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Mr. Steve Webb (Northavon): I am delighted to see so many Labour Members in the Chamber to hear my contribution. The Bill raises some important issues, and I am delighted that the Government have allocated a full day of parliamentary time in which to discuss them.
It is a pleasure to follow my right hon. Friend in prospect, the Chairman of the Select Committee on Social Security, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who proposed a debate on the contributory principle. The Bill raises questions about the future of the principle that are mentioned explicitly in the Conservative reasoned amendment, which I shall address in my brief remarks.
The Conservative amendment urges hon. Members not to vote for the Bill because it will facilitate the ending of the contributory principle. Would that necessarily be such a bad thing? The national insurance system was introduced in the 1940s, with flat-rate contributions paying for flat-rate benefits. That was not pure insurance because the insurance premium paid did not relate to the risk of receiving benefit. The classic example is that male and female employees paid much the same contributions although they were entitled to pensions whether they lived to be 60 or 80. The system did not look much like pure insurance initially and, as time went on, it began to look less and less like an insurance system.
Earnings-related benefits and partly earnings-related contributions were introduced in the 1960s. Contributions became more earnings related in the 1970s and earnings-related pensions were introduced. During the 1980s--it is ironic that the Conservatives should be moving this reasoned amendment--national insurance rowed back from its high water mark of the late 1970s. The Conservatives made several significant changes, one of which was increasing national insurance contributions while cutting national insurance benefits. That is a clear erosion of any residual contributions principle.
My hon. Friend the Member for Newbury (Mr. Rendel) has already enunciated the official Liberal Democrat position, which allows me to indulge in some free thought, unfettered by the usual shackles of party discipline--I say that only to make my hon. Friend a touch nervous. What is the contributory principle that the Conservatives are so keen to defend and believe might be undermined by the Bill? It is that there is some close link between contributions and benefits. However, it is clear from the debate that any such link is extremely tenuous and is growing increasingly more so.
The case study in this area must be pensions. They are by far the largest item of contributory benefit expenditure and, if they do not honour the contributory principle truly, we might as well give up and go home. It has been said that the Bill does not involve abolition of the national insurance fund: a separate national insurance fund and a separate consolidated fund will continue. What a joke. What is the point of having a separate national insurance fund? If it does not have enough money, it is topped up through general taxation. Therefore, why preserve the farce that national insurance contributions are any different from general taxation? I would go further than that. More than half of national insurance revenues come from employer national insurance contributions that have no insurative content. So, the whole thing is a complete sham.
On the benefit side, in what sense are pensions--the main national insurance benefit--linked to national insurance contributions? The answer is that there is hardly any link. Growing numbers of people will reach old age and enjoy full entitlement to the basic state pension. These days, one must try quite hard to avoid that full entitlement in old age. What is the point of having all the paraphernalia for keeping records for 40 or 50 years when, at the end of the day, there is a flat-rate benefit? That is not insurance; it is taxation. We are no worse off for that.
We must ask ourselves a fundamental question: what would we lose if we abolished the national insurance contributory system? We would lose national insurance benefits as a category. Why do we have separate national insurance benefits as opposed to means-tested or categorical benefits? It seems to me that there is only one defence of separate national insurance benefits: people feel more positive about claiming them. There is less stigma and thus less of a problem with take-up.
That is also true of categorical benefits: there is no stigma associated with claiming child benefit or the age addition to the old-age pension. In the case of pensions--the main contributory benefit--we should do away with the farce that it is all to do with contributions. We should pay pensions to people as of right and build on the 25p age addition, which is not contributory because it is paid in full to anyone who receives a pension. It is categorical. The 25p age addition has all the qualities that we desire and, if we build on it and move to a system in which the basic state pension is tiered with age, we will be able to target poverty effectively without relying on means-testing. The whole point of national insurance benefits is to reach people about whom we might be worried, but that can be done through other means, principally through the basic state pension, tiering that to age.
My final reflection on national insurance benefits is that they are a system not of inclusion, but of social exclusion. As the hon. Member for Croydon, Central (Mr. Davies) said, those benefits were designed for a world of male, full-time workers. In other words, they exclude large numbers of women from benefits. Do we want to preserve that system into the 21st century? Clearly not, in my judgment. Most people receive basic pensions, but many women and low-paid workers are excluded. Why not move to a system of categorical benefits for pensioners?
Mr. Quentin Davies (Grantham and Stamford):
There is a general sense in the House that the winding-up speeches in this debate should not be too long, so I shall try to be brief and I hope I shall be forgiven for not dealing with all the individual contributions in the detail that a great many of them deserve.
The debate has been a memorable example of the utility of Parliament and of Second Reading debates, because what was regarded by many hon. Members--and, no doubt, most people in the country--as a Bill that dealt with a boring administrative adjustment under a boring bureaucratic title has been revealed as a momentous and extremely damaging step towards the destruction of our national insurance system.
Not only has the decision of my hon. Friends and me to oppose the Bill been thoroughly vindicated by what has emerged regarding its true nature and intent, but we have had high drama--a chasm of difference on this subject has emerged within the Labour party. The Secretary of State has gone on the record this evening as saying that the Government are examining the whole contributory principle--so the cat is out of the bag. The agenda is absolutely clear. Some Labour Back Benchers have reacted with necessary horror. I refer to the distinguished contribution of the right hon. Member for Birkenhead (Mr. Field), who described the move as extreme folly and an extraordinary policy, as indeed it is.
Labour Back Benchers who are more obviously loyal--I think that that is the polite description--have promoted an even more far-reaching agenda and suggested that the Bill ought to go the whole hog and entirely remove the separate character of our national insurance system.
It was obvious to all of us who read the Bill when it was published that it represents, at the very least, the abject subjugation of the Department of Social Security to the Treasury. The Bill is full of phrases such as
Some people will ask, "What is new?" because that has been the de facto position, certainly for the last year and probably since the last election. We know that the Treasury vetoed the pensions Green Paper drafted by the right hon. Member for Birkenhead and has been giving instructions to the DSS during the past six months steadily to increase the element of means testing in our welfare system, with the sad consequences that have been described by many hon. Members today. I have no idea whether the firm reaction by Opposition Members to that extremely damaging tendency over the past weeks and months has brought about a rethink by the Government. If it has not, it is clear that the agenda has a very long way to go.
It is obvious that the Treasury has been running the show for some time. I remember, at Treasury questions not so long ago, asking the Secretary of State, then Chief Secretary to the Treasury, whether there was any point in having the DSS, since the Benefits Agency was responsible for handing out the money in the country and the Treasury obviously made the policy in Whitehall. In his usual way, the right hon. Gentleman managed to avoid giving a straight answer. Now we have the Bill, and we see, de jure, written into our law, the shift of the DSS
towards becoming an executive agency of the Treasury--a shift to which we have been drawing the attention of the House and the public for some months.
As if that were not enough, the Secretary of State has revealed this evening that he is giving the Treasury the Department's policy function as well as its administrative function. As the right hon. Member for Birkenhead said, the Secretary of State has given away at a stroke half his empire and 40 per cent. of his revenue.
There has been a sub-plot this evening which, as in the best Shakespearean tradition, has acted to some extent as farce to heighten the high drama of the main plot. A chasm is emerging between Liberal Democrats, or what is left of them. The Liberal Democrat spokesman on pensions, the hon. Member for Northavon (Mr. Webb), is so keen to fawn on the Government at every opportunity that he said that the contributory principle was as good as dead and buried. Beveridge, Lloyd George and Asquith would be turning in their graves if they knew that, at the end of the century which began with the Liberal party being a great force in the land, the party's last remaining representatives were prepared to go along with a new Labour Government to bury one of the great achievements of the Liberalism of their day.
"such payments by way of adjustment as the Secretary of State determines (in accordance with any directions of the Treasury)",
and
"such payments by way of adjustment as the Inland Revenue may determine",
and
"any determination by the Secretary of State under that subsection must be made in accordance with any directions given by the Treasury."
The Bill represents complete surrender by the DSS to the Treasury.
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