§ 7.25 p.m.
§ Lord Henley
My Lords, I beg to move that the three draft orders and the three draft regulations all of 1990, standing in my name on the Order Paper be approved.
Before I address the orders I wish to repeat a point made by my right honourable friend the Secretary of State for Social Security on 25th October in announcing the uprating of social security benefits. In the coming year we shall be spending a record amount on social security; that is, more than £55 billion. This means that expenditure on this vital area will be running in excess of £1 billion each and every week. I believe that that is a measure of two important issues: first, the success of the Government's policies in generating wealth which can be shared by all: and, secondly, the level of our commitment to a social security system able to provide real help to those whose need is greatest.
I should first like to set out our intentions for financing contributory benefits, on which we plan to spend more than £30 billion in 1990/91. For the seventh year running we do not propose to change the rates of Class 1 contributions in the coming year.
1167 However, the lower and upper earnings limits will be raised to £46 and to £350 per week respectively. Therefore, most employees will pay less in Class 1 contributions.
As regards employers, we propose to increase each of the earnings limits below which they pay lower contribution rates roughly in line with inflation and rounded to the nearest £5. These proposals ease the cost of employing some lower paid workers, and I am sure that the House will welcome that.
As regards self-employed people, we propose to increase Class 2 contributions by 30 pence to £4.55 per week from next April. We do not propose any change to the profits-related Class 4 rate paid by some self-employed people. The profits limits on which contributions are payable will be increased to £5,450 and £18,200 respectively.
I turn to the draft Statutory Sick Pay (Rate of Payment) Regulations. They have been considered by the Social Security Advisory Committee, and its report incorporating the Secretary of State's response is also before the House. The regulations provide for an increase, by more than the level of inflation for the lower rate of SSP, of £3 to £39–25. The higher rate is increased by the more limited sum of 40 pence to £52.50. The regulations also propose that the earnings threshold which determines when the higher rate becomes payable be increased from £84 to £125 per week. This produces some limited restructuring of the earnings band which divides the two rates in order to restore the position to that which applied when SSP began in 1983.
I stress to the House that the regulations will not generally lead to employees receiving a reduction in payment when sick. That is because the difference will be made up by occupational sick pay from the employer, which now covers 91 per cent. of employees.
I readily acknowledge that, because of the way that SSP and occupational sick pay schemes interact, employers will, under the proposals, bear a slightly greater proportion of the cost of short-term sickness. However, compared with total labour costs of business of approximately £250 billion, the shift is very small and we do not believe it to be unreasonable. The changes in SSP are wholly consistent with the Government's objective to help those most in need.
I shall now, if I may, briefly address the Guaranteed Minimum Pensions Increase Order 1990. This order obliges occupational pensions schemes which are contracted out of the state earnings-related pensions scheme to provide post-award increases of GMPs (earned in the tax year 1988–89) by 3 per cent. from the 6th April this year.
The draft Social Security (Recoupment) Regulations largely flesh out the administrative details of the recoupment scheme. There are two matters which make these regulations subject to the affirmative procedure: first, the range of benefits in regulation 2; and, secondly, the small payment limit in regulation 3. The benefits were announced during the passage of last year's Bill and there are no 1168 surprises in regulation 2. The list is as it was when we first announced it and is broadly the same as the list of benefits which are currently offset by compensators.
My honourable friend the Minister of State announced the small payment limit of £2,500 on 21st December last in a Written Answer in the other place. It is a 60 per cent. increase on the original £1,500 figure proposed by Touche Ross and will reduce the administrative cost of the scheme by leaving about 37 per cent. of cases subject to offsetting. In this way compensators will continue to claw back about £2 million a year which will help towards any additional costs which they may have from the scheme.
The draft Social Security (Industrial Injuries) (Regular Employment) Regulations stem from the abolition of the pensioner's earnings rule. These regulations are beneficial and clarify the likely entitlement to reduced earnings allowance of people who are either approaching or are over pension age.
I shall now turn to the Social Security Benefits Uprating Order 1990. This order provides for an increase in retirement pension and virtually all other benefits which are not income-related of 7.6 per cent. which is the increase in retail prices which took place between September 1988 and September 1989.
I am well aware of the strong feelings of noble Lords and of honourable Members in another place about the Government's decision not to increase the level of child benefit this year. I do not propose to repeat everything that has already been said on this subject, but I shall make just a few observations which I hope noble Lords will bear in mind.
As my right honourable friend the Secretary of State said only last week, targeting involves making judgments about the needs of different groups at a particular time and the relative weight of their claims to any additional resources that can be made available. In fulfilling the legal requirement to review the level of child benefit this year my right honourable friend took account of the rapid and considerable increases in real incomes of the great majority of working families with children.
Over the past year alone the real take-home pay of a married man on average male earnings, including the effect of the £3 a week reduction in national insurance contributions, has risen by around £20 a week. For a married man with two children it has risen by around a third over the past decade. And in the numerous cases where both partners are working, the overall increase in family income will have been even greater. It was against this background of rapidly rising living standards and substantial extra resources being made available in this year's uprating that my right honourable friend felt on this occasion that greater priority should be given to the needs of less well-off families who are out of work or in low-paid work, pensioners, disabled people, their carers and families with disabled children.
The final observation which I would wish to make is simply that not only would an increase in child benefit, at a net cost of £250 million, have given relatively small amounts to large numbers of families 1169 who cannot be said to need it, but, more to the point, it would have done nothing at all to help the 3 million children (almost a quarter of all children) in families receiving income support and family credit because these benefits are adjusted to take account of changes in child benefit. In contrast, what we have done by directing more resources to families with children through the income-related benefits is to bring the total amount of extra help provided for these families to over £350 million a year in real terms since April 1988.
Thus, in deciding the level of benefits for April this year the Government were able to go beyond the normal uprating of benefits in line with prices through a package of extra help to priority groups. For example, the family premium income support, housing benefit and community charge benefit will be increased by an extra 50p above inflation and an extra £1 a week will reach those working families getting family credit. With the introduction of family credit we are now spending twice as much on working families with children compared with its predecessor, family income supplement.
The lone parent premium in housing benefit and community charge benefit will be increased by 12.8 per cent. from £8.60 to £9.70 a week. From October the amount lone parents can earn without affecting their housing and community charge benefit entitlement will be increased from £15 to £25 a week. These changes will help about 95,000 lone parent families. We are increasing the social fund maternity payment from £85 to £100. We have increased the social fund capital level which people aged 60 or over may hold from £500 to £1,000. This improvement took effect on 1st January 1990 for cold weather payments and applies to other social fund payments from 9th April 1990. This will enable more elderly people to be helped by the social fund.
We are increasing the adult disability premium in income-related benefits from £13.70 to £15.40, which is £1 more than inflation. We are more than doubling the child's disability premium in income-related benefits from £6.50 to £15.40. These changes and others we are proposing will provide significant extra help to many people whose need is greatest.
While concentrating on the changes contained in the order, it is right that I should also remind the House of a number of other changes which have been, are being or will be brought about by other mechanisms but which are very much part of the context in which this particular order is brought before the House.
Last October we abolished the pensioners earnings rule and made substantial increases in the income support and housing benefit premiums for disabled pensioners and those over 75. We are preparing and will shortly lay regulations to extend attendance allowance to families with severely disabled babies and to extend mobility allowance to those who are both deaf and blind.
The current Social Security Bill now in Committee in another place extends attendance allowance to the terminally ill without the normal six-month waiting 1170 period and provides for an age-related addition of the severe disablement allowance. Last week we referred to the Social Security Advisory Committee draft regulations, all of which we hope to make by April, to make further beneficial changes in relation to income-related benefits, of which I should mention one in particular.
As described in an answer given by my honourable friend the Parliamentary Under-Secretary last week, we shall double to £10 a week the current disregard for charitable and voluntary payments made to people receiving an income-related benefit and disregard completely any regular charitable or voluntary payment intended and used for an item other than certain accommodation costs met by benefit, food, ordinary clothing or footwear and household fuel. This change will allow charities, voluntary bodies and relatives to give more help to people without affecting their benefits.
The increase in social security expenditure between 1989–90 and 1990–91, most of it arising from this order, is £3 billion. It takes the total of social security expenditure next year to nearly £56 billion. As I said at the start of my speech, that is over £1 billion each and every week.
But what is no less important than the amounts involved is what we are doing with it and the people we are seeking to help. Taken together, these changes and those relating to the wider changes providing help for disabled people announced by my right honourable friend on 10th January mean that in a comparatively short space of time we will have brought about a real improvement in the position of nearly 3 million of the least-well-off pensioners, 850,000 disabled people and carers, 1.5 million low-income families with children, including nearly 100,000 lone parents and around 50,000 war widows.
Next year we shall be spending more than ever before on social security, with expenditure running at more than £1 billion each and every week; that is, £20 per week for every man, woman and child in the country. I believe that the changes that we are proposing are a demonstration of this Government's commitment to a social security system which delivers real help to those whose need is greatest. I commend the orders and regulations to the House.
Moved, That the draft order laid before the House on 18th January be approved [6th Report from the Joint Committee]; That the draft order laid before the House on 18th January be approved [6th Report from the Joint Committee]; That the draft order laid before the House on 18th January be approved [6th Report from the Joint Committee]; That the draft regulations laid before the House on 18th January be approved [6th Report from the Joint Committee]; That the draft regulations laid before the House on 18th January be approved [7th Report from the Joint Committee]; That the draft regulations laid before the House on 18th January be approved [7th Report from the Joint Committee.]. —(Lord Henley.)
§ Lord Carter
My Lords, we are very grateful to the Minister for the way in which he introduced these Motions and I congratulate him on the lucidity with which he dealt with these very complicated matters. 1171 I have very little to say about the guaranteed minimum pensions order and the social security industrial injuries regulations; the changes seem to be largely technical.
In relation to the industrial injuries regulations the Minister neglected to remind the House that it is, as I understand it, the Government's intention to abolish the reduced earnings allowance for all new claimants. I propose to concentrate on the re-rating, the uprating and the recoupment regulations. We should remind ourselves that the total paid in national insurance contributions of some £32 billion is two-thirds of the amount raised in income tax. It is a pity we do not often have the opportunity to debate the tax and national insurance systems together because for most low-paid people national insurance is a more relevant "tax" than income tax.
The noble Lord the Minister referred to the record amount of £55 billion which the Government are spending on social security. I expected him to quote that figure. Perhaps I can remind him that almost every spending programme of all government departments has increased every year from time immemorial, with the exception under this Government of agriculture. However, I remind the House that social security now receives a lower share of national resources than 10 years ago, despite 3 million more people on income support, twice as many unemployed and 1 million more pensioners.
Mr. John Hills has pointed out that,Overall, the bottom half of the population has lost £6.6 billion"—that is, in tax changes and benefit changes —of which £5.6 billion has gone to the top 10 per cent. and £4.8 billion has gone to the top 5 per cent.With regard to child benefit, as the Minister said, this has now been frozen for the third year running and that freeze is worth £250 milllion to the Government. That is to be compared with a £70 million increase in family credit. The real value of child benefit has been cut by 20 per cent. We are told that child benefit goes to those who do not need it because it is paid, as we know, regardless of income. However, when it comes to targeting it, as the Minister will know, that is a logic not applied to mortgage interest relief, to the contributions to private pension schemes and now to tax relief for private health schemes for the elderly. The richer you are the more you benefit from those reliefs.
Something that struck me recently was, as I understand it, that the figure for uprating child benefit is actually included in the public expenditure plans of the department, and therefore when the Government decide to freeze it, obviously they have those funds available to use for increases in other benefits. I should be glad if the Minister could comment on that. No doubt we shall return to child benefit and the Social Security Bill when it reaches this House in one or two month's time.
I saw a quotation from the other place at col. 931 of Hansard on 7th February. Mr. Paul Flynn referred to a Conservative MP who appeared on a Channel 4 TV programme explaining to aspirant Members of 1172 Parliament from Hungary and Poland how to write a manifesto. He said:In the Conservative manifesto of 1987 we made a promise about child benefit, saying that it would be paid as now and direct to the mother. Of course, when we come up against a problem, we can look back to the manifesto and if we want to pay the benefit, we can pay it, but if we do not want to pay it —if we want to freeze it —we can freeze it because the sentence was ambiguous". —[Official Report, Commons, 7/2/90; col. 931.]That is a revealing quotation. I may have been out of order when quoting from Hansard of another place. If so I apologise to the Minister, which will save him time in reminding me. I should perhaps have paraphrased it.
I shall say only a few words about retirement pensions because I know that my noble friend Lord Stoddart of Swindon will be speaking about pensions. The point about breaking the link with earnings has been made many times in the past, but it is worth reminding ourselves that if the link had not been broken, the single pensioner would be receiving £60 per week instead of £46.90 and for a married couple the pension would be £95.80 instead of £75.10.
Perhaps I may repeat a point I made before. Most of the financial surplus in the public sector for which the Government take credit results from breaking the link between earnings and pensions. The repayment of the national debt is in fact coming out of the pockets of pensioners. I am sure the Minister when he replies will refer to the other sources of a pensioner's income, but if so he must attempt to deal with the point that more than half of all pensioners live on or near the poverty line.
Another point which has often puzzled me in respect of pensions is that in private pension schemes it is standard practice to link the eventual pension payment to earnings. Since the Government believe that the private sector knows best about most things, why does not the practice of the private sector also apply to the public sector when it comes to retirement pensions?
I turn now to statutory sick pay. What we have seen amounts to a downgrading of statutory sick pay. The lowest rate of SSP has been increased by a princely 25p per week more than inflation. The highest rate increased by £3.55 —less than inflation. The increase is in fact 0.76 per cent. As the Minister said, the higher rate now to be paid is £125 a week instead of £84 a week; that will cost employers the slightly greater amount of £80 million per year.
The Minister also said, as was quoted in another place, that 91 per cent. of employees are now covered by occupational sick-pay schemes and the Government are looking to those schemes to make up the difference. If those schemes have to pay out more as a result of that, what will happen to the premiums for those schemes? Presumably they will have to increase. The rise in the earnings threshold means that hundreds of thousands of workers will be disqualified from higher rate statutory sick pay. As the Minister said, the Social Security Advisory Committee did not approve of this change. It would perhaps have been helpful to the House if the Minister had briefly given the reasons why the Government rejected the advice of the SSAC.
1173 I turn now to the recoupment regulations. That was a subject which we discussed at great length during the Social Security Bill in the last Session. Most of us understand the clawing back of benefits related to income. What we fail to understand is why that part of the compensation which relates to pain, hurt or suffering should be clawed back. As I say, that is a point we debated at great length on the Social Security Bill. We believe that change could lead to further delays for victims who are awaiting compensation. We are also entitled to ask the reason for rejecting the advice of the British Insurance Association when it suggested that the small payment limit should be £5,000 rather than £2,500 which is the figure in the regulations.
Is there a danger with the change that insurance companies will be encouraged to minimise compensation, particularly in out-of-court settlements, so as to reduce their possible liability and to compensate the Department of Social Security? The saving to the Government is £55 million. What will happen to that money? Will it be used to increase those benefits which are to be clawed back under the regulations?
The Minister referred to the social fund. As we know, the budget for the social fund is effectively being all but frozen for the third year at £205 million, despite increasing reports of claimants being refused grants and loans for urgent needs. The latest figures show that at December 1989 56 per cent. of community care grant applications (18,411) and 40 per cent. of budgeting loan applications (26,546) were refused. We think that the £20 million saved in the 1988–89 social fund budget should be added to the 1990–91 budget, and the budget for community care grants should be uprated for inflation.
Finally, the Minister made a point about the amount that the Government are spending on social security. We welcome the increases where they apply. I have seen a calculation that government expenditure over and above inflation for disability and carers' benefits, families and elderly people, adds up to £185 million. The government savings from the freezing of child benefit and the restructuring of statutory sick pay amounts to between £320 million and £330 million. So there has been an overall saving of £135 million to £145 million.
We are seeing a picture where the increases in some benefits are paid for by the freezing or the reduction of others. In the department it is very much a case of having to pass the money from one pocket to another rather than providing genuine increases in the benefits which are needed for the people I have mentioned: the additional 3 million people on income support; the increase in the number of unemployed; and the million additional pensioners.
§ Earl Russell
My Lords, I should like to join the noble Lord, Lord Carter, in congratulating the Minister on the lucidity with which he has introduced these regulations. I should also like to 1174 say that I found the regulations themselves a little less impenetrable than usual. I look first at the recoupment order on which I hope the noble Lord, Lord Mottistone, will also be saying something in a moment. That was debated exhaustively and indeed I might say exhaustingly, in this House. It was also debated in the office of the noble Lord, Lord Skelmersdale.
I will not run through all the arguments that we had. We pursued them to the Division Lobby and we lost. I agree with what the noble Lord, Lord Carter, said about the small payments' limit. I feel a considerable misgiving about the vast administrative and bureaucratic apparatus that will be necessary to enforce the machinery of that clause. Since the situation is what it is now, I hope that we were wrong about it, but I am not yet persuaded of that.
I turn now to the statutory sick pay regulations and I do so with a certain amount of misgiving. I observe that they are signed by authority of the "Security" of State for Social Security. I cannot help wondering whether they are an official secret and I should not be talking about them at all. Nevertheless, the Minister expounded them with commendable honesty. They raise the earnings' limit for the higher rate from £84 to £125 a week. That is a considerable jump. The justification given is that 91 per cent. of people have occupational pensions. That raises a problem as regards those who have not. I believe that here we shall find another aspect of the problems created by the part-time revolution; namely, the people who miss out on the steady occupational schemes. I believe that matter will need our attention in the future.
The Secretary of State remarked that employers will bear a greater proportion of the costs of long-term sickness. I believe that we have here, as we have concerning the recoupment order, part of the process of steady, creeping privatisation of liability. That is something which I view with some misgiving. I also view with some misgiving, particularly in our present industrial situation, the transferring of costs from the Exchequer where they are widely shared, specifically onto the backs of industry. The Confederation of British Industry in a leaflet on the economic needs of 1990, has complained that the Government continue to pass through unjustified cost increases to companies. I believe that the statutory sick pay order is a case in point. For the sake of our industrial recovery, which is urgent, I regret it.
I turn now to the uprating order which is obviously our main business this evening. It is the duty of Oppositions to be thankful for small mercies and I am. I welcome the increase in the child disability premium and I welcome particularly warmly the carers' premium. The problem of carers is one about which we have heard a good deal. My noble friend Lady Seear has spoken very movingly on this subject a number of times. It is also an issue which is beginning to interest the Equal Opportunities Commission whose locus standi in the matter is obvious.
We need to do a great deal more about carers. The measure is not a substitute for a solution, but as a 1175 first step I welcome it. I welcome the concession on the attendance allowance for the terminally ill announced in this House in response to the noble Duke, the Duke of Norfolk, the noble Baroness, Lady Faithfull, and my noble friend Lady Seear. I wish to raise one small misgiving about that. When the matter was debated in the House it was clearly the intention to include AIDS in the list of what was to be covered.
It has been put to me whether we are correct in using the phrase "a progressive disease" to describe AIDS or is the progressive disease the secondary infection which in fact usually kills the patient. I hope that, before we reach the Bill later in the year, the Minister will undertake to look at the problem to see whether AIDS is satisfactorily covered because that was so clearly the intention of those who made the concession.
I warmly welcome the extension of the mobility allowance of the deaf-blind whose plight was so movingly described last summer by the noble Lord, Lord Carter. On the other hand, correspondingly I regret deeply the failure to extend the mobility allowance to those with mental handicap. I appreciate, as the Secretary of State said, that there are difficuties in the way of finding satisfactory definitions. I would welcome an assurance that the Secretary of State is working on ways to overcome those obstacles.
I also welcome the Secretary of State's remark in another place that he is looking at ways of improving the medical adjudication procedures which have caused considerable anxiety. I also associate myself with the remark made by my honourable friend Mr. Taylor in another place, that the mobility allowance is of particular importance to people in rural areas. I once lived in an area near my honourable friend's constituency. It was a two-and-a-half hours' drive to the nearest hospital. In those circumstances one can imagine the problems of out-patient appointments.
As regards the overall matter of disability, I feel that the mountain has laboured and brought forth a mouse. Last summer we were told over an over again that there was a massive survey going on at the hands of the OPCS and that there would be an overall review of disability benefits at the end of that review. What has happened is good but it is not very much. I hope the Minister can tell us whether that is really all we are getting in the way of a review of disability benefits. If that is so, then those who undertook the labour of conducting those surveys —and a very considerable labour it was —might feel legitimately disappointed.
There are a number of matters which one must welcome with a certain reservation. I refer to the increased earnings' disregard for single parents which is not a substitute for a child care disregard for income support and for housing benefit. In a sense it is obiter on this occasion as he was speaking on a slightly different subject, but I hope that it is in order to welcome the remarks made by the former Secretary of State for Employment on tax allowances for the cost of child care as reported in today's paper. I fully agree with them.
1176 I welcome, as far they go, the increases in support for residential care for the elderly, but I note, as my honourable friend Mr. Kirkwood said in another place, the great likelihood that they will all be swallowed up in increased fees. In thinking about that, I am led to wonder whether we have a satisfactory system and whether indeed residential care for the elderly is an entirely suitable subject for the application of the free market. I should have thought that, if anything, they would be looked upon as a captive market, and in the circumstances I hope there will be some long-term thought about the system.
I welcome the concession for war widows but associate myself with the question asked in another place by the honourable Member for Aylesbury. In these days of equality of opportunity, will that concession apply to war widowers? I think it should. There are other things which one cannot welcome. I regret the failure to uprate the limits for savings disregards; for example, in the case of family credit. That looks to me like an erosion of one of the few significant victories in the course of the passage of the 1986 legislation. I regret, of course, and regret deeply, the failure to uprate child benefit. I shall not bore the House by repeating familiar arguments but I should like to say that I agree with everything said by the honourable Member for Aylesbury in another place.
I should also like to touch on one or two arguments which are not quite so familar. The business before us tonight illustrates why there will always be a lower take-up rate for means-tested benefits. All the limits are now being changed. I doubt whether even the Minister, if I met him outside the Chamber in a few minutes, could remember them all by heart without looking at his papers. If the Minister cannot, and I cannot, how do we expect those in receipt of benefits to remember them? I feel strongly that we under-rate the difficulty of tackling the social security system for people who are not always among the most successful in our society.
When limits change every year there will always be a low take-up rate. People will be out of date in their knowledge of the limits. I feel strongly that the Government are continually increasing the liabilities facing parents. I refer to the teenagers who are supposed to stay at home and to the new measures on criminal punishment. The one which concerns me at the moment is the rapidly rising cost of school books. I accept what the Minister said about wages in child rearers' pockets, but if he cared to look into the matter he might find that the cost of school books is increasing a good deal faster than wages. That might deprive the argument of some of the force which it appeared to carry. I also believe that when one has neither child benefit nor child tax allowance one distorts the market in favour of the childless. From a Government who purport to believe in free market theory that is a use of state power to achieve a social purpose which I am rather surprised they hold.
I regret too that nothing has been done to narrow the gap between the rates of income support for teenagers and for older people. I have recently moved 1177 to King's College in the Strand. When I go home late in the evening I regularly watch the uncomfortable sight of people bedding down in doorways. During the gales and rain of the past few weeks it has been a very uncomfortable sight indeed. The Secretary of State could at least have slightly narrowed that gap. I am sorry that he has not. I agree with what the noble Lord, Lord Carter, said about the social fund. I have tabled a Question on that subject, and so I shall not pursue it further tonight.
Finally, on the total sum of money invloved, I agree with my honourable friend Mr. Kirkwood that there is some sleight of hand on the subject of total money. In looking at the discrepancy between Government figures and Opposition figures on total money, the key variable seems to be whether one counts the £250 million set aside for uprating child benefit. If that it not counted, it surely seems to imply that the Secretary of State never genuinely reviewed child benefit and that there was no serious plan to uprate it.
Beyond that —I must be careful how I put this point —I agree with what my noble friend Lord Ritchie of Dundee said on 31st January. When listening to Government claims on spending we sometimes feel we are listening to a rather panglossian argument. I know that the social security budget is high —I spoke in the debate on the humble Address about how it might be lower —but I do not see the extreme generosity on which the Minister prided himself. I found it very hard indeed to square that with the evidence of my own eyes in a great many places. Perhaps I may say in this context that I hope that the noble Lord, Lord Donoughue, will be successful in the ballot with his Motion for a debate on the quality of government statistics.
§ Lord Mottistone
My Lords, I hope that I shall be brief enough to enable us to get on with the other business as soon as we have disposed of the business before us.
I am advised by the CBI on this matter. It feels that it has been bounced this year. It normally has good relations with the Department of Social Security and is given ample time for discussions on particular matters. The particular matter this time concerns the Statutory Sick Pay (Rate of Payment) Regulations. On 16th January the director general wrote to the Secretary of State. He did not receive a reply. On 18th January the order was laid. That gave the CBI very little time to respond, but, more importantly, it dismisssed in a rather cavalier fashion any thoughts the CBI might have had on the matter.
The CBI has three points. I should emphasise that when the orders were laid in another place the main feature of the debate on the Statutory Sick Pay (Rate of Payment) Regulations was the loss of benefit to employees. The effect on employers was rather lost. My noble friend the Minister gave the figures and we have also heard about the total saving of £80 million per annum. Industry has three main concerns. Most of those £80 million savings will be made at the employers' expense because the great majority of employees receive occupational sick pay. 1178 That point was made by other noble Lords, including the noble Earl, Lord Russell, whom I thank for his contribution.
My noble friend said that the sum of £80 million was small in relation to the total labour costs in the economy of £250 million. I would suggest to him that that is a cheap point. It is a drop in the ocean compared with other expenditure that my noble friend and the Government fund, but the relative amount to an individual employer is not a drop in the ocean. Furthermore, it is not evenly spread. Any increase in employers' costs is particularly unwelcome at the moment because of the urgent need to reduce unit labour costs.
It is fair to say that the one stumbling block to success for this country in the future is the fact that, try as we may, our unit labour costs are still much higher. They have fallen a good deal in the past 10 years but they are still much higher than those of our major competitors. Moreover, anything which adds to that must be bad. The fact that the Department of Social Security is not concerned with that kind of consideration does not mean that it does not have to take the matter seriously. Costs should not be shelved off on employers because that will not make this country competitive. Further, the money will not be coming in to fund social security.
The second major point is that employees will receive less sick pay and they will expect the employers to make up their losses. As my noble friend said, most employees will not be worse off as a result of the changes because their employers pay full pay during the initial weeks of sickness. However, many will find that they are worse off. It is likely that employees in particular sectors of the economy will suffer most. I say that because there are certain sectors in which employees are less likely to be covered by occupational sick pay schemes.
My noble friend said that 91 per cent. of employees are covered. However, only 56 per cent. of employers provide an occupational sick pay scheme. Moreover, half of those companies employing between one to nine employees do not provide such a. scheme; nor do a quarter of those employing 100 or less employees. Further, almost three-quarters of employees covered by occupational sick pay schemes are affected by eligibility conditions. For example, in order to qualify for sick pay an employee must be employed for, typically, three to 12 months. Employees working in such sectors as retailing and hotel and catering are likely to have especially high turnover rates. Turnover rates between 30 per cent. and 100 per cent. are still not uncommon at the junior grades. I say "still" because when I was a director of the Distributive Industry Training Board we reckoned that anyone in the retail trade who had a turnover rate of less than 40 per cent. was doing very well. I suspect that that will always be so.
Employees who are earning between £90 and £125 per week will see an especially sharp fall in their statutory sick pay, as will those who receive flat-rate occupational sick pay paid at the top of the scale. I shall not continue with that line of argument. I shall leave the matter there because time is running out and we must allow my noble friend adequate time to reply.
1179 The third point about which members of the CBI are particularly concerned is that this measure is but the first step of the Government passing the total responsibility for sick pay to employers. Thus the whole cost of the statutory sick pay scheme, which is currently £1 billion, would be transferred to employers, representing a 2.5 per cent. addition to labour costs. That is not acceptable when employers and employees pay around £25 billion in national insurance contributions in order to pay for benefits such as statutory sick pay.
I should very much like to receive a reassurance —and, if possible, a convincing one —from my noble friend on that last point that it is not the thin end of the wedge. Moreover, as it is much too late for us to reject the orders, I should also like him to tell me that the points we have raised have been appreciated. Perhaps he will also say that he regrets the fact that the Secretary of State did not reply to the Director General of the CBI before the orders were laid. In my view, although we cannot really call it bad manners, it is something of that order. I should very much like to receive those reassurances.
§ Lord Carter
My Lords, before the noble Lord sits down I should like to know whether he agrees with the point that I put forward. Employees are covered by occupational sick pay schemes. If those schemes are funded through the insurance system, is it not a fact that if they have to pay out more the premiums will increase?
§ Lord Mottistone
My Lords, there is not sufficient time for me to analyse the matter. Of course, the noble Lord may well be right and if there was a little more time available I would be able to do a little sum and provide him with an answer. However, that is not possible.
§ 8.15 p.m.
§ Lord Stoddart of Swindon
My Lords, I should also like to speak to the uprating order. Indeed, I shall confine myself to speaking to just one item in the order. My noble friend Lord Carter and the noble Earl, Lord Russell, have dealt in full with all the items in the order, but I wish to draw attention to the extent to which state retirement pensions are falling behind as a proportion of male gross earnings.
I think that we should set on record the fact that for a single person in 1977 the pension was 21 per cent. of male gross earnings; that is, £17.50 per week. In April 1990 that figure will have dropped to 16 per cent. Therefore the pension of a single person will have fallen to only 16 per cent. of male gross earnings. In the case of a married couple, in 1977 their pension constituted 33.6 per cent. of male gross earnings, but by April 1990 that percentage will have fallen to 25.6 per cent. That means a drop from 33.6 per cent. to 25.6 per cent. Of course, as the noble Lord, Lord Henley, knows, that drop has been caused by the break in the link with earnings —a link established by the Labour Government —which was the course the Conservatives took in November 1980. That action has had baleful consequences for pensioners ever since.
1180 In money terms, single pensioners would be enjoying £13.10 per week extra —in other words, £60 per week rather than £46.90 —if the link with earnings had been maintained. Moveover, for a married couple the extra pension would amount to £20.70 per week; that is, £95.80 instead of £75.10. Translated into annual terms, in 1990 a single pensioner will be £681 worse off and a married couple will be £1,076 worse off as a direct result of the wilful and criminal decision of this Government to end the pensions link with earnings.
Further, due to the ending of that link a single pensioner has lost in total terms, £2,419 between November 1981 and March 1990. A married couple have lost £3,813 during the same period. Moreover, by March 1991 the loss will have grown to £3,100 for a single pensioner and to £4,889 for a married couple. Those are very significant figures, especially as regards very poor people.
The Government boast about the whole nation sharing in greater prosperity which they say they have created. Indeed, the noble Lord, Lord Henley, told us all about that when he introduced the orders. However, that certainly does not apply to pensioners since their income from the state retirement pension has only kept up with the cost of living.
Pensioner couples, and some single pensioners, are about to suffer another blow as a result of the imposition of the poll tax. That applies not only in the so-called Labour "spendthrift" local authorities, but also in the Tory heartlands such as Berkshire where the county treasurer is reported as believing that the poll tax will turn out to be not the £278 estimated by the Government, but between £400 and £450 per poll tax payer. If that turns out to be true then single pensioners will not benefit at all from the poll tax —as they were supposed to do —and married couple pensioners will pay, on average, nearly twice as much in poll tax as they now do in rates.
I have made my point. I hope that the Government will think seriously about what they have done to pensioners and their standard of living in destroying the link between pensioners, the state retirement pensions and the male gross earnings. The Government have done a great disservice to pensioners. If the Government and Mrs. Thatcher really want us to believe that they have a heart and that all should share in the great prosperity that they say they have brought about, they will reverse the position on pensioners and give them a good boost in their weekly and annual income.
§ 8.20 p.m.
§ Lord Henley
My Lords, I wish to start by commiserating with the noble Lord, Lord Carter, and my noble friend Lord Mottistone. They will both have a long day and be deprived of their dinner. However, I am afraid it cannot be helped. I shall try to be as quick as I can, though I shall not be able to cover all the points made by noble Lords. If I go much beyond 10 to 15 minutes, not only will my noble friend Lady Trumpington be upset but —even worse —I imagine that my noble friend the Government Chief Whip may have thoughts on the 1181 matter. I also wish to thank my noble kinsman Lord Russell for pointing out the small misprint in the Statutory Sick Pay (Rate of Payment) Regulations,signed by authority of the Security of State".I can assure the noble Earl that there are no sinister intentions whatsoever behind that. Since this is a draft statutory instrument I presume that the error will be corrected before it is signed by the authority of the "Security of State".
Turning to some of the points raised in the debate, I wish to start with the remarks of the noble Lord, Lord Carter. He claimed that social security expenditure was falling as a percentage of national income. I should remind the House that when the party opposite left office in 1979, social security expenditure formed only 9.5 per cent. of GDP. Next year it will form over 10 per cent. of GDP. That is an increase in the percentage of GDP. The noble Lord also said that the expenditure for all departments was increasing and that this department was no exception. I think that that was an uncharacteristically ungenerous response from the noble Lord to a total 36 per cent. real terms increase in social security expenditure since 1978–79. In any terms that is a massive increase in resources committed to this area. I should also say that social security has grown as a proportion of total public expenditure from 25 per cent. in 1978–79 to 30 per cent. in 1989–90.
Continuing on the subject of public expenditure, the noble Lord said that in the Government's public expenditure plans we have already provided for child benefit to be uprated in April 1990. This convention allows individual benefits to be considered on a comparable basis. The fact that estimates of future child benefit expenditure in the public expenditure White Paper allow for uprating in line with RPI cannot pre-empt the review of child benefit. The law requires the Secretary of State to carry out that review each year as part of the annual review of social security benefit rates, when he decides the level in the light of circumstances at the time.
The noble Earl, Lord Russell, suggested that my right honourable friend the Secretary of State did not carry out a genuine review of child benefit. I can assure him that the contrary is true. He did what the law required him to do, which was to determine the level of child benefit in the light of all the circumstances at the time. As I made clear in my opening remarks, he had full regard to the rise in real incomes of many families where the head is working. I repeat that the changes which we are making from this April will bring a total of £350 million extra to families receiving family credit and income support in real terms since April 1988.
My noble kinsman Lord Russell asked why there was no increase in capital limits. We feel that a line has to be drawn somewhere. I think that I must tell the House in all honesty that if there were money available to improve social security provision, I should be sceptical about proposals to extend the capital limits further at this stage. The House must be aware that the housing benefit capital limit was increased from £6,000 to £8,000 soon after the new 1182 scheme was introduced in April 1988. The capital limit was doubled to £6,000 under income support, compared with £3,000 under the old supplementary benefit.
As regards child benefit, I am not sure that I can go much further than what I said in my opening remarks. As my right honourable friend the Prime Minister has said, child benefit will continue to be paid as now, direct to the mother. As I have already said in answer to my noble kinsman Lord Russell, it will continue to be reviewed every year in the light of the existing circumstances. I do not think that I can go much further than what I have said.
I turn now to recoupment, which comes under the Social Security (Recoupment) Regulations 1990. Again I feel that it would not be productive in the short time we have available this evening to reopen the whole debate. However, I should say a few words on the size of the figure—£2,500. I think that it was the noble Lord, Lord Carter, who suggested £5,000.
§ Lord Carter
My Lords, if the noble Lord will permit me to intervene, it was the Brutish Insurance Association which suggested that.
§ Lord Henley
My Lords, presumably the noble Lord endorsed the £5,000. That was the figure put forward, as the noble Lord will know, in an Opposition amendment. I cannot remember whether or not it was in this House but certainly it was proposed in another place last year. My right honourable friend the Minister of State explained in Committee why such a high figure was unacceptable. It would exclude over half of all compensation claims and seriously undermine the principles that the compensator should meet his full liabilities.
The amendment envisaged that compensators would continue to offset benefits by 50 per cent. over the whole five years from the date of injury. While this is acceptable for genuinely small payments to save administration where there is only a small amount of benefit involved, it is not acceptable at the £5,000 level.
Again my noble kinsman queried the cumbersome administration of the recoupment scheme. We have kept the procedures as simple as possible. Officials have worked with the representatives of the compensators and others in the private sector to make the rules match what is already done. We are grateful for the help which the private sector has given very readily.
I turn now to abolition of REA, which the noble Lord, Lord Carter, raised. I think he would accept that it is outside the scope of the debate on the regulations. An opportunity will arise on this, as the noble Earl, Lord Russell, said on child benefit, at the Committee stage and presumably at other stages of the Bill when it comes to this House from another place.
Pensions were mentioned by the noble Lords, Lord Carter and Lord Stoddart. One complaint was of a break in the link between earnings and the retirement pension, where we now uprate in line with the RPI, as I have said on many occasions. We do not accept that the link between pensions and earnings is the key factor in improving pensioners' incomes. What 1183 matters most to pensioners is the value of their total income. The success of this Government's policies in protecting the value of pensions against rises in prices while encouraging the growth of other incomes is demonstrated by the 23 per cent. rise in average pensioners' total net incomes between 1979 and 1986.
The noble Lord also alleged that pensioners are becoming poorer and are not sharing in the increased prosperity of the nation. Between 1979 and 1986 the proportion of pensioners in the lowest one-fifth of national income distribution fell from 35 per cent. to 24 per cent. Moreover those pensioners in the lowest one-fifth of pensioner incomes experienced a real terms increase of 19 per cent. in their total net incomes. Last October the Government directed an extra £200 million a year to the less well off elderly and disabled pensioners through changes in the premium structure for income related benefits. Overall, around 2.5 million pensioners have benefited from these changes.
I turn now to my noble friend Lord Mottistone, the noble Lord, Lord Carter, and my noble kinsman Lord Russell and their comments on statutory sick pay regulations. I apologise to my noble friend Lord Mottistone for the delay in obtaining a reply from my right honourable friend. I told my noble friend that I understand that my right honourable friend replied to that letter earlier today. Bearing in mind the problems of time, I do not wish to go through all the points that were raised by the CBI in the letter to my right honourable friend and my right honourable friend's reply to that body. However, I shall certainly make copies available to noble Lords if they want them.
The noble Lord, Lord Mottistone, was also worried about employees who were excluded from occupational sick pay schemes because they were recent employees. We acknowledge that some employees will not have worked long enough to qualify for occupational sick pay. However, half the private sector schemes have no exclusion clause at all. I believe that in any event the incidence of sickness in the early weeks of a new job tends to be low. The noble Lord also asked about our future plans on statutory sick pay. I can assure him that there are no plans at this stage to make further changes to statutory sick pay.
The noble Lord, Lord Carter, asked why we had rejected the Social Security Advisory Committee's recommendations. In his response to the Social Security Advisory Committee, the Secretary of State explained that the change in the earnings threshold to £125 merely restored the balance between the rates of SSP which applied when the scheme began in 1983. I believe I referred to that in my opening remarks. That is why the Government did not accept the committee's recommendations.
I have now been speaking for 12 minutes and I am well aware that there are many points that I have been unable to answer. However I undertake, as I always do, to read the Official Report carefully and to write to noble Lords to cover the points which they have raised and which I have not been able to 1184 cover. These measures reflect the success of our policies which we have achieved without placing an excessive burden on contributors or taxpayers. I commend the orders and regulations to the House en bloc.
§ Lord Mottistone
My Lords, before my noble friend sits down, will he please send me a copy of the letter from the Secretary of State to the Director-General of the CBI?
§ On Question, Motion agreed to.