HL Deb 27 February 1996 vol 569 cc1408-27

4.59 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish) rose to move, That the draft order laid before the House on 31st January be approved [8th Report front the Joint Committee].

The noble Lord said: My Lords, in moving this draft order, I wish to speak also to the other five draft orders. The orders provide, as they have done in the past, an important opportunity to debate the central issue facing all developed countries; namely, the control of welfare spending.

Since the welfare state was established, spending on social security has grown by 5 per cent. a year faster than inflation and twice as fast as national income. On average the social security system costs every working person £15 for every working day. For the past three years we have carried through a widespread programme of reform as a result of which we have reduced the planned growth of the welfare budget to little more than I per cent. a year.

Next year, planned spending on social security will he £90 billion. That is below the planned spending we announced two years ago. The sum includes £3 billion for the up-rating of benefits. Generally, benefits will rise by 3.9 per cent.—at a time when the latest figure for the retail prices index is 2.9 per cent. That provides the largest percentage up-rating for key benefits such as retirement pensions for four years, even though inflation is running at the lowest level for more than two years. Income-related benefits, which rise in line with a different index more appropriate to the items covered by the benefits, will increase by 3 per cent.

Looking at the overall budget of social security, the fight against fraud remains our key priority in curbing spending. We are reviewing fraud, benefit by benefit. We have conducted a detailed survey of income support and unemployment benefit fraud. The survey showed that fraud in those benefits alone was costing the taxpayer more than £1.5 billion a year. A new strategy to prevent and deter that fraud was introduced.

We also reviewed housing benefit. Fraud and errors were costing £1 billion a year. We are introducing a comprehensive package of measures to tackle such fraud.

In addition to fraud, we ARE looking at ways to control all other aspects of the social security system. A few weeks ago I brought before your Lordships' House the asylum seekers changes that we have introduced in order to plug benefit loopholes in that sphere. Those regulations were introduced to restrict access to the benefits which were being widely abused by bogus asylum seekers. That abuse involved something like £200 million every year. Our reform restricts benefits for economic migrants but continues to meet our proper obligations to genuine asylum seekers. We had a significant debate a few weeks ago on the issue at the end of which, I am happy to recall, your Lordships were kind enough to support me in the Division Lobbies.

I turn now to another aspect of the benefit system where we have announced changes; namely, the position of lone parents. We have long recognised the difficulties faced by this group. We have announced a major pilot scheme to help lone parents back into work. However, we also recognise that benefits to lone parents will cost in excess of £ 9 billion this year—something like 10 per cent. of the total benefit budget.

Our strategy to ease the burden has three elements. We will improve incentives for lone parents to return to work through improvements in family credit. About 270,000 lone parents are already benefiting from family credit. We have previously extended family credit to those who work part time, and, from last July, it was raised by £10 a week for people working full time. From next April, we propose to raise the allowance for the cost of child care to £60 a week. That measure will be particularly helpful to those with more than one child and those in full-time work.

We also intend to ensure that the benefit system does not place married couples at a disadvantage compared to lone parents. In the words of Mr. Frank Field MP, the chairman of the Social Security Select Committee, in another place: For decades, politicians would not talk about the issue. Tax and benefit policy was squeezed to help single parents and childless couples. Single parents gained more help than did two parents. The policy has got to he reversed".

As a first step we propose not to increase the one-parent benefit or the lone-parent premium in April.

The one-parent benefit was introduced in 1976 when it was described as an "interim" benefit until the child benefit scheme came into being. When the Child Benefit Bill was going through the House of Commons, the noble Baroness, Lady Castle of Blackburn, then Barbara Castle, said:

"There is to he an interim benefit of £1.50 a week for the one-parent family for a year from April 1976 until the child benefit scheme comes into effect".

Since that day, through changes in the benefit and taxation system, it has become possible for a lone parent to have a higher net income than a couple even when both receive similar levels of gross income—and that despite the fact that the couple would have an extra adult to support. We do not believe that the situation is right. We intend to narrow the gap between benefits for lone parents and those for couples. Regulations have been laid before the Social Security Advisory Committee to enable that to be done at a controlled pace and, most importantly, in a way which does not produce cash losers. Our proposals will increase opportunities to work for all families. They will improve incentives for lone parents to avoid welfare dependency and they will reduce the burden on couples who support themselves. We will also ensure that more lone parents receive regular maintenance from the absent parent.

The Child Support Agency is now proving increasingly effective and is on target to collect and arrange 60 per cent. more maintenance this year than in the previous year. Absent parents on benefit should also contribute to the cost of their children. One of the measures included in the package of regulations we ARE discussing today will double the minimum contribution to 10 per cent. of basic income support.

We also propose to improve incentives for all workers and not just for lone parents. From April 1996 employers will qualify for one year's remission from their national insurance contributions for each person they take on who has been out of work for two years or more. One of the measures before us today will cut Class 4 national insurance contributions paid by the self-employed by 1.3 per cent. from April. We also intend to reduce the main rate of employers national insurance contributions by 0.2 per cent. from April of next year.

We are rightly proud of the extent to which we have encouraged people to provide for their own retirement in this country. More than three-quarters of employees who are eligible to do so have opted for a private scheme rather than remain in the state earnings related pension scheme. The total value of investment in British pension funds is nearly £600 billion. That is more than that of all the other European Union countries put together; indeed, in the past year, it has increased by £100 billion.

The next priority in our successful pension strategy is to encourage more provision for the cost of long-term care for the elderly. From April 1996 we propose to double to £16,000 the upper capital limit for income support for those in residential care and we are more than trebling the lower limit. We are consulting on the important issue of developing attractive schemes for self-provision for long-term care.

We are fortunate that there are fewer people out of work in this country than in any other major country in western Europe; indeed, there are more people in jobs and, of course, we have the lowest level of inflation for a generation. The measures before us will protect the most vulnerable; they will strengthen work incentives; and they will maintain our long-term control of social security expenditure. I commend the order to the House. I beg to move.

Moved, That the draft order laid before the House on 31st January he approved [8th Report front the Joint Committee].—(Lord Mackay of Ardbrecknish.)

5.9 p.m.

Lord Dean of Harptree

My Lords, I feel sure that the House is most grateful to my noble friend the Minister for his typically full and lucid explanation of this up-rating order; and, indeed, of the other orders that we are discussing today. I should begin by declaring an interest. I am lucky to be in receipt of a National Insurance pension and also of a war pension. I am most grateful to the taxpayers and the National Insurance contributors who found the money for those two benefits.

When I had some responsibility for these matters in the early 1970s the up-rating was implemented by primary legislation. There were many hours of debate as the various stages of the Bills were discussed in both Houses of Parliament. Now, of course, we have much less time for such discussion. The present practice appears to he on the day following the Budget Statement to have a statement in which the appropriate Minister gives details of the up-rating proposals to come into operation at the beginning of the next financial year. Then we have a short debate at about this time of year, as we are now doing.

It is a pity that we spend so little time on this matter. This, after all, is one of the main financial transactions of the whole year. As my noble friend has said, we are dealing with expenditure of £90 billion in one year, which is over 40 per cent. of government expenditure. Nearly every man, woman and child in this country is affected. They are either payers or receivers. It is a pity that we allow these orders to be accepted after such a short debate.

My noble friend mentioned the main up-rating. He was too modest to say whether the government commitment is met by this. As your Lordships know, the Government have a firm commitment to increase pensions and the other main benefits each year in line with prices so that they maintain their value. I should be grateful if my noble friend could confirm that this commitment is fully honoured in this up-rating statement and that it also applies to war pensions which arc, of course, increased by Royal warrant. I think I am right in saying that the commitment is more than honoured because of the downward path of inflation.

I now turn to a point briefly mentioned by my noble friend in regard to national insurance contributions for employers. This seems to me to he an immensely important provision which has not perhaps received the attention or the commendation it deserves. I welcome very much the remission of employers' national insurance contributions for a year for every person taken on who has been out of work for two years or more. welcome, too, the cut in Class 4 contributions for the self-employed by 1.3 per cent. from April, and, finally, the cut in the main rate of employers' contributions by 0.2 per cent. from April 1997. These reductions will help to contain the cost of employing people and they will make a valuable contribution to maintaining competitive conditions in this country and to keeping down unemployment. Employers in other European Union countries face much bigger burdens of employment regulations and charges than is the case in the United Kingdom. I think I am right in saying that for every pound of pay in our country there are additional labour costs amounting to £18. In Germany the figure for labour costs is £32; in France £41; and in Italy £44.

Baroness Hollis of Heigham

My Lords, am I right in thinking I heard the noble Lord refer to £l? I think the relevant figure is £100 of pay.

Lord Dean of Harptree

My Lords, I meant to say for every £100 of pay. The figures I have mentioned are the additional costs as I understand the position. I believe that if those figures are accurate they partly explain why our unemployment rate is lower than that of most other European Union countries. They also explain why we are a successful magnate for inward investment. They show how wise are Her Majesty's Government to resist the social chapter, or what is better called the European tax on jobs, as it would be bound to increase labour costs and destroy jobs. I believe that these reductions in the employer's national insurance contribution will make a significant contribution to the economic performance of our country.

I turn now to fraud. I was glad to note that my noble friend made clear that the drive to tackle fraud will continue. It is clearly outrageous that taxpayers should be defrauded of vast sums by people who steal money to which they are not entitled. I was also glad to hear from my noble friend today that the methods of detecting fraud are being improved all the time. I hope he can confirm that that applies not only to domestic fraud but also to fraud among asylum seekers. Can my noble friend give an assurance that these drives against fraud will not be diminished in view of staff economies in his department and in the appropriate agencies?

Finally, I turn to the biggest question of all, which again was referred to by my noble friend; namely, the future costs of social security, and whether we are placing on future generations bigger burdens than we should. As your Lordships well know, in most developed countries, including our own, there is a declining working population and an increasing retired population. This is causing great anxiety, especially of course in countries such as France and Germany where pension schemes operate mostly on a pay-as-you-go basis, and where pensions and other benefits have to be met out of taxation.

Our problems are, fortunately, not so acute because of our well developed funded pension schemes where money is saved and invested. My noble friend has already given the figures and has noted that the savings and investments that we have in our occupational pension schemes ARE greater than those of all the rest of the European Union countries together. We have now reached the stage where 62 per cent. of people retiring have an occupational pension or other savings income. Of course, the proportion is going up all the time but it is still not high enough. I am glad to note that it is now possible to save through another route; namely, through personal pensions. This is a valuable additional method of saving for those who do not have access to occupational pensions.

The principle of personal pensions is sound in spite of the fact that there has been some misselling when people were wrongly persuaded to leave an occupational pension scheme and take out a personal pension policy. It is important that full restitution should be provided for those people as soon as all the relevant information is available. I am also glad to note that we now have the possibility of group personal pensions where employers who do not have an occupational pension scheme can negotiate group pensions for their employees. I believe that this will be particularly valuable for the smaller employer, and will again help to increase the number of people for whom occupational pensions are available.

In addition to the state basic scheme and a greatly reduced State Earnings Related Pension Scheme (SERPS), which both operate on a pay-as-you-go basis, we now have occupational pension schemes, personal pension schemes and group pensions schemes all providing savings and investment. This should ensure that a growing number of people have a private pension when they retire and are therefore less dependent on the state schemes. Another reason that our problems are not as acute as those of most other European Union countries is that the Government have pursued a deliberate policy of step-by-step reforms in social security. My noble friend mentioned that today. It has been a considerable achievement. It is never popular or easy to reform the social security system. Therefore, it is a considerable achievement and I believe that the Government deserve great credit for it.

I am very glad to sec that Her Majesty's Official Opposition also now recognise that reforms are required in the social security arrangements. I am glad to see that the noble Baroness, Lady Hollis, nods her head. I believe that the Opposition are now thinking the unthinkable. The trouble is that when it comes to considering the reforms put forward by the Government the Opposition nearly always seem to vote against them. It seems that when it comes down to brass tacks old Labour is more powerful than new Labour. I hope that that is not the case, because it would be of immense benefit to the stability of our social security arrangements if some element of consensus were to develop. That may be hoping for too much, but it would he a good thing if that were to happen.

In conclusion, I believe that the search for economies must continue if our generation is not to hand on insupportable burdens to the next generation. These orders strike the right balance. They mean more help for the most vulnerable, stability for those who receive benefits and economies where that is possible. They also tackle abuse while at the same time maintaining the essential fabric of our social security system.

5.21 p.m.

Earl Russell

My Lords, normally on these occasions I try to avoid going over old arguments and to concentrate on the material in the orders before us. Unfortunately, today the Minister and the noble Lord, Lord Dean of Harptree, have exercised no such restraints. I shall not rise to all the red rags that have been waved in front of me, but I shall rise to one or two of them.

The noble Lord, Lord Dean of Harptree, challenged the Opposition with voting against some of the Government's so-called reforms. He tried to make a number of points about old Labour and new Labour. I have nothing to do with either of those groups, but a great many of us in all parts of the House have voted against the so-called reforms because we believe they offend against common sense, humanity and financial prudence. Many reforms are not the economies they are made out to be. If assertions of that kind are to be made I am afraid that we shall continue to respond to them.

I shall not rise to the red rag that the Minister waved in front of me about the asylum regulations. However, I shall draw his attention to information I received in this morning's post that in the very first week the regulations were in force 70 people turned up destitute at the door of the Refugee Council. I do not believe that that is a long-term economy.

The Minister and the noble Lord, Lord Dean of Harptree, had a great deal to say about falls in the level of unemployment. I too welcome that, but I should like to know why it is that when the level of unemployment is falling the percentage of adults on income support is nevertheless rising. Admittedly last year it rose by only 0.1 per cent., which is refreshingly small. That rise needs an explanation. I can think of many possible explanations, not all of them to the Government's discredit. However, the Government ought to be able to tell us, in order to put the debate in a proper context, why the rise has occurred. I do not know; I shall be very interested to hear the answer.

I welcome the decision to up-rate all the major benefits. Through successive public spending rounds the Secretary of State has put a great deal of effort into preserving the up-rating of benefits, and that is appreciated. I notice that he wrote in The Times last August that there was no substantial saving to he made from cuts in benefits. I agree with the Secretary of State; I am extremely glad that he made the point.

I welcome very warmly the increase in the childcare disregard on family credit for single parents. That is something for which I have asked many times. It is therefore incumbent upon me, as well as a pleasure, to welcome it.

I am not so happy with the rest of the policy on lone parents. I am informed by a usually reliable source that the Government intend to reduce income support for lone parents in order to increase the incentive to work. I very much hope that the Minister can tell me that that is not true. If it is necessary to reduce income support in order to create an incentive to work, that surely means that we are entering a world where wages are too low. In fact, we are approaching the same position that has existed for some time with the reduced rates of income support for those under 25.

I promised the Minister that I would not reopen old arguments where I could avoid it. However, I should like to put one or two questions that I have not asked before. Do the Government have any studies of wage levels for those who are above and below 25? Do they match the differential to those wage studies, or have they plucked a figure out of the air? Have they considered the hypothesis that the differential itself may be influencing wage levels? If so, have they considered whether what they are doing is compatible with the principles of a free market? Finally, if they continue along that line, is there any floor which they will put under that desire to reduce income support levels in order to increase the incentive to work? Is there any point where that process could stop, and if so where is it?

The decision not to up-rate lone parent premium or one parent benefit is a decision I deeply regret. There is a considerable amount of evidence, most recently in a report by the Rowntree Trust which I have read, which shows both that there are considerable extra costs in being a single parent, as common sense would lead one to suppose, and that a considerable number of single parents on benefit are having difficulty getting enough to eat. That risks health costs. I believe that there is unpublished research in the Department of Health which I look forward to seeing. I shall say no more than that. There is other research going back to the Finer Committee and the Government's own Green Paper of 1985 which touches on the same point.

On the theme of wages being too low, I have been looking at the report of the Government Actuary. I agree with the noble Lord, Lord Dean of Harptree, that we ought to take that together with these regulations because all form part of a common picture. I notice that the Treasury supplement to the National Insurance Fund is running at 8.8 per cent. of benefit expenditure. The statutory maximum is 10 per cent. When the Government introduced that 10 per cent. cap, I asked them for once in a blue moon to consider the virtues of flexibility. But this Government never seem to want flexibility when there is any use for it. It may he necessary to have further primary legislation to achieve flexibility.

I want the Government to consider to what extent the size of the Treasury grant, which is £1.925 billion, involves a cost of low wages. That, of course, produces a considerable loss to the National Insurance Fund, a great deal of it in the form of people being in part-time jobs under the lower earnings limit. In fact, if one looks at the PSBR figures, a great deal of the problem is a shortfall of revenue rather than an increase of expenditure. I should like to ask the noble Lord, Lord Dean of Harptree, to reconsider his remarks about the social chapter having taken that shortfall of revenue from wage cutting into account. It is costing the Government a great deal more than they are aware of. Sound accounting, I think, calls for a proper examination of the question.

Twelve months ago I gave the Minister notice that, if he did not up-rate the capital limits I should want to know why. He decided not to do so. The noble Baroness did the same. He has not up-rated the capital limits. I wish to know why. I have given him 12 months' notice. I had given him 24 hours' notice too. If I do not receive an answer, I shall ask again before the noble Lord sits down.

Schedule 8 features a growing list of deductions, disqualifications and so forth. What has been done to monitor the effect of those deductions? Do we know the overall effect? If not, why not?

I agree with everything the noble Lord, Lord Dean of Harptree, said about the need to control fraud. It is taking money out of pockets where it legitimately belongs. I should like to make some qualifications with which I hope the noble Lord, Lord Dean of Harptree, might also agree.

First, the charges of fraud must he a matter of proper standards of legal proof. I was a little dismayed to see in the Benefit Agency's review of fraud that its category of total fraud was made up in almost equal proportions of confirmed fraud and suspected fraud. Suspected fraud is not proved fraud; one cannot punish it until it is proved.

I also support the question of the noble Lord, Lord Dean of Harptree, about the effects of cuts in the finance of the department on the drive against fraud. In a document printed in the Guardian, which has not been disowned, Mr. Lilley stated that in the context of the drive against fraud the cut in his department's running costs filled him with despair. I understand that comment. I think that the House is entitled to some reassurance.

Finally, I turn to the increase in the deduction from income support under the CSA. I divided the House at 10 minutes to 12 at night against that deduction from income support when it first came in. I believe that there ARE too many deductions already from income support. Increasing that deduction to 10 per cent. when there is also a 15 per cent. capacity for deductions for gas, water, electricity, court fines, rent arrears and all the rest will reduce people to real poverty. As regards the recovery under the CSA of money from people on income support, what is the cost of administration per pound recovered? Is this measure really cost effective? I should like to know the answer.

5.34 p.m.

Baroness Hollis of Heigham

My Lords, I am sure that we should all like to thank the Minister for introducing the up-rating order. Like the noble Earl, Lord Russell, I, too, welcome the fact that the major benefits have been indexed as regards RPI.

It is a brief debate. I entirely agree with the noble Lord, Lord Dean of Harptree, that a debate of such significance in terms of the money spent and the number of people affected should attract more care and attention from this House. However, the noble Lord would not expect me to agree entirely with the remainder of what he said. I agree with him that most believe we are spending too much on social security. Since 1979 expenditure has increased by £30 billion in real terms. Whereas in 1979 one family in 12 received social security, it is now one family in six. To pay for that the national insurance stamp for employees—a true form of taxation—has risen from 6.5 per cent. in 1979 to 10 per cent. now, a 50 per cent. increase.

Yet such expenditure on social security has not reduced the inequality which has grown since 1979. Since that date, as all research now indicates—the Government's own low household income figures support this—the top 10 per cent. in our population have seen their incomes rise by 60 per cent., and the incomes of the bottom 10 per cent., after housing costs, have fallen by 17 per cent. in real terms. The gap between the richest and the poorest in our country has widened more since 1979 than in any other OECD country.

Yet that is not because the benefit expenditure has produced benefit levels which are either decent or sustaining. On the contrary, they are modest and inadequate, and to live on them means a life of severe hardship. Yet each and every year the Government seek to contain the budget not by tackling the real issues of why it is growing but by reducing already mean benefits still further for some of the most vulnerable people in our society.

Therefore, even over the past few years we have seen cuts in the benefits of the chronically sick and disabled. When invalidity benefit became incapacity benefit, not only did fewer chronically sick people qualify for it but they received lower benefits. Equally, we have seen the removal of benefits from 16 to 18 year-olds so that 90,000 young people are without a job, training, work and an income. Many of them are living on and off the streets.

Equally, we have seen the removal recently of income support for the mortgages of those who become unemployed. As the building societies warned us at the time, and as is happening, repossession figures have again started to rise. At the point at which someone loses his job and his income he is now again faced with losing his home.

Hence also we have the removal of benefits from asylum-seekers and their families. That is not because the Home Office has said that they are not genuine but because they have applied in-country and not at the port of entry.

Hence also the new jobseckers' allowance which we debated last summer means that, although paid for by national insurance, the moment one claims for a dependant the allowance turns into a means-tested benefit. That acts as a disincentive for a spouse to seek and find work.

In other words, the Government have sought to cut the cost of welfare spending by doing precisely as the noble Lord, Lord Dean of Harptree, suggested: by making economies, salami-style, on a range of benefits as they affect a range of- people. They have not used welfare spending to help people off welfare but have reduced still further the living standards of those who have no choice but to remain on welfare—the chronically sick and disabled, the unemployed, vulnerable young people and asylum-seeking families.

In social security we should seek to provide a decent floor, a decent minimum, for those who cannot support themselves, while helping those who can and should move into independence. Instead, Government have privatised risk. Under this Government, social security is neither coming from society nor offering security. Each individual is expected to cope as best he can in a world where insecurity is growing so rapidly that even those in work have no assurance that they will have a job in five years or a pension in 20 years.

I am afraid that we cannot reform the welfare state—this is where I so strongly disagree with the noble Lord, Lord Dean of Harptree—by making salami-style economics. What is needed is a more coherent. intelligent approach to what the Government should he doing. Yet what do we see in the up-rating? We see more of the same—more cuts, salami-style, and worsening living standards for the poorest—while apart from the issue of the child disregard the Government are doing nothing to use welfare for people as a springboard back to independence.

I focus on the three main issues to which the up-rating order refers. The first is lone parents. The Government propose to freeze lone parent benefit and the one-parent premium, worth £6.30 and £5.20 respectively, to save all of £5 million. According to the Government, that is less on financial grounds than on the assumption that one-parent families are better off not marrying. That is a perverse incentive.

As the Government know from their own departmental research, most one-parent families are in that situation not because they have never been in a partnership but because the marriage or the partnership has broken down. The average age is 33. When people become single parents, they move into greater poverty. The latest information suggests that 80 per cent. of children of single-parent families are on income support or below. Only 18 per cent. of those are in two-parent families. The noble Earl, Lord Russell, has referred to the point that the Rowntree Report of December 1995, a month ago, showed that for a single parent it costs proportionately more to bring up a child than in a two-parent family. Housing, heating and constant costs remain the same, but you then have to consider the cost of child care and the ability to obtain part-time work. As a result, on average single parents have only two-thirds of the income of two-parent families.

Ministers say that single-parent families should be treated in the same way as two-parent families. But they do not start from the same position. Equal treatment in unequal circumstances is not fair. That is what the Government are achieving. As we know, most single parents stay on income support for only two to three years and move off it when the eldest child is five or more and goes to school. We want to help the move towards self-support, yet the Government's strategy of freezing the one-parent benefit makes it harder, because it is a benefit that people can take with them on the train to work. It is perverse to freeze it but the Government ARE doing so.

The second area in which we have concern relating to the up-rating orders is housing benefits. We are seeing the housing benefit for young people under 25 chopped and limited to the average cost of shared accommodation. What are the implications? First, if the young people are entrepreneurial and energetic, they will share with other young people and rent a house, thus making rented accommodation scarcer and more expensive for families. Secondly, they may go into gungy and dank bedsit land in houses in multiple occupation, where the housing stock is of poor quality and rents are high. What is worse is that they receive their housing benefit one month in arrears. Since most landlords demand the rent a month in advance, with a month's deposit, young people will find it harder to enter the housing market.

What is the third option? If they cannot rent decent accommodation together and ARE being pressed into the grottiest parts of the private rented bedsit land, their third possibility is to go home and live with their families. However, in the same up-rating statement, the Government are substantially increasing the adult non-dependent deduction from housing benefit. That means that if you are receiving housing benefit and your son and daughter come home to live with you, your housing benefit will be cut, even though they may be on income support. What signals are the Government sending out about family values when, if your son or daughter comes home to live with you as a result of housing benefit changes in the private rented sector, the bill is increased for the family left at home?

To summarise, the first concern which I mentioned is the Government's treatment of lone parents and the disincentive to seek work. The second concern was housing benefit. The third concern about the up-rating statement is what the Government ARE doing about child support. We on these Benches entirely agree that both parents should contribute to the maintenance of the child. There is no question about that. However, what the Government are doing in the up-rating statement is doubling the contribution from £2.40 to £4.80 which an absent father —let us take the man —on income support has to find from his breadline income. Top-slicing £4.80 from an income support income of just £37 a week if a person is 23 or 24 is punitive. It does nothing to help the child because not a penny of it goes to the child, it merely goes back to the Treasury. What chance will the man have to do what we all want —travel to see his child, take it to the cinema or buy it a hamburger? He cannot afford to do that. If that £4.80 were retained by the mother so that it was a contribution to the well-being of the child, we would have less objection. Instead, it is a cut in benefit to punish men who have had a child out of wedlock and are now on income support. That is no way to run a social security system.

So, on the one hand, we see benefits for the most vulnerable cut, while, as the noble Lord, Lord Dean of Harptree, rightly said, the total benefit bill soars. Why? It is because the Government persist in spending the money on the wrong things. Why has the housing benefit bill soared? —not because tenants choose luxury accommodation but because the Government encouraged private landlords to decontrol their rents, promising that housing benefit would take the strain. As soon as the landlords did that, housing benefit did take the strain and the Government decided that that would not do. So while rents have floated up, the Government seek to push down people's capacity to pay by cutting housing benefit.

The Government will make much of the fact that they prefer to subsidise people, not bricks and mortar. But the Minister knows well that subsidising people in that context means making them dependent on subsidy. That is what the words mean. It means extending the dependency culture which we are trying to stop.

It would be much better to have lower priced accommodation so that people are not penalised if they seek work. More costly accommodation and housing benefit deducted at 65p in the pound mean that for every pound one earns between £80 and £180 a week, one is only 5p or 8p per pound better off. Through their benefit system and extending people's dependency on housing benefit because they have cut housing subsidies, the Government have extended the very dependency culture they claim to deplore.

Why is social security expenditure rising? —because we are spending too much on in-work benefits. It is probably the fastest growing area of the DSS budget, with in-work benefits topping up low pay. What do family credit and the earnings top-up do? Employers know that they can cut wages, aware that we, as taxpayers, will take the strain in housing benefit, council tax and family credit and soon with the earnings top-up.

I believe that in-work benefits are a decent and benign response of government, but they are the utmost folly if they are not underpinned by a minimum wage. Without it, employers can pitch wages where they will, knowing that when the money wage is below a living wage we, the taxpayers, must subsidise it so that people can live and survive. The in-work benefits are the consequence of falling pay and they cost every taxpayer £750 a year because we are willing to tolerate low pay. Instead of relieving family poverty, we see a vast programme offering arbitrary state subsidies to low-wage and often bad employers. At the same time as we are privatising risk, we are nationalising the employer's wages bill. Odd that, coming from a Tory Government.

We are dealing with unemployment. The reason for that is not merely that, absolutely, there is a major problem of long-term employment, but that work is not appropriately shared. We know from the Dahrendorf Report, which we debated not so long ago, that we are in a society of two-wage earners and no-wage households. The reason for that, not entirely but in part, is the structure of the benefits system that the Government have shaped. It is a result of the means-testing which means that, the moment a wife is in work, she can afford to seek work and retain it only if her husband is already in work himself. The Government have constructed a benefits system based on means-testing that deters the second partner from holding down a job. That is perverse.

Finally, there is the problem of lone parents, on whom the Government believe we spend too much. The children of two-thirds of lone parents are under five and it is perhaps not reasonable to expect such parents to work. We know that when the youngest child is past five, they will re-enter the labour market. Being in work will float them off poverty. Why are we cutting today one of the very few benefits that take lone parents who are currently out of work into the labour market without facing disincentive?

The right way to control the social security budget is not the Government's way, which is to salami-slice individual benefits to make one-off economies that depress the living standards of those who ARE already vulnerable, sick, unemployed and poor. That is not the right way to tackle the problem. That generates dependency. It confirms the mixture of unemployment and low pay that underlies our soaring bill, along with demographic factors such as old age. Wise strategy would tackle the problem of the job market, low pay and access to the labour market. This up-rating statement does not do so. It represents yet again a major opportunity missed.

5.52 p.m.

Lord Mackay of Ardbrecknish

My Lords, the debate, although short, has been an interesting one. I am grateful to noble Lords who took part. In my defence, I ranged rather widely because precedent clearly showed that the debate would range rather widely; and so it has done. Perhaps I may deal with those questions to which there are quick answers.

I confirm to my noble friend Lord Dean of Harptree that, indeed, the up-rating is entirely consistent with our commitment to up-rate pensions in line with prices. It has been fully honoured again this year; and war pensions, about which he asked specifically, have also been fully honoured. Our position on this matter is absolutely, perfectly and abundantly clear. We promised to up-rate pensions in line with prices, and that is what we have done.

That contrasts a little with the position of the party opposite. Last year I asked the noble Baroness if she could tell me whether the Opposition intended to restore that link, which was broken some years ago, given the kind of costs I mentioned then of up-rating in line with earnings rather than prices —a cost that I suspect would already have brought the social security spending budget to around £100 billion rather than £90 billion.

The noble Baroness did not answer me then, and she avoided the subject completely today. I am not entirely surprised. In the debate in the other place, my right honourable friend Sir Norman Fowler, a former distinguished Secretary of State for Social Security, specifically asked Mr. Chris Smith, the Opposition spokesman on social security, a question about that up-rating. The answer he received was quite interesting: we are in the process of looking at all our policies in relation to social security and, at this stage, no decision has been made. However, we shall make our policy clear within the next few months". —[Official Report, Commons, 20/2/96; cols. 210-211.] I certainly look forward to seeing that policy. Not only will the policy on up-rating, prices and earnings be revealed to us, but also other policies on spending. I understand that that is now to happen in less than three months' time. It started off as six months. I am not sure whether the noble Baroness is part of that great thinking team. She indicates her assent. She will therefore know exactly how many weeks ARE still to go before the Opposition unveil their social security spending.

I am very intrigued about this particular point. When my right honourable friend Mr. Lilley intervened and asked Mr. Smith: Does the hon. Gentleman believe that it" — namely, his about-to-be-unveiled package on social security —

can be achieved without spending more money?", Mr. Smith said: Yes, and if the Secretary of State will contain himself for a few weeks, he will learn how we intend to go about it". —[Official Report, Commons, 20/2/96; col. 211.] Perhaps now is the time.

Baroness Hollis of Heigham

My Lords, I am intrigued that the Minister persists in treating the Opposition as though we are the Government, and responsible for the up-rating system. Is he getting into practice?

Lord Mackay of Ardbrecknish

My Lords, all I am doing is getting into practice for next year and the year after —

Baroness Hollis of Heigham

My point precisely.

Lord Mackay of Ardbrecknish

We shall have exactly the same speech from the party opposite without a single indication of what it would do to contain the total amount of expenditure —a point to which I shall return. We have only a few weeks to wait before the party opposite unveils its proposals. Therefore I say to my noble friend Lord Dean of Harptree that it will be very interesting to see what the Opposition decide on a number of issues, but in particular on the expensive issue of linking pension increases to earnings and not to prices.

When he pointed to the national insurance contribution changes, my noble friend quite rightly underlined the importance of keeping non-wage costs down. The noble Baroness made a great deal in her speech of the need to improve the opportunity for people to find work. There is not much between us on the principles involved, though there may be something between us on how we go about doing it.

I am absolutely sure about one thing. Had the noble Baroness been present for the debate introduced last week by the noble Lord, Lord Dahrendorf, she would have heard the figures quoted on a number of occasions. I am absolutely sure that increasing non-wage labour costs is not one of the routes which should be followed. If it were, the countries quoted by my noble friend Lord Dean that have gone down that road would be showing lower unemployment in general and, for example, in the youth sector. The simple fact is that they are not. In some cases they are showing hugely higher unemployment levels in both those sectors than we are. Therefore, before we move down the social chapter route, described by my noble friend as the European tax on jobs —and indeed the route of the minimum wage so beloved of the party opposite —the British people ought to ask why we have such significantly lower unemployment, especially in the youth field, than such countries as Spain, France and Italy. Indeed, the Germans have often been held up as the example to follow. They are now seeing their unemployment rate rising to a figure above ours and continuing to rise, whereas ours continues to fall. Therefore, when it comes to non-wage costs, people ought to consider those examples.

Earl Russell

My Lords, the Minister quoted the German example. Can he say what comparable burden to German reunification this country has borne in the past five years'?

Lord Mackay of Ardbrecknish

My Lords, I do not believe that that has anything to do with the point about non-wage labour costs. Non-wage labour costs were there long before German reunification came about. I fully accept that the German economy has indeed had to absorb considerable problems from Eastern Europe. The fact that it has done so is a great credit to that country. However, it does not get away from the simple fact that Germany's non-wage labour costs were considerably higher, and always have been, and that unemployment is now rising. Powerful companies, which I suspect would have been considered by most noble Lords to be unassailable —companies such as Daimler-Benz —are now suffering great problems. Again, that was mentioned in the debate last week on the Motion tabled by the noble Lord, Lord Dahrendorf.

The noble Earl, Lord Russell, asked me a number of questions. He asked why, when unemployment is falling, does income support rise? That is an interesting question. I shall have to study it in a little more detail. Certainly, one factor must be the rise in single parenthood, which I mentioned earlier. That has to be one factor in the growth in income support. Pensioners too are a factor. There is an increasing number of pensioners. In relative terms, although, as my noble friend Lord Dean points out, an increasing percentage of pensioners are making their own pension provision, the fact is that the absolute number of pensioners is increasing, and that therefore the total number requiring income support to back up the retirement pension will probably increase as well. The noble Earl has exercised my interest. I may look into that point in a little more detail. Certainly, however, those two factors must provide an important part of the answer.

The noble Earl asked me specifically, as he did last year —he was kind enough to give me a year's notice —why I have not up-rated the capital provisions, the £8,000 and £3,000 limits. I am surprised that I did not give him an answer last year. Indeed, I thought that I had done so and I must check that. My answer is the same as the one that I gave, or would have given, last year. We do look at capital limits, but we believe that we have to give second priority to them. We give first priority —I appreciate that the noble Earl thanked us for it —to up-rating the benefits themselves. We believe that capital limits are not of the first priority. When there ARE so many priorities to be met and, in our view at least, control to be kept on the total amount of social security spending, I must say to the noble Earl that capital limits must remain where they are. A disregard of any real consequence is an expensive provision to make. I do not have the figures to hand but I remember looking at them when I considered this question. To give a significant increase in capital limits costs quite a considerable amount of money. That would probably have to be taken from the up-ratings. We should prefer to concentrate on the benefit levels themselves.

I return to points made by both the noble Earl and the noble Baroness about work incentives and trying to encourage people to get hack into work. The noble Baroness, as always, made a great deal of what she called the perverse effect of income-related benefits. For the life of me I cannot see any other conclusion than that the noble Baroness would in fact countenance an increase in expenditure on those benefits. If we did not take into account the earnings of the spouse or some of the part-time earnings of the individual, inevitably that would mean that we would spend more money on benefits. That is the inevitable conclusion to the noble Baroness's argument on this point, which I have heard on a number of occasions.

Baroness Hollis of Heigham

My Lords, perhaps the Minister will allow me to intervene. We have had this argument on a couple of occasions and I am sorry that he did not take the main point. In seeking short-term savings, which is what happens when moving to means-tested benefits, the Minister produces longer term costs because he pulls the second partner out of work. As ever, the Government sacrifice the longer term benefits for short-term gains.

Lord Mackay of Ardbrecknish

The noble Baroness has made that point also on a number of occasions. I am not too sure that there is a great deal of evidence for it. In any case, even if there are what she calls short-term gains, they would fall to be an increase in the social security benefit system, which, as her honourable friend down the Corridor said when he answered the Question last week of my right honourable friend Mr. Lilley, can be contained within its present limits.

But the noble Baroness, the noble Earl and I agree on the need to encourage people back to work. We also agree that, even when someone has found a job, there is a problem of crossing the bridge between being on benefit and not being on benefit. We have taken and are taking steps to try to improve the situation; namely, the faster processing of family credit; the housing benefit and council tax benefit extended payment, the run-on for an extra four weeks; the back-to-work bonus; and the child maintenance bonus. We have also taken steps to improve the advantages to people of working for longer hours. There is the longer hours premium, which from July this year will mean £10 a week extra in family credit and disability working allowance for people working 30 hours or more a week.

So, we all agree on the objective of trying to make sure that, when somebody finds a job, there will not be economic disincentives for them in taking the job and moving off benefit. I believe that the steps that we have taken over the past two years and those that we are currently taking will help to solve that particular problem.

The noble Baroness and the noble Earl discussed the lone parent provision. The noble Earl sometimes has a suspicious turn of mind when it comes to the Government's motives. But it is not the Government's policy to reduce income support to lone parents in order to increase work incentives. There will he no cash losers from the changes to the lone parent benefit. Our policy is to narrow the gap between lone parent benefits and those benefits which go to couples with children.

I do not want to weary the House with details. But there are a number of scenarios in which the gross income in a household is not big hut, taking together the income and the benefits, a single parent with one child can get more income in the week than a married couple with one child. That cannot be a correct position. It is especially odd when one considers that in the family with the greater income there are only two mouths to feed, whereas in the two-parent family there are three mouths to feed. It seems to me that we must guard against appearing in the benefits system to be approving of that and of saying to two-parent families, "No, you can live on a smaller income than a one-parent family".

Undoubtedly, at constituency surgeries of my honourable and right honourable friends from the other place there will be couples who come and say, "We shall be better separated or divorcing." A decade ago, I came across young couples looking for housing who found that they were being constantly jumped over by single parents and who asked whether the solution to the problem would be to separate in order to get a house.

Undoubtedly, all the facts tell us that it is only by working that lone parents can improve the living standards of themselves and their children. On average, lone parents in work improve their income by some £30 a week. We could not possibly, especially as we are attempting to contain expenditure —the party opposite says that it will do the same —increase the amount of income support by that amount. As I said in my introductory remarks, lone parents already consume 10 per cent. of the total social security budget. Our aim must be to reduce that figure and not increase it. We can only do that by encouraging lone parents into work. That will benefit them and society.

We are attempting to do that in a number of ways. They receive the same adult credit as two-parent families for family credit and disability working allowance. We have taken a series of measures, some of which I have mentioned already, to improve the position. We have reduced the qualifying hours for family credit and that has helped lone parents in a very big way. I believe that no responsible government can hide from the considerable increase over the past years in the number of lone parents and their cost to the taxpayer. We believe that the way to improve their position is to give the lone parent far greater opportunities to gain work. That is what we propose to do.

Earl Russell

My Lords, I am most grateful to the Minister for his explanation. But can he rebut the imputation, which I invited him to deny, that the Government propose to reduce income support in order to increase the incentive to work?

Lord Mackay of Ardbrecknish

My Lords, I believe I started my contribution on lone parents by saying specifically that that was not our intention.

Perhaps I may turn to the question raised by the noble Baroness, the noble Earl and indeed my noble friend Lord Dean of Harptree. They asked, in the context of fraud, about the reductions in the cost of the social security budget on which my right honourable friend Mr. Peter Lilley and the other Ministers in his team are now engaged.

First, we are determined to ring fence those amounts of money which are going into the pursuit of fraud, the clarification of what that fraud is and how we intend to stop it. For example, the noble Earl asked about the distinction between confirmed and suspected fraud. Suspected fraud involves claims where we have a strong suspicion of fraud, but where it cannot properly be established in the time available. Confirmed fraud is exactly what it says.

The interesting point about our decision to try to reduce the administrative costs of the social security budget is that, to begin with, the party opposite told us that it was impossible without all kinds of awful things happening. Indeed, I spent a period of time nearly a fortnight ago in radio and television studios trying to explain the Government's position and countering the Opposition's accusation that it was impossible to do what we want to without all sorts of dreadful things happening.

Then, lo and behold, into our hands fell a letter from Mr. Andrew Smith, MP, who is the Shadow Chief Secretary to the Treasury, to Mr. Chris Smith, MP, the social security spokesman. The noble Baroness accused me of practising being in Opposition. But the Opposition are practising to be in government in a big way when the Shadow Chief Secretary sends rude minutes to his colleagues about cutting government expenditure and then proceeds to have them leaked to the press. I say no more on that, other than admitting to being slightly amused. However, it is not amusing. It shows a tendency to say one thing and mean another.

Baroness Hollis of Heigham

My Lords, I thank the Minister for giving way. I am intrigued by his insisting on practising his oppositional stance. Would be also like to remind the House of the exchange of letters between Mr. Lilley and Mr. Waldegrave a few months ago, when Mr. Waldegrave was proposing, as Chief Secretary to the Treasury, various cuts in the administration of the department and Mr. Lilley pointed out how unwise and foolish it would be? It is clear that the Treasury, as ever, overruled Mr. Lilley. He has now acquiesced in those cuts. I am sure the Minister would like to entertain the House with a similar exchange of letters.

Lord Mackay of Ardbrecknish

My Lords, I am happy to see that the noble Baroness is still keeping herself in practice for continued opposition by introducing a diversionary tactic. In fact, the letter was leaked. As usual, the picture was incomplete. The correspondence at that time concerned running costs in the coming financial year. The position we are now in is looking at a step-by-step change over the next three years in the way the benefit system is administered in order to achieve the savings at the end of that period.

The noble Baroness will not divert me from giving your Lordships the flavour of the letter before I sit down. It states, Following Peter Lilley's announcement last week that he is seeking to axe his department's running costs by a quarter, I have been making some informal enquiries about the feasibility of his plans … The advice I am getting, which is necessarily incomplete, nevertheless suggests that savings in running costs of this magnitude are perfectly feasible". Thank you very much, Mr. Andrew Smith! The Observer, which runs a lie detector scheme each Sunday, and which it usually attempts to practise on the Government, was forced to practise it on its friends last Sunday and make the little lie detector show clearly in the "truth spin lies" lever, that it is clearly pointing to lies. That points to the distinction I made. Mr. Chris Smith said, [The Government] make a nonsense of [his] much vaunted fight against fraud. [The benefit system would be] pushed past breaking point". His Shadow Chief Secretary says, as I read out, that, savings in running costs of this magnitude are perfectly feasible What is perfectly feasible, but difficult to do, is to contain the social security budget. We have done it by attempting year on year to keep control. The other night I was attacked by the noble Lord, Lord Eatwell, for allowing the public sector borrowing requirement to go out of control, as he put it. It is not out of control, but that is neither here nor there. I invited him to tell his noble friend that the next time I come forward with proposals to contain the social security budget, he should remind the noble Baroness that keeping control of one's expenditure is a vital and important fact in the Government balancing their budget. Keeping control of this enormous budget — £90 billion —as my noble friend Lord Dean of Harptree pointed out, is central to that control.

We have done it. With the measures that we have taken over the past few years, virtually —I could probably say "all", but because I have not checked 1 shall say "virtually" —all opposed by the noble Baroness in debates such as this, we have kept the expenditure down to £90 billion when it might otherwise have approached £100 billion in this second half of the 1990s. That is sensible budgeting. It is looking after the people who need the help most and yet not at the same time imposing an intolerable burden on the taxpayer. I commend the regulations to the House.

On Question, Motion agreed to.