HL Deb 24 January 1994 vol 551 cc811-25

3.7 p.m.

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

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Viscount Astor.)

On Question, Motion agreed to.

House in Committee accordingly.


Clause 1 [Increase in primary Class 1 contributions]:

On Question, Whether Clause 1 shall stand part of the Bill?

Baroness Hollis of Heigham

We on this side of the Committee propose that Clause 1 should not stand part of the Bill. Clause 1 is the heart of a very short Bill. By opposing the Question that Clause 1 should stand part, we want to register our anger at and distaste for the regressive and deeply unfair way the Government are structuring our public finances. I appreciate that many of these points were made at Second Reading. I can only apologise to your Lordships for my absence then on parliamentary work for the CPA in South Africa.

Under this Bill and in this clause let us see who pays and who gains. It is now undeniable, given yesterday's and today's newspapers telling us of the Treasury answers in response to the Shadow Chancellor of the Exchequer's questions, that the Conservative Party is the party of high taxation. In the past 14 years taxes have risen from 32.2 per cent. to 35 per cent. on average earnings. When next year the Treasury forecast is that they will reach 34.9 per cent. on average earnings it will, according to the Treasury report, be the highest ever level". I quote from that noted friend of the Labour Party, the Sunday Times, that, Taxes will be at their highest level ever on average earnings". The average family will be paying £50 a month more. The Government may say that this is an increase on average earnings over the 14 years of some 35 per cent. But again, the Treasury have pointed out that earnings grew by more than that in the previous 14, mainly Labour, years—that is, by 38 per cent. and by 47 per cent. in the 14 years before that.

So, on the highest levels of taxation ever on average earnings and on the lowest growth in real income, we have nonetheless seen, after housing costs, the bottom 10 per cent. about 14 per cent. worse off in real terms. It gets worse. It is part of an increase in taxation from a Government who are already taxing us more than any previous government. We at least know that income tax is a fairer tax than others because it relates more proportionately to people's ability to pay. We know also that flat rate taxes like, for example, VAT on fuel are regressive because they take up more of the income of those who have less income. What we now know is that since 1979 income tax and direct duties have fallen by £10 per week in real terms, but the moneys levelled by national insurance, VAT and regressive duties have risen by more than £20 a week in real terms. So not only are we exposed to the highest level of taxation ever, but that while progressive taxes have fallen, indirect, flat rate and regressive taxes have actually more than doubled in percentage terms.

There is worse still even than that. Within the structuring of national insurance and within Clause 1 of the Bill, not only is national insurance not progressive, not only is it not even neutral that one pays the same proportion whatever one's earnings, but it is actually regressive and made more so. Save for those earning less than £57 per week, which is the equivalent of the old age pension, the more one earns, then for national insurance proportionately the less one pays. For example, on average earnings of around £19,465 a year, national insurance will take 8.8 per cent. of pay, but if one earns 1.5 times the average earnings (£29,000) that takes only 6.8 per cent. of pay.

At the bottom end, 500,000 people are too poor even to pay income tax but they have to pay national insurance. They are mainly women. At the upper end, those earning over £23,000 a year have their contributions proportionately capped. That is why putting a penny on income tax raises less than putting a penny on national insurance. The difference is that that penny is raised from different people—that is to say, the low paid, part-time workers, women, the disabled and those with the least ability to afford it.

In other words, taxes on average incomes are at the highest levels ever. Within that, the burden of taxation has been shifting quite deliberately from a fairer income tax to the less fair national insurance and VAT. Within national insurance itself and perpetrated by this Bill, the provisions are structured so that those who earn less pay proportionately more while those who earn more pay proportionately less.

Is this fair? What other blows are still to come? This is a point eloquently and forcefully made by my noble friend Lady Turner at Second Reading; namely, while national insurance contributions rise, what they buy falls. As we have seen, pensions are now detached from a rise in earnings which means that it has already cost the elderly a drop of £19 per week. Unemployment benefit, which is to become a job seeker's allowance, is soon to be means tested after six months instead of after 12 months. It will probably be removed from 240,000 people who are unemployed. As regards invalidity benefit, which is about to become an incapacity benefit, that is to be liable to tax, to tougher medical tests and will be lost to about 70,000 to 100,000 more people.

All these changes especially hurt women because they are especially the low paid part-time workers. In future women will see their pensions postponed for another five years. As regards the job seeker's allowance, women will be hurt as spouses because their partners will lose the adult dependency allowance; and it will hurt them in work as well. The invalidity benefit has grown in part precisely because women contribute to the fund and are drawing from it, but it is just at the point when women are drawing from it that their entitlement will be sharply curtailed.

No one denies that the national insurance scheme has to be funded but in the Exchequer contribution the Government are already recognising that it is not a fully-funded scheme but a pay-as-you-go scheme. Why, then, is there a deficit? First, as the Government Auditor himself said, it is due to the recession. Fewer people are paying in and therefore contributions are falling. In addition, those in work have lower earnings and therefore their contributions are falling. Together they represent a deficit of over £1 billion.

Secondly, the payments out are rising—about £2 billion—in part for pensions and uprating but, significantly, also for the unemployed. Thirdly, we have a deficit because the Government have made a quite conscious decision to use public money, rebates and bribes to switch people out of SERPS into the disastrous private schemes which will cost in bribes nearly £3 billion over any putative future savings. So the need to raise national insurance contributions, and the way in which that is falling disproportionately on the poorest people, is a direct consequence of Government folly and policies. In addition, it is their failure to build the economy and their folly in pushing people into private pensions with rebates.

Therefore, we oppose that this clause—which is, in fact, the Bill—stand part of the Bill because on every account we believe that it is deeply unfair. It represents a further switch from income tax to national insurance as a way of raising funds and therefore from a more fair to a less fair method of finance. It takes proportionately more from the poorer than it does from the better off, while at the same time it pays out less to the poorest than in the past when they most need it—that is, the sick, elderly or unemployed. Above all, it is because the Government have so damaged our economy that they are now seeking to float their finances, not by calling on the better off who can retreat (and do) into private arrangements, but by hurting those on average and below average earnings and incomes. We oppose that this clause stand part of the Bill.

3.15 p.m.

Lord Dean of Harptree

The effect of the speech from the noble Baroness, Lady Hollis, would be to deprive the national insurance scheme of an extra £2.2 billion in a full year. I do not believe any Members of the Committee would argue that this additional money is needed to meet the cost of benefits. We do not have to take the word of a political Minister for that because it is clear from the various reports of the Government Actuary. For example, in 1990, in his quinquennial review, the Government Actuary said, it would seem advisable to maintain a minimum balance of about one-sixth of a year's benefit expenditure". I do not believe that anyone argued against that at the time. It is clear from subsequent reports from the Government Actuary that expenditure is exceeding income and therefore that additional resources are necessary if the benefits are to be adequately met.

So the question arises: if the money is not going to be met by increases in contributions, what are the alternatives? In recent years there has been recourse to the Exchequer grant, but I believe that that is an undesirable principle to pursue. If we go too far down that road it could easily undermine the fundamental concept of benefits as of right in return for contributions. That is an immensely important principle and the only way in which we can contain it effectively is if the bulk of benefits are paid for out of contributions.

If the noble Baroness denies that, I hope that she will be able to suggest some other ways in which money could be raised to meet the shortfall in the fund. She could, for example, suggest doubling the rate of VAT on fuel bills. That would cause a major political row, but it would be a very good money spinner. She could also suggest putting VAT on books, children's shoes or even on foodstuffs. Again, a major political row would result, but at least there would have been the additional revenue that is required.

Therefore, with great respect, I find it difficult to take the noble Baroness's suggestion seriously in default of any alternative suggestion as to the way in which the additional money could be raised.

Lord Boyd-Carpenter

It was rather entertaining to me to listen to the noble Baroness, Lady Hollis, objecting to increased payments of this kind. Indeed, her diatribe against increased taxation came entertainingly from the Opposition Front Bench because for years the Labour Party has been an advocate of increased taxation. To see the noble Baroness saying what a terrible thing it was to increase this contribution because it was increasing taxation was very entertaining because one knows perfectly well that the Labour Party favours higher taxation and that it is simply trying to make some political capital out of what is inevitably a somewhat unpopular decision. It is, however, the right decision.

My noble friend has pointed out that we are dealing with a contributory benefit. Where the funds are obviously not adequate to pay for benefits under the scheme, it is absolutely right to increase the contributions so that they should balance. I hope that my noble friend the Minister will firmly resist this unhelpful Motion.

Lord Simon of Glaisdale

I did not speak on Second Reading and desire to intervene on only one point—and that is to consider how far this is a matter of taxation. The question of increased taxation is of considerable political moment as of now so obviously the noble Baroness said that this is taxation, that taxation has been increased and that this Bill increases it further.

On Second Reading, the noble Viscount—I fully share the pleasure that all your Lordships have had at his promotion —said that this is not taxation because it is a hypothecated charge; in other words, it is devoted to one single class of recipient. However, the fact that a charge is hypothecated certainly does not make it cease to be taxation. After all, all charges were hypothecated until the introduction of the Consolidated Fund in 1787. The most famous tax case in our history was the case of ship money, which was certainly a hypothecated charge, but nobody has ever pretended that it was not a tax.

The truth is that one can regard this charge (even though it is hypothecated) only in the total fiscal context. It is extremely misleading to isolate it from the general fiscal context. That means that in a sense we are premature—certainly in considering whether or not this is taxation.

I agreed with the sophisticated and clear exposition of the noble Lord, Lord Jay, on Second Reading that from one aspect this is taxation but from another aspect it is not taxation or, as it was put very wittily by the noble Earl, Lord Russell, it is rather like Berwick-upon-Tweed in relation to England: you either attach it or detach it according to taste and your line of argument.

The other argument which was put forward for not regarding this as taxation was that this is not a money Bill. That is true, but that is by no means conclusive and takes one only a very little way. Very few Finance Bills these days are money Bills. The famous Finance Bill of 1909 would not have been certified as a money Bill in accordance with the terms of the subsequent Parliament Act, so the mere fact that a Bill is not a money Bill does not mean that it does not deal with with taxation. In my respectful submission, it would be quite unreal (when the time comes for the total conspectus of the fiscal regime) not to take into account this extra charge.

Having said that, I certainly do not oppose it. This charge has been hypothecated from the outset and for the reasons stated by the noble Lord, Lord Boyd-Carpenter, who preceded me. It is hypothecated because it is a contributory pay-as-you-go scheme and, under those circumstances, it is certainly necessary to treat it as it has been treated by successive governments. That being so, the only question is: within the narrow circumstances of this charge, is it necessary to increase it? As the noble Lord, Lord Boyd-Carpenter, gave cogent reasons why it is, there is only one further thing to be said. If, as the noble Baroness desired, we treat this as a matter of general taxation, it is extremely misleading to say, "The present Government are taking a higher proportion of average earnings than the preceding Labour Government—in fact, a higher proportion than ever before". That is quite misleading because it does not take into account the very considerable increase in average earnings. What matters is how much is left in the way of take-home pay.

Therefore, although I trust that in due course we shall regard this as a matter of taxation when we come to consider the Finance Bill and although at the moment it seems to me that the increase in the charge under this Bill is abundantly justified, I hope that, for the reasons that I have given, the Motion will be carried. I hope also that we shall not embark on these wide questions of whether taxation has increased without considering whether average earnings have increased and whether the taxpayer is, on balance, better off.

3.30 p.m.

Lord Cockfield

Whatever the theoretical arguments about whether this is a tax, the practical aspect of this matter is that, if this were a tax, your Lordships would not be having a Committee stage on the Bill and we would have been spared the pleasure of listening to the speech of the noble Baroness, Lady Hollis, a few minutes ago. We have had this argument ever since I became a Member of your Lordships' House. We certainly had it when it was my dubious pleasure to take corresponding measures through the House 10, 12, 14 years ago. The argument goes on. It is an unproductive one.

The other point I want to make is one which is just touched upon by the noble and learned Lord, Lord Simon of Glaisdale. The noble Baroness brought into the argument the question of the average rate of tax on average earnings. She quoted certain figures showing that the average rate has gone up. Of course it has gone up. The one thing that she has overlooked is that, ever since Mr. Lloyd George introduced his Budget of 1910–11—I admit it is before the time of the noble Baroness, but of course it should be very much in the Committee's mind because it was that Budget which led to the Parliament Act—we have had a progressive tax system in this country.

It follows as a matter of simple arithmetic—it has nothing to do with political views; nothing to do with prejudices or anguish or any of the other matters that the noble Baroness introduced—that if average earnings go up the rate of tax on those earnings must equally go up. Indeed, the fact that the average rate has gone up is something in which, in a sense, we should take satisfaction because it demonstrates and proves how much average incomes have gone up under the present Government. For that, we should be grateful to the noble Baroness.

Lord Peston

Did I hear the noble Lord aright, and that he said that he believed that we still had a progressive tax system?

Lord Cockfield


Lord Peston

Is it his view that if we looked at total taxes in this country that would show that the marginal rate of tax rises right across the income scale, from the very bottom to the very top? Is that his view?

Lord Cockfield

If we look at the average rate on average earnings, it will go up if the average earnings go up. Strangely enough, even in the case of VAT that is a progressive tax over a considerable part of the range. That is because the total of consumer expenditure which comes within the charge to VAT in this country is about 50 per cent. only. Most of what are exempted or zero-rated are items upon which people with smaller incomes spend a larger proportion of their income.

Lord Peston

I hate to come back to this point, but it is an interesting technical point to anyone who is interested in taxation. The noble Lord is looking at average taxes and not marginal rates, which is the correct definition of progressive taxation. Secondly, I ask him again: is it his view that over the whole of the income range, taking all taxes into account, the tax system is progressive? Is that his view?

Lord Cockfield

The noble Lord raises an interesting arithmetical point.

Baroness Hollis of Heigham

It is a real point.

Lord Cockfield

I shall come to it in a moment. A little patience on the part of the noble Baroness would not come amiss. Again, it is a matter of simple arithmetic: if the marginal rate goes up, the average rate must also go up. That is how average and marginal rates are related to each other.

The other point is this. If one goes to the extreme top of the income scale one may find that the tax is no longer progressive; but that is looking at a particular sector and that is not what I am talking about. If one looks at average earnings, which are not at the very top of the income scale—I believe that the noble Lord will accept that that statement is correct—then if average earnings increase, then with stable rates the average rate of tax must increase as a matter of simple arithmetic.

Lord Stoddart of Swindon

I tried to follow the argument that went backwards and forwards, but I must confess that I was not convinced by the reply of the noble Lord, Lord Cockfield. My impression is that for a long time—certainly over the past 14 years—taxes, over the whole of the range of taxation, have not become more progressive; they have become less progressive as the amount of expenditure tax has increased. It is part of government policy, and has been for a long time, to transfer the financing of the Budget from direct to indirect taxation. I should have thought that that was bound to be less progressive. However, I do not have any figures, and I do not believe that the noble Lord has any figures, to prove that at the moment.

The other speech I was intrigued by was that of the noble Lord, Lord Boyd-Carpenter. He said that it was an incontrovertible fact that Labour always increases taxes, and taxes more than Tories. We all know that that is not true. We know that when Labour left office in 1979, 35.25 per cent. of GDP was taken in taxation. From April this year the percentage tax under a Conservative Government will be 38.5 per cent. Therefore it is proved beyond doubt, and from government sources, that taxation is not just higher under a Tory Administration, but very significantly higher, so I hope that we shall not hear any more about high taxes under a Labour Government from the noble Lord, Lord Boyd-Carpenter, or the Government.

We are dealing with an important Motion and an important Bill. I have been worried, as I have listened to the debate, about whether the insurance principle is maintained or whether national insurance contributions represent taxation of one form or another. It is imperative for the protection of people at work that the insurance principle is maintained and is seen to be maintained because there are altogether too many people at the moment who seem to want to rob existing pensioners of the benefits for which they have paid for a long time. I hope sincerely therefore that we shall all maintain that the NIF is, always has been and will continue to be a separate fund, properly administered, and not subject to raids by any government, whether a Tory Government, a Labour Government or any other form of government for that matter.

I would go much further than my noble friend on the Front Bench. I believe that what we need, and have needed for a long time, is a national superannuation scheme—a scheme into which people pay according to their income and from which they draw out in pensions also according to their income, so that it will be patently obvious that those who pay into the scheme pay in according to their ability to pay and draw out in pensions an amount related to the contributions that they have made, although of course we should nave to ensure that those at the lower end had a pension which was commensurate with their being able to live a decent life in retirement. My noble friend has put forward a useful Motion. I shall support it, and I hope that the Committee will do so also.

Viscount Astor

There should be no doubt that, if agreed, the proposal to delete Clause 1 will wreck the Bill. We have had an interesting diversion. We have even heard from the noble Lord, Lord Peston. His question was perhaps the most interesting we have heard from the Opposition. Of course, we did not hear their alternative proposals.

Clause 1 represents the main substance of the Bill by raising the primary percentage rate of national insurance contributions for employees by 1 per cent. to 10 per cent. from next April. The main primary percentage applies to earnings between the lower earnings limit, which will be £57 a week from next April, and the upper earnings limit for which the corresponding figure will be £430.

Following the speech made on Second Reading by the noble Baroness, Lady Turner, I should have been surprised if she had not sought to change the way in which Clause 1 operates to increase the rate of national insurance contributions payable by employees. I am, however, slightly surprised that the noble Baroness, Lady Hollis, simply opposes the Question that the clause shall stand part of the Bill and has not come forward with an alternative.

I hope, therefore, that I do not do the noble Baroness an injustice if I take it that the Labour Party recognises the need to ensure that the National Insurance Fund has sufficient resources to meet its commitments to the sick, to pensioners and to others in need. That is recognised by the noble Lord, Lord Stoddart. It remains far from clear how the Opposition would ensure the fund is able to do so.

It is self evident that if unemployment were lower and more contributions were flowing in the fund would be more buoyant and these measures to keep inflow and outflow in step would be less likely to be needed. That is the position we ought to get to. For the immediate future, however, practical means of preserving the fund's income are needed and the Government's judgment is that a modest contribution increase is necessary.

The noble Baroness, Lady Hollis, expressed concern about the effect of the increase on low-paid workers. But the initial percentage rate of 2 per cent. on earnings up to £57 a week is not being increased. The change will therefore affect lower paid workers proportionately less. The structure of contributions we now have is especially favourable to the lower paid—so much so that even after the increase from April people earning up to £130 a week will still be paying less than they would have done under Labour's single percentage system. Our system is much fairer to the low paid than is the Opposition's.

On Second Reading we spent some time debating the need for the proposed increase in contributions and I shall not repeat all the arguments today. I simply remind Members of the Committee, as did my noble friend Lord Cockfield, that we are dealing not with general taxation but with the National Insurance Fund. This is a separate pool of money under the control of my right honourable friend and is the principal source of finance for the full range of contributory benefits available to those who have paid in.

I thank the noble and learned Lord, Lord Simon of Glaisdale, for his kind words and for giving me notice of the points that he wished to raise. The noble and learned Lord is an authority on legal matters and has a keen eye for points of detail. He focused upon one such point of detail that I made on Second Reading. I am happy to say that I agree with what the noble and learned Lord said about a charge, once hypothecated, not necessarily ceasing to be taxation. Hypothecation simply means in relation to a tax or charge that the money so raised is to be used for a specified purpose rather than going into a general pool of money out of which various costs are met. Members of the Committee can therefore envisage a specific tax being levied for a specific purpose.

I hope that Members of the Committee were not misled by what I said on Second Reading. Having looked again at my speech I accept that in the strictest sense it contained a non sequitur. In explaining the nature of the National Insurance Fund, I said that, unlike general taxation, which goes into the Consolidated Fund, national insurance contributions are a hypothecated charge. That means that they cannot be used to fund items paid for out of general taxation.

National insurance contributions cannot, indeed, be used to funds items paid for out of general taxation. The social security Acts specifically provide for contributions to be payable to my right honourable friend the Secretary of State, who must in turn pay them into the National Insurance Fund. Aside from certain rebates to persons contracted out of SERPS, the fund may be used only to pay for specific benefits and their administration. Thus contributions are hypothecated to specific expenditure. The reason that they cannot be used to fund items met from taxation is that they are hypothecated to specific purposes provided by the social security Acts—not that they are a hypothecated charge as such. Perhaps the matter would have been clearer had I said that national insurance contributions are hypothecated to specific items of expenditure as provided by the social security Acts. That means that they cannot be used to fund items paid for out of general taxation. I trust that the noble and learned Lord, Lord Simon, will accept that lengthy explanation. I move to the second point that the noble and learned Lord raised. He submitted that a proposal to increase the contributions payable by employees can be properly judged only in the total context of fiscal taxation. I have no difficulty with that proposition. As several Members of the Committee pointed out earlier, the deduction from an employee's pay is real whether or not it is on account of national insurance or income tax. The common terminology for deductions is "stoppages". Of course, Members of the Committee will wish to look at the totality of the effect of various changes in the Budget on the pay packets of wage earners. There is a real practical and legal difference between contributions and tax, which I hope I drew out adequately on Second Reading.

The Government know that the only way to keep taxes as low as possible is to cut borrowing. The Budget presented by my right honourable friend the Chancellor of the Exchequer tackled that once and for all. It did so without putting up the basic or higher rates of income tax. Indeed, since the last election we have extended the lower 20p. band by £1,000. Next year more than 4.5 million income tax payers will be paying tax at only 20p. It is absurd to imply that taxes would be lower under Labour, as has been said. At the last election the Labour Party promised spending increases which would cost every family in the land an extra £1,000 a year—

Baroness Hollis of Heigham

That was invented by Chris Patten.

3.45 p.m.

Viscount Astor

Under this Government the basic rate of income tax has come down from 33p. to 25p. I was not aware that Chris Patten wrote the Labour Party manifesto. Obviously, Labour could not find anyone to write it so it had to ask a member of our party. He appears to have succeeded, but the Labour Party did not win the election—

Lord Stoddart of Swindon

I do not know about Chris Patten, who seems to be having his own difficulties. I believe, however, that the Minister is trying to fool the Committee and the public by sleight of hand. He knows perfectly well that because allowances have not been raised in the past two years the amount of direct taxation that people pay has increased. Indeed, if the arithmetic is done a different way it is easy to prove that the rate of tax has increased because allowances have not been increased.

Viscount Astor

I believe that what matters is not the level of taxation but real take-home pay. That has increased sharply. It is a fact that most people are far better off than they were under the last Labour government of the noble Lords, Lord Stoddart and Lord Healey. A couple with two children in receipt of average earnings are in real terms £80 per week better off than they were in 1979. That is an increase of 40 per cent. For many people take-home pay fell under the last Labour government.

The noble Baroness, Lady Hollis, used emotive language but offered no alternative policy. She failed to explain how the Labour Party could fund the National Insurance Fund—a fund which the noble Lord, Lord Stoddart, cares about—and meet the needs of those who are entitled to benefits. I urge Members of the Committee to listen to the wise words of my noble friend Lord Cockfield and to reject the noble Baroness's proposal.

Baroness Hollis of Heigham

I thank Members of the Committee who have taken part in the debate. Most of us, despite saying that it was not a debate on general taxation, were tempted to enter into that subject. The debate has been valuable, given the current controversies.

Perhaps I may deal with some of the points that were raised. The noble Lord, Lord Dean, challenged the notion that there should be Treasury subvention to a contributory scheme based on relationships of funds between the employer and the employee. I am sure that he does not need me to remind him that Beveridge anticipated a tripartite fund. As the noble Lord will know from the Commons research documents, there have been Treasury subventions in all but three of the years since 1979. Indeed, there have been Treasury subventions of over £2 billion for all but three years of the Government's past 14 years. In the light of that, I am not sure whether the noble Lords, Lord Dean and Lord Boyd-Carpenter, are saying that the actions of Conservative Governments in 11 of those 14 years were improper, misguided or illegal, but they certainly occurred.

What is more, the Government have now restored that Treasury subvention in order to return to the original concept of the Beveridge tripartite fund. Therefore, I suggest that the notion that there was not a Treasury subvention was a minor aberration by this Government, who have now seen the error of their ways. May we hope that they take the noble Lords, Lord Dean and Lord Boyd-Carpenter, with them.

The second matter was the problem of balancing the fund. I take the point that the fund needs balancing. However, we have three criticisms. First, there has been an inadequate contribution from Treasury funds between the years 1989 and 1991–92 which has now been corrected. That is primarily because those years—in particular 1991–92—were pre-election years.

However, we have two further criticisms. First, the Government are reducing the benefits which flow so that a contribution fund, in which contributions go up while the participants have no guarantee that contributions will remain in real terms—

Viscount Astor

Will the noble Baroness say which benefits the Government are seeking to cut in the year 1994–95?

Baroness Hollis of Heigham

I am saying that benefits are falling. In the next month an incapacity benefit is to replace invalidity benefit. That will certainly represent a cut. I believe that 74,000 people will no longer be eligible for it, it will be taxable and access to it will be tightened. The year after that we shall see the replacement of unemployment benefit.

Viscount Astor

We are talking about the raising of funds for next year. We are not talking about the year after that. The new incapacity benefit involves new rules rather than a reduction in benefits.

Baroness Hollis of Heigham

Did the noble Viscount really mean what he said? This Bill will raise national insurance contributions by 1 per cent. That is a rise in general taxation for all but the very wealthiest, while at the same time in the Government's current legislative programme the contributory benefits that are funded by that fund will be worth less to more people in real terms. That is undeniable and I am genuinely amazed at the position which the noble Viscount takes. We may argue as to whether the benefits need to be cut, but that they are being cut is challenged by no one except the noble Viscount today. I am surprised by that.

Thirdly, I come to the point raised by the noble and learned Lord, Lord Simon, and the noble Lord, Lord Cockfield, about progressive and proportional taxation and the rise in earnings. It would be impertinent for me to draw the attention of the noble Lord, Lord Cockfield, to the differences between progressive and proportional taxation. I do not believe that anyone would deny that there can be proportional taxation—the same percentage is taken from people's income all the way up the scale—but that is not the same, in my understanding, as progressive taxation, which means that more is taken from people who have a greater capacity to pay.

The argument that has been made by this side of the Committee is that the Government are abandoning progressive taxation in favour of proportional taxation while at the same time increasing the amount of taxes which come from flat rate levies like VAT. That creates a taxation level on average earnings which the Treasury is alleged to have said is the highest ever. Moreover, it is drawn from sources that are increasingly less progressive, less proportional, more flat rate and, therefore, more regressive.

The noble and learned Lord, Lord Simon, and the noble Lord, Lord Cockfield, suggested that the increase in earnings was the reason for the increase in incidence. I repeat what I thought I had said when I moved the Motion opposing the clause. On this side of the Committee we accept that average earnings have increased by 35 per cent. in the past 14 years. We are pleased for everyone. Except for the bottom 10 per cent., we have all enjoyed that increase. However, before we become too complacent about that we should remind ourselves that the bottom 10 per cent. are, after housing costs, 14 per cent. worse off in real terms. Therefore, the national wealth has certainly not trickled down to them.

Apart from that 35 per cent. in the past 14 years, in the 14 years before that, mostly under Labour Governments, there was an increase in wealth not of 35 per cent. but of 38 per cent. And in the 14 years before that, there was an increase of 47 per cent. In other words, while we have certainly seen an increase in wealth and equality, that wealth has not grown by as much as it did in the previous 14 years, and certainly not by as much as it did in the 14 years before that. At the same time, both the levels and incidence of taxation have risen more than at any previous time.

According to the Treasury, taxes have risen to the highest level ever. That is undeniable. Within taxation, the amount carried by regressive taxes, including national insurance, has risen; and that is undeniable. The benefits which will flow from that, the noble Viscount, Lord Astor, notwithstanding, are being cut; and that is undeniable. This Government's current financial strategy has got us into this mess. We do not believe that it is right and proper to raise national insurance by 1 per cent. in order to get us out of it.

The noble Viscount, Lord Astor, asked from where else we could find that money. I remind the Committee that in the past few years the Government have spent £12.6 billion on bribing the better off into private pension schemes, with incentives and rebates. That £12.6 billion would have met many years' deficit of the National Insurance Fund had the Government been so minded.

In the light of increased taxation and an increased burden borne by those affected through the less fair form of taxation, brigaded with a cut in prospective benefits, we believe that Clause 1—the heart of the Bill—should not stand part of the Bill.

3.57 p.m.

On Question, Whether Clause 1 shall stand part of the Bill?

Their Lordships divided: Contents, 131; Not-Contents, 58.

Division No.1
Aberdare, L. Arran, E.
Acton, L. Astor, V.
Addison, V. Beloff, L.
Alexander of Tunis, E. Blatch, B.
Archer of Weston-Super-Mare, L. Blyth, L.
Boyd-Carpenter, L. Long, V.
Brabazon of Tara, L. Lucas, L.
Braine of Wheatley, L. Lucas of Chilworth, L.
Broadbridge, L. Lyell, L.
Brougham and Vaux, L. Mackay of Ardbrecknish, L.
Bruntisfield, L. Macleod of Borve, B.
Burnham, L. McNair, L.
Cadman, L. Mancroft, L.
Campbell of Alloway, L. Manton, L.
Campbell of Croy, L. Marsh, L.
Carnegy of Lour, B. Melville, V.
Carnock, L. Merrivale, L.
Cayzer, L. Mersey, V.
Chalker of Wallasey, B. Miller of Hendon, B.
Chelmsford, Bp. Montgomery of Alamein, V.
Cockfield, L. Morris, L.
Colnbrook, L. Mountevans, L.
Constantine of Stantnore, L. Moyne, L.
Courtown, E. Munster, E.
Cox, B. Mutton of Lindisfarne, L.
Cranborne, V. Orkney, E.
Crathorne, L. Orr-Ewing, L.
Cumberlege, B. Oxfuird, V.
Davidson, V. Park of Monmouth, B.
De Freyne, L. Pender, L.
Dean of Harptree, L. Perry of Southwark, B.
Denham, L. Peyton of Yeovil, L.
Denton of Wakefield, B. Polwarth, L.
Dixon-Smith, L. Pym, L.
Elles, B. Quinton, L.
Elton, L. Rankeillour, L.
Ezra, L. Reay, L.
Faithfull, B. Redesdale, L.
Falkland, V. Rennell, L.
Ferrers, E. Rippon of Hexham, L.
Flather, B. Rodger of Earlsferry, L.
Fraser of Carmyllie, L. St. Davids, V.
Fraser of Kilmorack, L. Seccombe, B.
Gainford, L. Simon of Glaisdale, L.
Gardner of Parkes, B. Skelmersdale, L.
Goschen, V. Skidelsky, L.
Gray of Contin, L. Spens, L.
Grey, E. Strange, B.
Haig, E. Strathclyde, L.
Hailsham of Saint Marylebone, L. Strathmore and Kinghorne, E. [Teller.]
Hanworth, V. Swansea, L.
Harding of Petherton, L. Teynham, L.
Harmar-Nicholls, L. Thomas of Gwydir, L.
Hayhoe, L. Thomson of Monifieth, L.
Hayter, L. Tordoff, L.
Henley, L. Torrington, V.
Holderness, L Trumpington, B.
Holme of Cheltenham, L. Ullswater, V. [Teller.]
HolmPatrick, L. Vivian, L.
Hood, V. Wade of Chorlton, L.
Howe, E. Wakeham, L. [Lord Privy Seal.]
Ironside, L. Westbury, L.
Johnston of Rockport, L. Wigoder, L.
Kimball, L. Wynford, L.
Lauderdale, E.
Leigh, L.
Lloyd-George of Dwyfor, E.
Archer of Sandwell, L. Dormand of Easington, L.
Ardwick, L. Fisher of Rednal, B.
Barnett, L. Fitt, L.
Blackstone, B. Gallacher, L.
Boston of Faversham, L. Gould of Potternewton, B. [Teller.]
Bottomley, L. Graham of Edmonton, L. [Teller.]
Brooks of Tremorfa, L. Greene of Harrow Weald, L.
Bruce of Donington, L. Gregson, L.
Carmichael of Kelvingrove, L. Haskel, L.
Carter, L. Healey, L.
Castle of Blackburn, B. Hilton of Eggardon, B.
Cledwyn of Penrhos, L. Hollis of Heigham, B.
Clinton-Davis, L. Hughes, L.
Cocks of Hartcliffe, L. Jeger, B.
David, B. Jenkins of Putney, L.
Dean of Beswick, L.
Kilbracken, L. Serota, B.
Loveli-Davis, L. Shepherd, L.
Mallalieu, B. Stallard, L.
Mar, C. Stoddart of Swindon, L.
Mason of Barnsley, L. Strabolgi, L.
Merlyn-Rees, L. Taylor of Blackburn, L.
Milner of Leeds, L. Taylor of Gryfe, L.
Mishcon, L. Turner of Camden, B.
Morris of Castle Morris, L. Wallace of Coslany, L.
Parry, L. Wedderburn of Charlton, L.
Peston, L. White, B.
Prys-Davies, L. Williams of Elvel, L.
Richard, L. Williams of Mostyn, L.

Resolved in the affirmative, and Clause 1 agreed to accordingly.

4.5 p.m.

Viscount Goschen

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

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