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Mr. Duncan Smith: The hon. Gentleman is now saying that his right hon. Friend was being utterly irresponsible when he raised in the Budget speech expectations on which, because he understood the difficulties, he had no desire to deliver. The hon. Gentleman has already mentioned those difficulties, and has criticised the Opposition for advancing our proposals because, apparently, they would damage so many people. Yet, at the same time, he says that the Chancellor was right. Surely the Chancellor was wrong, and was hurting

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people in raising those expectations. That is what the hon. Gentleman has just said.

Mr. Browne: The hon. Gentleman, not for the first time in the debate, misunderstands what has been said--but that may be my fault. I criticise the Opposition for supporting the Lords amendment because they are trying to make the change now, when the preparatory work has not been done, and they are mindless of the consequences for a significant number of people.

I do not expect the Chancellor to introduce legislation to achieve the objective at any time in the future until the preparatory work has been done. I do not accept that my right hon. Friend was being irresponsible in any way. He was raising legitimate expectations--expectations which the Government will fulfil--

Mr. Duncan Smith rose--

Mr. Browne: No; the hon. Gentleman has, in his own words, had his moment in the sun.

I shall talk about the positive benefits of the other amendments shortly. No one can be in any doubt about the Government's commitment to the creation of employment. It is a crucial part of that strategy that we make work pay, especially for the low-paid. As I have said, every aspect of the package of measures that we have introduced over the past year to create work and to make it pay has been opposed root and branch by the Opposition. They opposed every aspect of the new deal, they opposed the minimum wage legislation and they will no doubt oppose the national child care strategy.

Reform of the national insurance system is an integral part of that package, and these measures are designed to achieve that reform. As my hon. Friend the Minister has explained, they will do that by increasing the take-home pay of every employee who at present pays national insurance contributions--and I willingly accede to that objective. They will reduce bureaucracy for employers and, in so doing, encourage them to take on more workers. The fact that the measures have appeared in a relatively short time is a remarkable achievement by the Government. The Government did not introduce the changes willy-nilly, but conducted a tax and benefit review that examined all the consequences of the package and concluded that this was the appropriate way forward.

Some Opposition Members have welcomed the package, but others have carped about it. They claim that it has arrived too late in what they have described as this measly Bill. They do not believe that this legislation is the appropriate vehicle for the measures, but it clearly is. The package did not need separate legislation: it needed to be inserted in a Bill that contained substantial references to national insurance. The Social Security Bill provided a ready-made vehicle. It gives the maximum notice to employers that the changes will be implemented next year. It ensures that the Government will meet our target of April 1999 and that the people at whom the measures are targeted will enjoy maximum benefits for a maximum period. For those reasons, I welcome the Government amendments.

Mr. Howard Flight (Arundel and South Downs): This is an important debate about two issues. The first is a major reform of the national insurance arrangements.

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The second is about the conduct of government: should it be open and straightforward or does it involve governing by deceit in order to maximise propaganda?

The speeches by my hon. Friends the Members for Chingford and Woodford Green (Mr. Duncan Smith) and for Grantham and Stamford (Mr. Davies) exposed the fact that a deceit has clearly been perpetrated. I listened to the Chancellor's speech, and I was left with the clear understanding that the reforms to the national insurance arrangements following the Taylor report would affect both sides of the fence. I believed that they would raise the starting level of employers' contributions from £64 to £81 and would raise to £81 the level beyond which individuals paid class I contributions. That is what the major newspapers reported and it is what I think the public still believe to be true. They will be quite surprised to discover that the wool has been pulled over their eyes.

This package of measures has been tacked on at the end of the Bill in order to avoid full debate and exposure by the press. It is an attempt by the Government to pass the measures quietly without attracting attention. The Lords amendments are designed to expose that fact--we know that they cannot succeed. Labour Members have argued that the amendments should not have been made without first considering their consequences. Why did the Chancellor put his important proposals on the menu--including reducing disincentives to work--when he did not know how he would fund them? The Red Book has disclosed that there is no provision to fund those proposals in this Parliament.

What is the Government's position? Do they still seriously propose to reduce employees' contributions, so that contributions are paid only after £81 a week is earned, or was that a propaganda exercise?

All hon. Members share the objective of reducing disincentives to work. One of the most important aspects of the Budget was the proposal to remove the entryfee under the national insurance arrangements, so that employees' contributions would be significantly reduced--the lower paid would not begin to pay until they had earned £81 a week. The reforms would be more important for the employee than for the employer, as they would reduce disincentives to work. As my hon. Friends have said, astronomically high marginal rates of tax can be incurred when incomes rise at the lower end of the earnings scale. Bluntly speaking, we must encourage those who know how to obtain the most from the social security system to look for work. The level at which they have to start paying national insurance may be a disincentive to them.

For employers, the reforms represent a simplification. The Red Book makes it clear that, for them, the net cost of the reforms in contributions is virtually zero. The different scales will be phased out, to be replaced by the one scale that will take effect at £81--the old minimum scale took effect at £64.

There are pluses and minuses to the arrangements that the amendment would implement. People at some income levels will have incentives to work, whereas those at other levels will face disincentives. Worryingly, the disincentives will apply to those who are at the medium- skilled end of the market.

Like the public and the informed media, I welcomed the national insurance reforms on the understanding that the minimum level for contributions would be raised to

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£81 a week for both employee and employer. Candidly, I am shocked to find that, for employees, the proposal seems to have been no more than a devious propaganda trick.

I do not understand what the Chancellor wants to achieve. The Red Book seems to show that there is little prospect that the proposals for employees will be put into effect during this Parliament, yet that is the most important way in which to create incentives to work. Moreover, it is what the Chancellor has led the least privileged in society to expect. Was that a cheap propaganda trick? Was the Chancellor misleading himself? Did the Treasury fail to cater for the financing of the proposal?

The Taylor report makes it clear that the aim of national insurance reform is to benefit both employers and employees. As my hon. Friends have said, there is no substantial fiscal constraint to prevent the Government from biting the bullet and applying the reforms to both employers and employees. The Government are spending generously on work provision for the young, but that expenditure is not needed, as unemployment among young people has turned out to be much lower than expected.

The thrust of the Government's propaganda has been that the Budget will get people into work--it will provide incentives and remove disincentives to work.

I am extremely concerned that the family credit proposals, some of which are positive, also contain significant disincentives. The net effect of the reforms is that, for a woman, it will be worth having a husband only if he earns at least £400 a week. That is undesirable in terms of supporting the family unit and crazy in terms of incentives to work.

I thought that the national insurance reforms were to be about getting rid of disincentives to work, but they are merely about simplifying the arrangements on the employer side and doing nothing on the employee side.

9.15 pm

The Lords amendment is clearly designed to expose a deceit in the Budget statement--an intention to pull the wool over people's eyes. It sends a message to the Government that they must get on with putting that right. That is not such a difficult task; it could be addressed within six weeks if the Government really intended to do something. The issue is whether they are willing to spend the money and whether that expenditure is a top priority.

I believe that getting rid of disincentives to work should be a top priority for any Government committed to helping the less-privileged. The Government should get on, for goodness' sake, and do what they have led the people of Britain to believe that they would do.


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