HL Deb 08 July 1971 vol 321 cc1126-38

7.9 p.m.

THE MINISTER OF STATE, DEPARTMENT OF HEALTH AND SOCIAL SECURITY (LORD ABERDARE)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Aberdare.)

House in Committee accordingly.

[The LORD ST. HELENS in the Chair.]

Clause 1 agreed to.

Clause 2 [Revision of benefits under Insurance Act]:

On Question, Whether Clause 2 shall stand part of the Bill?

BARONESS PHILLIPS

I beg to move that we leave out Clause 2, although I should like to first of all assure the Minister that I do not intend to press this to a Division, particularly as I am sure that he will notice, as I have, that there is some faulty drafting in this Amendment. The principle embodied in the Amendment is the same as that of the second Amendment following Clause 4, so I propose to make the point, and probably then to move the second one formally.

This brings forward a very important point of principle; namely, the operation of the earnings rule, which covers the first five years after retirement for both men and women. The last figures that I saw suggested that, out of the 8 million pensioners there were 1¼ million in this age group, and only about 16,000 of these at any one time would have their pensions reduced because of earnings. This seems to me, therefore, a reason why the Government might have a change of heart on this, because it is not going at any stage to cover a very large group in the community. I am fascinated to know how the demographers (I believe that is the term we use to describe them) arrive at the figure, as I see that the saving is put at £10 million. This seems to me to suggest that there must be a very large number of people involved in this. Perhaps the Minister will be able to let us know something of the size of the problem.

On Second Reading we discussed the point that the pension is completely extinguished when an individual earns a certain amount, which is specified here, and which has been upgraded; and this we appreciate. This represents—and I repeat this—a unique situation in State legislation. Nobody, no worker, actually pays back all his salary in tax. There are occasions when you think you do, but in actual fact I believe that even the highest paid collect something like 6d. in the pound. I think the classic case of the kind of situation that I am concerned about involves a man I know of 66 who, having retired from his own work, went to do voluntary work in a hospital and was persuaded to take a course of training in order to be a hospital orderly—a job, I hasten to say, that nobody wants: London hospitals have great difficulty in getting orderlies. The man does not seem at all elderly for 66—and indeed there is no reason why he should. He has taken on this job, and is carrying it out with great energy and enthusiasm and thoroughly enjoying it, but it means that he has lost his very meagre pension.

Surely if a man has put in 40 years of working life and paid insurance throughout the whole of that time, it is not unreasonable that he should collect a small State pension? There is no danger that anyone will get too much out of the State. The tax system acts as a regulator, so that he will never really benefit from the whole of his retirement pension, even if he is earning a salary. It seems to me that this rule acts as a definite disincentive, and especially in the area of occupations where we find difficulty in getting employees: the catering trades, the hospitals and the school cleaners, who are the people we find in this particular group. Her Majesty's Government have said on various occasions that they believe in self-help, and this is, after all, a very splendid philosophy. This is why I feel that, in this day and age, we have come to the point of time where the earnings rule should be abolished. I beg to move.

7.15 p.m.

BARONESS WHITE

I should like to support my noble friend Lady Phillips on this. As your Lordships will know, we had a discussion on this point of the earnings rule on the Second Reading of this Bill. I think many of us have been moving for some years to the position where we feel that the earnings rule should be entirely done away with. I hope, when he comes to reply, that the Minister will be able to give us some of the calculations on which the Government are now working. How much would it cost, so far as one can calculate? I recognise there is an element of hypothesis, but I think we should know whether he supports the figures put forward by my noble friend Lady Phillips, or whether the Government are working towards any other calculations.

I think we all feel that it is not merely a disincentive, as my noble friend said, but that this kind of provision is one which makes it far more difficult for the individual to regulate the transition from full-time work to complete retirement. As we said on the earlier occasion, individuals vary enormously in their physical and mental capacity, which may have relatively little relationship to their age, and we feel that there should be the greatest possible freedom for the individual to work out the pattern of his or her life as best he or she may.

I do not know whether the Minister has had any opportunity of considering further the particularly interesting suggestion that was made by the noble Baroness, Lady Seear, on the last occasion, which involved retaining the earnings rule but allowing an average of earnings over a year instead of taking each week separately. As she pointed out, if people were doing occasional work—which is often very suitable for somebody who is in semi-retirement—it is made peculiarly difficult for them to do so if each week is taken as a separate unit, and the earnings of that particular week are taken on their own without any relationship to the earnings over the entire year.

Of course this would assume that some type of earnings rule was in operation. As the noble Baroness, Lady Seear pointed out with great force and clarity, it could be very much more advantageous, even if the earnings rule was in operation, if there were some arrangement of this sort. I recognise that there would obviously be administrative difficulty, and that it would mean that the person concerned would presumably have to collect retrospectively any money that might be due for the period during which he or she had earned, but I do not think it is an insuperable difficulty.

Nevertheless, welcome as a change of that kind would be, I think it would be better still if we could all now recognise that this particular provision arose in a different era, and that we should now move forward with our greater knowledge of geriatric problems. I would hope particularly that our trade union friends would appreciate that the conditions which led them in the early stages of national insurance to insist on this provision are no longer so relevant, and that most of their own members would probably be benefited rather than disadvantaged by the change which we are asking.

I should like to turn to the similar Amendment which I understood my noble friend was going to discuss (though in fact she did not refer to it) on Clause 4. Here one has a peculiarly difficult situation, if I have understood this correctly, in which the earnings rule is applied to the wife of someone who is receiving invalidity pension. His invalidity allowances, if I am following this correctly, would he reduced if she were earning more than the £9.50, or the tapering allowance up to £11.50 which is provided for. Surely this is against public policy, because the wife of a man who is incapable to the degree which would be required for him to receive an invalidity pension would, I should have thought, if she was able to arrange her affairs in such a way that she could be free to work, naturally wish to do so—all the more because she might not know how long her husband might live, and she might have to keep herself in the labour market with a view to her own future.

From the nature of things, if her husband was not earning he would not be able to make any very generous provision for his potential widow. I think it needs very little imagination to put oneself in the position of such a woman, and to realise that she might well feel that it was very unfair, if she was trying to make an effort, that the husband's allowance would be reduced if she were in a position to earn more than the permitted amounts, which, although they are greater than they have been, are still not very high by to-day's standards of earnings. So I hope that this can be looked at, even if the Government are not able at this stage to do away with the earnings rule altogether.

After all, when Miss Margaret Herbison was Minister of National Insurance, she secured the abolition of the earnings rule where widows were concerned. That had been a bone of contention for many years. I remember taking part in a number of deputations with Members of all Parties in another place, and discussing this with various Ministers. We were then particularly concerned with the case of the widowed mother. But Miss Herbison was so well versed in the real problems which face a woman in that situation that she was able to secure her colleague's consent to the complete abolition of the earnings rule for widows. Therefore, it seems to me that if the Government cannot take a big step at the present time, they could surely take a step under Clause 4 and modify the present arrangements so that the earnings rule does not apply in the case of the working wife of an invalid husband. This cannot affect a very large category of persons and would not cost a very great deal. I do not know whether the Minister has made any calculations of the number of people covered by Clause 4, but if he has I am sure we shall be very much interested to hear them. I really plead with the Minister to look at this matter again, even if he feels that he cannot take a major step, because here is a category of persons for whom we should have particular sympathy.

On the main point, I must say that in discussions with various groups I have found that more and more people are resenting the earnings rule, because they think that they have contributed throughout their working lives to what they believe should be regarded as a retirement pension, in the same sense as endowment insurance. If you pay premiums for a private endowment insurance to mature at a certain age, you draw the money which is due to you regardless of whether or not you are earning, and a very great many people are now coming round to the view that that attitude should be taken in regard to National Insurance. I hope very much that the Government will consider this.

7.24 p.m.

LORD ABERDARE

I was very glad to hear from the noble Baroness, Lady Phillips, that she is not going to press this Amendment. As she recognises, it would be a fairly disastrous Amendment to carry, because it would delete the whole of Clause 2 and none of the proposed uprating of National Insurance benefits which we propose under the Bill could take effect. I am sure that that would not be her intention. She concentrated on the earnings rule, as did the noble Baroness, Lady White. I should like to make it clear, at the start, that the earnings rule is an essential prop of the retirement condition for eligibility for retirement pensions. During the first five years after pensionable age, pension is conditional upon retirement from regular employment. It is therefore necessary to have some criterion of what is, or is not, regular employment in order to determine whether or not a person can be regarded as having retired from regular employment, and it is the initial level of the earnings rule which performs this function. Without the rule, the retirement pension would simply be an old age pension payable unconditionally at the age of 65 or 60, which I gather is what both noble Baronesses were asking for.

As regards some of the figures, the noble Baroness, Lady Phillips, was quite correct in saying that about 1¼ million out of the 7½ million retirement pensioners are in the age bands subject to the earnings rule, and that only about 16,000 at any one time have their pensions reduced on account of earnings. But without the earnings rule to enforce the retirement condition—in other words, if we were to make it an old age pension which was payable as of right at those ages—some 250,000 people over pensionable age and still in regular employment, and 100,000 dependent wives, would all qualify for these pensions and it would cost, roughly speaking, £110 million a year at the new September rates. So we are talking in very high figures, and these could only be met by higher contributions or lower benefits elsewhere.

BARONESS PHILLIPS

I think we must take account of the fact that some would come back in tax. Also, I wonder whether the Minister can explain where the £10 million comes from. That puzzles me.

LORD ABERDARE

That has to do with the next Amendment which the noble Baroness wanted me to take at the same time. I shall come back to that, if I may. What we are doing is easing the rule very substantially under this Bill. The amount of earnings free of adjustment of pension is being raised from £7.50 to £9.50, and for higher earnings the present tapering arrangements remain. So that the point at which the single pension of £6 will be extinguished will be reached on net earnings of £16.50, instead of £13.50 at the present moment, and for a married couple both earning the limit will be £30.70. The point which the noble Baroness did not mention is that, although we encourage people to go on working for these extra five years, and hope that they will, they are at the same time able to earn increments to their pensions and in subsection (3) of Clause 2, which she is also trying to delete, we are raising the increments that they can earn to their pension. It is for those reasons that we consider it is right to retain the earnings rule, although we have made substantial improvements to it.

The noble Baroness, Lady White, mentioned the point raised by the noble Baroness, Lady Seear, I have looked into it and I have written to the noble Baroness, Lady Seear. I have also sent copies to both noble Baronesses opposite, but they have probably not yet arrived as they went only yesterday. Her proposal has been examined twice by the National Insurance Advisory Committee, in 1956 and in 1967, when the Committee were looking at the question of earnings limits. In the letter I have sent extracts from those Reports, which show that the Committee went into the matter very thoroughly, and that, whereas a rule averaging earnings might be a benefit to some, there are others to whom it would be disadvantageous. There would be very real difficulties in operating it, and on both occasions the National Insurance Advisory Committee advised against it. But when the noble Baroness receives the letter, I hope she will see the reasons in greater detail.

If I may turn to Amendment No. 2, paragraph (b) of subsection (1) has nothing to do with the earnings rule and I do not think she means to leave it out. This has to do with an invalidity or retirement pensioner who can draw a dependency increase for a separated wife. But she obviously is concerned, as was the noble Baroness, Lady White, about the earnings rule in this case. In the same way as the retirement condition is supported by the retirement pension earnings rule, so the earnings rule for wives ensures that there is a degree of dependency before the husband qualifies for dependency increase. This is the case for the normal retirement pensioner and his wife. What we have done is to extend the retirement pension rule to the wives of invalidity and retirement pensioners; and we have also extended the same earnings rule, which will act as a safeguard: there will be a degree of dependency before the husband qualifies for dependency increase. Hitherto, all wives have been subject to the "all or nothing" earnings rule, whereby dependency increase was completely extinguished if earnings exceeded the amount of the increase. The extension of the retirement pension rule to the wives of invalidity and retirement pensioners living with their husbands is a very considerable easement. The tapered earnings rule will allow these wives to earn up to £9.50 per week without the dependency allowance being affected at all, and to earn up to £14.20 before it is completely extinguished. This compares with the present rule, which would extinguish benefit at earnings of £3.10; so we have made a very big advance there in the rules. Of course, the man's personal invalidity benefit is not affected in any way by his wife's earnings. The other point which the noble Baroness asked me about was as to its cost. The relaxation which we have made to bring in the wives of retirement and invalidity pensioners will cost £10 million. If we were to do away with the earnings rule, it would cost a further £15 million on top of the £10 million. So, in spite of the eloquence of the two noble Baronesses, I cannot recommend the Committee to accept these Amendments.

BARONESS PHILLIPS

I should like to thank the Minister for his explanation. On a small point, may I ask him whether he said "30" or "13" for the joint income?

LORD ABERDARE

If both were earning, it would be £30.

BARONESS PHILLIPS

That puzzles me a little as it is £9.50 each. However, I will not pursue that now. I appreciate that the Minister has taken the trouble to look into this matter, bearing in mind that both my Amendments were drafted wrongly. I can only plead that, hitherto, my Amendments have always been drafted by somebody else as I was on the other side of the House and not on this, and I am in that sense very much an amateur. The Amendments were put down to get the principle discussed, to which we will return on another occasion. But I should like to thank the Minister for his detailed explanation; and I beg leave to withdraw the Amendment.

Clause 2 agreed to.

7.34 p.m.

BARONESS PHILLIPS moved Amendment No. 1:

After Clause 2, insert the following new clause.

Review of benefits

(" .There shall be an annual review of the benefits provided for in heads 10, 11 and 12 of Part I, and heads 6 and 7 of Part II, of Schedule 2 to this Act.")

The noble Baroness said: This Amendment deals with a different point. Indeed, the facts in its favour are so obvious that they hardly need restating. We are asking here that there should be an annual review of the benefits provided, and particularly in relation to the retirement pensioner. This does not mean to suggest that we are net concerned about the others, but we feel that at any rate it might be one move towards what we could expect—an annual review of all schemes of benefit. We are dealing here with people of the higher age level, and any assistance that is given to them should not be deferred too long. The old saying in charity is, "To give quickly is to give twice", and it is certainly true that if somebody is in this age band and has to wait two years for a review of his pension, he may well not live to collect the extra money.

The second point, which will be quite obvious to your Lordships, is that we are in a period of rapidly rising prices. I believe they are rising now at an annual rate of 14 per cent.; and a recent index of the movement of prices which I studied showed that the heaviest increase was in food and fares. These will obviously be the two items which affect particularly those in the fixed income group of the retirement pensioners. Furthermore, yesterday we heard the historic announcement of the possibility of our entry into the European Economic Community. This made it clear that, whatever benefits we gain, temporarily at any rate all shoppers must expect a rise in food prices; and even a very superficial study will show that this must be the case. Now I know that when we discuss the E.E.C. we are going to be told that there is long-term advantage. That may well be the fact; but the old lady living in Dorset, who has to pay the same price as a managing director of an international firm who lives in Mayfair, will be the one who feels most sharply any swift rise in prices. No particular reason has ever been advanced, so far as I can discover, why it has to be a biennial review, except, I gather, that Ministers are always told, "It would cause far too much work to the Department if you were to have an annual review." We have an annual review of prices in relation to farming, and we have quite a number of annual reviews. If having an annual review will necessitate a simpler method of paying out benefits, then this seems to me all to the good. I appeal to Her Majesty's Government to accept this very simple but needed Amendment to the Bill. I beg to move.

LORD ABERDARE

This Amendment, which has a certain attraction about it, is the same as one which was moved in another place on this Bill, and I am afraid I have much the same answer to give the noble Baroness as was given on that occasion. It represents a fundamental departure from previous practice. There have never been regular fixed intervals between reviews, although over the last ten years it has become a pattern for there to be up-ratings approximately every two years. Of course, reviews have never been limited to retirement pensions, and in practice it is unlikely that changes in retirement pension would be made without corresponding changes in at least the other long-term benefits. Both the Opposition and ourselves have now committed ourselves to biennial reviews: the Opposition did so in the Bill that fell at the Election and we did so in our Election manifesto. But, again, we are not rigidly bound to this precise period. Indeed, this year's uprating has, at great effort, been brought forward by six weeks. We are confident that the new pensions, when they are introduced in September, will have a greater real value than the present rate had when it was introduced in November, 1969. The cost of living, as measured by the Retail Prices Index, was going up at an annual rate of 9.8 per cent. in May, 1971, which is the last date for which figures are available. I think it is not quite as high a rate as the noble Baroness suggested.

BARONESS PHILLIPS

I selected food prices.

LORD ABERDARE

The noble Baroness says that she selected food prices. We are confident that, with common sense and restraint on the wages front, price increases can be brought down to a reasonable level, and if this process should happen to take longer than we all hope, there is, of course, the protection of the supplementary benefits scheme, which can be reviewed annually, as it has been in recent years, and which is expressly designed to protect the living standards of the most vulnerable sections of the population.

The noble Baroness mentioned the massive operation involved in upgrading. It is true that it is a massive operation, and it places a great strain on the administrative resources of the Department, even with the use of the latest computers and other mechanical devices. But I should not like it to be thought that this is the only argument on which we rest our case. We think on policy grounds that the present two-yearly review is right, and beyond that we should continue to keep a close watch on price rises and the value of pensions. We are, as your Lordships are aware, currently working on plans for reconstructing the National Insurance Scheme, and among the questions that we are studying is that of reviews.

The noble Baroness mentioned the White Paper on entry into the Common Market. Of course the figures are there given of the effect on the cost of living, which will be about one-half per cent. each year; that is, taking an increase of about 2½ per cent. each year in retail prices: and as food accounts for about a quarter of the total of consumer expenditure, the effect on the cost of living will be about one-half per cent. per year. We have undertaken, as all Governments have and should, to keep the scale of pensions and other benefits under continuous review. That, I should think, is the best safeguard against any unforeseen difficulty. We have used the flexibility that this provides, as I have said, to bring forward the date of the present upgrading from November, when it was due at the end of two years, to September; and the fact that it has been customary for some years to review supplementary benefits annually is, I suggest, a further safeguard. I am sorry, but I cannot accept this Amendment.

BARONESS PHILLIPS

Again I should like to thank the Minister for his explanation. Being a woman, I am a little sceptical about the figure of one-half per cent., or whatever it is, by which the figure is going to increase. I will wait and see about that. I think one has always to separate the things on which a pensioner spends the major part of his or her income, and I know from shopping that food prices are continuing to rise. Meat is getting so expensive that it will soon be something that you give to somebody for Christmas—two or three chops as a special present instead of a ring. From what the Minister has said, there is no law that cannot be changed in relation to this annual review. It is on this that I rest my case, and I hope that we can return to it.

On the question of the massive operation of changing the payment of benefits, one always wonders, as a layman, why it is so simple for the Railways Board when they increase their fares merely to stamp over the ticket that you buy, but that when it is a pension that you are going to receive, the whole thing has to be re-drawn and re-typed. Perhaps that is an area that we might study.

In other words, the operation seems much easier if you are getting money out of people than if you are going to pay money to people. I am grateful to the Minister, and I shall of course return to this question. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

Remaining clauses and Schedules agreed to.

House resumed: Bill reported without amendment; Report received.

[The Sitting was suspended at 7.47 p.m. and resumed at 8 p.m.]