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Mr. Christopher Leslie (Shipley): Will the hon. Gentleman give way?

Mr. Duncan Smith: In a minute.

The Chancellor would not want anybody to get the wrong impression, leading to a wrong result in the media the following day. The words were carefully crafted.

If the Government amendment is defeated and the Lords amendment is sustained, the Government will have serious thinking to do about the contributory principle. The Minister knows that, in any case, there is a serious debate that must be engaged in, because, with the moving of the Contributions Agency across to the Treasury, we are already concerned with the contributory principle and what will happen to it. It is perhaps high time that that debate was brought more into the open. I had hoped that that would happen with the pensions reforms, but I recognise that that is a matter for another day.

If the Government allowed the Lords amendment to be made, there would be plenty of time for us to have a proper, rational and reasonable debate that could assist them to find ways in which to resolve the matter. When the Chancellor makes a statement as powerful as the one that he makes on Budget day, he chooses his words carefully and knows full well the effect that they will have, and there is no way in which the House can let him slide away from an obligation that the general public believe him to have committed himself to: they expect to be better off each week, beyond the changes to the employer contributions, and that expectation was deliberately raised by the Government. The Chancellor must answer for that.

The Government should explain tonight why they persisted in allowing that misleading statement to run in the media without correction for the first, most crucial, 24 hours.

Mr. Quentin Davies (Grantham and Stamford): The Government have still not given the country an answer on what should be the future role of national insurance and whether they intend to make it part of the tax system. Elements of the Government's proposals, such as the decoupling of benefits from employer contributions and the merger of the Inland Revenue with the Contributions Agency, certainly tend in that direction. Will national

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insurance be treated as tax, or shall we maintain the contributory principle in our welfare system? The Government remain undecided after a year.

7.15 pm

Even more important than those issues of substance, however, is the great issue of how the Government mean to treat with the British people. Do they intend to be straight with the British people? Will Ministers state the facts as they are, or will they prevaricate, try to deceive by sleight of hand and imply something that they know not to be the reality? Will they try to bury major items of legislation in an inappropriate Bill, on which we have only a few hours for discussion?

Those are crucial issues concerning Parliament's role in legislation and the Government's obligation to be straight with the electorate. Even if we are overridden on the substance of this debate by the Government's large majority in the House, those issues will remain, demanding an answer from the Government.

Before I discuss the Chancellor's unedifying behaviour in this matter, let me say that I do not think that the Minister helped the Government's credibility by the way in which he dealt with some of the specific issues raised by the Lords amendment. If I heard him correctly, he said that implementing, as the Conservative party wants to do, the proposal that the Chancellor appears to have made in his Budget speech to eliminate employee class I national insurance contributions below the income tax threshold would mean that employees earning less than that amount would lose their benefit entitlements.

That is a terrible misrepresentation, because the fact is that the Chancellor said:

That proposal specifically eliminates the danger to which the Minister attached such importance tonight. He cannot possibly rubbish a proposal that includes the protection that he says is lacking. That is no way in which to deal with important matters.

The Minister then had the nerve to say that the changes in national insurance contributions introduced in the Budget would not damage benefits for employees. He specifically said 10 minutes ago that the changes would not damage the position of those who are opted out from the state earnings-related pension scheme.

I am particularly amazed that the Minister had the effrontery to say such a thing tonight, because when he and I debated this matter recently in a Delegated Legislation Committee, I made it absolutely plain--he could not deny the fact--that, although the new arrangements for SERPS rebates compensate those who have contracted out into personal pensions, they do not compensate those who have contracted out into salary-related occupational pension schemes, and that the SERPS rebate for money purchase schemes is actually being reduced.

Mr. Letwin: My hon. Friend is making this important point with great force. Does he agree that it was remarkable that the Minister did not refer to the distinction between money-related schemes and money

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purchase schemes? One would have thought, given the previous exchange, that he would at least try to claim that the provision affected the money-related scheme. Is it not now clear that he has admitted the very point that my hon. Friend made earlier?

Mr. Davies: Indeed. We shall have to read Hansard very carefully. One must count one's spoons carefully with this Government. When we read this debate in Hansard, we shall see that the Minister had the nerve to say that the position of those who contracted out from SERPS was being protected. He knows that the position of a substantial number of employees who contracted out into salary-related occupational pension schemes is not being protected. Far from being protected, the position of those in money purchase schemes will be worse and they will get less by way of a SERPS rebate.

The Minister's speech did not meet the most elementary demand for clarity and straightforwardness which we expect of a Minister of the British Government. A Minister cannot come to the Dispatch Box to deal with this matter and leave out two thirds of the picture.

Mr. Leslie rose--

Mr. Letwin rose--

Mr. Davies: I shall give way first to my hon. Friend and then, of course, I shall give way to the hon. Member for Shipley (Mr. Leslie).

Mr. Letwin: Will my hon. Friend focus on an important corollary to this matter? Does he agree that the issue might become even more important with the compulsion on stakeholder pensions, especially if they turn out to be salary related? Does he agree that that creates an extremely interesting tension between the Minister's utterances tonight and in a previous encounter, and what he seems to propose for occupational pensions?

Mr. Davies: My hon. Friend puts his finger on an extremely sensitive and interesting point. That is another area of governance of this country where the Labour Government, after a year in office, simply cannot make up their mind what to do about compulsion in relation to stakeholder pensions. They have been discussing the matter for months and have still reached no conclusions. Here again, we must watch carefully what they say because there will be all kinds of slippery talk and attempts to deceive, while providing for a future argument that no formal lie was stated. We must watch for every trick in the book on this important matter.

Mr. Leslie: The hon. Gentleman mentioned two thirds of the picture. Can he clarify--I know that he wants to be responsible--whether the Opposition amendments made in the other place would leave a hole in the Exchequer finances of £1.5 billion from the financial year that starts in April 1999? How does the Conservative party propose to fill that hole? Would they add it to the national debt, raise additional taxes, or cut public services?

Mr. Davies: Had the hon. Gentleman been following the proceedings of the Treasury Select Committee--no

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doubt he has not had time to do so; he cannot be blamed for being unable to follow the proceedings of every Select Committee--he would know two things. First, in dealing with the Budget, I made a range of proposals and criticisms, so one would have to explain across the range where one would have made different decisions on both the expenditure and revenue sides.

Secondly, when the Chancellor appeared before the Treasury Select Committee, I put to him the specific point that the hon. Gentleman correctly raised because I thought that it was possible to read the Chancellor's words in Hansard and believe that they carried the meaning ordinarily attached to them in the English language. Thus, when he said that further measures would be introduced to eliminate employee national insurance contributions of up to £81 a week, I, like the rest of the country--The Daily Telegraph and everyone else who has been quoted--naively believed that he was to be trusted.

I assumed that that was what the Chancellor genuinely intended to do, so I asked him, "How come you made that commitment, Chancellor, but in your Red Book--your projection of revenue and expenditure for the following four-year period--you take no account of the revenue cost of that measure?" If the hon. Gentleman reads the record of that sitting of the Treasury Select Committee, he will see that it was precisely that exchange that led to the comments that my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) quoted to the House.

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