HL Deb 16 June 1980 vol 410 cc855-910

House again in Committee on Amendment No. 1.

4.7 p.m.


Before my noble friend replies to the debate on Lord Wells-Pestell's Amendment No. 1—from which we seem to have gone rather a long way—I should like to answer a point powerfully put from the Benches on the other side by the two noble Baronesses in backing up the noble Lord's amendment. They particularly attacked the Government side because the reductions proposed in Clause 1, which will of course make an economy in public expenditure, are set against the background of a Budget which has reduced taxation and particularly has reduced it at the top end.

That, combined with the powerful speech made by the noble Lord, Lord Wells-Pestell, in moving his amendment, leaves noble Lords on this side of the Committee looking pretty shabby unless we have some justification for the support that certainly I am going to give to my noble friend. The noble Baronesses have opened up the debate in this way, and, although it is a bit of a Second Reading point, I nevertheless think it is fair to answer it. I support my noble friend because I believe that these budgetary policies of lower taxation and reduced expenditure are going to give us the basis for increased production, and, therefore, benefits for all.

My personal belief is that lower taxation, especially at the top end where the most important wealth creators are, will bring about an increase in incentive and therefore an increase in wealth and an increase in production. Incidentally, at the top end, which was particularly criticised by the noble Baronesses, this will keep in this country some of the highest earners whom we have been tending to lose. This will lead us to reverse the unhappy decline from which our country has been suffering—an accelerated decline in the last five years—both in terms of national life and of employment; to check that, to reverse it, and to begin to create new wealth. This will on the one hand give us the opportunity to increase benefits, and on the other hand to increase jobs.

It is against that background that I see the policy of my noble friends. Therefore, unpleasant though this is—and nobody likes providing less than we might otherwise have done for those who are worst off—the only possible justification for these policies for any man or woman with blood in their veins is that we believe they will succeed—give us two or three years—in reversing the trend and thus giving us a prospect of increasing those benefits in the future. I feel therefore that my noble friend deserves the support of this side of the Committee in this severe policy, which it certainly is, that we are pursuing at the present time. We are convinced we shall succeed with it and, if we do, the strictures which the noble Baroness, Lady Gaitskell, put upon us will be reversed by history and this Government will be credited for achieving something which no other Government have been able to achieve since the war.


At a slightly different level—and this may answer the noble Lord, Lord Nugent of Guildford—if noble Lords opposite do not wish to be accused of being hard-hearted, it is salutary to recall that the Bill is described as for the purpose of reducing benefits. One cannot get away from the fact that that is exactly what is happening. However, earlier a Question was tabled by the noble Earl, Lord Lauderdale, asking about the amount of money spent in payment of fuel bills. One cannot help wondering whether there is not some relationship between that earlier Question and the discussion we are now having. It is customary to have "kangaroos"—in other words, a Back Bencher tables a Question which puts the Government in a good light—and the noble Earl was thanked for putting down his Question and the Minister said that more money was being paid out. But as all bills are increased substantially, probably more money is being paid out although perhaps it is being paid to the same number of people. I must point out that with the passing of this Bill, as any Government are committed to maintaining a standard below which people may not fall, although the benefit may not be paid the supplementary benefit will certainly rise. Thus, even if we discard the policy of being hard-hearted, it seems that the Government's economic position will not he very much better in the final outcome of operating this Bill.


I support the amendment. The Bill is wrong, and I should have preferred to have its throat cut on Second Reading, and if that sounds a somewhat blood-thirsty observation for a pacifist, I feel blood-thirsty about this Bill because it is fundamentally immoral, and the various efforts that have been made to justify it fall to the ground with a very loud bang. I canvass the proposition, which was widely advertised in the press, that one of the reasons behind the Government's proposal of the Bill was that there were quite a number of people taking advantage of the amenities and that such skrimshankers should be repulsed. The noble Baroness very indignantly defended the Bill from any such observation and condemnation, and I of course accept her word. But if it is not for that reason, let us look perhaps for a second reason which would be justifiable, and that is the money which the Government need and will find from the prosecution of these measures.

I believe that fundamentally they will in the long run find it much more costly to proceed with the Bill, and in any event it seems ludicrous and fantastic to imagine that the Government are so condemned by the economic stringencies of the present time that they must rely on a comparatively modest sum of money to be extracted from those who are least capable of paying it in order to keep this country on its feet. It is of course true that the Government are committed to vast expenditures in the arms race; one nuclear submarine less and every poor person in the country could be very much advantaged. Although it is not particularly germane to this argument, I believe that a Government who prefer to oppress, as by this measure they will, those who are least capable of defending themselves, and at the same time expose the rest of us to the incalcuable and tramatic effects of a world beset with arms, create a situation which is an insufferable piece of nonsense as well as being quite unacceptable in terms of ethics.

But if we on this side of the Committee cannot convince the Government of the wretchedness of their arguments, may I, without presumption, endeavour to wring their withers? I have been engaged in social work for many years and it has become increasingly obvious to me that to attempt to access the relative contributions that people make to the welfare of the society in which they live is an onerous and most complicated task. But when one thinks of those who are least capable of looking after themselves—those who are in receipt of supplementary benefit and the many who, though they are entitled to them in the kind of society in which we live, do not possess themselves of those benefits—and when one at the same time remembers the wise words of my noble friend who spoke of the enormous increase in the finanial amenities offered to those who are already prosperous, it seems to me incomprehensibly wrong to say that we are so compelled by the stringencies of our present economic system to put this increased burden on one small group in the community—and it is not such a small group.

May I, without offence, ask noble lords opposite if they have really assessed the sort of suffering that will be necessary and inevitable if the Bill goes through? It is for that reason, not for party reasons at all, that as a social worker and one who believes that the right contributions and sacrifices should be made proportionately so that those who are invited to make them can in fact make them and still keep their heads above water, I think the Bill should not go much further. If we cannot cut its throat, let us dismember it with a thousand cuts, because that seems to be the only honourable course to take.


Perhaps I might comment on this subject from a rather different point of view. When one considers the state that some countries are in today and the reasons for it, it makes the problems that are presented by this part of the Bill comparatively insignificant. What we are suffering from now is inflation and anything we can do to bring inflation down is worth doing. At present, inflation is running at, say, 20 per cent. per annum, which means that progressively throughout the year people will be less well off, particularly those who are in receipt of national insurance in one form or another. Supposing inflation reached 50 per cent.—I will not go so far as to suppose it reaches 400 per cent. as it has done in some South American countries—just think what would be involved then. In the course of one year, the recipients of unemployment benefit, retirement pension and the rest would have their incomes reduced by three-quarters.

That is what we are trying to stop, because once inflation gets on the way it is much easier for it to go on increasing than for it to stop; and it is vitally important that we should stop it. There is no God-given reason why the unemployment benefit, retirement pension or anything else should be raised to the level that it was 12 months earlier; this has been a comparatively recent development in the history of the national insurance scheme.

It has always been understood—there has in fact been an underlying understanding—that the pay-as-you-go scheme is based on the position that one makes such contributions as are laid down and one receives such benefits as can be afforded by the nation. Of course, this is a matter of judgment. It is not a question about being honest about this; the noble Lord opposite asked, how could any noble Lord honestly support the clause? We on this side of the Committee do honestly support the clause, because we believe that it is a necessity, though a most unwelcome one—


It is an absolute disgrace.


It is a most unwelcome necessity, but it is not a disgrace to do what is necessary. We believe this is the sole criterion at the present time, and it is for that reason that we support the Bill—


May I ask the noble Lord a question before he sits down? He spoke about anything that can be done to bring down inflation. Is there nothing that the Government can do in terms of making cuts involving some of the rich people in this country? Why must they turn to the poor?


We are talking about the national insurance scheme and social security benefits, and in paying out benefits we cannot go above a certain proportion of the national wealth. Obviously to go above that would be entirely self-defeating. Again this is a question of judgment at any given time. All I am saying is that it must not be accepted that at all times it can be said that in return for a certain contribution one will receive a certain benefit in terms of purchasing power; that cannot be so. We have been very fortunate over the years in being able to increase the real value of social security benefits. There was bound to come a time when there would be a change around. We hope that it will be for only a short time; and it will be for an even shorter time if we take the correct measures now.

4.22 p.m.


I should like to say a few words on what the noble Lord, Lord Nugent of Guildford, said—he is not present at the moment—when he attempted to justify the reduction in regard to the higher levels of income tax, while at the same time cuts are being made against the poorest people in the land. He said something that cannot possibly be proved He said that if income tax at the higher levels is reduced, it leads to incentives, people make more, and so on. That is a piece of pure doc- trine. It is just as likely that if income tax is reduced at the top, people will simply spend more. A great many of them may take longer holidays or increase their expenditure in various ways. In that case the reduction of high taxation is itself inflationary; and that reduces the argument we have just been listening to. What the noble Lord, Lord Nugent, said did not seem to me to reduce in the slightest degree the cogency of the points advanced by my noble friends.


The noble Lords, Lord Nugent of Guildford, and Lord Drumalbyn, have justified something which of course they do not want to do—I give them credit for that—on grounds which are totally unacceptable. It is not acceptable to reduce the emoluments to the poorest on the basis of an intellectual gamble; it is absolutely disgraceful. It is perfectly all right to take the gamble a certain distance. Of course people have different views, and I suppose that in the country today, of the people who are intellectually equipped to decide this question, 60 per cent. may agree with me and 40 per cent. may agree with the noble Lord—maybe. To make this kind of petty saving at the expense of the poorest in the community is an action based purely on a belief, not held by a majority of people, that the Government's plans will work. We all know this, and we say that it is absolutely unjustifiable to attack certain things, even though one considers that economies must be made.

I joined the Labour Party in the late 'twenties or early 'thirties—I cannot remember precisely when—for one reason only: because the National Government cut the dole. I have never forgiven them for that, and I have never changed sides, though I have wobbled a little in the middle. Now I am swinging away because of what this Bill is doing.


It seems from the remarks just made that the consciences of a number of noble Lords have been touched. I fully appreciate the effects of inflation. The noble Lord, Lord Drumalbyn, was perfectly right in his reference to inflation. I can say that after having, this weekend, paid just under 50p for a large loaf, which means virtually a 10 shilling loaf, which is quite a consideration for the average family.

I want to relate the question of income tax relief to the actual cuts—and indeed they are cuts—in the Bill. Clause 1—de-indexing the invalidity pension—will save £140 million in a full year. Clause 2 —freezing of the earnings rule for retirement pensioners—will save £16.5 million. Clause 3—reducing the linking period for spells of unemployment and incapacity from 13 weeks to six weeks—will save £20 million. Clause 4—abolition of earnings-related supplement—will save £360 million. The most amazing thing, the proposal which has received the greatest publicity—reduction of £12 in supplementary benefit entitlement of strikers' families—will save £1 million.

My arithmetic leads me to the conclusion that that is a total of £562.5 million. The tax relief given in the Budget—which has been referred to—was £4,500 million, of which the richer section of the community, 7 per cent., receive £1,560 million in relief. So if the tax relief were to be reduced by only £500 million, the cuts now proposed need not be made. That is the arithmetic of the situation, and we feel so strongly about this matter because a reduction of £500 million would in fact make a tremendous difference to people who are already suffering because of their personal disabilities.

4.27 p.m.

Baroness YOUNG

There is no doubt that we have had a tough opening to the Bill, and I must say that on listening to the speeches of noble Lords opposite I did not feel that they bore very much relevance to the amendment that is before the Committee. We have had, in effect, a "Clause stand part" debate and we have ranged over almost all the issues of the first six clauses of the Bill, quite apart from the central issue of Clause 1.

First, I should like to correct a number of inaccuracies which crept in during the course of the debate. They were picked up most effectively by my noble friends Lord Nugent of Guildford and Lord Drumalbyn, and I am most grateful for their interventions. I wish to state from the Government Front Bench that of course we would not be considering the Bill, nor what it contains, if we did not believe that we were in a very serious economic position. It is quite absurd, and quite wrong, for anyone to say that we are making these proposals because, quite apart from anything else, we think that it is agreeable to say to a number of people what we know they prefer not to hear.

If there had been another solution—and it would be nice to hear it from noble Lords opposite—I cannot think why the previous Government did not discover it when in office, particularly between 1974 and 1979. If we are quite honest—and my noble friend Lord Nugent was very honest on this point—neither party has been very successful, or not as successful as we would wish, at managing the economy, and that is precisely why we are in the present difficult position. We are making a great effort to try to put things right. One thing is absolutely clear. I made this point on Second Reading, and it has been repeated by my colleagues: we must cut down Government expenditure; and the total social security budget, now running at £20 million annually —a quarter of all Government expenditure—must bear a share of the cuts.

In seeking to make economies, my right honourable friend the Secretary of State, Mr. Jenkin, has looked at the whole of this budget and has tried to make adjustments where they will cause least damage. I should like to make it clear that we are not in fact making cuts against the poorest part of the community. Those on supplementary benefit are of course the poorest and they, along with retirement pensioners, have been fully price protected.


Would the noble Baroness forgive me for interrupting her? Did she quote a figure of £20 million?

Baroness YOUNG

It was £20,000 million—£20 billion, yes. It is so large that I find it rather difficult to imagine; and if it sounded a bit smaller, then that is perhaps because we all find it rather easier to comprehend figures which are a hit smaller. But, no—the social security budget is £20,000 million annually. I should like to thank my noble friend Lady Macleod for her intervention, because, of course, everybody is getting an increased benefit; the situation is that some are not getting an increase as big as others.

Now those who are affected by Clause 1 and who are not getting quite such a large increase in benefit are, of course, those who currently do not pay tax on their benefits. It is generally agreed—and I think noble Lords opposite will agree with us in this matter—that these benefits should be brought into taxation, and that, indeed, is the Government's ultimate aim. The fact is that this cannot be done before April 1982, very largely for operational reasons—particularly, I understand, to put all this on the computers and work out the necessary programmes. So we have an interim measure of a 5 per cent. abatement of these benefits. The savings achieved by the abatement amount to only about one-third of the approximately £450 million additional revenue which would accrue if the benefits were taxable.


Would the noble Baroness give way for one moment? If you do not pay your taxes, you are charged interest: if the Government cannot get your taxes ready in time for you to pay them, they put them on a year early.

Baroness YOUNG

Perhaps I can come on to the point about numbers that was raised by the noble Lord, Lord Underhill. There is in fact no contradiction between the two lots of numbers that have been given. The figures that I gave at Second Reading—that is to say, the 650,000—are the figures of long-term invalidity pensioners, and they are the group that we have been talking about under Clause 1. Of those, it is estimated; as I said before, that approximately 250,000 either would not pay tax or would be unaffected. The 850,000 figure which was referred to is in fact the number of both the short-and the long-term beneficiaries, and some of those may be getting benefit for only as little as a week. This, of course, has produced different figures because we are using different numbers. I think it is just as well to be quite clear on that particular point.

The amendment before the Committee would have the effect of deferring the 5 per cent. abatement until the November 1981 up-rating; but, as I have explained, it is because the Government need to make savings now that they have introduced the abatement as an interim measure. If the benefits concerned were not subject to a 5 per cent. abatement at this Novem- ber's up-rating, we would not achieve savings of about £130 million, and this is a substantial proportion of the total package in 1981–82.

As I indicated at the beginning, the purpose of this Bill is to make savings in Government expenditure. It is not an easy Bill to introduce into your Lordships' House, and we all recognise the strength of the feeling that exists. But right at the outset of our discussions I should like to disabuse your Lordships of this myth that, somehow, by not reducing taxes, as we have done in the two Budgets, we could have all sorts of expenditure which we have not indicated. The noble Lord, Lord Soper, made his suggestion. He said that we should cut down on defence expenditure—not, I think, something which most people, in the very uncertain world in which we live today, would agree with, but at least he is entitled to his point of view. But the noble Baroness, Lady Wootton, and the noble Baroness, Lady Gaitskell, and I think the noble Lord, Lord Gordon-Walker, and the noble Lord, Lord Donaldson, all referred to this point.

In his first Budget last year, the Chancellor cut income tax in 1979–80 by approximately £3,500 million. The bulk of that reduction in income tax actually went to those paying tax at the basic rate or below the basic rate. So in fact it went to help direcly those who are least well off. At the same time, the reductions in income tax were accompanied by a rise in VAT as part of a deliberate policy to switch taxation from direct to indirect taxation. One very largely financed the other, and it is wrong to suggest that one could have withheld the income tax reductions and still been able to secure the increased revenue from VAT. Similarly, this year, there were reductions in personal income tax but also increases in direct taxes on alcohol, tobacco and petrol, to maintain their real value. Here, too, it would have been impossible to have had the one without the other. One could not have increased the excise duties to reflect inflation while refusing to make any increase in the incomes tax allowances, which were equally affected by inflation.

Neither Budget, therefore, has provided a large net give-away of taxation which, even if it had been Government policy, could have been used to finance a higher level of public expenditure.


Will the noble Baroness explain how she reconciles her figures with those which were given in a Written Answer in the Commons Hansard for 3rd July 1979? Will she look at the figures there, which indicate very much larger figures for the total reductions in income tax at the higher levels than she has quoted in her figures, and perhaps let me know how these are to be reconciled?

Baroness YOUNG

I shall certainly look at the point which the noble Baroness makes. I have not got the particular Question and Answer before me, but I shall certainly make a note of that and let her know the answer to the point she makes. But I can assure her that I have taken advice from the Treasury on this matter, and I have every reason to think that the principles I have outlined are Government policy and are correct. I therefore think it is just pretending to people, pretending to ourselves, to suggest that somehow there is a way to get more for people at a moment when the country is not producing more; and it is not kind to them. It is deluding ourselves when we, at least, ought to know better, and it certainly is not kind to others to pretend that we can get a lot more in these very difficult times.

I have been grateful for the support that I have had on this particular amendment. We are going to have a lot of other amendments, and a great deal more discussion on this Bill. It is one, as I have already indicated, that the Government would not have introduced if we did not believe that it was part of a package to try to set the country back on a road to recovery, so that we can achieve the level of benefits that we should like to see for everybody in this country. I might remind your Lordships, as we are dealing with a number of benefits, including the invalidity benefit, that it was of course a Conservative Government which first introduced invalidity benefit in 1971.


Before the noble Baroness sits down, will she be kind enough to tell me how, if in fact taxes on cigarettes and alcohol were increased slightly in order to cover this expenditure, it would in fact have disturbed the Government's strategy?

Baroness YOUNG

The point I was trying to make was in answer to one from the noble friend of the noble Lord, Lord Pitt, that, had we not reduced direct taxes, there would have been a great deal more money to pay for social security benefits. As I was trying to indicate, we have reduced a number of direct taxes—part of our manifesto commitment —and most of the benefit has gone to those paying at the standard rate or below, and has taken a great many people out of direct taxation altogether. But that has been countered by indirect taxes —the increase in VAT in the first Budget and the increase in the other indirect taxes, which I have mentioned, in the second. In this way, it indicates that the overall level of tax has remained relatively in balance, and there is therefore not a great deal to give away for extra benefits.


The noble Baroness realises that she has not answered my question, I hope.


I feel very distressed as a result of the debate that we have had this afternoon, and particularly distressed by the contributions made by the noble Lord, Lord Nugent of Guildford, and the noble Lord, Lord Drumalbyn, both of whom I claim, I think rightly, to know very well indeed. I have always enjoyed a good relationship with them and we shall go on enjoying the same relationship, I hope; but I think they both missed the point.

The point is that the Government should have devised a strategy whereby it was not necessary to save what is, after all, a miserly sum of money at the expense of that section of the community that cannot possibly afford it. The noble Baroness said," Ah, but we did not do that. We have not affected those on supplementary benefit". Does the noble Baroness not know that there are hundreds and hundreds of thousands of men, women and children who are not in receipt of supplementary benefit but who are either on or just below the poverty line? They are the people who are going to be affected by this.


The noble Lord has come back to the point of the poverty line. Can he say where the poverty line exists, if it exists at all; who defines it and how it relates to the total amount that people can get by way of combined pension and supplementary benefit or unemployment benefit and supplementary benefit?


If I remember aright, it was defined by a number of bodies. One was the Supplementary Benefits Commission. Professor Donnison said something about it recently. The Child Poverty Action Group did a considerable amount of research into the matter and published a document on this matter only a few months ago. There are several, including Professor Townsend of Exeter University.

I think that the people who are concerned with this are quite satisfied that there are a very substantial number of people who are not in receipt of supplementary benefit but who are in receipt of other benefits who have not got a sufficient amount coming in to enable them to get all the necessities that they need. The point that I am making is that there are. I understand, still about 30,000 persons who are entitled to supplementary benefit and who do not claim it. I accept that that is not the fault of the Government. But they do not claim it. They are the people who are going to be affected by these cuts. If the noble Baroness asks—as she did ask—what is our suggestion about it, we say this. When the Social Security Bill was introduced by the Government in another place, there was no thought then of a Social Security (No. 2) Bill. The Social Security (No. 2) Bill saw the light of day only just before the Social Security Bill finished in the Commons. It was found that by introducing the Bill now before us a few hundred millions could be saved. What we are saying is that it was really a most disgraceful way of saving a very small sum.

The noble Baroness talked about the "give away" of the first Budget when she said there were £3,500 million given away and that a good deal of that—she did not specify how much—went to the ordinary person. That is perfectly true. But, certainly, an equal amount went to those who were already enjoying a fairly good income. We have heard the figure today of something like 7 per cent. of the people paying tax receiving £1,560 million. It was done in this way. I am trusting to memory (which is not a very good thing to do) but I believe I am right in saying that the top level of 83 per cent. tax—and I accept that this is outrageously high and that I would not want to pay 83 pence in the pound tax—was brought down to something like 61 per cent., 62 per cent. or 63 per cent. There was no need to do that. As my noble friend Lord Gordon-Walker asked, "Where did the money go?" It went to increase inflation, as we all know. That is where the money went.

The Government said that people must be given an incentive; that they will then work harder. But let us be fair to those people. They work very hard as it is and many could not work harder if they wished to do so—they leave home early in the morning and come home late at night. I know a few such people, not many, but a few. The incentive was to enable them to spend more money; the incentive was not to work harder, because they could not do so in many instances. What we are saying is that the Government suddenly rushed into an action which, after a comparatively short space of time, they saw to have been a mistake. In fact, they did not do their sums properly when they decided to give away this £3,500 million. It was only after they had given it away that they realised that there was not so much money in the kitty and they had to look round to make cuts.

I am saying that we accept that the cuts are necessary but that what we do not accept, and shall never accept, is the way in which they were made—touching that section of the community that will really suffer. They are those who are going to suffer the 5 per cent. cut in the benefits.

Baroness YOUNG

May I say, before the noble Lord sits down, that so far as the Government's economic policies are concerned, it is perfectly true that on coming into office we faced a very serious situation, including a number of postdated cheques from the previous Government which we had to pick up and to meet by way of public sector pay settlements? Could I say that over the whole consideration of the abatement of the up-rating, the fact is that the benefits which are concerned in this are benefits which are not taxed at present and which we hope will be brought into taxation? It may be helpful to the Committee if I repeat the words of my right honourable friend the Secretary of State in another place on April 29th, when he said: When it"— that is, the invalidity pension— comes into tax subject to the availability of resources, we shall put it back to what it would have been had it stayed in step with the retirement pension this November". That is proof of our good faith in this matter. This is to meet a particularly difficult short-term situation.


Could we have this in good, sound, common English? Instead of talking about "abatement of up-rate", let us talk about stealing 5 per cent. from people.

4.48 pm.

On Question, Whether the said Amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents 75; Not-Contents, 92.

Amherst, E. David, B. [Teller.] Hutchinson of Lullington, L.
Ardwick, L. Davies of Penrhys, L. Ilchester, E.
Aylestone, L. Denington, B. Jacques, L.
Bacon, B. Donaldson of Kingsbridge, L. Janner, L.
Balogh, L. Elwyn-Jones, L. Leatherland, L.
Banks, L. Gaitskell, B. Listowel, E.
Beswick, L. Gordon-Walker, L. Llewelyn-Davies of Hastoe, B.
Birk, B. Goronwy-Roberts, L. Lloyd of Kilgerran, L.
Blease, L. [Teller.] Gosford, E. Lovell-Davis, L.
Blyton, L. Greenwood of Rossendale, L. Mackie of Benshie, L.
Boston of Faversham, L. Hale, L. Maelor, L.
Brockway, L. Hall, V. Meston, L.
Bruce of Donington, L. Hampton, L. Mishcon, L.
Burton of Coventry, B. Hatch of Lusby, L. Northfield, L.
Byers, L. Henderson, L. Oram, L.
Cledwyn of Penrhos, L. Houghton of Sowerby, L. Pargiter, L.
Collison, L. Howie of Troon, L. Peart, L.
Phillips, B. Soper, L. Underhill, L.
Pitt of Hampstead, L. Spens, L. Wallace of Coslany, L.
Plant, L. Stewart of Alvechurch, B. Wells-Pestell, L.
Ritchie-Calder, L. Stewart of Fulham, L. Whaddon, L.
Ross of Marnock, L. Stone, L. Wigoder, L.
Sainsbury, L. Strabolgi, L. Wilson of Radcliffe, L.
Segal, L. Strauss, L. Wootton of Abinger, B.
Shinwell, L. Taylor of Mansfield, L. Wynne-Jones, L.
Airey of Abingdon, B. Gibson-Watt, L. Massereene and Ferrard, V.
Alexander of Tunis, E. Glenkinglas, L. Morris, L.
Allen of Abbeydale, L. Godber of Willington, L. Mowbray and Stourton, L.
Alport, L. Gormanston, V. Murton of Lindisfarne, L.
Ampthill, L. Gowrie, E. Norfolk, D.
Avon, E. Gridley, L. Northchurch, B.
Bellwin, L. Hailsham of Saint Marylebone, L. (L. Chancellor.) Nugent of Guildford, L.
Belstead, L. Orkney, E.
Brentford, V. Halsbury, E. Penrhyn, L.
Caccia, L. Hanworth, V. Reigate, L.
Campbell of Croy, L. Hatherton, L. Renton, L.
Clwyd, L. Hawke, L. Rochdale, V.
Cockfield, L. Henley. L. Romney, E.
Cottesloe, L. Hives, L. St. Aldwyn, E.
Craigavon, V. Holderness, L. Sandford, L.
Cullen of Ashbourne, L. Home of the Hirsel, L. Sandys, L. [Teller.]
Davidson. V. Hood, V. Selkirk, E.
Denham, L. [Teller.] Hornsby-Smith, B. Sharples, B.
Derwent, L. Hylton-Foster, B. Soames, L. (L. President)
Drumalbyn, L. Ironside, L. Stamp, L.
Dundee, E. Kimberley, E. Strathclyde, L.
Effingham, E. Lauderdale, E. Strathcona and Mount Royal, L.
Ellenborough, L. Long, V. Trefgarne, L.
Emmet of Amberley, B. Lucas of Chilworth, L. Trenchard, V.
Evans of Hungershall, L. Luke, L. Trumpington, B.
Exeter, M. Lyell, L. Vickers, B.
Ferrers, E. Mackay of Clashfern, L. Vivian, L.
Fortescue, E. Macleod of Borve, B. Wakefield, of Kendal, L.
Fraser of Kilmorack, L. Malmesbury, E. Ward of Witley, V.
Gainford, L. Margadale, L. Westbury, L.
Geoffrey-Lloyd, L. Marley, L. Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

4.56 p.m.

Lord WELLS-PESTELL moved Amendment No. 2:

Page 1, line 12, at end insert— ("Provided that the increase is to come into force not later than 20th November 1980.")

The noble Lord said: This amendment would ensure that this year's uprating date was not later than the week commencing Monday 17th November. The Government have taken power, in the Social Security Act which recently received Royal Assent, to fix the up-rating date at any time up to the end of November. Ministers have repeatedly argued, as did the noble Baroness, the Minister, at the Report stage of that Bill on 6th May (column 1528 of Hansard) that the object of that change was to prevent the date from creeping steadily forward year by year. It had already crept forward from 17th November, 1975, to 12th November last year and by this November it would have crept forward a full week to 10th November.

I have always accepted—as did the Opposition spokesmen in another place —that it would not be unreasonable for the Government to prevent this by putting the uprating date back to 17th November this year. The proposal to postpone the uprating for a further week, to 24th November, however, is simply a device —and I say this very carefully—to rob pensioners and other beneficiaries of a week's increase to which they are morally, although, it will be argued, not legally, entitled. It is a totally indiscriminate cut affecting not only national insurance beneficiaries, but those on supplementary benefit as well: the poorest in the land whom Ministers claim from time to time, as they have claimed today, to be protecting from the cuts.

Replying to a similar amendment in another place, the Under-Secretary of State, Mrs. Chalker, was quite frank about this. She said: It is perfectly true that by taking a further week, which has now happened, and by announcing the uprating at 24th rather than 17th November there are considerable savings to be made. I make no secret of the fact that there has been pressure on the Government and the DHSS to make those savings". That was from the Standing Committee B, 3rd Sitting, part III, 24th April, 1980, at column 322. The amount at stake is not small; on the Government's own estimate, it is £60 million. I will not burden the Committee with reading further what took place in the Standing Committee.

The Government's attitude to this question was neatly summed up by the Financial Secretary to the Treasury in the Budget debate on 31st March. When asked to explain why the up-rating date was being moved from 10th to 24th November, he replied: To quibble over a couple of weeks is absurd". Your Lordships will find that quotation in Hansard of another place, 31st March 1980, column 164. We take the view that for people living on the breadline, an arbitrary cut of £12—that is what it amounts to for a pensioner couple—is anything but a quibble. Therefore I move this amendment, which will add the words: ("Provided that the increase is to come into force not later than 20th November 1980.")

Baroness YOUNG

The intention of this amendment is to prevent the 5 per cent. abatement of the increase in short-term and invalidity benefits unless the up-rating of these benefits takes place by Thursday, 20th November 1980. In so far as it limits the abatement to 1980, it would also prevent the abatement in, future years even if the Secretary of State were to make an order under Clause 1(4). This amendment would require us to do one of two things. Either we would have

to up-rate these benefits by 20th November, when the Government are already committed to the week beginning the 24th November for the up-rating this year or we would have to forgo the 5 per cent. abatement of short-term and invalidity benefits.

We have already been over the ground as regards the latter of those proposals and I do not wish to repeat all the arguments again. The fact is—and I am sure the noble Lord, Lord Wells-Pestell, will know this as well as I do—the up-rating of social security benefits is a complex matter. It is essential that all benefits which are to be up-rated are increased in the same calendar week. For administrative reasons, the amendment would require the bringing forward of the up-rating date this year by a whole week to the week beginning Monday, 17th November.

I was very glad to hear the noble Lord recognise that there is nothing at all illegal in what we are proposing. As he has quite rightly said, the effect of what we are proposing has corrected the slippage in the date of the week in which up-ratings are made annually. He is also right in saying that the effect of it will he to produce a saving of about £65 million this year. This is something which we believe is essential, along with the other economics of which I have referred. The noble Lord may no doubt like to know that for 1981 we must, under existing legislation, up-rate by 23rd November, so there could not be another week out next year. I hope, for the reasons I have given, that your Lordships will decline to support this amendment and will feel that what the Government are proposing in this context is the right line of action.

5.4 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 79; Not-Contents, 86.

Amherst, E. Beswick.L. Bruce of Donington, L.
Ardwick, L. Birk, B. Burton of Coventry, B.
Aylestone, L. Blease, L. [Teller.] Byers, L.
Bacon, B. Blyton, L. Cledwyn of Penrhos, L.
Balogh, L. Boston of Faversham, L. Collison, L.
Banks, L. Brockway, L. David, B.
Davies of Leek, L. Kilmarnock, L. Ross of Marnock, L.
Davies of Penrhys, L. Leatherland, L. Sainsbury, L.
Denington, B. Lee of Newton, L. Seear, B.
Donaldson of Kingsbridge, L. Listowel, E. Segal, L.
Elwyn-Jones, L. Llewelyn-Davies of Hastoe, B. Shinwell, L.
Gaitskell, B. Lloyd of Kilgerran, L. Stamp, L.
George-Brown, L. Longford, E. Stewart of Alvechurch, B.
Gordon-Walker, L. Lovel-Davis, L. Stewart of Fulham, L.
Goronwy-Roberts, L. Maelor, L. Stone, L.
Gosford, E. Meston, L. Strabolgi, L.
Greenwood of Rossendale, L. Mishcon, L. Strauss, L.
Hale, L. Northfield, L. Taylor of Mansfield, L.
Hall, V. Ogmore, L. Underhill, L.
Hampton, L. Oram, L. Wallace of Coslany, L. [Teller.]
Hanworth, V. Pargiter, L. Wells-Pestell, L.
Hatch of Lusby, L. Peart, L. Whaddon, L.
Henderson, L. Phillips, B. Wigoder, L.
Houghton of Sowerby, L. Pitt of Hampstead, L. Wilson of Radcliffe, L.
Howie of Troon, L. Plant, L. Wootton of Abinger, B.
Ilchester, E. Ritchie-Calder, L. Wynne-Jones, L.
Jacques, L.
Airey of Abingdon, B. Godber of Willington, L. Mowbray and Stourton, L.
Alexander of Tunis, E. Gormanston, V. Murton of Lindisfarne, L.
Allen of Abbeydale, L. Gowrie, E. Norfolk, D.
Alport, L. Gridley, L. Northchurch, B.
Ampthill, L. Hailsham of Saint Marylebone, L. (L. Chancellor.) Nugent of Guildford, L.
Avon, E. Orkney, E.
Bellwin, L. Halsbury, E. Orr-Ewing, L.
Belstead, L. Hatherton, L. Penrhyn, L.
Caccia, L. Hawke, L. Reigate, L.
Campbell of Croy, L. Henley, L. Renton, L.
Cockfield, L. Hives, L Rochdale, V.
Cottesloe, L. Holderness, L. Romney, E.
Craigavon, V. Home of the Hirsel, L. St. Aldwyn, E.
Cullen of Ashbourne, L. Hood, V. Sandys, L. [Teller.]
Davidson, V. Hornsby-Smith, B. Selkirk, E.
Denham, L. [Teller.] Hylton-Foster, B. Sharples, B.
Drumalbyn, L. Kimberley, E. Soames, L. (L. President.)
Dundee, E. Lauderdale, E. Strathclyde, L.
Ellenborough, L. Long, V. Strathcona and Mount Royal, L.
Emmet of Amberley, B. Lucas of Chilworth, L. Teviot, L.
Evans of Hungershall, L. Luke, L. Trefgarne, L.
Exeter, M. Lyell, L. Trenchard, V.
Ferrers, E. Mackay of Clashfern, L. Trumpington, B.
Fortescue, E. Macleod of Borve, B. Vickers, B.
Fraser of Kilmorack, L. Malmesbury, E. Vivian, L.
Gainford, L. Margadale, L Wakefield, of Kendal, L.
Geoffrey-Lloyd. L. Marley L. Ward of Witley, V.
Gibson-Watt, L. Massereene and Ferrard, V. Westbury, L.
Glenkinglas, L. Morris, L. Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

5.11 p.m.

Lord WELLS-PESTELL had given Notice of his intention to move Amendment No. 3:

Page 1, line 12, at end insert— ("Provided that from the first week of the tax year in which any of the specified sums become chargeable to income tax each of them shall be increased to at least the amount to which it would have had to be increased at the previous uprating if this section had never come into force.").

The noble Lord said: In view of the fact that Amendment No. 4, which is in the name of my noble friend Lord Banks, is very similar to my own and I prefer his to mine, I do not intend to move this amendment.

Lord BANKS moved Amendment No. 4:

Page 1, line 12, at end insert— ("Provided that from the first week of the tax year in which any of the specified sums become charged to income tax each said sum shall be increased to that sum to which it would have been increased in consequence of reviews in the tax year 1979–80 and any subsequent tax year but for the provisions of this section").

The noble Lord said: I am grateful to the noble Lord, Lord Wells-Pestell, for not moving his amendment in favour of mine. They both have the same simple purpose, but before I explain it may I say that we on these Benches are as heartily opposed to the 5 per cent. abatement as anyone in this House. The national insurance fund is not in difficulties. We believe that this attempt to find £500 million a year in this way is not only undesirable, but unnecessary. If it is required to take £500 million off the public sector borrowing requirement, which is what happens if you accumulate money in the national insurance fund, we are quite sure that this is not the way in which to do it. It will affect the Exchequer only to the extent of about £90 million.

As we have already heard, the abatement applies to short-term benefits and invalidity benefit and involves a cut in real value, in that instead of these benefits being increased by 16½ per cent. they will be increased by only 16½ per cent. This is quite arbitrary and unfair, but we are told that it is an interim measure until these benefits are taken into tax. During that interim, it will affect people who do not pay tax as well as those who do pay tax, and people who do not pay tax will receive the cut. But the question arises: will the value be restored when these benefits are taken into tax? Will that cut which has been made during the interim be restored? If it is not, then everybody—those who pay tax and those who do not—will be penalised in the future. If it is not restored, the abatement will be perpetuated for all time and compounded.

The Secretary of State in another place has indicated that if resources are available it is the intention of the Government to restore the value of invalidity benefit, because the invalidity pension has, in the past, been treated as a long-term benefit and this measure will open up a gap between it and the retirement pension. But it is only if resources are available that this is to be done and, as I said in the Second Reading debate, that phrase is at best an aspiration, and at worst an escape hatch. But in our view it should be done for all the benefits when they are taken into tax. The value which they have lost through the abatement should be restored to them. That is what this amendment would achieve. I beg to move.


I do not want to keep the Committee for any length of time. My noble friend Lord Banks has put the position very clearly and succinctly, and I do not think I can improve upon it in any way, other than to say that all he has asked for, and all we are asking for, is fairness and justice in this matter.

It is patently obvious to us that if benefits are reduced for a certain reason and for a particular period, then, if and when they are taken into tax, they should all—not just the invalidity benefit—be brought up to the level of what they would have been if they had not suffered an abatement of 5 per cent. I hope that the noble Baroness the Minister is in a position today to be a little more positive and a little more forthcoming than her right honourable friend was some time ago in another place, that she will give us a real assurance that this will be done and that we shall not be put off with the usual phrase "if circumstances permit", because we all know that circumstances will not permit something being done if a person does not want to do it. So I hope that she will be able to give us a categorical reply.

The LORD ADVOCATE (Lord Mackay of Clashfern)

The Government have announced their intention of bringing benefits for the unemployed into the tax system in April 1982. And if, by 1982, the Government can achieve their aim of transferring to employers the responsibility for sick pay during initial weeks of incapacity, as proposed in the Green Paper published in April, most of the payments for short-term incapacity would also become taxable from that point. Other benefits will be brought into taxation as soon as possible thereafter. In the meantime, the 5 per cent. abatement in 1980 is an interim measure. No decision has been taken on whether there will be an abatement in either or both 1981 and 1982—and there are later amendments covering this matter—and this must be considered in the light of the circumstances at the time.

The amendment seeks to ensure that all the benefits affected by Clause 1 will be restored to their full value once they are brought into taxation. It would, in our view, be most unwise at this stage to enter into such a general commitment so far ahead. The Government have undertaken that when the short-term benefits—sickness benefit, industrial injuries benefit, unemployment benefit and maternity allowance—are brought into taxation, their level will be reviewed in the light of all the relevant factors, including the economic circumstances at the time. This is as far as we think it is right to go.

There is a more positive side, however, to the argument, for, as my noble friend Lady Young said during the debate on Second Reading on 2nd June, my right honourable friend the Secretary of State for Social Services has already given an undertaking that, subject to the availability of resources, invalidity benefit will be fully restored once it is brought into taxation. He extended this assurance to cover unemployability supplement, which is the counterpart of invalidity benefit under the Industrial Injuries Scheme. These benefits differ from the other benefits affected by Clause 1 in that they are long-term maintenance benefits. Untaxed invalidity benefit is currently paid at the same rate as retirement pension which, as your Lordships know, is taxable. For many people who are chronically sick, invalidity benefit plays the same long-term role as retirement pension. Because of this, the Secretary of State was able to give the special assurance about restoring its value as well as restoring the value of its industrial injuries counterpart, when these benefits are brought into taxation. It has been suggested that this does not go far enough. In our view, the undertaking which my right honourable friend the Secretary of State has given is as clear and as firm as any responsible Minister could make in the present economic circumstances. For these reasons, I hope that your Lordships will not approve this amendment.


I should like to return to the point of economics. It is unnecessary to labour the point which so many noble Lords have rightly made about the poverty and the sheer hardship which will be imposed by various parts of the Bill. However, a few years ago I did a piece of research into the tax position of people in a lower income group. It became apparent, even after quite amateur research, that in many cases it cost far more to collect the tax than the tax collected. It seems to me that this is a clear case where we shall bring people on invalidity long-term benefits into the system and take tax from them.

The noble Lord, Lord Drumalbyn, asked about the poverty line. That is not very difficult to determine. Those who are on fixed benefits have to shop in the same markets as those of us who are lucky enough to earn money which is subject to an up-rating, a cost of living bonus. If the invalidity long-term pension or benefit were to be subject eventually to tax, even the noble and learned Lord the Minister who has put forward the point of view of the Government would find it very interesting to discover whether it is worth while—if the whole object of the exercise is to save money, as we understand that it is. We presume that it is not to punish the invalidity benefit recipients, because they are unlucky enough to have to collect it.

May I therefore quite seriously suggest in relation to the amendment of the noble Lord, Lord Banks, that there is this other aspect; namely, whether it is really an economic proposition to collect tax from those you are not taxing already.

Equally, the poverty line can be very easily determined. These people will most certainly go below the poverty line and will then come on to supplementary benefit. Thus there will be no saving; it will be simply a question of handing back money and having to employ far more officers of government in order to carry out this exercise.


I will not weary your Lordships by going again into general matters, but so far as the cost of taxation, which I think is the main new point which the noble Baroness has raised, is concerned, this is the point which the Government are making. This is the reason why it will take some time to introduce the scheme. The Government hope that their proposals will be reasonably cheap and economic to apply to the benefits in question. That is the reason why we cannot bring in the system now and why we shall have to wait until at least 1982 before it applies.


Do we understand that if it is found to be uneconomic the Government will not bring it in?


I think that noble Lords could rely on the Government not to tax for taxation's sake. In other words, unless there is a reasonable yield, having regard to its cost, the Government would not be inclined to bring it in. It is fairly plain, as the noble Baroness said, that there is no intention of having a tax system simply for the purpose of punishing people. The tax system is designed to produce revenue for the State. It is only if these changes would produce a net revenue for the State that there would be any question of bringing them in.


I must confess that I find the reply of the noble and learned Lord very disappointing. If the Government could have brought these benefits into tax overnight, presumably they would have done so. If that had been done, then they would have become immediately subject to tax. And in two or three years' time the benefits would have been uprated in the interim in line with prices and then they would also have been liable to tax. The Government would not have been afraid to accept that commitment. We are asking them to accept precisely the same commitment in this amendment, yet they now say that because they are

going to have abatement for one or two years in the interim they cannot accept a commitment which they would have been quite happy to take in the normal course of events. That seems to me to be a nonsense. I feel that this is an important point of principle, and an important amendment, and that it should be pressed.


Another point—and I should like an answer to it—is this: how difficult will this be for people who, for the first time in many cases, will be taxed? They will face the difficulty of having to fill up a form. If I may give a personal instance—I happen to be able to wade through them—I wrote a letter of 10 pages and a three-year analysis of tiny bits of income. But 90 per cent. of these people are not able to shuffle forms. They will be left to drift, and some of them will be in an age group where it is difficult to get help. I believe that it will put a greater burden on the people who collect the tax than we should put upon them for the paucity of the sum which will be collected.

5.26 p.m.

On Question, Whether the said amendment (No. 4) shall be agreed to?

Their Lordships divided: Contents, 77; Not-Contents, 82.

Amherst, E. Greenwood of Rossendale, L. Peart, L.
Ardwick, L. Hale, L. Phillips, B.
Aylestone, L. Hampton, L. [Teller.] Pitt of Hampstead, L.
Bacon, B. Hanworth, V. Plant, L.
Balogh, L. Hatch of Lusby, L. Ritchie-Calder, L.
Banks, L. Henderson, L. Ross of Marnock, L.
Beswick, L. Houghton of Sowerby, L. Sainsbury, L.
Birk, B. Howie of Troon, L. Seear, B.
Blease, L. Ilchester, E. Segal, L.
Blyton, L. Ingleby, V. Shinwell, L.
Brockway, L. Jacques, L. Stamp, L.
Burton of Coventry, B. Kilmarnock, L. Stewart of Alvechurch, B.
Byers, L. Leatherland, L. Stewart of Fulham, L.
Cledwyn of Penrhos, L. Lee of Newton, L. Stone, L.
Collison, L. Listowel, E. Taylor f Mansfield, L.
David, B. Llewelyn-Davies of Hastoe, B. Underhill, L.
Davies of Leek, L. Lloyd of Kilgerran, L. Wallace of Coslany, L.
Davies of Penrhys, L. Longford, E. Wells-Pestell, L.
Denington, B. Lovell-Davis, L. Whaddon, L.
Donaldson of Kingsbridge, L. Mackie of Benshie, L. Wigoder, L. [Teller.]
Elwyn-Jones, L. Maelor, L. Wilson of Radcliffe, L.
Gaitskell, B. Meston, L. Winstanley, L.
George-Brown, L. Northfield, L. Winterbottom, L.
Gordon-Walker, L. Ogmore, L. Wootton of Abinger, B.
Goronwy-Roberts, L. Oram, L. Wynne-Jones, L.
Gosford, E. Pargiter, L.
Ailesbury, M. Gibson-Watt, L. Murton of Lindisfarne, L.
Airey of Abingdon, B. Glenkinglas, L. Norfolk, D.
Alexander of Tunis, E. Godber of Willington, L. Northchurch, B.
Alport, L. Gowrie, E. Nugent of Guildford, L.
Ampthill, L. Gridley, L. Orkney, E.
Avon, E. Hailsham of Saint Marylebone, L. (L. Chancellor.) Orr-Ewing, L.
Bellwin, L. Penrhyn, L.
Belstead, L. Hatherton, L. Reigate, L.
Bessborouth, E. Hawke, L. Renton, L.
Caccia, L. Henley, L. Rochdale, V.
Campbell of Croy, L. Hives, L. Romney, E.
Cockfield, L. Holderness, L. St. Aldwyn, E.
Cottesloe, L. Home of the Hirsel, L. Sandys, L. [Teller.]
Craigavon, V. Hood, V. Selkirk, E.
Cullen of Ashbourne, L. Hylton-Foster, B. Sharples, B.
Davidson, V. Kimberley, E. Soames, L. (L. President.)
Denham, L. [Teller.] Lauderdale, E. Strathclyde, L.
Drumalbyn, L. Long, V. Strathcona and Mount Royal, L.
Dundee, E. Lucas of Chilworth, L. Teviot, L.
Ellenborough, L. Luke, L. Trefgarne, L.
Emmet of Amberley, B. Lyell, L. Trenchard,V.
Exeter, M. Mackay of Clashfern, L. Trumpington, B.
Ferrers, E. Macleod of Borve, B. Vickers, B.
Forester, L. Malmesbury, E. Wakefield of Kendal, L.
Fortescue, E. Margadale, L. Ward of Witley, V.
Fraser of Kilmorack, L. Marley, L. Westbury, L.
Gainford, L. Massereene and Ferrard, V. Young, B.
Geoffrey-Lloyd, L. Mowbray and Stourton, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.34 p.m.

Lord WELLS-PESTELL moved Amendment No. 5: Page 1, leave out lines 16 to 18.

The noble Lord said: This amendment would exempt the basic rates of unemployment benefit, sickness benefit and maternity allowance from the 5 per cent. cuts which the Government propose to make this year and the similar cuts which they are seeking power to make in each of the next two years. The Government seek to justify these cuts on the grounds that the benefits ought to be taxed. There is indeed a reasonable case for taxing these benefits if it can be done without undue administrative cost and complexity. If a Labour Government had proposed to tax them, however, they would certainly have given very serious consideration to the question whether the benefits themselves ought to be increased at the same time. They have been allowed to fall far below the long-term national insurance benefits in recent years. If they are to be taxed in the same way as the long-term benefits there is obviously a case for reducing the difference between the benefit rates. But that is not the Government's intention, as I understand it. On the contrary, they propose to reduce the benefits

payable for unemployment, short-term sickness and maternity still further by abolishing the earnings-related supplement.

However strong the arguments for taxing the benefits may be, in my view they cannot justify what the Government are doing in Clause 1. The proposed cuts are arbitrary and, I think, indiscriminate. They will fall equally on those whose incomes are above the tax thresholds and those whose incomes are below them. Families with children will be hit particularly hard because, in addition to the 5 per cent. cuts in the adult benefit rates, they will also suffer from the grossly inequitable way in which the value of the additions for children is being cut this November.

The Government—and I do not say this unkindly—should be honest and admit that what they are doing has nothing whatever to do with taxation. It is quite simply a deliberate decision to cut back the standard of living of the unemployed and the sick. One result of these cuts will be a big increase in the number of people forced to claim means-tested supplementary benefit. We are told that there will be about 110,000 more supplementary benefit claimants as a result of this. Ministers have claimed that because the supplementary benefit rates will not be subject to the 5 per cent. cuts the poorest will be protected. But the estimate of 110,000 is based on the assumption that one in four of those becoming entitled to supplementary benefit will not claim it. This was the point that I tried to make on a previous amendment when I said that some 30,000—and I was quite wrong about that; I suppose it is really between 30,000 and 40,000 people and their dependants—will be affected. Perhaps 100,000 people in all will not be protected and their income will fall below the supplementary benefits safety net.

This is an argument which really stands up, and I do not think it can be refuted. Any argument can be refuted on the basis, "We have got to cut", and that seems to be the only answer that one gets today, as happened on the Social Security Bill, when the attitude was, "We are in a deuce of a state, we have to save money and it must go right across the board". As I have said two or three times already, we accept that there is a need to save money: what we are saying is that the poorest section of the community must be protected.

When the noble Baroness, Lady Young, was replying to me on the first amendment, she said, "We are doing this because the supplementary benefit rate will not be subject to the 5 per cent." As I said, one has to recognise that there will be between 35,000 and 40,000 people and their dependants—possibly 100,000 in all—who will not be protected and whose income will fall below the supplementary benefit net. I hope your Lordships will feel that this is a reasonable amendment. I think it is, and I hope that your Lordships will support it. I beg to move.


The argument that the noble Lord has put forward is in some respects a cogent one, but it is not a new one. We have all been faced—those who have had to deal with these things—with the problem that some people who are entitled to benefits do not take them up. I do not know whether my noble friend will be able to deal with that point: I hope she will. But it does not seem to me that that in itself would be a full justification for excluding the requirement to reduce the benefits for these groups, the sickness benefit, the unemployment benefit and so on, by 5 per cent.

One has to remember that in principle it must be right on a system of this kind —and one has to remember the changes in the system that have taken place over the years—to subject this kind of benefit to tax in the same way as any other form of income. Virtually any other form of income is subject to tax if indeed it falls within the taxable area. The noble Lord is perhaps right in drawing attention to the problem here, and I would urge the Government to take every possible step to see that those people who do fall below the supplementary benefit level are enabled, perhaps better than they are at the present time, to claim. There is nothing to prevent their claiming. The question is what can be done to help them.

Baroness YOUNG

When savings in social security expenditure have to be made, it seems right that part of those savings should fall on those benefits which ought to be taxable but which in fact are not. The benefits which it is generally agreed should be taxable are the benefits which replace earnings. Unemployment benefit, sickness benefit and maternity allowance all fall into this category, and therefore they should be included in the abatement proposals in Clause 1. The clause as a whole is designed to save around £130 million net in a full year.

I would assume that it is not intended by the noble Lord, Lord Wells-Pestell, or his noble friends who support the amendment, that the personal benefits with which the amendment specifically deals should be protected, while injury benefit—which corresponds to sickness benefit—and adult dependency increases payable with these benefits, should be abated. I will, therefore, refer in passing to these other issues.

It has been suggested that by abating maternity allowance this Government are adding to the difficulties faced by expectant mothers and the risks to the unborn child. However, we are confident that this proposal will not have the serious effect that some have predicted. There are a number of reasons for this. Maternity allowance is paid only to those women who have a recent history of employment. Many of them will receive in addition maternity pay under the provisions of the Employment Protection Act. Most will have an income above the tax threshold during the year in which maternity allowance is paid. The £5 million savings from abatement of the increase in this allowance have to be considered, and I think can be defended against this background.

I should also like to remind your Lordships that this Government intend to introduce two significant measures which will help expectant mothers. The first is that we have agreed that the maternity grant, which is intended as a contribution to the expenses of having a baby, and is paid to the great majority of mothers, will become non-contributory from 1982, and so benefit some vulnerable women who are at present excluded, particularly the young mothers. The second is the proposal to allow employed women paid leave to attend prenatal clinics, which will give them the same opportunity to get a check-up and treatment as women who do not go out to work.

Unemployment benefit and sickness benefit are short-term benefits designed to replace earnings during breaks in employment. Most claims for these benefits last only a few weeks. The majority of beneficiaries will, therefore, have an income from earnings as well as from benefits during the tax year in which the benefit is paid. At present only the earnings are liable for tax. It is clear that the income from sickness or unemployment benefits should also be brought into taxation. I think there is no disagreement about that principle between us. For reasons which we have already explained, this cannot be done before April 1982, and these benefits are, as an interim measure, being made subject to the 5 per cent. abatement. This will yield important savings: £75 million gross in a full year for these benefits as a whole. Given that these short-term earnings replacement benefits are not yet taxable but ought to be, and taking account of the other factors that I have mentioned, I believe that the Government are justified in seeking a contribution from these benefits towards the overall savings that must be made.

I have been asked to deal with an important point; it was one that was raised by my noble friend Lord Drumalbyn about what will happen to those who will fall below the supplementary benefit line as a result of the provisions in Clause 1. Those "who would not be protected"—that is to say, people who come below the supplementary benefit level—would be protected because, of course, they would become eligible for supplementary benefit. They must, of course claim supplementary benefit. I should like to put on record again that this Government, like their predecessors, are most anxious that people should claim supplementary benefit where they are entitled to. There is a range of means to encourage them to take up supplementary benefit and these would be used, as they have been in the past, to encourage people to do so. I hope that that goes some way to satisfy the point raised by my noble friend Lord Drumalbyn on that matter.

If this amendment before the Committee were carried it would be impossible to justify the abatement of industrial injuries benefit, which is the only short-term earnings replacement benefit not covered by this amendment, and which, paid at a higher rate, corresponds to sickness benefit. Nor, I think, would it be envisaged that abatement should apply to the increases for adult dependants paid with these benefits. The total savings lost would be about £85 million gross. For reasons which we have already gone into in Committee and at Second Reading, this would be unacceptable to the Government, as it represents a very large part of the savings this Bill is designed to achieve. I hope, therefore, that the Committee will not support the amendment.


I have said before that I do not think there is anything between us and the Government on the question of taxation of benefits. Many of us have held that view for some considerable time. But I think it raises a very real moral question, if not a legal question, as to whether a Government have the right to cut benefits which under the Act should be increased year by year according to the level of prices. This is what will happen this coming November, with the exception of certain benefits. I have pointed out to your Lordships that we are dealing with insurance benefits, benefits that people have paid for as a result of their national weekly insurance contributions. If the Government cannot see their way clear to tax benefits for another two years, then in my submission they ought not to impose cuts of the nature and in the areas in which they are doing it.

I think I took down correctly what the noble Baroness said: I hope she will correct me if I am wrong. She said that unemployment and sickness benefits are designed to replace earnings. They never were designed to replace earnings. Unemployment benefit and sickness benefit were never equal to a persons' earnings, or if they were it was in very few cases. So that is not the intention. The benefit is designed to help people who have the misfortune to be unemployed or sick, and merely repeat the argument of my noble friend Lord Banks when he says that if there is going to be a delay in bringing them into taxation then one ought to allow the benefits to continue at their proper level, in this case 16½ per cent. and not 11 per cent.

Baroness YOUNG

Before the noble Lord, Lord Wells-Pestell, sits down, may I clear up one point. He asked if I had said that unemployment benefit, sickness benefit and maternity allowances were all designed to replace earnings, and I said the answer was, yes. The fact is that these are short-term benefits and they come to people who for one reason or another, either because of short-term unemployment or sickness or, in the case of a woman, because she is having a baby, do not have the earnings. They may not fully replace the earnings, but they do replace earnings. They are, therefore, part of an income and it is expected in every case that the person who has these particular benefits will go back into work again and will pick up his salary or wage or whatever it may be. I think, therefore, it is perfectly correct to describe them as replacing earnings.


I should like to ask the noble Baroness whether there is any precedent for this procedure. The Government are proposing to impose a tax on certain people who have been exempt from tax. I do not know whether it is in one year's time or two years' time.

Baroness YOUNG

We shall be able to bring these benefits into taxation in 1982; that is to say, in two years' time.


It is the year beginning 1982; that is about two years' time from now. In the mean- time the Government say, "We will cut down the real income that we are paying you, which we previously promised to keep up at its real value, pending our ability to put the tax on you". Is there any precedent whatever for anticipating a tax in this way by causing the persons who are to be subject to it in two years' time to reduce their incomes two years ahead of time? This amplifies the point I put rather quickly to the noble Baroness in my interjection on a previous amendment.

I do not think there is any precedent at all for it and I consider it is monstrously unjust. Taxpayers who are in arrears are charged interest. It is true that with most of these benefits the people concerned will be on PAYE and this point may not arise, but the principle is if one is in arrears with one's tax one is charged interest. The Government are now imposing upon them a negative interest by charging them, so to speak, an interest on tax they will be liable to pay in two years' time. I regard it as perfectly monstrous from every moral and ethical point of view.

Baroness YOUNG

I think the noble Baroness, Lady Wootton, would agree with me that her party thinks in principle that these benefits ought to be taxed. Enough of her friends in another place have gone on record as saying that as a principle it is desirable that the benefits should be taxed, because the tax system should adjust for those who have the benefit and some other form of income and those who simply have the benefit, and so on, so that the system could be seen to be fair.

The noble Baroness asked me if there was a precedent for this. Subject to any information that I may have, so far as I know there is not a precedent for it. But the truth of the matter is that we are in an unprecedented situation in this country. We believe that we are in a very serious economic position, and if anybody thinks to the contrary they cannot really have studied the situation as thoroughly as they should have done. We are, therefore, looking at a whole range of issues. I hope I said enough in my reply on the first amendment to indicate that my right honourable friend the Secretary of State had looked at the whole of the social security budget to see where economies might be made out of the £20,000 million that it costs, and made them in areas which we accept are not easy but which we believe will be less damaging than others.

In this area, where one has people who could perfectly well be poor but be retirement pensioners who are paying tax now, we feel we should try to do something, as it were, to make a fairer distribution between those who are on injury benefits or invalidity benefits in this particular case who would have had the full up-rating but would not have been taxed. Therefore, we are assuming a 5 per cent. less up-rating. There is a rough justice about it; I said so at Second Reading and my friends in another place have said so. We accept that there will be some hard cases; it is not perfect. But my right honourable friend the Secretary of State has said on invalidity benefit that when people are brought into taxation in 1982, as resources permit they will be brought up to the level of retirement pensioners and they will have this leeway made up.


I have served for 44 years in the magistrates' court and I have heard every excuse one can think of for criminal actions. But I

never thought to hear in this Committee an action which is not criminal, but which I think is profoundly immoral, justified by the fact that the Government are in an unprecedented situation. Does an unprecedented situation relieve them from ordinary common moral obligations?

Baroness YOUNG

I am very glad the noble Baroness, Lady Wootton, prefaced her remarks by saying that she had been a magistrate for 44 years. May I make it quite clear that there is nothing illegal in this? We may disagree as to whether or not this is something we should have done. Her Government found themselves faced by very difficult issues and I am quite certain that many of her noble friends and her friends in another place thought it immoral when they had to make very substantial cuts in Government expenditure in reply to the International Monetary Fund. We did not go around saying to them at that stage that they were acting immorally. They were faced with a difficult situation which they tried to meet. We are doing the same.

5.56 p.m.

Their Lordships divided: Contents, 63; Not-Contents, 90.

Amherst, E. Goronwy-Roberts, L. Peart, L.
Ardwick, L. Gosford, E. Ritchie-Calder, L.
Bacon, B. Hale, L. Ross of Marnock, L.
Banks, L. Hall, V. Shinwell, L.
Beswick, L. Hampton, L. Stewart of Alvechurch, B.
Birk, B. Hanworth, V. Stewart of Fulham, L.
Blease, L. [Teller.] Hatch of Lusby, L. Stone, L.
Brooks of Tremorfa, L. Houghton of Sowerby, L. Strabolgi, L.
Burton of Coventry, B. Ingleby, V. Strauss, L.
Byers, L. Jacques, L. Taylor of Mansfield, L.
Chitnis, L. Kilmarnock, L. Underhill, L.
Cledwyn of Penrhos, L. Leatherland, L. Wallace of Coslany, L. [Teller.]
Collison, L. Lee of Newton, L. Wells-Pestell, L.
David, B. Llewelyn-Davies of Hastoe, B. Whaddon, L.
Davies of Leek, L. Longford, E. White, B.
Davies of Penrhys, L. Lovell-Davis, L. Wigoder, L.
Denington, B. Mackie of Benshie, L. Wilson of Kadcliffe, L.
Donaldson of Kingsbridge, L. Maelor, L. Winstanley, L.
Elwyn-Jones, L. Northfield, L. Winterbottom, L.
Gaitskell, B. Ogmore, L. Wootton of Abinger, B.
George-Brown, L. Oram, L. Wynne-Jones, L.
Ailesbury, M. Allen of Abbeydale, L. Avon, E.
Airey of Abingdon, B. Alport, L. Bellwin, L.
Alexander of Tunis, E. Ampthill, L. Belstead, L.
Bessborough, E. Hatherton, L. Orkney, E.
Caccia, L. Hawke, L. Orr-Ewing, L.
Cockfield, L. Henley, L. Penrhyn, L.
Cottesloe, L. Hives, L. Rawlinson of Ewell, L.
Craigavon, V. Holderness, L. Reigate, L.
Cullen of Ashbourne, L. Hood, V. Renton, L.
Davidson, V. Hornsby-Smith, B. Rochdale, V.
Denham, L. [Teller.] Hylton-Foster, B. Romney, E.
Drumalbyn, L. Kimberley, E. St. Aldwyn, E.
Dundee, E. Lauderdale, E. Sandford, L.
Ellenborough, L. Long, V. Sandys, L. [Teller.]
Elliot of Harwood, B. Lucas of Chilworth, L. Sharples, B.
Emmet of Amberley, B. Luke, L. Soames, L. (L. President.)
Exter, M. Lyell, L. Stamp, L.
Ferrers, E. Mackay of Clashfern, L. Strathclyde, L.
Forester, L. Macleod of Borve, B. Strathcona and Mount Royal, L.
Fortescue, E. Malmesbury, E. Sudeley, L.
Fraser of Kilmorack, L. Mancroft, L. Teviot, L.
Gainford, L. Margadale, L. Trefgarne, L.
Gibson-Watt, L. Marley, L. Trenchard, V.
Glenkinglas, L. Massereene and Ferrard, V. Trumpington, B.
Godber of Willington, L. Monson, L. Vivian, L.
Gowrie, E. Mottistone, L. Wakefield of Kendal, L.
Gridley, L. Mowbray and Stourton, L. Ward of Witley, V.
Hailsham of Saint Marylebone, L. (L. Chancellor.) Murton of Lindisfarne, L. Westbury, L.
Norfolk, D. Young, B.
Halsbury, E. Northchurch, B.
Harmar-Nicholls, L. Nugent of Guildford, L.

Resolved in the negative, and amendment disagreed to accordingly.

6.5 p.m.


The next amendment is Amendment No. 6. If this amendment is agreed to I shall not be able to call Amendments Nos. 7 or 8.

Lord WELLS-PESTELL moved Amendment No. 6: Page 1, leave out lines 19 to 22.

The noble Lord said: I beg to move Amendment No. 6. This amendment would exempt the adult dependency additions to unemployment benefit, sickness benefit, invalidity pension and maternity allowance from the proposed 5 per cent. cuts. In my view, precisely the same arguments apply to this amendment as to the amendment to leave out lines 16 to 18 which I moved a short time ago. However, there is an additional argument which has to do with the basis on which these additions would, in due course, be brought into tax.

In the vast majority of cases adult dependency additions are paid to married men in respect of their wives. Many women nowadays object to the term "dependency" and it is probably time that we found a much more acceptable term. For practical purposes, however, the test of entitlement to the addition to benefit for a claimant's wife is simply whether her earnings for the particular week are more than a prescribed figure. Perhaps I may give an example. If a man falls sick and his wife is in full-time or even half-time work, he will receive sickness benefit for himself with additions for his children, but not for his wife. If, after a few weeks, she stops work, he will be able to claim an addition to his sickness benefit for her. Although that addition is payable to the man and not to his wife, it would seem logical that, if and when the benefit is taxed, the wife's addition should be treated for tax purposes in the same way as her earnings. I hope that I have made that point clear. In other words, her personal allowance should be set against it. If this were done it is likely that the addition would actually be taxed in only a small minority of cases.

To apply the 5 per cent. cuts to the adult dependency additions on the pretext that they ought to be taxed is, therefore, singularly unfair and ought to be strongly opposed by anybody concerned with the rights of married women and by anybody who feels that they should be treated for tax purposes quite separately. I believe that that is right. I beg to move.

Baroness YOUNG

The effect of these amendments would be that the adult dependency increases would go up by 5 per cent. more than the personal benefit with which they are paid. The effect of that would be to leave the Secretary of State with a duty to increase the adult dependency additions paid with unemployment benefit, sickness benefit, maternity allowance and invalidity pension by the full amount needed for price protection. That would mean, of course, 16.5 per cent. as opposed to the 11.5 per cent. which we have proposed under the clause. The dependency addition payable with invalidity pension would then become £16.30 a week—that is the same as the retirement pension addition—instead of the proposed rate of £15.60 a week. For the other benefits the addition would be £13.35 a week rather than the proposed rate of £12.75 a week.

Most of these additions are being paid in respect of a dependent wife. Together with the personal benefit with which they are paid they provide, as it were, a "married" rate of benefit. One of the difficulties is that if the amendment were to be accepted, the addition would become a larger proportion of the total benefit in payment. There would, in effect, be a shift in resources in favour of a married couple as opposed to a single person. This, in fact, would disturb the relativities that have been established between a single person and a married couple in this particular area.

Under various earnings rules an adult dependency addition can still be paid even though the dependant has earnings. In the case of unemployment benefit, for example, a dependency addition may be paid unless earnings—that is earnings net of expenses—exceed the dependency increase; in the case of invalidity pension unless earnings exceed £45 a week. This amendment seems particularly inappropriate in cases like this where the dependant has earnings which are already disregarded. Claimants with adult dependants who have no earnings are, of course, protected where necessary by the availability of supplementary allowance which will remain fully price-protected.

It may be helpful to the Committee to know that although we speak of "invalidity benefit", it is, in fact, a generic term which has, as it were, five parts to it. There is the invalidity pension, where the pension will be up-rated by the 11½ per cent. and not the 16½ per cent.; the invalidity allowance which, again, will be up-rated by 11½ per cent. rather than the 16½ per cent.; and the dependent allowance addition, usually for a wife, which again would be up-rated by the 11½ per cent. But, of course, the children's benefits remain unaffected in all this.

The noble Lord, Lord Wells-Pestell, asked me a quite specific point about the taxation of a wife's income. This is a matter to which I can give only a short answer at the present time. As I understand it, the benefit that is paid is regarded as the husband's money and not as the wife's money. In those circumstances, it is likely to be taxed as his benefit and his income. If there is anything further that, on reading Hansard, I should add to that, I shall, of course, write to the noble Lord, Lord Wells-Pestell. I hope that I have said enough to indicate that, once again, this is not an amendment which the Government would feel able to accept. I hope that I have explained the circumstances, that if it were to be accepted it would, in fact, affect this relationship between the benefits paid to married couples and those paid to single people.


I wonder whether the noble Baroness would allow me to set an example of flexibility and say that, having listened to what she has had to say, I acknowledge that she has raised one matter of which I had not thought. Therefore, I should like to read what she has said in Hansard tomorrow and discuss it with my colleagues. If it is necessary to come back to it, we have another stage which will enable me to do so. If we are satisfied with it, then, of course, we shall not pursue the matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.15 p.m.

Lord BANKS moved Amendment No. 7: Page 1, line 19, leave out ("2").

The noble Lord said: I should like to move Amendment No. 7 and, with the leave of the Committee, to speak to Amendments Nos. 8, 9, 10 ,11, 12, 13, 14 and 15. All these amendments seek to prevent the abatement of the invalidity pension, the invalidity allowance and the invalidity pension's adult dependant's allowance, and also to prevent similar abatements in respect of the unemployability supplement of the industrial injuries scheme.

I made it clear on an earlier amendment that we on these Benches are against the abatement generally, but, if it is to go through, we believe that there is a very strong case for exempting invalidity benefit in particular and disabled people generally. After all, invalidity benefit has always been treated as a long-term benefit. The others are short-term. Furthermore, invalidity benefit has already been subject to one cut as a result of the No. 1 Bill. Invalidity benefit in future will be increased in line with prices only, and not in line with prices or earnings, whichever is the higher.

Other long-term benefits for chronically sick and disabled people—war and industrial disablement pensions, the non-contributory invalidity pension and the housewife's non-contributory invalidity pension—are being increased by 16½ per cent., not 11½ per cent. We must, of course, remember that in practice inflation may well he much higher than 16½ per cent.

The noble Baroness has just described how invalidity benefit is composed. There are two principal parts to it. First, invalidity pension, which is paid to those who pay national insurance contributions, who are under retirement age and who are chronically sick or disabled. Hitherto this invalidity pension has been paid at the same rate as the retirement pension; that is to say, £23.30 for the single person and £27.30 for the married couple at the present time. The 5 per cent. abatement will mean a drop in real value of £1.15 per week or £60 per annum for the single person, and £1.85 per week or £96 per annum for the married couple.

Secondly, there is the invalidity allowance which is paid in addition to those who first become unable to work more than five years before pension age. If they first become unable to work under the age of 40, that allowance is £4.90; if they become unable to work between the ages of 40 and 50 it is £3.10, and between the ages of 50 and 60 for men and 50 and 55 for women it is £1.55. This benefit continues to be paid when disabled people reach retirement age and switch from the invalidity pension to retirement pension. The present rates of invalidity allowance are the same whether the individual is on invalidity pension or retirement pension.

However, as a result of this Bill, the highest rate of invalidity allowance will increase by 80p. per week, which is by 16½ per cent. for a retirement pensioner, but only by 55p. per week, or 11½ per cent. for an invalidity pensioner. There will be a similar difference in the other rate of invalidity allowance. At the highest rate of invalidity allowance the claimant will lose another £13 in addition to what is lost on the invalidity pension, or £109 per annum in all. At present the invalidity pensioner receives an addition of £7.10 for each dependent child. This is to go up by only 5½ per cent.—not 16½ per cent. —owing to a new way of calculating, and the amendment which we are now discussing will not affect that. But it is a factor to be taken into account when considering the position of the invalidity pensioner.

The change in the method of calculation has meant a loss of 70p for each child—70p. that would have been obtained under the old method of calculation. In addition, the invalidity pensioner—and this is another factor which must be taken into account—is seldom eligible for supplementary benefit. The invalidity pension is lower than the long-term supplementary benefit rate, but it is higher than the short-term supplementary benefit rate, so that the invalidity pensioner cannot claim supplementary benefit—he cannot qualify for it—because he cannot qualify for the lower rate which is paid for the first two years at the moment, although for the first year only after November. We know that the invalidity pension is not taxable and that it is intended to bring it into tax. We know that this is an interim measure, and we discussed on earlier amendments whether or not this is a fair measure. In my view it is decidedly unfair.

In the Second Reading debate, the noble Baroness, Lady Young, told us that 150,000 claimants would pay no tax at all, that 100,000 claimants would pay less than the abatement, and these would all be affected; a total of 250,000. On 21st May in another place the Secretary of State gave different figures, 250,000 and 150,000, making a total of 400,000. The noble Lord, Lord Underhill, has referred to this discrepancy already on an earlier amendment.

Baroness YOUNG

I am sorry to interrupt the noble Lord, Lord Banks, but I gave a reply to that. The figures I gave apply to those receiving invalidity benefit in the long-term. The figures that were given in another place apply to all those receiving invalidity benefit whether in the short or long term. Therefore, there is not a fundamental discrepancy; they are different sets of figures.


I am grateful to the noble Baroness for that explanation, and I am sorry if I missed that point when she replied to the noble Lord. At any rate it is a considerable number of people, whichever way we calculate it, who are affected and who get what the noble Baroness called "rough justice". I certainly think it is rough; I am not quite so sure about the justice. Well, I am sure that there is not really any justice in it. We know that there is a possibility that the value of the invalidity pension may be restored when it becomes liable to tax, but this is subject to the availability of resources and we cannot be certain that in fact that loss through the abatement during the interim period will ever be made good.

The amount of money saved by including the invalidity pension is £55 million a year. If we are short of £55 million a year, do we need to get it by cutting arbitrarily and unfairly the benefits of the sick and disabled in this way? I do not think that we do, and I beg to move.

6.22 p.m.

Viscount INGLEBY

I speak as a Cross-Bencher and not a member of any political party, and it seems to me that this 5 per cent. abatement is rough justice, as indeed the Minister in another place has admitted. It will hit some 400,000 severely disabled people whom it is not the Government's intention to hit, because they would not pay tax if these benefits were taxable as they will be in two years' time.

I quote from the Secretary of State in another place on 21st May 1980, at column 555, when he said: … of about 850,000 invalidity beneficiaries 250,000 people would not be liable to tax and about 150,000 people would be liable to pay less tax than would be yielded by the 5 per cent. abatement". So there are 400,000 severely disabled people who are going to be penalised, although it is not the Government's intention to do so.

The effect on an individual severely disabled single person is that he will have between £60 and £73 less to live on in the year from November 1980, and married couples will have from £96 to £109 less to live on in that year. This is very rough justice indeed. I know that the Minister is sympathetic on these points, and I hope that she will think again on this one, because if not I shall be forced to go into the Division Lobby in support of the noble Lord, Lord Banks.


I am grateful to the noble Viscount, Lord Ingleby, for his intervention because we have at least had the remarks of one person who knows what it is all about. I will not go into any great detail because the noble Lord, Lord Banks, has made his case, and I would not presume to encroach on the field of an acknowledged expert. I think that the noble Lord can be, and is, regarded in this House as an expert on this particular matter.

Let there be no misunderstanding—and I speak in a personal sense as well as a political sense in this case. These are vital amendments to those who can least afford reductions of income. We can argue about all the clauses of the Bill, but this particular subsection is vital. Those who are affected are affected three times over, because we must not forget the economies to be made by the local authorities in the social services. These economies will be applied in varying degree according to the council's intention to economise—and this is a matter of other argument—and will affect people in this category. For the long-term sick and disabled those cuts are a sufficient worry without any further cuts.

Do not forget, too, that many of these people have paid national insurance contributions for years, and now will lose the right of the earnings related supplement. Reference has already been made to the noble Baroness's winding-up remarks about "rough justice". She used the words twice during the Second Reading of this Bill in this House, and again today. I entirely agree with the noble Lord, Lord Banks; it is not just an element of rough justice, it is plain downright injustice.

On the Second Reading of the Bill, I appealed to the consciences of Members of your Lordships' House. Without any over-emphasis on this issue, I say that the moment of decision is now before you. I am not arguing whether economics are called for in public spending. We could argue until the cows come home which is right and which is wrong, but the issue we are dealing with now is definitely wrong. There is something brutal and wrong in placing burdens of this character on the long-term sick and disabled. If burdens have to be carried, then let the healthy, wealthy, and securely employed shoulder them. It is not a large amount to shoulder. Although I am "retired", I would be quite willing to pay a little more in tax if the Government would relent on this matter. I am sure that there is hardly a person in this House who would disagree. The sick and the disabled have enough burdens on their shoulders already due to their own disabilities, and the Government have already admitted that this is rough justice. I appeal to the Committee to let another place have another chance. There was no easement in another place when this was discussed. There were some members of the Government party who were definitely against this. Let the other place think again about this. We can do our duty. We are a free Chamber in the sense that we can reach decisions without the pressure of the party whips.

This is a case, above all, where not only conscience counts but where the question of party loyalty does not arise. We have to consider our obligations to our worse-off sections of society, most of them cheerful and willing to carry on as well as they possibly can, and they do not deserve this injustice. I appeal to the Committee. If the Minister can withdraw this paragraph I should be more than grateful. I do not want to force it to a Division, but I would support the noble Lord, Lord Banks, if he does. I hope that the Committee will realise its responsibilities tonight.

Baroness YOUNG

The noble Lord, Lord Banks, when introducing the amend- ment, said he was speaking at the same time to a number of others, and I hope the Committee will feel it appropriate if I speak to the central point of Amendment No. 7, which was the one supported by my noble friend Lord Ingleby, on invalidity benefits. The noble Lord, Lord Banks, explained the position clearly about invalidity pensioners and what the effect of the Bill would be. As I attempted to explain earlier, the invalidity benefit has five components, three of which are affected by the Bill. The child allowances and additions are not affected by it, nor are the long-term new pension proposals. It is therefore right that we should get clear what we are talking about in this connection.

My noble friend Lord Ingleby mentioned that 400,000 people would be affected and, although I do not wish in any way to make a debating point out of something of a very serious nature, the fact is that the 400,000 whom he maintains would be worse off as a result of the Bill include not only those long-term beneficiaries but those receiving benefit in the short-term for what may be a matter of as little as a week. The figures I gave on Second Reading are those for long-term beneficiaries and, as I have said—and the point has also been made by my right honourable friend the Secretary of State—there are those who would not be in tax if the benefit were taxed now, and will not in the future, and those for whom it will just break even, so there would be about 250,000 who, it could be said, would be worse off as a result of these proposals.

Neither I nor my colleagues would wish to go into this and other measures if we did not feel the economic situation was sufficiently serious, and we have said that this is rough justice, a remark which I stand by because there is rough justice about a great many of these benefits. There is, regrettably enough, a lot of rough justice about life itself and, as I have tried to show, if you are poor a retirement pensioner you get the retirement pension up-rated by 16½ per cent. but you would or could be subject to tax and you may, at the margin, be suffering. If you are getting invalidity pension, you will up till now always have got the same up-rating on retirement pension as everybody else, whether or not you really needed it and whether or not you should have paid tax. Some may have been better off and it is arguable—and noble Lords opposite might well argue that it is a sort of rough justice—that some have done better than they should and have done better than their equivalents who are getting a retirement pension.

I do not believe this is a debating point in the sense that I would wish to make it one and argue the case, because the case rests on the whole principle of saving Government money. But there is a measure of rough justice running through this which one must accept, and my party recognises that. Of course, as we go through, we would like to iron out all the anomalies, but unfortunately we cannot do so at this time. I wish, however, to take up a particular point made by the noble Lord, Lord Banks, about eligibility for supplementary benefit. I think I am right in saying that he said the invalidity pension fell between the short-term supplementary benefit rate and the long-term rate, and that invalidity pensioners therefore failed to qualify for supplementary benefit. They cannot in fact get the long-term rate of supplementary benefit payable after one year from this November, and there are two points I should make on that. One is that, as with housing costs and other extra needs, the invalidity pensioner may qualify for supplementary benefit. Secondly, this Government have done what their predecessor did not do; namely, they have enabled the non-contributory invalidity pensioner to get the long-term supplementary benefit rate by virtue of the time spent on the non-contributory invalidity pension. This is a small change but I believe it to be a valuable one.

As a party, we recognise the importance of invalidity pensions; after all, we introduced them in 1971. There is general agreement that they should be taxed, as with all other benefits, and I think I am right in remembering that the Labour Government after the war, in 1948, introduced taxation of all benefits. That was subsequently changed, but there is a measure of agreement about these matters. I remind the Committee once again what my right honourable friend the Secretary of State said about these benefits and repeat the assurance he has given to restore the rate of invalidity benefit when it is brought into taxation and to cover unemployability supplement as well—another point to which the noble Lord, Lord Banks, referred, but in a subsidiary way to his main argument about invalidity benefit.

Our main argument is about the interval between the position now, when the benefit is not being fully up-rated, and the time when it will be fully up-rated but will be taxed, and that is the particular difficulty which arises, a difficulty I have described as rough justice. I recognise that the Committee feels very strongly on this and I particularly recognise that my noble friend Lord Ingleby and his colleagues, who know a great deal about this subject—far more than I do—feel very strongly about it. I ask my noble friend to accept that we would not have considered these matters if we did not feel that the economic situation of the country was sufficiently serious to justify looking at all parts of Government expenditure for economies. We believe that the social security budget, one-quarter of all Government expenditure, must bear a part of this reduction, and that is why we are introducing the Bill. I hope very much that, with this explanation, the Committee will not accept the amendment or the series which has been linked with it, and will accept my assurance that it is something which the Government believe must be done. That is why we have introduced the Bill and why we cannot at this stage give in to the request to accept the amendment.


I am grateful to the noble Viscount, Lord Ingleby, and the noble Lord, Lord Wallace of Coslany, for their support of the amendment. I regret that the noble Baroness, Lady Young, has not found it possible to support this series of amendments, though I did not think she would because we are not really arguing in this Committee stage, as we so often are in Committee, about the merits of the proposals contained in the legislation. The noble Baroness agrees that the measures are not desirable in themselves and she said the Government would not be pursuing them but for the fact that they think the economic situation demands it. The difference between the two sides of the Committee on this matter is not a question of which is the best way of dealing with the problem of the disabled; it is a division as to whether it really is necessary, given the economic difficulties, to save £55 million from the benefits which are given to the disabled.

Earlier today and at some length on Second Reading we argued about that, and a very strong case was put forward to reject the economic argument which the Government adduced. It would not be appropriate on this amendment to launch into that again, and, since there is no division between us and the noble Baroness on the question of the merits of the proposals, which neither she nor we like, the only thing we can do is test the

opinion of the Committee to see whether it is the feeling of noble Lords that we must raise this £55 million by reducing the benefits which are paid to the disabled.

6.39 p.m.

On Question, Whether the said amendment (No. 7) shall be agreed to?

Their Lordships divided: Contents, 65; Not Contents, 83.

Amherst, E.[Teller.] Gladwyn, L. Ogmore, L.
Ardwick, L. Goronwy-Roberts, L. Oram, L.
Bacon, B. Hale, L. Peart, L.
Banks, L. Hatch of Lusby, L. Pitt of Hampstead, L.
Beswick, L. Houghton of Sowerby, L. Ritchie-Calder, L.
Birk, B. Hylton-Foster, B. Ross of Marnock, L.
Blease, L. [Teller.] Ingleby, V. Stamp, L.
Blyton, L. Jacques, L. Stewart of Alvechurch, B.
Boston of Faversham, L. Kilbracken, L. Stewart of Fulham, L.
Brooks of Tremorfa, L. Kilmarnock, L. Stone, L.
Burton of Coventry, B. Lee of Newton, L. Taylor of Mansfield, L.
Chitnis, L. Llewelyn-Davies of Hastoe, B. Underhill, L.
Cledwyn of Penrhys, L. Lloyd of Kilgerran, L. Wallace of Coslany, L.
Collison, L. Longford, E. Wedderburn of Charlton, L.
Craigavon, V. Lovell-Davis, L. Wells-Pestell, L.
Crowthcr-Hunt, L. Mackie of Benshie, L. Whaddon, L.
David, B. Maelor, L. White, B.
Davies of Leek, L. Milner of Leeds, L. Wilson of Radcliffe, L.
Davies of Penrhys, L. Mishcon, L. Winstanley, L.
Donaldson of Kingsbridge, L. Monson, L. Wootton of Abinger, B.
Elwyn-Jones, L. Noel-Baker, L. Wynne-Jones, L.
Gaitskell, B. Northfield, L.
Airey of Abingdon, B. Godber of Willington, L. Northchurch, B.
Alexander of Tunis, E. Gowrie, E. Nugent of Guildford, L.
Alport, L. Gridley, L. Orkney, E.
Ampthill, L. Hailsham of Saint Marylebone, L. (L. Chancellor.) Orr-Ewing, L.
Avon, E. Penrhyn, L.
Bellwin, L. Hatherton, L. Rawlinson of Ewell, L.
Belstead, L. Hawke, L. Reigate, L.
Bessborough, E. Henley, L. Renton, L.
Caccia, L. Hives, L. Rochdale, V.
Carrington, L. (A Principal Secretary of State.) Holderness, L. Romney, E.
Hood, V. St. Aldwyn, E.
Cockfleld, L. Hornsby-Smith, B. Sandys, L. [Teller]
Cottesloe, L. Killearn, L. Sharples, B.
Craigmyle, L. Kimberley, E. Soames, L. (L. President.)
Cullen of Ashbourne, L. Lauderdale, E. Spens, L.
Davidson, V. Long, V. Strathclyde, L.
Denham, L. [Teller.] Luke, L. Sudeley, L.
Drumalbyn, L. Lyell, L. Teviot, L.
Dudley, E. Mackay of Clashfern, L. Thorneycroft, L.
Dundee, E. Macleod of Borve, B. Trefgarne, L.
Ellenborough, L. Malmesbury, E. Trenchard, V.
Elliot of Harwood, B. Mancroft, L. Trumpington, B.
Exeter, M. Margadale, L. Vivian, L.
Ferrers, E. Marley, L. Wakefield of Kendal, L.
Forester, L. Massereene and Ferrard, V. Ward of Witley, V.
Fortescue, E. Mottistone, L. Westbury, L.
Fraser of Kilmorack, L. Mowbray and Stourton, L. Young, B.
Gibson-Watt, L. Murton of Lindisfarne, L.
Glenkinglas, L. Norfolk, D.

Resolved in the negative, and amendment disagreed to accordingly.

[Amendments Nos. 8 to 15 not moved.]

The DEPUTY CHAIRMAN of COMMITTEES (Baroness Wootton of Abinger)

I have to point out that if Amendment No. 16 is agreed to, I shall not be able to call Amendment No. 17.

6.48 p.m.

Lord WELLS-PESTELL moved amendment No. 16: Page 2, line 41, leave out subsection (4).

The noble Lord said: In moving this amendment I wish to refer also to Amendment No. 17, and to deal with both amendments in one speech. Amendment No. 16 would prevent the Government from making the 5 per cent. cuts in November 1981—that is in consequence of a review in the tax year 1980–81—and Amendment No. 17 would prevent them from making the cuts in November 1982. In our view the unfairness of the cuts would increase with each year that they were repeated.

If the Government were proposing to make an immediate cut of nearly 15 per cent. in the basic benefit rates, it would be most unlikely that even their own Back-Benchers would support them. To make the cut in three instalments does not make it any more defensible. No doubt the Minister will argue that the Government hope not to have to make any further cuts in 1981 and 1982, but the fact remains that they are seeking the power to make such cuts. In deciding whether they should be given that power we must consider what would be the implications if it were in fact used.

The precise effects cannot be calculated in advance because of the cumulative effect of the up-ratings in the next three years. The total reduction in the real value of the benefit would for this reason be somewhat less than 15 per cent., and perhaps I may assume that it would be around 14 per cent. For a married man drawing a sickness benefit, a 14 per cent. cut in the present value of his benefit would mean a reduction of £4.20 per week. If he qualified for invalidity benefit after six months of sickness, a 14 per cent. cut in that benefit would mean a weekly reduction of up to £5.90, despite the fact that if the benefit were taxed he would probably not be liable for income tax in that year.

I have a shrewd suspicion that the Minister will argue that, for invalidity benefit at least, any unfairness will be only temporary because the Government have undertaken to make good the cuts when the benefit is brought into tax; but, as I understand it, that undertaking applies only to invalidity benefit, and it is qualified by the words "subject to the availability of resources". We do not know what improvements in the economy would be needed to convince the Treasury that those resources should be made available; and I do not know whether the noble Baroness the Minister can say what sort of convincing the Treasury would need.

If I may speak to Amendment No. 17, I can do so very briefly by saying that the case for the second of these amendments, which is to leave out paragraphs (b) and (c), is particularly strong. The Government hope to bring the benefits into tax as soon after April 1982 as possible. For some of the benefits, the intention seems to be that taxation would commence in April 1982. What justification can there be, then, for making a further 5 per cent. cut in the benefits in November 1982, after they have been brought into tax? This is how I see it.

At the very least we are entitled to, I was going to say, demand an absolute assurance that no such thing as that will in fact happen. But the proper course for the Government to take, I submit, would be for them to withdraw paragraphs (b) and (c) by accepting this amendment. If in 1982 they are still in office and wish to make further reductions in the living standards of the sick and the unemployed, there is nothing to prevent them coming forward then with new legislation; but I feel that the Government should pay regard to what I have said, not only in respect of the first amendment but particularly in respect of the second one because, as I say, my understanding is that there will be a 5 per cent. cut in the benefits in November 1982, after they have been brought into tax. Perhaps the noble Baroness the Minister can say something about that. I beg to move.

6.54 p.m.

Baroness YOUNG

Under Clause 1(4) the limited up-rating of short-term benefits, invalidity pension and their adult dependency increases may be extended by Affirmative Order to either or both of the 1981 and the 1982 up-ratings. The effect of Amendment No. 16, which the noble Lord, Lord Wells-Pestell, has just moved, would be to remove the whole of this power, while the effect of Amendment No. 17 would be to allow a limited up-rating to take place in 1981, but not in 1982.

Before going into the detailed arguments about this matter, the noble Lord asked me quite specifically whether I could say anything further about the proposals when invalidity pension is brought into tax. I must tell him now that I cannot go any further than the statements that I have made, and repeated, not only at Second Reading but in other debates in the course of the afternoon. However, I should like to say at once that I understand the concern expressed by noble Lords about the effect of repeating the 5 per cent. abatement in 1981 and/or in 1982.

I should make it clear that a number of organisations representing the people affected by this Bill have written short papers on the effect of Clause 1, and I have no doubt at all that many noble Lords will have seen some or all of these papers. Some of these documents include notes on the effect that repeated abatements would indeed have on the benefits concerned, and I should therefore like to make two points about these notes which I hope will be of some reassurance to noble Lords.

First, in order to make statements about the level of benefits in 1981 or in 1982 one has to make certain assumptions, one assumption—an important one—being about the future level of inflation. Any figure given on the future value of a particular benefit can therefore be only a hypothetical figure. Secondly—and I think this is most important—all the notes assume that the Government will limit the up-ratings in 1981 and 1982. But I should like to make it quite clear that the Government have taken no decisions upon whether the abatement will be repeated in 1981 or in 1982. They will consider the whole question in the light of the circumstances at the time. Social and economic considerations are very closely linked in this area; both will be very much in the mind of the Government when the decision comes to be made. I hope I have said enough to indicate that decisions of this kind were not lightly taken this year, and any decision in the future on what would in effect be a cumulative measure would have to be taken with at least as much care as this one has had over the last weeks.

The 5 per cent. abatement in 1980 is an important part of the Government's overall strategy to achieve savings in public expenditure. It is essential that the Government have the powers to put to Parliament through an Affirmative Order proposals for a future abatement, should the necessity arise. The amendments would remove that power, and I cannot advise noble Lords to accept this amendment. However, I will repeat the assurance that the points your Lordships have made will be very much in our mind, and that the seriousness of the issues, like the seriousness of our national difficulties, is not going to be minimised by Ministers when they take the decisions next year.


I should like to consider what the noble Baroness the Minister has said. Although she has made only a brief statement, it seemed to be to the point, and I should like to read Hansard tomorrow and reserve the right to come back, should it be necessary, at Report stage. Subject to the permission of your Lordships, I should like to withdraw Amendment No. 16.

Amendment, by leave, withdrawn.

Baroness YOUNG

I think that perhaps this would be a convenient moment to break this Committee stage for the dinner hour. I therefore beg to move that the House be now resumed.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

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