HL Deb 10 December 1964 vol 262 cc253-80

4.25 p.m.

Order of the Day for the Second Reading read.

LORD MITCHISON

My Lords, I beg to move that this Bill be now read a second time. Just a year ago to-day I moved a Resolution in another place calling upon the then Government to introduce a comprehensive social security system and, pending its introduction, to take immediate steps to meet the hardships of pensioners and widows. It was an Opposition Resolution and it was voted down. Pensions were a matter of public interest and concern at the last Election and the gracious Speech promised a major review of our social security schemes and. promised too that the Government would immediately introduce legislation to increase existing benefits.

The review is proceeding; but, as my right honourable friend the Chancellor of the Exchequer said in his recent Budget statement: We believe that it was right and in accordance with the feeling in the country that we should not delay bringing, about these improvements for the old, the sick and the widows while we are working on our longer term plans."—[Official Report, Commons, Vol. 701 (No. 10) col. 1033, November 11, 1964.] Accordingly this Bill deals with improvements as immediate as we can make them, and similar improvements are being made in National Assistance scales and in war pensions.

These changes are overdue. I think your Lordships must be well aware of the difficulties and hardship that comes to people, old folk, single or married, who have little or nothing to live on but a retirement pension. I do not think I am going too far when I say that, whatever the position may have been from time to time, everyone with any knowledge or experience of these cases knows that at present pension rates are insufficient for their purpose; and broadly that purpose is to enable pensioners to live in reasonable comfort during adversity or old age, even though they have no other resources. To look at the matter from another angle, where it is easier to compare figures, pensions ought to be at least a constant proportion—I would hope a rising proportion—of average earnings; and there has been a known increase of 11 per cent. in average earnings since the date when the last increases in pensions came into force. There is therefore a distinct element of urgency in the proposals in this Bill, and the Government would have wished to bring them in earlier than March 29, 1965, when it is proposed to bring the main changes into effect. In fact, however, that is the earliest day by which the necessary arrangements can be made.

As my right honourable friend, the Minister of Pensions and National Insurance, pointed out on the Second Reading of this Bill in another place, it is not possible for post offices to give the correct statutory increases simply by making a flat or percentage addition to the amount shown on the pension orders—there are 200 different rates of retirement pension orders, and the same total rate may be made up in various ways qualifying for different rates of increase. The pension order books in pensioners' own possession have therefore in the great majority of cases to be recalled to the Ministry's offices, and each individual order foil overstamped with the appropriate new rate, which has to be determined separately for each pensioner. Some 6 million order books and some 200 million order foils are involved in this process, and there is a vast amount of preliminary work to be done before overstamping can start. All this extra work has to be clone at a time when the Ministry's offices are under very heavy pressure in dealing with the extra Lord of winter sickness benefit claims.

Searching inquiries were also made into possible alternative methods of giving at any rate some increase immediately; but any rough-and-ready scheme would only have led to confusion and unfair discrimination. Having regard to those difficulties and to the economic situation at the time, there was no sensible or practicable alternative to the date proposed towards the end of March.

In this connection, the Ministry are engaged on a study of whether the present order book system might be replaced by some other method of paying pensions, using a computer and high-speed printing equipment. It is a great pity that the outgoing Government neither made such a study nor started on the preliminary work which I have outlined and which is necessary under the present system. Judging by what was said in the debate a year ago, and by the Conservative Election Manifesto, there was No 1ntention of making any early general increase of pensions, if the Conservative Party had won the General Election.

A convenient summary of the main changes proposed by the Bill will be found in a memorandum on it in the White Paper (Command 2518). Among pensions and other benefits, far the largest item in total amount and in the number of recipients is retirement pensions. There the standard weekly rate is to be increased from £3 7s. 6d. to £4 for a single person, and from £5 9s. to £6 10s. for a married couple. There are corresponding increases for dependants, including dependent children, and for the various types of widows' benefit, as well as in unemployment and sickness benefit, maternity benefit, the child's special allowance and the guardian's allowance. An increase of £6 in the lump-sum maternity grant will take the place of the present home-confinement grant, which has had some unsatisfactory features in practice. It is not proposed to make increases in the graduated element in pensions, which of course only applies to earnings over £9 a week. The existing and the proposed weekly rates for the above are set out on page 8 of the memorandum I have mentioned. Corresponding proposals are made for benefits in the field of industrial injury insurance, and the figures for those are on page 9 of the memorandum.

My right honourable friend the Minister estimates that, as regards the flat rate retirement pension for a single person, somewhere between 4s. and 5s. would be required by the time these increases will come into force, to keep pace with the rise in prices; that is to say, to restore the purchasing power of the pension to what it was about two years ago, when the last increase took effect. To keep the benefit in line with increases in earnings would require a higher addition, between 9s. and 10s. The addition now proposed is 12s. 6d.

The increases will be met by increases in contributions, including the Exchequer supplement. The proposed increases appear on page 10 of the memorandum. To take, as an instance, men over 18, there will be an increase of 5s. 3d. in the stamp, of which 2s. will come from the employed person and 3s. 3d. from the employer. In all, those stamp increases will result in insured persons and employers paying £274 million more, supplemented by £69 million from the Exchequer. The income limit below which National Insurance contributions are excepted is being raised from £208 to £260 a year. I may mention that one result of these changes will be to increase the proportion of the total payable by the Exchequer, if only by a small percentage. The increase, however, will be the biggest total increase since the start of the National Insurance Scheme.

I now turn to another group of proposals affecting widows. I think it has always been difficult for them to understand their individual position about pensions, and even more difficult to appreciate the reasons for some of the differences among them. One major change now proposed is to abolish the earnings rule so far as it applies to widows' pensions or to widowed mothers' allowances. This will cost about £8 million a year, and that cost is included in the general figures I have just been giving. After all, one may understand the reason for an earnings rule in relation to pensioners generally, since earnings must be taken into account in defining retirement or in dealing with what I may call half-retirement. The main point about widows is not any question of retirement but the fact that they have lost the benefit of the husband's earnings in the household. In one way or another, whether by benefits or by the widow's earnings, the husband's earnings must be replaced in order to provide for the livelihood of the widow and any children there may be. Next, I turn to the 10s. widow, who is getting a rate of pension unchanged since 1926 and maintained in recognition of previous contributions and accrued rights. This pension will be increased by regulation to 30s.

I have stated the main provisions of the Bill without reference to particular clauses, because the form of National Insurance legislation is often so hard to follow. Provisions for the changes in contributions and benefits as regards National Insurance are in Clause 1 of the Bill and Schedules 1 and 2, while the corresponding provisions for Industrial Injuries Insurance are in Clause 2 and Schedules 3 and 4. Clause 1 (5) abolishes the earnings rule for widows, and Clause 1 (6) raises the limit for exception from contributions. Clause 3 relates to some particular cases of industrial injury benefits—that is to say, for incapacities arising from pre-1948 employment. These are normally called the "old cases". The questions involved are complicated, but I will do my best to answer them in reply if I am so required. Clause 4 brings in some minor but complicated amendments in Schedule 6, which are made by way of preparation for consolidating the involved legislation about National Insurance, industrial injuries and family allowances. It is rather like snakes and ladders: when the legislation gets too snaky, one has to go back to the beginning and start again; but the procedure of consolidation is tightly drawn, and one may have to straighten out the snake a bit first. Clause 5 contains financial provisions which are necessary mainly because of the increase in the Exchequer supplement and in administrative expenses, and also because, to a very small extent, the legislation about family allowances is involved. The major cost of the Bill will be borne by contributions and paid out of the National Insurance Fund and the Industrial Injuries Fund. In this connection, I may mention that the National Insurance Act, 1959, provided for some quinquennial increases in contributions, which would have been made in April but are now treated as absorbed in the more substantial increases under this Bill.

In conclusion, I may add that under a provision of the 1946 Act, my right honourable friend the Minister is required to make quinquennial reviews, and such a review appears on pages 6 and 7 of the memorandum, to which I have already referred. When that Act and the corresponding Industrial Injuries Act were passed, it was recognised that they were new and sweeping measures, a remarkable contribution as we now see it to provision for social security under modern conditions. Their very novelty called for periodical reviews; hence, the provision in the 1946 Act. Since those days, however, we have found that a further and more fundamental examination is required. To some extent, at any rate, the need for that is common ground among all Parties. To-day we are not directly concerned with it. The object of the present Bill is merely to meet an urgent need which cannot wait for the fundamental examination. I hope your Lordships will accept this Bill on those grounds. In all the circumstances, it would indeed be hard-hearted to refuse to make the changes now proposed.

Moved, That the Bill be now read 2a.—(Lord Mitchison.)

4.40 p.m.

LORD DRUMALBYN

My Lords, I should like to welcome this Bill on behalf of my noble friends on this side of the House, and to congratulate the noble Lord on his lucid explanation of it. I noticed that he wisely avoided undue complications—for example, the exposition of Clause 3—and I must confess that this side of the industrial injuries legislation, and the old pre-Industrial Injuries legislation, is so complicated that I would scarcely venture to explore it myself. But may I ask this one question about it: whether, broadly speaking, the improvements made in this respect are in line with the improvements made elsewhere in industrial injuries, and whether, apart from that, there are any variations of which he would like to inform us?

We shall certainly not do anything to hamper the passage of this Bill. At the same time, I think it is fair to say that we are asked to give somewhat summary consideration to it. I understand that the Committee stage of this Bill is to come quite early next week, and I would only say this to the noble Lord. Should we decide to put down Amendments, I hope he will not feel unduly inconvenienced if he gets rather short notice of them. I understand the House is to sit next Monday, and it would be quite impracticable to put the Amendments in at any rate before to-morrow. I hope that, in the circumstances, this will be agreeable.

This Bill continues the steady progress made in the past thirteen years in raising the real value of National Insurance and Industrial Injuries benefits and pensions by proportionately more than the increase in industrial earnings. It only marginally deals with National Assistance, and I do not propose to touch on that to-day. The Minister of Pensions has generously acknowledged in her Quinquennial Report, to which the noble Lord referred, that over the past five years earnings rose by 27 per cent. and benefits rose by 35 per cent. I am glad also that, despite views expressed by noble Lords opposite when in Opposition, the Government have maintained the preferences in favour of war pensions and war widows and the higher rates for industrial injuries.

The noble Lord, Lord Mitchison, could not refrain from the boast that the increase is the biggest total increase since the start of the scheme. Of course, that is true in terms of £s. d., but it is not the largest proportionate increase ever made. The proposals increase basic benefits by about 18½ per cent.; but in 1955 the previous Government increased the then benefits from 32s. 6d. to £2, an increase I calculate at 23 per cent.; and in 1958 they further increased them from £2 to £2 10s., where the calculation is a little easier and I make it an increase of 25 per cent. This increase of 12s. 6d., like previous increases, is more than would be required to maintain an increase proportionate with average industrial earnings. The Minister says that the amount needed would have been between 9s. and 10s., and the noble Lord to-day has said that the amount would be about 11 per cent. up to the time when the increases will be payable. That amount, I might say in passing, is twice as much as the amount needed to maintain the purchasing power of the benefits: in other words, earnings increased by very much more than prices under the last Government—and I hope that this is a tendency which will be maintained.

I congratulate the Government on succeeding, by adding the extra 2s. 6d. or so, in restoring the relationship between the basic benefit and average industrial earnings which existed in 1946. At the same time, I am bound to point out that it has taken thirteen years and six successive steps fully to repair the damage done in the five and a quarter years, from 1946 to 1951, under the last Socialist Administration, during which the relationship declined from 21½ per cent. to 18 per cent. as a result of inflation. The Labour Party started off in office in 1945 with a fine flourish. It fell to them to implement the social security plans made by the war-time Coalition Government on the basis of the Beveridge Report, and I give them full credit for adjusting upwards the benefits foreshadowed by Beveridge, the cost of living having risen since the plans were made. What is perhaps worth recalling is that the Socialist Government at that time thought that by planning they could stabilise the purchasing power of the pound at a given figure above its 1939 value, and many of the difficulties we have experienced since are due to the progressive decline in the value of the pound.

In listening to the noble Lord, Lord Shackleton, yesterday I wondered whether the Government had really learned very much since 1945. Unfortunately, if they have learned nothing, the electorate has forgotten a good deal about what has happened in the way of improvements to pensions that have been made since 1951. In 1964, on their return to power, the new Labour Government again started off with a flourish—what one might call a fanfare of welfare. I only hope that they will not subsequently be so neglectful, as they were when last they were in power, of the interests of the pensioners, and especially the sick and unemployed, who received No 1ncrease at all in those five and a quarter years.

The widowed mother with more than one child does not do so well as she did when the main rates were last raised on May 27, 1963. We raised the rate for a fatherless child by 5s.; the Bill raises it by only 2s. 6d. It is only the widowed mother who earns more than £7 a week who benefits under the Bill. Those who earn less, or nothing at all, do less well. The noble Lord referred to the link with earnings. In their Election Manifesto the Labour Party said that they would not only raise National Insurance benefits, but thereafter link them to average earnings, so that as earnings rise, so too will benefits. The noble Lord said that a study was at present being carried out. But may I ask him what the word "thereafter" in the Manifesto is to be made to mean? Does it mean this year, next year, some time or, indeed, ever?

I have referred to the restoration of the original relationship between National Insurance benefits and average industrial earnings established in 1946. Clearly there is nothing sacrosanct about this relationship, and the noble Lord himself said that he hoped it would improve from time to time. Still, there could hardly be a better time to establish the link than just when the relationship has been restored. Under the present system of dealing with contributions and payments it will be quite impracticable, in my view, to maintain the link even at yearly intervals. Besides, the pensioner is better off to-day, as we have constantly said, than he would have been if pensions had been tied to average earnings, since pensions have risen proportionately more. For example, while earnings rose 95 per cent. between October, 1951. and April. 1963, the basic National Insurance pension increased by 125 per cent. But there has been a growing feeling in the Conservative Party, and, I think, in the country, that rather than continue to increase pensions by more than enough to maintain the ratio with average earnings, we ought to give more to those most in need, in particular the very old and the completely incapacitated. Indeed, we pledged ourselves at the last Election to do so.

One solution would be—and I do not put this forward as a universally agreed solution—to link pensions with average earnings, and devote any further funds that can be made available to special categories such as these. Assuming that the Labour Government still intend to carry out this Election pledge, what matters to the pensioner is the ratio between National Insurance pension and average industrial earnings that they intend to fix. But I must warn them of snags. If there is to be a link established, the machinery will have to be altered, both of making changes in National Insurance benefits, to which the noble Lord referred, and also of arriving at average industrial earnings. As I understand it, average industrial earnings are determined twice a year, and it takes almost six months to arrive at a firm and final calculation. If, on top of that, there is to be a sizeable delay—five months, as it is at present—to bring the altered rates of benefit into effect, it is going to be nearly a year before increases in average earnings are reflected in National Insurance benefits. This is one of the things which the Prime Minister does not seem to have thought out fully before he committed himself to the changes which he indicated in his manifesto.

I agree that the idea appears attractive. The basic fact is that by the time pension increases come into effect they are worth less than when they were announced. The fact that the value of money declines less when Conservatives are in power is important for the country but not much appreciated by the pensioner in the period between raising the benefits. The benefits still decline while wages and earnings rise, and, of course, the pensioner cannot go on strike—he can only vote.

The Labour Party's prescription for this is simple, so far as one can see from experience: put the pensions up the moment you come into power and immediately before an Election. Memories are short. It is true that they slipped up in 1950, but that was because they decided to go to the country in February rather than wait for Parliament to run its full course. It is a sign of grace that they now recognise that "pensioneering" in this way is unsatisfactory. But do not let us deceive ourselves. Merely by linking pensions to average earnings you do not take pensions out of politics. There still is the right ratio between pensions and average earnings, and that is bound up with the whole question of contributions, to which I wil refer in a minute or two.

I should like also to consider the level that the Government have chosen, because this is of considerable national interest. Why have the Government chosen £4? When I was Minister of Pensions and National Insurance, the Trades Union Congress stated publicly that £4 was the right amount and that they believed that unemployment benefit, sickness benefit and pensions should be raised to £4 before relating benefits to wages was considered. I should like to ask whether the Government have had further talks yet with the T.U.C., and whether the T.U.C. are now prepared to consider favourably unemployment benefit and sickness benefit related to wages.

I do not think this is the time to discuss future changes in the National Insurance system, but let me say just this. The Conservative Party were pledged to introduce the principle of relating benefits to wages for unemployment benefit and sickness benefit, and also to carry out a review of the whole, system of State insurance. The Labour Party offered the public a prospectus entitled New Frontiers for Social Security, with one regrettable omission—the cost to the individual contributor, to his employer and to the nation. Now I presume there is going to be some boundary rectification—to put it in that way—to the new frontiers, in the form of a review. I would say this to the Government. The great advantage of the Beveridge Committee's review was that it had the support of all Parties. The 1946 Act received as near universal support as I believe it is possible to get. I believe it to be of the utmost importance that if there are to be fundamental and far-reaching changes in the social security system, they should be based on the widest possible support.

The alternative course, in my view, is to move forward gradually by stages, so that if a false move or a faulty move is made it can then be rectified. But one thing is certain: whether or not changes were needed before this Bill, they will certainly be needed after it; and the reason for that is this. The abolition of the earnings rule for widows makes that inevitable. Let me say frankly that nobody will be sorry to see the end of the earnings rule for widows. Of course, I should be surprised if I were not immediately asked: "Well, why did you not abolish it?" The answer is, of course, because it would have been entirely wrong to abolish the earnings rule for widows except at the same time as, or in anticipation of, a review of widows' benefits as a whole, if not of the whole system. The system is founded on the principle that benefits are payable in the absence of earnings, or, at least, of significant earnings. On that basis, widows capable of earning are excluded, like everyone else, from benefit. On that basis, women widowed over 50 are deemed to be incapable of earning, and they receive full benefit if, and only if, they do not earn significant amounts.

I quite understand the point of view the noble Lord expressed, that widows are in a special category because they have lost the benefit of the husband's earnings. Of course, it is possible to treat widows as an entirely separate class. But if you do that, you cannot logically deny women widowed under 50 any benefit at all. By abolishing the earnings rule for widows over 50, as well as for widows with dependent children, the Government are undermining the present scheme as a logical and coherent system, and creating a situation which cannot possibly endure. If a woman who is widowed at just over 50 is to receive a pension irrespective of her earnings, and remains exempt from paying National Insurance contributions, is it tolerable that a woman who loses her husband when she is just under 50, or one who has brought up her family by herself and finished the job before she is 50, not only should receive no pension until she is 60 or retires, but should even have to pay National Insurance contributions as well? Surely this cleavage is far too sharp. It is the unfairness between one widow and another which the abolition of the earnings rule involves that makes a review of the principles underlying the National Insurance scheme, so far as women are concerned, imperative.

The noble Lord referred to the "10s. widow," who is not included in the Bill, but may I just say about the "10s. widow" (and of course I speak entirely for myself) that here again we are up against a question of judgment as to what is fair between one woman and another. The great majority of "10s. widows" are in employment, and they receive their 10s. pension in addition to their wages, or to their sickness or unemployment benefit. This is a. benefit which is right outside the National Insurance scheme. But, what of other widows who receive National Insurance pensions and are in employment? Will they be allowed to receive their unemployment and sickness benefit in addition to their widow's pension? The "10s. widow" has all the advantages of the National Insurance scheme, and 10s. besides, except that she cannot have her 10s. in addition to her retirement pension. The Bill increases the 10s. to 30s. for these ladies. Good luck to them! But do not let us imagine that nobody will feel that her own personal case is not much harder and much more deserving than the "10s. widow." I am not sure that social justice is done here.

My Lords, I want in conclusion to say a word about the cost. Contributions go up sharply: for the employed man by 2s., and for his employer by 3s. 3d. Originally the employer's contribution was less than the employee's. Since 1961 it has been the same. Now it is to be more: it is to be 11s. 5½ d. for National Insurance, as compared with 10s. 2½ d. on the part of the employee. I think it is right to draw attention to what is a significant departure from the principle that National Insurance contributions, which go towards benefits with which they were equally concerned, should come equally from employer and employee. Of course, the employed person contributes 2s. 1d. more than his employer towards the National Health Service element, so that he will still bear more than half the total cost of the weekly stamp; but he will be paying less than the employer on National Insurance alone.

I believe that the principle of parity has exercised a useful discipline upon Governments. I am sorry to see that the principle is sacrificed to expediency in this way. I could have understood it if the Government had proposed to vary the proportion; for example, I understand that in Germany the employed man pays three-eighths and the employer five-eighths of the contribution to superannuation—though I am not at all sure that the German scheme covers the self-employed. That the Government have not done. They have not come forward with a proposal to alter the proportion. The relationship between the two contributions has, so to speak, been left in the air. But, my Lords, the further we depart from parity the more difficult it will be to fix rationally a contribution which the self-employed can pay. The new rate of contribution for the self-employed amounts to nearly £48 a year, which, I would imagine, is over one-tenth of the net income of many small farmers.

One reason why the cost of the stamp is being increased by so much is that the income limit of £18 on which graduated contributions are chargeable is not being increased. Part of the object of the graduated pension element was to ensure that all but the lowest wage earners would pay a contribution more closely related to the total pension they could expect from the scheme. When the upper income limits were first fixed, average earnings lay about midway between the lower limit of £9 and the upper limit of £15. When the retirement pension was raised in 1963, the income limit for graduated payments was raised from £15 to £18 as from the beginning of this year. But now £18 is scarcely more than the average industrial earnings.

In another place the Chancellor of the Duchy of Lancaster claimed that it was a matter of principle that the Government had not this time, as he put it, "lifted the wage band" on which graduated contributions are calculated. The truth is that it would not have been sensible to make another change so soon after the last one, especially if the Government are reviewing the scheme as a whole. Any change in the upper limit involves a great deal of trouble for those responsible for private pension schemes. I am glad in this case that, for once, good sense and Socialist principles coincide.

If the basis of the graduated element is to be changed before long—and some changes were inevitable whatever Government were in power—I for one think that the Government were right in this. But the consequence is that the whole burden is thrown on to the flat-rate contribution, and, of course, the quinquennial increase, to which the noble Lord referred, has to be included.

LORD MITCHISON

I beg the noble Lord's pardon: not "as well".

LORD DRUMALBYN

I said which has to be "included". It is taken into account already; I recognise that. This, I appreciate, is why the Government have decided to increase the employer's contribution by more than the employee's. What I think is only fair to realise is that the lower-paid worker will still be getting a very good bargain for his contributions in comparison with his opposite numbers in foreign countries.

So much for the extra cost to contributors. The extra cost to be borne by industry, if my calculations are correct, is £150 million—a not inconsiderable sum. While the increased contributions by insured persons can be regarded as a straight transfer of income from them to the pensioners, the unemployed and the sick, employers' contributions are part of the cost of labour and are bound to be reflected in prices, the more so as everyone has to pay them. To the extent that they act as a tax on employment, they are perhaps not altogether a bad thing in these days of alleged labour hoarding. It is very remarkable that while employment has gone up, production has remained more or less at the same level since February, and has even declined a little in September. Nevertheless, the increased burden on industry is undeniably inflationary. The Exchequer contribution, together with the extra cost of National Assistance, £23 million, and of war pensions, £15 million, is to be recouped, one understands, out of an additional 6d. on the standard rate of income tax, to give £122 million, of which £78 million will fall on companies in the first year.

The Chancellor of the Duchy mentioned in another place that the White Paper on Public Expenditure in the years for April, 1964, to April, 1968 (Cmnd. 2235) showed a prospective increase in expenditure on benefits and assistance of £360 million. He claimed credit for "boldness" on the part of the Government in that £285 million (I think the noble Lord, Lord Mitchison, said £275 million) out of that £360 million has already been pledged by this Bill.

LORD MITCHISON

Including industrial injuries benefits.

LORD DRUMALBYN

I see; I am obliged. "Bold" it may be; but it certainly conflicts with what the Chancellor of the Exchequer said during the Election, as reported in The Times of October 15. He said: We shall not cash cheques until there is money in the bank. This increased social expenditure was to be financed, he said, out of the growing expansion of British industry". The Chancellor of the Duchy himself is reported to have said, in his Election address, that Labour will not need to increase the level of taxation to pay for its programme. I doubt very much whether it really did need to do so. Admittedly, the Manifesto made an exception of the "early introduction of the income guarantee", which would, in any case, take the place of National Assistance, financed out of Exchequer funds. Instead, we have this Bill, which increases the burden on the lowest-paid workers. Yet, as long ago as 1960 Mr. Crossman said: You cannot possibly allow the National Insurance contribution, a flat rate poll tax on the lower paid worker, to be increased once again. And the Minister herself complained in 1963 that the increase of 10s. would involve an extra 1s. 1d. for the labourer.

The noble Lord really must face up to this fact. We were criticised when we were in Government for placing a heavier burden on the lowest paid worker. The noble Lord must face up to the fact that the present Government are putting almost double the extra burden on the lower paid worker that we did. This is just a fact. The present Minister also complained loudly at the time taken to bring in the new rates for pensioners. It is no good for the noble Lord to say, "Well, she was in Opposition then". She told me again that she was convinced that if I really tried I could bring these rates in sooner. The 1963 increases took eighteen weeks. The 1965 increases are to take twenty weeks, and that is, says the noble Lord, as immediate as the Government can make these improvements.

There is nothing that the Government have yet done to lead noble Lords on this side of the House to share the Chancellor of the Duchy's economic faith, as he called it, in the ability of the nation to pay for these increases. These increases have to be paid for in increased production in this country. While we welcome the Bill, we must warn the Government that unless by their action they can give a very much better lead to the country than they have so far done, and inspire a very great deal more confidence in this country in the world as a whole, then we shall be heading for disaster.

5.13 p.m.

THE LORD BISHOP OF COVENTRY

My Lords, I feel a certain measure of responsibility in finding myself, according to the Order Paper, the only speaker outside the official representative of Her Majesty's Government and the representative of Her Majesty's Opposition; but I feel that it is right, proper and fitting that somebody, as it were, outside those two official agencies should say a word on this very important matter. I want to say two things. I shall not detain your Lordships long. The first is of somewhat general import, and the other of particular import.

First, the more general thing. I must say, on my behalf and I hope on behalf of many throughout the whole country, how deeply grateful we ought to continue to be for all that is meant by the term "welfare society". Because there are still those, I find, who pour scorn upon the whole notion. One knows that faults can be found in the idea, in the structure and in the results of the work of the welfare society, but, returning recently, as I have done, from the United States of America, one is forced to recognise, with profound thankfulness, the immense benefits which have resulted from the implementation of this national way of life.

There are those in particular who pour scorn upon the psychological effect of this great humanitarian concept in the lives of people. I believe that these critics exaggerate these defects, and that anyway such bad effects as are visible need only be transient, provided the Church and other spiritual agencies do their work properly, and provided we recognise that, just as the peoples of Africa have had to learn in 20 years lessons that we in this country have taken 200 years to learn, and not with complete success even now, so the people in the welfare society cannot be expected to adjust themselves overnight to these vast new privileges and rights.

At the outset of this speech, then, I wanted to take this opportunity of paying tribute to the welfare society fot one reason only: that it is all too easy for us to begin to take it for granted and to cease to be conscious of its merits and to be grateful for the benefits as we ought to be. To-day, as never before, it ought to be possible for the ordinary man in the street to live a full life, freed from the fears, the worries and the insecurities of life—though I hasten to add that better pensions and unemployment provision do not automatically themselves provide the full life, but they do give the recipient a chance to choose the full life if he desires to do so. I say that it ought to be possible to live this full, rich life; but even now there are all too many in this country who, while not poverty stricken, are at least living a life which could hardly be designated secure or happy, and the reasons are mainly twofold: first, lack of adequate housing, and secondly, lack of adequate pension.

I welcome this Bill because it is clearly the Minister's objective to move towards an entirely new basis for benefits, a basis which thinks no longer in terms of basic minimum levels below which no one is allowed to fall, but thinks instead of progress towards ensuring the conditions of the good life. One feels that in this Bill the Minister of Pensions is paving the way towards a condition of affairs in which the whole matter of pensions is lifted out of the realm of flat-rate subsistence considerations into a position where payments vary from person to person, and where they are related to previous earnings, and to the standard of living of the person concerned.

This removal of insurance benefits from flat-rate subsistence as a basis would involve a fundamental change of principle, as was indicated by the noble Lord who spoke before me, but it has been done in Sweden. In that country, retirement age is 67, at which point there is division into two parts: first, a basic pension equivalent to our old age pension, which is at a flat rate for everybody and which represents subsistence; and secondly, a supplementary pension which is graduated according to earnings throughout the working life of a person and which is based upon the best fifteen years of earnings during the whole of working life. It is calculated on a points scheme. It should also be noted that, with supplementary pensions, actual cash payments are adjusted in accordance with changes in the cost of living; in other words, they have constant purchasing power. Both pension schemes are contributory, the supplementary pension scheme taking a percentage of earned income; in other words, as we saw in 1964, 7 per cent. Full retirement pension is calculated to represent 60 per cent. of the average pensionable earnings for the best 15 years of a man's or woman's working life, pensionable earnings being considered as salaries and wages and not interest on capital investment.

If it has been done in Sweden, then we ought not to rest until we have explored every possible avenue to discover whether it can be attempted here. Of course, this is entirely different from anything we have seen hitherto. It will involve a major reorganisation and, what is more important, re-thinking, if this happy state of affairs is to be achieved.

To turn more in detail to this particular Insurance Bill, I would say that it was hoped that when the 1946 National Insurance Act was passed a quinquennial review of benefits would suffice, and this was provided for in that Act. Experience since then has shown very clearly that this interval of five years is too big to enable payments to be related to the cost of living and the movement of earnings. The quinquennial review has, in recent years, been supplemented by, and therefore should be replaced by, keeping all aspects of the scheme under continuous review. There have been two improvements in payments since 1961.

The intention behind these periodic reviews is, of course, to relate payments to the changed cost of living and the changes in earnings. Since 1946, benefits have exceeded prices in their rate of growth, though they have not kept pace with changes in the earnings of workers. But this simply means that pensioners are only very slightly better off than they were in pre-1946 days. In the last five years benefit rates have been overtaking the rise in earnings—as we have heard, 35 per cent. against 27 per cent.; but it must never be forgotten how low was the starting figure, how inadequate was the provision of old age pensions before 1946.

However, to come back to what I was saying earlier, we must never be content with a system of pensions which merely keeps pace with the movement of retail prices and of earnings. We must never forget to look at the previous level of earnings of the recipient of the pension. It is clearly important from every angle that benefits bear some relation to what was being earned, on the average, by the insured person prior to becoming eligible for benefit, in other words pensionable. If he has been used to a certain standard of living, then it is surely right that we should do everything in our power to ensure that the contrast after retirement is not so grievous as to make it a plunge from happiness to unhappiness.

Of course, I am not fool enough not to realise that there are vast and almost insuperable problems between the ideal and the possible, and it may well be some time before the cost of this substantial rise can be met. In addition to the contribution income, the cost to the Treasury of this Bill alone would be approximately £67 millions in the first year. The question must be asked whether it is justifiable to raise benefits above the rates indicated by changes in retail prices and in earnings. I would plead that this should always be our ideal and goal, and that we should not rest until this has been achieved.

If it is the Minister's objective to work for an entirely new basis for benefits away from basic minimum levels towards an attempt to ensure the conditions of the good life by means of an adjustment of pension to the standard of life that was enjoyed before retirement, then I can only say that in general principle I am wholly behind the Minister. And speaking as a churchman, I would state with every possible emphasis that if we do not have a sufficiently high ideal, we shall always have an extremely inadequate state of affairs and, what is worse, shall find ourselves deluded and bemused by a state of affairs which is adequate without being satisfying, which salves the conscience without gladdening the heart.

An historian has said that our century will be remembered in history, not because of the technical progress made, but because it was in the 20th century that the welfare of all citizens became a practical political aim. Perhaps he will be right. We are beginning to understand that it is, after all, probably easier to land one man on the moon than to provide all people with their share in the riches of the earth. Nevertheless, the latter task is stimulating also. With this vision in our minds, one can think of few Christmas presents which would be more statisfying to the recipient than the wholehearted support of this Bill which is now before the House.

5.25 p.m.

LORD MITCHISON

My Lords, I have listened to two speeches in reply, and I cannot be the only noble Lord who has noticed a quite considerable difference between the language of the speeches and the real purpose of the speakers. Speaking on my own behalf I should like to thank the right reverend Prelate, with respect but with warmth, for what he has just said. It represents almost exactly my own personal view of the kind of problem we have to face.

I appreciate the immense value of some of the Scandinavian schemes, including the Swedish one, as: an indication of what can be done. I think I can safely go beyond my own personal opinion and speak for the Government in saying that that is the kind of thing we want in this country. We want to relate the possibilities of a good life—if I may respectfully take the phrase of the right reverend Prelate—after one has retired, to the possibilities of a good life while one was working, and to see that there is no end in later years to whatever may have been possible in earlier life. If I may go one stage beyond that, again I respectfully agree with the right reverend Prelate that there is no more important problem in these times than that of ensuring that men and women can live with dignity. That seems to me to be a fundamental question which these issues of pensions really raise.

I turn now to the speech of the noble Lord, Lord Drumalbyn. I always value speeches, not only for what they have in them but for what they omit. I made two statements—I made them on purpose and as statements of importance—in the course of introducing this Bill, and I wanted to see whether the noble Lord opposite was going to contradict either of them. He did not contradict either of them. The first was that it is common knowledge at present that pensions are insufficient for their purpose. That really is the question that we have to consider. I remember references to statistics. Of course, pension statistics are so complicated that one could always produce a perfect demonstration, or, better still, an imperfect demonstration, of almost anything out of them.

The question we have to consider to-day is surely the common-sense and ordinary question: are pensions at present enough? Not only was that question not answered directly, but at the end of his speech the noble Lord committed himself to two most remarkable statements. The first, of course, I welcome: that those on his side of the House welcome the Bill. But this was followed by the other remarkable statement that the country was going to be ruined by the Bill unless something or other could be done which he thought could not be done. I do not quite know in what frame of mind one welcomes a Bill which is, according to the noble Lord's own views, going to produce national ruin. The fact of the matter is that the Conservative Party did not intend—this was the second statement I made, and this, too, was not contradicted—any early general increase in pensions, but now that it is brought in by a Labour Government they welcome it, even if their reason is that they do not dare to do anything else.

I turn now from that to one or two remarks which were made. Of course there are these comparisons with the past. I have never understood how it really helps one to solve the question of whether pensions are insufficient and, if they are, by how much they should be increased, by demonstrating to your own perfect satisfaction that—was it 21 years ago or fifteen years ago?—somebody did or did not do something about the level of pensions. This kind of argument leaves me absolutely cold. Surely the question which we must consider to-day is: are pensions sufficient? If not, are these proposals the right proposals or not? Does it really matter who did what fifteen or 21 years ago; and if a man has not enough to live on, is it going to help him to talk about that?

LORD DRUMALBYN

My Lords, what I had to say was directed to the fact that I did not think the noble Lord had given sufficient recognition of the progressive improvements which have been made since 1951 in the real value of the pension. If I may say this to the right reverend Prelate, of course demands for a higher standard of living go on all the time, but it surely cannot be denied that as a result of what was done in these thirteen years the pensioner is in fact very much better off than he was thirteen years ago. That is what I was leading to.

LORD MITCHISON

If at the end of the day, by tacit admission or by express admission, it is agreed that the pensioner has not enough to live on with the present pension, what does it matter whether there has been an increase or a decrease or whatever it is over the past fifteen or 21 years? There is only one point which really needs consideration in a Bill of this sort, and with these limits, and it is this. Is the pension enough? Are these proposals to increase it sufficient, and are they broadly on the right lines? That is the question, and there is no other question that matters two pins.

The trouble about these comparisons with fifteen or 21 years past is that the period of 21 years which is being covered was one of very varying national economic conditions. The Tory Party always leave out the war. But there was one. It finished in 1945 and left some consequences. That makes it a little difficult to draw comparisons. But surely the comparisons are in any case completely off the point. Once one admits, as was tacitly admitted, that the pension is insufficient the remainder is not sense but irrelevant abuse of your adversary; and that was all we had to-day. I am sorry to put it like this, but this kind of thing is put forward as a justification for the fact that during the past thirteen years these attempts to catch up and provide a reasonable standard of living for those on retirement pensions have been persistently too little and too late. That is what has been happening.

Let me say this at once to noble Lords generally. I indicated that the comprehensive review we wish to see is taking place now, and of course this would have been a difficult thing to do without the resources of the Government of the day. I am glad to hear that a review of some sort is recognised to be necessary by all noble Lords. So far so good; but if the review is now proceeding, the noble Lord will hardly expect me to answer a number of questions which he put to me about what its results are going to be. That is why we have a review, to decide what is the right thing to do. We shall of course value all the observations which the noble Lord, with his great experience in these matters, made in the course of the debate, but he must not expect us to tell him what we shall discover for ourselves only by making a comprehensive review. That is surely the whole point of it.

I turn to one or two other points. I was asked, "Why £4?" I can only say to the noble Lord that if he will look up the debate which I mentioned, which took place in the other place on December 10, 1963, he will find, I think, that precise figure mentioned or pretty clearly indicated, with the history of it. He will find his answer there. It may well be that this is not enough. This is only an emergency measure, and I would point out to the noble Lord that, according to the rules in another place, at any rate, it was open to the Opposition to propose an increased payment out of these two Funds. I do not know whether the same rules prevail in this House, but at any rate we should always value an indication from noble Lords opposite of what they thought was the right figure, if they think that these figures are insufficient. I would merely point out to them that in this and in other respects they have been in government for thirteen years, and if the widows are in a bit of a muddle at present they might have taken the opportunity to put it right many years ago.

I do not agree with the suggestion that the principle of all this legislation is necessarily that benefits are payable only in the absence of earnings. Those of us who have attained the age of 70 are entitled to benefits without regard to our earnings, and surely what applies in one case may equally apply in another. There is only one principle as I see it in all this legislation. That is to provide sufficient by way of pension for people to be able to live decently and comfortably if they have not got anything else to live on. That is the only principle which I recognise. But it is an incredibly complicated structure of legislation by now, and that is another reason for the review which is required.

We were told that the employers, were being asked to pay too much. Well, I have not very much sympathy with this particular cry at the moment. But we were told that it would interfere with our competitive position as regards other nations and so on, The short answer to this is that employers in this country at present pay a far smaller percentage of the total cost, or, if you like to look at it another way, a far smaller amount per head, than do employers in almost any other country—Sweden, West Germany, France, and elsewhere. There are minor differences between one scheme and another, but the general picture is absolutely clear. Employers in this country do not pay the same share as employers do in other countries. I am sorry to put the matter so bluntly, but the result is that the amount by which employers pay less in this country represents something which might have been added to benefits in one form or another. It seems to me that that is a very serious point, particularly as we were the country in which this kind of scheme was first introduced, or introduced at a very early stage.

LORD DRUMALBYN

My Lords, from the point of view of our competitive position, what matters is the total bill for labour, not just one particular part of it. The insurance contribution is, of course, part of the total bill for labour. I do not think that it is relevant to compare alone the cost of insurance. What one has to compare is the total bill for labour.

LORD MITCHISON

It might not have been relevant had not the noble Lord complained, as he did, that the increase in the employer's contribution was unbalanced or excessive. That was his complaint, and this is my answer to it. It seems to me on that point, if I may respectfully say so, to be a complete answer.

I turn from that to say a few general words before I sit down. This is of course a Bill on the old lines. These are increases in the existing structure of pensions. They are widespread, and cover almost all the ground. Incidentally, may I mention that the changes in relation to workmen's compensation are, broadly speaking, in line with those for Industrial Injuries benefits. There is nothing, to the best of my knowledge, revolutionary or strange in this Bill. It is really a number of increases, overdue increases, in the existing structure, and they are spread through all of it. But we recognise—and if I am repeating myself it is still perhaps worth doing—that the whole scheme of things, the whole basic ideas of National Insurance, need to be looked at again.

We recognise, too, that the Beveridge scheme and the 1946 Act made what I think in the light of subsequent events we can agree was one mistake; they did not sufficiently relate the life after the receipt of a pension to the life before. Therefore, they did not concern themselves with the proportion of previous earnings, as indeed most private schemes do; they were directed to fixed figures. We were the first Party to recognise that something needed to be done on the lines of relating contributions to benefits, and the graduated contributions which the late Government finally introduced derived from an idea of the Labour Party.

Unfortunately, it is possible to do a very great deal by applying a good idea badly; and that is exactly what the late Government did. The graduated contributions were, in fact, used to put an additional burden on the shoulders of contributors. When one looks at the finances of the graduated scheme the graduated contributions were without doubt an addition; they were, indeed, a shifting of the burden on to the lowerpaid workers. In addition to that, they had the result, and the intended result, of reducing, perhaps in the future, but still reducing, the Exchequer contribution. This has been said and argued at considerable length at a time when the noble Lord was, I think, actually the Minister of Pensions and National Insurance. He must be well acquainted with the argument, and I am not going to take up the time of the House by adducing it now. But, none the less, those graduated contributions were a good idea, and it is that idea which we propose to develop.

It is examples such as that of Sweden, which the right reverend Prelate adduced to-day, and of many other countries, which lead us to believe that it should be possible to end up by giving men and women in their old age, or in adversity, not merely some fixed sum but some proper proportion of what they have been earning during their lives; some such proportion as will enable them to live as fully and as happily as they lived in their earlier life. If we do do that, surely at the end of the day we are doing no more than our duty, as citizens of this country, to other citizens in it; and I would go one stage further—our duty as men and women to our fellow men and women, irrespective of questions of money.

On Question, Bill read 2a, and committed to a Committee of the Whole House.