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Mr. Letwin: The hon. Gentleman has a distinct and welcome penchant for honesty. Can he honestly persuade himself that the working families tax credit does not involve a means test?

Mr. Wicks: The Select Committee is considering how the credit will work, and I see it as at least the beginning of an attempt to use the tax system to target people on low incomes who have caring responsibilities, such as parents, without the crudities of a means test.

Mr. Letwin: It is not the tax system. At the negative end of the tax system, there is a withdrawal rate, exactly as there is for means testing.

Mr. Wicks: Questions remain about the withdrawal rate, but withdrawal is being done far more sensitively than with some of the crude means tests of the past. We are in a new phase in the history of social security. Can we use the tax system for fiscal welfare that targets the poorest? There is a way to target without having the crudities of the old-style means test. The Select Committee is examining working families tax credit as honestly as it can. I am glad to be called honest by the hon. Member for West Dorset (Mr. Letwin); he will receive no solicitor's letter from me for saying that. However, we must keep an open mind.

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In further honest pursuit of the Conservative record on social policy and mismanagement of social security, let us consider pensions mis-selling, which is one of the great scandals of the post-war period. Apologies are often in fashion now; tonight might provide an opportunity forthe hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) to clear his party's conscience about pensions. We all know what happened. The previous Government suddenly discovered personal pensions and sought to persuade all sorts of people to buy them. That persuasion was readily taken up by pension companies that mis-sold personal pensions to people who were seriously concerned about security in their old age.

The arithmetic in this area is breathtaking. I consulted the Library for a briefing. The Financial Services Authority is trying to sort out the scandal. It reckons that 640,000 people will be covered under phase 1 of its work. That is likely to cost the pensions industry £4.5 billion, which equates to an average of about £7,000 per person. The FSA is now on to phase 2, under which 1.8 million people will be covered. It reckons that those 1.8 million people comprise 985,000 transfers--people who transferred their company pension entitlements into personal pensions, which is nearly always a mistake--682,000 non-joiners who were eligible to join a company scheme but who were advised to take out a personal pension instead; and 154,000 opt-outs who were persuaded to leave occupational pension schemes in order to start personal pension schemes.

It is now estimated that the pensions mis-selling scandal will cost the industry £11 billion. I have met many of the people--such as nurses, police officers and teachers--who are behind that disturbing arithmetic. They had decent occupation pension schemes but were persuaded by salesmen, acting as a kind of army for Tory Ministers, to move out of occupational pension schemes and into personal pension schemes. It seemed attractive at the time, but it turned out to be not fairer but fouler.

We all know that child maintenance is a difficult subject. However, from the start, many people--including myself--warned the then Tory Government that they were making mistakes regarding child support, not in terms of the principle of parental responsibility, which we all support, but in terms of the mechanisms. A particular mistake was that there was nothing for the seven out of 10 lone mothers on income support or for their children. The decision to knock £1 off income support for every £1 of child maintenance collected led some to dub it an Exchequer support agency rather than a child-centred policy. It is about time that children got a look in, and I am pleased that they will as a result of the newGreen Paper. This is a case study in social security mismanagement. The Conservatives had stewardship of the system for many years, and child maintenance was an incompetent shambles. Some honesty--I use that word again--is in order here.

One of the great features of that period was the way in which it affected the expenditure of public moneys. We know that the Government have great priorities in terms of education, health and social care. We are devoting one third of total public spending to social security. At the beginning of the Tory reign, that figure was one fifth. There are major challenges ahead, and I know that the rhetoric is easier than the practice. However, I think that

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the Tory years are associated with galloping poverty. The challenge for the new Government--I see the policies being put in place--is to promote opportunity.

The Conservative years are associated historically with mass unemployment. The challenge for Labour is to promote training and work: what we call the new deal. The Tories introduced and defended, year after year, the catastrophic Child Support Agency. The challenge for my colleagues on the Front Bench is to introduce a fair and efficient child-centred child maintenance service. I think that the policies in the Green Paper are correct. I only add modestly that a change to the agency's name would herald a new era.

Mr. Loughton: The people's Child Support Agency.

Mr. Wicks: I thank the hon. Gentleman for that sensible contribution.

The Tory years are associated with increasing fraud in our social security system. I take the point raised by the hon. Member for Roxburgh and Berwickshire that the difficult issue is how to say that fraud is wrong but that it is right and proper for people to collect benefits to which they have a claim. That is a difficult operation, but we must do it. It is all about bringing honesty and integrity into the system.

Over the past 18 years, until May last year, what we called social security was more an indicator of social insecurity in terms of the money spent and the distortions regarding means testing, disincentives and dishonesty. My colleagues on the Front Bench face a major challenge in creating a system that we could truly describe as social security.

9.3 pm

Mr. Howard Flight (Arundel and South Downs): I cannot believe that the Secretary of State thinks that what has happened in the past year is even close to what the citizens of this country expected of the Labour Government in terms of social security reform. People expected vision from the Minister for Welfare Reform. They expected a radical approach that they thought would come more easily from a Government of the left than from a Government of the right. People expected a reduction in the cost of social welfare, which they expected to be more focused on those in need, and in the unnecessary cost of recirculating citizens' taxes back to them. They expected an updating of, and clear decision on, national insurance.

The hon. Member for Croydon, North (Mr. Wicks) said that expenditure went up from a fifth to a third of all Government expenditure. That was essentially because of changes to the global economy. Continental Europe has had even worse rises in unemployment and welfare expenditure. A Government who feel that membership of the euro is likely to be helpful in achieving Keynesian full employment have got that one very wrong.

It is not only a matter of the painful level of unemployment of the early 1990s, and, indeed, the early 1980s, when economies were restructuring. We are at a relative cyclical low. As in America, unemployment is below 5 per cent., but we go on pumping in more than £100 billion per annum. The mounting expenditure is not predominantly the result of high unemployment.

I cite also the perspective of the majority of the country, the majority of middle-of-the-road, average, husband-and- wife families bringing up two children. They expected

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reforms that did not leave them paying more and more for other people and subsidising the bringing up of other people's children. They expected a fairer deal for themselves. Many of them voted against the previous Government. They felt that they picked up the bill for many things that had gone wrong in our society over the past 15 years.

I was appalled by what the Secretary of State had to say. She almost seemed to be saying--I am not quite sure what she was saying--that the key reform was to help lone mothers and to modernise the welfare system to take account of the fact that women worked and that an increasing number of women brought up children by themselves. I do not believe that that is what the country expects of the Government.

There are two aspects to the subject of single parent families. First, there is the breakdown of marriage. The community fully supports and sympathises with wives and mothers abandoned by their husbands. The other aspect is the voluntary choice to have children alone. I do not believe that women who make that choice have the support of society. As far as possible, society would wish children to continue to be brought up by a two-partner unit, whether formally married or not.

The reality is that £7 billion of expenditure has been added, and another 400,000 people have been brought into dependency. The redistribution agenda of the Chancellor of the Exchequer, and not the Minister for Welfare Reform, has guided what has happened so far. The radical thinking of the Minister for Welfare Reform has been somewhat stillborn. I would be sad if that thinking had no chance to bear fruit before the next general election.

I want to focus on some aspects of the working families tax credit, which unfortunately encourages some of the problems mentioned by the hon. Member for Croydon, North. It is axiomatic that a society that can afford it can make otherwise unviable family units viable by the transfer of resources. Society can do that in two ways: either by providing mothers with an income to stay at home and bring up their children, or by paying for child care and so allowing mothers to work. Those are forms of subsidy which are of equal inherent value and there is no moral argument for choosing one over the other, but the Labour reforms clearly favour the latter course--to pay for child care and allow mothers to work.

It is both unwise and unfair not to take the view that a mother who stays at home to bring up her children is doing just as worthwhile and valuable a job in society. I believe that mothers will respond by working, even if the work they do is not implicitly of greater value to society than the work of looking after their children, which they will hire other people to do.

What is wrong are the system's disincentives to sustain the relationship between the parents of children. The measures have increased the income to those without a partner, and the rate of withdrawal of subsidy has been lowered. The net effect is that, if a woman's husband or partner is earning the average wage of £330 per week, unless he spends less than about £100 a week on his own personal expenditure, he is of no value to that family--the father on the average wage is of no value to the mother and their children. That comes about because the 55 per cent. withdrawal from husbands' after-tax income is subtracted from family credit. If the husband leaves, the wife receives the couple's married allowance. There is

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massive incentive to cheat, because, if two people are not living together as husband and wife for tax and welfare purposes, they are better off by £107 per week--38 per cent. better off.

The bottom line about what is wrong is that the working families tax credit is based on family income, whereas income tax is based on individual income, but the two systems have been intermixed. If a couple can present themselves as one absent parent and one lone parent with an income of £250 per week, the state will make them better off than a couple who are together with an income of £450 per week. Can that be right? I thought that new Labour and the Prime Minister were committed to the family unit and to sustaining it, but the biggest welfare reform of the past year appears to introduce both a major disincentive for having a two-parent family unit and a major incentive to commit fraud.

Yes, mothers will be better off and they will be encouraged to work, but the marginal value of a husband has been substantially reduced. That is the price of three features of the system: first, that the benefits are paid to families, rather than to individuals; secondly, that families receive a higher basic income; and, thirdly, that the rates of withdrawal will be lowered. Once those aspects are factored in, the net effect is as I have described. There is cross-party agreement on the need to get rid of poverty traps, yet, post-family credit, the number of households now facing marginal tax rates of 50 per cent. rises from 800,000 to 1.3 million; and, according to the Institute for Fiscal Studies, the figure has the potential to rise to 2 million. The Government have enormously increased such disincentives.

I believe that people expected the Government to act urgently on their stakeholder pension proposals. There are about 7 million or 8 million people without pension arrangements, but the Government have boxed themselves in. They would have been wiser to support the previous Government's proposals. What has happened? The Green Paper has been deferred again and again.

I suggest that the problem is that the Labour party is having difficulty in biting the bullet that stakeholder pensions will have to be compulsory if they are to work. If they are not compulsory, it is clear that people will not willingly sacrifice some 12 per cent. of today's income when they know that the state will have to look after them if they do not do so. The Government have had advice to that effect from almost all the professional bodies that they have consulted, but they are reluctant to introduce compulsory arrangements, so they are dithering.

When I talked to people who voted for the Labour party at the previous election, I found that many--in particular, surprisingly, young people--are most disillusioned by the Government's failure to get on with pension reforms and their stakeholder pension proposals.

It is a great disappointment to the country and to hon. Members in all parts of the House that a Government with such a large majority and mandate have failed to get on with the welfare reforms that they painted in a vision for the nation. They have been sidetracked into the Chancellor's specific redistribution programme, and I fear that they have now lost the initiative until the next election.

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