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Mr. Iain Duncan Smith (Chingford and Woodford Green): I thank the Secretary of State for giving me advance sight of her statement, although I did not receive the last two minutes, so some of the details will have to be studied later.

Today's statement is as fascinating for the detail, which I shall address later, as for the omissions. The way in which we account for how we pay for the changes and how pensioners receive the increases depends to a large extent on how well the economy does, which clearly depends dramatically on how the social security budget is either kept in check or reduced. What has happened over the past few days is a deliberate attempt by the Government to talk themselves out of a pledge that they gave at the time of the last election.

The quotes are straightforward and simple. The Prime Minister said at the time of the last election:

Therefore, my first question for the Secretary of State is this: why are she and the Prime Minister now trying to pretend that the Labour party did not pledge to reduce the costs of social security?

The 1996 Labour document, "Getting Welfare to Work--A New Vision for Social Security" states clearly that they had "three fundamental goals", the second of which was,

That is the key: the Government are acting like a bunch of con men, trying to persuade the public that they never made such a pledge. It is not an easy pledge to meet, but the Prime Minister and the Secretary of State must answer the question--why are they trying to avoid it?

In her statement, the Secretary of State spoke of reducing dependency and of the pledges in that respect, but it is clear that, like a number of the Government's measures, the working families tax credit--I know that the Secretary of State does not want that to be in the social security budget, but the fact is that it replaces benefit payment, so it is in that budget--raises dependency quite dramatically, as more than 400,000 extra people will enter dependency as a result. That is another broken pledge.

The key to today's statement is the question of how the pensions are to be afforded. We need to determine how much of the money will be long-term and sustainable,

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so let us look at the reality of the welfare budget--how much the Government have managed to secure through reductions, and what that means overall. The document about which the Chancellor made a statement on Tuesday is significant for the absence of most of the money within the social security budget of which it is necessary to take proper consideration.

For example, we saw that the Government had taken out administration costs--roughly £3.5 billion a year. They have also taken out the working families tax credit, with most of it hidden in accounting adjustments, but with 20 per cent. hidden elsewhere. Those figures should have been included, because they represent money that was family credit and part of overall benefit payments.

When we look at the figures, despite the absence of calculations on housing benefit, council tax benefit and other benefits, we begin to get a much truer picture of what the state of the budget is and, more important, is likely to be over the next few years. The figures tell us that, before Labour's arrival in government, the welfare budget was falling each year, year on year; and that, as a direct result of the previous Government's actions, it went into negative growth in the first year of the new Labour Government--it actually fell to less than 12 per cent. of GDP. That figure was clearly the result of the activities of the previous Government--so to say that the Conservatives did not reduce the overall burden of welfare or reduce the costs of welfare as a proportion of GDP is utterly absurd. The figure fell below 12 per cent. and was likely to fall further.

When we then examine the Government's figures with all the relevant figures having been added back in, as the Library has done for us--

Mr. Tony McNulty (Harrow, East): When is the hon. Gentleman going to talk about pensions?

Mr. Duncan Smith: I shall get on to pensions, all right.

The point about affording pensions lies absolutely in whether or not the costs of welfare are being reduced or increased. In reality--even according to the Government's own predictions--once working families tax credit has been added back in, the budget is set to rise to 12.3 per cent. of GDP by 2001. From what independent analysts have calculated in the past few days, we can begin to see that, even if there is only slight variation in growth, that budget forecast is likely to rise to more than 12.5 per cent. of GDP; and if growth becomes worse, it will rise to nearly 13 per cent. of GDP by the end of this Parliament.

All that bears directly on the Government's ability to afford what they say they want to pay to pensioners and others, so why did the Secretary of State allow such misleading figures to be published? Does she accept that the figures in the book that was published on Tuesday are not correct; and that, when the money relevant to the social security budget is added back in, the proposal breaks the Government's pledge about reducing the overall burden of welfare as a proportion of GDP?

Several questions remain to be answered, even after today's statement. The statements on health and education dealt with the entirety of the changes and the implications for the budget, but today the Secretary of State has chosen not to talk about the entirety of the changes, so a huge number of questions arise. The comprehensive spending

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review says that the new education maintenance allowance will be "linked to parental income". Will the Secretary of State clarify whether child benefit--

Mr. McNulty: When is the hon. Gentleman going to talk about pensions?

Mr. Duncan Smith: The hon. Gentleman probably does not realise that child benefit is part of the social security budget.

Will child benefit be taxed or means-tested as a result of that declaration? Will the Secretary of State also tell the House how much money the Government expect to raise from the announced switch to education maintenance allowance, or will spending on child benefit and EMA remain the same as the total spending on child benefit, but simply be reallocated?

Why were no decisions on the future of disability benefits explained in the statement? Why was there nothing on housing benefit and council tax benefit? Why was there no mention of the change programme? Part of the proposal to hold costs in check relies wholly on what happens in respect of restraining administrative costs, which remain fairly flat in the Government's forecast. What are the Government likely to receive in terms of such cuts?

In his statement on Tuesday, the Chancellor announced a target of 40,000 lone parents going back into work as a result of the new deal programme, which bears directly on the social security budget, which has a bearing on pensions, to which subject I shall turn in a second. In a debate on Monday, the Secretary of State said that she would announce no targets until she had received the full understanding of what was entailed in the programme currently in place. Did she receive that understanding overnight? How is it that the Chancellor was able to announce on Tuesday a target of 40,000 lone parents going back into work as a result of the Government's programmes?

Conservatives have always upheld, and will continue to uphold, the principle that the most vulnerable, especially pensioners, should be assisted in claiming their full benefit entitlements; and that those entitlements should reach the level required for people to have a sustainable income in retirement. Yet the question remains whether the increases announced today are real and sustainable and will not be clawed back in due course as a direct result of the Government losing control of the economy, as has happened so often under Labour Governments. The Government have already clawed money from pensioners through their hit on advance corporation tax dividend tax credit, which has taken £5 billion a year from pensioners who bother to save.

The new higher so-called guaranteed income is a massive increase in means testing. It represents a complete U-turn from the more sensible policies advocated by the Labour party when in opposition, and, more particularly, some of the more sensible utterances of the Minister for Welfare Reform, who said that extending means testing would be a retrograde step. Not only will it have a devastating effect on the incentive to save of people on modest incomes, who have been encouraged and who want to save, but it will deprive them of the enhanced means-tested benefit.

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The Government now have a policy that will simultaneously greatly increase both dependency and Government expenditure. How do the Government propose to persuade more people to claim their means-tested benefits? How much more money will be lost in bureaucracy?

The Secretary of State talked about advisers, but I want to know how many she expects there to be. There are 10 million pensioners in this country, of whom only 1.7 million claim income support, so, if the Government's intentions are to be taken seriously, that must mean that more than 8 million pensioners will have to be screened or visited. If one civil servant can screen roughly 1,000 pensioners a year, that means more than 8,000 new civil servants, at a cost of £250 million every year, spent just on bureaucracy. How much of the money for pensioners will have to be allocated to the bureaucratic mechanisms that will be necessary?

Does not that also mean that the Secretary of State's proposals will begin the erosion of the contributory principle which so many hon. Members on both sides of the House think should be enhanced rather than clawed away? In the present proposals, the Government have sounded the absolute cry that they no longer consider the contributory principle to be the mainstay, and bit by bit, they will extend the means-testing process across the whole state income.

As the Secretary of State knows, one of the reasons why many pensioners do not claim income support is that they do not like the idea of taking what they view as charity, but they believe in taking their basic state pension because they view that not as charity but as a provision to which they have contributed. How is the Secretary of State building on that? Surely she is asking all those people, to whom income support may not be at all relevant, to declare their incomes when they did not do so before.

In conclusion, the issue is sustainability and whether the Government, like so many Labour Governments, have for short-term reasons declared that they will somehow raise incomes only to claw them back as the economy fails and they fail on their pledge to cut social security and welfare dependency. In a few years, pensioners up and down the country will find their incomes falling, not rising, as a result of the Government's actions and failures.

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