Social Security

HC Deb 28 January 1999 vol 324 cc485-562

1.8 pm

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

I beg to move, That the draft Social Security (Contributions) (Re-rating and National Insurance Fund Payments) Order 1999, which was laid before this House on 13th January, be approved. The House is being asked to consider a fourth order in addition to the uprating orders because an error in the main order shows the amount of benefit for widowers pension in industrial injuries benefits as £66.25, whereas the actual uprated amount is £66.75. The error will not affect the actual benefit paid. I apologise to the House, which I hope will approve the amended order. I am grateful to the Opposition who have, as far as I know, not objected to the late tabling of the fourth order.

I want to deal with the orders in four parts. First, I want to place them in the context of overall spending on social security, because the question of whether they are affordable will arise. Secondly, I shall deal with the uprating orders themselves. In general, most insurance benefits will increase in line with the retail prices index, at 3.2 per cent. Means-tested benefits will generally increase by 2.1 per cent., in the normal way. That is providing £3.7 billion of extra help for millions of people, including 1.5 million pensioners, and 6.5 million families with children.

Thirdly, I want to deal with the pensions uprating. Finally, I shall set out how we are improving the system for getting benefits to disabled people and people of working age.

The orders are affordable. They are part of our strategy to ensure work for those who can and to provide security for those who cannot. Our objective is to build an affordable social security system that meets the needs of the next 50 years, not those of post-war Britain, and that provides active help to get people into work and off benefit, and not only cash benefits.

We are doing this while maintaining prudent levels of public spending and tighter controls. Increasingly, we ask for more evidence before we pay awards and we are changing the culture of Benefits Agency staff, asking them to engage in active case management to ensure that benefits are right from the start and kept right throughout the duration of their payment.

We inherited a system characterised by spiralling costs and sometimes slack controls. Between 1979 and 1987, the Conservative Government spent no less than £43 billion more on social security while inequality, poverty and social exclusion increased dramatically. They were spending to treat the symptoms of failure, not its causes.

We inherited a situation where one in three children live in poverty, which is why we are introducing today a record increase in child benefit. One in five households of working age have no one in work, which is why we introduced the new deal. One in three people of working age risk retiring on means-tested benefit, and that is unacceptable. That is the reason for our pension reform, which I announced last December.

Mr. Frank Field (Birkenhead)

Most of us agree with my right hon. Friend that it is appalling that one in three pensioners retire on to means-tested assistance, but will he confirm that, if his pensions reforms are implemented, 50 years hence, the proportion will fall only to one in four?

Mr. Darling

I read in some detail my right hon. Friend's article in Pensions Week, which has retained him as a pensions expert. We will debate pensions next week, when I will go far more into that subject. As he knows better than many in the House, predicting what will happen over the next 50 years involves many variables. The reforms that I announced last December will mean that far fewer people than at present will depend on means-tested benefits when they retire. My objective is to ensure that, as a matter of policy, if people work for their whole lives, they should be able to accrue a sufficient pension to retire on an income above the means-tested benefit. I know that he has particular difficulties with my proposals, just as I have with his. There is an honest difference of opinion, which will no doubt be explored at great length. I would have hoped that he would have supported our objective, which must be to reward work so that people retire with a pension above means-tested benefits.

Mr. Field

Will my right hon. Friend give way?

Mr. Darling

Only once more, as the orders primarily deal with general social security benefit.

Mr. Field

My right hon. Friend said that we should reward people who have worked for the whole of their lives. No one disagrees with that. Why, then, are the capital limits not being increased by the orders?

Mr. Darling

My right hon. Friend has no doubt read the pensions Green Paper and knows that it explicitly states that we want to examine the capital and income limits on pensions. All hon. Members will agree that, above any other source of complaints, pensioners tell us that they have saved all their lives but are penalised for it while people without savings who have perhaps spent all their money are not. I want to stop that, which is why, both in the Green Paper and in exchanges on the Floor, I made it clear that the Government want to consider the matter. That reform is long overdue and I hope that he will support it. I repeat that the Government's strategy is to have a pensions policy designed to get people off means-tested benefits as far as possible. Of course, we must look after the poorest pensioners, who, through no fault of their own, may end up without enough money to retire.

We are controlling social security spending because we are determined to get people back into work. Our manifesto promised that we would cut the bills of economic and social failure. We have several schemes and measures, some before the House today, that will encourage people to get back into work. The single gateway, about which I will have more to say soon, will improve matters further.

Department of Social Security spending will grow by less than 2 per cent. during this Parliament, compared to 4 per cent. during the previous Parliament. That includes our investment in the working families tax credit. In the first year of the previous Parliament—under the previous Government—spending on social security rose by a staggering 10 per cent. We have been able to control that spending. Unemployment has gone down—there are 400,000 more jobs in the economy than there were at the election—and unemployment has dropped by some 300,000. Moreover, because of our wider economic policies—the new economic stability, the new deals and making work pay—we are ensuring that we create the sort of economy that will encourage job development.

As my right hon. Friend the Chancellor has repeatedly told the House, our objective is to achieve a new stability in a very unstable world, because we want people to invest in Britain and firmly believe that the best form of welfare is to get people into work. We must end a situation where people are almost consigned to a life on benefit dependency, as so many were during the 1980s. One sometimes thought that it was almost a matter of policy.

The new deal to get young and long-term unemployed people into work is making a significant contribution. Some 50 per cent. of those who leave the new deal find paid jobs. We have also invested £195 million in the new deal for disabled people, because the Government have a clear commitment to do far more than we have in the past to help disabled people, especially those who want to get into work.

Providing access to quality, affordable child care, with the first-ever national child care strategy, is an important part of that approach. So, too, is making work pay, with the introduction of the national minimum wage in April, and wider tax and benefit reforms. From April, nearly 2 million people will gain from the first national minimum wage—two thirds of them women on low wages.

From October, the new working families tax credit will guarantee low-paid families with a full-time worker a minimum income of £10,000 a year. It remains a surprise to the Government why the Tory party is committed to getting rid of the working families tax credit, which would mean a tax increase of some £17 a week for the poorest families. The disabled person's tax credit will provide a guaranteed minimum income of at least £150 a week for a single disabled person who moves from benefit to full-time work.

Before the House is an extremely important order, which cuts taxes for all employees who pay national insurance. It is worth nearly £70 a year to 20 million people. We are reducing the national insurance burden for employers, which is of particular importance. From April, employers will not pay contributions on the first £83 of their employees' weekly earnings—up from the current threshold of £64. That is a great help to employers, as is a further step that we are taking: we are simplifying national insurance for employers by replacing the current four rates for contributions with a single, unified rate of 12.2 per cent. for all earnings above the £83 a week earnings threshold.

We are also helping people with long-term illnesses and disabilities to get back to work by increasing the amount that people on incapacity benefit can earn from therapeutic work by a full £10 a week, rising to £58 a week.

All those measures are designed to make work pay, because we are determined to end the previous Government's poverty of opportunity, and end abuse of the system. We inherited a system that is, in many cases, wide open to fraud and error. We are taking action to root out benefit fraud and reduce error. We set up the benefit fraud inspectorate, and introduced a wider range of penalties to punish fraud. This week, I announced that we are stopping the Post Office sending housing benefit cheques to bogus addresses. When we trialled the procedure a short while ago, more than £200,000 was saved in just a month in two London boroughs.

We recently made £100 million available to help local authorities check the accuracy of housing benefit claims. The House is well aware that far too many mistakes—some error, some fraud—are made in housing benefit. However, it is clear that an effective fraud strategy must rid the system of two major flaws that we inherited: first, the system tempts councils to inflate the amount that they detect; and, secondly, it rewards detection and not prevention. The prevention of fraud is far more important that the previous Government thought. Detection is important, but prevention and being tough on the causes of fraud are just as important as dealing with its consequences.

It is worth noting that the National Audit Office report was very critical of the system that we inherited from the Tories, stating that the results suggested that, at best, there were high levels of error when claiming weekly benefit savings and, at worst, sharp practice by local authority staff. It did not surprise me when, a couple of weeks ago, one or two councils complained about our change of approach and that those councils were supported by the Conservative party. They must face the fact that the weekly benefit savings focuses attention on catching fraud once it has happened, and that sometimes that fraud is manufactured; it does not concentrate on preventing fraud in the first place.

Mr. Iain Duncan Smith (Chingford and Woodford Green)

The right hon. Gentleman makes much of the changes. Does he not accept that it would be possible to enhance the detection of fraud once it has happened as well as preventing fraud? He seems to think that there is a gain in trading off one for the other. Surely, the point made in the newspaper articles is that he is putting at risk a saving of up to £200 million, but offering no targets for the amount that he will push off by getting rid of people's ideas about defrauding the system.

Mr. Darling

No, I am not saying that. As I have just said, I hope to set out soon our response to the Green Paper on fraud published by my right hon. Friend the Member for Birkenhead (Mr. Field) when he was Minister for Welfare Reform. We have finished our consultations on the document and shall publish our response shortly.

Targets are important, but it is even more important to have the right targets. I agree with the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) that detection is very important. We set up the benefit fraud inspectorate, which is proving to be very successful, but we believe that, in the past, not enough attention has been paid to preventing fraud in the first place. The hon. Gentleman will know, as will anyone who has studied social security for even a short time, that the nature of some benefits—the lack of gateways and the evidence that is asked for—make it easy, in some cases, for mistakes to be made. Sometimes, there is genuine error—perhaps people do not get around to saying that their circumstances have changed—but that is not always the case. There was a recent case in which a person was quite open about having used the slackness in the incapacity benefit system to defraud the social security system of substantial sums. We must close such gateways and ensure that we concentrate on prevention as well as detection. It is possible to do both and that is the best way to tackle the problems.

The hon. Member for Chingford and Woodford Green asked about targets. The Government have to review the targets and when we are able to make an announcement, I hope that he and everyone else will be satisfied that we have a sufficiently wide range of targets, which deliver the goods in prevention and detection. As I said, we are determined to take action across the board to ensure that our public spending plans are prudent and affordable and that we bear down on fraud and error in the system. That is a very important part of our strategy.

The reason why we are controlling social security spending and ensuring that we have an affordable and manageable system is that we want to provide more money for pensioners, families with children and people with disabilities. I am committed to doing more for disabled people, as our proposals published last October made clear. From April 2001, we shall provide new help for the most severely disabled with the highest care needs through a new disability income guarantee, worth at least £128 a week for most single people and £169 a week for most couples. This year alone, through these orders, we shall spend £3.7 billion more, which includes a record increase in child benefit and more help for the poorest pensioners.

Some 6.5 million families will be better off because of the biggest-ever increase in child benefit. From April, it will rise by nearly £3 to £14.40 a week for the eldest child. That is part of our strategy for dealing with the appalling level of poverty among children, which we inherited. We shall put extra resources into tackling the causes of poverty, including the sure start programme, which is designed to help young children get a good start in life and to end the pernicious circle whereby someone born poor will work poor and die poor, if we do not do something about it.

We are also doing more for pensioners. The basic state pension will be increased to £66.75 a week for single people and £106.70 for couples. Our new pensioner minimum income guarantee will provide help for 1.5 million of the poorest pensioners. That will rise to at least £75 a week for single people and £116.60 for couples, which is nearly £5 a week extra for single pensioners and over £7 a week more for couples. As I said in reply to the intervention of my right hon. Friend the Member for Birkenhead, we are determined to alleviate the difficulties faced by people who have a modest amount of capital or income in retirement.

Hon. Members must consider what else we are doing for pensioners. We have cut VAT on fuel and we have abolished the tax levy, which helps to reduce fuel costs. We are restoring free eye tests, which is appreciated by many pensioners. We are also helping with concessionary travel, which is also of great value, to help elderly people to get out and about.

In short, we are providing security for today's pensioners. As the Prime Minister said yesterday, in two years we have done a great deal, especially to deal with the plight of the poorest pensioners, but we fully accept that we want to do more in our overall strategy. We have announced our proposals for the long term. The royal commission on long-term care will report shortly and will no doubt make recommendations that the Government will want to study closely. We are as committed to helping today's elderly people as we are to ensuring that we plan for those in the future.

Mr. Steve Webb (Northavon)

As the Secretary of State will know, I welcome extra money for poorer pensioners, but I object to the pretence that there is a guarantee. We are told that, from April, pensioners will have a minimum income guarantee, which is a major new reform. Will the Secretary of State tell me where in the uprating orders that guarantee is mentioned, because I understand them to relate only to income support?

Mr. Darling

As the hon. Gentleman knows, the minimum pension guarantee is not statutorily defined, but it is a guarantee for the poorest pensioners who qualify for it—

Mr. Webb

indicated dissent.

Mr. Darling

Of course it is. The hon. Gentleman should be aware of that. I read the article in the Daily Mail a couple of weeks ago, of which I assume that he was the author, in which he alleged that pensioners are worse off under Labour if one takes into account various factors, including the abolition of tax relief for private medical insurance, which I am not sure many pensioners have; mortgage tax relief, although, by their very nature, pensioners tend no longer to have mortgages, and the higher fuel duty, although, as one gets older, one tends to drive less. He included also the higher tobacco duty, and, although I concede that some pensioners smoke, I am not sure that they all smoke like chimneys. The hon. Gentleman lumped in council tax for good measure, ignoring council tax benefit.

By comparing and contrasting all those factors with our positive actions, which he acknowledged, on VAT on fuel and winter fuel payments and so on, he managed to work out that pensioners were £2 a year worse off.

Most people know that the Government have much more to do, but our commitment to all poor people, particularly pensioners, cannot be in doubt. The hon. Member for Northavon (Mr. Webb) should consider the Green Paper on pensions—I am not sure what the Liberal Democrat position on that document is—which proposes massive help for people on low earnings who, at present, would retire on means-tested benefit. That should be supported. No doubt, we shall return to that matter in the debate next week.

Mr. David Rendel (Newbury)

Is the Secretary of State saying—as I think I heard him say in reply to my hon. Friend the Member for Northavon (Mr. Webb)—that everybody who is eligible for the minimum income guarantee will receive it or just that they have a right to receive it? What estimate has he made of the number of those who are eligible for the minimum income guarantee who will not receive it because they will not claim it for one reason or another?

Mr. Darling

I understand the hon. Gentleman's point. That is a problem. He will know that the Government have been considering how we can ensure that pensioners who are entitled to benefit receive it. Last year, we carried out pilot studies to find out what we can do. There are complex reasons why pensioners do not take up their full entitlement. Some feel a stigma in doing so because they were brought up in an age when the concept of means testing was completely different from what we understand now.

Mr. Quentin Davies (Grantham and Stamford)

The means-testing is exactly the same.

Mr. Darling

I cannot let that pass. The hon. Gentleman, who speaks from the Front Bench for the Conservatives, has been critical of means-testing, as he has in previous debates. I should point out that, during the 18 years that the Conservatives were in government, means-tested benefits grew from 16 per cent. to 34 per cent. of the total. Perhaps we shall return to the matter next week. For good measure, and in case he wants to reply, I remind him that the hon. Member for Chingford and Woodford Green wrote a book on the subject in 1993, in which he said that it would be undesirable to return to a system based on more collective social insurance. Their criticism is a little misplaced. I accept that, for those 18 years, the hon. Member for Grantham and Stamford (Mr. Davies) was, in effect, in opposition, too, so he may take a different line.

I return to the more serious point made by the Liberals. We are concerned to ensure that we get benefits into the hands of pensioners who are entitled to them. Perhaps we may return to this in the debate on pensions next week. I am glad that the Opposition have given the Government a chance to set out at greater length what we are doing for pensioners. The hon. Member for Newbury (Mr. Rendel) might be interested to know what we are doing to encourage pensioners to make telephone claims. We are running a scheme to make pensioners in north London aware of their entitlement. They are being taken through their forms by staff at a call centre in Newcastle. We are finding that the response rate and pensioners appreciation are far greater than one would have imagined. More people are used to telephones; they find them less threatening and more user-friendly. Our staff are well trained.

I am determined to ensure that we move away from saying, "Yes, you have entitlement," but doing nothing about it. Where we provide an entitlement, we want people to take it up. To balance that, I am also determined to end the payment of benefits that should not be paid. The Liberals cannot have it both ways. We can do far more for those who need help provided that we ensure that gateways to the benefits system are tightened up, and we do not continue paying benefits when we have no need to do so. I know that Liberal Democrats do not accept the latter half of that approach, but I remind them that their penny on income tax has been stretched a great deal—even since the election.

We are modernising the benefits system to ensure that people get the benefits to which they are entitled. We are introducing a fairer benefit review for disabled people who receive disability living allowance, and introducing a radical new service to help people of working age get back to work.

I want to comment briefly on the national insurance recording system because hon. Members may ask whether the orders will affect it. The short answer is no. The problems with the national insurance recording system—NIRS 2—have rightly attracted much attention this week. I have endeavoured to keep hon. Members informed. I wrote to them on 11 September, since when matters have clearly moved on. We have kept the Chairman of the Public Accounts Committee fully informed, and I and my colleagues answered written questions on 4 November and 18 January. There are problems with the project; there is no getting away from that. We inherited the project from the previous Government. The contract was signed in 1995, and I am afraid that we have to clear up the mess that has been left behind.

Mr. Duncan Smith

Given the nature of the problems, the number of letters on the subject that many hon. Members are receiving and the concern about what is going on, of which the Secretary of State will know, will he commit himself and his Department to making a statement on the matter in the next few weeks?

Mr. Darling

I must discuss the making of statements with colleagues. In the meantime, I undertake to write to hon. Members once I have gathered a little more information. I am very anxious to keep the House up to date. There is no doubt that many of our constituents will be concerned. They will have read newspaper reports on the subject, some of which are right and some of which are slightly off beam. There is clearly a problem.

The computer system is the largest in Europe; it was, perhaps, inevitable that problems would occur. There is no doubt that, if we could start again today, procurement and contingency arrangements would be rather different. We must clear up the mess. As soon as I became aware of the scale of the problems when I was appointed in July, I decided that the priority was to try to fix the system and get it right. I am very happy to keep the House informed. Perhaps, in the first instance, it would be appropriate to write to all hon. Members or to answer a parliamentary question, but, if there were overwhelming demand for a statement, I would not stand in the way.

We have done everything that we can to try to get the system operating properly. Significant progress has been made in the past few weeks, but undoubtedly it will be many months before the problem is completely resolved.

Mr. Duncan Smith

May I make a simple suggestion? Perhaps, even if the right hon. Gentleman undertakes to make a statement at some point, he would consider, from his Department's point of view, informing those who are eligible for a pension who are confused about the matter—perhaps by advertising campaign, to explain what is going on and to reassure everyone that they will get restitution. The letters that many hon. Members on both sides of the House are receiving reveal deep concern, without any knowledge.

Mr. Darling

I want to reflect on that. The hon. Gentleman will appreciate that it would be a major task to write to every pensioner, and unfortunately, in the development of that computer system, matters move on, sometimes fairly quickly—sometimes to our advantage, sometimes not. Any pensioner who has any doubts about how much they are getting may raise the matter with their local office.

We have taken great steps to ensure that we get the amount of pension as close to the right amount as possible. In most cases, the error will be not much more than a pound a week—sometimes a little more than that. If any pensioner is in hardship, there are provisions to meet that.

I reassure the House that the Government are fully aware of what the problem is, that we are trying to sort the matter out, and that we are taking steps to ensure that, when we take future decisions on procurement, we apply what we have learnt from the problems that have arisen.

Mr. Edward Leigh (Gainsborough)

Will the right hon. Gentleman give way?

Mr. Darling

I shall give way, but then I shall move on, because I sense that the House would like me to conclude before the sun goes down.

Mr. Leigh

Will the right hon. Gentleman remind the House how many pensioners have been affected by the breakdown in NIRS2? Will he say whether he is satisfied with the performance of Andersen Consulting—or would he rather not comment?

Mr. Darling

On the latter point, the hon. Gentleman will be aware that it is extremely unwise to discuss contractual matters and possible litigation across the Floor of the Chamber. In answer to his first—better—question, about 180,000 pensioners are currently affected. That is far too many, but it is inevitable because of the failure of the computer system to operate on time.

The previous Government entered into the contract. A year later, it was recognised that it would be problematic, but, unfortunately, the contingency plans that were developed were not foolproof. The current problems are being tackled, but I do not want hon. Members to be misled about this. Although the system is now starting to work satisfactorily, it will take some months to clear the backlog and to get things operating.

I am determined that one of the things that I shall do while I am Secretary of State is ensure that we overhaul and replace our information technology systems. That is essential if we are to deliver a first-class service. However, in my experience, the procurement of a large computer system has much in common with the purchase of a laptop computer; very often, when one switches the computer on, astonishingly, nothing seems to happen. That problem seems to be endemic to the entire industry.

Mr. Rendel

rose—

Mr. Quentin Davies

rose—

Mr. Darling

As the hon. Member for Grantham and Stamford did not know that it was the Tories who signed the contract, I give way to him.

Mr. Davies

Indeed, I did know that the Tories signed the contract, but the fact is that the problems began a year ago and, for many months, the present Government, who have the responsibility, appear to have done nothing about it. The right hon. Gentleman has, correctly, taken a much more measured and less defiant tone on the subject than he has in previous pronouncements, but will he take the opportunity to apologise to the House for having, last September, very rashly said that the whole problem would be resolved in two weeks?

Mr. Darling

I may be wrong, but I am told that, when the hon. Gentleman went up to Newcastle, he managed to persuade Radio Newcastle to allow him into the studios. He seemed to be unaware at that time that it was his Government who had signed the contract. I am glad that he now accepts that.

As for the past year, the Government were aware that there were problems with the system. The view that I took on becoming Secretary of State was that it was important for us to do everything possible to get the computer operating properly. There have been substantial problems, which have been narrated at length. As regards my tone throughout, it was I who took the decision to write to hon. Members. The information in that letter of 11 September was the best advice that I had at the time.

Mr. Davies

Two weeks?

Mr. Deputy Speaker (Mr. Michael J. Martin)

Order.

Mr. Darling

Since then, a number of parliamentary questions have been answered. I caution the hon. Member for Grantham and Stamford that, if he proceeds much further down that line, there are many other things that could be said about the history of the contract. He was in opposition to his party, but his colleagues may not like it.

Mr. Rendel

rose—

Mr. Darling

No, I have given way to the hon. Gentleman. I shall move on, as I want to say a word about the benefit integrity project. In my statement to the House on 28 October, I said that we had come to the view that the project was not working satisfactorily. I can announce that the benefit integrity project will end on 31 March.

That will be replaced in April by a new system, which will ensure that people getting disability living allowance are receiving the benefit to which they are entitled. I am determined to see that the system will ensure that people get help if they need it, but I am equally determined to ensure that we end the situation that we inherited, where a third of the awards were being made in cases where there was no evidence to justify an award.

I am writing to all hon. Members today with details of the new arrangements. I shall continue to hold discussions with disability groups, in particular the Disability Benefit Forum, which has been of immense help to the Government with their disability policy. I am grateful to all who have served on the forum.

We want to ensure that our new system is sensitive, fair and effective. Our strategy to improve the benefit system includes the single gateway, with which I shall deal shortly. We want to bring about a radical change of culture in the Department. We want to ensure that benefits go to those who are entitled to them, and that the system is robust. We want a radical service that will, for the first time, give everyone personalised work-focused advice delivered by his or her own personal adviser.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

rose—

Mr. Darling

I shall give way to the hon. Gentleman, then, for the benefit of everyone else, I intend to sit down shortly afterwards.

Mr. Kirkwood

This is an important debate. The Secretary of State has made it clear that the Government's focus is to get people off benefit and into work. That has profound implications for the contributory principle in the national insurance scheme. I am afraid that the Government are making changes without looking at the context as a whole. The Select Committee on Social Security has agreed in principle to undertake a study of the matter. Will the Secretary of State make sure that Ministers and officials contribute to that debate, which may be to the benefit of the entire House?

Mr. Darling

Certainly, the Department will do everything that it can to co-operate with the Select Committee. As the hon. Gentleman knows, I am only too ready to co-operate with the Liberal party in discussing this or any other matter relating to my Department. He is right that an examination of those issues will be of immense importance in the next few years.

It is worth reflecting on the fact that the contributory principle now accounts for just over 40 per cent. of the benefit system. The downward trend has occurred over the years, as I pointed out to the Conservatives earlier. There are problems. Those who advocate a return to the contributory system as it was ignore the fact that, with the lower earnings limit, for example, a number of low-paid people were excluded from it.

Most of the contributory system for those of working age now pays for incapacity benefit. By no stretch of the imagination would that be the only thing that we would want to ensure against, if we were starting from scratch. I can assure the hon. Gentleman that the Government have considered those matters in the long term. The pensions proposals that I announced last December are heavily dependent on the contributory principle, because we believe that people should be rewarded for a lifetime's work.

The hon. Gentleman will know that, through the new state second pension, we have done a great deal to reward work. Equally, we have increased child benefit, which is not a contributory benefit, but a universal benefit. We believe that it is important because it goes to children.

I certainly accept that the issues relating to people of working age need to be looked at. There is a balance to be struck on these matters, and we want to help those people who need to be helped most, but anyone who believes that simply going back to the old contributory principle is our salvation has failed to take account of the fact that the labour market has moved on in the past 50 years. I welcome the fact that the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) and his Committee are looking at that issue, and I am more than happy to co-operate with him.

Indeed, for the sake of completeness—and on the off-chance that the Conservatives are in the mood for some co-operation and some constructive thinking—I should be more than happy to speak to them as well, such is the broad-minded view of the Government on these matters.

This is a useful opportunity to discuss the matters raised in the orders. We are determined to do far more to change the whole culture of the welfare state and we want to get people into work, because we believe that work is the best possible means of achieving independence. I want to stop a situation where far too many people who could work do not have the opportunity and become dependent on benefits, with everything that that entails in social and economic terms.

At the same time, we want to help people in childhood—to ensure that they have the best possible opportunities—through support from the welfare system and the education system. We want to ensure that pensioners can retire with a decent level of income, and that was the main driver behind the pension proposals that I announced last December.

In respect of people of working age, the Government will announce over the next few weeks a number of steps on which people will look back and say, "That was the turning point when people's rights and responsibilities were rewritten." We will be able to do far more to provide opportunity and to deliver an enterprising economy, as well as a secure future, for those who can, quite rightly, look to the state to provide that. I commend the orders to the House.

1.47 pm

Mr. Iain Duncan Smith (Chingford and Woodford Green)

The Secretary of State set out to be brief, but his speech was dragged out for a bit longer than he anticipated. As he said, this is a low-key debate, but it is also wide ranging and has always been treated as such. We do not oppose the orders, for the obvious reason that many of the upratings and changes are vital for those who need the benefits. It is therefore important to consider the debate in the context of range—rather than specifics and too much detail—and to try to get to the bottom of what, exactly, the Government are about, now that we have had two years to look at this matter. Yet the one thing that the Secretary of State did not say much about was the famous pledge that the Prime Minister made before the election and continued to make not long after it. In April 1997, he said: As we get welfare bills down … then we can release more money into education and health and services where we really want them". After the election, he went on to say: I have asked Ministers at the Department of Social Security"— admittedly not the current Ministers— to look in detail as to how we can make far reaching reforms that tackle insecurity and poverty as well as reducing the social security bills". I shall not spend a huge amount of time on this, but given the Secretary of State's—

Mr. Darling

The hon. Gentleman is not on good ground.

Mr. Duncan Smith

I think that I am on good ground, and the right hon. Gentleman will find out just how much good ground we are on today, because the Government set themselves a target and it is fair to measure them by it. I do not want to be churlish, and hon Members do not want to be too mean, but when someone is elected on a particular policy objective it is fair that people should know, each year, whether it is being met.

The Government carried out a huge spending review; indeed, the Secretary of State was the man responsible for that review, around which so much of the relevant measures are set. As we were told by the Prime Minister, the review was meant to reduce the cost of the social security spending, but we find, using the Government's form of accounting, that the rise over the three relevant years—three years towards the election—will be £37 billion.

We must not question whether that objective is good or bad, but whether that is exactly what the Government said. [Interruption.] No, from the Government's point of view. There is much in the review that is unnecessary, and we will deal with that in more detail later, but the Government disagree. They took on the Conservative Government's projections; the Secretary of State will remember that, because he considered them in his spending review.

The Conservative projections were for growth of £15 billion over the same period, but the Government's figure is £37 billion. The gap between the figures needs to be examined and set against the increases in health and education spending. After all, that spending was supposed to be increased as social security spending was due to be decreased.

Let us put some of the record straight in regard to the line that the Government inherited. In the financial year 1997–98, social security spending fell as a proportion of gross domestic product for the first time in a long period. That was the year in which Labour inherited total expenditure of 11.9 per cent. of gross domestic product. It followed four years of falling social security spending. The Secretary of State inherited a budget that was not climbing but falling, but the Government have managed to turn the position around and increase the budget.

We are talking about a massive increase. The Government will take the figure from 11.9 per cent. to about 13 per cent. before they leave office—and leave office they will: I feel certain of that, notwithstanding the temporary blip on the front page of today's edition of The Times. The wrong questions were clearly being asked.

The Secretary of State no longer refers to that basic failure, but we have referred to it. It is there, a badge by which the Government will be measured. The Government have failed so far, and they will fail in the future; but what underlies their failure? That is what I really want to talk about.

Mr. Webb

Anyone trying to be independent—as Liberal Democrats are, of course—in deciding which Government had spent more on social security would consider whole Parliaments, and would strip out the cyclical element. Picking different points in a cycle messes up such judgments. An independent assessor would not say that the first two years of a Labour Government did not count because that Government had been following Tory policies; they were in office, and they could have changed things. On the basis that I have described, every Tory Parliament since 1979 raised benefit spending more than this Labour Parliament will. Is that not true?

Mr. Duncan Smith

I do not disagree with that. I agree with the hon. Gentleman's point about cycles, but the point that I was making to the Secretary of State is that we were pressing down on social security spending, and that he therefore inherited a falling budget. That was the cycle in this instance. It is no good the Labour Government saying that they inherited a budget that was rising, which was inherent in what was said by the Secretary of State.

We can look all the way back to 1945, and see an inexorable rise in the budget, regardless of which party has been in government. During different cycles, the rise has been at different levels. That is what today's debate is all about. How can we deal with such a position, and how can we deal with the structure that has driven much of what has happened?

As I have said, when Labour came to office it set itself a specific target. The Prime Minister said, "We are going to cut social security spending", but the Secretary of State has to admit that the Government are not going to cut it. It will rise more rapidly than was predicted by the Conservative projections, which were examined independently by a number of bodies. That is the only point that I am making. The target is the Government's, and they must be measured against it. Does the Secretary of State accept that?

Mr. Darling

What the Prime Minister and the rest of us said was that we would cut the bills of economic failure, getting people who could work into work. We also made it clear that we wanted to do more for pensioners, that we wanted to do more to end child poverty—which is why we are increasing child benefit—and that we wanted to help people with disabilities. As the hon. Gentleman will see if he looks at the increased spending for the next few years, half of it will be devoted to pensions, about a quarter will be devoted to people with disabilities, and a bit less will be devoted to children.

We know that the hon. Gentleman wants to cut, indeed abolish, working families tax credit. If he believes that our spending is wrong—and, if he does not, he should not criticise it—will he tell us what he will cut? The leader of his party and the shadow Chancellor have said that they will cut social security spending. What are they going to cut?

Mr. Duncan Smith

That was a remarkable attempt to rejig the pledge. Let me repeat what I quoted earlier. The Prime Minister did not just say that the Government would transfer the money to deal with social ills. He clearly said: As we get welfare bills down … then we can release more money into education and health". Later, he added: as well as reducing the social security bills". I am not going to discuss whether such proposals are good or bad; we could debate that at length. [Interruption.] I have my views, but I am making a clear point. With respect, Labour Members are in government. The point of today's debate is to decide what the Government will do about that pledge.

I feel sorry for the Secretary of State. He has had to appear at the Dispatch Box yet again and pretend that none of this happened. The fact is, however, that the Government are raising social security spending by £37 billion a year. Does the Secretary of State disagree with that?

Mr. Darling

We are spending more on pensioners. We are spending more on child benefit—a record amount. We are able to do that for two reasons. First, we are maintaining prudent control of public spending overall and have set our spending for the next three years. People accept that that is the right thing to do—it is affordable and prudent. The only people who are against it are Conservative Members. Secondly, by examining social security spending that we think should be cut—for example, that spent on people on benefit who should be in work, or gateways to benefit that should be tightened—we will cut those bills. I repeat the point that, in this Parliament—the hon. Member for Northavon (Mr. Webb) is right—the rate of growth of social security spending will be half that of the previous Parliament.

This is not an arcane debate. It is important to people because the amount that they get either in assistance to get into work, or from pensions and so on matters. Therefore, I repeat the question: if the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) intends to complain and moan about what we are doing, will he please tell us what spending he would cut? He must have a view on it. The Conservatives have been in opposition for nearly 20 months. Surely they have come to some view on the matter, other than that working families tax credit should be abolished.

Mr. Duncan Smith

It is a Labour pledge. The Secretary the State can do whatever else he likes, but he cannot wriggle off that hook. Labour said that it would cut social security. As we run towards the next election, we will make it clear to the British public that they cannot have it all ways as the Labour Government have pretended. They pretend that they can increase massively spending on social security, education, health and everything else without having to raise taxes. That is the critical issue. The Government are not telling the public the truth. That is what lies at the heart of the failure.

A much more important issue lies behind all that: why the Government will fail on all those objectives. What exactly drives the Government? What is their clear agenda? It is not quite what the Secretary of State laid out—there is a deeper subtext.

It is the Chancellor of the Exchequer's determination to change the social security system, using the idea that, at the top line, work solves all problems with regard to poverty. Behind that lies the other part of the equation, which the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), the Chairman of the Select Committee on Social Security, touched on: the growing level of means-testing. The explanation for that is that the Chancellor also has to focus on the bottom 10 per cent. He believes that that is the only way in which he can now direct the money. He cannot have it both ways, otherwise he will end up increasing spending even at a greater rate than the Government are about to do.

The Chancellor did not tell the public about that and Labour did not campaign on that at the election. I discovered something the other day quite by surprise. In 1993, when the Chancellor addressed the Labour party conference, he said: I want the next Labour Government to achieve what in 30 years of the welfare state has never been achieved. The end of the means test for our elderly people. I want to examine to what extent anything he is doing runs anywhere near that process. As I have said, the Chairman of the Select Committee needs to think about that one. The man who was against means-testing, the right hon. Member for Birkenhead (Mr. Field)—he is now sitting on the Benches behind the Secretary of State—was pushed out ultimately by the man who is for means-testing.

The criticisms by the right hon. Member for Birkenhead of that system and process have been widely publicised. He said in 1998: Means-testing penalises honesty, discourages work and harms thrift". Let us analyse that and see exactly what is happening within the Government.

First, the Treasury takeover of the Contributions Agency deliberately fudges the connection and distinction between national insurance contributions and taxation. At present, we all know that two separate agencies collect tax and national insurance, but that takeover, notwithstanding the Government' assurances in the other place that it is just a functional step and tidies things up, is a deliberate step to eradicate any distinction. In brief, it is a short functional step towards sending the national insurance system into oblivion.

What comes next begins to make the case. It is the introduction of what the Secretary of State referred to as the minimum income guarantee for pensioners. I think that that is a misnomer; the Liberal Democrat spokesman, the hon. Member for Northavon, picked that up. It is no such thing. It is an income support guarantee for pensioners, which is fundamentally different. That is another example of the Government running their misleading rhetoric well ahead of reality. They want pensioners to believe that they will all get an increase. As the Liberal Democrats have pointed out, that is not true. Pensioners are not that stupid. They know that this is about income support because they know what income support is all about. The Government are merely shifting the base to income support while freezing the level of the pension. They have increased the scope for means-testing, which, as the right hon. Member for Birkenhead has pointed out several times, is a mistake.

Another negative effect is that many pensioners will choose not to take the money. The Secretary of State mentioned this important issue. A significant number of pensioners whom we believe to be eligible—almost 1 million, I think—do not claim income support. Increasing the level of income support will merely chase the error. The Government will not solve the problem if they merely add to the aspect that pensioners do not like. Perhaps there is a reason for that. Perhaps they know that fewer people will take the benefit and are hoping to save money. The solution can surely only make matters worse.

Mr. Paul Goggins (Wythenshawe and Sale, East)

I am trying to follow the hon. Gentleman's argument on means-testing. If he were ever to regain power—that is a separate debate—would he abolish means-testing?

Mr. Duncan Smith

I am glad that the hon. Gentleman has received his brief to ask a question, because the Secretary of State was worried that no one was intervening. I enjoy independent minds on both sides, but I question whether independence can be stretched in this case. The purpose of my speech today is to discuss the ills of means-testing. I believe that the extension of means-testing that the Secretary of State is carrying out is wrong and will damage the system.

Mr. Chris Pond (Gravesham)

rose—

Mr. Duncan Smith

I want to press on with my point before I give way again.

Pensions Week said—

Mr. Darling

If the hon. Gentleman is saying that means-testing is wrong, is he repudiating the ideas that he set out in the pamphlet "Who Benefits?" that he and some of his hon. Friends published in 1993? He said that it would be difficult and undesirable to bring back an effective system of state assistance organised solely on collective social insurance lines. Is he saying that the Tories would abolish all means-tested benefits if they returned to power? How on earth would they pay for that?

Mr. Duncan Smith

Those are absurd extrapolations, but as the Secretary of State has raised the issue I should like to talk about it. He should read the pamphlet, which I think was remarkably good. It dealt with the reorganisation and restructuring of the benefits system. Can it be focused on a means test or does the system have to be simplified so that it can be based more on eligibility rather than simply concentrating on means-testing? The pamphlet gives options both ways. My view is that extending means-testing is a mistake and will not solve the problems. As we approach the election, we shall make it clear how we shall rectify the problems.

Mr. Field

Is it not absurd to debate whether one side or the other is going to abolish means tests? Is not the crucial question whether the direction is to increase or reduce means-testing? I have a better question for the hon. Gentleman. Should the Conservatives get back into power, would the direction of their policy reduce or increase means-testing?

Mr. Duncan Smith

I accept that the objective is not to debate what happened two, three or four years ago. Looking ahead, my instinct is that we must learn from previous mistakes. Before I discuss the Government's actions, let me say that they have not learnt at all from such mistakes. In fact, there is a clear agenda that will take them straight back to the worst elements of the past 35 years. I want to learn from those mistakes and not return to agendas that have failed. I hope that I have answered the right hon. Gentleman's question.

Pensions Week calculated that after the minimum income guarantee is introduced next April, a married man who has saved up to £9,000 during his life will find that he has the same income in retirement as someone who receives the minimum pensions guarantee and who made no effort to save. The difference is that the first pensioner had to put aside some of his daily income and make that hard choice while the other person did not. That is one of the inequities of the Government's policy. It is the biggest road sign that points to the ultimate demise of the basic state pension and the gradual emergence of a fully means-tested system.

Before the Green Paper was published, the Government said, "Don't worry, wait for the Green Paper when all will become clear and all will be simplified." Yet the Green Paper offered absolutely nothing to the 10.7 million existing pensioners. [Interruption.] The Secretary of State says, "Rubbish", but I have spoken to many pensioners up and down the country and they all say the same thing. They say that behind closed doors Labour Members were telling pensioners not to worry and to trust them as they would restore the earnings link. They may not have said it publicly, but they certainly said it privately. Pensioners feel let down.

Labour told 10.7 million pensioners, "Wait for us", but, instead of rectifying the problem, they introduced the advance corporation tax dividend tax hike which has hurt so many. They had the opportunity to help out the 300,000 non-tax paying pensioners and the 80,000 other pensioners who will be hit by that measure, but they chose not to. I do not know whether the Secretary of State made representations to the Chancellor, but if he did, they were clearly not heeded. It strikes me that the pensions policy is yet another measure that forces people further down the income scale.

I do not want to spend much more time on the Green Paper on pensions because, as the Secretary of State said, we will have a debate on that next week when I intend to raise specific issues. However, it is worth noting that the Green Paper made a huge mess of pension provision which will progressively drive people down the income scale, and increase the numbers that are likely to fall onto income support. Most independent calculations are now beginning to show that.

For example, the Government's plans pose a real danger that employers will close their occupation schemes to new entrants and simply offer them access to a stakeholder scheme to which those employers make no contribution. Employees will therefore lose an element of future income. The Government's plans also attack salary-related occupational schemes, signalling the death-knell for such schemes. The confusion in the Government's proposals may encourage people to join stakeholder pensions that may not prove to be the cheapest or the best investment for them. All the talk about capital limits is part of the debate about perverse incentives on the margins of means-testing, which the Government seem unable to understand, or which they understand for the wrong reasons. As many papers said, the Government's plans tinker with the real problems rather than tackle them.

Let us consider the other factors that are linked to means-testing. Under the Government's new bereavement benefit, widows and widowers with no dependants will have their benefit withdrawn after six months despite the contributions having been paid. If that is not a severing of the contributions link, I do not know what is. The changes will mean that eventually many will be dumped onto means-tested benefits. The Secretary of State must know that because he indicated as much in his statement. He knows that the National Association of Widows said that it would like the state contributory principle to be upheld for future widows.

There is no question that the Government want to shift the child benefit system towards some form of means test, through taxation. The Secretary of State has not denied it. Government assurances on the matter ring hollow. Many mothers are now receiving forms through the post, asking exactly who is in the household and what the incomes are. The idea is to try to measure the household income. Big Brother is asking all those questions in order to be able to decide whether it is feasible to tax child benefit. The Government have said that they are thinking about doing that, and they are trying to find out some of the information en route.

When the Government first said that they would tax generally, the Institute for Fiscal Studies said: As the tax system currently stands, such a proposal would be very difficult to implement. The tax system needs to identify not just the recipient of the child benefit payment, but also the partner in the tax year who may be liable to tax on this payment. It would require the linking of the tax circumstances of all taxpayers with those of their partner. This would be particularly problematic for lower-and basic-rate PAYE taxpayers who currently do not make tax returns. The Government's annual report clearly stated that they intended to go down that road. It said: we believe there is a case for higher rate taxpayers paying tax on Child Benefit if it is to be raised in the future. The Government have raised it, so do they intend to tax it? The IFS said: The taxation of child benefit at the higher rate either raises almost no revenue or significantly increases the complexity of the tax system while raising relatively little revenue. Do the Government intend to tax child benefit? The structure of the system seems to be moving.

Even worse is the side effect of going down that road on child benefit. For example, the IFS shows that about 90 per cent. of families with one earner and one partner staying at home looking after children would be losers. Of families with two earners, about 98 per cent. would be losers.

The IFS said: individuals would face a penalty for declaring cohabiting relationships involving children. As such without any further change we would expect fewer relationships to be declared. In other words, people would be driven into further dependency elsewhere in the system, and there would be statutory single parents who might in reality not be single parents. People who are honest about their relationship and get married will be penalised in favour of another style of relationship. That shows the short-sightedness of the Government's proposals.

The IFS said: The second alternative is to question the principle behind independent taxation. This question is clearly raised by the taxation of child benefit as joint income. The Government must clearly decide one way or the other.

The clear line running through the Government's proposals amounts to the extension of means-testing and the repetition of many of the mistakes that have been made over the past 30 years or so. Before the general election, the Prime Minister claimed that the Government would reduce the dependency culture but, as I think I have shown, they pursue an agenda of extending means-testing, which all hon. Members should agree drags people into dependency, not out of it. The working families tax credit increases dependency even more. The Treasury anticipated a 27 per cent. increase in claimants for the credit, which would increase the number claiming to about 400,000.

Means-testing encourages fraud and deception. That is pretty much established. In its manifesto, the Labour party promised to tackle fraud, yet the whole ethos of the change will make it worse. The manifesto said: Just as we owe it to the taxpayer to crack down on tax avoidance, so we must crack down on dishonesty in the benefit system. One cannot do that if one increases the structure that creates fraud in the system. From WFTC onwards, there is an increasing agenda of fraud, and not one that is likely to fade away.

Most of all, the Government's programme attacks what I believe to be the nature of the family. It is becoming clear that the Government see work as the solution to all the problems and intend to drive through a vicious means-testing programme so that they can focus social security on the bottom 10 per cent. The policy is utterly flawed and flies in the face of the evidence on how best to deal with poverty in the community. The Government are in effect making war on families who are the greatest source of welfare provision and natural support for people in all income groups.

For example, Ruth Lister, a one-time member of Labour's Commission on Social Justice, congratulated the Government on a Budget that moves away from "supporting the family". She is right on that. The new Treasury Minister, the Economic Secretary, also claimed in a speech in 1996 that marriage "doesn't fit any more". A theme runs through most of the utterances of Labour Members.

The Government's policy decrees that natural structures are irrelevant and that work and children are all that matters. It is cloaked in a rhetoric that is meant to be all things to all people—very Clintonesque—and to disguise what it is really about. I predict that the policy will resolve nothing but simply make social breakdown worse, thus increasing dependency on the state, which will force up the cost of social security faster even than the expected rise over the next three years. It will put further burdens, through increased tax, on those on marginal incomes, and will drive them down into the benefit net.

The Government had the perfect opportunity to try to understand what has driven the dependency culture over so many years and, frankly, they have failed. They are still locked in an out-of-date extremist agenda that has at its heart the hatred of the family structures that would offer balance and economic viability. They will fail, I believe, as Labour Governments before them have done, but the saddest part is that it is not their failure but the failure of all of us. The future is not bright. The future is means-testing.

2.17 pm

Mrs. Joan Humble (Blackpool, North and Fleetwood)

This debate is important because it matters to so many people in my constituency and throughout the country. They will welcome most of the proposals. I welcome the increase in child benefit. In reply to the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), I would say that, if there is one notable item supporting the family, it is that substantial increase.

For the first time, I will not be a beneficiary of the increase, so I can speak dispassionately.

Mr. Field

My hon. Friend should then declare a non-interest.

Mrs. Humble

I will not comment on my right hon. Friend's aside.

I welcome the guaranteed minimum income for pensioners, which is another important initiative that will have widespread support, but I want to concentrate on disability benefits. I am especially pleased that my right hon. Friend the Secretary of State emphasised the fact that the Government's policy is based on a strategy of inclusion rather than exclusion, bringing people into the community, whether in paid work or as volunteers, and encouraging disabled people to see themselves as full members of our society. The many benefits under discussion are all part of that strategy.

I am especially pleased at the extension of the higher-rate mobility component of disability living allowance to three and four-year-olds. However, I have had approaches from disability groups who would like the benefit to be extended to children under the age of three. I would welcome any comments that my right hon. Friend might have on that.

I wish to refer to the wider issues of the DLA and the benefit integrity project. Many hon. Members in the Chamber will have heard heart-rending stories from constituents about their dreadful experiences with the BIP. Last January, my advice surgeries were full of people whose Christmas present was an immensely complicated form to fill in for the BIP. They did not understand it. They had been awarded a benefit, they thought, for life—but then they were told that it was not for life and would be taken away. That caused heartache, bewilderment and anger.

I was pleased last year when the Government introduced many changes to improve the operation of the BIP. However, we must realise that the BIP has failed and will be abolished. I look forward to receiving the letter to which my right hon. Friend the Secretary of State referred, which details the changes and the new procedures. It will be important to look at the details of what will replace the BIP and how it will operate.

I have received complaints from constituents about the operation of the DLA and the BIP, but I represent Warbreck house in Blackpool—where the DLA has its headquarters. I visited Warbreck house to talk to the staff who implement all of the procedures, and I met people who were anxious to deliver a good service. They wanted to help those who were coming to them for a service. They did not like being portrayed as ogres who were somehow there simply to deny people a benefit or take it away from them.

Talking to the staff made it clear to me that they were looking to us as parliamentarians to provide a system that they can implement fairly, and which will deliver the service that all our constituents deserve. In looking at the replacement for the BIP, and how the DLA will be administered, I hope that the Secretary of State will be looking at training to ensure that members of staff know how to deal with people with disabilities—especially those who go into the homes of disabled people to talk over their benefits with them.

Those people have a difficult job. It is vital that, in assessing need, they get the assessment right, but, in so doing, they often find themselves asking intrusive questions to which people object. I am not saying that there is an easy answer, but we need to approach the issue with sensitivity and tact to get it right in the first place, so that there is less likelihood of people getting benefits to which they are not entitled, or not getting the full benefits that they deserve.

Mr. Webb

When the hon. Lady visited the DLA centre in Blackpool, did the staff express frustration at the length of time it takes for appeals on DLA decisions to be dealt with? My constituent, Mr. Price—about whom I have asked a written question today—had his money taken away four months ago and still has not heard.

Mr. Deputy Speaker

Order. The hon. Gentleman must not put a constituent's case on the record during an intervention.

Mrs. Humble

There are concerns about getting information from doctors and others, and the whole system needs to be looked at so that my constituents and those of the hon. Member for Northavon (Mr. Webb) all receive a decent service.

Although DLA is an important benefit, it is important to acknowledge that the welfare state is about more than social security benefits. When I meet disabled people, they often talk to me about the wider services that they receive from local authority social services departments and health authorities, because social services also assess people's needs and deliver services. Many councils are now taking advantage of the new system of direct payments.

I wish to raise the issue of joint working across departments. Welfare reform is not just about welfare benefits. It is about making sure that individuals—whether they are people with disabilities, families with children or elderly people—can access the whole range of services and support systems that they may need. The Government are keen on so-called joined-up government, and I hope that that means joined-up central and local government—and anybody else who can get involved—to provide total support.

Many local authorities currently offer one-stop shops for advice, and I would like to know whether the Government are looking at taking part in those initiatives so that benefits advice is available, together with other advice from other local authority departments.

Since I am keen on joint working, I was pleased to receive a letter from my right hon. Friend the Secretary of State, announcing that Blackpool is part of a new project as part of the invest-to-save strategy of the Treasury, which involves joint working. The council, the benefits agencies and the employment services will work together to facilitate the gateways to housing benefit and council tax benefit and to ensure that the processes are in place to counter fraud. [Interruption.] I hope that Opposition Front-Bench Members are listening because we are talking about an excellent Government initiative to counter fraud.

For the first time, there will be joint new claims-visiting teams and a one-stop central benefits information team. There will be joint training and very much more. It is exactly that sort of initiative that will help the Government to succeed in their welfare reform, but it will help also the recipients of the reform.

There is much to welcome in the regulations, and the in announcements today and over the past few months from the Government. There is still some way to go in delivering the proposals, but I am sure that more questions will be asked in the wider debate that must take place. I certainly welcome the announcements today.

2.27 pm

Mr. David Rendel (Newbury)

I am delighted to have a chance to take part in this important debate. There is a lot that we welcome in the statements today, and important upratings are being made. We certainly welcome the advances beyond the usual uprating in line with inflation that is taking place in some areas—particularly in child benefit. These are welcome increases in benefits that needed to be increased.

It is not my intention to spend a long time praising the Government today, and I hope that the Secretary of State will forgive me if most of what I say is to comment on the differences that my right hon. and hon. Friends have with the Government. It is important to use the time to try to persuade the Government about what we think they are getting wrong, and to persuade them to change their mind.

Mr. Darling

The hon. Gentleman is making his leadership bid.

Mr. Rendel

I hope that there will be no more sedentary interventions such as that one, as they help neither me nor any of my colleagues.

Mr. Kirkwood

That is why he did it.

Mr. Rendel

I am sure.

We heard from the hon. Member for Blackpool, North and Fleetwood (Mrs. Humble) that the increase in child benefit will help some of the poorer families in the country. On the whole, families with children tend to be poorer than those who have no children. It is right, therefore, that, we should look to child benefit as a way of using the benefits system and the welfare system to give a bit more money to those who need it more, rather than to those who need it less.

There are better ways of increasing child benefit than the Secretary of State is suggesting. Importantly, the families who are likely to be least well off are those where one or the other parent—or, in a single-parent family, the parent—decides to stay at home to look after their own children. The Liberal Democrats think it is important that that option should be available to those who choose it. Therefore, there is a good case to be made for doubling child benefit for the youngest child in a family that has a child under the age of five. It is primarily in families with a child of pre-school age that one of the parents will want to stay at home to look after that child.

We acknowledge that the Government are making changes that will help with child care, but I am less worried about families who need some form of child care to help them look after their children than about families in which one parent wants to stay at home to look after a child rather than go out to earn a living. I urge the Secretary of State to reconsider the policy that was adopted by the Liberal Democrats at our conference last year—that, in a family with at least one child under the age of five, child benefit should be doubled for the youngest child under that age.

If necessary, that could be paid for by taxing child benefit for families with at least one higher-rate taxpayer. I do not for a moment want the Secretary of State to think that this is yet another item to come out of our proposal for an increase of 1p on income tax. That proposal has nothing to do with the policy that I have described.

The second difference that I want to bring to the attention of the Secretary of State has to do with the minimum income guarantee, a matter that the right hon. Gentleman touched on briefly in his speech. However, all that is guaranteed is that everyone achieving pension age will be eligible to get a certain minimum income: it is not a guarantee that everyone will in fact get that income. In last Thursday's equivalent debate in the other place, the Under-Secretary, Baroness Hollis, made it clear that the pilot schemes investigating why pensioners on low incomes do not claim the income support to which they are entitled are finding that some of them do not claim simply because of the stigma associated with claiming.

I accept that the Secretary of State is doing his best to overcome the problem of stigma and to introduce pilot schemes to persuade people who have worked and paid national insurance contributions all their lives that it is their right, at the end of their lives, to have that income support to bring their incomes up to a minimum level. However, even if he does everything he can in that regard, a considerable number will still not make a claim and will be left with an income below what the Government accept is the minimum on which people can live.

In passing, I note that the Secretary of State did not, as I asked when I intervened in his opening speech, give me an estimate of the number of people who, even in future, will be living below what he calls his minimum income guarantee because, for whatever reason, they do not receive the income support for which they may be eligible. I hope that he will rectify that later.

The Secretary of State may suggest that no alternative plan exists for dealing with most of the very poorest pensioners, but I take this opportunity to remind him of an option that I hope he may take up in the near future. It was first proposed by my hon. Friend the Member for Northavon (Mr. Webb), and my party has since adopted it. My hon. Friend has proposed that pensions should include absolute guaranteed amounts of £5 for people over 80 and of £3 for people over 75. The present tiny increase available of 25p is simply irrelevant, given the amount of money those pensioners should get. The proposal would target some of the poorest of our pensioners without running into all the difficulties of means testing. I suggest that that would be a way around the Secretary of State's problem.

Thirdly, there is the matter of capital allowances, which the right hon. Member for Birkenhead (Mr. Field) has raised already. Last week, in the equivalent debate in the other place, Baroness Hollis said that capital allowances caused some people who did not claim income support to live on incomes below the income support base level. She said that some people were ineligible to claim income support because they had too much capital somewhere in their savings.

It is true that many elderly people fervently believe that they have to keep a certain amount of capital set aside. For example, they may not want their families to have to meet their funeral expenses, they may want to pass the capital on to their children, or they may feel that they need to keep it for an even rainier day. People who are not prepared to spend their capital, for whatever reason, as a result have to live on a pension below income support levels and therefore below what the Government call a minimum living wage.

We should not allow that problem to get even worse by not making any increase in capital allowance. Some capital allowances have not been increased for 10 years, in which time living costs have gone up by about 50 per cent. It is quite wrong to restrict capital allowances in that way, which can only make worse all the difficulties inherent in means testing.

The fourth matter that I want to bring to the Secretary of State's attention is the benefit integrity project. The point has been made before, but I want to make it again. The Secretary of State said that the project had failed but he has decided to keep it going, even though no case can be made for doing so. He is right to look for a new and better scheme that could be introduced. It is very important to try to avoid potential fraud, and to ensure that people on benefit are reassessed so that they get all the benefit to which they are entitled. Such a reassessment will cause the amounts payable to rise as well as fall. However, there is no argument for keeping in place a system that the Secretary of State has already said has failed.

My fifth point concerns the national insurance recording system, NIRS2. The Secretary of State said, rightly, that he was determined that the lesson should be learned. He was also right to say that the lion's share of the blame for what has gone wrong with NIRS2 lies with the previous Conservative Government. The Government have inherited a fiasco and a mess and are doing their best to sort the problem out. It is taking a long time; in the early stages, Ministers were remarkably secretive about what had gone wrong and failed to estimate how long it would take to put it right. However, we should all be grateful that now, at least, they have started to do so.

I want to ask the Secretary of State about two specific difficulties that remain with what is happening under NIRS2. First, although the sums may not be very large, by the time the problem is fixed, some pensioners will have been underpaid for a year. Sadly, some of them will have died before any potential repayment can be made. What will happen in such cases? Will the repayment still be made to the estate? If not, what will happen to the money?

The second difficulty has to do with widows, and may be even more important. Widows who want to claim either widows' pension or retirement pension are asked to choose which they would prefer. They have to make up their minds as to which pension will benefit them more. Yet they are not given all the information that they need to make that choice. The facts are not available; the computer is not working and people cannot make the necessary calculations. However, they are being told that they must decide and that their decision, once made, is final and cannot be changed.

Because of the failure of the NIRS2 programme, widows in those circumstances cannot fairly be asked to judge which pension they should choose. I hope that the Secretary of State will assure the House that widows who make the wrong decision—through the Government's fault—and who are finally told what would have been in their best interests, will be allowed to change their minds and revert to the alternative option.

The Secretary of State may have seen the recently reported findings of the Joseph Rowntree Foundation on what is happening in our society. The foundation points out that the inequality gap is widening. The number of people living in poverty, including children, is increasing year on year according to the most recent figures. Over the past year, the number of individuals on less than 50 per cent. of average income has increased. The number of 16 and 17-year-olds on hardship payments has also increased. There remains every indication of worsening poverty in every age group.

I am sad that the Government—contrary to what their voters and the Liberal Democrats would have expected—are often doing the least for the poorest. Let me give some examples. An uprating of £2.50 on child benefit will mean 10p less for those who receive the family premium on income support. Under NIRS2, the compensation because of the system's failure will go to those underpaid by more than £100, who are due more than £10 in compensation, but it will not be paid to those who are owed comparatively small sums: the poorest will do worst. Pensioners who are receiving income support and who are perhaps slightly better off than those who do not receive it will be given a big increase in their guaranteed income support, but those who do not receive income support will not receive that increase in their pensions.

Mothers who are trying to look after a child at home are no doubt less well off than those mothers who go out to work, but they will not receive the kind of help that the Liberal Democrats would give. Notoriously, help for lone parents is being reduced all the time, even though they are among the poorest of those who receive benefits.

Our policies are targeted on the least well off, and our targeting often does not involve means testing. That is a significant difference in our policy. The Government are making the same mistakes as the previous Government in trying to drive the poor into work, and in trying to do so by making poor people poorer, while believing that the right way in which to make rich people work more is to make them richer. I am very sad to see the Government making those mistakes.

2.43 pm

Ms Gisela Stuart (Birmingham, Edgbaston)

Debates such as this provide a welcome opportunity to take a broad view of a subject. It is useful to remember that welfare reform encompasses whole strands of issues. The actual rate of benefit is significant, but it is part of a wider agenda.

When Labour came to Government, the status quo was clearly unacceptable, for two distinct reasons. First, the benefits system had grown in such a way that even if we intended to continue with the underlying philosophy, the system itself had ceased to be able to deliver, and it needed modernisation. Benefit chimneys simply did not relate to each other, and the system was not viable.

Secondly, society had changed to such an extent since the major benefit reform that followed the second world war that many prevailing assumptions required to be challenged seriously. We needed to consider both the future and the current structure of the system. We had to think of claimants dependent on the system. Any change that we bring about must therefore be sensitive and gradual, but we must simultaneously look ahead to see how change will affect future generations.

Post-war changes in society were demographic, but the dynamics of society changed too. We all live longer now. That did not mean only that there were more people of a certain age. It meant that people aged 70 and 80 were no longer revered for their wisdom, because there were suddenly so many of them. Deference to such groups was changed because the composition of society changed. Retirement age was once safely assumed to be fixed. Indeed, we should remember that Beveridge assumed that people would live only a few years after reaching retirement age. That age is, however, no longer a proper base for policy making. To say that 60 or 65 is a fixed retirement point does not take us far in considering how people's working patterns have developed.

The debate about pensioners will become sterile unless clear distinctions are made about the needs of state pensioners and those who draw benefits who cannot effect any change in their circumstances. It is up to Government to provide a framework for those people, but merely to debate whether to upgrade the basic state pension by one means or another takes us little further forward, in that it does not deal with the comprehensive needs of pensioners.

For future generations, we must consider the needs of those who are in work and who can provide for themselves: the Government's role lies in providing a proper structure that will enable them to save for their retirement. We must distinguish between those people and part-timers, people who take career breaks and those who will never earn enough from their work to put away money for retirement. We must also consider the people who simply do not fit into the cash and taxation structure, such as carers. The needs of those different groups must be carefully separated out before we can press ahead. It is sad that the needs of different groups are often mixed up in debates such as this one, so that there is no coherent argument.

The Government have made a tremendously good start in trying to restructure welfare. I am extremely pleased by the way in which benefits agencies, employment services and local authorities are being brought to work together. That allows those organisations to focus once again on the needs of the people who are the system' s beneficiaries.

However, we must also return to creating incentives for work instead of dependency. The working families tax credit, help with child care, and especially the national minimum wage are significant in that regard. Among the changes I most look forward to are the single gateways, the 12 pilot projects that will be monitored so that we can see whether they should go national. Those projects display a change of approach, from being passive and reactive to being proactive and enabling.

One issue is often ignored in welfare debates. If we wish to restore faith in the social security system, we must restore the faith of the beneficiaries and of those who work in the system. However, we must also restore the faith of those who pay for the system—the taxpayers. People are prepared to pay taxes only if they feel that they get value for money.

The social security system is most obviously financed through income tax, and it is interesting to consider who contributes most to that. The top 1 per cent. of taxpayers pay 20 per cent. of income tax, and the top 10 per cent. pay 48 per cent. of the yield. The next 40 per cent. pay a further 40 per cent. That leaves the bottom 50 per cent. of taxpayers contributing 12 per cent. of all income tax. There is considerable distortion in the system, but income tax is only one part of the funding.

International comparisons are often interesting, and I should like to draw attention to figures from Germany. I do not assume that Germany's rates are desirable, or that the United Kingdom should move towards them. My point is that we can have a system where people pay considerable amounts into the social security system while having faith in it and trusting it. The figures must be considered in that context.

Taxation as a percentage of gross domestic product in the United Kingdom and Germany is roughly the same. In Germany, it is 38 per cent., in the UK 36 per cent. However, on social security taxation as a percentage of tax revenue, in Germany, employees pay 17.6 per cent. and employers 20.5 per cent., compared with the UK, where employees pay 7.2 per cent. and employers 9.6 per cent. In the European context, that is very low.

When people think of our main sources of taxation revenue, they always think about income tax but forget taxes on consumption, but we raise about one fifth of our taxes from VAT. What are the knock-on effects of that? Why does it matter to social security? It matters significantly, because unless people have faith, and there is some transparency about the money that they put in so that they feel a right to draw on it when they are in need and the stigma of scrounging is reduced, we will not progress but will repeat the patterns of the past 30 years.

We should remember how income tax has progressively become a burden on lower income groups. It was not until the 1960s that families clearly below average income started paying income tax at all. At that point, income tax became an important factor in determining work incentives. Income tax rates matter when people decide whether it is appropriate to work. Taxation became a work disincentive in the 1960s. The resulting poverty and unemployment traps are one of our most intractable social problems, the result of 40 or 50 years of development. The working families tax credit is an important first step to breaking that vicious cycle.

I have a few words on national insurance contributions. I hope that the House is capable of intelligent debate, and that we can consider the upper earnings limit without Opposition Members jumping up to ask whether I advocate scrapping it; I do not. I am saying that we should intelligently consider national insurance contributions and the hypothecation argument in a social security context.

I have some basic facts. National insurance is levied at a flat rate of 10 per cent. for employed workers paying class 1 contributions. There is a slightly lower rate for those who have contracted out of SERPS, the state earnings-related pension scheme. National insurance contributions affect work incentives and play an important role in the poverty and unemployment traps. Interestingly, the Thatcher Government were able to increase national insurance contributions step by step, while reducing income tax; it appeared that they had reduced the burden on working families when actually they had not. In 1979, national insurance contributions stood at 6.5 per cent.; by 1983–84, they were 9 per cent. The lower bands were restructured and by 1994, they were at 10 per cent. For many people, that eroded all their headline income tax rate gains.

The regressive aspects of national insurance contributions are most clearly shown by considering different income rates. Someone earning the average income of £20,000 a year will pay about 8.6 per cent. of his or her annual income. Before someone asks how it can be 8.6 per cent. when the rate is 10 per cent., I should explain that a lower rate is deducted on the first portion of income. For a very highly paid person earning £200,000, national insurance contributions are payable only up to the upper earnings limit of £25,220. The remaining £174,780 are not subject to national insurance contributions, which, for such people represent only 1.1 per cent. of their income. That is directly contrary to the principle embodied in income tax: as income rises, the percentage deduction should increase.

The Government have realised this and taken some steps to start to address the inequalities of national insurance contributions. All employees will benefit from the abolition of national insurance contributions below the lower earnings limit. It is interesting to consider why the Thatcher Government got away with such changes while making people think that they would be better off, when national insurance contributions are shown on pay slips just like basic income tax. The reason is that our taxation structure is not transparent or easily understood. If people do not know how they pay for the services that they should expect, confidence cannot be restored.

I want to discuss hypothecation, which is a tempting solution to that problem.

Mr. John Burnett (Torridge and West Devon)

Before the hon. Lady goes on to hypothecation, is she arguing that national insurance contributions should be subsumed into income tax?

Ms Stuart

No, I am arguing that we should have an honest, grown-up look at the way we collect tax revenue, whether by income tax, national insurance, VAT or corporate taxation. Any debate on how welfare is financed must equally consider how the Government collect revenues, of which national insurance is one. A big advantage of national insurance is that people think that they derive some direct benefit from it. They assume that it is a hypothecated tax. People assume that they pay into the national insurance fund and draw from the pot of money when they retire or require health services, whereas in fact it is a current fund. I do not advocate one solution or another, except to say that some honesty is required.

We must consider what is most appropriate. One could argue that an annual statement of national insurance contributions to every taxpayer would give them some input. That would be in line with the Government's proposals for a pensions contributions annual statement. That may help to restore faith. My basic argument is not about taxation but about how to restore faith among those who pay for social security and for the services that the state provides.

Mr. Oliver Heald (North-East Hertfordshire)

Does the hon. Lady accept that the contributory principle whereby people make contributions towards the national insurance fund and receive a pension, such as SERPS, is deeply embedded in our national conscience? We believe in that as a country; it would be a pity to move away from it. All the contributions are listed, and one must have paid them to get a full pension. That is all more typical of insurance than of tax.

Ms Stuart

I do not disagree with the hon. Gentleman. I am simply saying that the system needs to be more transparent so that people have a clearer idea of what they think they are paying for and what they can expect as a result. Unless that link is restored, we will never get away from people entitled to benefit being made to feel like scroungers. That is equally undesirable.

Mr. Mark Oaten (Winchester)

I agree with much of what the hon. Lady says about the importance of transparency so that people understand what they are getting and where they are getting it from. Does she agree that an additional problem is that many of the services that people on benefit require are provided by local authorities? There is a double whammy of national cuts and increasing local cuts in many services. People do not care where services come from but they want to know why they are being generally cut.

Ms Stuart

The hon. Gentleman highlights a problem of transition. The Secretary of State for Health said that it would take time to turn the oil tanker round. Social security is not a tanker but an intricate web at the centre of which are the most vulnerable people. As we move to changes of service delivery and how that is financed, such tensions will appear. We must acknowledge that they occur and ask how we will deal them. I do not deny that such tensions are apparent. The Government are now setting the right framework and putting us on the right rails to move ahead.

May I draw the House's attention to my reservations about hypothecation? It is a tempting idea, which has been compared to taxation by numbers—a system in which one chooses what one wants to pay for. I am sure that, in areas such as health and education, the public would be happy to pay a hypothecated tax, but what happens with a hypothecated tax for improving conditions in prisons? That would not be terribly popular, but it is a nevertheless necessary function of the state. That is why it is inappropriate to cherry pick. However, there is a place for a form of hypothecation, as the Government have shown in their use of the windfall tax to finance the new deal. It is a question of horses for courses.

On NIRS2, the Government's task is significant. The previous Government signed the contracts and, when I was serving on the Social Security Select Committee we decided that new technology was needed and that the only way to go was forwards. The modernisation requirements are significant, but even more important is the need to restore faith in the system, which will take much longer. The only way to restore faith is to restore the confidence of those who draw benefit, those who work in the system—we tend to forget the stress under which they work—and those who pay for it.

The Government have made a good start. We are reducing fraud significantly. The previous Government ignored the fact that it is no good simply to have initiatives that look at fraud in a targeted way through random sampling. The best way is to create a benefit structure that "designs fraud out". Checks should be made from the start to make fraud much more difficult. The Government are moving ahead on that—we have introduced a modernisation programme, single gateways and a national minimum wage, and national insurance contributions are to go down.

The thought with which I should like to leave the House is that, whenever we debate welfare reform, we must remember that this generation and future generations have distinct needs. The most delicate task is to ensure that current pensioners, disabled people and single mothers are looked after while we change the structure to provide for the next century. I look forward to watching the Government rise to that challenge.

3.3 pm

Mr. Edward Leigh (Gainsborough)

There was a high level of hope and expectation when the Government first came to office, 20 months ago. The reason for that related to a simple rule: if people want defence spending fundamentally reorganised—even rationalised or cut—it is easier to ask a Conservative Government to do it because they are considered to be in favour of defence and could not be accused of wanting to attack the military. The same argument applies to Labour Governments in terms of social security spending.

Both sides of the House have long been concerned about the ever-increasing cost of social security—both Front-Bench spokesmen rightly exchanged insults on that subject. However, social security spending has increased, is increasing and will continue to increase, and nothing that those on either side of the House can do will make a difference to that essential economic truth.

When it became inevitable that, sadly, we were to have a Labour Government, those of us interested in social security thought that a redeeming feature of the otherwise unmitigated disaster that was about to descend on our nation would be that a Labour Government could introduce the fundamental reforms in social security, which, for good political reasons, the previous Conservative Government could not introduce, especially given the fevered atmosphere of their last few years in office and their very small majority.

We were encouraged in that belief by the obviously senior position that the right hon. Member for Birkenhead (Mr. Field) held in the counsels of the then Labour Opposition. Our faith was further reassured when he was the first Minister of State to be appointed, and when he was made a Privy Councillor on the very first weekend after the election. Although a junior Minister, he was clearly right in the centre of Government.

The problem that immediately became apparent was that the excellent ideas that the right hon. Gentleman was formulating in opposition, although absolutely correct from a philosophical point of view—that of trying to create responsibility in society—were impossible to achieve in the short term if the Prime Minister's other pledge was to be achieved. The right hon. Gentleman's pledge was to think the unthinkable; the other pledge was altogether more prosaic and had more influence with the electorate.

In "The Leader Interview" on 7 April 1997, the Prime Minister said: As we get welfare bills down … then we can release more money into education and health". That quotation was rightly thrown across the Dispatch Box by my right hon. Friend the Leader of the Opposition.

We now have a response from the Government: the Prime Minister did not mean that at all. Anyone who approaches those arguments rationally knows that it is impossible to reduce the social security bill, and anyone listening to the Prime Minister must have known that—we did. The Prime Minister was actually saying that we would increase the sum spent on social security, which is precisely the opposite to what he said on 7 April 1997. I cannot believe that the public were so gullible as to believe what they were told.

The Government's defence now is that they are less wicked than the Conservatives—that, although they are increasing the total sum spent in real terms on social security, as the Conservatives did, they are doing it in a slower and less wicked way. I accept that that would not have been an attractive quotation for "The Leader Interview".

Mr. Duncan Smith

Extending that logic, does my hon. Friend agree that the Prime Minister thought that, had he told the electorate that Labour would increase the cost of social security, he might have lost the election, which is why he did not do so?

Mr. Leigh

We have only to quote the Foreign Secretary. We know that the Prime Minister was prepared to sell his soul to win the last election; therefore, a minor juggling around with the levels of social security would presumably not have caused him a great deal of worry at the time.

Mr. Heald

Has my hon. Friend noticed that the Prime Minister talks a great deal about some of his proposed increases in spending but, funnily enough, not about those in social security? Although the increase of £37 billion is as much as the total of other increases, it is hidden away in the Red Book under "tax and accounting adjustments".

Mr. Leigh

I am glad that my hon. Friend makes that point. My hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) asked that question of the Secretary of State earlier in the debate. Did he not ask the Secretary of State to confirm that figure of £37 billion contained in the comprehensive spending review in the Red Book, to which my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) alluded? Intriguingly, no answer was received.

Mr. Duncan Smith

He did not deny it.

Mr. Leigh

As my hon. Friend reminds me, the Secretary of State did not deny it. However, as we are debating the operation of social security benefits, it would be nice to receive some information from the Minister who is to wind up the debate, as to whether we are quoting the right figure. Does the figure of £37 billion that the Opposition are quoting accord with reality? To save time, I should be happy to give way to the Minister now, if he wishes to intervene on that point.

Mr. Pond

Will the hon. Gentleman give way to me? I offer no challenge to my hon. Friend the Minister.

Mr. Leigh

Of course I will.

Mr. Pond

Will the hon. Gentleman give us some idea as to whether, after his discussions with the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), he believes that, if the Conservatives had openly told the electorate at the last election not only that they had dramatically increased social security spending and taxation, but that they had increased threefold the numbers of people in poverty, it would have made a good manifesto commitment?

Mr. Leigh

I do not know where the hon. Gentleman obtains his statistics. He has an honourable record, for which I give him credit, of speaking in the Chamber on behalf of those who are in poverty, but he is fundamentally mistaken in what he says. I am sure that he knows that I am prepared to be critical when necessary, but what actually happened under the previous Conservative Government was a massive increase in the wealth of the nation during 18 years of successful economic management, and all sections of the population benefited from that massive increase. However, he has made his point and will no doubt speak again later.

We have not yet received an answer to that crucial question about the £37 billion. It is the essence of our argument today and I should like to know more about it. Conservative Members have also made the point that the working families tax credit will increase the level of social security spending by £1.5 billion and I am not sure whether we have received a response to that, either when the Social Security Committee questioned Ministers on the point, or when the House debated working family tax credit earlier this week. It would be difficult for the Government to deny that figure of £1.5 billion, because it was originally given to the House by the then Financial Secretary, who is now the Paymaster General.

It would also be interesting to receive confirmation or denial of the percentage increase in social security that we are discussing today. My noble Friend Lord Higgins, who speaks on social security for the Opposition in the other place, referred to a figure of 10 per cent., but I have seen a figure of 11.5 per cent. Will the Minister confirm whether either figure is correct?

The right hon. Member for Birkenhead was correct in his earlier intervention. We cannot be absolutist in the matter of abolishing means-testing in the system. We all know that no Government can abolish it, whatever we want to achieve. However, the right hon. Gentleman was right to frame his question in the moderate way that he did, because it is true that neither a Labour nor a Conservative Government can abolish means-testing, but in which direction are we moving? Are we moving away, however gradually, from means-testing while fully understanding the political difficulties involved in doing so?

We all know that huge difficulties are inherent in the thinking of the right hon. Member for Birkenhead, in terms of a short-term increase in public spending. We understand that and, as politicians who deal with political realities, we also understand the difficulties that the views for which he argued privately when he was a member of the Government posed to the Treasury's correct short-term priority of keeping public spending under control. We know about the difficulties, but the answer to his question was not received. There might be an answer in the Minister's file.

Mr. Duncan Smith

I gave an answer.

Mr. Leigh

My hon. Friend gave an answer, but, sadly, he does not speak for the Government.

The questions are simple. The first is about that £37 billion and the second is about the direction in which we are moving. Are the Government, in real terms, gradually managing to solve the problem, however slowly; or is our basic charge correct—that they are doing the reverse and actually increasing means-testing in the system?

After the Secretary of State last came to the House to give a statement on pension reform and welfare reform generally, it became clear—especially from press comment which was united on the point—that we now have a Secretary of State who is not committed to root-and-branch reform, but is committed to the re-election of the Labour Government, who is not committed to thinking the unthinkable, but is committed to tinkering with the system. That is the type of Secretary of State that we have and, no doubt for that reason, he will be very successful, but I doubt whether he will be successful in getting to grips with the fundamental problems of the system.

Mr. Heald

Does my hon. Friend share my concern about the concept of a minimum pension guarantee? If the level of the basic state pension is not increased, the Government can say, "Oh well, all the poorest pensioners are being protected by the minimum pension guarantee." However, over a period of time, the contributory universal benefit that we all value so much will be changed into a system of means-testing. Does my hon. Friend agree that that would be a major step down a road that he and I do not want the country to go down?

Mr. Leigh

I was coming to that point, which is the fundamental one that we want to put across in the debate: the concept of a minimum income guarantee is uniquely dangerous to the contributory principle.

As my hon. Friend the Member for Chingford and Woodford Green has made clear, what is on offer is not a minimum income guarantee. It is not a guarantee, because it is not something that one receives, whatever one's level of contributions or however much effort one has put into one's working life. It is simply a guarantee that no pensioner's income, whatever his past record of contributions, will fall below £75 a week. It does not take a genius to recognise immediately that that will result in a massive disincentive to those on low incomes to take out any form of second pension provision.

For that reason, it would be extremely dangerous and bad financial advice to those on relatively low incomes to take out such provision, because, whatever they did, they would always be supported by the state and given that £75. We are going down a dangerous road.

Before my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) intervened, I was coming to the subject of child benefit. The Government, in this and other debates, have made much of what they hope to achieve with child benefit. We have heard little in this debate about it, although we shall hear bad news on the subject in the Budget, but the Government are determined to tax child benefit. The Social Security Committee did some interesting research—[Interruption.] I am sorry, I missed that remark. If hon. Members want to intervene, I am always willing to give way. There is little doubt that the Chancellor will tax child benefit in the Budget. The Select Committee's inquiry into that and the worries of all the members of the Committee should be given credence by the Government.

The problem is simple. We all recognise that it may be inequitable for people to receive the same level of child benefit, whatever their income, and we may accept that as a point of principle or a first point from which to argue. We may accept that the Government should concentrate help on those least able to afford to look after children. It is dangerous to accept that because it immediately leads us on to means-testing. The right hon. Member for Birkenhead has been arguing that for years. What will be the effect of all that?

We tax the individual or we tax the family. We were told that, if the Government tax the individual, they receive a derisory amount, and, if they tax the family, they attack the principle of independent taxation. I suggested a practical example during the Select Committee's inquiries. I am worried about typical families, living in London, earning £31,000 a year and therefore paying the higher rate of income tax, who may find that their child benefit is taxed after the March Budget. Such families do not, in London terms, earn generous salaries. Why should they be taxed extra? Why should the burden fall on them? We all know the cost of housing in London. Why should a married man in London, perhaps with four children, be more highly taxed than someone living in London who has no children at all?

I cannot, for the life of me, see any justification in taxing child benefit unless the Government are prepared to say that they will tax only individuals, not families.

Mr. Christopher Fraser (Mid-Dorset and North Poole)

Does my hon. Friend agree that, before the general election, page 25 of the Labour manifest said: We will uphold family life as the most secure means of bringing up our children. Families are the core of our society", and that penalising families as the Government are doing flies in the face of that commitment?

Mr. Leigh

I hope that the Labour party meant that when it included that statement in its manifesto. I repeat that no one who has come before the Select Committee or who has tried seriously and objectively to deal with the issue has found any justification for taxing the child benefit of families.

Mr. Pond

Will the hon. Gentleman give way?

Mr. Leigh

I shall. No doubt, the hon. Gentleman will give me that justification.

Mr. Pond

It is useful to have this debate. No decisions have been made, and the Chancellor has said that it is sensible to have the debate. Does the hon. Gentleman not understand that his suggestion that, if the change were made, families with children would be more highly taxed than those with none misses the point that families with children receive child benefit, whereas those with none do not? There has been an historic increase in child benefit.

Mr. Leigh

I hope that the hon. Gentleman will forgive me for saying that his argument is semantic. Child benefit replaced a tax allowance. The hon. Gentleman is the proud father of a beautiful young daughter, whom I know he spends much time looking after, so he knows perfectly well that children represent a real cost, way above the amount given in child benefit.

Mr. Duncan Smith

The main point that Labour Members are deliberately missing, which I hope my hon. Friend will address, is one that I put to the Government, although I received no answer. It is that, as the Institute for Fiscal Studies has said, the proposals could lead to a significant problem because those who are honest and open about their relationships will be taxed, but those who hide their relationships and pretend to be single parents although someone else is sharing their income will not suffer. That penalises the family structure and benefits those who abuse it.

Mr. Leigh

I am grateful to my hon. Friend for that intervention. I could not help noticing that, when he made that point earlier in the debate, the Secretary of State was giggling. I do not want to do him a disservice. He was giggling not because he does not think that the subject is serious but because he thought that my hon. Friend was making an idiotic point because of course no one would be dissuaded from marriage by the level of a little benefit.

Have we not, in the past 50 years of the welfare state, learnt the lesson that, bit by bit, the structure of the welfare state and its benefits has an impact on behaviour, particularly for people who, for whatever reason, do not earn much money? When we discussed the issue in the Select Committee, nobody was able to give a satisfactory answer as to how the measures would affect cohabitees as opposed to married couples, as my hon. Friend the Member for Chingford and Woodford Green pointed out.

We are making a justifiable point. We should not only argue that the measures are an attack on independent taxation, although that is a good reason for not proceeding with them. The better arguments are those adduced by my hon. Friend the Member for Chingford and Woodford Green.

Again and again, in the Select Committee and in an intervention in the debate earlier this week on the working families tax credit, I made a point to which I still await a response. Perhaps I shall receive one during the Minister's summing-up. My point is that the working families tax credit will inevitably be an attack on the classic Beveridge family of two married parents only one of whom is an earner. The proposal will encourage cohabitation or it will encourage both partners to be earners. Women should have the right to work and they should also have the right to stay at home and look after their children. That is what they want. There has been no response to that important point, which needs to be made again and again.

I shall move on to the wider issue of the NIRS2 computer, which disturbingly, we have heard today, affects 180,000 pensioners. The Government's basic defence seems to be that the problems are all the fault of the previous Conservative Government, who introduced the computer, and should have foreseen the problems. It is true that the computer was introduced by the Conservative Government. The bid made by Andersen Consulting was £60 million cheaper than the next bid. Although the Secretary of State cannot criticise Andersen Consulting, I, as a Back Bencher, am entitled to ask why the company undertook the project. Could not an organisation employing 40,000 people worldwide have appreciated that the NIRS2 computer is the most complex in the world?

The Secretary of State's defence is fundamentally flawed for one reason. I have obtained from the Vote Office the 46th report of the Committee of Public Accounts which deals with the NIRS2 computer and was published in June 1998. The Committee said: We are very concerned that the implementation of the new system is already nearly 18 months behind the date agreed … and that the Agency face an immense task catching up with their operations". It recommended that the agency should draw up contingency plans to cover the risk that delivery of the system would be delayed. If that report was published in June, what contingency plans were made by the Department of Social Security, the agency or other Departments in response to the Public Accounts Committee's suggestion? That report sheds a worrying light on what is happening inside government. The way in which such contracts are entered into is worrying, too.

Mr. Deputy Speaker

Order. Perhaps the hon. Member could mention such matters in passing. We must remember that there are several specific matters before us. I understand him asking the Minister about contingency plans, but going into a Select Committee report is for another day.

Mr. Leigh

I am coming to the end of those remarks, although, in defence, I should say that the Secretary of State introduced the issue. However, I accept your strictures, Mr. Deputy Speaker, and shall move to a different matter.

On the means-testing of incapacity benefit, which is central to this debate, Lord Ashley said: The attack on occupational pensions is disturbing. It will hit disabled people very hard and we should make every effort to persuade the Government to change it. Sally Greengrass of Age Concern said: Penalising savers will not encourage prudent planning or saving in the future. I mention those points because little has been said about the means-testing of incapacity benefit. The Minister's response to those comments would be interesting.

Mr. Webb

The hon. Gentleman will recall that the Conservatives means-tested invalidity benefit against occupational pensions—not if someone had more than £50, as the present Government propose, but from the first pound. Did he accept and welcome that precedent?

Mr. Leigh

The hon. Gentleman once again returns to the previous Conservative Government's record. I had hoped that I had made it clear that neither Government's record on means-testing is as welcome as it should be. I also acknowledged—I hope positively—the political pressures on both Governments. Of course I accept that there was means-testing under the previous Conservative Government. I was making the point that what the previous Government did is not of interest to the House. That is history; we cannot put that toothpaste back in the tube. We are interested in what will happen in future. We want to know the Government's plans. Are they intending to increase means-testing generally? What is their response to Age Concern? How can they expect old people to act prudently if means-testing is increased?

The Select Committee also did considerable work on the issue of the benefit integrity project. We received various assurances; the Government told us that it will be replaced with a "fair and sensitive system". We still await an answer from the Government on which "fair and sensitive system" will replace BIP. I have asked Ministers again and again—I have not received an answer, for I fear that no answer can be given. How they can replace BIP with a "fair and sensitive system" but at the same time attack the concept of lifetime awards?

Lifetime awards, on which I have asked Ministers questions, are fundamentally wrong. The Government appear to agree with me that the system is open to abuse. Does that not therefore mean that we must go to disabled people again and again to ask very detailed questions—intrusive questions, questions that will be resented, and questions on forms that may run to many pages? How can we get rid of the system of lifetime awards yet still reassure disabled people that we will not ask over-intrusive questions or put them under stress? I wish that I knew the answer. Luckily, I am not in government. Such an answer would be interesting.

The Government have met their responsibility to upgrade all benefits in line with inflation, which is no mean achievement—it was achieved, too, by the previous Conservative Government, although not by the previous Labour Government, who governed in altogether more difficult economic circumstances—but, what the Government have achieved is not enough. They are simply fulfilling their fundamental duty to the less privileged and the deprived. We on the Conservative Benches were hoping for something far more exciting, such as a fundamental attack on dependency. We were hoping that the new Prime Minister had some creative plans to take people out of dependency and into work. Although the Government will of course reply that they have all sorts of plans and ideas for doing so, very little progress is being made on the ground as a result of the Budget. That is very sad indeed.

3.35 pm

Ms Rosie Winterton (Doncaster, Central)

I am very grateful for the opportunity to speak in today's debate, especially because I know that so many of the changes that we are making—I am thinking of changes to child benefit and pensions and of people who pay class 1 national insurance contributions—will make a real difference to many of my constituents who are low paid, living in poverty or unemployed. Many are living like that because of the previous Tory Government's policies.

I want to make points about class 2 national insurance contributions because I am very concerned about the circumstances of several constituents who have made representations to me. I can perhaps best illustrate my concerns by referring to the case of Donald Smith, a constituent who lives in Edenthorpe, in Doncaster. Mr. Smith is 36-years-old. About two and a half years ago, he was made redundant from the railway industry in which he had worked for 17 years. He went to work for another company, which insisted that he did so under self-employed status. The company refused to pay his tax and national insurance contributions. Mr. Smith was concerned about that, so he went to the Contributions Agency. Although staff were dubious about whether he should be considered self-employed, he was told that he should pay his contributions, and that he could protect himself by paying class 2 and class 4 contributions, which would entitle him to retirement pension, widow's benefit and incapacity benefit.

Mr. Smith was made redundant once again, but then secured employment in the railway industry—this time on a temporary contract—with a company that paid his national insurance and tax contributions from November 1997 to August 1998. During that time, he paid class 1 national insurance contributions. However, Mr. Smith was made redundant again following a takeover. When he went to the job centre, he was told that, because he had had a period of self-employment during the previous two tax years and his partner, with whom he lives, earns £13,000 a year—even though they are taxed separately—he was not entitled to either non-means-tested or means-tested jobseeker's allowance. Despite the fact that, for the previous 11 months, Mr. Smith and his employer had been paying class 1 national insurance contributions, he was not entitled to any jobseeker's allowance. Therefore his recent period of employment did not really make a difference.

If Mr. Smith had been paying, and had previously paid, class 1 contributions, and if the company that he had worked for had done the best by him and employed him properly, he would have received about £1,300 in jobseeker's allowance had he remained unemployed for a full six months. Instead, he received nothing.

Mr. Smith expressed his opinion to me bluntly. He felt that he would have been better off if he had not taken the job for which he was forced to become self-employed. He took it, but then felt severely penalised by the system and felt that the contributions that he had paid for the past 10 months—and for the 17 years previous to that period of self-employment—provided him with no help when he needed it. My hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) has already spoken about the need for people to feel that they will get something out of the system that they pay into when they need assistance.

I have made inquiries of the Contributions Agency. I was told that, even if Mr. Smith had offered to pay his own national insurance contributions to class 1 level, plus the equivalent of his employer's contributions, he would not have been allowed to do so, because the system does not allow for that. Once a person is self-employed, he is classified as such, and that is that.

I strongly believe that the present system, as it relates to self-employment class 2 contributions, is designed for a time when employment patterns were completely different—when self-employed people were more likely to be business men who might make provision for a business failure or for times of unemployment. A person such as Mr. Smith, who, 30 years ago, might have expected to continue working in the railway industry—or another traditional industry, such as mining—throughout his life, would not expect to be considered self-employed.

In 1950, there were about 1.5 million self-employed workers in Britain; by 1995, there were 3.5 million. The Government constantly point out that work patterns have changed in the past 50 years, which is true. As my right hon. Friend the Secretary of State said earlier, Government policies are beginning to respond to that change. All the efforts to modernise the welfare and benefits system recognise that people may have one or more, or many, different careers in their life. To maintain a lifetime of work, a person may be employed, then self-employed, then want to return to employed status. The thrust of the Government's strategy is to ensure that the benefits system is designed to allow people to return to work with the maximum incentives, and to preserve their benefit entitlement, where that is reasonable. That is especially obvious in the changes that are being made for people with disabilities, which my hon. Friend the Member for Blackpool, North and Fleetwood (Mrs. Humble) mentioned.

Even in the recent White Paper on competitiveness, we said that we should not encourage failure, but should encourage enterprise. However, for people such as Mr. Smith, the current system works against that objective. Because of the effect of the class 2 contributions, the system creates a built-in disincentive for the unemployed or those unemployed who have been self-employed, who may ask themselves, "Shall I become self-employed if a job comes up?"

Might Ministers consider the possibility of designing a system in which a self-employed person could pay a third level of contributions instead of, or in addition to, class 4 and class 2 contributions? Those who paid that third level could secure themselves against future unemployment and know that, by doing so—by topping up what they were paying—they could be assured that they could benefit from jobseeker's allowance if their self-employment happened to cease.

I know that many people are affected by the problem that Mr. Smith experienced—especially when employers refuse to take on people unless they agree to work on a self-employed basis. Recently, the Inland Revenue issued guidelines to ensure that employers treat workers as employees when, to all intents and purposes, they are obviously employed. The guidelines were aimed especially at the construction industry, but the Amalgamated Engineering and Electrical Union is worried that the Revenue does not always pursue as vigorously as possible complaints that are made about companies that do not adhere to the guidelines, and which effectively make employees stick with class 2 contributions. That means that they have no security if they are made unemployed.

The AEEU has estimated that the cost to the Exchequer of companies avoiding paying national insurance contributions is about £1.2 billion a year. Would the Minister tell me, either today or in writing, whether the new guidelines have succeeded in placing employees on a proper footing regarding national insurance cover? How many companies have had action taken against them by the Inland Revenue when they were found to be in breach of guidelines? How many complaints have been made about companies in that regard?

I welcome many of the upratings that we are discussing. I believe that they will make a real difference to many people in my constituency. However, I have worries about class 2 contributions, and I believe that we need to ensure that the system is fair to people who pay those contributions. We must also ensure that employers do not force people to pay class 2 contributions by insisting that they work as self-employed. We must ensure that the Exchequer does not lose out because companies avoid following the Revenue guidelines. I know from discussions with Ministers that they are aware of the problems which I have outlined. I hope that they will be considered sympathetically to ensure that, in future, the system is fair and equitable for all.

3.49 pm

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

I am pleased to follow the hon. Member for Doncaster, Central (Ms Winterton). I listened to her speech with interest. She is right to point out some of the difficulties in the fine print of the class 2 and class 4 contribution systems for the self-employed. In the future we need to focus on the self-employed as a class to make sure that the inequities do not continue. Injustices do exist, and people have a poor understanding of what they are entitled to in return for the money that they are contributing.

Perhaps I can engage the hon. Lady's interest in trying to help me to stimulate a full-scale debate on the future of the contributory principle. The argument that she advanced so concisely and cogently is part of that wider strategic debate. I look forward to reading her speech as evidence to that end.

This is a valuable debate. I point out to the business managers that for other aspects of public policy—for example, defence estimates—there are allocated days on which the House considers overall expenditure in that area. We are lucky that the Chair allows us a fair degree of latitude. Earlier participants in the debate have taken full advantage of that to discuss the totality of social security spending. In the past, Opposition parties have been rather creative in selecting statutory instruments to tag on to the uprating order, so that the debate could be broadened.

The uprating of benefits is an important occasion in the parliamentary calendar for consideration of social security in the round, but it would be helpful if we could spend an afternoon or a day examining the implications for all benefits, contributory and non-contributory. That is what I tried to suggest earlier in my intervention to the Secretary of State's speech. We need to understand what direction the entire system is taking. Perhaps we can pursue that through the usual channels, possibly as part of the modernisation process.

I am worried about the future of the contributory principle. The Minister was kind enough to drop me a note last week adverting to the written answer dealing with the industrial injuries scheme on 20 January at column 474. The Secretary of State said that he was looking into alternative replacements for no-fault compensation arrangements that would meet the objectives of the current scheme.

That is an example of an individual initiative that is fine as far as it goes, but if industrial injuries compensation arrangements suddenly become an on-cost for employers as an attempt to modernise an intrinsic part of the contributory benefit system, that will be another example of the salami-slice approach to the basis of the contributory principle. We must be careful about that.

Looking at the detail of all the orders, I am worried that much of the motivating force for reform is coming from the Treasury, not the Department. My fear—I say this to the Minister neutrally—is that while the Department is doing its best to make the current system work, to get things right first time, to deal with fraud and to do an honest job, all the change, the reforms, the so-called modernisation is being driven from the Treasury. I do not believe that the Treasury has a genuine understanding of the contributory principle, or any history or tradition of supporting it.

I agree that interdepartmental working is necessary to achieve sensible changes in benefit, but I am getting increasingly nervous about the signs that the Treasury is entirely in the driving seat. I know that the Minister, as a new Minister, will be interested in making his mark. If I may give him a little avuncular advice, all he needs to do is to sort out the Treasury, and his ministerial career will never look back.

Mr. Fraser

That was a leader's speech.

Mr. Kirkwood

It was not a leader's speech—I care more for my sanity.

I shall refer briefly to the report of the Acheson committee, which dealt at length with the health equalities in our nation. We should pay careful attention to one of the sentences in the report, in which Acheson stated that empirical evidence comes from research demonstrating that people whose incomes consist entirely of state benefits"— which we are uprating this afternoon— have insufficient money to buy items and services necessary for good health. We cannot ignore that, when we set income support levels. If that is true of health, it must be true of housing, too.

The Secretary of State's speech was devoted—understandably, as this is the Government's main strategy—to efforts to get people off benefits and into work. Housing benefit is by far the biggest hurdle to that, and we must bear that in mind.

To return to Donald Acheson's point, I believe that we often do not look carefully enough at the adequacy of benefit levels. I recommend to the Minister as bedtime reading a book by John Veit-Wilson which was published about six months ago, entitled "Setting Adequacy Standards: How Governments Define Minimum Incomes." It makes interesting reading because it examines what other Governments do. It is honest about setting adequacy standards that are scientific and based on research, as opposed to those that are politically affordable.

I recognise that what social scientists determine as the minimum income for a two-child family may not be affordable. Even if it were affordable, important work-incentive problems would be involved. If poor families are paid more benefit, the incentive to work is reduced. The issue is not straightforward. Veit-Wilson and others demonstrate the need for a definable standard that would create a base-line around which the debate could take place. We do not have such a base-line at present.

The welfare reform Bill that we confidently expect in the next few weeks would provide an opportunity for that. I know that my hon. Friend the Member for Newbury (Mr. Rendel) will tie a wet towel round his head and lead the charge. Whoever serves on the Standing Committee can look forward to many happy hours of close scrutiny and cross-examination from him. I shall be sitting in the Public Gallery, occasionally cheering him to the echo.

The welfare reform Bill will offer an excellent opportunity to start thinking—if the Government have not done so already—about setting and defining a standard. The Green Paper published by the right hon. Member for Birkenhead (Mr. Field) while he was still a Minister set out performance indicators. The Government were brave to do that. I thought that some were rather intangible, to be honest, but performance indicators are valuable because they allow people to test Government's performance. I hope that the idea has not been lost.

I was lucky to join the hon. Member for Gravesham (Mr. Pond) at the relaunch of the new Policy Studies Institute report on public policy indicators. If the Minister is stuck for bedtime reading, he may add that to his list. It further developed the idea set out in the Green Paper. Such performance indicators are extremely valuable and should be considered by the Government.

Related work has already been done by the family budget unit on low-cost but acceptable standards of budget. I understand, as I said earlier, that some of those levels may be unattainable politically, immediately. However, the Family Budget Unit discovered that at January 1998 prices, a low-cost but acceptable level of income support—assuming 100 per cent. housing benefit and 100 per cent. council tax benefit—would be £160.82 a week, not £121.75 a week. That represents a shortfall of £39.07 a week for a couple aged over 18 with two children and who are not in work. We could argue about what is in and what is not in, and what should be in and what should not be in, but that is a severe shortfall in such a family's budget.

A family in such circumstances might be able to live with that level of shortfall for a brief period—we are all trying to achieve a situation in which people are on benefit for only a transitional period and then get back into work—but such a level is unsustainable for people on long-term benefit. It is therefore not surprising that Donald Acheson's report found that, in the long term, people's health suffers because of the inadequacy of benefit levels.

The Government are fond of saying two things in their defence when they are charged with shortfalls and inadequacies of that kind. They say, "Don't worry, there is a minimum wage coming and £3.60 an hour will make a big difference." Well, the family budget unit's report, "Low Cost but Acceptable", deals very effectively with that line of defence. It says clearly: A minimum wage of £3.60 will not prevent family poverty and says why it thinks that is so.

The Family Budget Unit also says that average female manual earnings and family credit levels for two-parent families are below "Low Cost but Acceptable" level and, perhaps more worryingly, it finds that it is unlikely—those are January 1998 figures—that the working families tax credit will remedy the situation. Even those figures do not reach "Low Cost but Acceptable" levels of income. A lot of work has to be done to ensure that we know what the people on the level of benefit that we are agreeing to this afternoon have to face in terms of long-term periods on low income.

I have two other things to say about that, staying with the theme of inadequate levels of income. Although the social fund account is not directly covered in the orders, the Comptroller and Auditor General's report on the 1997–98 social fund account has been published this very day. Two things concern me. First, I have been worried for some time that—although I believe that the levels of income provided for in the uprating orders are inadequate, and we could argue by how much—increasing numbers of people on benefit are repaying social fund loans.

I am getting very nervous about the extent to which that is compounding the difficulties, the poverty and the effects on health. I am worried that about 330 million social fund repayments are being made annually. I understand the principle behind the social fund, and think that it is positive. If more interest-free loans were made available, especially for community care grants, public money would be saved in the long run, but the amount of money for such grants has been static at £96 million for the past two or three years. We should consider that, because it impacts on the totality of people's incomes.

Those on low budgets would be helped to make ends meet if the Government looked carefully at the budget for community care grants and the impact of the discretionary element of social fund repayments that are currently being made.

The Minister knows that the Government Actuary—who always compiles a report on such orders—has recommended for the balance in the national insurance fund a minimum level of one-sixth (16.7 per cent.) of benefit payments". I would be interested in the Government's response to the report's conclusions, because the balance in the fund—the money that we are not spending—is likely to be significantly higher than estimated in the report on the changes in April 1998 … because of a higher opening balance". That is understandable, and it was inevitable. He adds that there have been significantly higher contribution receipts, lower benefit payments, lower payments to personal pensions and higher investment income than were estimated at this time last year. That deserves some comment from hon. Members.

No Treasury grant is coming into the fund for 1999–2000, which is a questionable decision, considering the inadequacy of benefit levels. The Government Actuary concludes by discussing the balance in National Insurance Fund at the end of successive financial years", which is expressed as a percentage of benefit payments in the previous financial year. In 1998 it was 22.5 per cent., against a minimum of 16.7 per cent.; in 1999 it is 27.6 per cent., which is a positive balance; and the projection for 2000 is 29.4 per cent. People are entitled to ask what is going on. The balance is going up fast—a lot faster than inflation and a lot faster than pensions. The limit is 16.7 per cent., but we are heading for 29.4 per cent. next year. No Treasury money is being put into the fund, so why cannot we make better use of some of the money in the fund to expand and develop contributory benefits?

There is overwhelming need—demonstrable need—to look at those inadequacies. It would be to the benefit of the whole House if the Minister dealt with that in his winding-up speech, so that we can keep the debate's context of the totality of the expenditure in some kind of understandable kilter.

4.6 pm

Mr. Paul Goggins (Wythenshawe and Sale, East)

It is, as always, a pleasure to speak after the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). I pay tribute to his work as Chairman of the Select Committee on Social Security, on which I had the pleasure to serve for almost a year.

The Committee debated and took evidence on the benefit integrity project when I was a member. My right hon. Friend the Secretary of State said this afternoon that the BIP is finally to come to an end. Many hon. Members, and certainly all members of the Select Committee on Social Security, will be delighted by that. I have received a written answer from my right hon. Friend this afternoon, giving details of what will come after the BIP. He said in his speech that he would be writing to all hon. Members, but his answer to me today reads: Initially, the new system will exclude DLA recipients whose cases were examined by the Benefit Integrity Project". That is welcome. Those who have suffered should not have to go through that process again. The answer continues: People with a fixed period award due to end within the next three years will also be excluded from the new system.

Mr. Oaten

Does the hon. Gentleman agree that it might make sense to exclude from the new system people who were excluded from the benefit integrity project—those groups that were exempt? The written answer has not made any mention of that.

Mr. Goggins

The written answer goes on to explain that all those things will be handled sensitively and in consultation with the groups with which the Government have regular discussions. All those points will be taken into consideration as the discussions proceed. Crucially, the written answer mentions training and evaluation after six months of operation, so it is clear that the Government take this whole issue extremely seriously.

The BIP, to refresh the memories of hon. Members, was founded on the spurious claim that there was £500 million of benefit fraud within the DLA system. The project was drawn up, without proper consultation, by the previous Government and implemented by officials three days before the general election. It was targeted only at those claimants on the highest rates of DLA, which meant that claimants—

Mr. John Hayes (South Holland and The Deepings)

Will the hon. Gentleman give way?

Mr. Goggins

I shall finish this point. Claimants could only lose, rather than gain, benefit.

Hon. Members

The hon. Gentleman has only just walked in.

Mr. Hayes

I would be the first to acknowledge that I have not been here for the whole of the debate, but a point that the hon. Gentleman made concerns me. I accept much of what he said, but the Government have been in power for a considerable time and many of these things have taken place during the past two years. Surely he would join me in attacking his Government—at least mildly—for not dealing with what he clearly described as an outrage much sooner.

Mr. Goggins

Several of my hon. Friends are suggesting that you have only just arrived—

Mr. Deputy Speaker (Mr. Michael Lord)

Order. I have been in the Chamber for a considerable time, and I should be grateful if the hon. Gentleman would use correct parliamentary language.

Mr. Goggins

I apologise, Mr. Deputy Speaker. In any event, I am glad to have the opportunity of making clear to the hon. Member for South Holland and The Deepings (Mr. Hayes) my belief that the Government have acted with integrity. They have exempted various categories that would otherwise have been caught by the benefit integrity project; moreover, crucially, they have created a partnership with disabled people's organisations, which Ministers have been developing over the past few months. Now they are winding up the benefit integrity project, and replacing it with a system that does not assume that every claimant of disability living allowance is a benefit fraudster, but ensures that the right amount of benefit goes to those who need it. That is a good example of the Government's attitude in taking seriously a hard-hitting Select Committee report based on evidence, and listening to disabled people and their organisations.

We have heard this afternoon, and in other announcements and statements, about action that the Government are taking to give further support to people with disabilities. The higher mobility rate of disability living allowance is to be extended to three and four-year-olds: £35 a week is to be provided for families who, surely, need that extra help. Pilot projects are already under way for the new deal for disabled people. That will bring into the workplace people who have been shut out and ignored for years—people who have been treated as though they were incapable of work, although many want and are able to work. The Government are also introducing the disabled persons tax credit and the disability income guarantee, which guarantees £128 a week for a single disabled person and £169 for a couple.

As we have heard again this afternoon, at the heart of Government policy is the aim of getting people off benefits and into work. The hon. Member for Gainsborough (Mr. Leigh)—who unfortunately is not in the Chamber now—was sceptical about that, but the fact is that 400,000 more people are in work now than at the time of the general election, and 53,000 people under 25 are in work who otherwise would not have been. Those are incredible statistics. Young people who were formerly dismissed and excluded are now working, mostly in unsubsidised jobs, as a result of the new deal. So far, the Government have halved the number of young people who are long-term unemployed. I do not think that these are grounds for scepticism; I think that they are great grounds for optimism.

The aim of returning people to work will be furthered by the extension of the new deal to lone parents, people with disabilities and older long-term unemployed people. Family-friendly policies will encourage more people back into the workplace. Crucially, one of the orders that we are discussing reduces employers' national insurance contributions, which will encourage the creation of jobs.

As well as creating more jobs, however, we must ensure that work pays—that it is worth while. Notwithstanding the statistics cited by the hon. Member for Roxburgh and Berwickshire, the minimum wage will make a difference: it will make a difference to the take-home pay of 2 million workers, many of them women. There is also the guarantee of a minimum income of £10,000 a year for working families, and—this, too, is in one of the orders that we are discussing—the abolition of the employees' £69 fee for entry to the national insurance system.

Those who cannot work, because they are disabled or retired, have family responsibilities or cannot find work—some people, of course, fall into all those categories—must be supported. That is central to today's debate. I do not think anyone would pretend that income support amounts to a king's ransom, and I urge the Government to continue to do all that they can to raise incomes above the income support level. That should be our aim. Much has been said this afternoon about the role of means-testing, but the fact remains that, in the first year following the general election, 100,000 fewer people were claiming income support than at the time of the election.

Earlier, my independence of mind was called into question, but I was trying my best to square what the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) was saying about means-testing—his sudden rejection of it—with the fact that the last Government presided over a massive expansion of means-testing in the system.

Mr. Kirkwood

Speaking of independence of mind, may I bring up the question of the Conservatives' independence of mind? I know that we have new arrangements for Thursdays, but I find that I have been given a parcel of oral Treasury questions by Conservative central office. Is our independence of mind now being challenged on Thursday mornings? Are we to be offered Treasury briefs to help us through Treasury questions?

Mr. Goggins

I am sure that the hon. Gentleman will make good use of that additional briefing.

The last Government ignored a serious issue. They thought that, by cutting insurance-related benefits, they could drive down the cost of social security; but by ignoring the fact that one in five families had no work and ignoring the pensions and savings needs of those on middle and low incomes, they created a move towards more and more means-testing. That is why the benefits bill has doubled over the past 20 years.

The trend in pensioner incomes has been similar to the trend in society as a whole. The hon. Member for Gainsborough said that all had gained from the increase in income over the past 20 years, but that simply is not true. In average terms, there has been a real increase in incomes, and those at the top—the better off—have experienced a massive increase. Those at the bottom, however, including pensioners, have fallen further and further behind. This is the position that the Government inherited: one in three pensioners is at or below the poverty line, and one in four people in Britain who are in poverty are retired people—pensioners.

Others have mentioned the report "Monitoring Poverty and Social Exclusion", which was published yesterday by the New Policy Institute. The report includes important findings about pensioners and their incomes. Pensioners with private incomes over and above the state retirement pension are likely to spend twice as much on food and half as much on fuel as those who rely on the state pension and means-tested benefits. The report also says that pensioners with private incomes over and above the state pension spend, on average, £146 a week, while those who rely on the state spend an average of £83 a week. That means that those at the bottom have a very different quality of life from those at the top.

The Government are trying to reduce the gap. They are trying to do two things in particular. First, they are trying to create a framework for the future, as can be seen from the Green Paper "Partnership in Pensions", which was published before Christmas. They want to ensure that everyone has not just the state retirement pension but a second pension, so that more and more people can cease to depend on means-tested benefits. They want to build on the success of occupational pensions, but also to introduce low-cost stakeholder pensions and a second state pension for the very low paid and for carers.

Mr. Hayes

Will the hon. Gentleman give way?

Mr. Goggins

I hope that, if I do, the hon. Gentleman will pay tribute to the Government's intention of introducing second state pensions for carers.

Mr. Hayes

I did not intend to mention that specifically, but I want to make a closely related point.

The hon. Gentleman seems to welcome the idea of looking at all of pensioners' income, rather than just income from the state. That is laudable, but is it not very similar to the Conservative party's proposal, made immediately before the election, which was so roundly condemned by people such as the hon. Gentleman and his colleagues? Is there not a degree of hypocrisy in what he is saying? I agree with much of it, but, frankly, I think it very similar to what Conservative Members have been saying for many years.

Mr. Goggins

My recollection is that it was in the air at the last general election that the whole state system would be privatised if the Conservative party regained power, whereas the Labour party and Government believe that the benefit of a second-tier pension, which better-off people have enjoyed for years in retirement, should be extended to those on middle and low incomes, so that all in society can have an income that is above the income support level. I hope that Conservative Members share that aim.

We must not only create that framework for the future, but act now. As one of the pensioners whom I meet in my local pension forum often remarks to me, "When people talk about pensions policy, they always talk about the long term. I am 84. I need action now." The Government have indeed been taking action.

We know that the value of the state retirement pension has fallen relative to earnings, but we also know that, if we were simply to increase the state retirement pension, those pensioners with the lowest incomes would gain the least because, pound for pound, they would lose their additional top-up. We therefore have to find different ways in which to help the poorest pensioners.

Value added tax on fuel has been reduced and, last winter, £50 extra was given for those on income support to help with their fuel bills. Free eye tests will be introduced from April and concessionary bus travel has been extended. All those things are important to sustain the quality of life for poorer pensioners. We also have the spending on the national health service and we are keeping inflation down. That is important for pensioners with limited savings.

The Secretary of State said that more could be done and that he hoped to do more. I hope that the Government are able to do more. They should receive support from Conservative Members for doing more for today's poorest pensioners.

At the heart of the policy is the decision to introduce for the poorest pensioners the minimum income guarantee, which has an above-inflation increase built into it—£5 for single pensioners, £7 for pensioner couples. If in future years the Government are in a position to deliver an increase above inflation again, they should be encouraged to do so, but more than just the value of the minimum income guarantee is important.

The rebranding of income support and, before that, supplementary pension—[Laughter.] The hon. Member for Brentwood and Ongar (Mr. Pickles) laughs, but one of the consequences of its being called income support and supplementary pension is that it has put many thousands of pensioners off claiming their entitlement because they feel stigma and shame. We should change not just the name, but the level and the value, and work to ensure that all those pensioners who are entitled to receive it do receive it. Again, the Government must be commended for their work to ensure that more and more pensioners who are entitled to the benefit are able to receive it.

Mr. Rendel

Does the hon. Gentleman agree that, if we were to give a lump sum in the pension itself to older pensioners, that would be a better and more effective way to ensure that the money got into the pockets of pensioners than insisting on their demanding something through income support?

Mr. Goggins

There are additions for older pensioners, but—I come back to the point that I made earlier—if we increase the state retirement pension, the one group of people who will not gain are those who depend on income support, because they will lose, pound for pound, their top-up benefit. The people who will benefit are those who already have substantial additional private income. So the Government are entirely right to target the effective support in the way that they are doing.

Savings was an issue introduced into the debate by my right hon. Friend the Member for Birkenhead (Mr. Field), and various other hon. Members have commented. We all know that too many pensioners—many of them come to us in our surgeries and at other gatherings—feel that they are being penalised for having made modest savings; modest in this day and age. As soon as a pensioner has £3,000, he begins to lose support. When he has £8,000, he loses all support.

In their Green Paper, the Government have invited comment, debate and suggestions on how that position can be tackled. They have two choices if they are able to do something in that sector. They can disregard a portion of private income—income from an occupational pension or from savings—or change the savings limits: the £3,000 and £8,000. It would be interesting if the Minister were able to comment on that, but it seems to me that the most cost-effective way in which to tackle the problem and to better target benefit is to change the savings limits, so that people who do save and have something in the bank are not penalised.

While I am making that point, may I ask the Minister also to consider the issue of funeral bonds? I know that there is an issue about whether they can be counted as savings, and that some discretion is exercised within the system over whether to count them as savings or not, but some pensioners in poorer parts of my constituency have put £1,000 into a funeral bond to pay for a dignified funeral. To view that as in some way dodging the system is perhaps taking things too far. I hope again that the Government will be able to consider that matter.

Last week, I attended with a number of other hon. Members the launch of Church Action on Poverty's "Pilgrimage Against Poverty" campaign. At that gathering, my hon. Friend the Member for Stroud (Mr. Drew) said that the whole purpose of being in politics is to help the poorest and weakest". I know that all my hon. Friends and many Opposition Members share that goal and aspiration. Certainly the Prime Minister shares it. He said clearly that, if Labour failed to help those at the bottom of society during the five years of its first term, we would have failed.

I believe that we will assist substantially those who are at the lowest end of society. We must encourage people into work and ensure that work pays, but we must also change the social security system to assist people. We need to change the structure of the benefit system. The changes to bereavement benefits are a good example, reflecting changes in employment patterns for women, but also equalising the situation for widowers who have dependent children, who need help and who, at the moment, do not receive it.

More than anything else, we need to do what the Secretary of State was calling for at the beginning of the debate: change the culture of the social security system. We have seen the potential for changing that culture with the new deal and with what has happened in the Employment Service. Anyone who has visited the local job centre and spoken to new deal staff will know how their job has been transformed by the opportunity really to assist, to advise and to support people back into work.

That must happen throughout the social security system, particularly the Benefits Agency. I am sure that staff at the agency will welcome that opportunity. We must not just ask, "Do you qualify? Can you fill this form in?" but ensure that people get the right benefits and the right amount of benefit. We must ask, "How can the system support you?" so that we have a proactive system, rather than a passive system.

I know that lack of money is central to poverty and that, where people do not have money, clearly, they are poor, but I also believe that a system with real concern for the poor does not just lob £1 or £2 extra a week on to a person's benefit. It takes people far more seriously than that. If I consider the whole range of public services in health and education, the way in which we are trying to make the streets safer places, and the way in which the Government are encouraging people in poorer communities to get involved and to participate, I see that we have the opportunity to create the crusade against poverty to which all hon. Members should sign up and in which we can all engage.

4.29 pm

Mr. Christopher Fraser (Mid-Dorset and North Poole)

I welcome the opportunity to speak in the debate because it is fundamentally important to all constituents throughout the country, although I will use some instances in my constituency to demonstrate some of my points regarding the Government's position.

The serious aspect of what we are discussing is the Government's record in power and their failure to live up to their pledges to the electorate, on the basis of which they were given the position of Government in the May election the year before last. High on that list is their failure to reduce welfare spending and to come up with a radical programme—as has been mentioned by my hon. Friends already—which satisfies the test that the Prime Minister announced in his first speech after the election. "Does the system trap people on benefits?" was one of the big issues that was taken up at that time.

The Government's Green Paper on pensions was widely regarded as a missed opportunity, not just by the Conservatives but by those outside the House. The Government's proposals are not so much a radical reform as tinkering at the edges. It is important to repeat that, because they do not deal with the main issues. They propose a modification of the existing system rather than the new approach that we realise is a fundamental requirement.

The aim is simple—to provide security in retirement for those who cannot save enough and to persuade those who can save to do so. The problem is also simple—ever fewer workers will have to support ever more pensioners as people live ever longer. The level of state pension that the country can afford will increasingly become worthless. It has been predicted that, in 50 years, 8 million pensioners could be making ends meet with only the help of income support.

The cause is also well understood. There are many people who cannot or will not save for their old age. The Government have, as usual, promised much—a long-term and radical approach, difficult decisions and a reduction in dependency. In short, they have promised an integral part of a new welfare state for the new millennium. A great deal was expected of their long-overdue pensions Green Paper, which was finally published in December last year.

We should have known better. There is evidence aplenty on the Government's broken promises and their propensity for saying one thing and ending up doing another. In opposition, the Labour party said that TESSAs and PEPs were safe. In power, they have praised those who make provision for their old age. However, they are now abolishing those two popular tax-exempt savings schemes. If they truly admire those who provide for themselves in their old age, why withdraw dividend tax credits for individual non-taxpayers, the majority of whom are retired people on low incomes who depend on their modest share portfolios to cover household bills? My constituent Mr. Hindle summed up his concern thus: The Labour party promised not to increase taxes. Isn't this a tax increase when those with tax allowances are not allowed to use them? He went on: As a thrifty pensioner, and my wife a housewife and carer, how do we ever hope to recover from the loss of an invaluable part of our income. We have talked about some of Labour's manifesto pledges. Another one was to keep the state earnings-related pension scheme for those who wish to remain in it. That has also been broken. The Government plan to abolish it and replace it with something slightly different. However, the son of SERPS is a stop-gap measure, because the Secretary of State hopes that it will become superfluous as the Government's stakeholder pensions are taken up.

Why do the Government have a consistent compulsion to fix things that are not broken and to wipe the slate clean and start again in the name of modernisation? It is all the more disgraceful because they are changing the rules on pensions after responsible people have committed their money and decided on a long-term strategy for their retirement.

What of measures to resolve the problems that I referred to earlier? What of measures to address the problem that too few people save enough to look after themselves in retirement? What of those who have to eke out a miserable existence on means-tested benefits courtesy of the taxpayer? To help the poorest pensioners, the Government have proposed a new guaranteed minimum income at an estimated cost to the taxpayer of £2 billion. Pensioners will have to be assessed to determine whether they are entitled to that so-called income. That is an extension of means-testing and perhaps a forerunner of a means-tested basic state pension, as my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) said earlier.

The real difficulty that I have with the proposal is the potentially damaging implication of guaranteeing someone a pension income regardless of their behaviour during their adult life. When that is coupled with the Government's decision to duck the principle of compulsory second pensions, it means that anyone reluctant to save could come to the conclusion that, if the state promises reasonable provision, there is no need to set aside money for their old age.

For those on low incomes, an affordable level of saving will never produce a meaningful second pension. For those who are prudent and put away a little each week, their tiny pension will surely rule out entitlement to not only the guaranteed minimum income, but income-related benefits. Who in their right mind will sign up?

To compound the problem further, the Government have pledged to uprate the minimum income guarantee in line with earnings. The value of the benefit to someone who has never saved will increase more quickly than the basic state pension and other state benefits and, probably, the return on investments. The threshold above which someone could gain by setting up a second pension will get higher with every passing year.

In effect, the minimum income guarantee will extend means-testing and undermine the contributory principle. How can the Government reconcile that with the Prime Minister's pledge to move away from the benefit culture towards independence of the individual? It does not square, and people are sceptical. How does the Government's approach persuade people on lessthan-average earnings to forgo jam today in the hope that they can afford bread in retirement, particularly when they see others on similar earnings enjoying not only jam today but perhaps a holiday or other treats in the secure knowledge that the state will provide the bread when the time comes?

To encourage working people to make provision for their retirement, the Government have proposed stakeholder pensions. Is there any reason to believe that they will be more easily understood by people unfamiliar with savings and investment schemes? Are they likely to be safer or more flexible or represent better value for money than other pension schemes currently being marketed? If so, perhaps they might be more attractive to new savers, but the prospect of paying lower national insurance contributions is hardly an offer than cannot be refused, particularly to a youngster who has recently started work, to whom retirement seems a lifetime away, or to a young couple with a family whose daily needs leave little spare cash at the end of the week. The success of stakeholder pensions is dependent on a big if. At worst, they could threaten or destroy existing private and occupational pension arrangements.

We face a muddle over the Government's new individual savings accounts, which are just weeks away from their launch. I am highly dubious that many of the criticisms that have been levelled against the stakeholder pensions can be resolved and that the Government will fully address many of the issues that have been raised today.

I should like to turn again to the problems of today's pensioners—those who have made provision for their old age and face the reality that it will be worth less from now on. I have already spoken about the dividend tax credits. There is also the pensions tax, which abolished tax credits for pension funds and other non-taxpaying institutions. Most pensioners are thrifty. They come to surgeries in my constituency and talk about the sacrifices that they have made. They believe that they have been punished by the Chancellor, but it is too late for them to do anything to reverse the ever-increasing erosion of the monthly pension. All that they can do is tighten their belts. They fear the consequences, not least to their health. We have heard the feelings of one of the Liberal Democrat Members about that.

Mr. Hayes

I have no wish to interrupt my hon. Friend's eloquent argument, except to add to the list of burdens that the Government have imposed on pensioners the withdrawal of tax relief on private medical insurance. Many pensioners have written to hon. Members complaining about that move. It disproportionately hurts pensioners and places an extra burden on the national health service. It really is nonsense and adds to his admirable list of concerns expressed on behalf of pensioners in Dorset, for whom he works very hard.

Mr. Fraser

It was kind of my hon. Friend to make that last comment. Many pensioners who are tightening their belts had sought to minimise the impact of any future health problems by taking advantage of the tax relief on private medical insurance. Now they are at the mercy of the national health service. I shall not discuss the Government's approach to the national health service, but I am sure that the House appreciates the mess that they have made of it and the burden that they are placing on pensioners who had helped themselves or planned to do so and can no longer afford private medical insurance.

Another constituent, Mr. Bampton, wrote in response to the Government's Green Paper on pensions: The Government is talking about things they may do in five years' time. We pensioners need help now. An interim measure. Not more consultation. If you have a fire in the kitchen, you do not call the insurance company first. You call the fire brigade. The hon. Member for Wythenshawe and Sale, East (Mr. Goggins) said that instant work is being done to alleviate the problems affecting pensioners. I am afraid that he is much misguided. I frequently receive letters from pensioners who say that they need help now and not in five years time when they may not be here.

Labour's policies have already damaged Britain's savings culture. The savings ratio has fallen significantly under Labour. Ministers, particularly those who are gossiping on the Front Bench now, live in a fantasy world if they believe that their pensions policy will reverse the trend.

4.42 pm

Mr. Chris Pond (Gravesham)

Along with other hon. Members, I was slightly astonished to hear the hon. Member for Mid-Dorset and North Poole (Mr. Fraser) suggest that many pensioners relied on means-tested benefit because they could not or would not save. Many of our constituents would find that rather insulting. Many pensioners who have worked hard all their lives now have an inadequate level of income, not because they have not saved or worked, but because of the actions of the previous Government, who took some £10 billion a year out of the state pensions scheme and made cuts in the basic pension and SERPS, leaving many pensioners reliant on means-tested benefit. The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) was candid about the mistakes of the previous Government.

The hon. Member for Mid-Dorset and North Poole also asked why the Government wanted to fix something that was not broke. I think that was the phrase he used. Clearly the system is broke. Social Trends, which was published this morning, shows just how broke.

Mr. Fraser

Will the hon. Gentleman give way?

Mr. Pond

I shall not give way, as I know that the hon. Gentleman will say that he said "broken" and not broke. The colloquial phrase is "If it ain't broke, don't fix it".

Mr. Fraser

If the hon. Gentleman reads Hansard tomorrow, he will realise that when I spoke about people who could not or would not save, I was not referring to pensioners. I simply wanted to put the record straight.

Mr. Pond

I thank the hon. Gentleman for his intervention, but it does not alter my point.

Social Trends reports that the gap between those with high incomes and those with low incomes grew, particularly during the 1980s. During that decade, the incomes of the poorest increased by only one eighth as much as the highest incomes.

Several hon. Members have referred to the report by the New Policy Institute, which was launched last night and is funded by the Joseph Rowntree Foundation, entitled "Monitoring Poverty and Social Exclusion". It documents the extent of what it calls "Labour's inheritance". It shows that, over the period 1979 to 1996–97, average disposable income rose by almost a third in real terms. The hon. Member for Gainsborough (Mr. Leigh) suggested that the increase in wealth in the nation during those years had been shared by all groups, but the report shows that that was not the case. The poorest tenth saw their disposable income rise by less than half the average increase and at the end of 18 years, they had only £2 a day more to spend.

Labour inherited a situation in which a quarter of the population, including 4 million children, were stranded on a low income. A further study by the Joseph Rowntree Foundation reported that almost one in 20 children go without fresh fruit every day, do not have new and properly fitting shoes or live in damp housing conditions. That is the extent of the challenge faced by the Government. The proposals, including those which we are discussing today, are an extremely effective response to that challenge—to build a fairer and more prosperous society and ensure that all groups share in that growing prosperity.

The changes represent an important part of an overall strategy, the starting point of which is that, while spending on social security increased sharply under the previous Government, it was a reflection not of social generosity but economic failure.

Increasing numbers find themselves without work or opportunities and have to claim means-tested benefits to top up declining wages or national insurance benefits. I fully support the welfare-to-work strategy. The new deal will provide opportunities for young people, people with disabilities, lone parents and older unemployed people.

In my constituency, I recently met a young man who had been given a chance under the new deal to help to build the new district hospital that will serve my constituency and that of my hon. Friend the Member for Dartford (Dr. Stoate). The young man had been unemployed for some time. He was somewhat demoralised and was rather surly at the interview, but the Employment Service and the employer gave him a chance. Within weeks, he had been promoted to a supervisory position and was a highly valued member of the work force.

The single gateway is an important next step. At present, claimants are faced with an array of different institutions including the Employment Service, the Benefits Agency, local councils and the Child Support Agency. Providing a single access point to benefits will reduce the confusion that can lead to people losing out on help to which they are entitled and will allow us to provide every claimant with advice, not only on benefit entitlement but on the opportunities that may be available for jobs, training or child care. In most circumstances, people will be required to attend for interview. In my view, that is a fair requirement that should not be treated as a form of compulsion.

It has always been a condition of receipt of benefit that one completes an application and the condition that one should also attend an interview to seek advice is a reasonable and sensible extension of that principle.

Another element of the strategy is to ensure that, when people make the transition from welfare to work, they and their families enjoy an improvement in living standards. On Tuesday, we debated the working families tax credit, which will ensure that no working family with children will have an income of less than £190 a week. That is a major step forward in tackling the problem of the working poor, who represent the largest single group among the poor.

Even more importantly, the national minimum wage will come into effect in April and the Employment Relations Bill, published today, will provide a further element of the strategy to ensure that employment is properly rewarded. I promise that I will not stray beyond the subject of our debate by pointing out that the Bill contains an important new right to parental leave.

I hope that Ministers will consider ways of allowing parents on low incomes to take advantage of that new right, by making at least part of the leave period subject to payment. I believe that, in any case, it is necessary to consider the consequential changes in income support, family credit and the new working families tax credit that may be necessary to accommodate the introduction of parental leave.

The strategy also includes changes to national insurance contributions which are directly relevant to our debate and to which several hon. Members have referred. The changes coming into effect in April are welcome. The threshold for employers' contributions will be aligned with the basic tax threshold and employees' contributions are to be made fairer, with the abolition of the 2 per cent. payable on earnings below the lower earnings limit.

All those changes will make the system fairer but, as some hon. Members, including the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), have suggested, we need to have a debate about the future of the national insurance contributory principle. It is clear that the principle commands widespread public support, which I endorse, but the system has been badly distorted in recent years.

The previous Government increased national insurance contributions dramatically, as my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) said, increasing the standard rate of employee contributions by 50 per cent. By the mid-1990s, national insurance contributions accounted for almost 70 per cent. as much in total revenue as income tax. They had become a hidden but highly regressive form of income tax.

The changes that are to come into effect in April will certainly help, but I hope that we may go further, perhaps aligning the lower limit for employees' contributions with the basic tax threshold. As the Low Pay Unit has said, it will remain the fact that almost 2.5 million workers earn less than the lower earnings limit and are therefore unable to build up an entitlement to benefits.

More than 1 million people have more than one job and, even if their total earnings are high enough to bring them above the lower earnings limit, the earnings in either job may not, so the current system may not fit with the flexible labour market. Many employees' earnings fluctuate from week to week, sometimes above the limit and sometimes not; they may pay substantial national insurance contributions but never build up an entitlement. Many women are in that position.

The proposals for increased crediting, to come into effect in April, will help, but I am glad that the Social Security Committee will have an opportunity to consider how the contributory principle might be adapted and whether it fits today's circumstances. My view is that the wide public support for the system is probably justified, but we should review the system's merits and shortcomings.

Some of the elements in the strategy to tackle poverty are important in the short term; not in the long-term future that many people will not see, but here and now. One such element is the biggest increase in child benefit in history. We must underline the fact that, because of the other changes, the poorest families will benefit from that increase.

I welcome my right hon. Friend the Chancellor's suggestion that we need to have a proper debate in the long term about whether future increases in child benefit should be subject to tax at the higher rates. The Select Committee has been considering that, and we need a genuine, adult debate on the issue, to consider whether an already well-targeted benefit could be targeted even more effectively in the longer term, allowing us to make still further increases in the basic rate.

My right hon. Friend the Secretary of State referred, at the other end of the age spectrum, to the Government's plans to provide security in old age. I believe that the proposals in the Green Paper represent a means of providing that security in the long term, especially for the lowest-paid, and I welcome them. The minimum income guarantee offers the more immediate help that the hon. Member for Mid-Dorset and North Poole seemed to think was unavailable. It will help many people on the lowest incomes.

Many pensioners express a sense of unfairness and feel that they are penalised if they have some small savings or a small occupational pension. All hon. Members will recognise that. I am pleased that the Green Paper says, and that my right hon. Friend the Secretary of State confirmed today, that the Government are considering how to alleviate that effect.

Overall, we have a strategy—part of which has been discussed this afternoon—that will tackle the inequalities that have scarred our society, will be of immediate help to the very poorest and will provide important long-term help.

4.55 pm

Mr. Howard Flight (Arundel and South Downs)

It is clear that the Opposition share the Government's objective of seeking to find the right measures to look after and improve the lot of those who cannot look after themselves, and Labour Members' criticisms regarding the previous Government's policies will turn out to be misplaced.

I agree with my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) that the previous Government did not achieve the results for which they hoped, since social security expenditure doubled in real terms. Since 1992—after black Wednesday, the withdrawal from the ERM and the return to a sensible exchange rate—the economy has been in a recovery cycle. Yet although the growth in social security expenditure has slowed a little, it has continued, in the main, to be faster than the growth in national income.

I would argue that the previous Government's quite generous measures during a period of substantially rising employment showed their own errors. To a large extent, they were creating many of the problems that they were setting out to solve.

In reality—behind the rhetoric and the phrases that are aimed at winning votes—what the Government are doing is a continuation of that: they are tweaking, being a little more generous here and producing a bit more means testing. To argue that working families tax credit is not merely a recasting of family credit—paid by the employer, instead of through the Benefits Agency—is semantics.

Our main criticism of welfare to work has been its inefficiency and the cost of creating jobs. However, the previous Government put in place similar measures, and we understand the principle that such a communications mechanism is necessary. I do not believe that what the Government are doing is a radical departure. It is not the radical rethink that many were expecting, and it is certainly not the radical rethink that its pioneer intended.

We are seven years into an economic expansion, and the Government are boasting that social security expenditure is not growing as fast as it has been. However, what they are putting in place will result in a pattern similar to that of the past 10 or 12 years, only even worse. Expenditure will rise and, as growth slows, it will rise even more—and the costs will become locked in.

The principle that the Government are expounding is that subsidising people into work will result in permanently lower unemployment and, therefore, permanently lower social expenditure. That is not the case—it did not happen between 1992 and 1997. The Government can become locked in to the costs. In terms of working families tax credit, there is no reason why people who can draw generous benefits while working for 16 hours a week will work any more hours if they do not want to. The benefits exist, and will go on being drawn.

The point about means testing, to be blunt, is that someone has to pay for benefits. Over the past 25 years, direct and indirect taxation on ordinary, middle-income families—the great majority of people who pay taxes—has risen substantially. The proposed increase in benefits will make hardly any difference to the standard of living of people whose incomes are broadly average.

That would be desirable as long as those same people were not the ones who had to pay. It is inherently unfair that people who are in full-time work and bringing up children and who are not entitled to the various means-tested benefits should have to finance other people enjoying the same standard of living. The reaction is quite natural: they do not save more and they do not take part in society's great dynamic of hard work and self-improvement.

A welfare system that levels everyone up to the average may sound very Christian and nice, but the reaction of the people in the middle of the average—the ones who pay for the system—must be remembered. I do not believe that those people will be willing to keep on paying in the long term.

The second problem is the familiar one that we live an age in which it has become more common for families to break up and for couples to divorce. As my hon. Friend the Member for Chingford and Woodford Green stressed, the measures introduced by the previous Government and by this Government are increasingly unfriendly to the family. Many professional commentators have observed that, over the past 15 years, it has been the efforts to solve the problem that have to a large extent created it. It is a classic case: make it easier for families to break up, and more will do so; take away the tax and other incentives for families to hold together and, when pressure is exerted, they will break up.

I am not opposed in principle to the concept of wanting to help women who are abandoned by their husbands and who have children to look after. I very much want to help them: the tragedy of their circumstances is only too evident in the work of the Child Support Agency. However, the problem must also be examined from another angle. If we want society to be satisfactory, with fewer problems, the best prescription remains the age-old one: families should have two parents who are married. All the statistics show that the children of such families are less likely to get into trouble and more likely to have successful careers, and so on. The opposite is equally true.

Moreover, the benefits of such a family group are felt by the parents as well as by the children. They depend on each other, especially when they get old: if one partner cannot work, the other provides care. I do not believe that most adults want to be alone, without a stable partner, as they go through life.

There is an argument in favour of tilting the tax and the welfare systems in favour of supporting the traditional family unit. If, with the best intentions in the world, a variety of measures are adopted that are tilted in the other direction, it is not surprising, in a very liberal society, that the family unit starts to break down.

Ms Stuart

Does the hon. Gentleman agree that families come under the most severe strain when parents try to combine work with family life? Far from breaking up families, Government help with child care offers them significant support.

Mr. Flight

I agree with the hon. Lady that there is added strain if both parents are working. However, although it may be that both parents work because they want to work, the major reason for both parents working is economic. The bill for the rising cost of welfare has been predominantly paid by people in the middle, and their economic response has often been that both parents have worked. Given the point made by the hon. Lady, I must ask her why the Government are making the position worse by virtually driving mothers out to work, even if they do not want to work, by saying that they will get family help and child care assistance only if they work, and that there will be none if they stay at home to look after their children. I cannot see your logic if you believe that.

Mr. Deputy Speaker

Order. Could the hon. Gentleman use the correct parliamentary terms?

Mr. Flight

I apologise, Mr. Deputy Speaker.

It is interesting to focus on how the Government have thought about the Green Paper on pensions. It strikes me that a well-intentioned, academic approach based on numbers analysis has been taken. The areas that need to be targeted are identified through proportions and statistics, and the Government seek then to fine-tune measures that will target those problems. That seems a logical way in which to address problems, but it fails to take account of the knock-on effect of those measures, and of human nature.

It is ironic that one of the great obsessions of the Chancellor, the main architect of social security policy, is the elimination of tax avoidance and tax evasion. One would have thought that he would realise that human nature is such that no individual much wishes to pay more tax than he is legally obliged to pay. The point is to make it absolutely clear where the law falls. The sin is with those who stray into evading taxes.

At the other end of the spectrum, the more benefits there are, and the more they are structured with means testing and with bells and whistles, the more inevitable it becomes that people will structure their circumstances to obtain the maximum benefit. Equally, it is more likely that they will slip over the edge from actions that are straightforward and honest to actions that may be fraudulent. The classic example—where there has been an explosion of such cases—concerns cohabitation.

The incentives to be deceitful, including working families tax credit and other recent measures, are becoming ever larger. There is potential for straying across the line of honesty, and that encourages families to break down. I made the point during our recent debate on working families tax credit, but it must be wrong to make it not worth while to have a male partner unless he is earning more than the median wage after he has provided for himself. A tax and welfare structure that leads to that result simply must be wrong when it comes to benefiting children by giving them a two-parent family background in which to grow up.

Many hon. Members have mentioned the abandonment of the insurance principle. That amounts almost to standing Beveridge on its head. I assume that the logic is that we live in an age in which average incomes are much higher and there is no longer a need for universal benefits. If that were so, the welfare state should be increasingly targeted towards those who need some help. There are two objections. First, we must at least be honest. Many of my constituents aged over 50 would say that they have been cheated—that they paid national insurance all their lives but are being told that it was not an insurance scheme and that there are no benefits against it. If any private sector insurance company changed what it was delivering against its insurance contracts, it would be in considerable trouble.

Mr. Pond

What do the hon. Gentleman's constituents feel about a Government who increased national insurance contributions and then cut significantly the benefits for which they paid, including pensions and unemployment benefit, which was scrapped and replaced by the much less generous jobseeker's allowance? Would his constituents applaud a Government for doing that? What does he say about the Government whom he supported?

Mr. Flight

The hon. Gentleman makes my point. No Government should fiddle with an insurance system.

He implicitly criticised the previous Government for that; we implicitly criticise this one for it as well. It is a bad principle. Both Governments fudged the issue, which needs to be brought out into the open to be addressed. If we move towards a system of purely means-tested benefits and roll national insurance into income tax, as some hon. Members suggested, people's willingness to accept, and participate in, that will grow very sour. I repeat my main point: the crucial negative is that the great burden falls on the rump in the middle.

The pensions Green Paper proposals seek to target defined areas of need, but no one has sat back and considered what the by-products might be. There is a risk that the proposals will lead to a deterioration in private sector pension provision for people in the middle, whether it is companies giving up occupational schemes for stakeholder schemes or the phasing out of group personal pension schemes. I forecast that the net result will be a reduction in overall pension accumulation in the private sector and a reduction in the pension that the ordinary, average person will get. The people at whom the proposals are targeted will benefit, but I believe that insufficient thought has been given in designing the changes to the likely by-products.

The other key problem is self-employment. The design has not been targeted adequately at the problems of the self-employed. Who are the self-employed? What incentives do they need to make their own pension provision? We can debate that more next week.

There is an element of Nelson's telescope in this. The Government look through it with one eye to arrive at their conclusion. That may be the blind eye; they have not looked through the other eye—or perhaps through the other end of the telescope—to see what the knock-on effects of their measures will be. In particular, they have not considered the effects on human behaviour. That was the great mistake that we made over the past 10 years. We introduced social security reforms following the same trend. I assure the House that they were well intended, but they created too much of a dependency culture and ballooned the bill without achieving their objective. I am not at all convinced that any major change in policy has taken place that will allow us to break out of the problems. I fear that many of the results will be contrary to the objectives, and that the ballooning in the expense will be much the same as when we were in office.

With the best of faith, the Government should forget the rhetoric, step back and think about people's reaction to many of their measures. It would be dangerous for Government rhetoric to be smug about the measures that they have introduced. They should think about the negative knock-on effects. My biggest concern is that the lower half of the middle part of society—the dynamic part that will pay for all this—will become even more demotivated to save and not to become part of the dependency culture.

5.16 pm

Mr. Donald Gorrie (Edinburgh, West)

My hon. Friend the Member for Newbury (Mr. Rendel) and my very avuncular and hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood), have dealt with the general principles and issues very well. I should like to follow the hon. Member for Gravesham (Mr. Pond), who said that a radical reform was needed in the welfare system. I urge the Government to consider three points.

First, the documents that we are asked to agree today are still based on the pernicious idea that people under the age of 25 can live more cheaply than people over 25. That is wrong. Beer, food and housing cost as much for under-25s as for over-25s. On Monday, the House spent a lot of time discussing the appropriate age for sexual activity. There are different ages at which one can drink, drive or get married, and students of whatever age are deemed to be involved financially with their parents. Thus the whole age thing is muddled, and it is not logical to say that 25-year-olds are different from people of any other age. It is a return to the Victorian idea of leaving money in trust to prevent members of one's family from marrying until they were 35, in the belief that only then would they have the sense to choose correctly. I appreciate that changes cannot be made over night, but I urge the Government to change that.

Secondly, as others have said, housing benefit is the single greatest obstacle to people taking up work. It must be dealt with more seriously than just introducing a bit of uprating here and there. If we are to enjoy so-called joined-up government in years to come, housing costs must be addressed collectively. Relatively speaking, rents are much higher than in the past and, therefore, benefits are much higher. We should see whether there are other ways to support either the revenue cost or the capital cost of housing.

Recent research has shown that, if the Treasury gave more support to the capital cost of social housing, it would save much more on benefits for people living in that housing than it spends on construction, and would save money overall. The whole issue of the volume of housing benefit and how it forms a huge obstacle to people taking up work must be addressed.

Thirdly, the Government should simplify the whole system. It is a long time since I did any mathematics, but one formula in schedule 8 is calculated as (A x B) x C divided by 52—I see no point in having the brackets. That merely illustrates the futility of the effort. If the entire House were to be given an exam on the benefits systems based on that sort of stuff, our performance would be so abysmal that the Secretary of State for Education and Employment would send in Mr. Woodhead and his bunch to sort us out as though we were a low-performing school.

The whole system is hopelessly overcomplicated. It was invented by very clever people, which is part of the trouble, although it is encouraging to see that even very clever people do not always notice a misprint, with the result that we have an extra document before us today. Even Homer nodded in his proofreading. The trouble with the benefits system is that it is invented by very clever people; it is enacted by somewhat less clever people such as ourselves; it is put into effect by well-meaning people in offices who are totally snowed under and who have great difficulty administering it; and it is all done for the benefit of people many of whom do not understand it at all.

Changes give rise to an immense amount of work for officials in housing benefit offices. I know that they can feed figures into computers, but the fact is that they have to alter every single person's allowance. Might I suggest something simpler, by giving an example of a purely amateur nature, although it might cause ribaldry among the intelligentsia in the far corner?

The Parliamentary Under-Secretary of State for Social Security (Angela Eagle)

There is no one in any corner.

Mr. Gorrie

There is when viewed from here. Perhaps they are invisible.

When recalculating a person's benefit, one can either start at the beginning and change every step of the calculation, which is what we are doing today, and reach the answer about 15 calculations later; or one can accept all the existing calculations and simply take everyone's benefit as it stands and increase it by 2 per cent., 3 per cent., or whatever the figure is. The latter method would mean that one would not have to recalculate every single person's benefit; instead, one would simply uprate the benefit. Surely we can apply common sense in that way. Even if my proposal would not work, cleverer people could no doubt produce cleverer solutions.

The whole system is a disaster because it is far too complicated and an enormous amount of time and money is wasted administering it. I have only short experience as a Member of Parliament, but I served as a councillor for 26 years, during which time I tried to help people to understand the benefits system and attempted to get mistakes made by benefit office officials corrected. Anyone who has any experience of the system knows the trouble caused by its complexity.

My suggestion is that, instead of making the system intellectually satisfying, we should seriously try to simplify it and turn it into a system that will work simply on the ground. I urge the Government to show real courage, to attack all the silly rules about age, to tackle the problem of housing finance and to sort out the complexity of the whole benefits structure.

5.23 pm

Mr. Quentin Davies (Grantham and Stamford)

Mr. Deputy Speaker, today's debate has been especially interesting, which is due in large part to your judicious decision to allow it to range fairly wide, over all the policy areas that lie behind the uprating orders that are the formal subject of the debate.

I believe that there is considerable merit in the suggestion made by the Chairman of the Social Security Select Committee, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), that Department of Social Security matters might form the basis of an annual debate, thus allowing the DSS to follow the example of other Departments, most notably the Ministry of Defence, which has an annual debate on the defence estimates. That debate gives the House an opportunity to review all the policy issues that flow from those estimates. The hon. Gentleman made that suggestion to the business managers and I am happy to endorse it.

Another reason why our debate has been extremely interesting is that many of the hon. Members who have contributed to it are past or present members of the Social Security Select Committee, or have otherwise done their homework and put a great deal of thought into the subject. Very few hon. Members, if any, appeared to make a perfunctory political speech for the purpose of throwing slogans across the Chamber.

The hon. Member for Blackpool, North and Fleetwood (Mrs. Humble) suggested that disability living allowance should be extended to children under three. I hope that the Under-Secretary will respond to that and all the other serious suggestions and questions that have been voiced this afternoon and will not brush them aside. I look forward to hearing his response.

The hon. Lady suggested also that, in training Benefits Agency officials, it is important not only to make them vigorous in their work to identify potential fraud or abuse but to ensure that they are sympathetic. The great majority of benefit claimants are extremely honest and the last thing that they want to do is defraud the taxpayer. Some of them may have suffered a major problem such as unemployment or disability, and sympathy is certainly the first quality, although not the only one, that Benefits Agency staff should develop. The agency's culture should be based on that principle.

The hon. Member for Newbury (Mr. Rendel), in what has become the Liberal Democrats' traditional stance, whatever the subject under discussion, suggested further expenditure. He suggested doubling child benefit for children under five. He wants also to raise capital thresholds. That might go some way to dealing with the perversity and unfairness of means-testing, but it would, first, be expensive and, secondly, I hope that the Government are not under the illusion that raising capital thresholds would remove that perversity and unfairness. It would simply mean that the disincentive to work or save was extended so that it impacts at slightly higher levels of savings.

Mr. Rendel

The hon. Gentleman implied that increasing capital allowances in line with inflation would be expensive. I should have thought that in real terms it would make no difference.

Mr. Davies

In his speech, the hon. Gentleman did not—or at least I did not hear him—make the important provision "in line with inflation". Clearly, that would mean that the additional costs would not be great, but equally there would be no real increase in incentives to work and save because, by definition, the hon. Gentleman would not change the real value of the capital threshold, so his proposal would make no contribution to reducing the problems of means-testing.

The hon. Member for Birmingham, Edgbaston (Ms Stuart), who was a member of the Select Committee, and who always speaks with considerable knowledge on the subject, gave us an interesting comparison with the German system of social security. It is common ground in the House that we all recognise a debt to the German system. After all, Bismarck first invented a system of social insurance and—I hope that Liberal Democrat Members will appreciate this reference—a visit to Germany by Lloyd George and his adviser, the young William Beveridge, in the early years of this century lay at the root of the Asquith Government's proposals for social insurance, unemployment insurance and old-age pensions.

The German system was also the inspiration behind many of Beveridge's proposals in his White Papers published during the second world war. We have therefore been drawing lessons from Germany during the past 100 years, and many features of its system may be relevant to us now.

The Chairman of the Select Committee, the hon. Member for Roxburgh and Berwickshire, to whom I have already referred, also followed the Liberal tradition of throwing money at every problem. He suggested that we should increase income support markedly. I hope that I have at least the rough magnitude of the figures correct in my mind. He said that the appropriate level of support for a two-parent, two-children family should be in the order of £160, rather than £120, or so, a week—a considerable increase. He was good enough—of course, he is an expert in the matter, so the point would not have escaped him—to appreciate that that might have a rather devastating effect on work incentives for people whose prospects in the job market might lead to earnings not dissimilar from such an amount. Nevertheless, he made his points with his usual authority.

My hon. Friend the Member for Gainsborough (Mr. Leigh), who has apologised to me for his absence—his family commitment involving one of his children is the best possible excuse—dealt with the major quandary before the House: what the Prime Minister really meant when he said that he would bring down social security spending. My hon. Friend said that the Prime Minister obviously never meant for one moment what he said, because such a statement is manifestly stupid and unrealisable, and so, in fact, he was basically having the British public on. That seemed a very plausible analysis of this rather strange situation. I shall be returning to that matter because it is of essential importance to the way in which Parliament evaluates the new Government's policy in this area.

My hon. Friend the Member for Gainsborough said that it was impossible to abolish means-testing altogether, and very much endorsed the idea that the essential question, which was raised in an intervention by the right hon. Member for Birkenhead (Mr. Field), is whether one is in favour of increasing means-testing or reducing it. The question is in which direction one goes; it is not one of absolute means-testing or complete abolition. My hon. Friend endorsed the right hon. Gentleman's statement of that important issue, to which I shall also return.

My hon. Friend the Member for Gainsborough very importantly drew the attention of the House and the public to the threat that the Government are about to tax child benefit, and to all the damage that that would do. He cited an example of a family living in London on £31,000 a year, whose major breadwinner would pay income tax at a higher rate than someone with no children as a result of such a measure.

The hon. Member for Doncaster, Central (Ms Winterton) legitimately used her opportunity to take part in the debate to raise a constituency case—that of Mr. Smith—about which we all now know. After all, we are sent to this House by those who elect us, who expect us to stand up for them, especially when a crisis in their lives is exacerbated by their treatment at the hands of the Government. That is precisely Mr. Smith's circumstance. The hon. Lady set out very eloquently, for the benefit of the House, yet one more example—I have a little black book, incidentally, which is gradually filling up with many other examples—of injustice and perversity in the benefits and welfare system.

Ms Rosie Winterton

Does the hon. Gentleman appreciate that the injustice suffered by Mr. Smith has been experienced by others for some 50 years, yet his Government did nothing to sort it out? I said that we should take this opportunity to look forward to try to put right the injustice of many years. I did not see any evidence of his Government improving Mr. Smith's situation.

Mr. Davies

They were not my Government; they did not belong to me, they belonged to the Queen. If the hon. Lady means that I was a member of that Government, she is also mistaken. She is perfectly right that such anomalies, perversities and absurdities, which corrupt our benefits system—I use that strong word advisedly—have been present for a long time. The extraordinary thing about that intervention is the hon. Lady's attitude.

One might have supposed that, if the Labour party took its own rhetoric half seriously, Labour Members would be proud to come to the House, after Labour's great victory at the general election, and say, "Now we are going to put all these evils right." We have not heard that. We have not had a breath of such a suggestion in today's debate or in any other social security debate. All we hear is, "I am afraid that we have been unable to do any better than you lot did." If that is not a pretty pathetic abdication by the new Labour Government, I do not know what is.

My hon. Friend the Member for Mid-Dorset and North Poole (Mr. Fraser) rightly put the spotlight on the Government's broken promises. He characterised such promises as the hallmark of the present Government, and he gave us several examples of matters—such as personal equity plans and the state earnings-related pension scheme, which I hope that we shall debate next week—on which the reality of the Government's action has been the exact reverse of Labour's absolutely unambiguous manifesto commitment. Ministers should be very ashamed of that record because, effectively, it amounts to the bamboozling of the British public, and I hope that they are not proud of that achievement.

I apologise to the hon. Member for Wythenshawe and Sale, East (Mr. Goggins) because I made my only absence from the Chamber during his speech, but I did hear him speak with genuine feeling for the disabled. His plea—which I hope will be heard—to the Government was that the replacement for the benefit integrity project, which is to run from April this year, should be humane in its treatment of the great majority of applicants, who will be genuine applicants: fellow citizens who find themselves in difficult circumstances which most of us do not suffer from, and who therefore deserve our respect and sympathy.

I understand that, when I was momentarily out of the Chamber, the hon. Gentleman said something extremely interesting, which has been reported to me and which, no doubt, will be in Hansard. He referred to the Government's minimum income guarantee for pensioners as a rebranding of income support. I was delighted to hear from my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles), who reported that comment to me, that the hon. Gentleman had used that phrase. I cannot accuse him of plagiarism, because the phrase that I have always used in this context is "a reclassification of income support", but "rebranding" is a much better word to sum up the essential dishonesty of the proposal, which, as presented by the clever PR gurus that the Labour party is so good at employing, apparently is unambiguously good news for all state retirement pensioners. In practice, however, it does not mean a penny more for those who do not already qualify for income support.

Mr. Goggins

Will the hon. Gentleman give way?

Mr. Davies

I give way to the hon. Gentleman; I hope that he has been quoted to me accurately.

Mr. Goggins

I am grateful to the hon. Gentleman for giving way; it is a pity that he was not present when I spoke, but I ask him to accept that my arguments were as follows. First, I argued that the minimum income guarantee was, importantly, a real increase, in excess of inflation, for the poorest pensioners. Secondly, I said that the supplementary pension and income support have, unfortunately, been seen by many pensioners as a barrier to claiming, because they regard them as stigmatising—as handouts. The fact that we shall now have something called the minimum income guarantee will encourage them to make the claim, and break that barrier. It will mean that they can make the claim without feeling any stigma.

Mr. Davies

Obviously I did correctly quote the hon. Gentleman's words. The words that he has used in his intervention reinforce my argument. We are told that the fact that there is now something called the minimum income guarantee will change things. We are presented with the wonderful—characteristic—Labour party illusion that a change of name changes the substance. I have to tell the hon. Gentleman that one does not change the substance by changing the name, and that the minimum income guarantee is just another version of a means-tested benefit.

My hon. Friend the Member for Arundel and South Downs (Mr. Flight) made the valid point that the Government's purported radicalism in social security is profoundly bogus. If one puts the best interpretation on the measures that they have introduced, working families tax credit is merely an extension of family credit. In our view, it is an ill-conceived and unnecessarily expensive extension of family credit. Nevertheless, it is conceptually an extension of family credit. Welfare-to-work is conceptually an extension of the jobseeker's allowance.

Credit for the concept of bringing together advice on finding work and the distribution of benefits is rightly due to the last Conservative Administration, although I never suggested then and I do not suggest now that everything that the last Conservative Administration did was for the best, in the best of all possible worlds.

My hon. Friend the Member for Arundel and South Downs made the point that badly needed to be made in the debate—that in speaking about uprating benefits, we must not forget that there is always another side to the balance sheet: the taxpayer must pay for whatever we decide to allocate as welfare benefits. Certain levels of such expenditure will not be socially acceptable.

To continue the logic of my hon. Friend's argument, I should point out that those of us who care about having an effective and humane welfare system must be careful that we do not cross the line beyond which the payment of welfare ceases to be socially acceptable and therefore politically feasible. In the United States recently that line was crossed, with unfortunate results for the recipients of benefits.

My hon. Friend the Member for Arundel and South Downs highlighted, as did my hon. Friend the Member for Gainsborough, the essential anti-family bias of the Government's attitude towards welfare reform. There is no doubt that if a couple receive more benefit overall if they split up than if they stay together, that is an inducement which may, with successive changes in that direction, become a powerful and even an irresistible inducement for them to split up. That would create the tragic situation in which the welfare system could induce family breakdown.

Most of us would think that that was tragic, but I am not sure that all members of new Labour would consider it tragic. When my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) introduced the debate, he produced a devastating quotation from a leading Labour thinker, which suggested that she thought that it was a thoroughly good thing if the welfare system contributed to family breakdown. At least we know where we stand with such people.

The hon. Member for Gravesham (Mr. Pond), with his background in the Select Committee, knows a lot about the subject, although his speech sounded as though it had been drafted by Labour party headquarters. He said all the right things from the point of view of those on his Front Bench, and I hope that he is suitably rewarded. Of course, it is a classic tradition, not an invention of this Government, to use Back Benchers sometimes to prepare the ground for unpleasant initiatives that the Government plan to spring on the public.

I was therefore particularly concerned to hear the hon. Gentleman's remarks about preparing the ground for the taxation of child benefit. I fear that that rather sinister proposal is being contemplated by the Government.

Mr. Pond

I do not know whether the hon. Gentleman is aware that, for some time, there has been a debate in this place about whether it would be sensible for future increases in child benefit to be subject to taxation at the higher rate. That is no revelation; my right hon. Friend the Chancellor said that in his last Budget statement.

Members of the Social Security Committee have been having a sensible and adult debate about those issues to see whether that is an option for the future and whether we will be able to provide greater increases in the basic rate of child benefit and target more effectively a benefit that is already well targeted. It is for the Government to decide, one way or the other. There has been no announcement on that.

Mr. Davies

The hon. Gentleman is good at calling for sensible and adult debate on important matters without explicitly telling the House his view. He hints, but, using a certain amount of common sense, we can glean his view on this matter. He never states it, but I conclude that he is in favour of the taxation of child benefit. I am extremely sorry about that.

The hon. Gentleman said exactly the same, and used an almost identical phrase, when he talked about the future of the contributory principle and national insurance. Again, he called for a debate. When evidently very loyal and well-directed Back Benchers make such statements at the end of debates, we should all be extremely anxious. What he says today about the taxation of child benefit—or, indeed, about further winding-down of the contributory principle and undermining of the national insurance system—may tomorrow be a formal proposal from the Secretary of State.

A number of important points emerged from the debate, and the most important is that it is absolutely clear that the Government have abandoned their explicit commitment to bring down social security spending. We can argue about whether they ever meant it seriously, or whether they were simply laughing up their sleeve when they said that to British public. I agree with the interpretation of my hon. Friend the Member for Gainsborough.

Whether the Government originally meant what they said or not, and whether the Prime Minister thought that he was being honest or not when he made that commitment, it is clear that the Government have no intention of achieving it, and no prospect of doing so. What do new Labour Members do when they find that they either no longer can or no longer want to fulfil a manifesto commitment? Do they say to the House, "We are sorry, we got it wrong. We have thought again. We won the election on a false bill of goods and we are now telling you that we cannot deliver"? No, they do not.

New Labour Members come to the House and use every subtle subterfuge in the handbook of the PR gurus to try to divert attention from what is really happening. We had that again this afternoon. The Secretary of State—who is a brilliant man and a past master at this kind of thing—came to the Dispatch Box and talked about shifting welfare expenditure from income support and the jobseeker's allowance to the disabled, pensions and more long-term forms of benefit, as if that had been the commitment the Government had given. It was not; the commitment was to bring down social security spending.

What the Secretary of State suggested this afternoon may really have been in the Prime Minister's mind. But it could not have been new Labour's commitment for a basic reason: Labour Government's fiscal strategy depended on getting total social security spending down.

We were told at the election, "You can trust new Labour. We are no longer the spendthrift, mad-dog party that we were back in the 1970s. We will not ruin the country and have the International Monetary Fund in here. We will tell you how we will pay for all our extravagant electoral commitments. We will spend all this money on the national health service and on education, but do not worry. Do not lose any sleep over it. You can trust us. It will not mean crippling taxation, ruin for the country and the IMF coming to take us over again. We shall make savings elsewhere." Where were the savings to be made? In the social security budget.

If we take away those savings—the aggregate, global reductions in social security spending that Labour promised—the whole fiscal strategy collapses. There are two alternatives. One is that Labour cannot deliver on its health and education promises—and, as we know, it is not delivering on those promises: the NHS is breaking down, and class sizes are increasing. We know the story all too well. Alternatively, Labour will have to return to the agenda of crippling taxation and crippling deficits. This is a key part of the thoroughly bogus strategy with which Labour bamboozled the public and won the last election, and the central column of the edifice has been shattered this afternoon.

Another important issue has emerged today. The right hon. Member for Birkenhead probably understands social security better than any other Labour Member: he is an expert. He was alone among Front Benchers who joined the DSS after the election in having done his homework and considered the issues thoroughly when in opposition—and, of course, because he knew so much about them he was sacked after a year.

The right hon. Gentleman asked an important question this afternoon—a question that should put us all into one category or another. It is not "Do we wish to abolish means-testing 100 per cent., or to means-test every benefit", but "Are we moving in one direction or in the other?" Are we committed to the national insurance system, regarding means-testing as an exception—a necessary exception but an expensive one, not merely in terms of public expenditure but, above all, in terms of social and economic costs—or do we want to wind down that contributory system, replacing it with a means-tested society?

As has been made clear in debates that we have had in the House over several months—if the slightest doubt or ambiguity remained, it would have been dissipated by today's debate—there is a seminal division among hon. Members on this vital subject. The Labour Government are moving towards a means-tested society, while we are proud to be the defenders of the tradition of national insurance.

Mr. Pond

Was the hon. Gentleman also proud of the fact that his Government were clearly moving in the direction of means-testing, whose extent they doubled?

Mr. Davies

All these tactics are crafted in Walworth road. One of the principles contained in the handbook that I have not seen—I do not think that I would find it very attractive reading—is that those faced with an awkward statistic should distort it, and that is what has happened this afternoon.

Before I reply to the substance of the hon. Gentleman's intervention, I should point out that I am in a poor position either to take credit for the undoubted achievements of the last Administration or to defend what others may consider to have been that Administration's shortcomings. [HON. MEMBERS: "Why?"] Because I was not a member of that Administration.

Nevertheless, I will grapple with the issue raised by the hon. Gentleman. Perhaps he is a victim; perhaps he has been bamboozled by the stuff coming out of Walworth road, and is not trying to bamboozle the House. I prefer that charitable interpretation.

The statistical point that the hon. Member for Gravesham makes reflects the fact that the last Conservative Administration introduced a number of new means-tested benefits, particularly for deprived and disabled people, and greatly extended family credit, which is a means-tested benefit and was a sensible addition to the panoply of instruments available to our welfare system. Of course, that produces a statistical increase in the total proportion of social security spending by way of means-tested benefits. It is emphatically not the same thing as what the Government whom he supports are doing, which is to means-test previously nonmeans-tested benefits.

That is what the Government have done with bereavement benefit. Widow's benefit, as it used to be called, has been abolished. It is now a new means-tested benefit. That is what they have done with incapacity benefit and what they are doing with the minimum income guarantee. Running down the national insurance system, as they are doing, taking non-means-tested benefits and means-testing them is totally different from what the last Conservative Administration did, which was to preserve the national insurance system and to add to it by discreet and targeted additional means-tested benefits. If the hon. Member for Gravesham cannot tell the difference between those entirely different approaches, I am surprised that someone of such intelligence should have managed to spend so long on the Select Committee.

I have not finished with the Government yet because we cannot allow the debate to conclude without receiving some answers on what is happening with the national insurance recording system computer. The best the Government can ever do is say, "It is all the last lot's fault." It is no good saying, "It wasn't us wot signed the contract." That was roughly the excuse from the Secretary of State. The fact is that problems began to arise when the Labour Government had already been in office for about a year.

The Parliamentary Under-Secretary of State for Social Security (Mr. Hugh Bayley)

Rubbish.

Mr. Davies

The hon Gentleman may say that, but if I am wrong—if the problems began to manifest themselves earlier than or from May 1997—the point that I am about to make is greatly reinforced: in their first 18 months of office, we heard absolutely nothing from the Government about them. If it were true that, as soon as they came to office, they identified those problems, it was a dereliction of duty on the part of the hon. Gentleman or his predecessor not to come to the House and to say, "We have hit a major problem."

Had the Minister or his predecessor had the good sense to do so in the summer of 1997, there would have been some credibility in saying, "It's not our fault guy. It's the fault of the last lot," but we heard nothing. There was no statement to the House. We heard nothing until we received the circular letter of last September, when the Secretary of State said that the problems would be solved within two weeks—some two weeks. [Interruption.] I hope that the right hon. Gentleman is not saying sotto voce that he did not say that, because we have it in writing. We will pass it across the Box to him if he has forgotten the injudicious use of words that he resorted to last September.

In fact, earlier this afternoon, the Secretary of State was not lying when he said, "It is not my fault. It is the people who advised me. I said it on advice." That was the phrase that I heard him use earlier.

Mr. Rendel

Will the hon. Gentleman give way?

Mr. Davies

No. It is too late to take any more interventions. I have taken a large number, as the hon. Gentleman will recognise.

For better or for worse—it is no doubt for worse—the Secretary of State is now in charge. He cannot go on like this. He is ultimately responsible for the people who give him advice. If he is receiving such dumb advice, there may be something wrong with his information technology advisers, as well as with Andersen Consulting, which set up the computer.

If such a problem were to arise in a business, one person would be put in charge. We want to know who really is in charge: is it the Secretary of State or one of his junior Ministers? One would hope that whoever was in charge would spend time knocking heads together; that there would be a precise plan on action to be taken; when it was to be taken and by whom; and that there would be a weekly report on the desk of the Secretary of State about what was going on. If there is such a report, the House deserves to see it. We are dealing with a massive waste of public money and a cause of enormous anxiety to millions of people.

I endorse the demands of the Liberal Democrats that the estates of pensioners who die before they have received the money that they are entitled to should be fully compensated and that widows who have made the wrong choice between a state retirement pension and widow's benefit because a material fact was not available should be able to change their choice.

I have another even more important demand. Those who have lost because their SERPS rebates have been underpaid into personal pensions should be put in the financial position that they would have been in had the Government not made the mistake. That is what would happen with pension mis-selling or other abuses or inefficiencies in the private sector. If people have missed the turn in the market because money should have been paid to them in September or October, since when the stock market has appreciated, they should be compensated, as they would be if such a mistake were made by a bank, a stockbroker or an insurance company. I hope that we shall have an assurance on that.

I have one final point that is of great concern to us all. A Department of Social Security questionnaire is being sent out—I hope that the Minister will tell us whether it is being sent to everyone who currently receives child benefit or only to a selection of people—that clearly lays the basis for the taxation of child benefit. It asks many questions that are irrelevant to the administration of child benefit, including questions about the so-called partner of the recipient. What is the status of the questionnaire? Is there a statutory obligation on the recipient of child benefit to answer it? Will their statutory right to child benefit be withdrawn, as is threatened at the end of the document, if those intrusive questions are left unanswered?

6.2 pm

The Parliamentary Under-Secretary of State for Social Security (Mr. Hugh Bayley)

I was going to start my response by saying that we had had a good, thoughtful, quiet and considered debate on the benefit uprating orders and the welfare reform context that the Government have set for social security. We had, until the contribution of the hon. Member for Grantham and Stamford (Mr. Davies). He displayed a compassion for the poor that was notably absent from the policies of the Conservatives during 18 years in government.

The hon. Gentleman talked about means-testing, as though the Labour Government had a runaway policy to abandon the contributory principle and move to means-testing. Let us remind the House what happened when the Conservatives were in power. When they came to power, 16 per cent. of benefits were means-tested. When they left power, 34 per cent. of benefits were means-tested. If the hon. Gentleman were doing his job as an Opposition spokesman he would have seen the answer—

Mr. Quentin Davies

The hon. Gentleman is making a point that was made by his Back Benches in an intervention to my speech a few moments ago. He was obviously not listening to my response. He is drawing an inference from a statistical fact that comes from the Conservative Government introducing new means-tested benefits, but not running down existing contributory benefits. The difference between us and the Labour Government is that they are means-testing benefits that were previously not means-tested.

Mr. Bayley

The hon. Gentleman seems to have forgotten that unemployment benefit—a contributory benefit—was withdrawn by the Conservative Government. He might like to look at the video of the part of his speech in which he was running down the record on means-testing of a previous Conservative Government in a way that would attract the sympathy of many of my hon. Friends, and see the expression on the face of the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), who did not appear to follow his argument point by point.

The hon. Member for Grantham and Stamford should also look at the written answer yesterday from the Under-Secretary of State for Social Security, my hon. Friend the Member for Wallasey (Angela Eagle) showing that it was not just a general move towards means-testing over an 18-year period. In the final four years of the Conservative Government the proportion of the social security budget spent on means-tested benefits increased each year, but it has decreased slightly—by less than 1 per cent.—under Labour.

To create a myth that the Labour Government are abandoning the contributory principle and moving to means-testing is not supported by the facts. The hon. Gentleman should look at the facts before making a charge.

In our 1997 election manifesto, we made a pledge to modernise the welfare state. Under the Conservatives social security spending had almost doubled. It had risen by £43,000 million a year in real terms, yet despite that increase inequality and insecurity continued to rise. By 1997 one child in three in Britain was born into a family that depended upon income support and the means-tested benefits to which the hon. Member for Grantham and Stamford referred.

The social security system that we inherited is failing the very people it was meant to help. We cannot tolerate the status quo and keep the system as it is. We need to change it for economic, social and moral reasons. Right across government we are committed to change—to tackle the root causes of social exclusion and economic insecurity.

It is important to be clear about the Government's approach to welfare. Unlike our predecessors, we see welfare as much more than DSS benefits. In response to my hon. Friend the Member for Blackpool, North and Fleetwood (Mrs. Humble) we want a modern, effective welfare state providing a mix of cash and services administered nationally by the whole spectrum of Government Departments and locally by statutory, voluntary and private agencies. We see each part of that welfare state as interdependent so that the provision of education, skills and training promotes employability. Over time, investment in jobs and social security will reduce inequalities in health.

Our approach to the machinery of government, for example, the creation of the social exclusion unit, will tackle the manifestations of social exclusion such as crime and truancy by targeting the available resources where they are most needed

The hon. Member for Chingford and Woodford Green, who I got to know well in the previous Parliament when we were both members of the Select Committee on Health, made the charge that transferring the Contributions Agency will undermine the contributory principle. The decision to transfer the agency to the Inland Revenue is not an attack on the contributory principle; it is a sensible reform that will enable businesses and individuals to sort out their tax and national insurance with a single organisation. I should point out to the hon. Gentleman that the Inland Revenue already collects 95 per cent. of national insurance contributions.

The hon. Members for Chingford and Woodford Green and for Grantham and Stamford both waved at the Chamber the Benefits Agency questionnaire on child benefit. The point of that questionnaire is to support the Government's programme and ensure that benefits go to those who are clearly entitled to them. I am surprised that they should make a big issue of our determination and our action to ensure that benefits are properly paid.

My hon. Friend the Member for Blackpool, North and Fleetwood spoke about disability living allowance. I know that she has taken a close interest in that benefit. I would like to associate myself with the tribute that she paid to the staff of the DLA headquarters in her constituency. She welcomed the extension of the higher rate mobility component of DLA to three and four-year-olds and argued that it should perhaps be extended further, to younger children.

The award of DLA is based on need, and the higher rate mobility component is designed to provide support to those who need assistance to go out and about. Children under the age of three would not normally go out and about without assistance or supervision, so we have responded to the case for reducing the age at which eligibility starts, but we do not think that it would be right to reduce it below the age of three.

I am glad that my hon. Friend also welcomed our decision to replace the benefit integrity project. She stressed the need to give adequate training to the staff who carry out the reviews. That is one reason why the hon. Member for Newbury (Mr. Bendel) is wrong to suggest that the Government could simply have torn up the project and replaced it overnight, without ensuring that the replacement works better than the original and that the staff who implement it are properly trained for the job.

Mr. Rendel

The Minister has entirely misinterpreted what I said, which was that the project, which the Government admitted had failed, should simply have been stopped, and that they could then have introduced a new programme when they had done the training. I did not say that a new programme had to start straight away, before the training had been done.

Mr. Bayley

I find that a disingenuous argument. I should have hoped that the Liberal party would have agreed that it is important to review all benefits to ensure that they are being paid properly. Simply to abandon that for a period would not be helpful. The hon. Gentleman should recognise that, whereas the benefit integrity project did not work fairly, we are introducing a system that will be fair because it will enable benefits to be increased as well as reduced. The intention of the project that we inherited from our predecessors was, of course, purely reduction.

The hon. Gentleman asked how many pensioners we estimated would not get our minimum income guarantee because they would not claim it. It is impossible to answer that, but the Department estimates that at present between 400,000 and 700,000 pensioners who might be entitled to income support do not claim it.

The hon. Gentleman made several costly spending pledges, which I presume are part of his party leadership bid, so I will not comment on them. More importantly, he mentioned the difficulties with the NIRS project and, quite correctly, laid the blame fairly and squarely at the door of our predecessors. He asked what would happen if a pensioner was found to have been underpaid after that person had died. The answer, simply and straightforwardly, is that the underpayment would be paid to that person's estate under existing departmental procedures.

I congratulate the hon. Member for Newbury on raising issues to do with the orders—unlike the hon. Member for Chingford and Woodford Green, who made an engaging speech but did not talk about the orders at all. The hon. Member for Newbury misunderstood what the orders say in relation to families with children on income support. The family premium has been raised so that claimants on income support will receive a full uprating.

My hon. Friend the Member for Doncaster, Central (Ms Winterton) raised the case of her constituent, Mr. Smith. I cannot respond in the House to a particular case, and I must remind my hon. Friend that the self-employed have never been entitled to contributory jobseeker's allowance—or unemployment benefit before that—and that their levels of contributions have reflected that. However, she made an important point about the way in which the nature of society and work has changed in the past decade. That underlines the importance of us reforming the benefits and welfare system so that it responds to present-day needs.

The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) and my hon. Friend the Member for Gravesham (Mr. Pond) referred to the contributory principle. The Government have not abandoned the contributory principle. The orders, I would have thought, make that clear, as they include upratings of universal, contributory and means-tested benefits. In some respects, the Government are reinforcing the contributory principle. Our proposal to introduce benefits for widowers is the creation of a new contributory benefit. Our decision to link incapacity benefit more closely to national insurance contributions is a reinforcement of a contributory benefit.

Mr. Duncan Smith

That is twisted.

Mr. Bayley

It is not twisted—it is a reinforcement of the contributory principle.

Mr. Quentin Davies

The Minister is plumbing new depths—it is extremely worrying. He knows perfectly well that incapacity benefit is now completely means-tested beyond £50 a week, and that the bereavement benefit is means-tested beyond six months for both women and men. It does the House no service to try to disguise those facts.

Mr. Bayley

We are proposing adjustments to make a fairer system and to target the benefits budget on those who are in greatest need.

The hon. Member for Roxburgh and Berwickshire referred to the Acheson report. It is important to tackle poverty, and the Government are doing so. That is reflected by the orders. The introduction of a minimum income guarantee for pensioners is tackling poverty, as is the biggest-ever increase in child benefit. Underlying our policies is the recognition that the best guarantor of security is work, and work is being encouraged by the Government through the working families tax credit. We are making sure that work pays, with the minimum wage, and we are making it easier for people without work, but who want to work, to get work by creating a single gateway to ease the passage off benefits and into work.

My hon. Friend the Member for Wythenshawe and Sale, East (Mr. Goggins) made a powerful speech on pensions. He was right to give a hale and hearty welcome to the Government's minimum income guarantee, which will increase the income of a single pensioner on income support by nearly £5 a week, and the income of a couple by more than £7 a week. He raised his concern at the different treatment of the two main types of funeral bonds. That is an important point, and I give an undertaking that the Department will look at it further.

My hon. Friend the Member for Gravesham supported the principle that claimants should be required to attend an interview with a personal adviser at the single gateway. That is an important part of the welfare-to-work strategy. It is, as my hon. Friend said, perfectly reasonable, given the existing requirement that claimants supply information by completing application forms. It underlines the point that all citizens, claimants and others, have responsibilities of citizenship as well as rights.

The hon. Member for Arundel and South Downs (Mr. Flight) made a good and disarmingly honest speech. He acknowledged that, under this Government, social security expenditure is not rising as fast as it did under the Conservatives. I hope that he will explain that to the hon. Member for Chingford and Woodford Green, who suggested that this Government would spend £37 billion more on social security. That is simply not the case: the figures for the previous Government's spending do not cover the same period as this Government's triennial review.

Mr. Duncan Smith

We must be absolutely certain about this matter, and the Secretary of State must allow the Under-Secretary to think it through himself. I have a specific question. The Under-Secretary has just said that the figure of £37 billion for the increase in social security spending over the next three years is incorrect. Will he confirm that the Government will not increase social security spending by £37 billion over the next three years?

Mr. Bayley

No, the figure of £37 billion is not correct. Let me explain the matter to the hon. Gentleman. Under the previous Government, social security spending rose by 4 per cent. per year. Under this Government, it will rise by about 2 per cent. per year.

The hon. Member for Edinburgh, West (Mr. Gorrie) made some points about housing benefit. I can tell him that an interdepartmental review of the housing benefit system, of the type that he favours, is under way. He argued that the system should be simpler, but I caution him that a simpler system inevitably will bring rougher justice. I know that he would be the first to complain about the creation of new anomalies. The system cannot be simplified without creating certain further anomalies.

The hon. Member for Arundel and South Downs was sceptical about the new deal and the single gateway. I believe that he and other Opposition Members underestimate the extent to which our thinking has broken with the past. We are investing £4 billion in the new deal to create job opportunities. We have introduced the national minimum wage, which will benefit about 2 million people, most of whom will be women on low wages. Through the working families tax credit, we will ensure that work pays.

Our strategy is based on the recognition that people who are worn down and written off by a life of social exclusion, to which the previous Government said that there was no alternative, will require active support and help to get back into work and to feel part of society again. That is what our single work focused gateway is intended to provide—a single place where a claimant can get advice on benefits and on finding work, and on how to cross the bridge from benefits to work.

No longer will great swathes of society be written off when they would prefer to work and when what they need is a helping hand to get work. Our guiding principle of work for those who can work is indeed a break with the past. We treat unemployment as something that can be overcome by promoting employability. We do not agree that unemployment is a sad but inevitable consequence of the economic cycle. The progress with the new deal so far shows that results can be achieved—and achieve results we shall. One of the reasons for the increase in social security under this Government being lower than under our predecessors is that we are enabling more people to get off benefits and into work.

Our guiding principle is work for those who can work, and security for those who cannot. The second part is firmly rooted in the past, as our uprating orders show. We are providing an extra £1.25 billion for all families with children, and an extra £2.5 billion for the poorest pensioners. By agreeing the uprating orders, the House would agree the largest ever increase in child benefit. For the eldest child, the increase will be £2.95 a week, 45p of which takes account of inflation. The £2.50 remainder is a real-terms increase, and a direct investment that will increase security for families with children.

The increase this year for a two-child family is greater than all the increases provided by the Conservatives year after year during the previous Parliament. This year's increase—never mind last year's—in child benefit for a single child is more than twice the size of all the increases that the Conservatives made over five years.

Mr. Leigh

The Minister will therefore want to reassure us that what he is giving with one hand, his friends at the Treasury will not take back with the other.

Mr. Bayley

The hon. Gentleman will be aware of what the Chancellor said in the Budget last year. There is no proposal at the moment to tax child benefit.

There has, perhaps inevitably, been no consensus during our wide-ranging debate, but it is clear, at least to Labour, that we must proceed with the welfare reform debate. We are committed to change, but it must be change rooted in fairness, and it must provide opportunities for people who are currently denied work.

I hope that the House will welcome the orders. They provide protection and continuing security for claimants, and a record increase for recipients of child benefit, emphasising that the Government put first the needs of children. They also provide the minimum income guarantee for the most vulnerable pensioners, and that will provide a substantial boost to weekly income—almost £5 a week for single pensioners, and £7 a week for couples. They will also add to dignity and security in retirement. I commend the orders to the House.

Question put and agreed to.

Resolved, That the draft Social Security (Contributions) (Re-rating and National Insurance Fund Payments) Order 1999, which was laid before this House on 13th January, be approved.