HL Deb 03 December 1969 vol 306 cc177-86

6.21 p.m.

LORD DRUMALBYN rose to ask Her Majesty's Government what representations they have received about, and what reconsideration they have given to, the proposals contained in paragraphs 25-27 of the White Paper (Cmnd. 4124) on Earnings-related Short-term and Invalidity Benefits dealing with Invalidity Pension. The noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper, I am asking this Question in order to try to have part of the Government's social insurance proposals elucidated, a part that I personally have found obscure and, so far as I could understand it, unsatisfactory. I need hardly say that in raising this part of the Government's insurance proposals I am not to be taken as approving the rest of the proposals; I am neither expressing nor implying any view at all about them for the moment. The time for that will no doubt come later.

The Government have issued to-day some notes in a Paper entitled, The New Pensions Scheme, and perhaps it would be for the convenience of the House if I read what the Paper says about invalidity pensions, because this is very short. It says: This new pension is specially designed to help people of working age whose illness or injury keeps them off work for a long time or who can never work again. Invalidity pension will be paid to anyone who is still sick after drawing sickness benefit for 28 weeks. It will be calculated on life average earnings in the same way as the new earnings-related retirement pension with the years up to pension age filled in by crediting earnings at, normally, £630 a year in current terms (i.e. about half the national average). The benefits will gradually build up over 20 years. For those who will never be well enough to return to work, the invalidity pension will be paid until it is replaced by retirement pension.

I am aware of the administrative difficulties inherent in any system of invalidity pensions which differ substantially from supplementary basic scales. I need only mention one which presents itself in two forms; first of all, the difficulty of being sure at any time that the person claiming an invalidity benefit is in fact incapable of ordinary work. This is largely a medical and psychological function, but it has strong social overtones, for it is highly desirable that everyone who can work should be given the opportunity, the means and the encouragement to work, in his own interest and that of the community. The second aspect of this is the particular difficulty of being sure that a person who is approaching pensionable age is incapable of work; especially when, for one reason or another, there is apparently no work for him to do in the locality. But this is not really a problem of unemployability because of invalidity, but a problem of unemployment.

I should just like to say that this is a genuine Question, unlike some Questions that are asked in Parliament. It is not that I know the answer; I am seeking information. I am anxious to know what representations have been made, and I am anxious to be assured that the Government have reconsidered, or that, if they have not, they will reconsider, their proposals relating to invalidity.

My reasons are these. As the noble Baroness may remember, at the time of the passing of the 1966 Act, which provides for earnings-related short-term benefits for the first six months of unemployment or widowhood, and I think the first 28 weeks in sickness, I expressed the view that the Act should have included benefit for long-term or permanent invalidity on the same basis as for the short term. Until then, anyone whose sickness was prolonged continued to receive flat-rate sickness benefit, if necessary, for the rest of his life—at any rate, to retirement age—and it was really the same amount. Since then, the position is, I believe, that after 28 weeks of sickness the insured person receives only the flat-rate benefit and loses his earnings-related benefit. As I understand it, under the Government's present proposals this situation will continue until 1972, when it is intended that the Government's long term earnings-related pensions scheme will begin to enter into force.

I am not absolutely clear what the words I have read out from the new pamphlet mean, and perhaps the noble Baroness, Lady Phillips, will be able to explain that in her reply. But it does appear that anyone whose sickness continues after 28 weeks will be credited with one half of national earnings for the subsequent period of his incapacity and, if necessary, up to pensionable age. I am not quite clear from the note whether he is to be credited with it only over 20 years. This is what the pamphlet seems to suggest, but perhaps this is not what it means. I should like to ask whether this means that he will be treated as having earned one half of national earnings—at present reckoned as £12 a week—for each of the weeks of his incapacity. The proposal appears to mean that a person who is permanently incapacitated will, from the time he ceases to draw earnings-related short-term benefit, receive an invalidity pension for the rest of his life—certainly up to the time he retires, but I think it comes to the same thing—one part of which will be based on his actual earnings up to the time of his incapacity, plus flat-rate credits, and the other part will be the flat-rate credits calculated at the rate of half the national average earnings for the period from his incapacity to the time when he will reach pensionable age.

Table 2 in White Paper. Cmnd. 4124, shows what invalidity pension a man whose earnings before his incapacity were at the average national level—that is, £24 a week—would receive. If, for example, a man was incapacitated at age 29, his benefit would be £7 17s. plus a flat-rate increase for his wife of £3 2s. -making £11 in all. Naturally children's allowance would also be payable; and under long-term proposals there would be periodic adjustments. But is there not a strong case, in what is essentially a form of insurance, for credits to be calculated on the basis of what a person was earning at the time he was incapacitated; or at least on the average of his earnings over a period ending with that time—say five years—adjusted to take account of changes in the cost of living? It certainly seems anomalous that in an earnings-related scheme the credits should be on a flat-rate basis, however much or however little a man was earning when sickness struck him down.

I do not underestimate the difficulties, and I am well aware that the cost would fall on other contributors. But this is precisely what happens in the case of earnings-related short-term benefits. Indeed, it was one of the reasons why I should have preferred that invalidity should be linked to short-term benefits. What particularly concerns me is the man or woman who at an age below 45 is totally incapacitated for life. This is what I am really asking about, rather than the temporary incapacity, after 28 weeks, perhaps up to a year, or something like that. Supposing a man of 25 or 30. earning £36 a week, was struck down by a disabling illness, on these terms he would have a pretty bleak outlook for the rest of his life. I recognise that such a man could have taken out a permanent health insurance policy that would guarantee him an extra £5, £10, £20 or more a week up to, but not of course beyond, normal retirement age in the event of his being unable to earn. But the real value of this sum would be likely to dwindle over the years, so that he would have to look forward, in total, if you take the invalidity State pension and the permanent health pension together, to a steadily decreasing income in real terms—one could describe it as "growing penury." That would be at a time when for everyone else the standard of living would presumably (or should I say "hopefully", which I think is the term?) be rising. This is the essence of the case. Supposing the man was earning £36 or more a week and he was 42 when he was incapacitated, this is what he would have to look forward to.

I realise, of course, that he might be entitled to other allowances, such as for constant attendance; and I am not primarily thinking of a man who is entitled to industrial injuries disablement benefit—someone who receives that benefit because his incapacity is due to an accident or sickness arising from and in the course of his employment. I cannot help feeling that if a person has to pay contributions directly related to his earnings up to £36, he should receive an invalidity pension also directly related to his rate of earnings. In other words, whatever scheme is introduced should insure his earnings-capacity. That, I suggest, is what is really needed. Most of us, and particularly those of us who have served in another place and had constituents—and among noble Lords present I think they comprise the majority—have come across cases in which a promising young married man, possibly a young accountant or business executive, has been struck down. For such a person this represents a very drab future, living at a level far below that to which he has been accustomed all his life.

I recognise that the extra cost of the invalidity pension under the Government's present proposals, as they are, will rise, according to the White Paper, from £8 million in the first full year to just over £100 million—this is the extra cost—19 years later; but I presume that there will be considerable savings in supplementary benefits to set off against this increase. I see from Table 1 of the White Paper that of all the persons who had been drawing sickness benefit for more than 26 weeks on June 3, 1967, 73 per cent. were over 50; and of those whose period of sickness had lasted over 52 weeks—the group which includes most of the permanently incapacitated—only 81,000 out of 323,000 were under 50, and only 30,000 were under 40.

I do not know, of course, what proportion of the 81,000 had been earning more than half the annual average, or what the average earnings of this group had been. I am giving these figures to show that although this is really a comparatively small matter, for the people concerned it is one of the greatest hardships that can befall one in life. So although the problem is not of immense proportions, and partly because the problem is not of immense proportions, I hope the Government, if they have not already reconsidered their proposals for this group of people—the group comprising those who will need the credits for the longest periods—will reconsider them now.

6.35 p.m.

LORD INGLEWOOD

My Lords, may I in a very brief intervention, ask the noble Baroness two or three questions? They are not in any way catch questions but questions that I think the man in the street will be asking about this pension, in which I, like my noble friend, am particularly interested. Having attended conferences in the past when the problems of the long-term sick were discussed, I can appreciate what a task the noble Baroness has when she comes to reply, because this scheme has inevitable complications. I think that one question which will be asked—and I am sure the noble Baroness will be able to answer this straight off the cuff—is whether in any circumstances, even if the man concerned goes sick in the very first week of his working life, there is any abatement of his pension on account of insurance record. In fact, whether he has worked for one month, one year or twenty years, will his basic invalidity pension he the sum calculated according to the formulae in this table?

The second question I was going to Task concerns dependants. The noble Baroness may say that all the information is given in these paragraphs, and that benefits for a wife and children will in fact follow the scale of other pension schemes. I was just wondering whether in fact dependants' benefits go further than that of a widow and children; because there can be dependent relatives who do not fall into either of those categories.

My third question concerns what is called the earnings rule and casual earnings. All of us who have ever had responsibility in the employment field have tried from time to time to include among our employees a man or a woman who really is not fit to do the whole job but who, if left out, would just be wretched for the rest of his or her life, and in the case of the father of a family, would be put to terrible stress in maintaining his self-respect. It must be a terrible thing for a young man to lose his job and to be told that he can no longer follow his trade again. But there are a great many who can do useful work, even if they cannot work full-time or follow their old calling. What we should not like to see is these men disallowed a benefit like this and told that they must take another job which may be far from their original skill and far below their original level of earnings. We must not do anything to discourage those who would like to carry on doing useful work within their powers, earning what they can from doing so and, it may be, drawing something here, too.

There is always a risk in these things, I know, especially when we come up against an earnings rule of some form or another, of having to accept a few hard cases in order to keep the whole system on an even keel. But an earnings rule for those over 60 when associated with a retirement pension, which is in fact designed to go with retirement, is something quite different from an earnings system associated with an invalidity pension which may be imposed upon a young man with a young wife and young family. I hope that I have made my points clear, and if the noble Baroness feels that she would prefer to write to me in reply rather than answer this evening, I will of course agree.

6.38 p.m.

BARONESS PHILLIPS

My Lords, I should like to say at once that if I do not get the replies to the questions asked by the noble Lord, Lord Inglewood, by that mysterious method known as "the usual channels" I shall see that they are sent to him. I am sure that he will appreciate from his own experience that, to be of any value at all, factual questions must have completely factual answers.

To the noble Lord, Lord Drumalbyn, I say at once that I take his point about the flat rate benefit in relation to an earnings-related scheme, but I am not sure that I am going to be able to give him the answer to it. What I can say is that my right honourable friend is still in the throes of considering the whole of this very elaborate scheme, as the noble Lord will know; so I only hope that any comments the noble Lord has made in that connection are not too late to receive consideration. But I think that if we take the reply that I have to give, it may well supply at any rate some of the answers to the questions asked by the noble Lord, Lord Drumalbyn.

As the noble Lord has said, the Government's proposals for a new benefit for the long-term sick were first outlined in the White Paper, National Superannuation and Social Insurance, published in January, 1969, and the proposals were repeated, with a table, which the noble Lord has quoted, in the second White Paper, published in July. The White Papers explained that the present main structure of short-term benefits would continue, but that there would be a change in the provision for people who were sick for more than 28 weeks. At present, providing that 156 contributions have been paid, flat-rate sickness benefit can be drawn indefinitely. Earnings-related supplement to this flat-rate benefit can only be paid, however, for the first six months of sickness. Under the new scheme it is proposed that when short-term sickness benefit—namely, flat-rate plus earnings-related supplement—has been paid for 28 weeks it should come to an end. After this a new long-term sickness benefit, to be known as "invalidity pension", will take its place.

I think it right to put on record that invalidity pension will not be restricted to cases of permanent or prolonged illness, as its name might imply. It will simply be paid to everyone who is still sick when the initial short-term benefit has ended. Sometimes it will go on being paid for a long time, sometimes until pensionable age, when it will in turn be replaced by a retirement pension. In those cases it will in fact be a premature retirement pension. In other cases it may be paid only for comparatively short periods, until the person concerned gets better and goes back to work.

I will explain why the Government have put forward this proposal. In the course of the detailed review which we made, over a period of some four years, of the whole of our social security provision, we had a look at the various statistics of the people who were receiving sickness benefit—and the noble Lord, Lord Drumalbyn, raised this point. We found that in practice the great majority of people who had been receiving sickness benefit for more than six months were in their fifties and sixties. As the White Paper of July pointed out, on the latest available figures—for June, 1967—nearly three-quarters of roughly 400,000 people who had been sick for more than 26 weeks, were over the age of fifty. I would immediately take the point of the noble Lord, Lord Drumalbyn, that this merely highlights his valid comment that the group will be of necessity a very small one.

Thus a large proportion of those who have serious and lengthy illnesses are nearing pension age, and the majority of them, unfortunately, are unlikely to work again. We have been particularly concerned, in designing our new scheme of social security, to improve the position of the seriously ill and the disabled, for whom the provision of the flat-rate scheme is inadequate. As well as the invalidity pension which we are discussing to-day, we have, as your Lordships will be aware, put forward proposals for an attendance allowance for those who are so severely handicapped as to need a great deal of help from other people. Thus so far as beneficiaries below pension age are concerend, our proposed new scheme directs improvements in benefits particularly to disabled people most severely afflicted, to people of working age with an injury or illness which keeps them off work for a long period, and to people who can never work again.

My Lords, the two White Papers to which I have referred set out the details of the way in which, under our proposals, invalidity pension will be calculated, and I do not propose to explain them at length to-day. It is perhaps sufficient to say that the pension will be calculated on the claimant's life average earnings in the same way as is proposed for retirement pension under the new scheme. Of course, for the years which still have to elapse before he reaches pension age there will be no earnings in his record. Again, Lord Drumalbyn raised this point. To fill this gab the White Paper proposals envisage crediting the claimant with notional earnings of, normally, £630 a year. The same method is proposed for the calculation of widows' benefits. And, like retirement and widows' pensions, the White Papers proposed that invalidity pensions should build up gradually from the present sickness benefit rate, reaching the full new-scheme levels after 20 years. I think that that goes some way to meet the point that the noble Lord, Lord Drumalbyn, made; but it is perhaps not quite as rigid as it would appear from the tables.

The main reason why we have sought in our proposals to align invalidity pensions as closely as possible with retirement pensions is that, as I have stated, the majority of people who will qualify for invalidity pension will in fact be nearing the end of their working life and will not work again. In most cases, therefore, the invalidity pension will in effect be a premature retirement pension, and it is clearly desirable that when they go on to the true retirement pension at pension age there should not be any sharp change in their benefit rate.

We have received very few representations about our proposals for invalidity pensions, which have in general been warmly welcomed. I am sure that the noble Lord, Lord Drumalbyn will know from his own distinguished career that it is not customary to reveal the names of the organisations unless they themselves wish this. Apart from inquiries about the position of individuals, the only specific points on which comment has been made to us have been the basis of the calculation and the proposed 20-year transitional period, which I have just described. The noble Lord will not expect me to anticipate the publication of the Bill by telling him this afternoon whether we intend to modify our proposals as a result of the representations: but I can assure him—and I should like to emphasise this—that every aspect of the White Paper proposals has been carefully re-examined in the light of the representations which have been made; and I will add my voice to that of the noble Lord when I see my right honourable friend. The Bill setting out the Government's final proposals will be published very shortly.