machinery and the same pay-as-you-earn slips tell them that the rate of tax is not 10p because, on top of that, they will be paying a lop national insurance tax.

My right hon. Friend the Chancellor is absolutely right to believe that we need to get the starting rate of tax down, and right to take on people who criticised him, before they were elected to the House, for not going down the allowances path. Nobody worries about what the tax allowances are. People do not tumble into constituency surgeries to say that they have decided not to work overtime, or not to take a new job, because the allowances will not permit that. They all talk about their marginal rate of tax.

My right hon. Friend is also absolutely right to say that, if we are trying to ensure that people at the bottom are valued properly, and that there are real rewards in the system for them, they should have a low rate of tax. The right hand of the Chancellor is used for that, but his left hand is used to tidy up the operation—how much more simple it would be if the whole system were combined—and in his Budget broadcast he called it a national insurance tax.

My worry about that approach is that, if the Chancellor ever manages to convince the electorate of what he is about, he will never achieve an incredibly important objective for this Government—a clear starting rate of tax of 10p in the pound. If he attempts to sew together these functions and combine them, saying, "Isn't that easy for business?"—never mind whether the service is better and never mind what service is provided, so long as we can say that it is better—we will all chant in unison on that point. However, people will quickly see that the national insurance contribution is not a contribution, but a tax and part of the tax system. I am worried, as are other hon. Members, that, when we get to that stage, we will dismantle national insurance rights.

Mr. Geraint Davies

Does my right hon. Friend accept that there is counter-evidence regarding the trend towards amalgamation of all taxes into one tax, including moves to hypothecate revenues from road pricing for public transport? There is no contradiction between amalgamation of the administration and realignment for labour market efficiency and the ring-fencing of national insurance contributions and benefits.

Mr. Field

There would not be, except that that is the present system. A hypothecated contribution from taxpayers as their national insurance contributions will be rolled up into a revenue operation. It will be more difficult for us to ensure that there is no contradiction in future.

It is right that no Chancellor can allow the whole of the Budget to be hypothecated, because some areas are crucial to civilised life in a modern state. Many of us would not want taxes to be divided up and hypothecated. On this, as on so many issues, balance is important. Given that there is real resistance to rising tax rates, and that we won the election only because we had the Prime Minister as our leader and gave the most clear statement that we would not raise direct taxation, we are now embarking on an extraordinary policy.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

As my right hon. Friend knows, I, like him, defend the contributory principle and the rights that go with contributions. Does he concede that nothing in the Bill challenges the concept or the identity of the national insurance fund? Other Government policies, such as the working families tax credit, the proposals on national insurance contributions and the proposal for a state second pension, give a clear commitment to establishing eligibilities and entitlements even if no contribution has been made. That separation of the need to make contributions and the establishment of eligibility and entitlements is not a withdrawal of the commitment to the national insurance contributory principle, but rather a huge and ingenious extension of it.

Mr. Field

Gosh, I wish I shared my hon. Friend's views. I might have thought that I was wrong even to speak in the debate if he had not mentioned the state second pension. It is clear from what those on the Treasury Bench say that, with the rebates, they expect most people earning more than £9,000 a year to be in private schemes. The people who remain will not pay contributions up front into the type of scheme that I want, with contributions raised so that they are equal citizens. There will be a mean-tested element.

Mr. Cousins

I hope that my right hon. Friend will take account of some of the points I made, but I should like to pursue a further point. The state second pension, which credits everyone with an entitlement to £9,000 a year in terms of the value of contributions—whether or not that £9,000 a year has been earned—is an important extension of the national insurance contributory principle.

Mr. Field

The operative word in my hon. Friend's intervention is "credits". We all know perfectly well that, sadly, credits are different from contributions. The Government have not introduced a scheme whereby contributions will give equal citizenship to those who are at the bottom of the pile as compared with other people.

If we consider this measure with blinkers on—like one of those cart horses in old-fashioned pictures of the labour movement—my hon. Friend is right to say that nothing in the Bill leads to the scenario that I am describing. When we have passed the Bill, however—if we pass it—we will have started a momentum. How can the next stage logically be resisted, once we have agreed to the transfer of power for which the Bill provides?

We are not debating a mere tidying-up operation; we are not debating simply the moving of furniture between Departments. We are discussing a much more fundamental issue. Authority is to be transferred from one Department to another. Although my right hon. Friend the Secretary of State is right to say that we should not defend traditional departmental divisions just for the sake of it, there are reasons why we have different Departments, and why the Treasury does not run everything: the existence of different Departments means that differences in status, views and values can be brought to debate. In this instance, a whole area of policy is being given to the Treasury.

A second question also concerns me. Does the Chancellor really see how his left hand will operate in relation to his right? When the Chancellor was an Opposition Member and most Opposition Members attacked his views on the starting rate of tax, I defended it, on the basis of the effect that it would have on the way in which people operated when the only opportunities were low pay and the chance to build on it with overtime. I do not believe, however, that the Chancellor has clearly thought out his idea of a national insurance tax. He will never be able to achieve that starting rate of tax if he conveys to the public that there will also be a 10p starting rate for national insurance. People are not that silly: most can add 10 and 10, and will know that the new starting rate of tax is 20 per cent.

5.42 pm

Mr. David Rendel (Newbury)

The Liberal Democrats welcome the Bill, as we did when it was in the House of Lords. We welcome it for a number of reasons, but I welcome it particularly because it gives me an opportunity to show constructive opposition in action.

It is, I think, well known that the welfare reform Bill will come to the House shortly. In my party, it has become known as the benefit cuts Bill, and I think the Government will find that we are unable to support the benefit cuts that they propose. We are therefore glad of the chance to demonstrate this evening that, when we agree with the Government we will vote with them, just as we will vote against them when we have fundamental differences with them. Incidentally, it is splendid to find that today we are in line not only with the Government, but with the right hon. Member for Horsham (Mr. Maude).

The Government are right to consider the long term. Here I take issue with the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith). All too often, the House considers only what will happen over the next few years, and what will happen until the next election. In this instance, the Government have shown that they are prepared to live with short-term costs in return for longer-term savings. I wish that they, and indeed the last Government, had done that more frequently.

We support part I of the Bill—again, for a number of reasons, but perhaps for one reason in particular. As several hon. Members have pointed out, in practice national insurance contributions already have all the characteristics of a hypothecated tax rather than an insurance premium system. Those characteristics include the fact that the amount of benefit payable does not depend on the amount of contributions made during an individual's earning lifetime.

Secondly, we know that a large part of the payments—as has been said, about 75 per cent.—are for pensions. Unlike insurance payments, these payments are made on a "pay as you go" basis. Thirdly, national insurance contributions are already collected alongside direct taxes in the PAYE system. If they are already collected as a tax, it is logical for them to be administered alongside income tax, in a single system. Fourthly, as several of us know to our cost—those of us, for example, who expect pensions dependent on the state earnings-related pensions scheme—the pay-out that results from national insurance contributions during an earning lifetime can all too easily be changed by a Government's later actions. That has happened several times, most recently, sadly, with the cuts in widows benefits—due to be introduced under the welfare reform Bill. People who have made contributions over several years thinking that, if they died, their widows would receive a certain level of payments, are now seeing that those payments will not be anything like as large as they had hoped. The Government expect to make about £500 million-worth of annual savings there.

Under the previous Government, various changes were made to the SERPS regulations, so that the entitlement that people were expecting originally as a result of payments through SERPS is not what they can expect now. In particular, we know that, as a result of a change under the previous Government several years ago, those who become widows shortly after 1 April 2000 will receive a lot less than those whose husbands die just before that date.

Perhaps most important was the abolition of the pensions link to earnings. At that point, those who had expected larger pensions as a result of their national insurance contributions found that they were living in cloud cuckoo land: their pensions would be much smaller than they had previously expected.

Therefore, Governments can make major and significant changes to people's expectations even after their contributions have been made. That means that, in practice, those contributions are much more of a tax than an insurance premium.

Mr. Cousins

Does the hon. Gentleman think that his point, which is to defend the future entitlements to benefits of contributors, would really be improved and strengthened if, as seems to be the policy of his party, national insurance were regarded purely as a tax, and the national insurance fund and actuarial defence of the fund were done away with, which the Bill significantly does not do?

Mr. Rendel

I think the hon. Gentleman has entirely misunderstood my point. I was saying that it is already true that the contributions do not give people a definite pay-out afterwards; I was not saying that it should be true that they do. That in itself proves that the national insurance contributions that we pay now are already, in effect, more of a tax than an insurance premium.

There is another reason why part I is particularly worth supporting. It involves exactly the opposite argument to the one advanced by the right hon. Member for Birkenhead (Mr. Field). It is welcome that people in our communities should recognise the fact that national insurance is already a form of tax. We are misleading them. It is a con trick to pretend to people that, by paying national insurance contributions, they are not, in practice, being taxed.

I entirely agree that, if we con enough of the people enough of the time, it may be slightly easier to raise money out of them and then spend it in ways that we feel are appropriate, but that is not an entirely honest way in which to do things. It is important that we in this place should be open, honest and properly accountable for what we do, and that we do not try to mislead people into thinking that they are paying something which, actually, they are not paying.

Mr. Field

I am amazed by the hon. Gentleman's argument. He rightly gives such emphasis to the Liberal Democrats' involvement locally to reflect what people think. I am not advocating that we have a national policy of deceit. All I am asking is whether it is not a useful starting point that most people regard national insurance as different from taxation. Given the resistance to financing the policies that the hon. Gentleman's party would like to have and that the Government wish to continue to promote during the current Parliament, what is the point of trying to knock the fact into people's head and say, "How foolish of you to think of national insurance as a contribution towards your benefits; it is, in fact, merely a tax"?

There is a major difference in people's minds. Taxation is that huge area of money that they lose and over which they do not have a direct say, whereas, with national insurance contributions, for all the worries that we have about Government actions on cutting benefits, people still feel that, in the main, they are well served by that fund.

Mr. Rendel

I should not for one moment accuse the right hon. Gentleman of seeking to deceive people. I suggest that he is saying that people have been deceived, and that we should allow them to remain deceived. I believe, conversely, that we should ensure that people are no longer deceived but realise the truth of the situation—that, in practice, the two things are very similar.

Mr. Cousins

Will the hon. Gentleman deal with the point made both by me and by my right hon. Friend the Member for Birkenhead (Mr. Field), and clarify whether the Liberal Democrats' policy is to do away entirely with the contributory principle? Is it their policy to do away with the national insurance fund? Is it their policy to do away with the actuarial defence of the national insurance fund?

Mr. Rendel

The national insurance fund has, regardless, occasionally to be topped up by taxation: contributions alone do not fund the system. The defence of national insurance contributions being offered—that they are a form of insurance—has, therefore, long been discredited. Whether Liberal Democrats are in favour of that defence is irrelevant, as it is not available. It is only reasonable, decent and honest to admit that fact and to tell people what has happened.

Mr. Cousins

Will the hon. Gentleman give way?

Mr. Rendel

No; I have already given way quite enough in this debate.

The Tories' reasoned amendment suggests two reasons why the Bill should not be given a Second Reading. The first is that the Bill would facilitate the ending of the contributory principle". Although I suppose that they are right to say that, the Bill certainly would not necessitate ending the principle, and it would be wrong for us not to pass the Bill only to raise an artificial barrier to ending the principle.

If the House wished, at some later date, to end the contributory principle, we should have a fair and reasoned debate on whether it would be right to do so. Although there might be differences between the three main parties about whether it would be right to end the principle, we should—for the reasons that have been given, some of which I have enumerated—address the issue at that point, and not erect artificial barriers today by failing to give the Bill a Second Reading.

It was unreasonable for the hon. Member for Chingford and Woodford Green to say that it did not matter that the previous Government were largely responsible for ending any pretence that national insurance contributions are a form of insurance. Every year they were in office, they did so much to destroy the contributory principle and to increase reliance on means testing.

The second part of the Tories' reasoned amendment mentions the "practical difficulties" of transferring functions. The hon. Member for Chingford and Woodford Green was, of course, right in saying that the national insurance recording system 2 has been a disaster, and that it gives us a severe warning about the difficulties of relying on major high-tech projects to deal with some of the problems of government. He was right also in that the Government have been forced to acknowledge the difficulties of NIRS2.

I should like, nevertheless, to congratulate the Government on making no fewer than two U-turns in the past couple of weeks—as I am not one for thinking that making U-turns is a sign of weakness. I am delighted that the Government had the good sense to realise that they made a mistake and consequently to make a U-turn.

The Government's first U-turn was made a couple of weeks ago, after the debate on the contributions uprating, when Ministers were under pressure for refusing to give compensation to the very poorest of those who had been affected by NIRS2. Only a few days later, during the debate on Third Reading in the other place, the Government decided to announce that they would, after all, make a U-turn and provide £10 compensation for all those who had been affected by NIRS2. The U-turn was very welcome, and I congratulate the Government on it.

In the past few days, the Government made another U-turn, on the matter of widows who were asked, under NIRS2, to decide between a widows pension and a retirement pension. In answer to a written question that I tabled to Ministers, we have learnt that widows who were misled by NIRS2 and were unable to choose correctly—so that they might gain the maximum benefit—will be allowed to choose again, after NIRS2 has given them the right information. I congratulate the Government on that U-turn also.

Liberal Democrats support the Bill. As other hon. Members have already said, the provisions in part I have long been Liberal Democrat policy. I understand that part II was based largely on a suggestion made in the other place by Lord Goodhart, in last year's debate on the Social Security Act 1998. We therefore welcome part II also. Part III deals primarily with a technical matter.

We do not believe that the Tories' reasoned amendment carries any real weight. We believe that it is more than a little hypocritical, and hope that it will be not be supported by the House.

5.55 pm

Mr. Jim Cousins (Newcastle upon Tyne, Central)

I suppose that I have to declare a sort of interest, as I am one of the hon. Members representing the city of Newcastle, where the Contributions Agency is headquartered. I suppose that I also have a small claim to fame—you will understand, Mr. Deputy Speaker, that any small claim to fame in the House is one that should certainly be pressed—in that the national insurance recording system computer is headquartered in my constituency. However, I should add that, fortunately—as you will also understand, Mr. Deputy Speaker—one represents people, not computer systems.

I support the Bill. However, if there had been any indication that its passage would lead to a major loss of employment in my own city, I should of course not be supporting it. If it proposed any major loss of the administrative functions currently performed by the Contributions Agency, I should not be supporting it. If the Bill posed any threat to the contributory principle—as outlined by the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) and my right hon. Friend the Member for Birkenhead (Mr. Field)—I should not be supporting it.

I firmly believe that it cannot be right for the United Kingdom to have such a multiplicity of revenue collection services, and that it must be right to bring together the major revenue collection services. Amalgamation of the Contributions Agency with the Inland Revenue is long overdue, and I hope that that amalgamation will eventually be followed by amalgamation of Customs and Excise with the Inland Revenue. It cannot be right to have parallel revenue collection systems, which are extremely expensive to mount, all duplicating one another's work and imposing a burden both on taxpayers and on those with whom they have to deal.

It cannot be right to continue parallel revenue collection services especially now that we have been given an example of computer systems development and failure. That failure demonstrates the need for administrative unification of the administration services and information technology that supports revenue collection services.

I seek some assurance from Ministers on information technology. I believe that we should proceed as rapidly as we can in achieving unification of the information technology underpinning revenue collection, contributions and benefits. I hope that the Government are fully committed to eventual unification of the computer systems and data networks of the Contributions Agency, the Benefits Agency and the Inland Revenue; to full implementation of the intentions of the national insurance recording system project; to unification of housing benefit with the Benefits Agency; and, ultimately, to bringing the information handling of all those benefit distribution and revenue collection services into one system.

There are practical issues for Newcastle. As my hon. Friend the Minister knows, there is a major private finance initiative project called Prime, begun under the previous Government, which will rationalise the Newcastle sites of the Benefits Agency and the Contributions Agency. I should like an assurance that the project will go ahead in its existing form. Only recently a Newcastle estates partnership was formed, to be run by the Contributions Agency, to take forward the management of the PFI estate project on behalf of the Department of Social Security. Where will responsibility for the project lie when the Contributions Agency is transferred to the Inland Revenue? I should like clarification on where the administrative drive and accountability for the Newcastle estates partnership are to be. Is that to remain with the DSS, whose PFI project it is, or will the responsibility for driving that forward to be transferred with the Contributions Agency to the Inland Revenue? Those are important housekeeping issues for the city of Newcastle. I hope that my hon. Friend will be able to clarify them.

I should like to make a plea for a small group of manual workers caught by one consequence of the merger of the Contributions Agency and the Inland Revenue. The Inland Revenue has a policy of not employing people over 60. The Contributions Agency allows people to work after 60 if they can still make a proper contribution to the service. A very small number of workers are caught not knowing what their employment prospects are. I hope that my hon. Friend the Minister will allow the current employment practices of the Contributions Agency to be extended for that small group, many of whom are low-paid manual workers performing routine functions such as security and portering. They should be able to continue their work without their prospects being affected by the administrative change of functions. I hope that the Minister will assure us that the prospects of casual and short-time employees of the Contributions Agency will not be varied because of the transfer to the Inland Revenue.

The Government wisely said that the Contributions Agency, as it then was, would have the policing function for the minimum wage. It would be sensible if the policing function for the working families tax credit were also transferred to what would have been the Contributions Agency. Those important administrative points need to be clarified.

A broader matter has been introduced in the debate that I do not regard as relevant—the future of national insurance contributions. I maintain a full defence of the contributory principle, the principle of national insurance contributions and the eligibilities and entitlements that go with them. The Liberal Democrats' policy, in so far as it has been made clear this evening—which it has not, to a significant extent—is confusing and worrying.

Mr. Leigh

Will the hon. Gentleman confirm from his constituency experience what I know from having visited the Contributions Agency—that, far from the contributory principle being dead, the staff, who are the hon. Gentleman's constituents, make enormous efforts to ensure that people's contributions are worked out to the nearest week? The public believe that they are contributing to their pension, not paying a tax. That is why the contributory principle is important to staff and to the general public.

Mr. Cousins

It grieves me slightly to have to agree with the hon. Gentleman rather than the Liberal Democrats. Without prejudice to wider political issues, I would instinctively prefer to agree with the Liberal Democrats than with the hon. Gentleman. Sadly, on this occasion I agree with him. The rigour and accuracy with which an enormous number of contribution records have been maintained over generations are among the essential data handling problems that have proved central to the difficulties of NIRS2. The fact that there is a problem is an enormous tribute to this country's historical commitment to national insurance and to the rigour and accuracy with which that information has been maintained by Contributions Agency staff over many years. I am sure that nothing in the Bill puts that at risk. I am sure that Ministers will seek to clarify any such issues that may worry hon. Members.

I should like clarification of one minor issue arising from the exchange between my right hon. Friend the Secretary of State and my right hon. Friend the Member for Birkenhead. I do not regard the transfer of the policy functions of the Contributions Agency as in any way threatening if the functions are those relating to the national insurance contributions system. It would be a possible problem and cause for anxiety if policy for entitlement and eligibility were transferred to the Inland Revenue. It would be helpful to have it on the record that that is not the case. The policy for entitlement and eligibility should clearly remain with the Department of Social Security. On that basis, I am happy to say that I shall cheerfully support the Bill.

6.8 pm

Miss Anne McIntosh (Vale of York)

I have tried hard to follow the logic of the transfer of functions from the Contributions Agency to the Inland Revenue, but I have failed to grasp the reasons. I support the reasoned amendment. The Secretary of State, who I regret is no longer in his place, failed to make an adequate case, so he will fail to secure my support for a Second Reading.

The Secretary of State challenged me on the basis that the Conservatives had not taken business views sufficiently into account. The proposal to transfer the agency to the Inland Revenue will place a real burden on business, particularly with the computerisation of the programme to adapt the payroll, and will put an increased cost on the employer as the operator of the programme.

I have taken time over the past two days, since we learned that we were to have this debate today, to ring round and speak to some business leaders, including those representing large, medium and small businesses. Business leaders of companies, large and small, recognise that the Bill will place an increased administrative burden on them, particularly smaller employers. The level and sheer variety of contributions set out in schedule 2 are huge, but the Secretary of State did not refer to that. Many contributions are one-off, and not on-going. For example, statutory sick pay and maternity pay are normally for a limited duration, and are paid over weeks or months, not years. Other contribution schemes are on-going, such as personal and occupational pension schemes.

Presumably it will be up to the employer to register the information on contributions with the Inland Revenue and, presumably, information will be transferred to the Inland Revenue. I accept that, at first sight, this may appear to be a simplified procedure, but the Government are trying to sell the policy as a business-friendly one, and as one that is welcomed by business. That is not the message that I have received—perhaps because I am in opposition, and businesses may wish to share their concerns with an Opposition Back Bencher.

Businesses are extremely concerned that the transfer will impose an administrative burden on them, and they asked the Government to grant them time to prepare adequately for that burden. That point was not taken up by the Secretary of State. He said that the appointed day was just 14 months off—1 April 2000—so I cannot see any evidence that the time for preparation requested by the business community has been worked into the Government's timetable. Perhaps some light will be thrown on that matter in the winding-up speech tonight.

Businesses have expressed concern at the role of the tax inspectors in the process. Perhaps tax inspectors are not the most beloved of all functionaries or officials, but real power is to be concentrated in their hands. It is my understanding that the inspector will have two good reasons to check the books of businesses—first, to investigate the employee's tax contributions under PAYE, and, secondly, to investigate the contributions, entitlements and payments under the schemes listed in schedule 2.

I wonder whether the Government have considered the concerns of business—we have heard no comment. Inland Revenue inspectors will be dealing with the scheme, and that will raise the hackles of the business community. The Government may wish to respond to that point this evening.

Businesses have referred also to their concern at adequately ensuring the confidentiality of their employees' details, which will be available on in-house computers. The current system clearly ensures greater confidentiality and compares favourably with the new approach of transferring the contributions from the Contributions Agency to the Inland Revenue, and transferring responsibility again to the employers. I was mildly surprised that the Secretary of State did not refer to that issue, which was raised in Committee in another place. I wonder whether the Government have taken those concerns on board.

The threat to confidentiality is real and emerges through the pooling of information, as proposed by clause 6 of the Bill, which allows for information being held by the Board to be supplied to any person providing services to the Board". What controls will be put in place to make sure that confidentiality will not be breached? I would like some satisfaction on that point, so I can allay the fears of businesses.

Making the Inland Revenue responsible for administering not just tax and the work of the Contributions Agency but the working families tax credit will create a huge bureaucratic burden. Will there be opportunities adequately to question the Treasury Ministers responsible on the Floor of the House and in Select Committees? If not, that raises the question of genuine and adequate democratic control. Which Ministers will be responsible for replying to our concerns on behalf of constituents?

I was slightly surprised that the Secretary of State was dismissive, particularly when he said that the Bill was technical. However, he got into some difficulty when he moved on to broad policy issues. The questions that I have raised deserve answers.

What will happen to those staff who, through the DSS, normally administer the work of the Contributions Agency—most, but not all, of whom are based in the constituency of the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins)? Have the staff been consulted? Will they be required to move, following a merger and a transfer, to the Inland Revenue? Do the Government stand by the statement made by Baroness Hollis in the other place on 10 December last year, that 200 jobs will be lost countrywide—most of them, perhaps, in Newcastle? Is that a conservative estimate? Will more than 200 jobs be lost throughout the country?

I wish to place on record my concern at the extension of means-testing and the move towards ending the contributory system that pervade the Bill. The Government are cutting and manifestly means-testing pensions. The latest example of that is the Government's new bereavement benefit, which is causing great concern to my constituents.

Mr. Leigh

The Secretary of State repeated the commitment on behalf of the Government that there was no intention to means-test the basic state pension. Does my hon. Friend agree that that is a worthless commitment since, by 2050, the basic state pension will be worth only 7 per cent. of average earnings? The Government are therefore ensuring that most pensioners will be in receipt of a pension that bears no relation to what they have put in through taxation or national insurance contributions.

Miss McIntosh

I agree with my hon. Friend.

The Government have asked to be judged on their record. They were elected on a pledge to cut social security expenditure but—by their own admission—the contribution to social security bills throughout the country will go up by £1.5 billion as a result of the working families tax credit. The Government would like to be judged also on their record on pensions. However, they are already means-testing pensions. The latest example is the new bereavement benefit. Widows and widowers with no dependants will have their benefits withdrawn after six months, in spite of contributions having been paid on their behalf by their spouse. The Government have clearly started on the slippery slope towards means-testing, and the Bill expedites the process.

I have not been persuaded by the Government's arguments this evening. They have failed to address the concerns of business and of those who will no longer benefit from the new bereavement benefit after six months. It is clear that the bureaucratic overload on one particular Department, the Treasury, will be extreme. The costs of the transfer wildly outweigh any long-term benefits that the measure will bring. As the right hon. Member for Birkenhead (Mr. Field) said, it is a camouflage. I am persuaded that at the heart of the Bill is a camouflage hiding the introduction of a 10p starting rate for income tax by simply introducing a 10p national insurance starting rate. That would take us back to a 20p starting rate, which sounds terribly familiar. I support the amendment and I oppose Second Reading.

6.20 pm

Mr. Geraint Davies (Croydon, Central)

This is another example of Labour acting decisively in the interests of business, the economy and good government, whereas the previous Government, under the auspices of Sir George Young, simply prevaricated and pathetically failed to recognise the—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. The hon. Gentleman must remember that if he is referring to another Member of Parliament he should do so in the third person and not by name.

Mr. Davies

Indeed.

The previous Government stumbled on with the somewhat inefficient and duplicatory system and made it worse by bungling over the contract for the new national insurance recording system, NIRS2. The new Government faced a legacy of structural inadequacies that had not been faced up to, alongside impending operational chaos. They took and continue to take a long view, sorting out the operational as well as the structural problems.

The Bill represents a better service for both business and consumers, arising from an amalgamated national insurance and PAYE income tax system. It has been welcomed by the Institute of Chartered Accountants, which says that it should reduce red tape; by the Public Accounts Committee, which says that it represents a significant reduction in the administrative burden on employers; and, generally, by the Confederation of British Industry, the Financial Times and others.

The Bill will make it easier to align national insurance and PAYE. I know that there are some reservations about whether we should do that. Liberal Members have mentioned the report from Bath university in November 1998 and were bullish about how alignment would get rid of structural distortions in the labour market and help employment. Employers are all for it, and I realise that there are some reservations about that, but it is good in principle to have the option available.

The change makes logical sense, because the Inland Revenue already collects 94 per cent. of national insurance contributions. Having two separate agencies seems somewhat daft, as the Inland Revenue is already the collection agency for the Department of Social Security.

The primary case against the change, urged by the Opposition, is that it undermines the contributory principle and is objectionable as part of a trend towards means testing. It is true that the major growth in benefits has been in means testing, but that does not necessarily imply a threat to the contributory principle; it simply reflects the more complicated world in which we live.

National insurance was based on a world in which everyone worked 35 or 40 hours a week for perhaps 40 years; it was not set up to cater for the complexities of part-time work, disability, women in work, a mobile jobs market with shifting careers and the complex needs of targeted benefits. The old contributory method did not cater adequately for those complexities, but that is not to say that it is not of value in itself.

The contributory principle is good for pensions, but means testing and category benefits, such as child benefit, are appropriate for particular groups with particular circumstances, as they can be adapted to take account of a changing job market and specific needs such as those of families. That is why, since the 1960s and 1970s, the major growth of benefits has been in three major areas: housing benefit and in-work benefits, which are income related, and category benefits such as those reflecting rights for the disabled and others.

There is a misunderstanding in this debate, because although the administration merger is a necessary condition for alignment of national insurance and tax, its introduction does not mean that we need such an such alignment; and even if we have that alignment, that does not mean that we get rid of the contributory principle, as I attempted to say when I mentioned hypothecation and ring fencing. There will be a mixed economy for the delivery of benefits, and that is right and modern and should not be objected to.

The Opposition argued that the previous Government ruled out the merger on the basis of cost, but the present discounted value to the Exchequer is positive: the front-loaded costs of £16 million in the first year and £17 million the next year, moving into positive savings of about £4 million after that, discounted over time, will give a benefit to the Exchequer; and the real benefit that has not been counted is the enormous cost saving to the business community, which will increase competitiveness for the British economy. There is an especial significance for small and medium enterprises: with an integrated service they will not have to tie up entrepreneurial time on tedious accountancy for different agencies or spend money on expensive accountants.

It has also been argued that the merger is poorly timed as it comes in the middle of an information technology crisis caused by NIRS2. We know that major problems are occurring, but the simple fact is that those problems are contained in the NIRS2 system, which will simply be moved over, so they have no bearing on the decision.

NIRS2 was purchased from Andersen Consulting after it tendered at about a third of the price of its nearest rival. In spring 1996, about three months after the contract had been agreed, there was a secret meeting between Andersen Consulting and the then Chancellor, Secretary of State for Social Security and Chief Secretary to the Treasury, at which, as was recently disclosed to the Public Accounts Committee, they agreed to rip up the contract and replace the big bang approach—with everyone put in place at once and everything running hunky-dory—with a step-by-step approach.

The enormous problems that are arising—for instance, about 14.5 million contributions had not been posted correctly at the end of last year—are linked with that changed contract and with the mismatch of expectations and targets inherent in a defective agreement made behind closed doors by former Ministers and Andersen Consulting.

At the end of last year, only 61 per cent. of national insurance postings were in place, when the internal target was 90 per cent. When asked to comment, Andersen Consulting was comfortable with that fact and said that there was nothing wrong with the system and there must be something wrong with the Department's verification, or the validation of individual contributions, or perhaps the employers did not really understand the forms. It said that it was conceivable that something was wrong but that it was nothing to do with the system itself.

It appears that the contract is drawn up so as to allow Andersen Consulting to avoid paying any real compensation, although there are compensation clauses. We are in the throes of putting the system back together to create a sensible regime and make progress, which I welcome, alongside the structural changes that we are implementing.

The merger makes sense from a business and a Government administration point of view. The legacy of operational difficulties that we have inherited is irrelevant to it. In my view, there is no conflict with the contributory principle and we should support the Bill with vigour.

6.29 pm

Mr. Edward Leigh (Gainsborough)

Some hon. Members, on arriving here today, will have expected the debate to be highly technical and of interest only to those with a detailed knowledge of social security matters. However, it has been very interesting, especially because of the mini-debate between the right hon. Member for Birkenhead (Mr. Field) and the hon. Member for Newbury (Mr. Rendel). Both seemed to accept that the Bill was a fatal blow to the contributory principle that lies at the heart of our social security system. However, there was a slight dispute between them, as the hon. Member for Newbury seemed to imply that the contributory principle was already dead and that we should be realistic and kill it off finally with the Bill.

I do not think that the contributory principle is dead at all. As I said earlier, it is taken very seriously by those who work in the Department and by those who pay contributions for their entire lives. I once stood behind a constituent of the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) as she worked on a computer to calculate, to the nearest week, the contributions made by a particular gentleman over a working life of 40 years. Her hope was that that man's pension would bear some relation to what he had paid in contributions throughout his working life.

The Bill proposes merging the Contributions Agency into the Treasury. I should have liked it to be far more radical and interesting and to give greater independence to the Contributions Agency. The Bill that I should have preferred would have created a national contributions agency, based firmly and squarely on actuarial principles: people would pay a set proportion of income into a personalised fund that could be used later to fund their pensions. That would appear to be a radical reform, but it has been tried in many countries and there is nothing new about it.

We should be moving in that direction, but we are going the opposite way. The Government are not personalising the pension system at all. The Bill is about the Department of Social Security losing half its function. That is very serious. The DSS will be—primarily and exclusively—a delivery system. It will have no real involvement in raising the taxes and the contributions that fund the benefits that it pays out to people. It will be about as important as the man who delivers the milk, who has no input about what goes into the bottle. The Treasury will decide everything.

The Secretary of State gave the game away when he opened the debate. He is a former Treasury man, and he said that he had no qualms about the Treasury taking more and more control over such matters. He is the Trojan horse, placed in charge of the Department by the Government to ensure its subservience to the Treasury. That is what the debate is all about. The Department of Social Security is paying for the bad karma—to use a topical word—of the Secretary of State's previous life as Chief Secretary to the Treasury, when he saw the reforms that the right hon. Member for Birkenhead was trying to introduce.

When I think of the future role of the DSS after this Bill and others like it are passed, I am reminded of a debate that took place in my family a few years ago. True, our income was large, but our outgoings were even larger, and for two days we discussed what we could save. Could we save on the mortgage, or on other big expenditures? We finally decided that we could save on birdseed.

The point of that story is that it does not matter that the Secretary of State will be dispersing £90 billion. He will have no real control over his budget and will no longer run an independent Department. That is a matter for sadness. It is an attack on something which all hon. Members should support—the contributory principle. Labour Members will troop through the Lobby tonight to support the Bill. They should be ashamed of themselves.

6.34 pm

Ms Gisela Stuart (Birmingham, Edgbaston)

I am delighted to follow the hon. Member for Gainsborough (Mr. Leigh). I wonder whether he fed his birds with cake crumbs as a result of his savings measures. I am also somewhat intrigued to be taking part in a debate in which the Bill has been made out to be the end of welfare as we know it. Either I am missing something, or some extremely creative reading is going on.

The Bill is both necessary and welcome. When the Government came into office less than two years ago, the welfare system was in dire need of modernisation. That need was quite independent of any change of policy. The status quo was unacceptable: the technology was outdated and the system impossible to administer. There was a lack of cohesion, and benefit chimneys built up as a result.

I am intrigued that so many members of the Select Committee on Social Security are in the Chamber today. I am sure that they will recall a meeting with the Chancellor of the Exchequer at which the direction of the Government's welfare policy was discussed. My right hon. Friend the Chancellor said that we had grown up with a system under which Governments collected taxes into one pocket and handed out benefits from another. That system completely ignored the fact that the Government want people to work if they can, but he said that there was no way to get them back to work without some co-ordination of tax collection and the administration of benefits. My right hon. Friend told us that the philosophy of the Treasury and the Department of Social Security was to make work pay, which involved some co-ordination between taxation and benefits.

The Inland Revenue and Customs and Excise are the two main tax-collecting agencies, and the national insurance collection system also plays a part. However, the national insurance system, since its introduction after the second world war, has never been truly insurance based. To some extent, the argument about hypothecation is phoney, as the fund is actuarially ring-fenced. That is significant.

Mr. Cousins

May I draw my hon. Friend's attention to a matter that hon. Members too often forget? At present annuity rates, to build up a personal pension plan that would bring in income at the basic pension rate would probably require establishing a contribution fund of about £80,000. As a matter of practical fact, millions of our constituents receive basic pension entitlements far more valuable at the basic rate than anything that they could aspire to if payment were made simply on the basis of what they could afford to contribute. In that fundamental and obvious sense, the national insurance system is still very much part of our social fabric.

Ms Stuart

My hon. Friend's intervention does not contradict the point that I am making. Also, low annuity rates reflect low inflation and a steady economy, so the whole economic climate must be taken into account when considering those rates.

I do not suggest that national insurance and the contributory principle have come to an end, but I draw the House's attention to some research by the Department of Social Security that was published in August 1998. The report stated: respondents had little direct experience of benefits, and only a hazy perception of the structure of the National Insurance scheme; few had thought systematically about how they would cope with unemployment, sickness absence from work or retirement; in the absence of direct experience, media reports of policy debates or of issues such as fraud could be influential in shaping their views". In view of the time, I shall not go into further detail, but the report makes it clear that a myth has been built up that members of the public have a clear idea of how taxation and national insurance contributions work.

I also recall some research that found that one third of school leavers did not realise that money would be deducted from their wages. Never mind what the various deductions might be—they did not think that anything would be deducted.

Let us focus on what the Bill will do, which is significant. As my right hon. Friend the Secretary of State made clear in his opening speech, the Bill does not, at this stage, change the way in which national insurance contributions are calculated or how they interact with taxation. However, it is a first step in bringing together that which must be brought together in the interests of good public policy and administration.

I beg the House's indulgence while I remind hon. Members of what the task force headed by Martin Taylor said when it considered the problems of alignment between income tax and national insurance. That is not a theological debate, but an examination of the concrete question of why the two systems do not work properly. The first main area of concern was the base of charge: income tax is levied on earned income and benefits in kind, whereas national insurance contributions do not currently reflect benefits in kind. Reliefs and rebates are inconsistent in relation to taxation; the periods of assessment are different; and the structures of charge are different. If the Government are serious about making work pay, the basis of national insurance and taxation must be aligned to some extent.

Martin Taylor said: At present, benefits in kind are not subject to NICs, other than the employer-only Class 1A charge on company cars and car fuel. This gives employers an advantage in offering benefits in kind, so reducing the NICs yield and distorting competition. However, it does not look straightforward to value benefits in kind, at least on anything like the income tax rules". He also argued that there was clear evidence that business and employers welcomed the combining of national insurance contributions and taxation, because that would be easier to administer. The previous Government failed to address the difference between the costs to Government and the costs to business. There may be considerable costs to the Government, but we must look seriously at the reaction of business.

I wish the Bill went further in one respect, which relates to schedule 6 and exchange of information. We are all concerned about confidentiality and privacy, but if we are—

Miss McIntosh

We are.

Ms Stuart

So are Labour Members. We have all seen constituents who complain about having to fill in endless forms to claim benefits and say, "But I told them before …" It seems to them that the same form has to be filled in again and again. That causes considerable hindrance, especially to pensioners who become sick and tired of filling in forms. There is scope for the greater transfer and integration of information gathered for benefits or taxation purposes, and that will help people in need. Similarly, we need to ensure that fraud is designed out of the system, for if fraud is prevented in the first place, we can stop wasting resources on chasing fraudsters.

I urge the House to take the Bill at face value. It is important administratively and will allow us to move forward to the second stage. Move forward we must, because the current benefits and taxation systems are unacceptable. I hope that the Opposition will see the error of their ways and welcome the Bill as I do.

6.44 pm

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

It is a pleasure to follow the hon. Member for Birmingham, Edgbaston (Ms Stuart), who was a distinguished member of the Select Committee on Social Security and has now moved on to higher, if not necessarily better, things.

I agree that we have to move forward; no one would try to defend the status quo. However, two things struck me as I listened to the debate. The first was the Secretary of State's announcement that the date of implementation would be 1 April 1999. I am nervous, because I fear that that is too soon. Anyone who thinks that the transfer will be a straightforward and easy piece of work, to be carried out at administrative office level, is mistaken.

I understand that there is a political imperative: Governments always want to get things done and move forward, because if they fail to do so they are criticised for not moving fast enough. However, in my experience such changes, if they are not timed properly, can cause far more trouble than they are worth. Regardless of whether changes are right or wrong, they have to be planned carefully. My concern is that we are trying to make the change too quickly and that the benefits of the change might be lost to us as a result. We might be unable to capture the positive results of the change if we do too much, too quickly.

The second point that struck me is that there is a huge cultural difference between the two Departments which has not been recognised in the debate. The way in which the Inland Revenue works, the time scales to which it does its calculations, its systems and its methods are entirely different from those employed by people working in DSS agencies such as the Contributions Agency.

I went on a brief visit to Newcastle with the Social Security Committee a few months ago. I was deeply impressed by the commitment of George Bertram and his staff and I am sure that they will make every effort to ensure that the change works. The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) will agree that that is so. We often fail to recognise the work done on our behalf by civil servants in the agencies, so it is worth putting it on the record that they do a splendid job keeping a creaking system going, sometimes at great personal cost and for little reward. However, the combination of the culture shift that is needed and the time scale within which the change is planned cause me concern.

I support the Bill and will be happy to vote for its Second Reading. It comes as no shock to me to learn that there are to be changes to the tax structure and that the Government have in mind a design that aligns income tax and national insurance. That is obvious to anyone who is aware of the fact that, from this April, the Government are introducing changes to the employers class 1 contributions, which are to be raised to a new earnings threshold set at the level of personal tax allowances. There is clearly a big change in view. However, I should like to quote a couple of sentences from the Green Paper on welfare reform and ask a few questions about them.

The Green Paper said: future reforms will align the lower earnings limit with the single person's tax allowance ensuring that no one pays National Insurance for the first £81 of their weekly earnings and that all employees earning between £64 and £81 would have their rights to benefit protected". It is the last clause— would have their rights to benefit protected"— that causes me concern. If the lower earnings limit is to be raised in that way, how will those earning less than that be protected? What physical administrative steps are to be taken to keep track of their earnings? How does that fit in with the continuation of the contributory principle? That is an important question, because it is illustrative of how confused the Government might become in future if they are not clear about the direction in which they are going.

My second question is whether we should now recognise that national insurance contributions are a "social security tax". That is how the Chancellor inadvertently described NICs in a broadcast—a Freudian slip of which the right hon. Member for Birkenhead (Mr. Field) reminded the House earlier. If NICs are not such a tax, are we safe in the knowledge that the insurance principle is safe in the Labour Government's hands? The hon. Member for Edgbaston referred to a piece of research of which I, too, am aware, our having shared it as members of the Social Security Committee. It reveals a huge vagueness and a lack of clear information about the relationship between contributions and entitlements.

I am perfectly willing to support this technical measure, but I am unhappy about slipping towards an abolition of the contributory principle without proper debate. Whether the principle is right or wrong, it is important to debate it properly and coherently. The Social Security Committee has already set its sights on an inquiry into the contributory principle—it has devoted a huge chunk of its yearly programme to that question. It may be that the principle can be modernised and given a new lease on life or that we should recognise reality—as my party believes—and abolish it. However, it is undeniable that we need a debate and that the Government should lead it. They should not seek to make changes by default. If the Secretary of State is to be believed, the Government need have no fears about that process. However, we shall hold it against the Secretary of State if he tries to achieve change through some back-door means or political sleight of hand.

The Secretary of State was correct to say that he will inform the House about existing practical difficulties with the national insurance recording system, NIRS2. However, the problem is much more fundamental. I think that our constituents deserve protection and compensation and I am worried that PFI—the private finance initiative—is no longer a sensible mechanism to consider when it comes to huge computerised systems in any Government Department.

I have another subsidiary question that relates to my earlier culture point. Andersen Consulting is to introduce a huge new system, NIRS2, into the Inland Revenue, but Electronic Data Services does all Inland Revenue computing at present. I foresee huge interface problems. It is a question of culture which I believe will be almost impossible to address between now and 1 April. I urge the Government to conduct a full-scale review of the mega computer data processing information technology projects with a view to ascertaining their future feasibility. I am sure that the National Audit Office will insist on such an inquiry.

I am interested in clause 20—it raises a point to explore in Committee—which refers to the ultra vires payment of nearly £500 million. Although there was a legislative duty to make some pension payments under the contracted-out money purchase schemes, there was no authority within the Pensions Act 1995 to finance them through the national insurance fund. That is a huge error and a huge amount of money. How was it discovered? Did the National Audit Office pick it up? That mega mistake allowed the Government to spend, ultra vires, £500 million in public money and, if the National Audit Office did not find it, I would like to know who did.

I am prepared to support the Bill, but the Government must move slowly in taking this administrative step. I hope that the Government will undertake to conduct a proper debate about the social insurance scheme principle before taking any steps down the road to diminution or change. The House of Commons must have a proper chance to debate the issues.

6.54 pm

Mr. Steve Webb (Northavon)

I am delighted to see so many Labour Members in the Chamber to hear my contribution. The Bill raises some important issues, and I am delighted that the Government have allocated a full day of parliamentary time in which to discuss them.

It is a pleasure to follow my right hon. Friend in prospect, the Chairman of the Select Committee on Social Security, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who proposed a debate on the contributory principle. The Bill raises questions about the future of the principle that are mentioned explicitly in the Conservative reasoned amendment, which I shall address in my brief remarks.

The Conservative amendment urges hon. Members not to vote for the Bill because it will facilitate the ending of the contributory principle. Would that necessarily be such a bad thing? The national insurance system was introduced in the 1940s, with flat-rate contributions paying for flat-rate benefits. That was not pure insurance because the insurance premium paid did not relate to the risk of receiving benefit. The classic example is that male and female employees paid much the same contributions although they were entitled to pensions whether they lived to be 60 or 80. The system did not look much like pure insurance initially and, as time went on, it began to look less and less like an insurance system.

Earnings-related benefits and partly earnings-related contributions were introduced in the 1960s. Contributions became more earnings related in the 1970s and earnings-related pensions were introduced. During the 1980s—it is ironic that the Conservatives should be moving this reasoned amendment—national insurance rowed back from its high water mark of the late 1970s. The Conservatives made several significant changes, one of which was increasing national insurance contributions while cutting national insurance benefits. That is a clear erosion of any residual contributions principle.

My hon. Friend the Member for Newbury (Mr. Rendel) has already enunciated the official Liberal Democrat position, which allows me to indulge in some free thought, unfettered by the usual shackles of party discipline—I say that only to make my hon. Friend a touch nervous. What is the contributory principle that the Conservatives are so keen to defend and believe might be undermined by the Bill? It is that there is some close link between contributions and benefits. However, it is clear from the debate that any such link is extremely tenuous and is growing increasingly more so.

The case study in this area must be pensions. They are by far the largest item of contributory benefit expenditure and, if they do not honour the contributory principle truly, we might as well give up and go home. It has been said that the Bill does not involve abolition of the national insurance fund: a separate national insurance fund and a separate consolidated fund will continue. What a joke. What is the point of having a separate national insurance fund? If it does not have enough money, it is topped up through general taxation. Therefore, why preserve the farce that national insurance contributions are any different from general taxation? I would go further than that. More than half of national insurance revenues come from employer national insurance contributions that have no insurative content. So, the whole thing is a complete sham.

On the benefit side, in what sense are pensions—the main national insurance benefit—linked to national insurance contributions? The answer is that there is hardly any link. Growing numbers of people will reach old age and enjoy full entitlement to the basic state pension. These days, one must try quite hard to avoid that full entitlement in old age. What is the point of having all the paraphernalia for keeping records for 40 or 50 years when, at the end of the day, there is a flat-rate benefit? That is not insurance; it is taxation. We are no worse off for that.

We must ask ourselves a fundamental question: what would we lose if we abolished the national insurance contributory system? We would lose national insurance benefits as a category. Why do we have separate national insurance benefits as opposed to means-tested or categorical benefits? It seems to me that there is only one defence of separate national insurance benefits: people feel more positive about claiming them. There is less stigma and thus less of a problem with take-up.

That is also true of categorical benefits: there is no stigma associated with claiming child benefit or the age addition to the old-age pension. In the case of pensions—the main contributory benefit—we should do away with the farce that it is all to do with contributions. We should pay pensions to people as of right and build on the 25p age addition, which is not contributory because it is paid in full to anyone who receives a pension. It is categorical. The 25p age addition has all the qualities that we desire and, if we build on it and move to a system in which the basic state pension is tiered with age, we will be able to target poverty effectively without relying on means-testing. The whole point of national insurance benefits is to reach people about whom we might be worried, but that can be done through other means, principally through the basic state pension, tiering that to age.

My final reflection on national insurance benefits is that they are a system not of inclusion, but of social exclusion. As the hon. Member for Croydon, Central (Mr. Davies) said, those benefits were designed for a world of male, full-time workers. In other words, they exclude large numbers of women from benefits. Do we want to preserve that system into the 21st century? Clearly not, in my judgment. Most people receive basic pensions, but many women and low-paid workers are excluded. Why not move to a system of categorical benefits for pensioners?

In conclusion, there is no case whatsoever for a separate system in which national insurance contributions go into a pot—if there is not enough money in it we find more from somewhere else—and in which we pay out a categorical benefit to elderly people which excludes only a few vulnerable people. My hon. Friend the Member for Roxburgh and Berwickshire is right to say that we need a debate on this subject, but the Conservatives' reasoned amendment which suggests that we should not vote for the Bill because it would undermine the contributory principle is fundamentally flawed.

7.1 pm

Mr. Quentin Davies (Grantham and Stamford)

There is a general sense in the House that the winding-up speeches in this debate should not be too long, so I shall try to be brief and I hope I shall be forgiven for not dealing with all the individual contributions in the detail that a great many of them deserve.

The debate has been a memorable example of the utility of Parliament and of Second Reading debates, because what was regarded by many hon. Members—and, no doubt, most people in the country—as a Bill that dealt with a boring administrative adjustment under a boring bureaucratic title has been revealed as a momentous and extremely damaging step towards the destruction of our national insurance system.

Not only has the decision of my hon. Friends and me to oppose the Bill been thoroughly vindicated by what has emerged regarding its true nature and intent, but we have had high drama—a chasm of difference on this subject has emerged within the Labour party. The Secretary of State has gone on the record this evening as saying that the Government are examining the whole contributory principle—so the cat is out of the bag. The agenda is absolutely clear. Some Labour Back Benchers have reacted with necessary horror. I refer to the distinguished contribution of the right hon. Member for Birkenhead (Mr. Field), who described the move as extreme folly and an extraordinary policy, as indeed it is.

Labour Back Benchers who are more obviously loyal—I think that that is the polite description—have promoted an even more far-reaching agenda and suggested that the Bill ought to go the whole hog and entirely remove the separate character of our national insurance system.

It was obvious to all of us who read the Bill when it was published that it represents, at the very least, the abject subjugation of the Department of Social Security to the Treasury. The Bill is full of phrases such as such payments by way of adjustment as the Secretary of State determines (in accordance with any directions of the Treasury)", and such payments by way of adjustment as the Inland Revenue may determine", and any determination by the Secretary of State under that subsection must be made in accordance with any directions given by the Treasury. The Bill represents complete surrender by the DSS to the Treasury."

Some people will ask, "What is new?" because that has been the de facto position, certainly for the last year and probably since the last election. We know that the Treasury vetoed the pensions Green Paper drafted by the right hon. Member for Birkenhead and has been giving instructions to the DSS during the past six months steadily to increase the element of means testing in our welfare system, with the sad consequences that have been described by many hon. Members today. I have no idea whether the firm reaction by Opposition Members to that extremely damaging tendency over the past weeks and months has brought about a rethink by the Government. If it has not, it is clear that the agenda has a very long way to go.

It is obvious that the Treasury has been running the show for some time. I remember, at Treasury questions not so long ago, asking the Secretary of State, then Chief Secretary to the Treasury, whether there was any point in having the DSS, since the Benefits Agency was responsible for handing out the money in the country and the Treasury obviously made the policy in Whitehall. In his usual way, the right hon. Gentleman managed to avoid giving a straight answer. Now we have the Bill, and we see, de jure, written into our law, the shift of the DSS towards becoming an executive agency of the Treasury—a shift to which we have been drawing the attention of the House and the public for some months.

As if that were not enough, the Secretary of State has revealed this evening that he is giving the Treasury the Department's policy function as well as its administrative function. As the right hon. Member for Birkenhead said, the Secretary of State has given away at a stroke half his empire and 40 per cent. of his revenue.

There has been a sub-plot this evening which, as in the best Shakespearean tradition, has acted to some extent as farce to heighten the high drama of the main plot. A chasm is emerging between Liberal Democrats, or what is left of them. The Liberal Democrat spokesman on pensions, the hon. Member for Northavon (Mr. Webb), is so keen to fawn on the Government at every opportunity that he said that the contributory principle was as good as dead and buried. Beveridge, Lloyd George and Asquith would be turning in their graves if they knew that, at the end of the century which began with the Liberal party being a great force in the land, the party's last remaining representatives were prepared to go along with a new Labour Government to bury one of the great achievements of the Liberalism of their day.

It is much to the credit of Liberal Democrat Back Benchers such as the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who could not avoid their duty, that they subtly but decisively, as the hon. Gentleman so bravely did, rejected the subservient course adopted by the Liberal Front Bench.

The great concern of the House this evening must not be the Secretary of State's loss of amour-propre or the destruction of the DSS, let alone the puny arguments of the modern Liberal party, but the people of this country, who have been proud of their national insurance system. They have contributed to that system and continue to do so in good faith, but they now find that the Government's agenda is to undermine it and bring to naught what has been built up as one of the great achievements of 20th-century politics in the United Kingdom.

7.9 pm

The Minister of State, Department of Social Security (Mr. Stephen Timms)

This has been a wide-ranging and interesting debate. It is hard to believe from the speech of the hon. Member for Grantham and Stamford (Mr. Davies) that this is a technical Bill, which moves around parts of the machinery of government. We have had the opportunity to range over topics from welfare reform and the contributory principle to the information technology system used in the Contributions Agency. Very little has been said, certainly by Conservative Members, about what the Bill does.

It has been established during the debate that representatives of business and—as my right hon. Friend the Secretary of State drew to the attention of the House—the shadow Chancellor, the right hon. Member for Horsham (Mr. Maude), think that what the Bill does is right. Indeed, they think that it is overdue because of the failure—as so often—of the previous Government to act. Business does not want the transfers to be delayed, especially not on the wholly specious grounds advanced by Conservative Members.

The shadow Chancellor supported what is proposed in the Bill in 1995 in a report to the then Deputy Prime Minister, the right hon. Member for Henley (Mr. Heseltine). I do not know whether members of the shadow Cabinet ever talk to each other about these matters. The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) said that he was a friend of the shadow Chancellor. The shadow Chancellor supports what the Bill does, yet the Opposition are opposing it. Now that we have the benefits of joined-up government, it is a shame that we cannot have a little joined-up opposition as well.

I commend to Opposition Members the shadow Chancellor's views on this matter. It would be well worth their while reading them. The right hon. Gentleman very clearly spelled out in the report of his deregulation task force, which was published in autumn 1995, that he was arguing for closer alignment of the PAYE and National Insurance contributions systems, to be administered by a single agency". He went on: Apart from saving public money, this would eliminate the burden of double accountability and interference for employers, and reduce the time needed for workplace taxation. This issue has been endlessly debated in Whitehall. A decision should now be made. Of course, he was absolutely right. Conservative Members should take note of his views. Despite his robust support, we anticipate the ludicrous sight of Opposition Members opposing this straightforward technical measure, the only effect of which is to reduce the burden on employers.

Has something changed since the shadow Chancellor reached his eminently sensible conclusion? That is not so according to the Chartered Institute of Taxation, which said in October: We are pleased to note that the Inland Revenue and the Contributions Agency are to merge their field forces". The Institute of Directors, to which the hon. Member for Vale of York (Miss McIntosh) referred, said in October: We welcome the transfer of the Contributions Agency to the Revenue". The British Chambers of Commerce—what a long way we have come from the days when the Tory party saw itself as the voice of small business—said in October: the merging of the Contributions Agency into the Inland Revenue has our full support". Yet the Opposition are opposing the Bill. The shadow Chancellor's excellent report, which I commend again to Opposition Members, spells out at some length the benefits of the measure.

My right hon. Friend the Member for Birkenhead (Mr. Field) expressed concern about the transfer of national insurance policy. I want to make it clear that that transfer was part of the Bill from the outset. It was in schedule 3 to the Bill that was debated in the other place. Policy on benefits entitlement will of course remain with the Department of Social Security. The policy concerned is dealt with by 20 people; a very small number of people are transferring from the DSS to the Inland Revenue.

My hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) welcomed the Bill. I am particularly grateful that he was able to do so on behalf—quite rightly—of his constituents, many of whom work for the Contributions Agency in Longbenton.

The hon. Members for Newbury (Mr. Rendel) and for Northavon (Mr. Webb) also welcomed the Bill, for which I am grateful. The hon. Member for Vale of York said that she could not understand the case for the Bill. I simply refer her to the case made by the shadow Chancellor, which she will find very informative.

My hon. Friend the Member for Croydon, Central (Mr. Davies) was absolutely right to draw attention to the measure's benefits, not just in terms of Government spending but to business and the nation as a whole. That is the basis for the change that we are making, and the basis on which I commend the Bill to the House. We shall no doubt have some interesting debates in Committee. The Bill is technical: it makes sensible changes to improve the administration of the national insurance system, which have long been argued for by many Members on both sides of the House.

Such moves of the machinery of government are as old as bureaucracy itself. The Inland Revenue was formed in 1834 by the amalgamation of the then boards of stamps and taxes. The Treasury directed the commissioners of stamps and taxes to recall the necessity of making arrangements, as expeditiously as possible, for consolidating the duties of the several offices employed under your direction with a view to effect every practicable reduction in your United Departments which may be consistent with the security of the Revenue. Opposition Members would no doubt have been against that.

We, too, seek to maintain the Revenue's security in the integrity of contribution records and benefits. Rather than cutting costs for the sake of cutting costs, the transfer is driven by a determination to deliver better service. As the shadow Chancellor has pointed out, it is a sensible measure. I ask the House to support it.

Question put, That the amendment be made:—

The House divided: Ayes 132, Noes 322.

Division No. 60]	[7.17 pm
AYES
Amess, David	Colvin, Michael
Arbuthnot, Rt Hon James	Cormack, Sir Patrick
Atkinson, Peter (Hexham)	Cran, James
Bercow, John	Curry, Rt Hon David
Beresford, Sir Paul	Davies, Quentin (Grantham)
Blunt, Crispin	Davis, Rt Hon David (Haltemprice)
Boswell, Tim	Day, Stephen
Bottomley, Peter (Worthing W)	Dorrell, Rt Hon Stephen
Bottomley, Rt Hon Mrs Virginia	Duncan, Alan
Brady, Graham	Duncan Smith, Iain
Brazier, Julian	Emery, Rt Hon Sir Peter
Browning, Mrs Angela	Evans, Nigel
Bruce, Ian (S Dorset)	Faber, David
Burns, Simon	Fabricant, Michael
Butterfill, John	Fallon, Michael
Cash, William	Forth, Rt Hon Eric
Chapman, Sir Sydney	Fowler, Rt Hon Sir Norman
(Chipping Barnet)	Fox, Dr Liam
Chope, Christopher	Fraser, Christopher
Clappison, James	Gale, Roger
Clark, Rt Hon Alan (Kensington)	Garnier, Edward
Clark, Dr Michael (Rayleigh)	Gibb, Nick
Clarke, Rt Hon Kenneth	Gill, Christopher
(Rushcliffe)	Gillan, Mrs Cheryl
Clifton-Brown, Geoffrey	Gorman, Mrs Teresa

Green, Damian	Paice, James
Greenway, John	Paterson, Owen
Grieve, Dominic	Pickles, Eric
Gummer, Rt Hon John	Prior, David
Hammond, Philip	Randall, John
Hawkins, Nick	Redwood, Rt Hon John
Hayes, John	Robertson, Laurence (Tewk'b'ry)
Heald, Oliver	Roe, Mrs Marion (Broxbourne)
Heathcoat-Amory, Rt Hon David	Rowe, Andrew (Faversham)
Heseltine, Rt Hon Michael	Ruffley, David
Horam, John	St Aubyn, Nick
Howarth, Gerald (Aldershot)	Sayeed, Jonathan
Jackson, Robert (Wantage)	Shepherd, Richard
Jenkin, Bernard	Spelman, Mrs Caroline
Johnson Smith,	Spicer, Sir Michael
Rt Hon Sir Geoffrey	Spring, Richard
Key, Robert	Stanley, Rt Hon Sir John
King, Rt Hon Tom (Bridgwater)	Steen, Anthony
Kirkbride, Miss Julie	Streeter, Gary
Laing, Mrs Eleanor	Swayne, Desmond
Lait, Mrs Jacqui	Tapsell, Sir Peter
Lansley, Andrew	Taylor, Ian (Esher & Walton)
Leigh, Edward	Taylor, John M (Solihull)
Letwin, Oliver	Taylor, Sir Teddy
Lewis, Dr Julian (New Forest E)	Tredinnick, David
Lidington, David	Trend, Michael
Lilley, Rt Hon Peter	Tyrie, Andrew
Lloyd, Rt Hon Sir Peter (Fareham)	Viggers, Peter
Loughton, Tim	Walter, Robert
Luff, Peter	Wardle, Charles
MacGregor, Rt Hon John	Waterson, Nigel
McIntosh, Miss Anne	Wells, Bowen
MacKay, Rt Hon Andrew	Whitney, Sir Raymond
Maclean, Rt Hon David	Whittingdale, John
McLoughlin, Patrick	Widdecombe, Rt Hon Miss Ann
Malins, Humfrey	Wilkinson, John
Maples, John	Willetts, David
Mates, Michael	Wilshire, David
Mawhinney, Rt Hon Sir Brian	Woodward, Shaun
May, Mrs Theresa	Yeo, Tim
Moss, Malcolm	Young, Rt Hon Sir George
Nicholls, Patrick	Tellers for the Ayes:
Ottaway, Richard	Sir David Madel and
Page, Richard	Mr. Tim Collins.

NOES
Abbott, Ms Diane	Bradley, Peter (The Wrekin)
Ainsworth, Robert (Cov'try NE)	Bradshaw, Ben
Allan, Richard	Brinton, Mrs Helen
Anderson, Donald (Swansea E)	Brown, Russell (Dumfries)
Anderson, Janet (Rossendale)	Bruce, Malcolm (Gordon)
Armstrong, Ms Hilary	Buck, Ms Karen
Ashton, Joe	Burgon, Colin
Atherton, Ms Candy	Burstow, Paul
Atkins, Charlotte	Butler, Mrs Christine
Austin, John	Caborn, Richard
Ballard, Jackie	Campbell, Alan (Tynemouth)
Banks, Tony	Campbell, Mrs Anne (C'bridge)
Barron, Kevin	Campbell, Menzies (NE Fife)
Bayley, Hugh	Campbell, Ronnie (Blyth V)
Beard, Nigel	Campbell-Savours, Dale
Beckett, Rt Hon Mrs Margaret	Cann, Jamie
Bell, Martin (Tatton)	Caplin, Ivor
Bell, Stuart (Middlesbrough)	Chapman, Ben (Wirral S)
Benn, Rt Hon Tony	Chidgey, David
Bennett, Andrew F	Chisholm, Malcolm
Benton, Joe	Clapham, Michael
Bermingham, Gerald	Clark, Rt Hon Dr David (S Shields)
Berry, Roger	Clark, Dr Lynda
Best, Harold	(Edinburgh Pentlands)
Betts, Clive	Clark, Paul (Gillingham)
Blunkett, Rt Hon David	Clarke, Charles (Norwich S)
Boateng, Paul	Clarke, Eric (Midlothian)
Borrow, David	Clarke, Rt Hon Tom (Coatbridge)
Bradley, Keith (Withington)	Clarke, Tony (Northampton S)

Clwyd, Ann	Heppell, John
Coaker, Vernon	Hesford, Stephen
Coffey, Ms Ann	Hewitt, Ms Patricia
Cohen, Harry	Hill, Keith
Coleman, Iain	Hinchliffe, David
Colman, Tony	Hodge, Ms Margaret
Cook, Frank (Stockton N)	Hoon, Geoffrey
Cook, Rt Hon Robin (Livingston)	Hopkins, Kelvin
Cooper, Yvette	Howarth, Alan (Newport E)
Corbett, Robin	Howells, Dr Kim
Corston, Ms Jean	Hoyle, Lindsay
Cousins, Jim	Hughes, Ms Beverley (Stretford)
Crausby, David	Hughes, Kevin (Doncaster N)
Cryer, Mrs Ann (Keighley)	Humble, Mrs Joan
Cryer, John (Hornchurch)	Hurst, Alan
Cunningham, Rt Hon Dr Jack	Hutton, John
(Copeland)	Iddon, Dr Brian
Cunningham, Jim (Cov'try S)	Illsley, Eric
Curtis-Thomas, Mrs Claire	Jackson, Ms Glenda (Hampstead)
Dalyell, Tam	Jackson, Helen (Hillsborough)
Darling, Rt Hon Alistair	Jamieson, David
Darvill, Keith	Johnson, Miss Melanie
Davey, Valerie (Bristol W)	(Welwyn Hatfield)
Davies, Rt Hon Denzil (Llanelli)	Jones, Barry (Alyn & Deeside)
Davies, Geraint (Croydon C)	Jones, Helen (Warrington N)
Dean, Mrs Janet	Jones, Ms Jenny
Denham, John	(Wolverh'ton SW)
Dobbin, Jim	Jones, Jon Owen (Cardiff C)
Dobson, Rt Hon Frank	Jones, Dr Lynne (Selly Oak)
Donohoe, Brian H	Kaufman, Rt Hon Gerald
Doran, Frank	Keeble, Ms Sally
Drew, David	Keen, Alan (Feltham & Heston)
Drown, Ms Julia	Keen, Ann (Brentford & Isleworth)
Dunwoody, Mrs Gwyneth	Kelly, Ms Ruth
Eagle, Angela (Wallasey)	Kemp, Fraser
Eagle, Maria (L'pool Garston)	Khabra, Piara S
Ellman, Mrs Louise	Kidney, David
Ennis, Jeff	King, Andy (Rugby & Kenilworth)
Etherington, Bill	King, Ms Oona (Bethnal Green)
Fearn, Ronnie	Kingham, Ms Tess
Fisher, Mark	Kirkwood, Archy
Fitzsimons, Lorna	Kumar, Dr Ashok
Flint, Caroline	Ladyman, Dr Stephen
Flynn, Paul	Lawrence, Ms Jackie
Follett, Barbara	Laxton, Bob
Foster, Don (Bath)	Lepper, David
Foster, Michael Jabez (Hastings)	Leslie, Christopher
Foster, Michael J (Worcester)	Levitt, Tom
Foulkes, George	Lewis, Ivan (Bury S)
Fyfe, Maria	Livingstone, Ken
Galbraith, Sam	Lloyd, Tony (Manchester C)
Galloway, George	Llwyd, Elfyn
Gapes, Mike	Love, Andrew
Gardiner, Barry	McAllion, John
George, Bruce (Walsall S)	McAvoy, Thomas
Gerrard, Neil	McCafferty, Ms Chris
Gibson, Dr Ian	McDonagh, Siobhain
Gilroy, Mrs Linda	McIsaac, Shona
Godman, Dr Norman A	McKenna, Mrs Rosemary
Godsiff, Roger	Mackinlay, Andrew
Goggins, Paul	Maclennan, Rt Hon Robert
Gordon, Mrs Eileen	McNulty, Tony
Griffiths, Jane (Reading E)	MacShane, Denis
Griffiths, Nigel (Edinburgh S)	Mactaggart, Fiona
Griffiths, Win (Bridgend)	McWilliam, John
Hall, Mike (Weaver Vale)	Mahon, Mrs Alice
Hamilton, Fabian (Leeds NE)	Mallaber, Judy
Hanson, David	Marsden, Gordon (Blackpool S)
Harvey, Nick	Marsden, Paul (Shrewsbury)
Heal, Mrs Sylvia	Marshall, Jim (Leicester S)
Heath, David (Somerton & Frome)	Maxton, John
Henderson, Doug (Newcastle N)	Meacher, Rt Hon Michael
Henderson, Ivan (Harwich)	Meale, Alan
Hepburn, Stephen	Merron, Gillian

Michie, Bill (Shef'ld Heeley)	Smith, Rt Hon Chris (Islington S)
Mitchell, Austin	Smith, Miss Geraldine
Moffatt, Laura	(Morecambe & Lunesdale)
Moonie, Dr Lewis	Smith, Jacqui (Redditch)
Morgan, Alasdair (Galloway)	Smith, John (Glamorgan)
Morley, Elliot	Smith, Llew (Blaenau Gwent)
Mountford, Kali	Snape, Peter
Mudie, George	Soley, Clive
Mullin, Chris	Southworth, Ms Helen
Murphy, Denis (Wansbeck)	Starkey, Dr Phyllis
Naysmith, Dr Doug	Steinberg, Gerry
Oaten, Mark	Stevenson, George
O'Brien, Bill (Normanton)	Stewart, David (Inverness E)
O'Brien, Mike (N Warks)	Stewart, Ian (Eccles)
Olner, Bill	Stinchcombe, Paul
O'Neill, Martin	Stoate, Dr Howard
Öpik, Lembit	Strang, Rt Hon Dr Gavin
Organ, Mrs Diana	Straw, Rt Hon Jack
Palmer, Dr Nick	Stringer, Graham
Pearson, Ian	Stuart, Ms Gisela
Pendry, Tom	Stunell, Andrew
Perham, Ms Linda	Sutcliffe, Gerry
Pickthall, Colin	Taylor, Rt Hon Mrs Ann
Pike, Peter L	(Dewsbury)
Plaskitt, James	Taylor, Ms Dari (Stockton S)
Pollard, Kerry	Taylor, David (NW Leics)
Pond, Chris	Taylor, Matthew (Truro)
Pope, Greg	Temple-Morris, Peter
Pound, Stephen	Thomas, Gareth R (Harrow W)
Powell, Sir Raymond	Timms, Stephen
Prentice, Ms Bridget (Lewisham E)	Tipping, Paddy
Prentice, Gordon (Pendle)	Touhig, Don
Prescott, Rt Hon John	Trickett, Jon
Primarolo, Dawn	Truswell, Paul
Prosser, Gwyn	Turner, Dennis (Wolverh'ton SE)
Purchase, Ken	Turner, Dr Desmond (Kemptown)
Quin, Ms Joyce	Twigg, Derek (Halton)
Quinn, Lawrie	Twigg, Stephen (Enfield)
Radice, Giles	Tyler, Paul
Rammell, Bill	Vaz, Keith
Rapson, Syd	Vis, Dr Rudi
Raynsford, Nick	Walley, Ms Joan
Reed, Andrew (Loughborough)	Ward, Ms Claire
Reid, Rt Hon Dr John (Hamilton N)	Wareing, Robert N
Rendel, David	Watts, David
Roche, Mrs Barbara	Webb, Steve
Rooker, Jeff	White, Brian
Rooney, Terry	Wicks, Malcolm
Ross, Ernie (Dundee W)	Williams, Rt Hon Alan
Rowlands, Ted	(Swansea W)
Ruddock, Ms Joan	Williams, Alan W (E Carmarthen)
Russell, Ms Christine (Chester)	Wills, Michael
Ryan, Ms Joan	Winnick, David
Sanders, Adrian	Winterton, Ms Rosie (Doncaster C)
Savidge, Malcolm	Wise, Audrey
Sawford, Phil	Wood, Mike
Sedgemore, Brian	Woolas, Phil
Shaw, Jonathan	Worthington, Tony
Sheldon, Rt Hon Robert	Wright, Anthony D (Gt Yarmouth)
Simpson, Alan (Nottingham S)	Wyatt, Derek
Skinner, Dennis	Tellers for the Noes:
Smith, Rt Hon Andrew (Oxford E)	Mr. David Clelland and
Smith, Angela (Basildon)	Mr. Jim Dowd.

Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on Second or Third Reading), and agreed to.

Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).