The Welfare State

HL Deb 24 November 1982 vol 436 cc893-906

2.58 p.m.

Lord Banks rose to call attention to the need to maintain in real terms the general level of benefits provided by the welfare state while reforming its structure, and to the economic feasibility of achieving this; and to move for Papers.

The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. The House will be aware that on these Benches we have been very critical of the cuts in welfare spending and particularly critical of the cuts in social security. Those cuts have cut £1.5 billion from the social security budget each year. Many noble Lords will have seen the figures given earlier this week in the Guardian and supplied by the Child Poverty Action Group. Those figures showed that, even allowing for the overestimate for inflation this year, almost every group of claimants is worse off than it would have been without the Government's cuts. Even where it can be shown that a benefit has increased in real value it has almost invariably—not invariably, but almost invariably—not increased as much as it would have done but for the Government's cuts. I do not propose to catalogue those cuts again this afternoon. We have had many debates about them in the past; we shall undoubtedly have more debates about them in the future.

I should like to try to look beyond the cuts to the arguments about spending on welfare which lie behind them. The Motion implies three things: first, that there is a need to maintain benefits in real terms; secondly, that there is a need to reform the structure of benefits; and, thirdly, that it is feasible to do both these things. This afternoon I am thinking of primarily social security, as social security accounts for 28 per cent. of total Government expenditure.

The Government case has been that we are spending too much money overall on everything that the Government have to spend money on; that we must, therefore, cut back; that too much has been spent on social security and we must cut back on that; and that in any case, if there are to be cuts, each branch of expenditure must take its share. I should like to begin by looking briefly at that argument that each section of the community must take its share.

The Liberal yellow book, Britain's Industrial Inquiry, published in 1928, had this sentence in it: The man who would curtail social expenditure is advocating a more unequal distribution of wealth".

The Liberal yellow book went on to say that that man must have his arguments scrutinised particularly carefully on that account. We on these Benches do not accept that, if there are to be cuts, the unemployed, the sick, the disabled and the elderly should share in them. So we have opposed the cuts and in doing so we have been conscious of the fact that the existing benefits are not over-generous.

A recent report entitled Despite the Welfare State 1982—a report of a big DHSS-sponsored research project—said this: It is impossible to resist a reiteration of the general conclusion from much of the work, that benefit rates, particularly of supplementary benefit and child benefit, are simply too low at present for some families to avoid real hardship and damaging consequences to the health and other life chances of their children.".

So we say that there is a need to maintain the real value of benefits and, indeed, to improve some benefits significantly.

There is a need, but is it feasible to maintain benefits? Do we, in fact, spend too much overall? In his mini-budget Statement a week or so ago, Sir Geoffrey Howe pointed out that next year public expenditure will take 44 per cent. of the gross domestic product and that that compared with 45 per cent. this year. It is true, of course, that that figure has gone up under the present Government, but it has not gone up to as high a point as the 46 per cent. at one time under the last Government.

During the last years of the last Government that figure declined, but under this Government it increased again. However, the fact remains—and this is the point that I want to drive home—that over the last seven years there has been no runaway increase in that percentage; in fact, there has been no overall increase at all. That percentage is lower in the United Kingdom than it is in any of the other member states of the European Community, at least according to the figures which I have, which, I should say, do not include Greece, which only recently joined the Community.

If we take 1974–75 as having an index figure of 100, our gross domestic product in this country rose to 110 in 1978–79 and has fallen back to 106. But, over the period of seven years at which I was looking, there has been an increase in the gross domestic product. According to the Economist of 18th September, the famous, or notorious, Think Tank paper says this: On present plans and assuming low annual economic growth, public spending will continue to gobble up at least its present 45 per cent. of gross domestic product for the foreseeable future.".

Provided that there is no decided actual decline in our real GDP, I see no reason why we cannot sustain that level of expenditure and allow for some modest increase in some benefits and some increase in cost for demographic reasons. I believe that, if we were to allow the percentage of gross domestic product to rise a few points, that would not be a disaster. Indeed, we might do it with advantage.

If that modest increase in expenditure on social security were part of a controlled and limited reflation of the economy, we should argue from these Benches that that reflation would lead to a further increase in growth, which would allow as required for some further expansion of the social security budget in real terms. The viability problem with regard to social security is not an immediate one, although of course increased unemployment is an additional burden. The real viability problem relates to the earnings-related pension and the problems with regard to it in the first two decades of the next century. But, as regards providing for the benefits that we want to pay to people in the years immediately ahead, I submit that there is not a viability problem.

If we look at the social security budget, of course, we see that over the past 11 years it has increased from 17 per cent. of the total to 28 per cent. of the total, and this gives rise to fears that there may be a continuation of this and that, if there is, it will be disastrous. I think that there are some mitigating factors. First, we must remember that in that period child benefit replaced family allowances and child tax allowances, and that, while child tax allowances do not show as Government expenditure, though they represent a loss of income to the Government, child benefit does count as Government expenditure.

Then there has been an increasing number of beneficiaries—more old people—during that period. That was known about in advance and has not taken us by surprise. There has also been an increase in the number of unemployed. I think it is fair to say that in part at least that is due to policies pursued by the Government. There has been some increase in the real value of long-term benefits. That was likely to occur so long as long-term benefits were increased in line with prices or earnings, whichever was the highest. The Government, of course, have put a stop to that and the link with earnings has been abandoned.

Then, the last Government introduced some new benefits which, of course, added to the expenditure, mobility allowance and non-contributory invalidity pension among them. We must also bear in mind that social security benefits make no claim on resources. They are a transfer of income; they are a means of redistribution of income. But, except from an administrative point of view, they do not make any demands on manpower and resources. Again, as I have already pointed out, the gross domestic product has increased in spite of a fallback in recent years, which it seems we have overcome, and there is a slight tendency to move upwards. If we again take 1975 as the basic year of 100, the GDP over the 11 years has increased from 93 per cent. to 106 per cent. So we would expect social security spending to increase as a percentage of the whole in those circumstances. If we look at the EEC as a whole, we see that our spending on what is called social protection, which includes social security, is, in fact, lower than that in all the other EEC countries except Ireland. Again I have not got the figures for Greece.

Those are eight mitigating factors which can reduce our nervousness, or panic, whichever it is, when we look at the increase which has taken place in social security benefits over the last 11 years. But I would add another one to it, and that is that approximately two-thirds of social security is made up of expenditure on contributory benefits, and those contributory benefits are largely financed by contributions from employers and employees. That provides a buoyant source of income.

It is not entirely clear how far national insurance contributions should be regarded as public expenditure. Think for a minute of the position with regard to motor insurance. The Government compel people to insure their motor cars and themselves when they are in them, rightly as I am sure we should all agree. The premiums from that come to somewhere round about £2,000 million a year. That is a Government compelled payment, but, on the other hand, it does not appear in Government expenditure at all. If the Government were to hand over, shall we say, to the Prudential the running of the national insurance fund and to say that contributions would be compelled on the same basis to the Prudential, the figures would not appear in Government expenditure at all, although everybody's position, if the Prudential ran it on similar lines to the Government, would be exactly the same. It would only be if there were a Government subsidy to the Prudential that that would appear in Government expenditure. It seems to me there is a case for saying that only the Treasury supplement to the national insurance fund is proper Government expenditure in the sense in which we normally think of it.

For all the reasons which I have been giving since I began to speak, we believe that we should maintain the benefits at their present level and increase them where we can and where it is necessary. We believe that we can do this—that we can maintain the benefits. But that is not to say, of course, that the present operation of the social security system is satisfactory. Far from it. There are serious defects in the present benefit system. First of all, it is incredibly complicated and complex in its structure. Benefits come from many sources: from national insurance, from supplementary benefit, from family income supplement, from child benefit, from housing benefit and from a further range of means-tested benefits.

Then there are problems of overlapping benefits, and there is the interaction of the tax and benefit systems which gives rise to anomalies. The poverty trap results from that interaction which I have just described, and from the degree of dependence on means-tested benefits. The extent of that dependence on supplementary benefit is alarming. For example, whereas supplementary benefit accounted for 46 per cent. of benefit expenditure on the unemployed in 1975–76, it is expected to reach 63 per cent. in the year 1983–84. Then, again, some benefits are clearly inadequate, as we have already seen.

There is a need for a thorough-going reform of the social security system, and we on these Benches believe that the reform of the tax system which is required is the introduction of a tax credit system. Under that system all allowances against income tax are turned into positive credits, as has already been done with child benefit which has replaced the income tax allowances. Then present social security benefits will be turned into additional credits, and we would tax all income from the first pound. For an individual we would add up all the credits; add up the tax too; if the credits exceed the tax pay out the difference, and if the tax exceeds the credit pay in the difference. We would put the credits, personal and additional, at levels sufficient to take the bulk of supplementary benefit.

In 1979 we worked out a scheme in some detail, which we costed. We came to the conclusion that this could be done with a standard rate of tax only slightly in excess of the current standard rate of tax and national insurance contributions. We were going to employees' national insurance contributions to combine the two. The impact of the credits on the tax would have meant that for most people their effective rate of tax, which is the important thing, would have been lower, but there would have been, under the scheme as we then had it, some slight increase in indirect taxation. We used this system, we adjusted this system, to concentrate help on particular sections by increasing the credits available in particular circumstances. We are now in the process of recosting that to take account of changes which have taken place in benefits and taxation since that was first introduced.

The advantages of a tax credit scheme, as we see them, are these. The tax credit scheme rationalises and unifies the tax and social security systems, brings them into one, and abolishes the concept of contributory benefits. It simplifies the system, replacing overlapping benefits by a few simple, straightforward credits which will be received as of right. It makes most of the present means-tested benefits unnecessary, and thereby abolishes the poverty trap. It restores the supplementary benefit scheme to its intended role of discretionary extra provision for a few special cases. It treats women and men on an equal basis as taxpayers, regardless of their marital or employment status. It can be used to secure a substantial redistribution of income, and in the example which we have presented we did have such a redistribution in favour of the elderly, of children of school age, and of those at present caught by the poverty trap.

In conclusion, I reiterate that there is a need to preserve the real value of benefits, to resist any further cuts, and to improve certain benefits. Secondly, there is a need to reform the whole structure of social security; and thirdly, it is perfectly feasible to achieve these important goals. My Lords, I beg to move for Papers.

3.18 p.m.

Lord Trefgarne

My Lords, in rising at this point in the list of speakers, I should like to offer my profound apologies to the noble Lord, Lord Cledwyn, for not having indicated more clearly my wish to speak at this juncture, and indeed to other noble Lords who have been thus displaced, and to apologise for not having made my intentions clearer. I am grateful to the noble Lord for giving way so readily.

My Lords, I welcome this opportunity to debate the future of the welfare state and to set out the Government's philosophy and record of achievements. The benefits and services provided by the welfare state are greatly valued and appreciated by the people of this country. We are determined to see this service improve and grow and prosper. But the welfare state is not a self-contained entity, independent of the rest of the economy. It is an integral part of the economy and its future is bound up with the prosperity of the nation as a whole. If the economy falters and declines, that malaise must eventually infect the welfare state also, The benefits and services which the welfare state provides will also decline eventually if the nation can no longer afford to maintain them. The welfare state may help to deal with individuals' problems, but it cannot cure the deep-rooted problems of the economy as a whole: other remedies are called for.

It is our determination to apply the necessary remedies that form the central context of our policies towards the welfare state. We are determined to arrest the decline of this nation's fortunes; to restore prosperity, confidence and self-respect. Restoring the health of the economy has to be the first priority in this process. We have set out our policies to achieve that, the same policies on which the Government were elected to office. It is not my purpose to discuss these policies now—they have been very fully discussed by your Lordships in recent weeks—but the signs of success are now beginning to show through. Inflation is coming down, interest rates are coming down, productivity is improving and public borrowing is under firm control.

We are always bound to be affected by world trading conditions, but, by the means I have described, we are laying the foundation for sustained economic growth in the future. It is only by such growth that the resources can be found for improving the services of the welfare state and for the many other urgent tasks which need to be undertaken. This is the context in which realistic policies on the welfare state must be pursued. There is no getting away from that context. It is an inescapable constraint.

My right honourable friend the Secretary of State has spelt out in another place the principles on which our policies are based. First, the foundation of our approach, as I have said, is the strategy to create new resources by sustaining and improving the productivity of industry and its capacity to compete in world markets. Secondly, we are determined to ensure that the welfare services and those most in need of them benefit from the regeneration of British industry, just as over the past years we have sought to protect those services and individuals from the effects of the recession. Thirdly, we believe strongly that improvements can and should be made to the structure of the welfare state even where we cannot devote substantial additional resources to this task. We have made very significant progress in reducing administrative bureaucracy, streamlining procedures and management structures and increasing efficiency, all of which directly benefit the recipients of the services.

Finally, we have been concerned to promote partnership between the state sector and the voluntary, private and informal sectors. The main providers of care and support in our society are, and always will be, individuals—family and friends and the community at large. The state services and the private and voluntary agencies exist to assist and support in this provision of care. All these resources must be harnessed in a cooperative and constructive venture to meet the many needs evident in our society, and let me demonstrate the application of these principles in the social security field.

The size of expenditure on social security is enormous—the provision for the 1983–84 programme amounts to £34,111 million—by far the largest public expenditure programme, accounting for 28 per cent. of the planned total. Over the decade to 1980, the cost of social security grew by more than 50 per cent. in real terms. During this Administration, it has continued to grow. This demonstrates the Government's commitment to protect the needs of those who rely on social security benefits. But the size of the social security commitment also underlines the importance of ensuring the success of the Government's economic strategy. In the short term, that means limiting the growth in social security so far as that is possible.

Benefits have to be paid for by the working population. Benefits paid for out of the national insurance fund depend on contributions from employers and employees. If the overall cost of benefits rises, contributions or the level of taxation have to go up, too. If we are not to damage incentives and the process of industrial recovery, we have to be very careful about the contribution which employers and the working population are asked to make.

The need for economies in public expenditure has required us also to take steps directly to limit the growth of social security expenditure. During this Administration, we have introduced measures to effect savings in the social security programme. If these measures had not been adopted, the programme would cost about £1.5 billion more in 1982–83 than is currently estimated. Inevitably, these were painful economies to have to make, but they were necessary to help bring public expenditure under control.

In spite of these savings, we have stood by our commitment to social security beneficiaries as a whole. We have fully maintained the value of pensions and related long-term benefits, and we are committed to do so during the lifetime of this Government. The effect of this month's uprating is to give pensioners and other beneficiaries an increase over and above price protection. As the Chancellor explained, when the Government consider the details of next year's uprating at the time of the Budget, they will decide to what extent these gains should continue after November 1983 and what adjustments should be made at that time.

In making that decision, the Government will have to decide the relevant priorities to be given in any adjustment for pensioners and other social security payments and to the many benefit improvements being called for. But there should be no misunderstanding about one thing: social security recipients are receiving increases this year which are much higher than the current rate of inflation and higher than the percentage wage rises that many workers are settling for. Pensioners are likely to receive about £1 increase over and above the amount needed to protect their pension from price rises.

The Government have also sought to protect the most needy in our community in spite of the severity of the recession. The value of supplementary benefit—the safety net of the welfare state—has been fully protected against inflation. The change we made last year in the basis for uprating supplementary benefit by excluding housing costs from the calculations was logical given that housing costs are calculated and met separately from, and in addition to, supplementary benefit scale rates. We have also improved the help we are providing towards fuel costs. We are now spending over £300 million per annum on help with fuel costs for families on supplementary benefit. That is more in real terms than the previous Administration ever spent.

Furthermore, the mobility allowance has been increased by more than the rise in prices since we took office and is no longer subject to tax. The earnings limits for retirement pension, invalid care allowance and the therapeutic earnings limit for invalidity benefit have been increased this very week. Moreover, supplementary benefit capital disregard is being raised from £2,000 to £2,500. We have given special protection to one-parent families through real improvements in the value of family income supplement and the one-parent benefit. We have also made useful small changes in the industrial injuries scheme.

I believe that these measures demonstrate the Government's concern to protect the living standards of the most needy in our society, within the limits of the current economic circumstances, but the Motion for today's debate calls attention also to the need for reform. Here, also, the Government have a very substantial record of achievement, in spite of the constraints of money and manpower, and I will mention some of the most important developments. First, in 1980 we undertook a complete revision of the supplementary benefit scheme, moving from a scheme based largely on discretion to one set out in regulations giving claimants firm legal entitlements. And although, inevitably with such a major change, there have been problems, even critics have not generally suggested that we should go back to the old discretionary arrangements. The reformed scheme also introduced a number of changes intended to shift resources towards families with children, and one-parent families in particular.

Secondly, there is the new sick pay scheme. Following Royal Assent last June, we are working hard with both sides of industry to ensure that the scheme gets away to a good start next April. The change will avoid a wasteful area of duplication between the DHSS and employers, and save 3,000 staff in the administration of state benefits. Thirdly, we have introduced self-certification. Sickness benefit is now available to claimants for the first week of any illness on the basis of their own claim, unsupported by a certificate from the doctor. This is not only an easement for the sick person; it also frees the doctors from issuing certificates to people with minor, short-term ailments, and releases his time for his proper role of treating the more seriously ill.

Fourthly, we have brought in a new housing benefit scheme which will introduce one source of help with housing costs instead of two, and enable an extra £10 million from administrative savings to be spent instead on housing benefit. Fifthly, we are making a major reorganisation of our regional offices to improve operational efficiency and increase local decision taking. As well as helping to improve the services given, this process of shifting responsibility to the proper level is also saving the taxpayer large amounts of money. The cutting down of the regional apparatus alone will save 1,000 Civil Service posts.

Sixthly, we are also undertaking a number of changes which will help to improve the quality of service, as well as produce administrative savings in some cases. Most important is the postal claim form for unemployed people who wish to claim supplementary benefit. From 6th December people claiming unemployment benefit will be given a form by the unemployment benefit office, which they will be able to send in by post to the local social security office. It will not be necessary for them to have an interview at the office, unless they need help in completing the form. Results from a pilot exercise carried out early this year have been encouraging. Not only did most of the claimants involved prefer to fill in a form rather than be interviewed, but they made a good job of it, and only in a few cases were follow-up inquiries necessary.

In addition, new arrangements have been introduced to pay benefits on request direct into bank accounts by automatic transfer. We are also devoting efforts to improving advice and information available to claimants. We are experimenting with advice computers, with a free phone service, and with advice points.

I have mentioned only some of the areas where we have already implemented, or legislated for, change. There are a number of other fields where we have drawn up detailed plans for future reform. For example, we have published a White Paper outlining proposals for radical change in the industrial injuries scheme. We have introduced regulations in the current Session to streamline and improve the system of social security adjudication. Perhaps most significant of all, last September we published a consultative document outlining long-term plans for introducing computers into our local and regional operations on a very large scale. The document sets out a strategy stretching into the 1990s, which should produce a significant improvement in the quality and efficiency of the service that we provide, and enable staff to spend more of their time giving a better and faster service. This is a major initiative by Government in Information Technology Year. It is an investment for the future.

Our strategy and our achievements on social security are a testament to the principles that I enunciated at the outset. We are determined to maintain the living standards of those most in need, but within a strategy to improve the prosperity of our economy as a whole. We are determined also to secure better value for money by increasing efficiency and concentrating resources on benefits. We are engaged in a drive to reduce administration and bureaucracy by streamlining procedures and management structures. We have set out, and are implimenting, practicable proposals for improvement across the whole field of social security.

3.35 p.m.

Lord Cledwyn of Penrhos

My Lords, we are indebted to the noble Lord, Lord Banks, for raising a matter of the utmost importance; namely, the future of what has come to be known as the welfare state. The noble Lord expressed the Liberal Party's viewpoint, and I thought that there was much sense and merit in what he had to say—for example, about preserving the real value of benefits and, in some cases, increasing benefits where the need is greatest. That is what we would expect from a Liberal spokesman, because the Liberal Party played a great part in laying the foundation of the welfare state, and David Lloyd George takes place with honour as one of its founders. It is always interesting to read of his bitter struggle as Chancellor of the Exchequer when he introduced his Budget in 1909, and the obdurate opposition then to his proposals. But Lloyd George had his priorities right. He insisted on making provision for the poor and the under-privileged—and how poor and underprivileged they were in those days!—in the face of the most hostile onslaught suffered by any British politician in this century. Therefore, it is right in a debate on the welfare state to pay a tribute to Lloyd George. He was responsible for the Liberal yellow book of 1928, to which the noble Lord, Lord Banks, referred.

But that, my Lords, was only the start. The suffering of the years between the wars, which most of us remember, created a new atmosphere and a new determination. The poverty, misery and despair of those years of the means test and the soup kitchens remain with us. The fear of illness and of the workhouse was real. I remember the closure of the workhouses in 1947. The transition from the workhouse to the old people's home was one of the most compassionate measures of modern times.

But to mention that is merely to illustrate the change that took place as a result of the reaction of people to the terrible waste of the pre-war years. It led to the Beveridge Report and to the Attlee Government's attack on two of the report's great giants: disease and want. We believed, and the nation believed, that the dread and hardship caused by illness, unemployment and old age should be removed, and that those who were able should help those who were less fortunate. That was the principle upon which the post-war Labour Government acted, and it is as valid today as it was 35 years ago.

We believe that we can survive as a civilised community only if we are also a caring community, and notwithstanding what the Minister said in his interesting speech—he gave us a long list, and we appreciate many of the benefits that he enumerated—I regret to say that our experience over the last three and a half years has made us apprehensive about the future of the welfare state, if the Government continue on their present course. Of course I realise that the Conservative Party is sharply divided on this issue. There are the "dries" and there are the "wets"; or, to put it another way, there are moderates and extremists in the Conservative Party. What frightens us is that the extremists are in the ascendancy today.

Let me give a few examples—and the noble Lord, Lord Banks, has already referred to some of these. On 9th September the Cabinet had before it a paper from the Central Policy Review Staff—the Think Tank—which outlined schemes, including dismantling huge chunks of the welfare state. I understand that on that occasion the moderates in the Cabinet succeeded in having the matter postponed for the time being. But our concern is that that might not be the end of it. The Think Tank argued that the Government should consider some radical alternatives in the four areas that account for the biggest share of public expenditure—and this, I believe, is what the House should be considering today.

The areas are education, social security—with which the noble Lord, Lord Banks, dealt fully—health and defence. The suggestions of the Think Tank were certainly radical. On education it suggested the end of state funding for all further education and the setting of fees at market rates, with about 300,000 state scholarships, and a system of student loans for those who do not win a scholarship. The Think Tank also discussed the system of educational vouchers, which Sir Keith Joseph is said to favour. On social security the Think Tank mentioned the big savings that would result if all social security payments, from pensions to supplementary benefits, no longer rise in line with inflation. Again on health, the paper suggested replacing the National Health Service with private health insurance, thus achieving a saving of £3 billion to £4 billion in the 1982–83 health budget of £10 billion.

These proposals are a straw in the wind, and the fear is that they will emerge again at some stage in some new guise. There is ample evidence that some Ministers would favour a change. For example, the noble Lord's right honourable friend Mr. Patrick Jenkin said in 1977: In the longer term I believe we should seek ways of transferring more of the cost of the health service from taxes to insurance"; and the Chancellor of the Exchequer, Sir Geoffrey Howe, is known to favour a two-tier health service. It is true that there are distinguished Conservatives, such as Mr. Edward Heath and Sir Ian Gilmour, who would strongly resist such drastic measures, and no doubt there are others in the Cabinet itself. I am quite sure, too, that there are many noble Lords on the Benches opposite who sympathise with them. But the dangers are there, and if there is a Conservative Government after the next election they could well pursue this reactionary course. This is the fear that we have on this side of the House.

The immediate problems facing the National Health Service are a matter of acute concern. I do not think that the Government have handled the current dispute with the National Health Service workers competently. It should never have been allowed to polarise in this way. Again, hospital closures and the closure of important units are causing much public anxiety. I am thinking particularly of the early-scan unit of the Royal Marsden Hospital, which we discussed at Question Time yesterday; and, of course, of the Tadworth Children's Hospital, about which we had an exchange last week. There also appears to be some doubt about the future of a very famous London hospital, St. Mark's. As has been said, these are not local hospitals; they are also internationally known centres of excellence, and their closure would cause hardship and a loss to medical knowledge and research.

My Lords, the health service, which was for so many years admired throughout the world, is suffering grievously at present from lack of confidence. There is no certainty about the future. The Government have made no pronouncement on the Black Report on inequalities in the health service, and they have had that report in their hands for two years. They have made no comment on the Acheson Report, which they have had for 18 months. I hope the Minister can give us an undertaking on these matters; and I am very willing to give way to him because he himself is always courteous in these matters, but I hope that at the end of the debate he will comment on the questions I have put to him and also on those which are put by other noble Lords.

I turn now to the older section of the community, to which the noble Lord himself referred, and to the proposition, with which I am sure every noble Lord in the House will agree, that the pensions of pensioners should at all times be adequate—and to be adequate they must keep pace at their own lower level with the average industrial wage. The fact is that the pensions have fallen back because the alternative link with earnings has been cut, with the result that the pension of a married couple is about £3 a week less and of a single person £1.85 less than it would be if the previous formula had been retained. In the light of what he said about pensions, I would be grateful if the noble Lord would comment on those figures.

Again, fuel charges are a heavy burden on pensioners. I need mention only increased gas bills, which were a direct result of Government instruction. These have fallen heavily on old people. The Minister may mention the special help scheme of last winter for old-age pensioners. I would remind him that only about half the people who needed it were eligible for it, and I understand that only 6 per cent. of those entitled claimed it. I hope he will tell us later on how the Government are proposing to improve the scheme, if they introduce it for this coming winter, so as to make it really effective and to ensure that it reaches the people who need it.

To return again to pensions, I am still unclear about the real effect of the Chancellor of the Exchequer's Statement of 8th November. Will the pensioners get the whole of the 5 per cent. related to inflation in November next year (this, if I may refer the Minister to it, is paragraph 2.25 of the Chancellor's document) or will there be a clawback, leaving the pensioner with half that amount; that is, 2½ per cent? I would be gtrateful for some clarification on that important point.

There are other aspects of the welfare state to which I should like to refer, but we had two major debates last week, one on unemployment, opened by the noble Baroness, Lady Seear, and the other on disablement, in both of which noble Lords on all sides expressed their deep concern about these problems. I shall not, therefore, pursue them further this evening. Nor shall I deal with education, another pillar of the welfare state, save to say that the nation will pay heavily in due course for the short-sighted extraction of savings on further education. We are spending less per capita on further education than our major competitors, and we shall suffer from the loss of scientists, technologists and engineers in a few years' time unless we reverse this trend. They will be vital if we are to expand and compete in a difficult world. This is absolutely essential, and I cannot stress it too much.

Therefore, the overall picture as I see it is not a happy one. We recognise, of course, that there is a world recession and that we suffer our share of the misery. There are also members of the party opposite who are deeply concerned to preserve much of the welfare state, and I believe the noble Lord, Lord Trefgarne, is one of them. But even allowing for world recession, I do not think we are doing well in this country. The Government's Treasury spokesmen remind us that inflation has been conquered, and we know that the inflation figures are down. But the Government's cure for the disease is also killing the patient.

Let us look at the facts. Unemployment stands at 3.3 million; a large number of good industries have gone to the wall; manufacturing output is at its lowest level for 15 years, about 14 per cent. below the rate inherited from the Labour Government in May 1979; over one in five jobs have disappeared in manufacturing industry over the past three years, and there is no prospect of early recovery. Britain, once the workshop of the world, is running its first trade deficit in manufactured goods in its history—and the Minister said that success was beginning to show through! For the first time since the Industrial Revolution we are making a loss on manufactured goods—and success is showing through! The Minister's vision is different from that of the rest of us, because the fact is that the red light is there for all to see.

Britain's decline at present is being concealed behind the huge North Sea oil surplus. That is the reality of the situation. I mention all this because the argument at its root is one about resources, and how those resources should be used. Of course the welfare state has to be paid for, and it has to be paid for with real money and not with paper money. Of course I readily acknowledge that; but men and women are being wasted, and money is being wasted, paying billions of pounds in unemployment and supplementary benefit, which could be far better used if people were in work.

I do not honestly believe that the Government have a coherent policy any more. As the election approaches we shall see some spending by the Government. It is said that the Chancellor will have some £3 billion to give away in his Budget next spring. We must wait to see what he has and what he will do with it. Will some of this money go to the disabled, to the elderly, to the health service, to essential education? Will there be policies to invigorate the economy so as to bring down unemployment? Or will it be another tax handout, as in 1979? These are the essential questions in this debate.

My Lords, Government spokesmen say time after time that there is no alternative to the policies they are pursuing, and the noble Lord said it again today. We do not agree with this philosophy, which has caused so much damage and so much misery. The Government's obsession with cutting the PSBR has turned the clock back 50 or 60 years. There is, of course, a need to tackle the economic crisis in partnership with our friends, but we on this side believe that planned increased public spending would be fully justified in order to create new jobs—and this is a point which was well made by the noble Lord, Lord Banks, in his opening speech. Money spent in this way creates jobs and increased spending power. Increased demand in the public sector will generate more jobs, and public expenditure can begin the process of economic expansion which will help Britain to get back to work.

Let me specify some of the measures which we believe should be taken, and which we, a Labour Government, would in fact take. We will reaffirm the right to free medical treatment for all. We will support and strengthen the National Health Service, and pbase out prescription and dental charges. We will give a new emphasis to promoting good health, and we will do more for the elderly, the mentally ill and the handicapped. We will widen opportunities for all age groups; free nursery schools for all three- to four-year-olds; give the right to educational training for all 16-and 17-year-olds with a £20 a week grant to those in full-time education and a new entitlement to further and higher education for adults who want a second chance. We want a fairer society where the fear of poverty is eliminated. This means better benefits: child benefit raised by at least £2 a week, higher pensions pegged once more to earnings as well as to prices, and extra help for the disabled and the one-parent families. It also means fairer taxes for all. We believe in first-class local services and will provide funds to support them. We will spend at least 4 per cent. more on personal social services, on home helps, on meals on wheels, on child care, on the care of the elderly, the handicapped and the mentally ill.

My Lords, we on this side therefore believe in a compassionate society, in certain fundamental rights, in comprehensive health and social care, in decent housing, in an adequate income and full educational opportunities which should be available to all. The nation should not be divided by blatant inequalities. Cicero wrote over 2,000 years ago that the welfare of the people is the ultimate law. People will respond to fair and just government. If this Government do not change their course quickly and radically, we are heading for disaster—and by disaster I really do mean 3½ million, 4 million, 4½ million unemployed and the total dismantling of the welfare state. That will happen if the Government are not prepared to change course, and the results of that will be incalculable. If they are not prepared to change course they should at least have the decency to go to the country at once.