§ 2.56 p.m.
§ Baroness Trumpington
My Lords, I beg to move that this Bill be now read a second time. I ask your Lordships to fasten your seat belts as I take you on a magical mystery tour of the Social Security Bill. The issues involved are tremendously technical and complex, but I believe that the resulting benefits will do a great deal of good for a great many people.
488 The principles underlying the Bill are central to the Government's broad philosophy. We are determined to improve job prospects, particularly for young people. We want to improve incentives by increasing the rewards of employment at modest levels of earnings. We need to ensure that all unnecessary artificial barriers to job mobility are removed. We believe in letting occupational pension and sick pay schemes operate effectively and efficiently. And we want, wherever possible, to give people maximum freedom of choice and the information they need to use it. These themes will recur as I explain the provisions in the Bill.
Before doing that, I should like to mention one path down which I hope we will not stray. I refer of course to the Government's Green Paper on the social security reviews published today, about which I will be repeating a Statement shortly. I hope therefore that your Lordships will agree that it would be unproductive to argue any points in the Bill which is before us today on the basis of what could only be a cursory glance at the Green Paper.
Let me return to the Bill, which contains a number of important measures. It covers occupational pensions, statutory sick pay, and ranges over much of the wide field of social security. I may from time to time depart from the strict sequence of clauses in order to discuss like subjects together, and I hope your Lordships will find this approach helpful.
Part I of the Bill is concerned with occupational pensions. We believe that occupational schemes have a vital role to play in providing decent levels of income in retirement. Over the years they have shown how they are able to develop to meet the particular, and often changing, needs of employees. They have demonstrated that they are sufficently flexible to fit themselves to the needs of their members. But sometimes it is not enough simply to rely on voluntary action by schemes to bring about improvements. Government then need to give a firm lead, and that is precisely what we are doing now.
The Social Security Act 1973 ensured that those who leave a scheme over the age of 26 with five years' service should have their occupational pension rights preserved. Up until then, these early leavers usually received only a refund of their own contributions. So the 1973 Act marked the first important step along the road to looking after the interests of the early leaver. But there was a problem. Nobody then expected the high inflation levels that occurred from the mid-1970s. The flaw in the preservation provisions is that pensions do not have to be increased during the time between the member leaving and the preserved pension coming into payment.
This means that many early leavers lose, and lose heavily. By the time their pension is paid its real value can have been eroded substantially by the effects of inflation. Not only is this manifestly unfair to individuals, but it is also damaging to the economic wellbeing of the country as a whole. Job mobility is essential to economic growth and prosperity, and it is therefore very much in the national interest that any artificial barriers to job mobility should be removed. It is clear that the poor deal received by many early leavers can be a powerful disincentive to job mobility.
489 Clauses 1 and 2 with Schedule 1 will provide future early leavers with a new deal. First, the age limit of 26 for preservation will be removed. That means that those with five years' service in a scheme will in future have to have their pension rights preserved, no matter what their age.
Secondly, preserved pensions will have to be increased in line with prices up to a ceiling of 5 per cent. a year compound over the whole period from leaving up to the scheme's pension age. This will apply to all benefits over and above guaranteed minimum pensions that accrue from 1st January 1985 for anyone leaving a scheme after the Bill comes into effect. This is broadly what the Occupational Pensions Board recommended.
There will of course be a cost for these improvements. Obviously costs will vary from scheme to scheme, but it is estimated that on average it will be between 1 per cent. and 2 per cent. of payroll. We do not intend to spell out how costs must be met. That must be for schemes and employers because they are best placed to decide what suits them. But they will be able to increase contributions for employers and employees, or both. Or they can meet costs out of the investment yields they have been able to obtain during the favourable investment conditions that we have seen over the past few years. Or they could restructure schemes' benefits, for example by taking state pensions fully into account.
Thirdly, we shall give early leavers the right to a transfer. Anyone leaving a scheme after the Bill comes into force will be entitled to the actuarial cash equivalent of rights that have built up in the scheme instead of a preserved pension. This value can be used to buy rights in another occupational pension scheme. Or it can be used to buy one or more insurance policies from a company of the leaver's choice. Or it can be used for any other arrangement approved in regulations. This will allow transfers to be made to a personal pension when they are introduced. The right to take a transfer will remain open until one year before the person concerned reaches the scheme's pension age. Future early leavers will therefore have the choice of securing their benefit rights in the way that best suits them. We believe that this is an important extension of freedom to choose.
There are two consequential changes resulting from these improved transfer rights. We are introducing a new state scheme premium, called a transfer premium. Basically, guaranteed minimum pension rights can be transferred only to contracted-out schemes. So if a leaver wants to transfer to a scheme that is not contracted-out, his GMP rights under existing law would have to remain in the first scheme unless he chose to secure them with an insurance policy. But when the new premium is introduced, the first scheme could preserve the GMP; it could secure them with an insurance policy; or it could pay the transfer premium, which would buy the leaver's GMP rights back into the state scheme.
The last part of this early leaver jigsaw puzzle is a provision for schemes to lose liability when benefit rights are bought out with an insurance policy. The law on this whole area has been uncertain for some time and the Bill is intended to end that uncertainty.
490 That is the early leaver package. Perhaps I can dwell here a moment and explain one important factor that we have had clearly in view when formulating these provisions. We have tried to strike the right balance between the needs of leavers and what schemes and employers can reasonably be expected to afford. We think we have got that balance just about right, not least because we have been criticised for going too far as well as for not going far enough. It is important that early leavers get a fair deal, but it is equally important that the solvency of schemes is not threatened. So we have set a reasonable standard of protection for future leavers, thus giving schemes the chance to make adequate advance financial provision. We intend to bring these improvements into effect from 1st January 1986. That is what my right honourable friend the Secretary of State announced last year, and we are determined to introduce these improvements as soon as we possibly can.
The other, equally important, parts of our occupational pension reforms are contained in Clause 3 and Schedule 2. They will ensure that scheme members will have sufficient information to enable them to safeguard their pension rights. An occupational pension can be the biggest single asset many people will ever have—worth even more than their homes. It must be right that basic information about their asset should be readily available to them. That is why we are taking powers in this Bill to set out in regulations the information which will have to be made available. The basic principles are contained in the Bill itself and the detailed disclosure requirements will be set out in the regulations. We shall be consulting fully on these very soon now. Our intention, though, is that members should get basic information about their rights and entitlements automatically. Other information about the way schemes are run and funds invested will be available to scheme members on request. Overall the detail will be sufficient to enable a qualified person acting on a member's behalf to form a complete picture of the scheme.
This will involve schemes in some cost, hut in general the level of information we shall require is what any well-run scheme, which conducts its affairs properly, would provide. So for properly run schemes the costs should be negligible, and of course the regulations will provide a measure of consumer protection.
The Bill also provides in Schedule 2 for a pension scheme register as a back-up to disclosure of information. I have to say that a number of people have expressed doubts about whether a register is needed. As my honourable friends have said in another place, we are open-minded on this issue. We are looking critically at whether a public register is needed in order to achieve the Government's aims and if so what form it should take. A decision will only be made in the light of a detailed evaluation of the various options open to us. In the meantime, the Bill gives us the necessary flexibility to follow the most appropriate course when the work of evaluation has been completed.
That covers the occupational pensions provisions in the Bill. I should now like to move away from this mysterious world into the I think slightly less obscure world of social security. First, national insurance contributions. Turning to Part II of the Bill, Clause 7 491 implements the national insurance contribution changes that were announced by my right honourable friend the Chancellor of the Exchequer in his Budget Statement. These changes constitute a major part of our programme to promote employment, especially for young people, and to focus additional help on those people in work at the lower income levels.
There are three main elements in this provision. First, we propose a graduated system of contribution rates. At present employees contribute at a fixed percentage of 9 per cent. and employers at a fixed percentage of 10.45 per cent. These rates are at present paid on all earnings up to £265 a week once earnings reach £35.50 a week. From 6th October we intend that there should be new, reduced rates at the lower earnings levels. For employees there will be three rates—known in the Bill as brackets—at 5, 7 and 9 per cent. And for employers there will be four brackets. They will be 5, 7, 9 and 10.45 per cent. Let me explain how this will work. For employees, people earning between £35.50 and £54.99 will contribute at 5 per cent. on all their earnings. For those getting between £55 and £89.99, the contribution rate will be 7 per cent., again on all earnings. And those earning more than £90 will pay at 9 per cent.
Employers' contributions will be similar. They will pay at 5 per cent. if weekly earnings are between £35.50 and £54.99; at 7 per cent. if earnings are between £55 and £89.99; at 9 per cent. if they are between £90 and £129.99; and at 10.45 per cent. if they are £130 or more. So from October employees will pay lower contributions if they earn less than £90 a week. Employers will pay less for people earning below £130 a week.
The second element of this provision will abolish the upper earnings limit for employers' contributions. At the moment, earnings above that limit—which is currently £265 a week—do not attract contributions. From 6th October employers will pay the 10.45 per cent. rate on all earnings for people getting £130 a week or more. The effect of this will be that employers will pay higher contributions for anyone earning more than £265 a week.
The third element, also from 6th October, will reduce Class 2 flat-rate contributions, which are paid by the self-employed, by more than a quarter. The rate will go down from £4.75 to £3.50 a week. There will also be comparable reductions in the voluntry Class 3 contributions available to people who, for a variety of reasons, wish to improve their contribution record.
Taken together, these provisions form probably the most significant change in the structure of national insurance contributions since full earnings-related contributions were introduced. Even with the increased income from the abolition of the upper earnings limit for employers' contributions, these changes will cost £450 million in a full year. That is made up of an £80 million reduction in employers' contributions, a £270 million reduction in employees' contributions and a £100 million reduction in contributions from the self-employed.
This change will have important social and economic consequences. First, it will foster the creation of new jobs as part of what my right 492 honourable friend the Chancellor has described as a Budget for jobs.
The cost of employing the 8.5 million workers earning less than £130 a week will reduce by as much as £3 a week. For people earning less than £55 a week, employers' contributions will be more than halved. This will make existing jobs more secure and provide an important stimulus to create new jobs in this part of the labour market. It will of course be of particular benefit for the job prospects of young people.
A second major effect will be to smooth out the cliff-edge effect of the present lower earnings limit of £35.50 a week. At the moment, people go from paying no national insurance contributions at all if they earn £35.49 a week to paying £3.20 if they earn £35.50—hardly an incentive situation, my Lords! From October, the person earning £35.50 would pay £1.78. The proposed changes will produce steps; but, as I have illustrated, they will be much less steep than the present cliff and this innovation has been generally and rightly welcomed by those with whom we have consulted.
A third, very important, effect will be to improve incentives by giving greater rewards for employment at modest earnings levels and provide the lower paid with higher take-home pay. We need here to consider the effect both of the contribution changes and the increases in tax allowances announced in the Budget. Again, some figures might be the best way of showing what I mean. For the 3.4 million people earning less than £90 a week the contribution changes will increase net income by between £1.10 and £2.20 a week. Taken with the tax changes, a young woman earning £50 a week would gain a total of £3.15 a week—a 6.3 per cent increase in take-home pay. A married man earning £80 a week would gain £3.33—an increase of 4.2 per cent. I think these examples give a good idea of the valuable help these people will get. Your Lordships may care to note that we shall take steps to ensure that the benefit rights of people who might otherwise be affected by these contribution changes are protected.
§ Lord Marsh
My Lords, may I ask the noble Baroness whether she has taken into account the effect that these changes will have on companies which suddenly find themselves faced with an annual increase in their wage costs, their labour costs, of anything up to £2 million or £3 million a year? On some large companies this will have virtually no effect while on others there will be vast effects.
§ Baroness Trumpington
My Lords, I think that the noble Lord is unfair to interrupt me in the middle of my speech. So far as I know he has not put his name down to speak during the debate. There is a gap in which he can make his point later.
Let me continue by saying that, lastly, on the subject of contributions, perhaps I can briefly mention Clause 8 which puts right a recently discovered defect in the powers of the Secretary of State to vary by regulations the special rate of national insurance contributions paid by registered dockworkers. It will regularise retrospectively what is already happening, and nobody will pay any more than they do now.
Part II of the Bill deals with a number of other social security items. Clauses 9 and 14 both relate to 493 invalidity benefits. Clause 9 provides that where both invalidity allowance and the earnings-related additional component or guaranteed minimum pension are payable with invalidity or retirement pension, the invalidity allowance will be reduced by the amounts of the other increases. Let me explain why we are doing this. Invalidity allowance was introduced in 1971 specifically to help people who became disabled or chronically sick early in life and therefore had no opportunity to build up savings or pension rights for retirement. There are three rates of allowance, depending on the person's age at the onset of sickness. The younger you are when sickness begins, the higher the allowance.
The additional component, which began to build up from 1978 as part of the new pension arrangements, and the equivalent guaranteed minimum pension for those in occupational pension schemes, increase the basic retirement pension. So both are in fact savings for retirement. They serve broadly the same purpose as the invalidity allowance, and this has led to duplication of cover. Something like 375,000–44 per cent.—of the 850,000 invalidity pensioners that we expect there to be in November 1985 will be subject to some degree of offset. But for many the overlap will be small. I must make one thing very clear. At no stage will anyone suffer an actual cash loss. We shall have transitional arrangements that will ensure this.
The amount of offset will vary between a few pence and £7.50, which is the maximum rate of invalidity allowance. But to put this into proper perspective, at April 1983 only 1,100 people receiving the highest rate of invalidity allowance were also receiving an additional component which equalled or exceeded that amount and thus would lose the full £7.50. In general, the amounts are likely to be small and to be covered entirely by the November up-rating. In effect, invalidity pensioners will receive the higher of invalidity allowance and additional component or guaranteed minimum pension.
Clause 14 requires my right honourable friend the Secretary of State to restore, at this year's uprating, the 5 per cent. abatement of invalidity benefit made in 1980. That means that invalidity benefit rates will be increased by that 5 per cent. over and above the increase due this year to compensate for the rise in prices. This will also mean that in all but a few cases the increased rate will more than offset the effect of the abatement provided in Clause 9.
The combined effect of the invalidity package will be cost neutral in 1985–86, will save about £5 million in 1986–87, and around £20 million in 1987–88.
We now come to three provisions which all move us further along the road to achieving equal treatment for men and women. First, there is Clause 10. This will finally remove what is known as "the married women's half-test", and will extend pension rights to about 25,000 married women who are at present disadvantaged by the residual effects of that test. This will be effective from the date the European Community's equal treatment directive took effect, which was 22nd December 1984.
As soon as the legislation is passed we shall identify and contact all the married women who stand to gain, so that we can invite claims from them. The cost of 494 this will be about £25 million in this financial year, gradually reducing in succeeding years until, by the end of the decade, it falls to nothing.
Clause 11 also extends equal treatment. From this November the rate of the non-contributory over-80s pension for married women will be increased. All married women who qualify for this special non-contributory pension at the lower rate, currently £12.85, will then be entitled to the standard rate, at present £21.50. This is, we believe, a worthwhile and long-overdue rationalisation of the non-contributory retirement pension scheme for pensioners over the age of 80. It will end an unfairness between elderly married women and other elderly people. The cost is very small—some £75,000 in 1985–86 and £225,000 in 1986–87, which will be the first full year of operation. But the low cost should not prevent its being welcomed as a useful improvement for these elderly people.
Clause 12 will provide equal treatment for male and female beneficiaries who claim dependency additions for their wives or husbands respectively. The European directive on equal treatment does not oblige us to provide equality here, but we nevertheless believe it is right for us to do so. We also wish to establish what can be seen as a more realistic test of dependency than the present rule which applies to the wives of male claimants to invalidity pension. That rule tapers the reduction in the adult dependency addition from earnings of £45 a week. We think it is unrealistic to have a figure that is so much higher than the dependency addition itself. It can mean that the so-called dependant is earning more than the beneficiary would be receiving in benefit for himself. The clause allows the change to be set out in regulations which will be subject to affirmative resolution procedures.
The intention is that the level should be set at the rate of unemployment benefit, which is currently £28.45 a week. That seems to us to be the right level. It is somewhat more generous than the existing rules applying to the husbands of women getting invalidity benefit, but less generous than that at present operating for wives of men getting invalidity benefit.
There are two other social security measures I should like to mention. Clause 13 makes a small but, I hope, very useful and welcome change to special hardship allowance. This allowance compensates people who have reduced earnings because of an accident at work. The rate of the allowance is based on the difference between present earnings and earnings in the claimant's regular occupation before the accident. One effect of this is that at present someone who had no regular occupation, such as a student doing vacation work, cannot qualify for the allowance. This clause enables regulations to be made to provide for this sort of case.
Clause 15 is concerned with a judgment made last year in your Lordships' House. It provides that, generally speaking, a person should not be regarded as entitled to benefit unless a claim has been made within the prescribed time limit. Until a House of Lords judgment on 22nd November 1984, successive Governments had always understood the law to mean precisely that. This clause restores the law on entitlement to what we always thought it had been before the judgment. That, then, is Part II of the Bill.
495 Part III is all about statutory sick pay. SSP was introduced in April 1983. Broadly, people get sick pay from their employer rather than from the state for the first eight weeks of sickness.
This whole story resulted from the successful way in which occupational schemes have been introduced by employers to cover absence through sickness. As far back as 1974 some 80 per cent. of employees were covered by occupational sick pay and state benefit was no longer the major element of income during short spells of sickness. It was clear that there was duplication of effort and provision between the state and occupational schemes so, after lengthy consultations involving organisations representing employees and employers, we introduced SSP.
The scheme has now been running for over two years, and the evidence we have indicates that it is both popular and successful. Employers have successfully incorporated SSP into their payment systems and we have received very few complaints about its operation. As far as employees are concerned, we have clear evidence that the majority prefer SSP to the state sickness benefit scheme. They find it more convenient and prefer to get their money from their employer when they are ill.
As I have said, my Lords, SSP covers the first eight weeks of sickness. But it is important to realise that it does, in fact, cover 90 per cent. of all periods of sickness. By Clause 16 we now intend to build upon this successful start by taking the logical step of extending the scheme to cover periods of sickness up to 28 weeks from April 1986. This means that people who are sick for longer than eight weeks will continue to receive SSP from their employer until they qualify for invalidity benefit. It will be more straightforward than the present arrangement whereby a person goes from SSP to sickness benefit and then to invalidity benefit.
There will also be financial effects. The overall effect in net Exchequer terms is a saving of £25 million.
Clause 17 enables us to relieve employers of the cost of their share of national insurance contributions paid on SSP. That will mean a saving to them of up to £60 million a year, and we shall make that effective back to April this year. I am sure that this will be welcomed by employers, who have played a vital role in making the scheme such a success.
These provisions are a good illustration of our determination to ensure that benefits reach people in the most efficient way. And, by encouraging the spread of occupational schemes, we firmly believe that benefits will develop that are better fitted to the needs of employees.
Part IV contains, in Clauses 23 to 30, all the nuts and bolts that hold the Bill together and make it work, together with some minor provisions in Clauses 20 to 22. I do not propose to go into these now, although obviously I shall be happy to do so later if I am so asked.
My speech, despite its length, amounts to a very quick canter over the main provisions in the Bill. As I said when I began, it covers a wide range of technical and sometimes obscure subjects, but I hope that what 496 I have said will be sufficient for your Lordships to be able to agree with me that it will help a great many people and do a great deal of good. I commend this Bill to your Lordships.
§ Moved, That the Bill be now read a second time.—(Baroness Trumpington.)
§ 3.29 p.m.
§ Lord Stallard
My Lords, perhaps I may first congratulate the noble Baroness on what I consider to be her first major contribution on a Bill from the Dispatch Box, and on the way in which she cantered through this awful Bill which is now before us. In view of the Statement on the future of the social security and welfare system generally (which I had hoped would come before this debate started rather than in the middle of it) and the discussion that will inevitably take place on that Statement both here and in another place, I have the impression that this debate, and indeed this Bill, is a little unreal. It seems a wee bit out of place that we should be discussing this in view of the awful things that are about to descend on us in relation to the whole scheme. It is no surprise of course because I have been saying that on every social security debate here over the past few months and certainly since the reviews were announced.
It always appeared to me and to many others that the most sensible thing to do would be to await the outcome of the reviews, to have consultations and then sit down and discuss in a reasonable way permanent and acceptable legislation that would fit the new circumstances as need arose. That seems to be a more sensible approach than this "thinking-on-your-feet" legislation to which we have been treated over the past 12 months. It is almost like the Government standing up and saying, "What shall we do with this? Let us do this; and because we have a huge majority there is no limit to what we can do, so let us do it anyway". It is bad legislation which comes from that kind of approach, and I have said so on a number of occasions.
Where there is an urgent problem, I would accept that we must be flexible enough to deal with it immediately it arises. I first of all therefore looked in this Bill for what was urgently needed in the field of social security in advance of the reviews. I would have thought that the proposals regarding occupational pensions could wait for more detailed scrutiny of our existing schemes. In my view that could and should happen because a great deal of discussion is going on outside among professional bodies and others about the whole future of occupational schemes—how they should be funded, and so on—and we could have awaited the discussion that will inevitably take place after the reviews. I think it must be apparent that anything we do now, even on occupational pensions, will have to be fitted into any future legislation.
Another main aspect of the Bill deals with invalidity benefits and allowances. Could not such changes dealt with in this Bill have been dealt with in the same way as exactly the same changes were dealt with in relation to other abated benefits? I give as examples unemployment benefit, which was abated, and the invalidity allowance, which was also abated. They were dealt with in the ordinary way in the annual 497 review, and there was no need for primary legislation then to do that. What is the need for primary legislation to do it now, unless there are other motives? I say there was no need for that and therefore there was no urgency so far as that is concerned. What is urgent about the need to extend the privatisation of statutory sick pay, particularly when the Government so fiercely resisted just such a proposal from their own supporters during the Committee stage of the original Bill which introduced the eight-week scheme?
There was a proposal from the Government side that the scheme should be extended to 28 weeks, and that the employers should be relieved of national insurance contributions. But the Minister in charge of the Bill fiercely resisted that proposition in Committee. The Government were defeated at that time but they then put on a very heavy Whip when the Bill was reported back in the other place, and they were able to defeat—for a whole number of reasons I shall not go into now—any attempt to increase the eight weeks to 28 weeks and to relieve the employers of their national insurance contributions. That was the present Government's stance—it was not the stance of any past Government—and therefore what is now so urgent that they are going to do this about-turn and introduce what they had so fiercely resisted not so very long ago?
I therefore say that after today's Statement which is about to be made, and in view of the possible legislation that is to follow, my view is that this Bill can have only two functions. First, it complies with Treasury demands for immediate savings this year: hence the unprecedented number of new clauses and amendments that were put down to this Bill in the other place, not during the Committee stage when they would normally have been put down, but during the Report stage. As we all know, both here and in the other place the rules of debate are different in the Report stage from those which obtain in the Committee stage. For instance, one can only speak once in a Report stage and therefore the debate is of necessity limited and the necessary scrutiny of those 40 or 47 new clauses or amendments that were put down by the Government was in my view inadequate. That was also the view of many Government supporters. It was a rushed attempt to comply with the Treasury's demands that savings be made: that was the first conclusion that I came to.
My second conclusion was that, with the spectre of this onslaught on the social security and welfare services hanging over us, this is really a paving Bill. It really only paves the way for what is to happen in the future. It supplies a number of sweeteners both to beneficiaries and employers but it paves the way for the things that are about to happen, not just to the benefits but to the whole basic principles of the social welfare system that have been built up over many years. I would not argue for one moment that it is perfect, and it most certainly needs review—I do not think any of us would deny that—but it is still the envy of countries throughout the world, and it is still a model for many similar welfare systems. Therefore in my view this Bill is an attempt to pave the way for the now widely-expected attacks on pensions and on other benefits.
498 Taken by themsleves, as the noble Baroness has outlined, some of the provisions in this Bill could, with reservations and amendment, be acceptable. I certainly welcome, with reservations, the occupational pension motives—the question of transferability, job mobility, and so on. I would certainly welcome some of those changes. The noble Baroness mentioned the half test for married women and I would certainly welcome that. Many of us have raised that point in the past.
A number of things can be welcomed. The noble Baroness mentioned the over-80s, and we welcome what she said. We would welcome the extension of the earnings limits, although we would remind the noble Baroness and others of the Government's manifesto commitment in 1979 to abolish the earnings limit altogether. So although we welcome any extension of the earnings limit, I would have thought that Government Members, with their commitment to what is said in the manifesto (which has been so much stressed recently) would have been keen to take this opportunity to put into effect that manifesto undertaking. However, they have not; and we are grateful for small mercies.
I am also grateful for, and welcome, the extension to the pneumoconiosis Act. I cannot at this stage go into the statistics which the noble Baroness mentioned because I have not had a chance to study them but I shall study them and come back on them later.
However, in regard to Clause 22 I would ask her why is it necessary to introduce pensions for those particular individuals at this stage in the pension discussion? As I say, there are some things which are to be welcomed but only in the context of this Bill. If we take them in the context of the whole legislation that is about to come, then of course they take on a different character altogether.
I should like to say a few words about the main proposals, and I recognise they can only be a few words in view of the fact that I have only just heard the noble Baroness's opening remarks. I, together with many colleagues, have spent long hours into the night in another place discussing social security legislation—certainly in the early and middle '70s and into the '80s—and I always understood, though never accepted, that the Government's broad policy stance, which was made clear right from the start and which has been spelt out by all Secretaries of State and Ministers who have been involved in the work of the department ever since, was that any measures introduced had to be at nil cost. Indeed, savings had to be maximised. That is the policy stance they take on all these matters of social security, and any extra benefit or concession granted would only be at the expense of other parts of the service.
Here again we have that stance repeated by the Secretary of State in this present Bill, when in his opening remarks, dealing with Part III, he said that this would save money and staff in his department. That has been the basis for the statutory sick pay extension. So we know that. As I said, we understand it although we do not accept it. But I would challenge the Minister, because he went on to say in that opening remark, in col. 676 of Hansard of 26th November 1984 of the other place, after making his point about 499 the savings to be effected by the expansion of privatisation and the sickness benefit scheme:The responses that we have received suggest that many employees prefer statutory sick pay to sickness benefit from the state".And in press releases they included employers in that general welcome. It was welcome, they said.
Let me challenge the Minister to produce the evidence for that. It must be available in the department and it must therefore be available to her. Why can we not see the evidence which was obtained from employers and employees about the enthusiastic welcome for this new statutory sick pay? I have sought the views of workers and employers in my old constituency, and I am bound to say that I found little enthusiasm for the present scheme, let alone the proposed extension; and it is not difficult to understand why.
For example, during the past 18 months companies and small businesses have been forced to set up their own administrative arrangements to operate the statutory sick pay. This has of course increased their overheads and it must be obvious that individual companies cannot possibly achieve the same economies of scale available to a centralised body such as the DHSS. Because employers under the scheme are liable for the full cost of any wrongful payments, innocent or otherwise, they have to go through the costly process of keeping detailed records of absences and must justify all statutory sick payments. Even then, last December the DHSS stated that out of 180,000 cases checked, one in six—that is, 16 per cent.—made either overpayments or underpayments. So there is no cause there for enthusiasm from either side, and I fully understand the point that the noble Lord, Lord Marsh, made in that unfortunate interjection.
In a paper produced last year the Spastics Society said:In some instances, small firms have taken to paying their employees full pay during short periods of sickness. It is an easy way out—especially where low paid employees are concerned. Faced with the administrative headaches of SSP and the risk of paying penalties if they get the calculation wrong—or for that matter if the DHSS inspectors do not agree that genuine sickness was involved—it is often cheaper to take this course of action. In the short term, of course, this also works in the employees' favour".I understand that.Unfortunately, if the sickness subsequently develops into a long term chronic illness, because the original sick time was never recorded, this can adversely affect the employee's qualification for the longer-term invalidity benefit, i.e., because there would be no record of an 8-week period of illness. If employers continue this practice for 28 weeks, this could have very serious implications for those long term sick employees who try to claim invalidity benefit".So there is not a lot of enthusiasm coming from people who understand those aspects of the scheme itself and of the extension to it.
As we all know, the statutory sick pay rates are paid on the basis of salary, not of need, and therefore families with children are worse off under the SSP than under the national insurance sickness benefit. Taxation and national insurance contributions are also payable on the SSP, but not on national insurance sickness benefit. Indeed the Government Minister himself recognised this when he was opposing the 500 extension to 28 weeks. I do not understand this volte face of the Minister who opposed this—it certainly suits me; it suits most of us in this debate—when he said:If we were to extend that period—eight weeks to 28 weeks; this is the Conservative Government Minister speaking—there would be problems with employees with families.There has already been much criticism of the sick pay scheme on the basis that it provides for flat rate payment, irrespective of family circumstances … That argument would be much reinforced if we were to carry the period beyond 28 weeks.".That is what the Government Minister said, and I agree with him. I seldom agree with Government Ministers, but he was absolutely right. So where was this enthusiastic welcome that the Secretary of State found when he talked to employers and employees? I really think that we are entitled to some evidence of that kind of satisfaction, if indeed it exists.
In money terms—I was not able to take down the noble Baroness's statistics, and they are probably different from mine, anyway—it means that a married man earning £60 a week would receive £32.26 under the statutory sick pay scheme, as opposed to £44.50 under the national insurance sickness benefit. I am bound to say he will be enthusiastic if he has already had an £8 reduction in his benefit! So that, together with all the other anomalies that have been exposed under the existing eight weeks' scheme and the proposal to extend privatisation to 28 weeks, will in my view only exacerbate the problems that already exist.
The Spastics Society, to whom I am grateful because they produced last year the excellent paper I have mentioned—I dare say most Members have read it—said in another part of their paper:Since most ordinary illnesses such as severe colds, flu and other viruses—are fairly shortlived, it is likely to be the more serious illnesses which last for up to, or more than, 28 weeks. In consequence employers are, more than ever, likely to discriminate against people with frequent sick records".Similarly, disability is often mistakenly equated with poor health and the possibility of frequent absences. Trades unions have already noted an increase in employers monitoring sickness records, which underlies the preoccupation with past health records of prospective employees. The rate of unemployment among disabled people is disproportionately higher than that for other able-bodied job seekers, and the 28-week extension will do little to improve the situation.
Indeed, the chairman of the National Federation of Self-Employed and Small Businesses has already gone on record as saying that employers and the specialist mono-businesses will be viewing disabled applicants with a very unfavourable eye. I do not think I need say much more about that sickness scheme, but I have doubts about the enthusiasm. If I needed any more arguments—I do not think I do—I would ask the noble Baroness to consider the fact that in this Bill the Secretary of State is advancing the concession on employers' contributions to the current year, instead of waiting until the operation of the scheme next year; and that is surely an attempt to sweeten the pill that I have been discussing.
501 So on to the invalidity pension. The proposal to restore the 5 per cent. abatement to IPB, the invalidity pension benefit, has been welcomed in some quarters, and I can understand that. But I personally see no case for congratulating the Government on restoring a cut which should never have been made in the first place. I can recall the long arguments that we had during the Committee stage of the original Bill when this 5 per cent. cut was made. It was made then, it was said, in lieu of taxation. These benefits were to be taxed. It was the Government's intention to introduce a tax scheme dealing with invalidity benefits and this benefit was to be abated. That was a posh word for cut. It was to be reduced by 5 per cent. in advance of that abatement. The Government certainly pledged themselves on many occasions—and there are a number of parliamentary replies to questions that I could quote if I had time—to bring in this taxation scheme for those benefits, but they never did.
As I said before, the restoration could have been made at any time. It did not need primary legislation. It needed only something in the annual up-rating, like the other abated benefits had already had. So we are entitled to query why it is in the Bill. The Government are surely admitting that no tax scheme is possible for this benefit. Certainly, to introduce a scheme to tax people who are already below the tax threshold is understandably difficult, if not impossible. The Government have now admitted this and they are therefore proposing to give back this invalidity benefit.
Instead of just mentioning statistics about how much it will mean, taking Clauses 9, 10 and 11 into consideration, there is a justifiable argument for making retrospective compensation to all those people who have lost the 5 per cent. benefit, to which they would have been entitled if it had not been abated. That should now be given back to them in ordinary justice. If the benefit was cut allegedly because of the introduction of a tax scheme which can now no longer be implemented, it can be restored. I should like to ask the noble Baroness to consider at what stage of the Bill she will recommend the retrospective payment of that cut.
I have not said anything about the occupational pension proposals, though I should love to do so, because, as the recipient of a small deferred—certainly not transferred—pension it might be thought that I have some interest to declare, which might be true. So I have avoided saying too much about that, but I shall certainly be extremely interested in the outcome.
I should like to conclude by mentioning something to which I referred earlier, which I consider to be urgent and just, and which could have been included in this Bill since this is the only vehicle that there is. I refer to the invalid care allowance and the omission of married and cohabiting women from entitlement to that benefit. We have deployed arguments on this in committees for many years, and I supported the Spastics Society in its campaign to get the invalid care allowance paid to married women and those other categories. I hoped that the Secretary of State could have put that omission right in this Bill. It would have been a justifiable urgent step on which to amend any Bill. So I hope to be able to return to this and other matters at later stages of the Bill, but for the time being I shall certainly read the record of this debate today.