House of Commons Hansard Debates for 10 Jul 1995

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longer-term unemployed--those out of work for 12 months or more--back into work through part-time work experience. The workstart pilot scheme provides subsidies to employers who recruit a person who has been unemployed for two years. Finally, employment on trial is available for people who wish to try out new lines of work. It means that a person who has been out of work for at least six months who takes a job but chooses to leave it between the first six and 12 weeks will not, when making a benefit claim, be disqualified for unemployment benefit, and will not have his income support affected. That is a wide-ranging programme of special measures to help the long-term unemployed, and the Government should be congratulated on targeting that need and on their ability to see it through.

Mr. Ken Purchase (Wolverhampton, North-East): One listens with interest to the list that the hon. Gentleman is reading, and it is worth having it on the record. Is it not also worth having on the record the fact that in many constituencies--including my own--the ratio of jobseekers to vacancies during the period in office of this Government has been of the order of 20 or 30 to one? In my constituency, there are still 15 males wanting work for every vacancy that is available to them. Is not a precondition of those schemes that there must be a job at the end of the training period? Is it not important that such frustrations are not felt and that people do not find that, having gone through the course, there are no vacancies for them to go to?

Sir Michael Neubert: Yes, those people who had trained and qualified to take on such a job would be acutely frustrated if there were no jobs to go to. Figures show that a high percentage achieve work as a result of the schemes, which are very practical. As the Secretary of State said, we are concerned not so much with numbers as with the outcome--people gaining employment--and we must remember that employment is rising and is at a high level.

There will be some pockets of unemployment. The hon. Member for Wolverhampton, North-East (Mr. Purchase) is beginning to sound like the right hon. Member for Gorton when describing another major British city. One must examine the reason for such pockets and how they can best be helped. The Government certainly do not lack the will or the resources to deal with problems that are European in character and worldwide in origin in many cases. At the end of the 20th century, finding work for everyone who wants it is a major problem, but the hon. Gentleman could do one thing to assist the employment position in his constituency--he could abandon his party's commitment to a national minimum wage. If things are bad now, without question such a wage would make them worse.

To me, it is common sense that, if a person is to be priced into work, there will be a level at which employing them is affordable. Above that level, the employer could not afford to provide the service or make the goods to create employment for that person. The national minimum wage would, therefore, set a limit on the number of people who could be employed.

Mr. MacShane: Will the hon. Gentleman give way?

Sir Michael Neubert: I had started to mine a profitable seam, but I will give way.

Mr. MacShane: I am grateful, and perhaps I will open up a new seam for the hon. Gentleman. In that case, why

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does every European country that has a national minimum wage--we are not talking about the United States--show a fall in unemployment equal to, or greater than, the fall in this country?

Sir Michael Neubert: I am not sure that that is the case. My argument is based first on common sense, but I will give the House some figures that might interest the hon. Gentleman, with his European perspective.

One thing that concerns me about the national minimum wage is the effect that it would have on the young. This is not a matter of argument between the parties. It would bear disproportionately on those starting out on their working lives. At present, youth unemployment is 16.5 per cent. in the United Kingdom, but it is 23 per cent. in France and 38 per cent. in Spain, which both have a national minimum wage.

I am not sure whether Opposition Members are arguing against the impact of such a wage on employment. If they are, I must quote their leader, who said in The Independent on 27 June 1991:

"Econometric models indicate a potential jobs impact." That is a roundabout way of saying that jobs would be lost as a result of the introduction of a national minimum wage.

Dr. John Reid (Motherwell, North): That depends on the level at which it is set.

Sir Michael Neubert: The bone of contention between the parties is that the Labour party refuses to state at what level it would be. It amazes me that Labour is so reticent on that point; it was not in its manifesto in 1992. Then, the Labour party was prepared to put a figure to the minimum wage, which was to be set at £3.40 an hour. "Opportunity Britain", which was Labour's final policy review document before the last general election, said that the wage would start at 50 per cent. of median male earnings, increasing to two thirds the median male hourly rate.

What has changed since? That was only three years ago. The Labour party lost the election and has correctly concluded that, by stating a level for the minimum wage and allowing others to calculate the job losses as a consequence, it lost the election and it will not do the same again. If Labour Members think that they will get away with going into another general election and facing the British people with an unknown quantity of job losses, they are mistaken. Let me spell out what it would mean if we adopted the wage at the levels suggested in 1992. A minimum wage set at half median male earnings, with only a half restoration of differentials, would cost 800,000 jobs, which more than offsets the progress that we have made in reducing unemployment since 1992--the 660,000 reduction that we have achieved in that time. With full restoration of differentials, 1.6 million people would lose their jobs. Incidentally, my sources are Employment Department economists. A minimum wage set at two thirds of the median male hourly rate, with half restoration of differentials, could cost 1.3 million jobs and, with full restoration, that figure could rise to more than 2 million. Those are huge numbers. People's lives and livelihoods are in question but the Labour party refuses to come clean about the level of job losses, which is unacceptable.

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In case Labour Members argue that there would not be an attempt to impose differentials, I can cite both Eric Hammond on 17 June 1991 and Bill Jordan on 10 April of that year saying that their unions would oppose any squeeze of differentials. We know that that would be the case. If hon. Members think that 1991 is too far back and that things have changed since then, one has only to refer to Denis Healey again, who made it plain that a minimum wage would become a floor on which a new tower of differentials would be built.

Labour party politicians are not prepared to say what they would like the national minimum wage to be, but others are not so reticent. We have already heard the view of the husband of the hon. Member for Peckham that it should be between £4 and £5 per hour. I believe that I am right in saying that Bill Morris of the Transport and General Workers Union today advocated that the Labour party set it at £4.15 per hour. We are told that a minimum wage set at £4 an hour--not £4.15 or up to £5 as Mr. Dromey would wish--would cost 900,000 jobs with only half restoration of differentials and 1.7 million jobs with full restoration.

Those matters are very serious, both for those in, and those out of, work. It will go against their interests if the Labour party is prepared to adopt such a policy and risk so many hundreds of thousands of people being out of work. The Opposition double the offence by not being prepared to say openly what they intend to do. Unfortunately, a previous engagement will prevent me from being here for the summing up. I apologise in advance, but I promise that I will make that absence good by reading Hansard tomorrow. When I do, I hope that I come across a statement by a Labour Member of what the national minimum wage will be. Until we have that figure and know precisely the Opposition's policy, that policy will be regarded as humbug and hypocrisy, because they will be claiming to reverse the trends of recent years, yet pursuing headlong a policy that will aggravate the problem rather than improve it.

Mr. Toby Jessel (Twickenham): Will my hon. Friend have a bet with me that, when he looks at Hansard tomorrow, he will find that no Labour Member has given a figure? I bet that no one will do it.

Sir Michael Neubert: If my hon. Friend will forgive me, I will not engage in that gamble. Like him, I suspect that I shall be disappointed, but the British people should know what the national minimum wage would be if it were introduced by a Labour Government because British jobs will be at risk from such Labour policy. 5.48 pm

Mr. David Chidgey (Eastleigh): The heart of this debate is the need for the Government to concentrate their energy on promoting employability, trying to tackle long-term unemployment and trying to stem the tide of poverty.

The evidence of poverty in Britain is stark. We can bandy arguments about all night long if we want to, quoting one report or statistic against another, but by the most widely accepted definition of poverty--those with less than half the per capita income--the numbers who fall within the poverty threshold have almost tripled since 1979. That is a fact.

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We can argue about figures that confirm or do not confirm widening social division. We can argue about whether the poorest tenth of households have suffered a 17 per cent. reduction in real disposable income, excluding housing costs, since 1979; and we can argue about whether the richest tenth's real disposable income has risen by 62 per cent.; but the real point is that a large number of families are trapped in that lowest decile, and are increasingly dependent on benefits.

Most hon. Members would agree that the overall conclusion of the Government's statistics is that the poverty gap is widening. It is important to recognise that poverty and unemployment are inextricably linked. The proportion of unemployed individuals with less than half the average income has increased in the past 16 years from about half those who are unemployed in 1979 to nearly three quarters in 1991--the latest figures that I have.

The implications--for example, the cost of family credit, which has more than doubled in the past four years from some £425 million to £1 billion--are a cause for great concern to politicians. The fact that the social security budget is now nearly £90 billion--one third of all Government expenditure--must be a cause for concern when we think about how to tackle unemployment and reduce poverty.

The Secretary of State, who is unfortunately no longer here, was right to point out recently that those who depend on benefit--some 40 per cent. of British households--do not live comfortably, courtesy of the state. Policies aimed at withdrawing entitlement without first putting in place measures that will free those who are trapped in poverty by developing skills and directing investment where it will promote employability can only deepen poverty and social divisions. The Secretary of State was right to be concerned about the spiralling cost of benefits. Increasing benefits alone cannot reduce poverty, but will increase benefit dependency, a scourge in our society, where people now find that living on benefit is an easier way to make their lives work than getting into employment and earning a wage on which they can live. Furthermore, for those on poverty wages, increasing benefits offers unscrupulous employers an opportunity to drive wages down even further.

I think that I am right to say that the Government recently claimed that the abolition of wages councils led to pay increases. I challenge that claim, because the Government's evidence was based on a small and selective sample.

A more detailed analysis shows that the wage rises that the Government quoted relate to the retail sector only, and that in the year following abolition, pay rates fell in real terms by over 7 per cent. in the clothing manufacturing industry, nearly 6 per cent. in restaurants, and over 5 per cent. in hotels. We should look more deeply into the matter. Evidence in the new earnings survey, which is based on a far larger sample, shows that wages fell in nearly all ex-wages council sectors.

There is clear evidence from advertisements in jobcentres that the abolition of the wages councils has caused a downward pressure on pay rates. A third of all vacancies in wages council sectors not covered in the surveys quoted in the statistics were on offer at rates below the previous relevant wages council rates. We must challenge the concept that abolishing the wages councils

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has led to a growth in jobs. Lower wages have not translated into a growth in jobs. The yearly net increase in full- time equivalent jobs has fallen from some 18,000 in the year before the abolition of the wages councils to only 8,000 in the following year.

The Government have ignored the warnings given at the time by both workers and employers' representatives alike that the abolition of wages councils would lead to instability in the labour market. There is clear evidence that the result has been to force down already low wages, driving more people into the poverty trap and allowing unscrupulous employers to gain advantage over employers who treat their workers reasonably.

We seem to be having an on-going national debate, both within and outside the House, on the benefits or otherwise of a statutory minimum wage. This is a good opportunity to try to clarify policy objectives and see how one can rein in the worst excesses of the labour market.

I hope that both sides of the House will enter into the spirit of a debate that attempts to find some truth rather than merely trot out dogma. There are as many expert opinions as studies on the benefits or otherwise of legislating for a floor under low wages. Ministers will be familiar with every dotted "i" and crossed "t" of at least 26 studies undertaken since 1981, which provide politicians with every opportunity to cherry-pick the conclusions that happen to suit their particular dogma.

A good example was the Treasury economic models, which were commissioned by the Government and which led them to claim that a national minimum wage would cause job losses of 2 million--provided that the national minimum wage chosen was two thirds of the median wage. As was said earlier in this debate, one can choose a national minimum wage rate and measure the amount of unemployment that it would cause. It is a question of how it is treated and of treating it sensibly.

Mr. Peter Ainsworth (Surrey, East): The hon. Gentleman appears to be in danger of falling into the old Liberal trap of straddling the fence. Why can he not give unequivocal support to the words of the leader of his party, who, in a speech last July, said:

"A national minimum wage would increase rigidities in an economy that we should be making more flexible; generate wage-push inflation; and force many onto the dole"?

Mr. Chidgey: I thank the hon. Gentleman for that intervention. I trust that he does not see me as an old Liberal, although I may be a little more middle-aged than some of my colleagues. I shall deal with his point a little later in my speech. I expected it to be asked, and I look forward to giving him an answer that will, I hope, satisfy him.

Mrs. Ann Clwyd (Cynon Valley): On a point of order, Mr. Deputy Speaker. I apologise to the hon. Member for Eastleigh (Mr. Chidgey) for interrupting his speech, but it has just come to my attention that, during Welsh questions this afternoon, the Secretary of State for Wales, referring to me when I was not present in the Chamber, made a remark that is completely untrue. I have checked it with Hansard , and he said:

"She contacted my office this morning to say which question she wanted to ask before she was ordered to withdraw it."

What protection does an hon. Member have against such a false statement? This matter will concern my constituents and my Welsh colleagues who were

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boycotting Welsh questions this afternoon. I think that the Secretary of State should come to the Chamber and retract that misleading and untrue statement.

Mr. Deputy Speaker (Sir Geoffrey Lofthouse): That is not really a point of order for the Chair. The hon. Lady will be aware that Ministers and hon. Members are responsible for their own speeches and remarks. Had the Secretary of State been informed of the point of order that the hon. Lady intended to raise, he would probably have been in a position to confirm, deny or withdraw his remarks. It is a matter for him to decide.

Mr. Chidgey: May I gather my thoughts after that point of order, and return to the issue of a national minimum wage?

I seem to recall that, in rejecting a call for a national minimum wage, the last--or should I say late?--Employment Secretary recently called for Britain to

"enhance its competitive edge by creating products which owe more to human knowledge than to human muscle, as the basis of our prosperity in an increasingly competitive world."

I could not agree more, but, at the lower end of the scale, how are we to explain to junior hairdressers, assistant hospital porters, waitresses and all those on poverty wages how they can bring added value to their tasks as part of the export drive? In the interests of social justice, it is time for a pragmatic approach that targets those on poverty wages, who are supported, all too often, by state benefits.

We need a policy of flexible minimum hourly rates which will lift the poorest out of poverty without causing inflation and unemployment. However, we also need to recognise the wider issue of improving, or at least maintaining, living standards, which depends primarily on increasing the skill levels of the work force and providing the added value vital to improve our competitiveness. A low pay commission such as the Liberal Democrats have proposed could be created to recommend a regionally varied minimum hourly rate across the whole economy, in consultation with representatives of employers, employees and the local authorities. The level of a minimum hourly rate is, of course, the key factor, and one that has, as we have seen, left Labour purists floundering. Our low pay commission would use as a yardstick the average level of the former wages council rates, uprated as appropriate. That should be the starting point from which, we know from experience, the pressure on employment and inflation can be suppressed.

I shall deal with the events of the past week or so at the Department of Employment. The Opposition are greatly concerned that the decision to scrap the Department provides little or no comfort to the unemployed, especially the long-term unemployed. At the current rate of decline, the number of long-term unemployed will, sadly, still not have fallen below a million by the year 2000. Rather than dealing with those failures of policies that are supposed to tackle long-term unemployment, the Department of Employment has been subsumed in a variety of other Departments. It is a cause for concern to hon. Members as well as to those who are suffering from long-term unemployment.

Nearly half the long-term unemployed on the training for work scheme remain unemployed some six months after leaving it. Nearly 60 per cent. of all adults leave with

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no qualification, and two thirds leave with no job. That is a measure of the problem. I know that Ministers have discussed the matter with me across the Floor before.

The Government have set a target of reducing that figure of two thirds to 50 per cent. by 1998. That compounds the failure to invest in high-quality training, to address under-skilling in industry, and, most importantly, to improve the employability of the unemployed. I am afraid that the Government are setting meagre targets for getting the low-skilled unemployed back into work. They seem to be more interested in short-term cost-cutting than reducing long-term unemployment. While they plan to cut the training budget by some £280 million over the next three years, and slash training for workplaces by 55,000--some 20 per cent. of all places--unemployment among the unqualified shows no signs of falling.

While the Government plan to cut the training budget by £280 million, unemployment costs more than £20 billion a year. It is not surprising that, in the midst of all that, our training and enterprise councils are becoming increasingly hamstrung in their efforts to achieve their objectives. Let me remind the House what those objectives are.

The central mission of the TECs is to act as employer-led bodies for economic regeneration, and that cannot be fulfilled without adequate funding to support local initiatives. To demand that TECs fund initiatives by making surpluses from the training for work programmes is fundamentally flawed. It forces down already inadequate and poor-quality training, and is forcing out business

representatives, who are becoming increasingly disillusioned by stagnant policies that stifle their imagination. Instead of slashing training budgets, the moneys should be redirected into improving training quality and targeting long-term unemployment.

I have said before that the workstart pilots promoted and introduced by the Government have shown potential for providing employers with incentives to take on the long-term unemployed. Instead of linking the schemes to investment and training to provide skills for the unqualified, we have another round of pilot schemes, with the main aim, it would appear, of seeing how much the subsidy for those schemes can be reduced.

There is clear evidence that a benefit transfer scheme that provides both employers and the long-term unemployed with the incentive to invest in skills training would have a major impact on the long-term unemployed. We have long argued the case for benefit transfer schemes to transfer the benefits of the unemployed to employers on a sliding scale for a prescribed period while they are trained to be full-time productive employees who fully justify their wages.

The workstart pilots have underlined the potential for success for a national benefit transfer programme. Sadly, we have been offered only yet another round of pilots, providing some 6,000 places. All the while, unemployment costs the country more than £20 billion a year.

There is an overwhelming case for social justice, which can be achieved by putting a floor under those on poverty wages. We must improve the quality of training if we are going to increase employability, especially for the long-term unemployed. We must start to reduce the skills

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gap between the United Kingdom and our counterparts. We must be prepared to invest in initiatives to create economic regeneration by investing in our public infrastructure, our schools, our hospitals and our public transport systems.

We will support the motion tonight, not because we endorse or share Labour's ideological basis for a minimum wage, which seems to be the redistribution of income, but because we condemn the Government's complete lack of concern about unemployment.

6.7 pm

Mr. Alan Howarth (Stratford-on-Avon): I was glad to listen to that thoughtful speech by the hon. Member for Eastleigh (Mr. Chidgey). It is a pleasure to follow him.

It poses no difficulty for me to agree to the proposition that social division leads to economic underperformance. One has only to recall the last winter of the last Labour Government in 1978-79, which is known in the folklore--and always will be--as the winter of discontent. It saw the final flowering of the policies of the now Lord Healey as Chancellor of the Exchequer--economic policies that were avowedly pursued in a class interest. As he mounted his assault on success, he even brought taxes on savings to a top rate of 93 per cent. Those efforts to govern in a class interest were hardly welcomed by the trade unions at the time. They were at war with the Government and with each other. Our society was in a war of all against all.

Life is very different and very much better in Britain in 1995. Not that we are without our social divisions--I shall come to those--but the divisions in our society are no longer remotely like they once were. There were divisions between the trade unions and the rest. The hierarchs of the CBI and TUC, to coin a phrase, are now at ease with each other and Conservative Members are looking forward to attending the TUC summer party tomorrow evening. It is a happier atmosphere. The private and public sectors are not divided in the same way. Many public services are now delivered by privatised utilities, by work forces that may be directly employed in the public sector, by private enterprise firms or by people working in the voluntary sector under contract. We have seen a blurring of the old divisions. However, perhaps the most conspicuous difference is that inflation is now under 3 per cent. and has been for the past 20 months--the best inflation performance for 30 years. It is in great contrast, if I remember correctly, with the average rate of inflation of 15 per cent. under the previous Labour Government. Inflation is the most deeply divisive economic phenomenon.

Mr. MacShane: Will the hon. Gentleman remind us what level the inflation rate reached under Mrs. Thatcher?

Mr. Howarth: We saw inflation rise again. The hon. Gentleman is quite right if the implication of his intervention is that it is at all times necessary for the Government to work to keep inflation low because inflation is such a divisive force. The inflation that we experienced in the 1970s set labour against capital, worker against worker, saver against earner and young against old. It was divisive and deeply damaging economically.

Sir Michael Neubert: This talk of years gone by brings back a memory. Although inflation went up under a

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Conservative Government, it at no time went above the average in the Labour years, when, if I remember rightly, it rose to 26.9 per cent. at its worst.

Mr. Howarth: My hon. Friend is absolutely right.

My right hon. Friend the Prime Minister has held out a vision to the country of a classless society and a politics of tolerance. We may not yet have entered that promised land but I believe that we have moved a long way. Our society is far less hierarchical and we suffer far less from intolerance and cruel taboos. So long as my party wishes to continue to pursue that destination, I shall travel happily with it.

The Labour party, far from wishing to squeeze the rich until the pips squeak, is apparently concerned to stroke those who are contented so that the pips positively squeak with pleasure. What it has to say to those who are less contented is less clear. That is an important point because there are many who, for good reasons, are less contented.

My right hon. Friend the Secretary of State for Social Security has spoken thoughtfully about the dispersion of earnings, and Mr. Will Hutton recently provided a broad description of our society as a 30: 30:40 society.

The bottom 30 per cent. of people are marginalised, limping along in and out of work and heavily dependent on benefits. Among them are far too heavily concentrated members of the ethnic minorities, women--especially single mothers--and disabled people who still suffer excessively from discrimination. I welcome my right hon. Friends' introducing legislation in an attempt to reduce that utterly unjustified discrimination.

Another 30 per cent. of people are the insecure. They may be affluent but they are at the same time apprehensive about their future. The other 40 per cent.--the upper reaches--are secure and confident operators in what is increasingly a global labour market. It is they who inherit the earth. Incidentally, I am not entirely sure that it would be appropriate for them to do so without paying some inheritance tax, but that is perhaps a debate for another occasion.

Too many of our fellow citizens live on estates that are effectively ghettos. The right hon. Member for Manchester, Gorton (Mr. Kaufman) spoke about the experience of some of his constituents, and all of us take very seriously what he had to say about the people who are trapped in joblessness and the housing benefit poverty trap, people who are living in ugly surroundings without amenities and people who are living a life of hopelessness, as the right hon. Gentleman described them.

Seventy-five per cent. of people in local authority or housing association accommodation are among the poorest 20 per cent. of our society. We have had planning policies whereby we have designed and built estates instead of distributing the less advantaged, the less confident and the less capable more extensively. We thus have offensive juxtapositions of wealth and poverty, which may have something to do with the events on the Marsh Farm estate in Luton last week. Certainly there is a brittleness and volatility on those estates, and it behoves us to think carefully to find effective practical policies to improve conditions there.

People living in poverty on such estates experience a far higher incidence of crime, including mugging. Let us be very clear that mugging is a phenomenon associated with poverty and joblessness. If it has also to do with race it is because far too high a proportion of members of our

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ethnic minorities are poor and without work. I am sure that the Commissioner of Police of the Metropolis is well aware of that. Such estates are especially prone to difficulties with drugs. We need at some point, and perhaps before long, to nerve ourselves to think seriously and constructively about whether it is right to criminalise the use of certain drugs at least and thereby institutionalise alienation from the mainstream of our society. Too many of our young people are not only without jobs but are disaffected from the political process altogether. One of the most alarming statistics from the most recent general election--it is not a proven statistic but is suggested on a reasonable authority--was that only some 40 per cent. of 18 to 24-year-olds voted. If that was so, it expressed a disaffection from the mainstream of our national life which bodes ill for us in many respects, not least in terms of our parliamentary democracy.

The family is fractured and, while family patterns have changed throughout our social history, we should be especially concerned about the number of children living in poverty and the increasing numbers of children taken into care and excluded from school. We are not as yet one nation. Whether hon. Members are one nation Conservatives or one nation socialists--we need not detain ourselves too long today with the definition of those respective political species, or whatever may be the distinction between them--as we observe the social pathology that I have sketched, we can all agree that what is needed is a politics of healing; a politics to allay the insecurities and aggression in our society; a politics to reduce and bring to an end social exclusion; and a politics that gives priority to those who are least fortunate, the chronically unemployed, the homeless and the beggars on our streets who are a shame and a reproach to us.

Mr. David Nicholson: Does my hon. Friend agree that the way in which most of the national press treated the political issues raised by the recent leadership contest in the Conservative party shows how distant most of the scribblers are from the concerns that he is raising? Is not that a problem in itself?

Mr. Howarth: I agree. The debate was trivialised, and it is regrettable that it should have been so.

The British public are not out and out egalitarians but they have a strongly felt sense of fairness. They believe that it is the task of Government to hold our society together. They reject the politics of class conflict and the politics of casualisation. I believe that they are deeply uneasy about poverty. Average incomes have indeed risen substantially, and that is a great credit to my right hon. Friends during our long period in Government, but the people at the lower end of the income scale--we can argue whether the figure is 10 per cent. 20 per cent or even 30 per cent.-- have not shared in the overall increase in prosperity.

We should consider carefully the condition of 16 and 17-year-olds not eligible for benefit and think carefully about whether it is right to pay a lower rate of income support and jobseeker's allowance to people under 25. I do not believe that my right hon. Friends have been justified in reducing benefit in the transition from

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invalidity benefit to incapacity benefit, and I am concerned about the reductions in benefit for the unemployed which will be introduced with the jobseeker's allowance.

We also need to consider carefully the condition of people aged over 55. There appears to be a watershed at that age. Beyond the age of 55, all too many of our fellow countrymen find themselves excluded, without opportunities in a range of fields.

My right hon. Friends should take very seriously the outrage that is felt at the avaricious insensitivity of company directors who enjoy the benefit of share options, whose remuneration committees award one another immense pay increases, even as large numbers of their staff are being sacked or placed on zero-hours contracts. The great majority of our fellow countrymen find that deeply offensive. My right hon. Friend the Prime Minister has indeed condemned it, but I hope that all my right hon. Friends will condemn that style of management and that management ethic. I strongly hope that the Greenbury committee will produce a tough report on all of that, because it should realise that the reputation of private enterprise is at stake.

The British people may grumble about their council tax, but they raise a quiet cheer for the North Yorkshire dinner ladies. My hon. Friend the Member for Rutland and Melton (Mr. Duncan) suggested, perhaps in a sedentary intervention earlier, that widening inequality did not matter. With great respect to him--I hope that he has an opportunity to contribute to the debate later, when he will no doubt make his case--I believe that it does matter.

Excessive inequality affronts everyone's sense of justice, and it is damaging precisely because it does demoralise. People who feel themselves to be the victims of unfairness are less willing, and feel less able, to make their contribution to society. The evil of that is that it transmits itself from generation to generation. It directly affects our economic efficiency and performance.

Mr. Duncan: Will my hon. Friend be any less able and any less willing to serve as a Member of Parliament because the First Secretary of State is so wealthy?

Mr. Howarth: As a Member of Parliament, I am paid £33,000 a year. I am an extremely fortunate person and a very well remunerated member of our society. There is no comparison between my position and the position of those who live in poverty, and we should worry about that.

My hon. Friend is under an illusion if he supposes that widening economic inequality is a price that must be paid for economic progress. We can find plenty of academic evidence that will support me in what I have said. If one considers the performance of the eight south-east Asian economies that grew most rapidly from the 1960s, one finds that rapid growth was accompanied by a narrowing of income differentials.

During the summer, my right hon. and hon. Friends will give much thought to the question whether there should be tax cuts this autumn. If the thought is--I believe that it is only part of what may be in their minds--that cutting taxes, whether on income or capital, would improve incentives, we would deceive ourselves.

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It would not be rational, would it, for people to work harder because they found that they were able to take home more income for the same amount of work? I suspect that, where incentives are concerned, the reverse applies--that modest tax increases may provide an incentive, as people would work a little harder and a little longer to make up the shortfall in their income. At all events, I do not believe that we can associate tax cuts with improved economic performance, or that there would be any objective case in terms of the condition of the economy more generally.

Mr. Charles Hendry (High Peak): Can my hon. Friend find a single example--anywhere, ever--of people working harder as a result of an increase in tax rates?

Mr. Howarth: If one tries to assess the way in which people might respond rationally, they are at least as likely to work harder to make up their income if they experience a small tax increase as they are if they experience a modest tax reduction. I would stick to that contention, but I will say--and I do not think that my hon. Friend would reasonably disagree with this at least--that, if we reduce our tax revenues, we shall thereby have less resources available to act to ease the poverty trap and so enable more of our people to do what they wish to do, which is to lift themselves out of poverty, become less dependent on benefits and contribute more to the economy. We shall have less resources for education and we shall have less resources for the health of the nation. All of those are necessary investments in the interests of improving our economic efficiency.

Mr. Nirj Joseph Deva (Brentford and Isleworth): Is my hon. Friend aware of something called the Laffer curve--the S curve--whereby it has been demonstrated repeatedly that, by cutting taxes, the total tax revenue collected by the state Government or national Government has increased, thereby making available more resources for those people who are in need?

Mr. Howarth: I do not know how closely my hon. Friend has studied the history of the Reagan Administration, but he may find that that turned out to be a cruel disappointment. The Laffer curve did not quite curve in the direction that the Administration believed that it would.

Relative poverty has absolute effects. Our task is at least to check the movement towards widening inequality, and preferably to reverse it. We need to underpin incomes. Above all, we need policies--macro-economic as well as micro-economic policies--that are well designed to generate jobs because, if there is a way to solve the crisis of the welfare state, it is above all to get more people into properly paid, sustainable work. I do not underestimate the difficulty of achieving that, but that must be our cardinal object, and it is very much the strategy that my right hon. Friends seek to implement.

My right hon. Friends pin a good deal of faith on in-work benefits. Family credit is now being paid to about 600,000 low-paid workers. My right hon. Friend the Secretary of State has just announced that he is introducing an earnings top-up benefit. He is wise to begin by introducing that on a pilot basis. If he proves to be right that that new in-work benefit for people without children will enable them to, as he puts it, climb the first rungs of the ladder of employment, we shall all be delighted. I appreciate the arguments for what he sets out

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