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7.51 pm
Mr. Tim Smith (Beaconsfield): The hon. Member for Kingswood (Mr. Berry) conveniently overlooked the fact that any possible beneficial effect from extra resources for education and training from a so-called windfall tax would be outweighed by the costs that Labour would impose on employers--the minimum wage and the social chapter--which would destroy jobs. He also conveniently overlooked the fact that unemployment is now falling faster than at any time since the second world war when records began.
As a result of the Government's economic policies, unemployment is below 2 million and falling dramatically. That is having an effect on the social
security budget, but the main reason for the huge increase in the budget in the past 18 years has nothing to do with the level of unemployment. It is largely due to demographic changes and a huge increase in the number of pensioners. People are, thankfully, living longer, and the cost of retirement pensions, which are contributory benefits, has risen substantially. The net result is that we are today being asked to approve a social security budget of £93 billion, or some 13 per cent. of gross national product.
My hon. Friend the Member for Finchley (Mr. Booth) told us what the social security budget was in 1948, when the present arrangements were introduced, and at various dates since. Until my right hon. Friend the Secretary of State for Social Security was appointed in 1992, the figures were rising. It is difficult to stop that happening, but we must try, because we cannot expect the working population to bear that huge cost. I pay tribute to my right hon. Friend the Secretary of State because he has found ways at the margin to reduce social security spending which, by 2000, will be worth some £6 billion and, in the long term, some £15 billion. All those changes have been opposed by Labour Members.
The Leader of the Opposition said recently that he wants to spend more money on education--few hon. Members would not like more resources devoted to our schools. He said that he would release money for education by cutting the welfare budget, because the shadow Chancellor has made it clear that there would be no increase in public spending if we were unfortunate enough ever to have a Labour Government. The Leader of the Opposition did not specify what he would reduce to increase spending on education, but Labour Members today have said the reductions in the orders are not acceptable and should be resisted, even though the reductions have already been built into the budget and will be implemented after the general election. That is not good enough, and people are entitled to ask where the money will come from.
The Government's record is outstanding, especially on pensioners, as my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) mentioned. Of course there are exceptions, but most pensioners are much better off today. Nearly 90 per cent. of pensioners retiring today have some other form of income apart from the basic state pension. Many have an occupational pension or an earnings-related, pension and some have investment income. The performance of those pensions in the past 18 years has transformed the position of pensioners and we are in a far stronger position than any other member of the European Union, especially in relation to any contingent liability.
My right hon. Friend the Member for Sutton Coldfield was right to say that--although we remain committed to the basic state pension, which is important--we should ask people to provide their second pension themselves. That is the way to ensure that we do not have massive public expenditure commitments in the future.
The establishment of the Benefits Agency as an executive agency in the Department of Social Security is another reform that has been beneficial. The hon. Member for Rochdale (Ms Lynne) was critical of the Benefits Agency, but I recall the situation some 10 or 12 years ago when customer service was not a priority for staff of
social security offices. Today, the staff serve their customers well, they care about the recipients of benefits, and the service has improved. The performance targets for quality of service have sharpened up their approach. Of course there is always room for improvement, but the reform so far is welcome.
My right hon. Friend the Member for Sutton Coldfield mentioned the establishment of personal pensions. He was a little modest, because he introduced that reform, but I remember how controversial and radical that proposal was, and how much opposition to it came from the Labour party and others. Today, the situation is transformed and personal pensions are extremely popular, notwithstanding the misselling about which we have heard. Millions of people have pensions and they have a good idea of what their fund is worth. The funds are portable and people can work out what they will receive in the future.
We have made many radical changes and we are starting to live within our means in terms of the social security budget. I welcome the fact that more effort has been put into ensuring that benefits are paid only to those who are entitled to them. The National Audit Office recently published a report that qualified the national insurance fund account on that score. None the less, the figures are pretty good now. For example, unemployment benefit costs us £1,100 million a year and the National Audit Office found that the total level of mistakes made by the Department was less than 3 per cent. There is always room for improvement. Mistakes should be eliminated and fraud tackled. The record in that respect, too, is much better than it used to be.
The other side of the equation is contributions and the Contributions Agency. Just as it was sensible to have a Benefits Agency with the task of ensuring that benefits are paid efficiently to those entitled to them, so it is sensible to have, within the Department of Social Security, a separate agency with the job of collecting contributions. It is just as important as the collection of income tax by the Inland Revenue.
One matter that I wish to draw to the attention of my hon. Friend the Minister has concerned me for some time. It relates to schemes designed to avoid the payment of national insurance contributions. It seems astonishing that it is not possible to legislate, in the same way as we do for income tax, so that if someone is paid not in cash but in kind, he or she will still be subject to national insurance contributions. If someone is given by his or her employer as part of a remuneration package a benefit in kind, he or she is taxed on it. Nobody disputes the equity of that; it must be the sensible approach. It is all-encompassing and it is how income tax works.
However, when it comes to national insurance contributions, it is rather different. In an article in a magazine called the London Accountant dated December 1996 to January 1997, the author explains how to make a 20 per cent. tax saving through partly paying employees in supermarket vouchers. Supermarket vouchers are pretty close to cash. If somebody is given a voucher exchangeable at Tesco, Sainsbury or Asda, it resembles payment in cash. The article says:
However, according to the author of the article, if an employer decides to pay his employees in supermarket vouchers and those are not part of the remuneration--an employer can simply say that they are not--the employer can simply reduce a package of, for example, £18,000 per annum to £17,000 with the addition of £1,000 in vouchers. He says that that is how the scheme works. I do not know whether what the author says is true, but a two-page article is devoted to it--[Interruption.] I am grateful that my hon. Friend the Minister is offering to look at it.
Instead of tackling each avoidance measure as it arises, the time has come to introduce a measure whereby it will not matter what scheme is used. Given that supermarket vouchers will be taxed as income, why could not the Department of Social Security introduce a similar measure whereby, no matter what the form of so-called "remuneration" was--supermarket vouchers or any other clever idea--it would be subject to national insurance contributions? It is time to put an end to those schemes. I have raised this general matter on a number of occasions and am concerned that we still have not tackled it.
Mrs. Anne Campbell (Cambridge):
I am pleased that the debate about lone parents has now moved on to more positive ground--certainly more positive than that delineated by the Secretary of State some years ago, when he made a disgraceful speech to the Conservative party conference about his "little list". He emphasised the number of single women who allegedly had babies in order to get council flats and houses. That was a disgraceful attack.
"There does remain the possibility of achieving an effective 20 per cent. tax saving . . . by converting a proportion of an employee's cash salary entitlement into an entitlement to supermarket vouchers."
19 Feb 1997 : Column 991
In some areas, the Department has tightened up on that, and the author of the article refers to some of those. He says:
"Certain benefits, however, are liable to NIC as a result of special legislation."
He lists those as
"vouchers . . . denominated in, and exchangeable for, cash (eg. premium bonds);
So if employees are paid in those, employer and employees must pay national insurance contributions.
commodities for which there is an organised market (eg. gold);
and
certain financial instruments (eg. gilts and unit trusts)."
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