House of Commons Hansard Debates for 30 Nov 1992

Mr. Dewar : That is a clever point--I use the word "clever" in a pejorative way. The Secretary of State is fond of clever points. We shall see what we shall see when the proposals appear. There must be more effective regulation, if only because while professional ethics are a fine and important thing, if one lives on commission, it is undoubedly sometimes difficult to give advice that one knows is against one's own best interest. Many people do so, but there are cases in which it does not happen and an enforceable code of practice and an explicit statement of the commission that is being charged are important safeguards.

I notice--again because it is so current--that, on "Your Money" page of the The Independent on Sunday of 29 November, there was a feature under the byline of Maria Scott. The paper asked three companies to quote transfer values three years from now on their standard personal pensions contracts. They assumed that the policy was taken out by a 29-year-old man, paying £50 a month and planning to retire at the age of 65. The quotes assumed an investment growth of 10.75 per cent.--rather generous.

All the policies were on the same terms, and the total premiums paid over three years would, in each case, be £1,800. Allied Dunbar quoted a value of £1,140, Norwich Union quoted £1,490 and Friends Provident £1,270. I use this as an example of the remarkably different end product from the same amount paid, and apparently on the same terms and conditions. That rather underlines the need for safeguards. Competition is a useful economic tool in many circumstances, but, as the Secretary of State must realise, there are cases in which it is necessary to have safeguards.

I have taken my due time, but I should not finish without mentioning a couple of points to which we shall return in Committee. We have another day to look at these matters. A guaranteed minimum pension is demanded in certain parts of the occupational sector. There must also be a guarantee of the SERPS equivalent in the COMP schemes--the contracted-out money purchase schemes. We should be considering whether that should be extended into the private sector. I know that it will run into considerable difficulty with the pension providers, but there are a number of ways to achieve it--for example, by target benefits or by recognising that, if there is high inflation, a ceiling must be imposed on the revaluation of the guaranteed minimum

Column 59

pension. There is a strong case for looking at those matters, and I hope that we shall find ways, perhaps ingenious ways, of doing so during the progress of the Bill.

We said that we would give the Bill a fair passage. I recognise that there are time constraints if the new scheme is to get into place, and we are prepared to co-operate. There is no great room for positive amendment in a spare technical measure. I give the Secretary of State fair warning--I am sure that he will accept it--that there will be a major debate over many months about every sector of the pension world. We intend to pursue the issues that matter, whether in the occupational pension, the private pension or state pension sectors, because there is demonstratably a great deal to be done if there is to be security and peace of mind for those at work and those who have reached retirement age.

5.45 pm

Mr. Charles Hendry (High Peak) : I listened with interest to the hon. Member for Glasgow, Garscadden (Mr. Dewar). It was the first occasion in my brief time in the House that I have seen an Opposition Front-Bench spokesman empty half the Opposition Benches. There were only four Labour Members here at the beginning to hear him, and now there are only two, so that puts his speech in context.

I welcome the transfer from the Treasury into the national insurance fund. A few years ago, many of us welcomed the abolition of the transfer from the Treasury into the national insurance fund, but we now recognise that we are operating in different circumstances. I see two advantages in the transfer. First, it is a fluctuating grant--this year 20 per cent. is the maximum and, after that, it will be pegged to 17 per cent., so there will not be the overpayments and surpluses that have congregated in the past. Secondly, and most importantly, it avoids, at this time of recession, putting additional pressure on employers and employees when they are least able to afford it.

Conservative Members are most able to appreciate that point because we are aware of the commitment made by the two major Opposition parties during the general election campaign that they would be raising national insurance contributions. It is not now clear where the Labour party stands on this issue. Shortly after the election, the right hon. and learned Member for Monklands, East (Mr. Smith) said :

"I am prepared to defend the principle that National Insurance should be taken from everyone on the same basis."

He seemed, not unreasonably, to be defending the platform on which the Labour party had fought the election. However, within six months, the hon. Member for Dunfermline, East (Mr. Brown) was saying : "The situation has so deteriorated that we are not prepared to raise NIC or income tax at this stage."

Perhaps the Labour party would do the House the honour of telling us where it now stands. Does it believe that national insurance contributions should be raised to help us out of

recession--Conservative Members would consider that to be barking mad--or would it raise national insurance contributions only when we have come out of the recession, thereby penalising people for dedication, hard work and eventual success?

Column 60

I agree with the three objectives that lie behind the Bill. First, we must support those who have been hit most by the recession. Secondly, we should be targeting additional support on those most in need. Thirdly, we should be keeping our election pledges, and the pledges made before the election, to the elderly, the families and others most in need.

In common with my colleagues, I shall never forget the faces of Labour Members during the autumn statement and the uprating statement. They had been sitting there, willing the announcement of cuts. There was ever- greater dismay on their faces and an ever-growing sense of frustration when those cuts did not materialise and they gradually realised that the scare stories that they had used so brutally to worry the elderly, the sick, the disabled and others were being put into a well-deserved political grave.

Mr. Corbyn : Before the hon. Gentleman completes his litany of alleged misdemeanours by Opposition Members, can he confirm that, since the Conservative Government came to power in 1979, all pensioners have been robbed of £15 per week by the break of the link with earnings that was made in 1980, and the substitution, instead, of the link with the retail prices index?

Mr. Hendry : Of course, that is the greatest fraud of all perpetrated by the Labour party. The reason why the Labour Government increased pensions in line not with the retail prices index but with incomes was that prices were increasing faster than incomes. Therefore, the Labour Government were cheating pensioners when they were in office.

Mr. Patrick Nicholls (Teignbridge) : Does my hon. Friend recall that the former Secretary of State for Social Security, Lord Ennals, when asked why his Government had passed legislation and then promptly broken it, said that it is the Government's responsibility to take such matters into consideration, but it is not their responsibility to get it right.

Mr. Hendry : My hon. Friend has reminded the House of an important contribution--one which the Labour party would do well to remember. Mr. Corbyn rose--

Mr. Hendry : I shall not give way--the hon. Member for Islington, North (Mr. Corbyn) tried to make his point, but failed, as did many of the Labour Government's policies.

Mr. Corbyn : On a point of order, Madam Deputy Speaker. The hon. Gentleman referred to the policies of the last Labour Government. He was incorrect ; the Social Security Pensions Act 1975 arranged that pensions should be increased each year in line with either the increase in earnings or the retail prices index.

Madam Deputy Speaker : The accuracy of observations made in debates are not a matter for the Chair--thank goodness!

Mr. Hendry : When we hear such scare stories it is hard to realise the sheer magnitude of the social security budget. Next year the social security budget will go through the £80 billion barrier, the £83 billion barrier the year after and the £87 billion barrier the year after that. When I was a special adviser in the Department of Social Security, £1 billion a week was spent on benefits. We now spend £1.5 billion a week on the most needy in our society. That is the

Column 61

clearest possible demonstration of the Government's determination to look after those who are in need. We are right to increase all those benefits, which should be uprated in line with inflation by the retail prices index figure of 3.6 per cent.

In recession it is only right that those in work should make some sacrifices for those who are not in work. Those who have lost their jobs, often through no fault of their own, those who are unable to work and those who are retired need to be protected during the hard times. It is only reasonable that those of us who at least have a secure income and some job security should make our contribution towards that protection.

I recognise that life is not easy for many of those who are employed, but in difficult times we must recognise our

responsibilities. In that context, I still cannot believe that more than 100 Labour Members trooped into the Division Lobby last week, suggesting that, with incomes of £31,000, they constituted a special case and were in special need.

I remember a Labour party conference about 10 years ago. I was not at the conference, but I well remember its coverage. At that conference one of the trade union leaders, Clive Jenkins, made a speech.

Mr. Frank Field (Birkenhead) : Which clause is that in?

Mr. Hendry : It is relevant to the debate and the attitude that the Labour party has taken. If the hon. Member for Birkenhead (Mr. Field) had been present a few minutes ago, he would have heard me talking about the importance, under the Bill, of people who are in work making their sacrifice for those who are out of work. It relates directly to the transfer of money into the national insurance fund from the Treasury. Had the hon. Gentleman been present at the outset, he would have understood that.

During his speech at the Labour party conference 10 years ago, Clive Jenkins referred to people in the union movement having their snouts in the trough. Ten years later, it seems that the snouts of Opposition Members are snorting around after truffles as eagerly as they were all those years ago. I hope that that is a lesson that the people outside will take to heart.

Mr. Corbyn : How much moonlighting is done by Conservative Members?

Mr. Hendry : If the hon. Member for Islington, North would like me to forward his curriculum vitae to any companies, I shall gladly pass it on so that they will be aware of his credentials.

Mr. Corbyn : I shall not forward my curriculum vitae to the hon. Gentleman. I am not looking for alternative employment ; neither do I think that any other hon. Members should do so. Being a Member of Parliament should be a full-time job and hon. Members should not receive private income from any other source--unlike the vast majority of Conservative Members.

Mr. Hendry : I hope that that also applies to research assistants.

Mr. Corbyn : Will the hon. Gentleman explain--

Mr. Hendry : I have not given way ; I am still on my feet. The Bill and the Treasury transfer mean that we can do much more to help those who have been hit by the recession. It means that we can focus more help on those

Column 62

who are in need. We can target an extra £300 million to the least well-off pensioners, as was done recently. The measure accurately reflects and recognises the difficulties that many older pensioners face. Although nine out of 10 pensioners have income from savings, occupational pensions or personal pensions, that is not the case for all of them. Indeed, 78 per cent. of recently retired pensioners have income from savings ; 69 per cent. have income from occupational pensions ; and 71 per cent. of current employees have occupational pensions or personal pensions.

We need to target help--the Government have rightly done so--at older pensioners who never had the opportunity to build up resources while they were in employment. Perhaps occupational pensions did not exist when they were in employment, or savings were eroded during the probationary period. That makes it so much harder to understand why some political parties have a continual hatred of personal pensions, which make such a vital contribution to the living standards of so many older people. When the Government cut interest rates, which obviously helps the economy, the Opposition say that that is never enough. Perhaps Opposition Members will also spare a thought for pensioners who say that their savings, and the income from savings, are important contributions to their living standards. Although we want interest rates to be lowered, it is important to recognise the income that people derive from savings.

Through the Bill we will be able to give another boost of £700 million to people who live on income support, when the council tax comes into play next year. Those who currently pay 20 per cent. of their poll tax will not pay any contribution to the council tax. It would have been possible to claw back from them the money that they had been given to pay the poll tax. I welcome the fact that the Government have chosen not to do that but have allowed people to keep the income so that they could have a better standard of living. Contrary to the scare stories that we have heard so often in the Chamber and outside, the Government have a uniquely impressive record on social security. Pensioners' incomes, which went up by a measly 3 per cent. in the five years of the last Labour Government, have increased by a third- -34 per cent. Over the past 13 years social security spending on families, which fell by 8 per cent. under the Labour Government, has increased by 65 per cent. under this Government. Spending on the long-term sick and disabled has gone up by 173 per cent. in real terms or an extra £14 billion.

In this Bill and through our other work in social security, we are giving people more control over their lives and the opportunity to take responsibility for their lives and the issues which affect them most. I believe that 13 years ago we started by setting free those people who were itching for an opportunity. We simply lifted off the lid and people went out and took advantage of that. It was not a small proportion of the population. For a small incentive such as that given on personal pensions and share incentives, a more important group was also willing to take the step and become part of the opportunity society.

That leaves a large number of people who have never taken a risk in their lives because they are frightened of taking such risks. I refer to people who cling, understandably, to the benefits that they receive. It has been suggested that, if the tree of benefits is shaken, people will fall off like ripe apples. However, they will not fall off

Column 63

trees like ripe apples--the benefit system is the only thing which those people know, and they cling more tightly to the tree to preserve their security.

We are trying to lead people gradually to a position in which they have more confidence and in which they find it easier to make their own decisions. I welcome the Bill as an important contribution to that process.

6 pm

Mr. Malcolm Wicks (Croydon, North-West) : An important part of the Bill relates to the national insurance fund, about which I shall speak exclusively. To bring in again an Exchequer contribution to the fund must raise questions about the future of national insurance, and the importance of national insurance remains. According to the public expenditure White Paper, contributory benefits account for about half of total expenditure on social security. By 1993-94, it is estimated that £40 billion will be spent through the national insurance fund. It is clear that national insurance is still a major part of our national insurance system.

The Secretary of State mentioned the historical occasion tomorrow of the 50th anniversary of the Beveridge plan. It is worth reminding the House of what William Beveridge had to say about national insurance and the contributory principle. When explaining these matters in his plan, he asserted that a key view was that benefits should be gained in return for contributions rather than as free allowances from the state. He took the view that that is what the people of Britain desired. Towards the end of my remarks, I shall raise questions about the future of national insurance and whether--I am open-minded about this--it has a future in Britain as we approach the year 2000.

We can all agree, I think, that since the time of Beveridge there have been major social and employment changes. These have made Britain in 1992, 50 years on, a very different country from the one of 1942 when the great plan was first published. The Secretary of State said that his proposals were in the spirit of the Beveridge plan, and I welcome that. I recall--I was not present at the time--that the then Prime Minister, Winston Churchill, was rather more cagey and hesitant before accepting the plan.

Things have changed, and we must ask ourselves whether national insurance today is relevant and matches the needs and changes that we have seen. For example, Beveridge assumed a world in which, despite the different circumstances and experiences of war time, a woman's place was in the home and a man's income was a bread-winning wage. He concluded that social security should be built around those assumptions.

I suppose that he would have looked back to the census of 1931, social statistician that he was, and noted that, in those days, only 10 per cent. of married women were in employment. In 1961, the percentage had increased threefold to 30 per cent. In 1991, it was 59 per cent. Against that background, we must ask ourselves whether the fund, which we seek to reform, is relevant to the changing needs of our world, and especially to the needs of those who are in part-time work.

Many married women with children work part-time. In fact, they are engaged in full-time work--part-time at home and part-time at the workplace. They pay national

Column 64

insurance contributions, but what are they paying for? Will they receive decent benefits in future? How do our proposals take account of the major social insecurity problem of the strong association between women and poverty? Many of our poor people are women, and the national insurance debate is relevant to that.

Since the time of the Beveridge plan, we have seen develop--he considered this in part, but he could not make a full estimate for the future--a rapid increase in family breakdown. We have witnessed the rise of the one-parent family, and with it a growth in poverty that has been caused by the accompanying social circumstances. This is important.

It was 50 years ago that Beveridge toyed with the idea that marital breakdown, because of its association with poverty, might be an insurable risk. For reasons that perhaps we can understand, he shied away from making marital breakdown such a risk in his social insurance plan. Perhaps he was wrong to do so, and hon. Members may have views about that.

Today, 37 per cent. of recent marriages are at risk of divorce. There has been a rapid increase in the number of children living in one-parent families. We know that all too often--in about seven out of 10 cases--those one-parent families depend on social security in the form of non- contributory income support benefits, not on contributory benefits.

Another major change has been the aging of our population. Beveridge considered the pension implications of aging and welcomed the idea of a national health service for the future, but if we were thinking now about a modern national insurance fund and the risks that we might wish to insure against, we would consider care in old age as well as income.

More and more of us, despite experiences in the House, may live to a ripe old age ; we may continue into our 80s and 90s. Many of us will become frail and in need of care. We shall not need full medical treatment and the full technology of a modern hospital, but we shall need to be looked after because of frailty, which means care in the community.

The answers are manifold, and perhaps they lie with other parts of the social security budget and not with national insurance. If Beveridge was producing his plan today and the Secretary of State was responding to it, Beveridge might say that one of the insurable risks in a modern society should be the need for care. That should be on our agenda as we reflect on the national insurance fund while considering the Bill.

We must carefully consider the national insurance fund in the context of the Bill and employment assumptions. Underlining the Beveridge plan was the clear assumption of full employment. Undermining social security now is the reality, not the assumption, of unemployment.

We are discussing the Bill in part because economic recession and rising unemployment are putting pressures on the national insurance fund, and these call for the reinstatement of an Exchequer contribution. That, in part, is what the Bill is all about. It is fair, therefore, to ask Ministers to set out their employment or unemployment assumptions. If they are saying that about a 20 per cent. contribution is more or less right, what are their estimates of unemployment in the financial year 1993-94 and in the years beyond that?

Actuarily speaking, what assumptions are being made about unemployment? I do not understand how the

Column 65

House, on Second Reading or in Committee, can consider the adequacy of the percentage proposal without being given some insight into the Government's projections on unemployment.

More importantly in the longer term, we must know whether we are in a society in which we accept unemployment as a phenomenon to which our social security system adjusts. If so, is the fund adequate to meet that task, or do we as a society still have a goal of full employment? What is the Government's view? Is it that we must return to an attack on mass unemployment?

I note the Secretary of State's remarks on what is so nearly the golden anniversary of the Beveridge plan. He claimed that the proposals in the Bill are in the spirit of Beveridge, and I welcome that, but I am slightly sceptical. Beveridge waxed lyrical about social security, in a language which we seldom capture today in the technicalities and jargon of social security benefits. He talked about five giant evils that we needed to attack in the post-war period--want, disease, ignorance, squalor and idleness. The last evil, idleness, is a rather old-fashioned term now, but not a bad one. Beveridge meant unemployment.

William Beveridge said that idleness was the largest and fiercest of the five giant evils, and the most important to attack. He added, in words that are more relevant in 1992 than in 1942, that unless we attack the giant of idleness, all our aims of post-war reconstruction will be out of reach.

I ask the Under-Secretary of State whether she agrees that idleness is the largest and fiercest of the giants. If she does, how will the Government attack it? What are the implications for social security, the Bill, employment training and many other things? We must know about the Government's unemployment--or, I hope,

employment--assumptions before we can fully master the Bill and debate it adequately.

Sadly, national insurance--if we use the term properly--does not work for many families and others in society. It is right that on this historic occasion we should remember that Beveridge was clear that there was a role for income support--it was called public assistance in his day. However, he envisaged it as only a minority role. He thought that, with full employment and national insurance at a decent level, only relatively few people would, from time to time, need public assistance. He said in his report :

"The proposals in this Report will make the permanent scope of assistance much less than that of public assistance and of the Assistance Board at present."

He said "much less"--not the same, and certainly not more. What is the reality today?

Mr. Willetts : The hon. Gentleman accurately reports Beveridge's observations, but he must accept that Beveridge's claim that the level of national assistance would reduce in significance was not supported by the figures and analyses in his report. There was nothing in it to show how contributory benefits would be of greater value than national assistance. Beveridge's assertion was not supported by his calculations.

Mr. Wicks : Others read the Sunday newspapers ; the hon. Gentleman and I obviously spent the weekend re-reading the Beveridge report. I take his point, but if we think about Beveridge's ambitions rather than simply the details in his report, we see that he envisaged means-tested benefits playing only a minor role. He was anxious to promote jobs and national

Column 66

insurance. The detailed arithmetic in the report was done in the midst of war in 1942, when the Nazi threat was ever present--more difficult circumstances than we face today--so immediate implementation of his social security plan might not have been possible.

In 1948, shortly after the war and when the legislation was beginning to take effect, only one in 33 people were dependent on means-tested public assistance. In 1990, the figure was one in eight. Whatever else has happened to the Beveridge plan and to the social security system, we have not attacked means-testing and dependence on public assistance. More of our citizens, including too many of our children, depend on means-tested income support than was the case during the period of the Beveridge plan.

I am reminded of what Gandhi said when he first visited this country many years ago. He was in his native costume, surrounded by Fleet street's finest, when he was asked by a reporter from one of what we would now call the tabloids, "Mr. Gandhi, this is your first visit to England--what did you think of English civilisation?" Mr. Gandhi replied, "I think it would be a good idea." Perhaps today we should say that the Beveridge plan would be a good idea--especially if we think of the term "social security" as something with a real meaning rather than a technicality.

I want to discuss the insurance principle because, in part, we are today discussing the national insurance fund. I hope that, at some stage, hon. Members on both sides of the House will more fundamentally debate the fund and its future. I am open-minded on the matter and I have no hidden agenda. Indeed, I have not made up my mind on this important matter. Should we consider abandoning national insurance and the idea of contributions and benefits, or should we consider revitalising the national insurance system?

The last test of public opinion on that matter was during the 1985 social security reviews. Perhaps hon. Members will correct me if there has been a more recent test. During those reviews, people were asked what they thought about national insurance contributions, which were then a matter of political controversy. Some 35 per cent. said that they thought that they were just like income tax. However, 52 per cent. thought that they were very different--that they were contributions, in return for which people received pensions and other benefits.

I wonder what public opinion would be today. Public attitudes to how we contribute to the Exchequer--whether through income tax, VAT, council tax or national insurance--are important to the acceptability of taxation.

We need to re-evaluate the national insurance concept and to consider key questions. We need to examine the current nature of social insecurity in the Britain of 1992 and up to the year 2000 and compare it with the past. Like Beveridge, we must question the risks that people face during their life cycles.

I have mentioned the new challenge of the care of the elderly. We must compare the new risks with those of the past. We must question which risks should be insurable and how that can be achieved. There may be a difference of opinion on the role of the public and private sectors and on the right mix. On the other hand, we must also question which risks should be covered by non-contributory benefits. There might be a need for a reinvigorated social insurance system, although I am not absolutely sure about that. However, such a proposal would not come to the House through a technical Bill on a quiet Monday

Column 67

afternoon. If that were to be the way of the future, it would be the subject of a new Beveridge-type plan, which would arouse the public excitement and public debate which, although it may seem surprising today, met the original Beveridge plan.

We are 50 years on from Beveridge, and it is a golden anniversary--and "golden" is an appropriate word for that historical figure. I believe that there is a real opportunity for the House to debate a new Beveridge-style plan.

6.17 pm

Mr. David Willetts (Havant) : Thank you for calling me to speak in the debate, Mr. Deputy Speaker, which is especially apposite as it takes place on the eve of the 50th anniversary of the Beveridge report. I congratulate whichever powers in Mr. Speaker's Office or the usual channels managed to arrange for the debate to take place at such an apposite time-- [Laughter.] Labour Members have a surprisingly cynical view of the workings of the House.

The origins of both features of the Bill--the national insurance fund top- up from the Treasury and the opting-out procedures for personal pensions-- can be traced back to the Beveridge report. It is not often understood, although I am sure that the hon. Member for Croydon, North-West (Mr. Wicks) understands, that William Beveridge took the insurance principle seriously. Indeed, he took it so seriously that his original proposal was for benefits at a fixed rate--there was no additional second pension in his scheme--and contributions at a fixed amount. Indeed, at one point in his report he refers to the contributions as being by way of a poll tax. In all the arguments about poll tax during the last few years, it is surprising that no one pointed out that most of our social security budget from the late 1940s to 1961 was financed by precisely such a tax.

The structure of a fixed sum contribution--analogous with paying fire insurance, for example--and fixed benefits severely constrained how much could be raised. It was manifest that as national insurance contributions were to be a fixed amount, there would be considerable constraints upon what people were prepared to pay. That led to two crucial features of the social security system introduced after the Beveridge report. Beveridge himself acknowledged--though his figures were even more dramatic than his prose--that a hefty Treasury contribution would always be necessary to finance insurance benefits. On Beveridge's figures, by 1965 about 50 per cent. of all expenditure on national insurance benefits was to come from the Treasury. That so-called tripartite system was in fact heavily slanted towards the taxpayer, with employer and employee contributions between them being much more modest.

Mr. Frank Field : Was not the figure 67 per cent.--I do not have the table, but I am sure that the hon. Gentleman will find it if I intervene long enough--and did not Beveridge realise that if a poll tax was to be introduced, it must be covered with an enormous coating of sugar? Did not the former right hon. Member for Finchley learn that lesson when she introduced another poll tax?

Column 68

Mr. Willetts : I do not have time to identify the source of the hon. Gentleman's figure of 67 per cent. but I am happy to bow to the experience and knowledge of the hon. Gentleman, on whose Select Committee I am honoured to serve.

The structure of national insurance as envisaged by Beveridge had two consequences. A hefty Treasury contribution was necessary. We must debate its exact size, but it was certainly more than 50 per cent. Also, pressure rapidly built up to change the system so that contributions would no longer be at a fixed rate but progressive, as a percentage of income between the upper and lower earnings limit. Within a few years, the Treasury started asking, "Why can't we have a progressive tax structured in this way, so that we can raise more money from national insurance?" The consequence in turn of that argument was that it was thought that a progressive contribution rate would have to be matched by benefits that similarly rose as people paid in more. In other words, we were driven to a second, top-up, contributory pension not because of enormous desire for one but because that was the only way of legitimising the financial pressure to have a progressive, not fixed, national insurance contribution scheme.

Beveridge left us with a system heavily dependent on Treasury finance, and the only way of escaping that was to introduce progressive contributions-- which in turn meant a second, top-up pension. It is therefore ironic that, on the eve of the 50th anniversary of Beveridge, the proposal for a Treasury grant to cover some of the costs of the national insurance fund is in many ways taking the fund a tiny step back to the sort of model that Beveridge envisaged.

As my right hon. Friend the Secretary of State explained, the origins lie in the effects of the economic cycle, with both the expenses of the fund rising in recession and contribution income falling. The Government have held national insurance contribution rates constant since 1983. One might ask why the option of changing them has not been pursued. On reflection, clearly it is undesirable to increase contributions in a recession if that can possibly be avoided. I am sure also that during the boom years of the late 1980s, Ministers felt that it would be undesirable to cut contribution rates having gone through the political trial of increasing them in the first place.

We are therefore left with a Government policy that can be described only as purposeful immobilism. There is no intention to move contribution rates either up or down, and as a result it is the Treasury contribution which must be adjusted. That will be done in accordance with the economic cycle, and I personally welcome the extra flexibility in the new system of Treasury grants, which is far superior to the rigid formula on which the old Treasury supplement was calculated.

The Treasury contribution that we may expect next year is in the order of £8 billion, which places in context the figure for the extra incentive for people to take out personal pensions--the 1 per cent. proposed in the Bill, which the Government Actuary tells us will add up to about £165 million. We heard briefly from the hon. Member for Glasgow, Garscadden (Mr. Dewar) the standard rigmarole of criticisms of the incentives offered to those who contract out of SERPS and subscribe to a personal pension. It is worth re-examining the figures, because so much mischief and misleading information has been generated on the basis of bogus calculations.

Column 69

Mr. Archy Kirkwood (Roxburgh and Berwickshire) : How much does the hon. Gentleman think will be saved?

Mr. Willetts : The National Audit Office set out calculations on a basis that I find difficult to accept, and I will return to that point later.

The contract-out rebate of 5.8 per cent. is available to all who contract out of SERPS--it does not matter whether they are new to a personal pension, have subscribed to a personal pension for some time, or are members of an occupational pension scheme. Over the five years from 1988 to 1993, that rebate adds up to £6.9 billion. The 2 per cent. incentive that aroused such controversy when it was introduced adds only £2.4 billion, to make a grand total of £9.3 billion.

We are all familiar--the hon. Member for Garscadden mentioned this--with the argument that the rebate is a grotesque subsidy that is way out of line with the savings accruing to the Exchequer. It ought to be remembered that, over that five-year period, total national insurance receipts ran to about £220 billion, so as a proportion of the fund's total income the rebate is rather paltry--some 4 per cent. The National Audit Office says that the savings accrued to the Exchequer by people leaving SERPS and thereby reducing the Government's future liability were merely £3.4 billion. Those calculations were set out on a very precise basis, and one that seemed to be ignored when the Opposition started making hay with the figures. The assumption was that everyone who opted out of SERPS would return to it in 1993--that the policy had only a short-term effect, and that in 1993 the 5 million people who had so successfully been encouraged to leave the state scheme would re-enter it. That was a manifestly absurd assumption. It is not correct to assume that people who were given the incentive to leave SERPS would all pile back into it straight away. As soon as one accepts that many would remain out of the state scheme much longer, the savings to the Exchequer from the Government's incentive scheme become more considerable.

Next Section

Home Page