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Mr. Alan Simpson (Nottingham, South): I congratulate my hon. Friends the Members for Islington, North(Mr. Corbyn) and for Leyton (Mr. Cohen) on their speeches. I suspect that one thing we have in common is that we are all children of the welfare state--but the welfare state with which I grew up is not the welfare state with which I am presented today. It is in that context that I welcome the fundamental review being undertaken by my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith), the shadow Secretary of State.I hope that my hon. Friend will develop at least two of the points raised by the hon. Member for Colchester, North (Mr. Jenkin). I shall deal first with the point with which I disagreed. I shall then turn to the one with which I agreed.
The hon. Member for Colchester, North was right to point out that, when Beveridge wrote about the welfare state, he assumed the existence of a safety net that was not a replacement for employment but an adjunct to full employment. That safety net, however, was designed to ease the transition from benefits to work. Today, the welfare state has been distorted. For many, it has become a permanent alternative to employment.
It is wrong to suggest that the concept of the welfare state is necessarily an undermining and destructive influence on the wealth-creating capacity of a nation. It is clear from the Government's economic record that nothing has destroyed our manufacturing base as much as their economic policies: Hitler's six years of sustained attack and bombardment failed to do the same damage to Britain's manufacturing and wealth-creating base.
The sad double whammy is that the Government have also changed a welfare state based on the presumption of universality of entitlement into one obsessed with means-testing. That obsession is a degrading and demeaning aspect of the welfare state with which the country is now saddled.
I still live in the middle of an inner-city estate which,I feel, carries many of the burdens of the Government's approach, and where people must bear the heaviest
marginal tax rates in the land. Those who seek to escape the benefits trap find that the marginal rate that they must pay on every £1 they earn is at least 97p. That is the combination of the payment of basic rate tax and the clawback of benefits--the loss of housing benefit and income support.
For some, the trap is even worse. If those who are entitled to passported benefits such as free school meals or school bus passes lose that entitlement, they may lose up to £1.17 for every £1 that they earn. That will hardly entice people to move from dependency on benefits to work. It is a huge millstone, which has turned the poverty trap into a poverty pit. We are told, however, that the only way out of this is more means-testing. That is the essence of all the regulatory changes that the Government have introduced. They aim to tighten the network of means-tested benefits and to reduce the availability of universal entitlements.
I hope that, in its fundamental review, the Labour party will take on board a number of different considerations. The first is in relation to pensions. We are told that the number of pensioners is growing and that the restoration both of the state pension's value--linking it to increases in earnings or prices, whichever is the greater--and of the state earnings-related pension scheme is unaffordable and unsustainable. If one projects the Government Actuary's figures last year for the next 50 years, one finds that the cost of the restoration of the basic pension would amount to only 0.4 per cent. of gross domestic product. The restoration of SERPS over that period would amount to a further 0.8 per cent. of GDP. The total cost over the whole period would amount to less than the cost of the recession borne by this country in the past three years. It is simply not true that restoring decent pensions would place an unaffordable burden on this society.
We are told, too, that the only way of doing this is if we somehow move to a personal insurance base for pensions. Again, it is worth considering the Government's figures. The most efficient way of delivering a pension is the state pension. The administrative costs involved in the state pension scheme amount to 1.2 per cent. of total pensions--60p per pension recipient per week. Any means-tested benefit, however, has an administrative cost of at least 10.2 per cent.--the cost of income support administration--amounting to £5.45 a week per recipient. My hon. Friend the Member for Islington, South and Finsbury pointed out that the average administrative cost of private pension schemes is now 25 per cent. of contributions. The shift away from a state, comprehensive pension scheme to a series of private personal insurance-based schemes would mean paying considerably more to receive considerably less.
I say that just as a piece of friendly advice to my colleagues on the Opposition Front Bench. If we believe that the answer is to be found in Singapore's stakeholder economy, it is worth consulting the International Monetary Fund report at the end of last year. It points out that the Singapore scheme reaches only 67 per cent. of the work force and that the level of benefits, which incidentally are not index-linked, is extremely meagre.
We will not find a solution to the United Kingdom's problems in relation to poverty or the poverty gap in Singapore. We can, though, find real answers to the problems in many of the conceptual models originally set out by Beveridge. One of the most profound and
important of those is enshrined in the social insurance pay-as-you-go approach. The importance lies in the fact that it embodies the principle of acts of solidarity from one generation to another. The presumption is that people in work pay social insurance into a common pot that meets the needs of today's pensioners. It explains why pensioners' rights organisations, with which I have worked in my constituency and nationally, are increasingly voicing arguments in favour of a policy that will restore full employment and deliver universal pre-school education facilities.
Why do those organisations support such a policy? They say that it is simple. Unless we have a properly employed adult population, who will earn wages to pay social insurance into the common pot, out of which we must draw our pensions? If we do not invest in our children's education, who will have the earning, industrial, design or technology skills that will deliver jobs and earnings that will again allow people to pay into the pot? If we do not invest in future generations, why should we expect them to accept a responsibility to make provision for us? It is very simple. The pay-as-you-go principle restores the link between the welfare system and commitments to full employment.
It is enormously important to me that the pay-as-you-go principle allows us to return to the notion that benefits can be provided on the basis of universal entitlement, which are then linked to progressive taxation in ways that also offer a more equitable method of paying for the provision. Pensions are not cheap. About £29 billion is needed to meet the current cost of state pensions. It costs another £38 billion to make additional means-tested provision for pensioners. We must find ways to remove the bureaucracy associated with those undeclared costs to make it possible to deliver a full entitlement to stakeholding in a less cumbersome and costly way.
If one is a pensioner, stakeholding means having the ability to pay one's own eating, heating and housing bills. If one is unemployed, it means having a job through which one pays taxation and into the social insurance fund. Britain pays one of the lowest rates of employer-based contributions in the whole of western Europe. In the United Kingdom, employers pay 3.6 per cent. of earnings into the social insurance fund. In France the figure is 8 per cent., and in Germany it is 9.6 per cent.In cash terms, out of every £100 an employer in the UK pays £10 in social insurance. In Germany an employer would pay £33; in France, £40; and in Italy and Sweden, £50.
Mr. Keith Bradley (Manchester, Withington):
As always, the uprating measures have given us the opportunity for a wide-ranging debate, and this year has
Last year's debate was dominated by proposals for the habitual residence test. I do not intend to refer to that; suffice it to say that the latest available figures show that in December 1995 more British people failed the test than either European nationals or people outside Europe.I would be grateful for the Minister's comments on how the test is working in that respect.
I especially commend the speech of my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth), in which he raised points about incapacity benefit, particularly the introduction of the medical test. I should like to add to questions on the privatisation of the medical service queries about the application of the test for mental illness. There seems to be great evidence of inconsistency in the test across the country. I would be grateful for the Minister's comment. Although the new medical test for incapacity benefit is meant to focus the benefit more precisely, we should always remember, having passed the measure, that the amount of benefit one receives is less than one received on invalidity benefit.
The planned expenditure on social security benefits for 1996-97 will be £90 billion, which includes almost£3 billion to finance increased benefit rates. As the Secretary of State said, that is £600 million higher than he expected because the rate of inflation was higher than he expected--or perhaps hoped.
Although obviously we welcome the fact that many benefits have been increased by the full rate of 3.9 per cent., I must stress the fact that the income of the bottom 10 per cent. of people still fell by 18 per cent. between 1979 and 1993, although average income rose by 37 per cent., and the income of the top 10 per cent. rose by a staggering 61 per cent. People on benefit have clearly suffered from the increased inequalities that have arisen over the years of Tory Government. It should also be pointed out that, yet again, many elements in benefit calculations have not been uprated. Those include capital limits and earnings disregards for means-tested benefits.
At Question Time today, my hon. Friend the Member for Croydon, North-West (Mr. Wicks) mentioned cold weather payments. I remind the House that in June 1991 the right hon. Member for Chelsea (Sir N. Scott) told the House in a written answer:
That was supposed to enable people to know whether they would be eligible for the cold weather payments. But will the Minister comment on the way in which forecasts, rather than actual weather conditions, have been used,in a way that denies many people benefit?
The social fund maternity grant has been frozen again, at £100, and the limit governing recovery of benefits from compensation payments has again been frozen at the 1990 level of £2,500. In the debate on last year's uprating order, I asked the Secretary of State why that item had been
excluded. I did not receive an answer last year, but now I ask the question again, and I hope that I shall receive an answer this year. A bone of contention for many people is the fact that, as benefits have risen, the clawback when compensation is paid has become even harsher, because the limit has not been increased. Will the Minister explain why that relationship has not been restored?
Before considering further key elements in the Social Security Benefits Up-rating Order, I shall touch on two of the other instruments before us. The first is the draft Guaranteed Minimum Pensions Increase Order.In last year's debate, I suggested that 1995 would be the last year in which such an order would come before us, but I was wrong because the Pensions Act 1995 does not come into force until 1997.
I did not receive an answer to the question that I asked then either, so I shall ask it again: under the new pension arrangements, will there be a pension guarantee similar to that provided by the Guaranteed Minimum Pensions Increase Order? I ask a more specific question too: how many people who are currently protected by the pensions guarantee will not be so protected under the new arrangements?
My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) asked about pension splitting on divorce. I too press that question, and I ask the Minister to tell us tonight whether the Government support pension splitting, and what timetable they would like to introduce to ensure that its benefits come through to the country as fast as possible.
The amendments to the child support regulations increase the minimum amount of child support payable by the liable parent from £2.40 a week to £4.80 a week. We accept the principle that the liable parent, often the father, should make a contribution, but recent changes to the child support formula have limited the liability of absent parents not on benefit, whereas the doubling of the sum payable by those on benefit hits those on the lowest level of subsistence, who are probably the fathers least able to pay.
The fact that the increase will be paid largely for the benefit of the Treasury rather than paid to the parent with care, or more specifically for the benefit of the child, is important. The extra payment will be deducted pound for pound from the income of a lone parent on benefit.I therefore take the opportunity to urge the Government yet again to consider a child maintenance disregard, so that children really benefit from any additional payment to the parent with care.
Three main areas of concern in the uprating order have been highlighted in speeches tonight: lone parents, housing benefit changes and fraud. First, on lone-parent benefit, the Secretary of State claims that he is concerned neither to penalise nor to promote lone parenthood and, to this end, he proposes to freeze one-parent benefit and lone-parent premium. He has further signalled his intention to narrow the gap between the benefitsfor lone parents and those for couples. However,one-parent benefit and lone-parent premium together cost £600 million a year--a small fraction of the £9.4 billion spent on benefits generally for lone parents. It has been clearly pointed out that freezing the benefits will produce tiny savings of no real benefit to the Treasury. Although the weekly gain from the benefits for lone parents may appear small, such sums are very important to people with
low incomes. Although no direct cut is to be made this year, lone parents will be worse off as the value of the benefit will be eroded in real terms because it has been frozen.
We heard tonight about the research evidence that outlines the extra costs of lone parenthood. In particular, the research published by the Joseph Rowntree Foundation in December 1995 showed that one-parent families face substantially higher costs in relative terms than two-parent families. The research concluded that both the lone-parent premium and the one-parent benefit should be retained.
In contrast, there is no evidence to suggest that benefits for lone parents are so generous that they more than meet the extra costs of lone parenthood, thereby leaving lone parents materially better off than couples with children. Crucially, one-parent benefit--because it is not means-tested--helps lone parents out of the poverty trap and into work. To freeze the benefit appears to run counter to the Government's stated desire to help lone parents back to work.
The Child Poverty Action Group has pointed out that the risk of poverty for the children of lone parents is greater than the risk for children with two parents. Some 78 per cent. of children of lone-parent families are living on or below income support levels in 1992, compared with 18 per cent. of two-parent families. It is hard to see how reducing lone-parent benefits will do anything other than increase child poverty. I urge the Government to reconsider the proposal.
Clearly, we welcome measures that help lone parents back to work, and obviously we welcome the extension of the child care disregard. But it must be pointed out that it is a disregard, and not a payment, that has been extended from £40 to £60 a week. The amount that a person receives will depend on the benefits to which he or she is entitled, so in many cases the amount he or she receives will be substantially less than the £60 disregard. It must be pointed out that those parents who are already fully in receipt of benefits such as family credit will gain nothing at all from the increase in the disregard because there are no benefits to offset against that disregard.
Secondly, it is clear from the debate that our concerns fall in two particular areas: the changes to housing benefit administration and the changes to the eligibility for housing benefit for people under the age of 25. First,on administration, we heard that housing benefit will in future be paid in arrears rather than in advance, with the aim of reducing the incidence of overpayment. However, many housing associations and organisations such as the National Federation of Housing Associations have expressed grave concern about the proposals. Despite the Government's argument that such a move would be to the advantage of claimants, the opposite appears to be the case. Given that most landlords require at the start of a tenancy both a deposit and a payment of rent, the move is likely to create considerable difficulties for those on benefit or low incomes. There are strong arguments for housing benefit to be paid in advance, therefore, although most other benefits are paid in arrears.
Added to that change will be a proposed reduction in the preconditions for eviction from 13 weeks' to eight weeks' rent arrears and shortfalls in rent caused by the reductions in housing benefit following the January 1996 changes. Clearly, the implications of the Government's
changes have not been fully thought through. They will cause considerable problems for people trying to take up their first tenancies.
Secondly, on the policy that housing benefit for single people under 25 should be restricted to the average cost of local shared accommodation, the Government clearly believe that there is some difference between 24-year-olds and 25-year-olds. The under-25s are already discriminated against in that they are entitled to lower amounts of income support and housing benefit. That discrimination will shortly be reinforced when young people who have paid contributions will none the less receive lower benefits through contributory benefit under the jobseeker's allowance.
The effects of the proposed measures will add to the discrimination. Furthermore, because their income is lower, it will be more difficult for young people to top up their housing benefit from other sources. That situation will be further exacerbated by the increase--yet again--in the non-dependant deductions for housing benefit. Recent evidence submitted by the Child Poverty Action Group to the Social Security Advisory Committee shows that nearly half those affected are aged over 60 and about five out of six non-dependants were adult children of claimants.
The emphasis on non-dependant deductions is worrying, given the possible interrelationship with the measures to reduce housing benefit for the under-25s. Clearly, the consequences will be increased homelessness and vulnerability for young people, who will have to seek inadequate and inappropriate accommodation.
On the third issue, fraud, the Secretary of State says:
No one would argue with that, but does that imply that the savings are to be ploughed back into improving benefit levels? There has been no sign of that to date.
Similarly, how much money is going to be saved though anti-fraud measures? My hon. Friend the Member for Islington, South and Finsbury highlighted the apparent discrepancy between the uprating statement and the Red Book--either it is an annual amount of £2.5 billion,or £2.5 billion spread over three years. I have written to the Secretary of State asking for clarification, but I have not received a reply to date. Perhaps the Minister will be able to tell us clearly tonight how much he expects to save on fraud in the next three years.
It is also important to highlight the take-up of benefits. It is estimated that between £1.5 billion and £2.3 billion in means-tested benefits alone were not claimed between 1992 and 1994.
In respect of the anti-fraud measures that we welcome, the proposal to increase home visits to 1 million a year is interesting. Is it not ironic that they were originally reduced and even abandoned in parts of the country because they were too costly? When they take place,at the same time as the investigations into fraud, there could be investigations to ensure that the claimant is receiving all the benefits to which he or she is entitled and that those are promptly and accurately assessed.
We have had a wide-ranging debate on the facts of the changes. We have seen that, although many vulnerable groups may have been protected through the uprating
statement because benefits have been uprated in line with inflation, no real measures have been taken to modernise the benefit system and to strengthen work incentives.
Key vulnerable groups, particularly lone parents and young people under 25, have been significantly further disadvantaged by the proposals in the uprating statement. Labour Members believe that the welcome measures which may help lone parents back to work, which I have supported, will be significantly outweighed by the measures to devalue the lone-parent premium and the one-parent benefit and by the significant cuts in housing benefit to people under 25.
Overall, there is absolutely nothing in the uprating system to suggest that the Government wish to reverse the damaging trend of increased poverty and inequality.The facts and figures in relation to that trend are overwhelming. One in three children in the United Kingdom now live in poverty, and nothing that the Secretary of State has announced tonight will alleviate that situation or truly take people out of poverty traps and unemployment traps and ensure that there is a genuine attempt to distribute resources to those most in need of them.
"I propose to assure eligible people that if very cold weather arrives, they can turn up their heating. The Meteorological Office can now supply daily a forecast for each of the weather stations which we use which will indicate, with sufficient accuracy,the likely average temperature over the next seven days."--[Official Report, 14 June 1991; Vol. 192, c. 697.]
"to be able to help those in need we have to stop fraud".
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