HL Deb 01 December 1993 vol 550 cc554-71

3.38 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Viscount Astor)

My Lords, with the leave of the House I would now like to repeat a Statement being made in another place by my right honourable friend the Secretary of State for Social Security. The Statement is as follows: With permission, Madam Speaker, I would like to make a Statement on social security following from my right honourable friend's Budget Statement. Spending on social security this year will amount to over £80 billion. It will increase over the next three years to £83 billion, £87.8 billion and £91.8 billion. This is the largest increase of any department and demonstrates our commitment to the needy, the elderly, and sick and disabled people. Despite the intense pressures on public spending we will keep our commitment to up-rate benefits, keep our pledges to families and the elderly, and keep our promise to give extra help with fuel bills. Although inflation over the last 12 months was low, the cost of up-rating all benefits just to offset it would have cost around £2 billion next year. I am grateful to my right honourable friend the Chancellor for going beyond that and providing very substantial extra funds to help people with fuel bills. This brings the total cost of increasing benefits next year to nearly £2½ billion. And by the time the full rate of VAT has fed through, the total help will run at £1¼ billion a year. Over three years the total additional help for VAT on fuel amounts to £2½ billion. That will be a permanent increase in the value of benefits going to 15 million people. The Chancellor explained that I plan to give everyone on income support (except pensioners and disabled people) extra help next April before the higher heating bills arrive. So their benefits will be uprated by 3.9 per cent. That is higher than most people in work will receive. A further 2 million people above the income support level who get housing benefits or family credit will receive a similar increase. I was also determined to help those who have worked, saved and earned modest pensions and normally get no extra help. So from next April, on top of up-rating for inflation, all pensions will be increased 50 pence a week for single pensioners and 70 pence for couples. The following year extra help for VAT on fuel will be £1 a week for single pensioners and £1.40 for couples. From the third year onwards that extra help will be as much as £1.40 a week for a single pensioner and £2 for a couple. And all those on widows' benefits, invalidity benefit, severe disablement allowance and disability premium will get the same extra help. In addition I will increase cold weather payments by 25 per cent. over two years. To help those with high heating bills, the scheme to help insulate homes and improve fuel efficiency will be virtually doubled in value and extended to all pensioners and disabled people. Also, the Chancellor announced yesterday a new National Savings pensioners' guaranteed income bond which will provide regular monthly payments at a fixed rate of interest. By any stretch of the imagination that is a substantial package. It far exceeds what most people expected and fulfils our promise to help those most affected. We are determined to maintain proper support for all those the welfare state exists to help. But, given the relentless growth of spending, we have to make sure the money is spent to best effect. That is the aim of my long term review. My first priority is to make savings which do not affect benefit entitlements. That is why operational costs have been kept within last year's cash limit despite the extra workload. And that is why I am intensifying the battle against fraud. I have created a new fraud board to step up prevention, deterrence and detection of fraud, chaired by my noble friend the Parliamentary Under-Secretary for Social Security. I am cracking down on order book fraud. The order book has been redesigned to prevent forgery. We have introduced secure delivery methods to prevent theft and we are rewarding vigilant Post Office employees who stop false encashment of stolen books. I am continuing to look at new ways of tackling fraud. I am also stopping a number of abuses. I shall discourage local authorities from paying housing benefit for unnecessarily expensive property. I shall stop councils paying housing benefits to people who entered this country on the express understanding that they will be no burden on public funds. I am bringing in regulations today to prevent employers avoiding national insurance by paying their employees in commodities like gold bullion. These measures should save half a billion pounds over three years. But we also need to make sure benefits concentrate help on those Parliament wishes to help. I have been examining the social security system sector by sector. I am now able to introduce a fundamental reform of sickness benefits. The number of people on statutory sick pay, sickness benefit and invalidity benefit has almost doubled since 1979, from just over 1 million then to almost 2 million now, even though the nation has been getting healthier. Britain has the second highest level of sick leave of any EC country. The level varies between companies even in the same business. Those differences reflect management's success or failure in motivating employees, caring for their health and monitoring absences. At present the Government reimburse each firm 80 per cent. of the cost of statutory sick pay. That largely removes the incentive to reduce sick leave. So from April next year I propose to abolish reimbursement, except to small employers. Small employers usually have less sick leave but are harder hit by prolonged illness. So I intend to increase the help to small employers and extend it to more of them. So far we have been helping employers whose national insurance bill was £16,000 or less a year. I am raising that limit to £20,000. So far we have been reimbursing 100 per cent. of SSP for absences longer than six weeks. I shall start giving 100 per cent. help after four weeks. This will help an extra 50,000 employers at a cost of £25 million. The new arrangements will help two-thirds of all employers. At the same time I am cutting employers' national insurance rates by substantially more than they were spending on statutory sick pay. Indeed, the cut in national insurance will also offset the future extra cost of statutory maternity pay which employers were expecting to have to bear. So employers as a whole will be no worse off. Indeed, employers' net costs will be reduced by over £100 million. And those who respond to the incentive to improve staff health will benefit even more. There has been a particularly marked increase in the number of people claiming invalidity benefit in recent years. The number on this benefit has more than doubled in the last 10 years and trebled in the last 15. This growth is particularly surprising, given improving health and better health care. So I propose to introduce from April 1995 a more objective medical test of whether people can work. I am issuing a consultation paper today, copies of which are available in the Vote Office. And I am forming a panel of medical experts and representatives of disabled people. They will be asked to help define what constitutes incapacity to work and how it should be measured. The new test will apply to new applicants. Those drawing invalidity benefit are already subject to regular review. Under the present test about 100,000 people each year are found to be fit for work and have their benefit withdrawn. After April 1995, those on the highest rate of DLA, those with terminal illnesses, those on a list of specified severe or chronic conditions, and those currently on invalidity benefit, who are then 58 or over, will no longer be subject to any review. But the new test will be used in reviews of other existing claimants. No one who is genuinely unable to work for medical reasons has any cause for concern. I am also simplifying the structure of all sickness benefits for new claimants from April 1995. At present there are two rates of statutory sick pay. I propose to abolish the lower rate. This means that lower paid workers will receive the higher rate of benefit—worth an extra £3.70 a week. I will also replace sickness and invalidity benefit by a new incapacity benefit. This will be payable at three rates—the longer the period of sickness the higher the rate. The lower rate will apply during the first 28 weeks, the middle rate for the rest of the year, and the highest rate after a year. Those who are incapacitated early in life will receive extra help because they will have had less time to make any personal provision for ill health. Additional payments will be made to those whose spouses are caring for children or are over 60. New claimants will no longer be entitled to a state earnings related addition. Incapacity benefit will cease at pension age. Those already drawing invalidity benefit at the time the new incapacity benefit is introduced will continue to draw their benefit at existing rates and will not be taxed on it. Only those who come on to incapacity benefit from April 1995 will be liable to tax. I am making a number of valuable changes for sick or disabled people. First, people on incapacity benefit will be free to do up to 16 hours voluntary work without losing their benefit. This will be widely welcomed by potential volunteers, voluntary organisations and those they help. Secondly, from April 1995, people taking jobs with the help of disability working allowance will automatically qualify for free prescriptions and free dental charges. Thirdly, I am increasing the level of support to Motability whose help for disabled people is so extensive that it now runs the biggest car fleet in the country. I am making a £1 million increase in the grant to the Mobility Equipment Fund, which adapts vehicles for use by severely disabled people. Overall, these reforms of sickness benefits will curb their rapidly growing cost, provide a more rational structure of benefits, encourage employers to improve the motivation and health of employees, and concentrate benefit on those genuinely unable to work. I believe they will command widespread support. The incapacity benefits are for people who cannot work. I now turn to benefits for people who are capable of work. Clearly, the best answer is to help people find jobs. But sometimes the rules lose sight of this aim. At present we have two benefits for the unemployed; unemployment benefit and income support. They overlap. Some people are entitled to both. Many switch between the two. The benefit levels leapfrog, because they are up-rated by different indices. So this year single adults on unemployment benefit will get 65p more than on income support. Next near they will get 25p less. The two benefits cover different periods. Unemployment benefit excludes Sunday. Income support includes Sunday. They have different rules, requiring different bureaucracies, different offices and different computer systems. The result is confusion for unemployed people, complexity for staff, and expense for taxpayers. It is time for reform. I propose to replace the two benefits with a new jobseeker's allowance starting in 1996. It will be more clearly focused on helping people into work. The longer people spend on benefit the more their motivation, skills and attraction to employers may decline and the less chance they have of finding a job. So all unemployed people will be required to enter into a jobseeker's agreement at the start of their claim. It will commit them to a plan of action to seek work. And we will have a single set of measures for those who fail to take the necessary steps to seek work. But we shall give extra help to those who make the effort to find a job. The new jobseeker's allowance will have a single set of rates. We will provide help to unemployed people and their dependants according to their needs. This will be paid for as long as they need it. People who have paid national insurance contributions will receive a personal rate for six months irrespective of their capital or their partners' earnings. Currently, unemployed people cannot get income support if their partners are working for 16 hours or more. This problem emerged as a by-product of improvements in family credit last year. We shall retain the current beneficial rules for family credit. But we will restore the limit for partners of unemployed people to 24 hours. Going back to work can involve extra costs, for example, for clothing and transport. We will be testing a jobfinder's grant of up to £200 to help people, who have not had a job for two years, with these costs. We said that we would do this in our manifesto, and I am pleased that we are now implementing the pledge. I shall also give very significant help to people with family responsibilities who want to return to work. Many find it unattractive to leave benefit for a low-paid job, especially if they need to pay for child care. So I propose to allow families with a child under 11 to offset up to £40 per week of child care costs against their earnings when claiming family credit and related benefits. It will be worth up to £28 a week; it will start next October; it will be available to couples, where both are working or one is incapacitated, and to lone parents; and it will cover the costs of registered child minders or nurseries. The change will give a powerful new incentive for parents to move into work. It will provide help for up to 150,000 families, including 50,000 whom we expect to take up work as a result of the change. This measure has been widely welcomed. I am today publishing a White Paper on the equalisation of state pension age at 65. Copies are available in the Vote Office. The difference in state pension age for men and women is the last glaring inequality in our benefit system. We are committed to phasing it out. It is essential to do so to provide a clear framework within which occupational pension schemes can comply with the European Court ruling requiring them to equalise their benefits for men and women. It is right to equalise at 65 for three reasons. First, women are increasingly playing an equal role to men in the economy. Women live longer and increasingly expect to be able to work for as long as men. Secondly, people are living healthier, longer lives. As a result, the number of pensioners will increase by half by 2030—and there will be fewer people of working age to support them. At present there are 3.3 people of working age for each pensioner. That ratio was set to decline to 2.2 to 1 by 2030. Equalising at 65 will improve the future support ratio to a more sustainable 2.7 to 1. Thirdly, throughout the world, countries are equalising upwards or increasing pension age for both sexes. The majority of EC countries have or are planning a state pension age of 65 or higher. The United States is moving up to 67. We cannot afford to reduce our competitiveness by lowering our pension age. Equalising at 65 will eventually reduce the pension bill by £5 billion. It is the key to ensuring that the state retirement pension remains affordable. Our proposals contain a number of features which will make that decision widely acceptable. We have given women and employers plenty of time to plan for the future. Equalisation will be phased in between 2010 and 2020. So no women now 44 and over will be affected. Only those now 38 or under will have a state pension age of 65. Furthermore, the pension entitlements of millions of people—mostly women—will be very significantly enhanced. We plan to extend home responsibilities protection to SERPS. That will enable women (and men) who take time out of the labour market to care for children or disabled people to build full SERPS entitlement in as few as 20 working years. That will be a very substantial benefit enhancing the value of women's pensions by around £2 billion by 2020. In addition, to help those on low earnings, family credit and disability working allowance will count as earnings in calculating pension. Finally, we are extending the period of flexibility during which people can choose to start drawing their pension. At present people can defer drawing their retirement pension for up to five years and for each year of deferral their pension increases 7½ per cent. In future the increase will be 10 per cent. and people will be able to defer for as many years as they like. The best support for an improved social security system is a vibrant, free enterprise economy to create the wealth to pay for benefits, to generate jobs, and to provide opportunities for people to support themselves. To nurture economic growth we have to curb borrowing and make sure that the social security system does not outstrip or undermine the nation's ability to pay for it. All the reforms I have announced are intended to strengthen our welfare state, to adapt it to modern needs and to make it affordable into the next century. In doing that I have been able to announce a generous package of help for those most affected by VAT on fuel; reforms to concentrate help on those genuinely unable to work; incentives for employers to improve the health and motivation of their staff; a more rational structure of help for those seeking work; help for working mothers to cope with childcare costs; an equal state pension age; and help for women and the low paid to build up better pensions in the future. I commend these measures to the House. My Lords, that concludes the Statement.

3.59 p.m.

Baroness Hollis of Heigham

My Lords, we thank the Minister for the most significant Statement for years. But perhaps I may put in a plea that it is a little hard to be given a major Statement of such significance about three quarters of an hour before we are due to debate. There can be no reason why the usual channels should not ensure that such Statements are given to us at, say, 10 o'clock in the morning so that we can properly prepare. There is nothing secretive about these things.

I am sure that the House will forgive me if I do not comment in detail on the proposals to equalise the pension age. It needs a fuller debate than is possible today, except perhaps to record the position of these Benches. We are in favour of a flexible decade of retirement based on choice for both men and women alike.

The Statement is significant, less because of the up-rating details which reflect the agreed formula of the Rossi index but more because, within the context. of yesterday's Budget, it profiles in detail the £2.5 billion cuts over the next three years which the DSS budget will bear or, more accurately, the sick, disabled, unemployed, elderly and poor will bear as a result of government economic mismanagement. Social security expenditure is driven not by demographic changes, certainly not by malingering or scrounging, but by unemployment.

It is clear that what floats people off benefits and poverty, as the Minister made clear in his Statement, is work if it is available. That is why we on this side of the House welcome the restoration of help with childcare to those on family credit which of course takes us back to where we were before the Government abolished such childcare help in 1988 and locked then lone parents into dependency. But why are the Government, while sensibly recognising that we need pathways out of poverty for lone parents—a positive response which we welcome very much—being so punitive to the sick and disabled?

Perhaps I may now turn to the proposals for invalidity benefit. The numbers have grown. The Government insist that that is because of malingering, possibly because GPs have been too lax with medical certificates and possibly because the benefits are too generous. On the contrary, as the Government's own research shows, and as Ministers know, none of that is true. Half of those on invalidity benefit have worked with a previous employer for 10 years or more. Far from malingering, they want to work. But they are infirm. As to the medical test, already half of those on invalidity benefit under the age of 50 are double checked by the benefits office medical service. The GP's assessment is upheld in six cases out of seven. Many of the rest are mental health cases which are notoriously difficult to determine. Even where the claimant is removed from benefit, in over half the cases that benefit is restored on appeal. So if the assessment is already accurate, as it is, and already tough, as it is, where is the saving? Will the Minister give more detail of how many and how much? Already only one in eight from whom invalidity benefit is removed, namely, the fittest of them, find work. The rest are merely displaced on to other benefits. So what will the net saving be?

The second argument which the Minister adduced in his Statement for cutting invalidity benefit and rejigging it as the new benefit and incapacity benefit is that it is too generous. Therefore, he is proposing, first, to cut the additional pension to which people have contributed in the past. Secondly, he is proposing to tax it. Invalidity benefit already replaces less than half the earnings of more than half the claimants. It is worth about 17 per cent. of average earnings to people whose living costs, in terms of need for special diets, heating and physical appliances, are more expensive than for most of us.

The leaked DSS document actually suggests that no savings will come from taxing because the needs of these groups of people will be displaced on to other benefits such as housing benefit. Can the Minister say whether that is true? Will he say how many and how much? The core of the problem is that when employees suffer ill health, 75 per cent. of employers now do nothing to help them keep their jobs and often encourage them to leave. Once they have lost that long-standing job, then, with poor health, advancing age and a broken employment record, few other employers will take them on. That is why they cannot come off invalidity benefit. Surely, Ministers will agree that the right response is to do everything possible to enable employers to keep on their infirm staff for as long as possible. Once they leave, it is hard to re-enter the labour market, much as they wish to.

If the Minister agrees—I am sure he does—why, then, is government policy driving in precisely the opposite direction? Why, in Access to Work, are we now to require employers to pay half of the bill for work adaptions for the disabled? Why, in this Statement, will employers have to pay the statutory sick pay rather than be reimbursed by the state? As Price Waterhouse say, It will encourage employers to be much tougher on employees claiming sick pay". This provision is not about improving employees' health, as the Statement says. It is an incentive to sack. It is perverse. The Government are encouraging employers to add to the very problems they are seeking to reduce and at real pain to human worth and dignity.

I wish to move on to the job seeker's allowance which the Minister presented in his Statement as simplicity—the integrating of unemployment benefit and income support. That is hypocritical. It is about cuts. What the Statement does is to cut the contribution-based unemployment benefit from 12 to six months and then displace claimants on to means-tested income support. So at the very time when national insurance contributions are being raised from 9 per cent. to 10 per cent., people are paying more. The contributory benefits, such as unemployment benefit, which flow from them, are being sharply cut. The claimants will get less. That is fraudulent.

Those with modest savings will be penalised when they are means tested (is that what we want?) as will formerly employed married women with husbands in work who have paid in their contributions as individuals but who, after six months, will get nothing because their husbands and the household income will be means tested. These measures are about cuts and undermining the contributory principle upon which the welfare state is based and which the Chancellor said yesterday he was pledged to maintain. They are about massaging the unemployment figures, which, at a stroke, we estimate will fall, just by altering the name of the benefit, from 10.2 per cent. to 9.5 per cent. while claimants are simply displaced on to other benefits. Will the Minister confirm those figures and tell us how many and how much?

Finally, I turn to VAT on fuel. In the Budget and in the Statement, it is clear that next year single pensioners will get an extra 50 pence and a married pensioner couple 70 pence to pay for an 8 per cent. increase on VAT, and double those figures the following year when VAT doubles. We all know that pensioners need more heat and for longer hours because they are at home. Yet if a single pensioner is in future to spend more than 89 pence a day on gas and electricity that pensioner will be worse off. It is clear that the rebate meets barely half of the increased bills that will fall on pensioners and families on benefit. At least they get some help. Will the Minister confirm that those who perhaps need help most of all—that is to say, those on the disability living allowance with often greater heating needs and lower incomes, and also those receiving the disability working allowance, appear not to be eligible for any rebate on VAT at all? I cannot believe that that is true, and I hope that I am wrong. I ask the Minister to tell us explicitly.

All of these measures are presented to us because DSS expenditure, as the Minister said in his peroration, is allegedly growing too fast and is out of control. But is it not the case that in our welfare spending in Britain, compared to the rest of the industrialised nations, is relatively low and that we are rated 17th out of the 21 OECD countries; and that in the EC only Portugal spends a lower proportion of its GDP on welfare? Is it not the case that in the next century we shall have the best support ratio of workers to non-workers in Europe? Is it not the case that the additional cost of the elderly will add less over the next 50 years to social security expenditure than the rise in unemployment has cost us in the past three? Is it not the case that if unemployment falls by 100,000 a year—the Government's own medium level target—then social security spending as a percentage of GDP will actually fall?

As was said earlier today by the Leader of the House, Ministers are pleased—as we are—by the fact that unemployment is falling. But if it is falling and if it continues to fall, such cuts should be unnecessary. If, however, it does not fall it is not right that the unemployed, the victims, should pay for them. I repeat that social security expenditure is not driven by the malingerer on invalidity benefit nor by the scrounger on unemployment benefit. It is driven by the Government's own mismanagement of the economy, their failure to build jobs, and their failure to build growth. The sick and the unemployed will pay.

These are not financial choices in today's Statement but political choices: of who pays and who gains. It is about our moral priorities. The Government have decided in today's Statement that those who will pay are those least able to do so: those without a job; those in ill health; those who are poor; and those who are often cold. It really is not decent, and we should all be ashamed.

Earl Russell

My Lords, I welcome the noble Viscount, Lord Astor, to the social security brief and to one of the ritual occasions of the social security year. I should like also to express my sympathy with him because he has come to this ritual occasion at a moment when it has been, by circumstances beyond our control, somewhat downgraded. The new unified Budget, so far as I can judge at present, seems on the whole to be a procedural success, but one of its consequences is that today's Statement is inevitably to a large degree overshadowed by yesterday's. Indeed, the Chancellor said yesterday that he was leaving the Secretary of State simply to fill out the details of the Statement. In fact, the Secretary of State is reduced to playing Sancho Panza to the Chancellor's Don Quixote. The mind behind the Statement—and it is a fertile and sometimes unpredictable one—is that of the Chancellor of the Exchequer, who by turns, with each revolving moon, was chemist, fiddler, statesman and buffoon.

I am fascinated in studying the Statement by the task of keeping ideological balance within it, and whereas the Prime Minister tends to preserve ideological balance by seeking equilibrium in immobility, the Chancellor and the Secretary of State have sought to preserve it by rapid movement left and right, both in the same direction.

There are two dominant themes. The first is the theme of back to work and the elimination of poverty traps. The other is the pursuit of scroungers. That is where I see the rapid movement both ways. Now that is not necessarily impossible. If one looks, for example, at an eightsome reel, one sees rapid movement in both directions which achieves a pattern, but everything here is in the timing and the co-ordination, and those are the points on which I think that we need to test the Statement. I am afraid that it is relevant to observe that what we have here is an eightsome reel danced by Englishmen. There are some extremely good things in the Statement, and in welcoming them I shall not complain that the Chancellor shot my fox, but on occasion I shall say that his aim was not very good and that he should put it out of its misery.

What I welcome most warmly is the disregard for child care, for which I was asking as recently as last Tuesday, and I am very glad indeed to get it. Both in ideological terms and in practical terms, it represents a major and entirely welcome shift in government thinking, but in passing I should like to ask the noble Viscount—when he is ready—whether there is to be any taper for the withdrawal of the benefit. If there is not to be any such taper and if one loses it all at once when one's earnings rise to a certain level, we shall have a new poverty trap. It was, I suppose, to be expected that the benefit would be passported through family credit, but since that is so, it forces us to look again at family credit because it is no good having a benefit unless its passport is in order.

Family credit is an unpopular benefit. It has, I think, a lower take-up than most other means-tested benefits. Very recently, Gary Craigï's study of the Child Support Act for the five children's societies has again confirmed a very widespread reluctance to go on family credit. If we cannot overcome that, this very welcome innovation will not achieve the designed effect of getting people back to work, as it should. At present, only 10 per cent of lone parents-130,000 out of 1.3 million—are on family credit.

I should like the Government to look at three things relating to the administration of family credit. The first is the procedure by which it is reviewed only once every six months. It is in the nature of part-time work that it is available only part of the time, so if one gets it and loses it and one's family credit is not reassessed, one may find oneself in the soup. People on benefit are well aware of that danger. The second is the loss of passported benefits —notably, free school dinners. Again, that is a considerable disincentive. The third is the loss of help with mortgage payments when one goes on to family credit, which deters a very great many people. In examining that, I hope that the Government will again look at the case for a mortgage benefit.

I must welcome the increase in cold weather payments, which is much needed and very timely. I should like also to pay tribute to the work that has been carried out by my honourable friend Mr. Kirkwood on the calculation of those payments. I warmly welcome the help with insulation, and again pay tribute to the work done on that by my noble friend Lord Ezra.

On national insurance, I am pleased to see the reduction in employers' lower rates which will do something to give an incentive to provide low-paid jobs. That is vital. However, I wish that at the same time the Government had looked at the tapers for housing benefit and had applied the same principle there.

On the state pension, our policy (like that of the Benches on our left) was in favour of a flexible decade of retirement, but we are very much happier with equalisation at 65 than we were with some of the ideas that had been floated recently by the Chief Secretary. This seems to be a much more constructive route along which to go. I was interested in what was said about deferment and should like to know whether there is any more that the Minister can tell us about flexibility within the system for those who may want to retire a year or two early. I see that that flexibility already exists for those who want to work longer, and I welcome that.

I also am considerably distressed by the proposed changes in statutory sick pay. The noble Lord, Lord Boyd-Carpenter, who remembers our last Bill on statutory sick pay very well, will understand the points that I am making. The provisions risk making everything that the Government said during the Maastricht debates about the need to keep down business costs look somewhat hypocritical. It looks as if the Government are concerned to keep down business costs when otherwise workers might benefit, but are not concerned to keep them down when otherwise the Treasury might benefit. One knows that the Treasury is absolute, but it does not have to make it quite so obvious.

The provisions will be an incentive to employers to police the health of their workforce. There are quite a number of people—to take just one example among many—who are in the grey area between having a drink problem and suffering from alcoholism. Some of those, kept on for a while by a generous employer, may pull out of it and become full working members of the population, as we would wish. If they are dismissed, they are cast upon the tender mercies of care in the community. They tend to use up the extra money allocated for care in the community, and provide us with yet another case of running to stand still. So here again the attempt to get people off income support might be counteracted by other measures which push them back onto it. I shall say again in passing what I said last week: if the same ideas are applied to statutory maternity pay, we have a lively argument in front of us.

On VAT on fuel, I am glad that there is compensation. I am glad that the compensation extends to the body of pensioners as a whole, but the Social Security Advisory Committee calculated the compensation needed at £700 million. We have £400 million. Well, half a loaf is better than no bread, but it will still leave many people very cold. Also, the compensation for people on benefit is not matched by anything for people on low wages. If one comes off benefit and goes into work, one loses the compensation. Here, we have another poverty trap created. So, once again, the measures have undone with one hand the effect that they created with another. The pattern is unfortunate.

On invalidity benefit, we shall need a great deal of care in its administration or else the name "incapacity benefit" may acquire an uncomfortable ambiguity. I was distressed to see that the Chancellor said yesterday that many of those involved were not genuine invalids. I do not know whether he is aware, as are other people, that one of the effects of unemployment is a rapid deterioration in physical and mental health. I do not believe that we have an accurate base line suggesting that in the past that benefit was picking up all those entitled to it. That is the sort of remark, if it were made by one Front Bench about another, that would lead to an apology. Made to those who cannot answer back, it should all the more lead to an apology.

In particular, the Government are wrong to think that they can have a medical test which is tighter and more objective. If it is more objective, we do not know what the doctors will say. It is also wrong to think that there is a single clear dividing line which separates capacity for work, on the one hand, from incapacity on the other. There is a grey area, especially in the field of mental health. I should like to think that there will be discussions with the Department of Health before anything is done about this matter.

On the job seekers' benefit, I see the administrative reason behind it. But I should like to know what is in the job seekers' agreement and what will be the single set of measures, about which we were told, which will happen to those who do not live up to it. Here again, we have to accept that there is a grey area between capacity and incapacity for work, as all those of your Lordships who have back injuries know well. We have also to consider whether we are prepared to use starvation as an instrument of policy against those whose job seeking we are not satisfied with.

In many ways, these measures will end up contradicting themselves. If they fall apart under their own internal weight, then in the medium term we may be wondering whether the Chancellor deserves the title of England's answer to Kim Campbell.

Viscount Astor

My Lords, I am grateful for the welcome given to some of the measures announced today and yesterday by my right honourable friend the Chancellor of the Exchequer, in particular, of course the disregard for child care. We shall have an opportunity to discuss all these measures in great detail when the Bills come before your Lordships' House in this Session and afterwards. I am sure that your Lordships will then examine carefully all the proposals.

Perhaps I may deal with some of the points raised by the noble Baroness, Lady Hollis. She asked whether compensation for VAT on fuel applies to DLA and DWA. Help with VAT on fuel will feed through into DWA. The vast majority of those receiving DLA and attendance allowance are compensated directly through other benefits; for example, IVB and SDA. They add to the compensation in those benefits. Disabled people not on income-related benefits will be able to obtain help to insulate their homes via the home energy efficiency scheme. Previously, income-related beneficiaries only received that help.

The noble Baroness also asked about the proposed invalidity benefit and the test. We want to ensure that the genuinely sick receive benefit, and reduce abuse. The difficulties faced by GPs in exercising their role, as it were, as gate-keepers to the benefit system are well known. The Government believe that developing a test based upon the effects of the medical condition will focus incapacity benefit upon those who cannot work. A test based upon information provided by the claimant about their capabilities, backed up, where appropriate, by medical advice from the Benefits Agency medical service will reduce tensions in the doctor/patient relationship and relieve GPs from taking decisions which many consider to be outside their professional expertise.

I was asked also about statutory sick pay by the noble Baroness. We shall introduce a Bill before your Lordships' House. I do not believe that employers will fire sick staff, and of course nine out of 10 workers belong to occupational pay schemes which usually pay more than SSP. If financial costs were a factor, employers would have already let those employees go. The reduction to 80 per cent. reimbursement in 1991 did not cause employers to sack workers. It is important to stress again that, overall, business will not be out of pocket due to the compensating national insurance reduction, and we have greatly extended small employers' relief.

The noble Baroness also asked whether anyone would pay tax on invalidity benefit. Benefits which replace earnings should be taxed. That has always been our intention. Existing IVB claimants will not pay tax. Almost half IVB claimants have occupational pensions. Others have savings.

The noble Baroness and the noble Earl, Lord Russell, asked about VAT on fuel. I do not accept what the noble Baroness said about pensioners being compensated for half their loss only. In the first year (1994) the average compensation for single pensioners (that is, extra help) will be over 70 per cent. of the average of their VAT fuel bill. That will rise in the third year to over 80 per cent. extra help with VAT on fuel. I can do no better than quote the Chancellor yesterday when he said: On average, pensioners are likely to find that, after taking account of falling real fuel prices, the extra help they receive will broadly cover changes in fuel bills, including VAT, over the course of this Parliament".—[Official Report, Commons, 30/11/93; col 923.] Overall, fuel bills have fallen by about 4 per cent. since the last election. They are likely to fall further.

Baroness Hollis of Heigham

My Lords, they will go up.

Viscount Astor

No, my Lords.

I am grateful to the noble Earl for his welcome for the child care proposals. I noted when I read his Question on child care that his noble friend Lady Seear asked that I pass the message on to my right honourable friend the Chancellor of the Exchequer between then and Budget day. I am delighted to tell the noble Earl that I did, and it worked. I do not guarantee to be able to do it again, but it was certainly a help.

The noble Earl asked whether there would be a taper in respect of child care. The answer is, yes, the 70 per cent. family credit taper will apply. That is why in practice £40 per week earnings disregard in child care costs is worth up to £28 per week. The noble Earl also asked about family credit, the proposals for change of circumstances, passporting benefits and help with mortgages. I note his suggestions but they go beyond the substantial changes which come before your Lordships. I do not guarantee to do as well with the Chancellor in respect of those.

I welcome the noble Earl's remarks about cold weather payments. He then asked about sick pay. It is not only an incentive for employers to police sick pay but also to help their employees. I know that the noble Earl is worried about the issue because during our debate on the gracious Speech he reminded the House that the last time a statutory sick pay Bill came before your Lordships the Minister stood at a burning Dispatch Box whence all but he had fled. I am glad to tell the noble Earl that the Dispatch Box at which I am standing does not appear to be on fire and I appear to have a lot of support behind me.

The noble Earl commented on the medical tests for the sick and disabled. The more objective medical test will be based on the effects of disabilities on a person's capacity to work. Those who have functional limitations which prevent them from working will not be penalised.

That answers a substantial number of questions asked by the noble Baroness and the noble Earl. I accept that they will ask many more questions when the Bills come before your Lordships.

4.31 p.m.

Lord Boyd-Carpenter

My Lords, I thank my noble friend for repeating the long and complicated Statement and for explaining it with such admirable clarity. The House is indebted to him. It is encouraging to someone who sits on these Benches to see that, despite the difficulties of the time and the real economic problems; which face the Government and the country, it has been possible to bring about a considerable number of real improvements. That is an indication that despite the present difficulties we have an active Secretary of State for Social Security and that he and his colleagues are prepared to bring about the improvements which experience has shown are required in the working of our system. That is extremely encouraging.

I wish to ask my noble friend about two issues. The first is about the age of retirement for women. He will be aware, as am I, that the subject has been under discussion in the department for 35 years. For those of us whose recollections of the department go back that length of time, the reappearance of the issue is like meeting an old friend. Of course it is right to go for equality. As my noble friend said, women's expectation of life is four years longer than that of men. It is absurd that they should draw their retirement pension five years earlier.

Will my noble friend explain in a little more detail how the changeover, which has always been regarded as the difficulty, will be effected? Will it be done one year at a time, then a gap of two years and then another year, moving gradually to the age of 65? Is it contemplated making a slashing change so that one year women retire at 60 and the next it suddenly changes? How are the mechanics to be handled? My noble friend will know from reading departmental files that an enormous amount of work has been done on this important issue.

I was pleased, in particular, to hear that provision is to be made for indefinite opportunities of deferral of pension. I do not think noble Lords have referred to that. The limit of five years was always illogical. If people have a good job and can remain in it, it is always right to leave them the option of accumulating a better pension for as many years as they feel disposed. It is a belated but extremely sensible provision to make.

Finally, I wish to ask my noble friend two questions about the procedures that are being followed. He indicated that the measures would involve legislation. Is a Bill to be introduced in this House or in another place? If it is to be introduced in another place, when is it likely to reach this House? We must have an opportunity to debate the issues in the near future. As my noble friend knows—

Noble Lords

Question!

Lord Boyd-Carpenter

My Lords, your Lordships' House has many Members with great experience in these matters. They will be able to contribute advice on the handling of the details, which clearly the Government need. Will my noble friend indicate that we shall soon deal with the Bill or that we shall have a debate in the near future?

Viscount Astor

My Lords, I am grateful for my noble friend's support. He is right in his comments about the changes in the state pension age. The subject has been under discussion for a long time and it is right that we have been able to reach this decision. It is in line with what other countries are doing, in particular member countries of the EC.

My noble friend asked me about the phasing-in period. It will be between 2010 and 2020. During that 10-year period a gradual change will take place when the pension age for women will rise from 60 to 65. In simple terms, it will be one month in two over the 10 years. Between those dates some women will retire at 61 or 62 but that will cease to happen after 2020.

My noble friend asked when the Bill will be introduced in this House. I must make it clear that we intend to introduce a Bill as early as possible but not during this Session.

Lord Hailsham of Saint Marylebone

My Lords, not in this House or not in this Session?

Viscount Astor

My Lords, not in this Session. I cannot tell my noble friend Lord Boyd-Carpenter where it will be introduced, but I am sure that my right honourable friend will take note of the points that he made.

Lord Ashley of Stoke

My Lords, I promise not to make a long speech. Is the Minister aware that the Government's proposals for medical tests in respect of invalidity benefit imply widespread cheating, which is disputed by research carried out by disability organisations? Will the Minister tell the House on what evidence he has based the supposition? Will he reply to the questions put by my noble friend Lady Hollis about the number of people involved and the amount of money that will be saved?

Viscount Astor

My Lords, the changes represent a fundamental reform and they are intended to achieve a more coherent approach to incapacity provision and a more affordable system. While incapacity lasts the flat-rate benefit will continue to be paid as of right if contribution conditions are satisfied. It can be topped up by private provision. The key aim is to focus benefit on those who are genuinely incapable of work —that is, the people for whom it was always intended—through a more objective medical test of incapacity. I think that there will be welcome debate on the detail of the test. As I said, we have today published a consultation document containing the medical test details. It is quite difficult to be clear about what the impact and the savings will be until we have the test and the Bill. However, I have made clear that there will be some. We believe that perhaps 70,000 cases a year will be disallowed following the test of incapacity. We estimate that about 250,000 existing cases may be disallowed on review over the first two to three years. But that is quite a long period in the future.

I believe that I should also make it clear that there is absolutely no criticism of GPs or of their professionalism. They are not experts on complex social security rules and research confirms that they are experiencing difficulty with their present role. We want to make it much clearer and easier for them.

Lord Allen of Abbeydale

My Lords, in view of the rather brisk interchange that I had with the noble Lord, Lord Henley, on 16th July (at cols. 422–5 of Hansard) I should like to say just a few words of appreciation for the announcement made today—that is, as I understand it—that an individual will be able to do up to 16 hours of voluntary unpaid work (for example, with the citizens advice bureaux) without affecting his entitlement to incapacity benefit or invalidity benefit, call it what you will. It is important for the voluntary sector and I am most grateful. However, will that change have to await legislation or can it be put into effect by administrative means?

Viscount Astor

My Lords, we shall be coming forward shortly with a Bill as regards the incapacity benefit. It will arrive in your Lordships' House during this Session. The noble Lord, Lord Allen of Abbeydale, asked when the hours rule would come into effect. I am not sure whether we will be able to bring it in before the passage of the Bill. However, I can say that we hope the Bill will be introduced this Session.

Lord Bruce of Donington

My Lords, can the noble Viscount give the House an indication as to whether the revision of the rules regarding the payment of unemployment benefit (now to be called jobseeker's benefit) after six months will lead to any change of definition for statistical purposes as regards the unemployed and those claiming benefit? Quite clearly, if the period is reduced to six months there will ostensibly be a once-and-for-all possible decline in the real unemployment figures. In considering his reply to the question, the noble Viscount will doubtless be aware that if unemployment were to be recorded and stated on the same basis as in 1979 it would now be 4 million rather than some 2.8 million.

Similarly, when considering his reply, will the noble Viscount take careful note of what his right honourable friend in another place, Mr. Alan Clark, recorded when he was in the Department of Employment? I shall quote from his diary relating to 15th June 1983, which reads: Faster than I can digest them. Great wadges of documentation are whumped into my 'In' tray. The subject matter is turgid: a mass of 'schemes' whose purpose, plainly, is not so much to bring relief to those out of work as to devise excuses for removing them from the register. Among my other responsibilities are 'statistics', so it will be me who has to tell the House each month what is the 'jobless' total". Will the noble Viscount give the House an unequivocal undertaking that the figures published after the scheme comes into operation will accurately reflect the true position with regard to unemployment?

Viscount Astor

My Lords, by giving us that little extract, I believe that the noble Lord, Lord Bruce of Donington, actually proved why one needs to bring in a new system. Indeed, he proved my point that it is wasteful and absurd to have two inconsistent benefits for the unemployed, with different rules, different offices and different systems. Therefore, his argument was most helpful in explaining why we need a new system. The purpose is not to massage the statistics of the unemployed: the purpose is to improve the system for those who need benefit and to help people to go back to work.

Perhaps I may deal with one point that the noble Lord made about the effect of changing the period from 12 months to six months. At present, the unemployment benefit rate is slightly higher than that for income support. Therefore, those in the first 12 months will be receiving slightly more. Although we are shortening the period to six months, people with an entitlement to the benefit will be eligible for the same amounts which apply to the means-tested rate and the contributory rate will he the same; that is, one rate. However, the statistics will remain the same. What we are changing is the ability to give people benefit and to help people get back in to work.

Lord Bruce of Donington

My Lords, the noble Viscount has not answered my question.

Viscount Ullswater

My Lords, perhaps I may suggest that we now return to the debate. In doing so, I should like to announce that the five-hour time limit will now expire at 9.10 p.m.