HL Deb 24 November 1982 vol 436 cc912-44

Debate resumed.

4.14 p.m.

Lord Campbell of Croy

My Lords, if we may return to the debate on the Motion, I should like to thank the noble Lord, Lord Banks, for having enabled us to discuss this subject today. It follows suitably a very good and timely debate which we had last week on the Charter for the '80s. That concentrated on disabled people. Today, we widen the discussion to take in the whole range of disadvantaged citizens. I was particularly interested in the noble Lord's references to a tax credit scheme, and would like to say a few words about that in a moment.

We must have in mind the plight of some of those disadvantaged people in our community. Those who are not only disabled but are at the same time elderly, ill and alone need our special attention. Another example is the single parent having to bring up a family of small children with no other source of income than what the state can provide, and certainly with no time to do a job. The noble Lord spoke of the level of benefits, as did the noble Lord, Lord Cledwyn, from the Opposition Front Bench. My noble friend the Minister has already replied to much of the criticism of the level of benefits, and no doubt if he speaks again towards the end of the debate he may answer any other points on behalf of the Government. In my view, this Government have done remarkably well on the question of the level of benefits, at a time of recession and when public expenditure of this kind has to be carefully measured and allocated.

I should like to address myself to another part of the Motion; that is, a reform of the structure of the system. Here I am in great agreement on many points with the noble Lord, Lord Banks. The system has now become immensely complicated. It is very difficult for the applicant to find his way through a jungle of procedures. It is difficult also for those who are trying to help an applicant to find his way. The sort of questions that arise are: What is he entitled to, and is it taxable?—because some are and some are not. Also, if he receives a benefit what will he be disqualified, in the way of other benefits, from receiving? These are some of the problems that arise.

It is a paradox that the reasons for this complexity have been good intentions. The system has evolved, if I may give an example from the area with which I am most familiar; that is, disablement. New benefits have been introduced in order to fill the gaps in the national insurance system. When that system was devised and introduced—that is, the present one which succeeded the pre-war limited systems—it did not cover, for example, someone who had been severely disabled from birth or from early youth, because it was completely attached to employment or unemployment. A person who was not available for work did not have an insurance number and did not start in the system at all. The same thing applied to a disabled housewife—someone who was overcome suddenly by an accident or some physical ailment which meant being in a wheelchair. Such a person was not covered because she was not in the national insurance system except through her husband. As a result, non-contributory benefits have been introduced and they have been welcomed. They were introduced, of course, largely as a result of pressure within Parliament. The invalidity pension, the attendance allowance (which was a very sensible addition) and the mobility allowance—these are all non-contributory benefits and they have been introduced to help, but they have all added to the complexity of the system. I should point out that the introduction of these allowances does erode the insurance principle and, of course, that has been a factor with successive Governments They have had to consider the large body of citizens who are within the national insurance system and who are paying their contributions and expect to receive reasonable benefits at the end.

The profusion of benefits has led to a profusion of medical tests as well as means tests. There are now many more medical and means tests than would be required in a single co-ordinated scheme. So I say to the Government—rationalise and simplify. This may seem a massive and daunting operation, but it would be well worth while in the long run.

Again, in the field of disablement, from the statements that have been made in your Lordships' House and elsewhere, it is clear that the Government and the official Opposition are both, in principle, in favour of a comprehensive disablement benefit. It is something which it is difficult to bring in and it will need time. I suggest that this should, in due course, be incorporated in a scheme to co-ordinate all benefits based upon a single return of income. This would avoid a multiplicity of means tests.

I should like to draw attention to the Green Paper of 1972 Proposals for a Tax Credit System (Cmnd. 5116) which was produced by the Conservative Government of that time. I was associated with it, because I was a member of the Cabinet at the time. I should like to quote a short piece from the foreword by the then Chancellor of the Exchequer and the Secretary of State for Health and Social Security. They said: If such a scheme were adopted, fewer people would be means-tested and others means-tested less often, and for the community there would be a large saving in administrative staff". This scheme, which was put forward for discussion in a Green Paper at that time, would have brought together the Pay-As-You-Earn system and the social security system. It would not have replaced all benefits. It suggested that nine-tenths of the population would have been covered by it. It would not have removed the basic supplementary benefit or special measures for those in greatest need; they would have continued. The Green Paper also suggested that it would take about five years to bring in, once it was decided upon.

In my own inquiries in the last three years, I have discovered that the Government of today, while still, in principle, in favour of introducing such a scheme, find that it would be too costly to introduce in the near future. I should be grateful if my noble friend—if he is to reply at the end of the debate—could give me any more information about the present Government's view.

I noted that within the last few days the SDP have put forward proposals of a similar kind, and I heard them described on the radio as a new concept. I should like to point out that it certainly is not a new concept, and that that Green Paper 10 years ago was the start of a considerable national debate on the subject.

I should also like to touch on the question of advances in technology. The computers which are at our service today could revolutionise the whole system of social security. There should be no problem about keeping data up-to-date or about making it immediately available. There has to be confidentiality. Tax returns are supposed to be kept by the Inland Revenue for their purposes only. Means tests of various kinds, also, are supposed to be confidential. As my noble friend reminded us just now, the Government have issued a consultative document about the introduction of computers. They have also stated that they are hoping to bring in legislation about confidentiality of computers and to pass it through during this Session. I believe that we must use these methods. However, the information must be used for the authorised purposes only.

The Government, in the changes which they have made so far—and some were described by my noble friend earlier this afternoon—have aimed in the direction of simplification and rationalisation. In their reforms, the benefits have been amalgamated and simplified. To the extent that they have done that so far, I welcome what they have done, but there is a great deal more to be done in the simplification of the structure. Besides meeting the requirements and making the benefits as valuable as the country can afford, we ought to ensure that the system is one in which everyone in the country can have confidence, and that all who are eligible can benefit from it without doubt and without difficulty.

4.26 p.m.

Lord Kilmarnock

My Lords, I also should like to express my gratitude and that of my noble colleagues to the noble Lord, Lord Banks, for introducing this debate with his usual unrivalled command of this complex subject. Perhaps it is the very complexity of it that has deterred more people from putting their names down. Unemployment commanded 24 speakers recently, and disablement over 20 a few days ago, while the welfare state and social security has mustered only 12. Yet it would be a pity if this subject were always to be confined to a handful of regulars, and I am delighted to see that the noble Earl, Lord Onslow, for example, has put down his name, together with the noble Lord, Lord Harris of High Cross, who will no doubt approach the subject in his customary trenchant manner.

It is the second half of the Motion, which is concerned with reform of the structure, to which I want to address most of my remarks. First, however, something has to be said about the Government's record in relation to the first half of the Motion. Despite the able apologia of the noble Lord, Lord Trefgarne, this record leaves much to be desired. Through the two Social Security Acts of 1980 and the Act of 1981, about £1½ billion in real terms was taken out of the system and this must go down on the record; it was mentioned by the noble Lord, Lord Banks. This was probably done in the ideological interests of rolling back the frontiers of the state, while failing to distinguish between state trading and utilities, on the one hand, and social security or basic livelihood, on the other.

The Government claim that total social security expenditure has risen—I think the noble Lord, Lord Trefgarne, mentioned a total of £34 billion—but this has little to do with improvement of benefits or even with the maintenance of their level. It is largely the result of unemployment. The sick, disabled, retired, unemployed and mothers and children have all suffered. Child benefit, at its last up-rating, was still well below the level inherited by the Government. Earnings-related unemployment benefit, to which some people had contributed for years, has been abolished.

The Government have pigheadedly continued to resist pressure, not only from Opposition parties but also from a significant number of their own Backbenchers, to restore the 5 per cent. cut made in unemployment benefit in 1980, on the clear assurance that this would be restored once the benefit was brought into tax. And there is also the question of the basic pension component in invalidity pension which was similarly abated, but has not been restored pending interminable Treasury cogitations on suitable tax arrangements.

Many invalidity pensioners are more adversely affected by the abatement, which is a flat rate, than they would be by tax, which would be eased by allowances. Can the Government say when they plan to bring the invalidity pension into tax, and whether the abatement will be restored when they do? And if this is their intention, can they say where the logic is in refusing to restore the unemployment benefit to its proper level, now that they have brought that into tax? Will they give an undertaking in this House this evening to make this good in the next Budget, as they are in honour and fairness bound to do and should have done in the last one?

I want to turn for a moment to disregards—that is, the question of small earnings compatible with certain benefits. The present policy on disregards makes it difficult for poor families to improve their position greatly without being guilty of an abuse of the regulations. In particular, single women with dependent children need to be able to earn more without losing their entitlement to benefit.

As regards the recommendation of your Lordships' Unemployment Committee, that the earnings disregard for the unemployed should be raised from £2 to, say, £4 a day, the Government, in their response at paragraph 75, say that, the level of disregards is not immutable but there are risks in increasing this. Substantial increases would … narrow or even eliminate the gap between income in and out of work. But it is not the fault of the vast majority of the unemployed that they are out of work. And this gap has already been narrowed by the poverty trap, to which I shall revert later. Furthermore, a more flexible policy on disregards would not be incompatible with, and indeed could flow from, the Government's policy of taxing short-term benefits. Can the Government not be a little more forthcoming here? I shall be grateful to the noble Lord, Lord Trefgarne, if he will, when he comes to wind up, devote a few words to this question. I know he has already spoken about the disregard allowed to pensioners, but I should like to hear the Government's attitude to other groups in this respect.

I turn to the second part of Lord Banks Motion, which addresses itself to reforming the structure of the system, which everyone agrees is excessively complex—a point made by the noble Lord, Lord Campbell of Croy. There are over 40 means-tested benefits run by a variety of different departments, each requiring to be claimed separately. Every year about 24 million new claims are processed. Every week some 23 million individual benefits are paid. Even so, benefits, as we all know, are often not claimed, perhaps out of pride, perhaps through unawareness of entitlement, or even because the entitlement under a particular heading is very small. It is estimated that some 4 million pensioners are entitled to additional means-tested benefits, but the take-up of supplementary benefits and housing benefits by the elderly is only in the region of 65 per cent., as a result of which many elderly people are living below the poverty line. Family income supplement is notorious for its low take-up. Yet low take-up of benefits defeats the entire object of the social security system. Most studies point to complexity as the prime reason for low take-up. Simplification must, therefore, be one of the first objectives of reform.

Any really radical reform requires a merger of the tax and social security systems, and it so happens that a golden opportunity will be offered by the computerisation of the Inland Revenue, due to take place, I gather, in 1988 or thereabouts. Any responsible political party should, in my view, be working on proposals designed to take full advantage of this new technological capability as soon as it becomes operational. One of the most important advances that will become perfectly feasible will be an automatic system of calculation and redistribution without the necessity of claiming. Most of the complexity and all of the stigma attaching to the present system can thus be removed and the take-up problem eliminated.

It is, of course, well known that the Liberal Party has long favoured a system of tax credits, as excellently outlined by the noble Lord, Lord Banks. The noble Lord, Lord Campbell, reminded us of the Conservative scheme of 1972. The Unemployment Committee in its report (paragraph 12.55) recommended that serious consideration of the Liberal tax credit scheme should be reopened. My party has in a recent discussion paper sketched the possible shape of a tax benefit scheme. I hasten to assure the noble Lord, Lord Campbell, that we do not claim total originality here. What is certain is that the debate on the best method will undoubtedly continue among all those who are convinced of the necessity of putting our social security and tax systems on a fairer and more rational basis. This debate has already received a most valuable impetus in your Lordships' House this evening.

There is no reason, whatever our long-term aims, why we should wait on computerisation before we do anything. Undoubtedly, the most absurd and offensive of all the present anomalies is what is generally known as the "poverty trap". This has a double bite. The main disincentive to some of the unemployed to seek work is not that they have never had it so good but that their earnings in work will not be much different from their earnings out of work. Then there is the disincentive to many people who are in work to earn more. Both these conditions are caused by the ruthlessly regressive nature of national insurance charges and the suddenness with which benefits are withdrawn.

The poverty trap is at its worst for people in work who have children. This is clearly shown in Table 2 of my party's Green Paper, Attacking Poverty, which I think is the proposal to which the noble Lord, Lord Campbell, was referring. Under the present system, a couple with two children paying £15 rent and £5 rates and receiving only the husband's earnings has a net income of £91.97 if the husband earns £50. But if his earnings rise to £80 the family's net income falls to £90.69, and if he reaches the giddy heights of £100 they are only very minimally better off" at £92.80. In other words, such a family has virtually the same net income whether it earns £50 or £100 per week.

How on earth could such an extraordinary situation arise? The answer in the above case is that, for every additional pound earned, the family pays not only 38.75p (shortly to be 39p) in extra tax and national insurance contributions but also has 73p deducted from benefits. When it is said that a redistributive tax credit or similar scheme can only be introduced at a very high marginal rate of tax, that is simply to overlook that the very poorest people are in some circumstances already paying an effective total tax rate of 112 per cent. on each additional pound of their earnings. This cannot possibly be allowed to continue.

I will not go into our scheme in any great detail because it has not yet been adopted as party policy, but the essence is that the benefit withdrawal rate must be low enough for a family to improve its position by moving from unemployment into employment or by earning more. We therefore propose a basic benefit whose effect is illustrated in the bottom half of Table 2 of this paper. It was also printed on the front page of The Times a few days ago. The family improves its net income position steadily between £50 and £120 per week and it is only when it is approaching £200 that the scheme becomes neutral and the family sees no improvement.

This basic benefit is intended to replace family income supplement, rent and rate rebates and free school meals, and will be calculated according to the number of children and housing costs. Everyone will be entitled to the benefit, and it will be gradually withdrawn as income rises, smoothing out the worst effects of the poverty trap. Child benefit will still be paid to everyone. One-parent families will get extra help, especially with housing costs. Unemployment and sickness benefit will be increased by 10 per cent. The earnings conditions compatible with disablement benefit and old age pension will be removed.

How is this to be paid for? Although the plan I have very roughly outlined could serve merely as the first stage of a more ambitious scheme with wider resource implications, it is feasible as it stands, largely through the redistribution of existing resources. The married man's tax allowance would be ended; there is no justification in logic or fairness for giving a married man 1½times a single person's allowance regardless of whether there are any children or not. At the same time there would be a single year's freeze of all personal tax allowances. Only a relatively small balance, after these two measures, would be a charge on the PSBR.

Commenting on these proposals in a leading article, The Times wrote: There is, it will be seen, a hefty redistributive element in this in favour of the poor and at the expense not only of the rich but of everyone who is not poor. That is not a very popular line to take. The SDP respresents itself as a radical party wedded to greater equality; even so, it will require some electoral courage to accept the full implications of what is proposed here". I think electoral courage is precisely what is needed, and I wish we could attract more press comment of this kind.

There will always be people who believe that the welfare state is an excrescence on the body politic and will seek to dismantle it or reduce it to the most minimal kind of safety net. We may even hear that view expressed in your Lordships' House this evening, though it has not been so far. Certainly, anything so large and with so many ramifications is bound to lead to some abuse and waste. That is a just reason for vigilance, and the noble Lord, Lord Trefgarne, is quite correct in speaking of the need for administrative efficiency. But it must never be forgotten that, just as the primary purpose of the NHS was actively to promote the health of the people of this country, not just to tend the sick and dying, so the purpose of the social security system and of the social services was and should remain actively to promote the welfare of the people of this country, and the quality and dignity of their lives. That is what the welfare state means. It is not just a question of picking people up when they fall by the wayside. The more people suffer ill-health and poverty and unemployment, the more likely their children are to do so, and thus the vicious cycle of deprivation widens and deepens and in the long run more and more expenditure is incurred in picking up the pieces.

I am not sure that the present Government really understand this. That is why in the debate on the Queen's Speech I criticised them for their lack of a social policy. I spoke earlier about the poverty trap. There is another poverty trap and that is the trap of poverty of thought into which I fear the Government is in danger of falling unless the noble Lord, Lord Trefgarne, can pull them back from the brink. I am equally clear that the Social Democratic Party and the Alliance will always avoid that trap and keep the need for a fair and far-reaching social policy always clearly in view.

Baroness Gaitskell

My Lords, before the noble Lord sits down may I ask him a very short question—I was fascinated by his speech. Is not this a case for cable television to unravel?

Lord Kilmarnock

My Lords, I am grateful to the noble Baroness. I am afraid I had the misfortune not to attend the debate on cable television. Perhaps I may direct her attention to that debate.

4.40 p.m.

Lord Harris of High Cross

My Lords, I join other noble Lords in thanking the noble Lord, Lord Banks, for the opportunity to discuss this important issue. I was only disappointed, if I may say so, in his rather unadventurous approach to this challenging question. I found myself in much agreement with what the noble Lord, Lord Campbell of Croy, said and I am delighted to follow for the first time the spokesman for the Social Democrats, the noble Lord, Lord Kilmarnock.

I reserve my main admiration for the noble Lord, Lord Cledwyn of Penrhos, for the manner, if not the content, of his splendid assault. Although his chief gift to the poor and handicapped was to shower them with the familar promises of other people's money after the election, it was delivered as a magnificent peformance. I hope he will not mind my saying that his admiration for Lloyd George is well based because his lilting phrases establish him as a contemporary Welsh wizard in our midst. If he ever considers giving lessons to tongue-tied mortals like myself, I would pay for them from my own pocket and not charge it against Lords' expenses.

I thought I caught him out in a verbal contradiction. In referring to the Central Policy Review Staff paper—the invisible paper that we are not allowed to see—he referred to it as proposing radical reforms and went on to tease the Government against taking what he called that "reactionary course". That would provide me with a good banner for my contribution because the flag I would fly is the flag of radical reaction. I believe that we should be reactionary—we should be deeply conservative—about the fundamental principle of welfare, in helping the poor and others who need our assistance, but I believe we should be radical and adventurous about the framework of policy that would be necessary to achieve that goal.

It seems to me that the trouble with the defenders of the current welfare state is that they so prostrate themselves before the sacred, if somewhat tarnished, structure that they cannot see the central reality that indiscriminate state charity has created an unsustainable burden. It is an unsustainable burden not only in Britain but in many Western societies. I recently looked at the Beveridge report, which was published 40 years ago, in November 1942. It pitched the cost of the National Health Service at £170 million in 1945 pounds. That compares with the present bill of £14,000 million. After the most generous allowance I can make for inflation, the real cost of the NHS has escalated five-fold. Likewise, his estimate of pensions has gone up four-fold and sickness and disablement pay has doubled in real terms. Yet, none of us is satisfied with the provision that is thus expensively provided.

I have my own figures that are different from the Minister's on the cost of the welfare state. If we include education, health and social security, the figure in 1981 from the Blue Book exceeded £63 billion, which is more than half of all Government spending. Since, on my calculation, Government spending comes out at more than half of the net national income, it does not take much mathematics to calculate that welfare spending accounts for 29 per cent. of the total national income.

My complaint is that the greater part of this massive, crippling burden has nothing whatever to do with helping the poor. The true source of this indiscriminate generosity has less to do with compassion than with competition for votes. I believe that since the war we have witnessed a shameless process of electioneering, pensioneering and compassioneering. In a modern version of Eatanswill, we have encouraged the fatal illusion of democracy that everyone can enrich themselves at the expense of everyone else.

The reality to be discovered in the figures published each February by the Central Statistical Office is that families with quite modest incomes pay more in total taxes than the value of all the benefits they get back from the welfare state. The dilemma for the hard-pressed taxpayer as a voter is whether he should press for reduced taxes, which he would like, or join a lobby for sectional benefits in the hope of enriching himself further at someone else's expense. We must not think that the proliferation of claimants has yet been exhausted. We all know what the DHSS defines as "the female-headed single parent family", but it was at the Social Democrat conference where one earnest, if anguished, delegate looked forward to claims from, as yet undiscovered minorities". The inevitable result of bribing people with their own money is that income tax now reaches down, as the noble Lord, Lord Kilmarnock, said, to rob workers below the official poverty line. Perhaps I should declare an interest in the research monograph entitled The Moral Hazard of Social Benefits, to which I subscribed a brief introduction. The author, Mrs. Hermione Parker, estimated that there were more than 5 million victims of taxation who are at risk from the poverty and unemployment traps. Can we seriously doubt that this wholesale annihilation of incentive explains something of the unemployment statistics as well as the growth of the black economy?

Whatever our differences in detail and in larger issues, it seems to me there should be no dispute that to restore work incentives requires opening up or widening the gap between social benefits and take-home pay. In this context, indexation is doubly damaging at a time when net wages are often falling behind the rise in prices. But if we shrink from holding down benefits we have no choice but to raise the tax thresholds, which turns out to be very expensive. To restore the pre-war position, whereby people on average earnings paid no income tax, would cost about £25 billion, which is a large slice of the total yield from income tax. To move some way in that direction we would have to impose severe curbs on central and local government spending. To my mind, the prize is that lower taxes would do more than anything else simultaneously to abate wage demands, galvanise the economy, and thereby check unit costs of production and restore jobs.

I believe that we must go back to the debate that was conducted in the 1960s and 1970s about the structure of the welfare state and concerning the relative merits of selective versus universal benefits in cash and kind. The opponents of selective welfare used to get rather steamed up about the hated means test. Well, today, we appear to have about 57 varieties of means test when, in principle, we need only one. My argument is for a reverse or negative income tax. Under this system a single all-embracing test of income and need for each family would determine how far they are sufficiently well-off to afford to pay tax, or how far they are poor enough to require a subsidy. By confining state help to topping-up low incomes we would be able to leave the majority of people with more of their own money in their pockets to pay their own way in welfare.

It is in my view pure moonshine to pretend that most people would not be able to survive without the welfare state. It is nearer the truth to say that most people have been so impoverished by taxes to pay for so-called "free" services that they cannot afford to pay directly for the services of their choice. We have returned with a vengeance to the pauperisation of the old Poor Law, whereby millions are made appendages of the state and prevented from acting responsibly to take care of themselves and their families. As the great jurist Dicey warned in the early years of this century: state help has killed self-help.

Since teaching social economics at a Scottish university some 30 years ago, I have come to the conclusion that the wrong turning was taken not in 1945 after the Beveridge Report, but in 1906, because it was after 1906 that a nominally Liberal Government began the debasement of the political coinage with the great rallying cry of "Ninepence for fourpence".

I wish to raise a nobler vision, which was set forth at about the same time by the Professor of Economics at the University of Cambridge. Towards the end of the last century Professor Alfred Marshall went out of his way to oppose the provision of universal pensions. He did so on the following exemplary grounds. He said: Universal pensions do not contain the seeds of their own disappearance. I am afraid that, if started, they would tend to become perpetual". How right he was. He went on—and I commend these thoughts to your Lordships' reflection in leisure times— I regard poverty as a passing evil in the progress of man; and I should not like any institution started which did not contain in itself the causes which would make it shrivel up as the causes of poverty shrivelled up". I conclude with a straight question from the Cross-Benches. Can we any longer afford to ignore these more discriminating, selective and responsible approaches, when politicians of all parties have made such an unholy mess of the present welfare state?

4.52 p.m.

Baroness Ewart-Biggs

My Lords, I, too, should like to thank the noble Lord, Lord Banks, very much indeed for instigating this debate. I greatly enjoyed his presentation of it. I should also like to apologise to the Minister, the noble Lord, Lord Banks, and your Lordships as I may have to leave the debate early if it does not conclude by 6.30, because I have to attend a meeting of the parent/teacher association at the school which my child attends, and I dare not miss it because I must face my child afterwards.

I should like to make one brief contribution to this debate, and that is to reflect a few ideas about the present position of children within the welfare state, while perhaps at the same time pointing out how in some cases what is presently being provided is totally inadequate. I hope that I shall not be accused by the noble Lord, Lord Harris of High Cross, of doing this in a compassioneering way. I assure him that I will be merely trying to state a few facts.

However, before doing that, I should like to say something about the welfare state in general terms. During the number of years that I spent abroad, serving in various postings with my husband, we always felt secure in the knowledge that there was at any rate, whatever else happened, one British institution to be proud of—and that was our welfare state. Other countries, far from having achieved such a system, had indeed not even aspired to such a system. So although there were at times incidents in British politics which were difficult to represent and defend, we knew that our particular system of guaranteeing communal provision for everyone in Britain, regardless of their position in society, was a source of envy to our host countries. We were proud of it and took a great deal of satisfaction in talking about it and describing its function. So if the welfare state continues to be eroded, as it has in the last three and a half years by some mean and petty cuts, apart from the obviously adverse effect this will have on Britain's least privileged families, that source of justified national pride will also disappear.

I should like to turn to the specific points I wish to make regarding the circumstances of certain groups of less privileged children in Britain today. For there is growing and unequivocal evidence that the extent of poverty among children here in Britain in the 1980s has been substantially underestimated. Surely our children are part of our country's future; but, if some of them continue to be treated in such a miserly way, they might well represent a highly destructive element in that future. So we must surely make a greater investment in today's children in order to try to safeguard that future.

Thus, accepting the fact that childless couples and single people have over recent years fared much better from benefit and taxation policies, let us try and see what are the best remedial measures needed to restore the balance between single people and families. In my view the arguments for increasing child benefit are quite overwhelming. There seems no doubt that at present the provision for children in families dependent on social security are not adequate to meet the costs of a child. Research has brought out irrefutable proof of this. Among the conclusions in the recent issue of a Child Poverty Action Group publication it is stated that: The evidence that existing scale rates are more inadequate for families with children confirms that it is the children's rates that are most out of line with needs". It goes on to say that the extent of poverty inevitably depends on how it is defined, but a more realistic allowance for the basic needs of children indicates that the extent to which children are the victims of poverty has been seriously underestimated.

I was going to quote an extract from Despite the Welfare State, but the noble Lord, Lord Banks, got in first. I was going to quote exactly the same extract as he quoted. Nevertheless, I should like to reaffirm what it says because it was, after all, a Government sponsored research project. It stated: that it is impossible to resist a reiteration of the general conclusion that benefit rates, particularly of supplementaty 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". If that is the conclusion of Government sponsored research, why, indeed, do the Government not take heed and act on such recommendations?

I should like very briefly to give your Lordships some of the arguments which prove that a rise in child benefit and an adjustment in the supplementaty benefit rate are the only ways of helping our poorest children and restoring to families some of the resources which have been redistributed towards the childless over the past two decades. First, an increase in child benefit, if it is seen, as it were, as tax relief, is the only way in which help can be directed specifically to families with children. It is more redistributive to the low paid than raising personal allowances or cutting tax rates.

Secondly, child benefit is also the best way of dealing with the poverty trap and the unemployment trap. The number of children who are dependent on unemployed parents stands at present at 1 million and will doubtless rise. Thirdly, it is also a fact that increasing family income supplement is no substiltute, as such an increase benefits only a small proportion of those in need of help, as I understand that only about half of those eligible for it do indeed claim it.

Fourthly, child benefit allowance, going as it does directly to the mother, has an additional importance in the positive effect it has on her weekly budgeting. Any increase would doubtless be very easily and rapidly absorbed on the basic needs of the children. And on this point I would like to ask the Minister his views on the wisdom of disallowing the choice to certain mothers of drawing child benefit in weekly or monthly instalments. I know that mothers who were previously eligible for child benefit were given the choice of drawing it either in weekly or in monthly instalments, and that certain categories of mothers still have the same choice. But why not give this freedom of choice to all mothers? Otherwise it would seem to me that some young housewives might well fall into that terrible snare of overspending at the beginning of the month, when they have their whole allowance, and having nothing left for the end of the month.

Finally, in my view, everything points to the increasing need for priority to be given to child benefit in the next Budget. If, as has been widely suggested, personal tax allowances are increased by more than the rate of inflation, it is surely imperative that child benefit is increased by at least as much, otherwise there would be a further deterioration in the relative position of families with children. Whatever happens to tax allowances, there can be no doubt of the vital importance that child benefit should be restored to its April 1979 value. Further to this, it could be argued that the phasing-out of the married man's tax allowance, to which the noble Lord, Lord Kilmarnock, referred, would indeed make provision to increase the real value of child benefit above its 1979 value.

When one reflects on the fearful reality that 6½ million people in Britain are now dependent on supplementary benefit—a number which represents over 11 per cent. of the total population—and when one further reflects on the ensuing poverty that this must bring into so many of our children's lives, then one cannot but wonder what the members of the Cabinet, who I seem to remember were asked to go off and think about the family during the Recess, came up with. Perhaps for holiday reflection it was more agreeable and comforting to think of the conditions of life enjoyed by Britain's more well-to-do families.

Lastly, I should like to ask the Minister one question about the plight of social security offices in various parts of the country. As he knows, the coincidence of the increased number of claims which unemployment has brought about and the 2 per cent. cut in the social security workforce has brought the system near to breaking point. The situation in the Birmingham offices is critical and last week I read of similar conditions prevailing in Penzance, where it appears that unemployment is nearing 20 per cent. Social security officials there say that they cannot process any more claims for supplementary benefit before January. The manager in the Penzance office is quoted as saying: It's a problem which is building up in social security offices throughout the country. We have only 51 staff and 2,500 people claiming supplementary benefit. We simply cannot cope. Therefore, will the Minister say whether the Government are planning to take action on staffing these offices adequately in order to meet the exceptional needs brought about by their economic policies? The Minister referred to this streamlining, but I do not think that he means it to have this effect. Imagine being a mother at this time of year, with the special demands that providing a nice Christmas for her family brings. Think of her not being able to get possession of the benefit to which she is fully entitled. I cannot help feeling that such a thought might well take the gilt off some of the festivities being enjoyed by more well-to-do families this Christmas. Therefore, I conclude by saying that, all in all, I fear that perhaps that great flame of pride in our welfare state hitherto nurtured by our overseas representatives may just be beginning to flicker a little.

5.4 p.m.

Earl Grey

My Lords, I, too, am most grateful to my noble friend Lord Banks for raising this important subject, especially at a time of year when the needs of pensioners are at their most critical. I am pleased that the pensioners are to receive their bonus this year, but I am disappointed that next year the Government propose to take that bonus away. It seems to me that that is an unfair and a totally unnecessary action to take, as there is considerable agreement that the retirement pension is too low. This is borne out by the fact that a large number of pensioners have to resort to supplementary benefit, which to many is undignified and embarrassing.

Liberals have argued for 20 years that the single person's pension should represent 33 per cent. of average national earnings, and the married couple's pension 50 per cent. of average national earnings. In June of this year they were 22.45 per cent. and 33.3 per cent. respectively. This falls far short of what we are aiming for. We welcome the bonus as a step towards that aim and, in doing so, deplore its planned removal. Under the present system, pensioners are enabled to catch up a bit this year, but they will fall back next year. It does not seem fair to raise their standard of living for a while and then let it fall below that level.

All this is caused through having a reference period six months in the past and six months in the future. This involves forecasting the future rate of inflation and, as we all know, mistakes are inevitably made. It would be far better to have a reference period of 12 months in arrears, so that a fairer assessment could be made. It was on that basis until the last Labour Government altered it, adversely affecting the pensioners in so doing. I urge the Government seriously to reconsider their actions, especially now when inflation is falling and it would be far easier to revert to the old system.

5.7 p.m.

The Earl of Onslow

My Lords, it was a great pleasure to listen to the noble Lord, Lord Cledwyn, advocating scattering gold like Danae to provide extra payment after extra payment as if money was no object, and complaining of the fact that her Majesty's Government had presided over the first manufacturing trade deficit since the Industrial Revolution. We did not hear him wax quite so lyrical over the fact that we had exported grain for the first time since the Battle of the Nile, but then he might have had to give credit to my noble friend, and I am sure that nothing could have allowed him to do that.

The noble Lord, Lord Kilmarnock, was advocating the plan of the Social Democratic Party to abolish the poverty and unemployment traps. I believe that this has been put through various computers and it has been found that it does not achieve either of those particular worthwhile objectives. I think that one must give credit to my noble friend Lord Trefgarne, because in his opening speech he made an extremely important point which we must all wear firmly and permanently at the front of our minds. It is that the welfare state can and will only be as good as the amount of wealth created by the rest of the country to pay for it. It is impossible to have a welfare state with nobody working; it is impossible to have a welfare state in a populated desert, because there is nothing to pay for that welfare state. Until we realise that, it is no good advocating more pensions, more hospitals, more this or more that, because they do not grow on trees.

The present Government have done their level best to maintain benefits and be as generous as they can be in the present world and British trade depressions. But the British social security and tax system, like the British people themselves, is of mongrel descent. Its ancestors include William Pitt, Bismarck, Beveridge and Lloyd George, and that is quite a jolly mixture. As both the noble Lords, Lord Banks and Lord Campbell of Croy, said, it is almost incomprehensible and fails in its job of redistributing income in a fair and equitable fashion.

This is not too surprising, as four authorities do the redistributing. First, there is the Treasury, exacting its income tax and national insurance contributions, with their allowances and tax thresholds. Surely the noble Lord, Lord Banks, is wrong in pretending that national insurance has anything at all to do with insurance; it has not. It is a straightforward method of taxing and it is a hangover of the hypothecating of revenue, which the Treasury normally disapproves of in every other sense. If it was insurance, then, like motor insurance, it should be run by an insurance company and not by the Treasury.

Secondly, there is the DHSS, with its massive social security payments. Incidentally, according to very well-informed sources, the staff are low paid, sometimes taking home less than they pay out to clients. In one out of two offices the staff are so demoralised that there is a 60 per cent. turnover of people every year. Thirdly, there is the Department of Education for free school meals, student grants and school maintenance allowances and benefits, and, fourthly, the local authorities with their social security payments, housing benefits, et cetera. The present cost of income redistribution is £69.18 billion for 1981–82, made up of £31.42 billion direct support—that is, social security, student awards, free school meals, MSC benefits and allowances—£33.3 billion for tax reliefs and allowances, and £4.46 billion on housing expenditure.

I tried to explain to your Lordships in the debate on the Queen's Speech some of the dottinesses and unfairnesses which have been found by Mrs. Hermione Parker's monograph to the Institute of Economic Affairs called The Moral Hazard of Social Benefits. Since that time she has received letters of complaint from aggrieved citizens. These range from a pensioner claiming not only that his income from a combined state and superannuation scheme was less than that of the state pension and supplementary benefits of a neighbour but also that he paid tax on his £44.63 per week and his neighbour paid no tax on £55 per week. Another correspondent complained that her niece had had a job sewing knickers, but the niece was better off lying in bed all day. This is not surprising at all. The escape point from the poverty trap for a single woman is £97 per week, which is 124 per cent. of the average female worker's wage in this country. I am prepared to bet, my Lords, that knicker sewing pay in the North West is not 124 per cent. of the national women's wage.

The poverty trap, as most of your Lordships are probably aware, is when earnings from work are subject to income tax, even when those earnings are below the entitlement levels of means-tested benefits. Add to that muddle the fact that to go to work incurs expenses and it is possible to see the massive incentive for the combination of idleness or the black economy which our present system generates. Can we really be serious in our desire to encourage learning and training if a school leaver who registers for unemployment loses his supplementary benefit if, instead of hanging around billiard halls or street corners, he studies for more than 21 hours a week? University students get mandatory grants, trainees almost certainly nonexistent discretionary grants. Why?

The Economist newspaper last week showed that a man with two children earning £60 a week has a net income of £100.5. If his wage increases by 100 per cent. to £120 a week his net income is £104.44. Surely that is disincentive. Incentive is what we all want, with a floor, and a good floor, below which no one can fall. The noble Earl, Lord Gowrie in his winding-up speech on the Queen's Speech on 10th November stated in column 346: We have to work away at this poverty trap difficulty. It is of course extremely expensive. The best answer is to get a more competitive economy and get the overall level of wages up. My noble friend was very badly advised as to that answer. The economy has to grow by a phenomenally large amount to allow wages to rise above the poverty trap level, and Her Majesty's Government are at the moment preaching wage restraint like mad. I heard the Chancellor doing it on the wireless at lunchtime.

By increasing index-linked social security benefits and others by 11 per cent. and trying to hold wages to 4 per cent. the Government have increased the poverty trap and made the problem worse. In other words, the total number of adults estimated to be at risk from the poverty and unemployment trap has been increased from the horrifying figure of 5½ million souls. Another muddle surfaced in yesterdays's Guardian newspaper. Supplementary benefit, it appears can be claimed for district heating schemes. However, councils have the power to reduce the amount charged, but the tenants are entitled to the full amount from supplementary benefit, which is fixed. Did the Government mean to contribute this extra payment or was it a mistake? If it was intentional it is odd that they did not boast about it. And why suddenly benefit this one group?

A pledge for a tax credit scheme was part of the Tory policy at the 1974 election. I suggest that there is an alternative, and that is its lineal descendant, the basic income guarantee scheme. This has been proposed by Sir Brandon Rhys Williams to the Treasury and Civil Service Committee sub-committee in another place. His scheme is cash neutral. In other words, the costs are the same as today's non-system. It proposes that everyone should be given money by the Treasury as of right. There would be a payment for each householder, each adult, each child, each expectant mother, and probably each lone parent, and old people's payment that varies from £5 at 65 to £15 at 85 in excess of the normal basic income guarantee, because growing old costs more, as has already been said. There would be home care and invalidity and disability payments. There would have to be one small residual means-tested benefit for housing costs in certain circumstances over £10.75 per week. All of this evidence is in fact in the evidence to this sub-committee, but it is so important that it is worthwhile hearing it again.

To pay for this, all wages over the basic income guarantee are taxed, probably from 30 per cent. up to 60 per cent., but with no allowances and no thresholds. The total cost of the scheme at its widest is £118 billion, but that includes the abolition of the present income tax and national insurance contributions, and off that comes £32 billion made up by abolishing social security—that is, pensions, superannuation benefits, family incomes supplement, free welfare milk, unemployment pay, disability allowances, et cetera—which comes to £29.48 billion. Administration, student awards, free school milk, MSC grants and allowances, and rate rebates make up the rest. Therefore, the total bill would in fact be about £86 billion, and that would come from a tax base, excluding the black economy, of approximately £170 billion.

This produces an overall tax amount needed to be raised for it to be totally cash neutral of 50.53 per cent., if it is all paid by the employee; but, as I have previously said, the same money could be raised with rates of 30 per cent. to 60 per cent. and a payroll tax paid for by the employer of 10 per cent. That scheme is cash negative. It is a scheme which allows people to work as much, or as little, as they like, but it is always profitable to work. At the moment we have a system where on very frequent occasions it is not profitable to work, and that is not good for us; and considering the fact also that we are going to be faced with a lot more leisure time as automation and various other things come into being, this is an important point.

The costs have in fact been calculated on a basis that there is no change in the black economy, but by the administration of the basic income guarantee the black economy would be discouraged very considerably, and so the tax base could widen by anything between 4 per cent. to 15 per cent. It would lead to easier work-sharing schemes, blur the edges between employment and unemployment and allow people to retire, or not to retire, when they liked. It would allow the disabled to contribute to society more than they do at the moment, and it would end the unfair discouragement of effort and pride which our present methods generate. Above all, it would discourage legitimate fiddles like the one of doing no overtime in the week that family income supplement is assessed so as to qualify for it, and then going back after the family income supplement has been fixed for the year to the full overtime allowed.

5.19 p.m.

Lord Hatch of Lusby

My Lords, the whole House is grateful to the noble Lord, Lord Banks, for introducing this Motion and giving us the opportunity to discuss the crucial issue of the welfare state. I do not intend to take up the second part of his Motion on the reform of the welfare state. Perhaps we can discuss that another time. What I should like to do is to follow him and the noble Lord, Lord Kilmarnock, in their argument that really contradicts a great deal of what the noble Earl who has just sat down has said, and equally what the noble Lord, Lord Harris of High Cross, had to say.

There is a great misunderstanding on the Benches opposite—indeed, in many parts of the country—as to the real meaning of the welfare state. It is not a charity or state hand-out. It is not even mainly dependent on the contributions of the present producers, the workers of today. It is a return to those who—many of them, most of them—have spent a lifetime's work in contributing to the wealth of the nation, plus a contribution from the taxation of other workers. It is a community, communal, effort to maintain ourselves as one nation, and it should be recognised as such.

Above all, we should get away from the concept that welfare state benefits are charity. A great deal of the benefit that is paid out comes from the money that has been paid in by the recipients, and—this will, no doubt, be pointed out—the extra amount that is necessary has also been contributed to by the workers through the often 45 to 50 years' work of the recipient workers. That concept of the welfare state, going back into the 19th century, was put into practical form in the work of Lloyd George, but above all in the work of people like Nye Bevan and Jim Griffiths in the Attlee Government.

I intend to concentrate this evening on two issues regarding the present conduct of the welfare state by the present Government, the first being unemployment benefit. Two years ago, unemployment benefit was reduced by 5 per cent. under the Social Security (No. 2) Bill 1980, and the then Secretary of State said: As the unemployment benefit comes into tax, so the rationale for the 5 per cent. abatement ends".—[Official Report, Commons, Standing Cttee B; 30/4/80; col. 526.] Unemployment benefit came into tax in July of this year. Is it unfair to ask the Government when they will honour their pledge? Is it unfair to accuse them of having already broken that pledge? It was a clear statement, made by the Secretary of State in 1980, that the rationale would come to an end when unemployment benefit came into tax. It has now been in tax for the last four months. It is estimated that that tax will bring in £660 million in a full year and that to restore the 5 per cent. would cost only £60 million. What is the Government's rationale now? Has it changed since April 1980? What is their rationale for maintaining that 5 per cent. for four months after taxation has been applied to unemployment benefit? Is it not a form of double taxation on the unemployed? Or is it, as one honourable Member of the Conservative Party suggested in the other place, that the Government are waiting for the revenue from the extra 300,000 who, it is estimated, will be unemployed next year? Are they waiting for that before restoring the rightful level of unemployment benefit and the 5 per cent. which they took away in 1980?

The Government did not just take away the 5 per cent. They also abolished the earnings-related rule which linked benefit either to prices or to earnings, whichever was the higher; and if one takes the two together—the 5 per cent. and the abolition of the earnings-related rule—it is estimated that the average unemployed person today gets £11.60 less a week. May I ask the Minister to confirm that figure and to say what the Government's justification is for taking from the unemployed—the unemployed who are the Government's responsibility and whose numbers have been more than doubled since the Conservatives took office—that £11.60 per week? We are entitled to an answer.

The second point I wish to raise is that of pensions. This week 9 million pensioners had an increase of 11 per cent., and we all welcome that. But if the cuts that have been made in the last three years—during the life time of this Government—are taken into account, then pensioners are worse off, in real terms, after their 11 per cent. rise has been added, than they were three years ago. They, too, have suffered from the abolition of the earnings-related rule. It is estimated that by the simple act of abolishing the earnings-related rule in relation to pensions, the Government have taken £500 million from them. Again, what is the rationale for that? How can the Government excuse taking £500 million away from the pensioners? What does it mean? For the pensioner it means, on average, £3.25 less a week, or £169 a year. That is what the Government are taking away from pensioners as a result of the abolition of the earnings-related rule.

As the noble Lord, Lord Kilmarnock, rightly said, the Government's actions become even meaner when they are applied to invalidity pensioners and beneficiaries. Remember, the beneficiaries have to pay; not only do they lose from the abolition of the earnings-related rule, but they, too, were included in the 5 per cent. deduction in lieu of taxation, costing them, on average, £5.50 a week. Are the Government really so mean that they cannot see that it is wrong to penalise those who are suffering to such a degree as to qualify for the invalidity pension, or the invalidity benefit, so that they are again to be deprived not only of what was agreed by Parliament on the earnings-related rule before the Government took office, but also of the 5 per cent. that was deducted in lieu of taxation?

So I want quite directly to ask—and I think that the House is entitled to ask—the noble Lord who is to wind up what is the justification for maintaining the 5 per cent. deduction, and when is the 5 per cent. to be restored? Is it going to be restored to the long-term unemployed who will be out of normal benefit after their year on benefit, and who will be dependent upon supplementary benefit? Are they going to have their 5 per cent. restored? These are specific questions. What is the rationale for maintaining the deduction after the promise was made that it would be restored as soon as unemployment benefit came into taxation? When is it to be restored, and is it to be restored to those who have passed out of benefit, who are the long-term unemployed? Will it be restored to them also?

Finally, the noble Lord, Lord Banks—I think it was—has already mentioned the report of the Child Poverty Campaign, which has been published this week in the Guardian. According to an estimate in the report, over the past three years, since the present Government came into office, the value of benefits within the welfare state has been reduced in real terms—that is, taking into account all the cuts, inflation, et cetera—by £2 billion. Will the noble Lord confirm, or deny, the figures? If he denies them, will he prove his denial? The figures have been worked out by these experts in the subject of poverty, in the realities of poverty as it exists under the present management of the welfare state by the Government. Will the noble Lord show where, and how, they are wrong?

When it comes down to the real bread and butter of the family life that the party opposite claims, so hypocritically, to represent, let me give your Lordships one final little cameo. At last year's benefit rates, a married couple with two children, with earnings of £75 a week, paid as much in income tax and in national insurance as they received in family income supplement and child benefit. Is that the kind of welfare state in which the present Government believe? Can it be defended by the noble Lord who is to reply?

5.34 p.m.

Baroness Seear

My Lords, we on these Benches are grateful to so many Members of the House who have expressed appreciation of the Motion put forward by my noble friend Lord Banks. In particular, I should like to thank the noble Lord, Lord Cledwyn of Penrhos, first, for giving us a preview of the Labour Party manifesto—plainly, on all sides of this House we are working up for an election before so very long—and for reassuring us that, as one would expect, the Labour Party has definitely come down on the side of Shore's madness, rather than Howe's meanness. We are also grateful to the noble Lord, Lord Cledwyn—I am sorry that he is not here at the moment—for the fact that his enthusiasm for his fellow countryman Lloyd George overcame the Labour Party's usual antagonism towards the point of view of people on these Benches. I notice that his generosity did not extend to reminding the House that Lord Beveridge, too, was a Liberal. The noble Lord, Lord Cledwyn, went on to claim for his party credit for most of the development of the welfare state ever since the year 1906. However, be that as it may.

Most of the arguments in your Lordships' House this afternoon have demonstrated the need for welfare state provision, with the exception of the few—I can only call them starry-eyed dreamers—who really believe that the market economy, left to work its way, will somehow or other get rid of poverty in God's good time. Well, it might in God's good time, but that is rather too long a time for most of us. Only very few people have taken the view that there is no need for any provision because poverty is something that is induced mainly by taxation and the machinations of psuedo-socialists, and that, if you really let capitalism rip, all will be well. I do not believe that more than a very small proportion of your Lordships' House believe that. With the exception of those who have expressed that view, there has been universal agreement that some provision is necessary.

However, the speeches, whether from the noble Lord, Lord Hatch of Lusby, or the noble Earl, Lord Onslow—and I am sure your Lordships will agree that that is a wide range—have made it crystal clear that the welfare state is in an unholy mess and that nobody in their senses would ever have designed the ridiculous collection of means-tested benefits that we now have. We know how it happend. It "grow'd", like Topsy, as most things in this country do. Whether it be on the Government side or on the Labour side, we never will take a radical look at the thing and really knock some sense into it. So we go on tinkering and tinkering, and each time we tinker we put one thing right and two things wrong. So the net result at the end of the day is infinitely worse.

The noble Lord, Lord Trefgarne—I know that he is to speak once more at the end of the debate, and perhaps he will then give us a little more encouragement—again did a very good tinkering job. He showed us how the Government had improved a little here and adjusted a bit there. You could see him going around with his little spanner, tightening the screw in one direction, knocking in a nail in the other—producing at the end of the day an even worse mess than before.

Surely what has emerged from a number of speakers, in one way or another, is the need for a really radical look at the way in which we arrange for the necessary welfare provision. I do not often agree with the noble Earl, Lord Onslow, but for once he has been reading the right stuff. The fact of the matter is that at one time or another all parties have realised the sense of some form of—call it basic citizen income, call it tax credit; I do not much mind what you call it—basic payment to all citizens, male and female, by virtue of their citizenship, that is not altered by virtue of what they subsequently earn, except in so far as they all pay a graduated tax. That proposal was previously looked at under the Heath administration—but I do not think that the noble Lord, Lord Trefgarne, is so narrow-minded that that damns it out of hand and prevents him from having another look at it. I believe that when the Conservative Government previously looked at it, the noble Lord, Lord Cockfield, in a previous career—incarnation is the word that I am looking for; though somehow I do not quite associate that with Lord Cockfield—decided that it was too expensive.

However, there are a great many different ways of working out the sums, and it depends on the values that you put in. You can have a higher level of citizen income or a lower level of citizen income. You can adjust the ways of paying it. You might even cut back on the mortgage payments, which, really, are one of the most curious benefits paid to citizens. You might provide a great deal of money if you start tampering with them, though I know it would be remarkably unpopular electorally. But the point I am trying to make is that there are a very great many different ways in which you can do these sums.

The noble Lord, Lord Banks, and, I think, the noble Earl, Lord Onslow, because he has been reading the Brandon Rhys Williams work, which is very thorough, have both shown that you can develop a scheme which is virtually financially neutral. I had the pleasure and the interest this week of studying this problem in the European setting, in Holland, and we were coming to the same conclusion, that it was perfectly possible to have a scheme which, in financial terms, is neutral. It depends how you do the sums.

I beg the Government, as a result of today's debate, to think very seriously about setting up an all-party group—perhaps that is not the right way to do it, though I think it would be a very sensible way to do it—to have a look at the possible variations of credit tax that could be put forward as alternatives to the present quite indefensible way of financing welfare benefits. I believe I am right in saying that even the great Tory guru Milton Friedman once advocated this idea. What could make it more acceptable to put to the Conservative Party than that?

However, there really are a number of very important reasons why we ought to go along this line, quite apart from the dog's breakfast of benefits which we have at the present time. There is the problem of incentives. It is perfectly true that it is very difficult for a proportion of those who are unemployed, especially if you add in transport costs, which are now horrendous in many parts of the country. You really have to be a very high-minded person to decide that it is worthwhile to go to a not very exciting job instead of staying at home on benefit. This is ridiculous, and it is ridiculous on the part of a Government who, I understand, want to encourage people to work. So you surely want a system which has more incentives built into it.

The second point I want to make is that, with the level of unemployment which we all know we are going to have—we believe we can reduce it to some extent, but we know we are going to be left with a residue of unemployment—the development and encouragement of opportunities to do part-time work is going to be very important indeed for a whole variety of reasons. I will not go into them now, but part-time work is wealth-creating, it gives self-respect, it gives activity and it gives purpose to a lot of people. If you had even quite a modest citizen's income paid individually to both husband and wife and, on top of that, both husband and wife were able to have a part-time job and therefore to add to the citizen's income, the family income you would get from two quite modest citizens' incomes plus two part-time earnings, or the earnings from some small business which would not be enough totally to sustain the family but would provide a very valuable topping-up of a citizen's income, would be an extremely good way of dealing with the inevitable residue of people who are not going to get full-time jobs.

Once we have taken it fully on board that we are going to be left with people who are not going to get full-time jobs—and this must be the truth for a very considerable time to come—then surely we must reshape our welfare state to give every possible encouragement to people to go and do that kind of part-time work which would give a decent family income and a meaningful kind of existence, instead of positively discouraging them from doing it, which is what the present system does. Indeed, if, as Brandon Rhys Williams has said—and Brandon Rhys Williams got this from his mother, who was a very good Liberal and worked on it years ago; that is perfectly true, and, in fact, I worked with her on it at one stage—there was a very good case for doing it in the time of Lady Rhys Williams, though they did not then have the strong argument of a residue of people who were not going to be absorbed into full-time employment, that enormously strengthens the case for going ahead in this direction.

It would also have the result of making it sensible for people (it would give them some encouragement, at any rate) to get out of the black economy. As I think I said in the debate last week, if we had sat down and thought out how to develop a black economy, we could hardly have done better. We have the kind of welfare provisions that I have described and on top of that we have a 15 per cent. VAT, which means that there is a built-in incentive to both the purchaser and the provider of the service to go black. Of course, people are going black in shoals, and who can blame them? On the other hand, if you had this system, there would not be this tremendous incentive to work in the black economy.

Personally, I do not take a terribly hostile view to working in the black economy. The only thing that is wrong with it that I can see is that people do not pay taxes and the rest of us have to make up the difference. It would be sounder on the whole if more people were doing their black operations in the clear and paying their taxes, rather than doing as they are at the present time; and you will not have this happen so long as the present welfare provisions go on combined with a 15 per cent. VAT.

What I am urging on Her Majesty's Government, therefore, is that they really should not brush off, as they always do when this comes up, the urgency of reopening investigations into the possibility of some kind of tax credit—I am sorry I am boring the noble Lord so much—or a citizen's income. There should be a really serious study done on it, as is being done in other countries, because it is urgent to get rid of the quite indefensible system of benefits that we have at the present time and to bring in welfare provisions more adapted to the kind of economy and the social problems that we face.

5.48 p.m.

Lord Wallace of Coslany

My Lords, I, too, should like very much to thank the noble Lord, Lord Banks, for introducing this debate today. Of course, we should listen to the noble Lord with some great care, because the House must recognise that he is an expert in the field in which he was speaking today. I would also congratulate the noble Lord, Lord Trefgarne, who had a difficult brief but who read it extremely well—and I would compliment him on that fact. I would not go as far as the noble Baroness, Lady Seear, who, if I heard her correctly, seemed to indicate that the noble Lord had a screw loose somewhere. The noble Earl, Lord Onslow, who has now left the Chamber, referred to the creation of wealth. Of course, the big problem is who creates the wealth, and the greater problem is who shares in it. Certainly, today, 3 million unemployed are not creating wealth, but, unfortunately, because of their situation, they are taking it from the economy.

So far as the noble Lord, Lord Kilmarnock, is concerned, I agreed with him when he seemed to complain that fewer people are speaking in social security debates. That, unfortunately, is very true indeed. It is something I cannot understand, but it seems to be always the same, that when we come to social security debates there appears to be a lack of interest. If it were a defence debate or a debate on foreign affairs or even animals, I am sure the House would be crowded. My noble friend, from a relaxed position on the Bench, says "or a debate about pornography". Of course, being an innocent sort of fellow I rather ignore that.

The noble Lord, Lord Kilmarnock, referred to the SDP proposals. Let me be quite clear and honest and say that they are quite an interesting contribution to the general debate which I hope will take place. The noble Lord quoted a leading article from The Times. I would refer him, however, to a better one in the Guardian of 13th November. Its conclusion was not too favourable, but I want to be fair and say that at least the proposals are worthy of consideration. They are not party policy, in fact: so far as he is concerned and those proposals are concerned, they are points for discussion.

Going back to the general debate, listening to the speeches during this debate, I could not help recalling in my mind the days of my childhood, because memories came flooding back to the time—and my noble friend Lord Cledwyn has already made some reference to this—when the workhouse was the ultimate threat of poverty, even to the separation of husbands and wives in their old age. I speak personally here because I have experienced it. Illness and unemployment were disasters of the greatest magnitude, with charity, soup kitchens and free blankets and boots the main sources of relief. That was the picture until comparatively recently during my lifetime. Yet today, with our welfare state, modern technology, more extensive education and rising living standards, the problem of poverty amidst wealth remains. It has even increased and we are still a divided society with the have-nots increasing. I will not proceed further on these personal memories. At least, I know what poverty really means, and I know it practically and not from theory.

During the Second World War and towards the end of it the Beveridge Report came to the fore. I was a corporal in the RAF at the time and took part in many informal discussion groups in hangars, while on fire picket and on other occasions. The interest was intense. It certainly led to the Labour landslide in 1945. Now, my Lords, I know and I accept that the late Lord Beveridge was a Liberal Peer; but to their eternal credit, it was the Labour Government of 1945 that brought in the welfare state in spite of the devastating aftermath of war. Furthermore, the returning members of HM Forces came back to an orderly society—far different from the situation after the 1914–18 War. In other words, in that Government of 1945 to 1950 a bloodless social revolution took place. I am proud to have been a member of that Government and also proud of the fact that I made my maiden speech on the National Insurance Bill on Thursday, 7th February, 1946, and welcomed then the introduction of the welfare state and the fact that we were keeping faith with the people in the matters arising from the Beveridge Report.

My Lords, I referred to the fact that I took part in discussion groups, both official and informal, in various units of the RAF during that period of the war. During the latter years of the Second World War I purchased a book for six shillings. I have it here. It is called Pillars of Security by Sir William Beveridge. If it is still available, I would recommend noble Lords to get a copy of it and read it, for it is just as applicable now as it was then. I want to quote from it, because it is particularly relevant to our debate today. I quote from pages 131 and 132: My plan is not simply a plan to develop social insurance; it is a plan to give freedom from want by securing to each citizen at all times, on condition of service and contributions, a minimum income sufficient for his subsistence needs and responsibilities. It interprets, as any modern democracy must interpret, freedom from want, to mean, not a claim to be relieved by the state on proof of necessity and lack of other resources, but having, as of right, one's own income to keep one above the necessity of applying for relief. My plan takes as its aim abolition of want. The Government in regard to pensions wholly and in regard to children's and to unemployment and disability benefits to a lesser extent, abandon that aim". My Lords, he was talking not about the Labour Government of 1945 but of the Government in power at the time and a Conservative Chancellor of the Exchequer. These aims are, or should have been, the very purpose of our debate today.

I come to a very difficult point that I must make because so little has been said about it up to now. The Prime Minister, in a speech on 17th November in Westminster Hall, argued that defence expenditure should have priority over the demands of the welfare state. I have a copy of the speech so I know that she said it. I have heard used in the past, the phrase "Guns before Butter", but now we have another one, "Guns before the War on Want". The fading out of priority for the handicapped, the sick, the unemployed and the underprivileged I cannot accept. I accept the need for defence measures. After all, I served in the Royal Air Force during the war. But national defence measures and measures for the defence of the underprivileged, unemployed and sick should be and must be on an equal basis of priority. Perhaps the Government may recall their rush after the election of 1979 to give away millions of pounds in tax relief to the better off. They should restore now some of the cutbacks they have made in social security benefits.

There have been vague promises but vague promises are not enough. Action is well overdue. We should not, as has been hinted, have to wait for the next Budget, if and when we get it, for some possible relief. This brings me to another point. Tax concessions made so far in tax relief appear to have benefited the better off at the expense of others in the lower income group. I will give an example. Let us take those state pensioners with an additional pension based on past contributions amounting to (let us say, for arguments sake) £3,600 per annum for that private pension. Such people, a week before this week's state pension increase, will have received from their tax office a notice of coding increasing their code by about 2 per cent. Such a pensioner will have paid in the last tax year, I would estimate, over £1,000 in income tax. That is one point.

My Lords, VAT at 15 per cent. also seriously affects the lower income group and must be reviewed. The cost of living index—both the old one and the new one which has been brought in by the Government and upon which benefits are based—does not fully cover the needs of people receiving benefit. There is obviously a need for a graded index covering the essential needs of lower income groups. Some action has been taken on low pay, but a lot more needs to be done. We have to think more seriously about establishing a national minimum wage geared to living costs and adjusted accordingly. There are demands by employers' organisations for tax cuts, and, furthermore, extra defence spending has been and will be increased. To meet this, the Chancellor proposes to claw back benefits from the poorest in the community; but, even so, benefits will be worth less than in 1979. Yet poverty is still widespread in our society. The 1979 family expenditure review revealed that 11,290,000 people (over 20 per cent. of the population) were living on incomes on or within 40 per cent. of the poverty line as defined by the supplementary levels.

This unsatisfactory situation has worsened since then. Cuts in national insurance benefits and the growth of unemployment to over 3 million have led to a dramatic increase in the numbers of people living on means-tested supplementary benefit. At December 1981, 3.7 million people were involved. On 6th April 1982 the Government estimated the figure had risen to nearly 4 million, and it must be greater now. These figures do not include dependants. Supplementary benefit is now a main source of income for more than one in 10 of the population, yet there have been cuts. Housing costs are now excluded from the index used to protect benefit rates against inflation.

Subsistence levels must be re-examined and cuts restored. There must be a realistic index. The main increase in numbers claiming supplementary benefit has come from those under pension age. In other words, unemployment on a massive scale is the root cause. The reduction of the numbers of those unemployed should be given overall priority just as much as that given to defence, which incidentally has become almost an obsession in some quarters.

The "get on your bike" approach is negative, insulting and disgraceful. It is a national disgrace that so many qualified young people are vainly seeking work. Paying people to remain workless is a wicked, inhuman waste of national resources and as such presents an obvious threat to the maintenance of the welfare state. I go further: it is also creating a dangerous apathy born of despair. If continued, it could lead to the breakdown of society. This is the internal threat as distinct from the external threat which has been given so much priority.

It is no good pointing to our neighbours and, with a shrug of the shoulders, talking about a world recession. We have a war on our hands: the war against want, the battle against unemployment. These constitute a challenge to the nation and to all members of our society. We need, too, another inquiry and report on the Beveridge lines. We came through a devastating war and yet created a welfare state and a more just society: not a nation of scroungers, as some called it, but a nation of compassion and dignity. We can overcome our difficulties. What we need is a Government with the idealism and determination of that in 1945.

6.3 p.m.

Lord Trefgarne

My lords, I must first ask for your Lordships' permission to speak for a second time in this debate. Owing to some administrative slip-up, my name was not included earlier in the list. The noble Lord, Lord Cledwyn, very graciously gave way to allow me to speak at that time and thus I now need your Lordships' leave to speak again.

I was much fascinated by references from the Liberal Bench and elsewhere to the little yellow book of 1928. I fancy that if Lloyd George were still alive and in his prime, I too might be a member of the Liberal Party. In any event, my father was a member of the Liberal Party in 1928, and I fancy that he contributed to the little yellow book to which reference has been made.

I am grateful to the noble Lord, Lord Banks, for providing this opportunity to debate questions about the welfare state, and for his customary stimulating opening remarks. I should not be surprised if the noble Lord is the greatest expert among the experts in your Lordships' House on this subject; and his speeches on the matter are always very informative and illuminating, not only of the Liberal point of view on these matters but also on the issue more generally.

Also, I am grateful to all who have contributed and who have helped to make this an absorbing and useful debate. I shall try to deal with as many points as I can. I may not manage to deal with then all but I shall cull the pages of Hansard tomorrow and write on a later occasion to those whose points I think ought to be replied to.

May I start with the speech of the noble Lord, Lord Banks. It was a wide-ranging and informed one. Among the points that he raised was a suggestion that we should not be unduly concerned about the rise in the proportion of public expenditure devoted to social security. The noble Lord mentioned a number of mitigating factors, and suggested also that benefits financed from contributions should not count as public expenditure. As the noble Lord said, these are transfer payments. However, for whatever reason social security expenditure has risen, all benefits have to be paid for by the working population. That is true whether they are paid out of taxation or from contributions.

There is a limit to how much the working population and employers together can be asked to contribute if we are not to damage incentives and the process of industrial recovery. As I have said, the Government have sought to protect the living standards of social security beneficiaries, but our success in the long term depends, above all, in getting the ecomomy right. Keeping the levels of taxation and borrowing under control and getting inflation down are vital parts of our stategy to achieve that.

The noble Lord, Lord Banks, also referred to the question of tax credits. I am aware that the noble Lord and his colleagues are deeply committed to a tax credit system. When the Green Paper on tax credits was published in 1972, it was estimated that the cost of a tax credit scheme at the rate of credits and tax then proposed would be some £1,300 billion. The cost of an equivalent scheme today would naturally depend on the details of the scheme, but the cost would certainly be several times the figure suggested in 1972. I believe that the 1979 Liberal proposals envisaged income tax at 40 per cent., a pay roll tax of 21 per cent. and increases in VAT and certain excise duties. I am certain that such increases would not be justified and I do not think that they would be welcomed by the population as a whole, either. The Government have no plans at present to bring forward a full tax credit scheme. The idea of a tax credit scheme was very much in the mind of the noble Baroness, Lady Seear, as well, and those remarks therefore apply equally to what she said on that point.

Turning now to the speech of the noble Lord, Lord Cledwyn, who asked me a number of points but particularly about the CPRS Think Tank report on the future of the welfare state, so far as the health service is concerned, our commitment to the NHS has been made absolutely clear. My right honourable friend the Prime Minister used the famous words at our party conference recently: "The health service is safe with us". The Government certainly have no intention of changing the basis on which the National Health Service would be financed. As my right honourable friend the chairman of our party said, the Think Tank report is a dead duck. I hope that the noble Lord will find that observation satisfactory.

The noble Lord, Lord Cledwyn, also described in fairly graphic detail—and we have heard quite a lot of this recently—the measures which a future Labour Government would introduce. I certainly listened with great interest to what the noble Lord said on that score. It was an impressive list, my Lords, and it is only part of the proposals to which the party opposite are committed. But the noble Lord did not say how much such a programme would cost. Our own estimate is that their proposals on social security alone would cost more than £20 billion. I doubt whether it is possible to take such proposals seriously.

The noble Lord, Lord Cledwyn, also asked about help to pensioners over fuel costs, as happened last winter. The Government are looking at the scheme in the light of the experience of last winter, but in the meantime it is the case that under the present supplementary benefit regulations decisions about payments under this scheme are a matter for the independent adjudicating authorities; that is, the chief supplementary benefit officer and his officials.

A number of your Lordships referred to the possibility or the need or the desirability of simplifying and rationalising the social security scheme. I think what was particularly in the mind of my noble friend was the introduction of some comprehensive disabilities scheme. Of course we do try to simplify and rationalise wherever possible, and I agree with my noble friend that a simpler system to administer would be to pay a single benefit to everyone. However, I fear that that would cost an enormous amount of money and in many cases would be paid to people who had no need of it. In a time when we are seeking to ensure that help goes to those most in need, we need to have a more sophisticated system in which account is taken of the circumstances of the individual claimant. The Government are committed to a more coherent system of benefits to disabled people when resources are available, but I fear there is no prospect of that at present. It would probably cost between £3 billion and £4 billion, or maybe more.

I turn now to the remarks of the noble Lord, Lord Kilmarnock, who asked particularly about the abatement of invalidity pension and unemployment benefit. The question of the abatement of unemployment benefit was also in the mind of the noble Lord, Lord Hatch. We have promised that invalidity benefit will be restored to the same level as retirement pension when the former is brought into tax. Retirement pension, of course, is taxable now and it is right that the abatement of invalidity benefit should continue at present. We have already restored the abatement of the invalidity allowance as an earnest of our intention. We have not yet any idea of when we shall bring invalidity benefit into tax.

On the question of unemployment benefit which, as the noble Lord, Lord Hatch, reminded us, was brought into tax in July this year, we did not promise to restore the level of unemployment benefit when that was brought into tax: we promised to review the position, which is what we did. As my right honourable friend the Secretary of State said in another place as recently as last Monday, the matter is not only under review but benefit will certainly be restored as soon as the time is right. In other words, the argument, in the words of my right honourable friend, is not one of principle. The case for restoration is accepted. It is a question of timing.

Lord Hatch of Lusby

My Lords, will the noble Lord give way? So far as the unemployed themselves are concerned, it is quite clear that whether or not the Government consider this to be a matter of principle will not affect them: they are concerned about the money. The noble Lord has just said that his Government did not promise that they would restore the 5 per cent. when benefit came under tax; but the quotation that I gave from the then Secretaryof State in April 1980 said specifically that the rationale for that tax ends as soon as benefit comes under tax. The benefit came under tax in July. If the rationale has ended, why has the practice not ended?

Lord Trefgarne

My Lords, as my right honourable friend said in the quotation given by the noble Lord, that the rationale has ended—as indeed it has—we have accepted the principle that the 5 per cent. abatement ought to be restored, and we will do so just as soon as resources allow. The noble Lord said that what was important to those in receipt of this benefit was not the principle but the money. The money is also important to those in receipt of other benefits and we have to establish an order of priorities in this matter. I should say that the restoration of this abatement is a very important matter and we shall certainly wish to do it just as soon as we possibly can.

The noble Lord, Lord Kilmarnock,—and this view was echoed by my noble friend Lord Onslow and by the noble Lord, Lord Harris of High Cross—referred to the illogicalities of the tax benefit scheme as outlined in the Institute of Economic Affairs paper, The Moral Hazard of Social Benefits, by Hermione Parker. The Government are, of course, aware of the interaction of income tax and social security benefits on the income of individuals and families, and in particular of what are called the unemployment and poverty traps. However, we do not take such a pessimistic view as, for example, the paper which has been referred to. That paper suggested that as many as 20 per cent. of the workforce were affected by the poverty and unemployment traps; but in arriving at that figure they included people who are not in the labour market at all, such as the sick, the disabled, lone parents and wives looking after young children. However the Government's most recent research suggests that perhaps 3½ per cent. of working families with children were at risk of being affected by the poverty trap, to the extent of losing half or more of an increase in pay through increases in tax and reductions in benefit, and about 6 per cent. of unemployed men were affected by the poverty trap. That is not to say that we do not recognise there can be a problem, but proffered solutions such as the one from the Social Democratic Party are so costly that any responsible Government would have to rule them out, especially at a time like now, when resources are scarce.

Lord Kilmarnock

My Lords, will the noble Lord give way for one brief moment? He said that when calculating the number of people in the poverty trap there had been a tendency to exclude lone parents with two children. Surely if you get the case, which I believe to be true, that a woman can earn £20 or £30 a week and be no better off until she earns £120 a week, she is essentially, if she is a lone parent with two children, in the poverty trap. Therefore she does not work at all. That is what the paper was talking about, and that is one of the cases where she is saying that it is in the poverty trap and the Government are saying that it is not in the poverty trap.

Lord Trefgarne

My Lords, I will come to the speech of my noble friend in a moment, but the point I was trying to make was that a number of the people considered by the paper to which my noble friend referred are people who are not actually available for employment in the normal sense of the word, and so the problems described as affecting them really do not, in the sense that my noble friend has suggested, arise.

Lord Kilmarnock

My Lords, will the noble Lord give way again? In his reference to the proposals I put forward, I think he used the term "vastly expensive". In fact I was at some pains to explain that the interim proposals in our green paper are specifically designed to be feasible, largely within existing resources, and with only a very small charge on the PSBR.

Lord Trefgarne

My Lords, I was addressing myself to some of the other proposals that have come forward from the party of the noble Lord. I would accept that some of the more modest proposals coming from the noble Lord himself—and he said they were simply part of a consultative paper, I think—might on the face of it appear less costly, and doubtless therefore they will be less effective. However, I will certainly study what the noble Lord has said, with the hope of giving him a more detailed critique on another occasion.

The noble Lord, Lord Kilmarnock, also asked specifically about particular earnings disregards. He was suggesting that they ought to be increased. The Government are keeping under review the question of the level of earnings disregards; but there are difficulties even there, as the Government's response to your Lordships' committee report on unemployment indicated. There would again be significant extra cost and real problems about the gaps between the incomes of people who are in full-time work, and those who are on benefit. This is an issue of equity, as well as of incentives.

Radical proposals for reform have come from several of your Lordships during the course of this debate—some of them in detail and some, if I may say so, pretty ambitious. Your Lordships will not expect me to provide a detailed account of each tonight, but I shall certainly want to study what has been said, perhaps for response on another occasion. But the variety of different solutions is, in itself, an indication that there are no clear-cut answers to the problems of the tax and social security systems.

I turn now to the noble Baroness, Lady Ewart-Biggs, who particularly asked about the payment of child benefit at four-weekly intervals. We have recognised that those on low incomes, on supplementary benefit or family income supplement—for example, single parents—are in need of special consideration and they are, therefore, able to continue to receive child benefit on a weekly basis. Even outside these groups, we have made provision for mothers to ask for payment to be made weekly, if payment every four weeks is causing them hardship. The noble Earl, Lord Grey, asked en passant whether pensions should be increased to one-third of average earnings for a single person and to half of average earnings for a married couple. That would cost about £11.5 billion—one-third of current total expenditure on social security.

I come now to the speech of my noble friend Lord Onslow. I must say that there were times during his remarks when a visitor to your Lordships' House might have been puzzled about the place in it where my noble friend was sitting, because some of the remarks that he was making did not seem to me to be wholly in accordance with the pure Tory policy on these matters. But knowing my noble friend as I do, and particularly his independence of thought on these occasions, perhaps that is not surprising.

My noble friend suggested, among other things—and he has questioned me on some of them already—that the tax threshold should be increased so that fewer people would be caught in the poverty trap. This would help only if the threshold was increased very substantially, at enormous cost. Even so, many families not in the poverty trap would also receive help, and I am not in favour of indiscriminate assistance, particularly at a time of scarce resources.

My noble friend referred to the Guardian story that housing benefit has produced an unexpected windfall for some supplementary benefit claimants who pay heating charges with their rent. I hate to have to disappoint my noble friend, but the department has not been caught napping and so given some supplementary benefit claimants an unexpected windfall. The so-called new procedure, which certain newspapers have been reporting, was clearly set out in a circular which was issued to local authorities as far back as last May. Nor have we any reason to believe that the procedure will lead to extra expenditure. We are confident that authorities will operate it fairly and sensibly. But, of course, we shall monitor what is happening and, if any particular difficulties or anomalies arise, we will see what we can do to put them right.

The noble Lord, Lord Hatch of Lusby, asked me about the 5 per cent. abatement of unemployment benefit, which I have already dealt with, and the abolition of earnings-related supplement. Under successive Governments, the real value of the earnings-related supplement has declined since its introduction in 1966. By the time it was abolished, there was less need for the supplement than when it was introduced, because of the growth and improvement since then of occupational sick pay schemes, maternity protection and redundancy schemes. In November, 1980, the earnings-related supplement was actually received by only about one-fifth of all unemployed claimants. Supplementary benefit is, of course, available for those who need additional help. Indeed, restoration of the 5 per cent. abatement of unemployment benefit will not help those who are on supplementary benefit, because their requirements are, of course, already being met.

The noble Lord also asked whether those who have received abated benefit would get the extra when the abatement was restored. It is, of course, the benefit which would be increased when the time came, and when the abatement was restored. Whoever was in receipt of the benefit at that time would, of course, receive the increased rate.

I think that I have dealt with a large enough number of points now, particularly for a second speech during the course of this debate. It has been an interesting and constructive debate, by and large. I shall certainly want to study very carefully all the contributions that have been made, particularly, if I may say so again, the contribution of the noble Lord, Lord Banks, who initiated this debate, because he is such an expert in these matters, and I certainly undertake to write to those noble Lords whose points I have not dealt with but with which I ought to have dealt.

Lord Hatch of Lusby

My Lords, before the noble Lord sits down, and while appreciating that he has dealt quite explicitly with the questions that were asked, may I ask him again—in order to be absolutely sure that I have got it right—whether he believes that there is any public morality in both taking taxation from the unemployed and maintaining the 5 per cent. cut, which was supposed to be in place of that taxation?

Lord Trefgarne

My Lords, as was made clear at the time, and as I have made clear in your Lordships' House on more than one occasion, the 5 per cent. abatement was also a matter of containing public expenditure at that time, and those constraints are still with us.

6.26 p.m.

Lord Banks

My Lords, we have had an interesting and useful debate this afternoon, and I should like to thank all those who have taken part, whether they agreed with what I said at the beginning or not. I should also like to thank the noble Lord, Lord Trefgarne, for his reply. Of course, I am tempted to start replying to all the points that have been made during the course of the debate, but I must not do that. In any case, it has already been done very effectively, from our point of view, by my noble friend Lady Seear.

I should just like to say to the noble Lord, Lord Trefgarne, that I do not think he had quite correctly the basis of the financing of the 1979 Liberal plan. Since then, of course, there have been changes in Government taxation, VAT has been increased by the Government and there has been a very great increase in unemployment, which would make an increase in payroll tax—because employers' national insurance contributions are a payroll tax—very unwelcome at the present time. Therefore, in our recosting of the scheme, we are hoping to put the burden on to a slightly higher standard rate of income tax and higher taxation than we now have. But one has to bear in mind the impact on that rate of the credits, and the effective rate for a great many people at the bottom end of the scale would be lower than now.

I must not pursue that any further at this stage, but I was encouraged during our debate to find that there was support for the tax credit idea from my noble friend Lord Kilmarnock, who mentioned the new plan of the Social Democratic Party, and from the noble Lord, Lord Campbell of Croy, who referred to the Green Paper of 1972. Those two documents are not so comprehensive as the plan which I outlined at the beginning of our debate. But each is a step along the same road, as, indeed, is the proposal of Sir Brandon Rhys Williams, which was elaborated by the noble Earl, Lord Onslow. I regret that the Government have no plans at the moment to proceed in this direction. But I hope that all those who have expressed an interest this afternoon, and others who share that interest, will continue to press them to look again and again at this subject, because, as my noble friend Lady Seear pointed out, we have at the moment a most extraordinary muddled-up system which cries out for reform.

In concluding, I should like to reaffirm that we on these Benches maintain that the real value of benefits should be maintained and some benefits increased, that we should reform the structure and that it is feasible to achieve both those goals. Having said that, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.