HL Deb 21 June 1968 vol 293 cc1077-89

2.5 p.m.

LORD BOWLES

My Lords, I beg to move that this Bill be now read a second time. It gives me very great pleasure to introduce this Bill to your Lordships' House. It is the second such Bill in just over six months that it has been my happy duty to introduce. It is a very short and simple Bill. Noble Lords will recognise it as being somewhat shorter than when it first saw the light of day in another place, and they may well feel that this is no bad thing.

The main function of the Bill is to give legislative form to the announcement by my right honourable friend the Chancellor of the Exchequer in his Budget statement in another place that family allowances are to be increased by 3s. a week. This increase is provided for in subsection (1) of Clause 1. The rates at present are 15s. a week for the second child in the family and 17s. for the third and each subsequent child. When the Bill comes into effect these rates will thus be 18s. and 20s. respectively. We intend these rates to operate from the 8th October.

There are two prime reasons for this increase. For the background to the first, I need not go back further than last November and the devaluation of the pound. It was made quite clear by my right honourable friend the Prime Minister at the time that the most vulnerable classes of the community would be protected from the consequences of devaluation. On a subsequent occasion my right honourable friend the Minister of Social Security explained whom the Government saw as the most vulnerable. She identified two groups: first, those with slender resources who are old or sick; and secondly, those families which have to support their children on very small incomes.

My right honourable friend the Prime Minister announced in his statement on public expenditure in January that the Government propose to increase supplementary benefits in the coming autumn. My right honourable friend the Minister of Social Security informed the House of Commons in a Written Answer on January 17 (col. 97) that she would lay draft regulations the next day, June 18, to come into operation on October 7 this year. The present Bill fulfils the commitment to look after the second group, that is, families who have to support their children on very low incomes.

My Lords, this is the first reason for the 3s. increase in family allowances proposed in this Bill. The second reason was given by my right honourable friend the Chancellor of the Exchequer in his Budget statement on March 19. He described the essential need of the country for a firm and effective incomes policy if we are to overcome the economic difficulties that have beset us for so long; and he announced that the main feature of this policy, lasting at least until the end of next year, would be a ceiling of 3½ per cent. on increases in incomes. He recognised, however, that a strict 3½ per cent. ceiling on wage increases would bear hard on families of small means; and he announced the proposed increase in family allowances to mitigate the consequences of this. The increase has, therefore, a dual purpose. It protects families with very low incomes from the consequences of devaluation, in accordance with the Government's promise, and it helps to mitigate the effect on these families of the wage ceiling which the Government see as essential if our incomes policy is to be a success and we are to see our way clear to a balance of payments surplus in due course.

I turn now to a question which occupied your Lordships' House about three months ago on a debate initiated by the noble Lord, Lord Byers—the question of selectivity. Selectivity is the fashionable word in welfare nowadays and, as I think the debate showed, it can mean a number of different things depending on how one looks at the subject. We had a good debate, with a number of stimulating speeches, and I think it performed a very valuable function in clarifying some of the practical issues which the subject necessarily raises.

Your Lordships will be aware that family allowances were increased by 7s. last April, only two months ago, under the Family Allowances and National Insurance Act 1967. Last January, before the new increase had been announced, my right honourable friend the Prime Minister announced it was essential that the 7s. increase should be selective and should be confined to those most in need. When my right honourable friend the Chanceller of the Exchequer in his Budget statement announced the further 3s. increase, he said that this increase would be selective, too, and he described how he was going to achieve this selectivity for both the 7s. and the proposed 3s. In our debate last March, which took place the day after the Budget, I was able to give your Lordships a brief statement about this. Now that the Finance Bill is shortly to be discussed by your Lordships, I can amplify a little what I said then.

The aim is to concentrate the two family allowance increases on the worst off and to ensure that the family with the breadwinner paying income tax at the standard rate derives no benefit from them. This is achieved by reducing the family's tax allowances in 1968–69 by £36 for each child who ranks for family allowance for the full year. The result for the standard-rate taxpayer is that he will pay about 8s. 6d. a week extra tax over the year as a whole to offset the two increases—the extra 7s. family allowance payable from April to the beginning of October and a further 3s., making a total increase of 10s. payable under the present Bill from October to April. His family will thus be left in virtually the same position as before—no better off and no worse off. The family paying tax at one or other of the reduced rates of tax gets more in extra family allowances than it has to pay in extra tax. The family paying no tax gets the benefit of the full 7s. and 3s.

My Lords, in the Government's view, this is a fair, reasonable and socially acceptable way of making sure that help goes only to those who need it. It uses the built-in incomes test of the income tax system and avoids the necessity for a direct means test of any kind. I need not labour the disadvantages of introducing a means test in the sphere of social security they have been made clear often enough. Suffice to remind your Lordships how cumbrous and expensive a means test would be, compared with the simplicity of the Government's proposals; and how, with a means test, there are always some people who never apply. So one gets help to less than 100 per cent. of the people whom one wants to help.

An example or two will show how the Government's give-and-take scheme, as it is colloquially known, will work. The effect of this will vary with the size of the family. Let me take a married man with two children, both under the age of 11. If he earns £12 a week, he pays no tax this year and gets an extra family allowances of just over £22; that is to say, 7s. a week for the first half of the year and 10s. for the second half, averaging 8s. 6d. a week over the year as a whole. If he earns £15 a week he pays extra tax for the year of about £11. That is about half the extra family allowances, so that the family is about 4s. 3d. a week better off. If he earns £20 a week, the family will be about 2s. a week better off. If he earns £22 a week, the family derives no benefit from the extra family allowances.

LORD DRUMALBYN

My Lords, if I may interrupt the noble Lord for one moment, is he referring to a family with three children?

LORD BOWLES

Three children, in the sense that two are getting family allowances. I think that is right. But I may have made a mistake, and if so I will let the noble Lord know.

The more children a man has, the higher these figures will be. The reduction in the family's tax allowance means that these families pay more tax than they would otherwise do and that those who previously paid no tax will be doing so for the first time. But they have the extra family allowances which balance, or more than balance, the extra tax they have to pay. We expect that some 300,000 people will be, as the phrase goes, brought into tax for the first time. But their families will be better off at the end of the day. The amount of tax will be small, and it will be well out-balanced by the additional family allowances. Of the 4 million families who qualify for family allowances, just over 2 million will derive a net benefit from the combined family allowance and tax changes which I have just described.

I must now deal briefly with the rest of the Bill. The remainder of Clause 1 and Schedules 1 and 2 deal with national insurance and industrial injuries dependency benefit for children. Because family allowances are being increased by 3s., these benefits are being reduced by a corresponding amount, leaving unchanged the total amount payable by way of benefit and family allownces for each child. For a man on sickness benefit or unemployment benefit this total is 28s. At present the first child qualifies for benefit of 28s., because he does not qualify for family allowance. The second child qualifies for 13s. benefit and 15s. family allowance, making 28s. in all. The Bill reduces the 13s. benefit to 10s. because the 15s. family allowance is increased to 18s. The third child at present qualifies for 11s. benefit and 17s. family allowance. The Bill reduces the 11s. to 8s. because the 17s. family allowance is increased to 20s. Similar reductions are made in widows' benefits for second and subsequent children, for whom the total of benefit and family allowance will be 45s. 6d. as it is at present.

These adjustments reflect the complementary nature of family allowances and dependency benefit for children which has been part of the National Insurance Scheme from the very beginning. These dependency benefits can best be regarded as balancing payments which with family allowances bring the total payable for each child up to the appropriate standard. Because family allowances are being increased it follows that the amount of dependency benefit required to provide the appropriate standard is less.

Some of your Lordships may wonder why the total provision for the children of people receiving national insurance benefits is not being increased again on this occasion. It will be recalled, however, that the total payable to them has been increased twice in the last nine months. It was increased last October by 2s. 6d. a week for each child, and again in April by a further 3s. in the majority of cases, and by 1s. in the rest. The main purpose of this Bill, on the other hand, is to help the family man who is working but is getting low wages. While he is working full time he does not of course qualify for insurance benefits. Yet, as we all know, his income may well be below the supplementary benefit level. It has proved extremely difficult to channel help to families who find themselves in this position. The great merit of the Bill is that it will enable us to do so in a practical and civilised way. It will also help wage-stopped families, another group whose obvious need for help is always especially difficult to meet.

My Lords, I can summarise by saying that all the poorest families will benefit either from the family allowance increase or from the proposed supplementary benefit increase to which I have referred. The family allowance increase will benefit the family with two or more children where the breadwinner is on supplementary benefit but wage-stopped, or where, although he is in full time work, his earnings are so low that the family are living below the supplementary benefit level. Other families on supplementary benefit will benefit from the supplementary benefit increase. On this occasion, it is true, national insurance beneficiaries, such as the sick, the unemployed, and widows, do not get an increase. But they have not been forgotten. The rates of their benefits were increased last October, and the provision for their children went up again in April. This Bill will maintain the provision for them at the enhanced rate.

The rest of the Bill, my Lords, is minor and routine. Clause 2 deals with expenses. Clause 3 is formal. Schedule 3 contains provision for the necessary commencement and transitional arrangements. As I have said, we intend the family allowance increase to come into effect on October 8.

Finally, a short word about costs. The additional gross cost to the Exchequer of the 3s. family allowance increase is estimated to be about £55 million in a full year. Adjustment in other social security benefits reduces this figure to about £50 million. If one offsets the extra tax to be paid on account of the 3s. by people within the income tax field, the net cost of the increase becomes about £14 million.

I commend this Bill to your Lordships' House. The Government's object, and I am sure the object of all of your Lordships, is to give some help to the lower-paid family man in work, in what we all acknowledge to be very difficult days. In the circumstances of to-day, the most appropriate way of doing this is through social benefits. Of the social benefits available to us, only family allowances will help the man in work because, unlike national insurance benefits and supplementary benefits, they are paid when he is in work as well as when he is not.

The Bill gives this measure of help at the expense of the rest of us, because family allowances are paid out of general taxation, and thus it is another step towards achieving the social justice to which we as a Government are dedicated. The contrast between the £55 million gross expenditure and the £14 million net cost is a measure of the financial advantage of selectivity, on which some of your Lordships dwelt in our last debate in March. My Lords, I beg to move.

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

2.21 p.m.

LORD DRUMALBYN

My Lords, while thanking the noble Lord for his explanation of the effect of this Bill. I would say at the outset that I do not think this is a Bill of which the Government should pretend to be proud. Having brought into operation an increase of 7s. in family allowances on April 1, within a week this Bill was given a Second Reading in the House of Commons to raise the allowances by a further 3s.; and this second increase was of course entirely due to devaluation. Therefore this Bill is really a sad little tombstone on the Government's economic policy, and quite an expensive tombstone, too—gross £55 million and net £14 million. As the Explanatory Memorandum says, this sum is expected to rise steadily after that, though presumably not by very much, because of the combination of inflation—which will no doubt continue under this Government—and the clawing-back arrangements.

Of course, in the circumstances we would not for a moment dissent from the purpose of the Bill, which is to compensate the poorest families to some extent for the increase in the cost of living consequent upon devaluation. I think I understood the noble Lord correctly when he said that while those families where the father is sick or unemployed, or where there is no longer a father are not forgotten, they will not in fact benefit under this Bill. I do not quite know what is the value of not being forgotten if you do not benefit and if you are badly off.

I think it is right so say that the 3s. increase will not come anywhere near compensating the poorest families for the rise in prices consequent upon devaluation, except perhaps in the very short run. In another place the Minister of Social Security said that a man earning £12 a week with four children would get a 3¾per cent. increase in his family income through this Bill, while a man with the same income and three children would get a 2½ per cent. increase. I suppose that if such a man had only two children—this is by and large, I know—he would get only a 1¼ per cent. increase, and that would not go very far towards meeting the higher cost of living as a result of devaluation. Naturally, as between men all earning £12, the more children they have the more benefit they will get out of this; but probably also, the farther they will fall below the supplementary benefit basic level; that is, once the supplementary benefit basic level has been raised, as I understand it is to be.

I would not dispute that, given the circumstances of devaluation, it was appropriate to increase family allowances. The trouble is that, as the noble Lord said, they are not paid for out of contributions to the National Insurance Fund but are paid for out of taxation. My own personal view—and I know that not all my noble friends share this view—is, and has been for the past twenty years, that the system of family allowances is sound and fair. It is clearly fair that family allowances should be paid to all who qualify for them, and that they should be subject to taxation as unearned income. But it is expensive, and anyone who has been Minister of National Insurance or Minister of Social Security knows how very expensive it appears. That, of course, is why the Treasury has always been extremely reluctant to see any increase in these allowances. Since the Government have got the country's finances into such a mess, it is not surprising that they have had to retrench on family allowances.

The principal object of family allowances has always been to aid families in the lower income brackets. But they have been given right along the line because that was, by and large, fair, especially in view of the fact that at the higher levels of income they were pretty well taken away altogether in tax. The reason why they are not restricted to the lower income brackets is because a means test was not only invidious but extremely costly to operate, and it was much easier to pay right across the board; and I suppose that still remains true. Since the country cannot afford to carry this out in the fairest way, the only possible way of saving money is by recovering the extra money through the tax system from those who need it least, and that it what is now being proposed in the Budget. It is, all the same, a way which is not without difficulty. As the noble Lord said, it brings an extra 300,000 people into the tax bracket. I do not think that is enormously important, because with the P.A.Y.E. system it will be reflected from week to week. But it means—at least I think it does, and I shall be glad if the noble Lord will confirm this—that a wage earner with more than average pay will already have found that his pay packet is reduced through P.A.Y.E. to enable the Chancellor to claw back part or all of the 7s. increase in family allowances, and the same thing will happen again with the further increase of 3s.

One cannot ignore the psychological effect of those two successive reductions in the pay packet, because that is what will happen. It is true that family allowances are drawn by the mother, but there will be a great effect on wage negotiations and so on when there are two reductions in series. As for taxpayers who are not subject to P.A.Y.E., the sharp increase in their taxation through the reduction in personal relief may come as a very unpleasant surprise at the end of the year. The Chancellor said on January 17 that next year he hopes to introduce full selectivity for family allowances. He went on to say: …and to do it in such a way that people who are not in real need of them do not draw them at all."—[OFFICIAL RFPORT, Commons, 17/1/1968] I am glad that the Chancellor appreciates the importance of ensuring that those who are not to derive any benefit from family allowances should not draw them at all. It is for the Government to make sure that they do not draw them, and not throw on the taxpayer with a family the responsibility of telling the Ministry of Social Security not to continue sending him what, in effect, is his worthless entitlement. because it is going to be taken back again, especially as it might well be that a person who received family allowances might be worse off if he were liable to surtax as a result. In any case, not many people nowadays would share the Scriptural dictum, if I may alter it a bit, that, The Government hath given and the Government hath taken away. Blessed be the name of the Government. It is important that the Chancellor should realise his hope and keep his promise in this matter to the letter.

I turn now to one point which might not have come before this House at all but for a slight error in the Explanatory Memorandum. That says that the Bill also abolishes entitlement to certain benefits for the first three days of a period of interruption of employment". We have had an erratum, a corrigendum,or whatever you like to call it, to cut that out, because, of course, that provision was cut out on Report stage in another place. The effect of that provision y^ as that payment for the first three days of sickness and unemployment benefit ant injury benefit was to be abolished. They are, as noble Lords will know, the sc-called waiting days in respect or which payment is made only if the period of sickness or unemployment lasts for 12 days—that is, in effect, a fortnight—except where the contributor has been off work through sickness, unemployment or injury within the previous 13 weeks.

The abolition of payment for waiting days would, I believe, have saved some £17½ million, but to the National Insurance Fund and not to the taxpayer. There is a good deal to be said for doing away with payment for waiting days and a good deal to be said against it. There are instances where a man is better off when he is sick than when he is healthy and working, because his employers pay him his full wages for a period and he gets his sickness benefit as well. On the other hand, where there is no occupational sick pay scheme, the loss of benefit for waiting days would be a serious matter. In other words, payment for waiting days could be abolished only as part of a wider scheme.

I think, if I may say so, that the Minister was right, this time, to withdraw it, but I believe she was very wrong to introduce it in the first stage if she was going to withdraw it later. The way in which the Government have handled this matter is really quite extraordinary. They seemed to have put in the Bill the clause abolishing benefit for waiting days without proper consultation with either the T.U.C. or the C.B.I., and then the Minister perfunctorily withdrew the clause in Committee in another place. As my noble frend Lord Avon used to say about the previous Labour Government, "Order; counter-order; disorder." If that is what goes on, it is no wonder that the previous Minister of Social Security resigned. The wonder is that the present Minister has not done so, too, by now.

I know a little about the amount of work involved in the changes in rates of payments of national insurance benefit, and it is very considerable. It is a great tribute to the Ministry of Social Security that no cheep of discontent has emerged into the Press about what must have been a very considerable burden to them. We certainly shall not oppose this measure. We are sorry about this extra burden on the Civil Service under this Government. It seems to me that it has been treated pretty badly. We are also sorry for the country, and we are sorry for the need for this Bill, even although, in the circumstances, we accept it.

2.34 p.m.

LORD AMULREE

My Lords, like the noble Lord who has just spoken, I do not propose to say anything very much against this Bill; but, at the same time, I do not propose to say a great deal for it, because it seems to me to be another bit of rather piecemeal legislation which has come along. What we have been expecting for quite a long time is some general review of the social services to-day. One should have some idea what people require in the way of social services and what they do not.

The second point I wish to make is that I wonder whether this Bill will really go as far as it intends to overcome the poverty of the lower-paid families with their children, because, so far as I can work out, even with the increased rates of family allowances, quite a number of the poorest families will not be brought up to the level of supplementary benefits because of the increase in the cost of living. Does that not mean, then, that those families whose need is greatest, where the father is in full employment in a not very well paid job, will not really get much above the poverty line, and that we shall not see any very great change there?

At this late hour I do not want to follow the noble Lord, Lord Drumalbyn, in what he has said, because he has gone into the figures and facts very carefully and I agree with a great deal of his remarks. I would say no more than to give the Bill a rather lukewarm welcome and trust that, in the not far distant future, something rather bigger and more constructive may come along to take its place.

2.36 p.m.

LORD BOWLES

My Lords, we are going to have an interesting debate. There is something in what the noble Lord said, but when he tries to blame the Government for devaluation I would point out that we tried very hard to save the country from having to devalue after the mess left by the Conservatives. I have just looked up Dodto see whether the noble Lord was still in the Conservative Government at the end. I find that he was Minister of State at the Board of Trade. I knew he had been pushed out of the Ministry of Pensions and National Insurance, but I did not know he had been compensated with another job. Anyway, he lent his little help to the disaster which we inherited from his Party. Perhaps we made a mistake, but we tried very hard not to devalue, and this is a method by which we are trying to compensate for and even out some of the hardships which the Prime Minister mentioned at the time would fall upon the people most hurt in this operation.

Now I am not going to bother about the other remarks which the noble Lord made. They were almost his usual speech, if I may say so. They were very interesting, but next time I shall be prepared with the answers so that I can give them straight away. As to the question of the cost of living and the increases that we are proposing here, I think I could prove to the noble Lord privately, although I have not got the details at my disposal now, that in fact nobody is worse of. The poorest people are in fact better off now than they were before. But I do not think it is easy to compare a lot of rises in the cost of living with the real value of the family allowances, national insurance benefits, and so on. On the whole, noble Lords, with very grudging support—they thought it was a lot of worry but they are not worrying quite enough to oppose it—are in favour, and therefore I feel quite sure that this House will give the Bill a Second Reading.

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