Examination of witnesses (Questions 140 - 160)
WEDNESDAY 7 JULY 1999
140. How does that translate into the issue of a contributory system where if you want to maintain a contributory system the person who has been paying contribution ends up with less money than the person who has perhaps paid practically none at all?
(Ms Reith) Because if you are looking at a more inclusive system you would begin to include people when they come into the system. Someone who has started a job and started to pay in should not then be left out when, through no fault of their own, they have to come out of that workforce. I think in practice you can have a systemand I understand this is probably the way the current system workswhere somebody in a position where they have given up a job in fact suffers a penalty when they go to claim benefit but does not lose entirely. Chris is probably better placed than I am to say whether that is right or not.
141. I am not talking about the detail, I am talking about the philosophy
(Ms Reith) Yes.
142.of the argument you are advancing.
(Ms Reith) There are difficulties but I think otherwise you end up saying: "Well, okay, let us have a wonderful system where everybody gets all the same amount of money" and then you have problems both of getting public support for that system and funding it.
143. If I was to take my example again and put that to the public and say: "Who should get more: the person who has paid for 20 years or the person who has paid for five minutes", if you try to link it into the contributory system what do you think the answer would be?
(Ms Reith) I think it would vary. I think it would very much vary if somebody had been in a job for six months and was suddenly made redundant and they had been out of work for a long time before that, I think they would be viewed sympathetically. The person who just decided that they could not get on with their boss very much and rather than wait for another job to come up just thought "Blow that, I will claim benefit" might not be regarded sympathetically. I think the public could go either way on that, to be honest.
144. Can I just go on to Incapacity Benefit issues, that also highlights some of these arguments. I think you mentioned earlier on at the beginning that you supported the move within the Bill to focus benefit on people who have not got a contribution record and could not possibly get one. Can I just put that in the context of some of the arguments that I think the Disability Alliance has been making against the changes to Incapacity Benefit in terms of the tightening up of the contribution levels and the take for people with occupational pensions. In the context of what Beveridge was saying about the importance of trying to do better for yourself as well as providing a safety net minimum, in relation to occupational pensions, why does it matter to the Disability Alliance that such people receive full National Insurance pension if they have already got quite a substantial occupational pension? Is it not best that we focus that money on to people with no source of income as the Government is proposing to do with teenagers or refocusing the money perhaps on to three and four year old children who are disabled?
(Ms Reith) I will leave aside arguments about the fact that the cuts far outweigh the increases in benefits. You will have seen the briefing that details that.
145. I am arguing it as a philosophical point.
(Ms Reith) I would argue against any move where you say to one group of disabled people: "We are going to take your money away from you and give it to another group of disabled people". If disabled children deserve more money, and we very much welcome that extension, why is it that the entire population through taxation cannot be contributing to the increase in benefit for the three or four thousand three or four year olds who are going to benefit from that? Why does it have to come from some other disabled person? That seems to me problematic and a very narrow way of looking at things. In terms of people with occupational pensions and so on, people were encouraged both by this Government and previous governments to make provision through occupational pensions and private pensions for their retirement and that continues, we are all being urged to do that. Here you have people who are not able to reach 65 or whatever their retirement age is because of ill health or disability. Their neighbour who is lucky is going to go on working until they are 65 and will then claim their retirement pension and their occupational pension on top, that is fine, I am happy with that. Why should the person who maybe because they have got a spinal cord injury and shortened life expectancy who has to stop work at 50, regardless of whether they want to or not but has to, why is it somehow wrong for them to have their Incapacity Benefit and their occupational pension? Why are they so different? The benefit is taxed so both the retired person and the person below retirement age are going to be paying tax. They have paid in twice, they have paid in through the National Insurance system and they have topped up by paying into a second tier provision. Why should they be penalised for that?
146. I am asking you the questions! We have not got time to debate this at any great length. If somebody has a substantial occupational pensionlet me put it to you the other way roundokay we are arguing philosophically, we are not arguing about the levels of payments and so forth, but if we take it as a matter of principle, supposing somebody has been able to save for their retirement towards an occupational pension and claims it early because they decide to retire early for ill health reasons, and you can argue about the degree of ill health. At the same time the Government has obviously a limited pot. We have got pensioners who have retired, present pensioners, over 65 and over 70, who did not have an opportunity to pay into an occupational pension fund, for whatever reason, primarily because they did not exist when they were at work, who are complaining their level of pension is too low. Where would the priorities fit there? Would it not be appropriate, for example, to say in principle if you decide to retire early, for whatever reason, because you have to or you want to or a mixture of both and you have a substantial income, to what extent is the duty of the state to support you as opposed to perhaps having more available to pay those who did make private provision?
(Ms Reith) It is your "decide to retire early" which I think is the most worrying.
147. I put that in three different possible combinations.
(Ms Reith) Well, somebody who just decides to retire early because they fancy spending more time on their boat is not the person I am concerned about. The people I am concerned about are people who retire early through ill-health and disability and in order to access Incapacity Benefit they have to go through the same test everybody else has to go through to prove that they meet the entitlement conditions. If they meet those entitlement conditions then it is not for you or me to be saying that that person has decided to retire early, as if it was some free choice. They passed the test that says they are incapable of work and they are therefore entitled to the benefit. Now I do not think it is for me to be deciding on their motivation, if they pass that test then it is their right to get that benefit. I do not really see why their occupational pension is any different from the person over 65 who has a big retirement pension, which we would all say that is a good thing, that person has listened to advice, made provision, retired at 65 with their state pension and a good occupational pension. If you think their income is high then you tax them.
148. You have the sort of people who are faced with this position, they do their arithmetic, they say: "Well, my occupational pension will be worth so and so if I retire now. I have got a bad back. I have either got to soldier on with my back or I qualify for Incapacity Benefit". That is the choice some people will make. Some people will try to struggle on and some people will decide not to. Obviously there are people at both extremes. I am highlighting the middle ground who do the arithmetic and say "With Incapacity Benefit it is worth my while not soldiering on but jacking it in".
(Ms Reith) I am happy for people to have the choice. I do not want to live in a society where we say to somebody who has got chronic back pain and arthritis or whatever, who is just below retirement age, "You must soldier on or we will penalise you". That is not the kind of society I want to see. That is what you are suggesting.
149. No, I am putting to you a scenario where somebody will do a calculation and they will decide, "If I can get benefit from the state it is worth my while retiring, if I cannot get a benefit from the state I might decide to soldier on". People will face that choice. I have seen it with people in my previous life as a lawyer who represent this, where they did the calculations, "Do I jack in my job and take my occupational pension? How much compensation am I going to get?" and that is linked into the decision making process. People do make those decisions.
(Ms Reith) Yes.
150. What you are saying is when people make that decision that is fair enough, the state should pay for it?
(Ms Reith) Yes, because they are still going to have to go through a qualifying test to get that benefit so you are not going to have a situation where somebody who has no disability or ill health problems decides that they are going to pack in work a bit early and claim benefit, you have a gateway test for that benefit and I think people should have that choice. If someone has a serious condition that they would pass the test that says they are incapable of work then they should be having the choice about whether they work or not. That comes back to how I understand the test for Incapacity Benefit to work. I think it is not that there are people who can claim Incapacity Benefit who cannot work, blind people pass the test for Incapacity Benefit, spinal cord injured people pass the test for Incapacity Benefit. We all know people who are blind and spinal cord injured who can work. The dividing line is not "Are you incapable of anything", the dividing line is in a fair and just society if you fall on this side of the line what we are saying is we do not expect you to have to go out to work to survive in our society, if you want to work help is there to enable you to do that. I see the role of Government to make it possible for people with disabilities to move into work but the dividing line is still if you are on this side and you pass the Incapacity Benefit test that does not mean that you are incapable of anything, it means that society says, "We do not expect you to have to work in order to survive". That is what I would say to your person who is weighing up the calculations and fair enough, people have to do that, people can find themselves in all kinds of situations where they are having to look at a calculation "Can I afford to give up work or not". That is no different from families who are trying to decide whether both parents should work full-time and pay for child care or whether the woman should move to part-time work. Of course people make those calculations and benefits come into that. The key thing is has this person got the kind of disability or ill health where society is saying: "You have a choice whether you work or not, this is where we set the dividing line, so of course it is a choice that you have".
151. One last question: you did some research in 1995 and found out that people most at risk were the least likely to get permanent health insurance or occupational schemes. How do you think social insurance protection compares with private insurance protection for people with disabilities or health limitations?
(Ms Reith) Clearly one of the problems is that you cannot get private insurance coverage if you have any pre-existing disability or ill health, either you are completely excluded or the premiums are incredibly high. So as far as we can see for the vast majority of people the private market is not there. We have talked to private insurance providers and they really do not see themselves as providing for that market which is why the social insurance or the National Insurance system is so much better, because it pools risk. For disabled people that is the key thing, the pooling of risk. I was unhappy with the suggestion earlier about everyone has their own little pot that they pay into because we are dealing with people who will always be the highest risk, the group of people who will have intermittent work records, part-time work, not very much earnings, a high possibility of coming out for ill health and disability reasons and so on, all over a high risk category and therefore the private market is not there for that group. The huge advantage of the National Insurance contributory system is that it pools risk, it does not say you pay more because you are high risk. So for disabled people it is a very positive system.
152. Very briefly, one of the difficulties that we face in this sort of inquiry is the mistaken belief that many people have that there is a little pot that they have been paying into and that they have been paying into it and however many years in the future they have an entitlement to it, it is theirs, and they treat it like they do a private insurance, private pension scheme. Given that misapprehension, how do we explain to people that in fact contribution is not contributions of money to that little pot but rather contributions to society in a larger scale to fit in people with disability?
(Ms Reith) I think you could do a lot more explaining to people how the scheme works. People are aware that they are paying in and they know that contributions matter and they know for their pension they have got to have paid in a certain number and that is what leads people to believe that it is a particular pot. I do not think that matters too much. People know that they are paying in now, they might not need to use that money that they have paid in, they might have paid in the whole of their working lives and thankfully never been unemployed or never been incapacitated, you know there will be lots of people who go through and do not need to call on the system but they know that it is there for them even though it may be at the time that they need it it will be other people's contributions that would be funding it, just as my contributions now are funding current beneficiaries of the system. I think you can explain it to people on that basis with no problem, that it is part of a contract that you pay in in the expectation that you are therefore covered into the future. I think it is the point that Martin made earlier, that governments keep changing the rules and cutting back and restricting so that people are very, very fearful about whether the fact that they are paying in now, the contract and understanding would be that if they find themselves vulnerable in the future they could draw on the scheme and that might not be there. I think that is why people I think are doubtful about how the system works and quite angry too.
153. I was just going to ask about the modernising of social insurance. I think quite a lot of it in fragments has already come out from your ideas. The Disability Alliance in your contribution, as I understand it, says you would like to extend it to more people than are presently covered, giving broader categories of entitlement covering more working patterns and -quoting paragraph 8.1"... the wide range of responsibilities and barriers that prevent people from taking paid work". Could you just clarify, because we are coming to the end of your session, how exactly you would like to see the modernising of the contributory benefits?
(Ms Reith) As a practical example in the debate about the current Welfare Reform Bill, which as you know is going to abolish the Severe Disablement Allowance, one of the things that we have been suggesting is that you would look at some of the people who would be badly affected by that. That is the only fall-back non-contributory benefit for severely disabled people who cannot currently get into the contributory system. An opportunity is provided by the abolition of SDA to look at some of those groups and say "Is there a way that we can bring them into the contributory system?"
154. And what is your answer?
(Ms Reith) That you could.
155. You are giving us examples of things going wrong saying "We should look at it", but what is the answer?
(Ms Reith) You credit those people into Incapacity Benefit. You can identify those people, for example, because they have been caring and they have been out of the labour market because they have been caring.
156. It is not easy though to identify carers.
(Ms Reith) It is very easy.
157. It is not easy because there are lots of people who are not in any way registered. It would be very difficult in a lot of cases to prove in terms of paper proof that they are carers. I believe they are, they come to my surgeries, but it is not easy to identify these people in terms of paper recognition of their work as carers.
(Ms Reith) What we are suggesting is that you look at the receipt of the Invalid Care Allowance, you look at receipt of the Carers' Premium and you look at Home Responsibilities Protection and those are your qualifying conditions. You are right, it is not going to protect all carers because there will be whole numbers of carers who are not claiming those benefits. All you can do there, like with any area where people are not claiming things to which they are entitled, is seek to look at take-up. It would be perfectly possible to identify those people and bring them in. Similarly, we have suggested, for example, that people who are disabled people working, claiming Disabled Persons Tax Credit, earning below the lower earnings limit, could easily be identified. They are claiming Disabled Persons Tax Credit, you know exactly who they are, if they are earning below the lower earnings limit they are not, once they have passed the two year linking rule, ever going to get back on to Incapacity Benefit. You can easily identify that group of people so you could route them back in.
158. On that particular example, is there value in awarding people who have got such low levels of contributory benefit and such fragmented records? In reality they will have to claim means-tested benefit as well, will they not, so what is the point?
(Ms Reith) Why are they inevitably going to, they could have a working partner.
159. Does that not address your arguments? Either way doing these things independently or with a partner and as I understand the issue you are arguing for independent mechanisms, so where does the working partner come in?
(Ms Reith) You were saying would they not have to top up with a means-tested benefit but they might not be eligible for means-tested benefits is my response, whereas if you routed them back into Incapacity Benefit then that is not means-tested so that could be something they could claim in their own right as an independent individual. It is partly tied up with protecting people and reducing risk for people who are moving in and out of the labour market or whose disability or ill health makes it more likely that they are going to have to move in or out of the labour market or can only work a limited number of hours. If you want to encourage people to take the risk of trying out jobs and so on then it makes sense to offer a level of protection to those people. At the moment someone in that position could fall back on Severe Disablement Allowance, that is being abolished, and the suggestion is "Well, having abolished their fall back benefit, this is a group of people who are working, you can easily identify them because they are claiming the benefit, the Disabled Persons Tax Credit, why not loop them back in?" That is a very small example, I am afraid it is fairly technical but I think it is possible if you look at it imaginatively in the round to say: "Well, if we want to get this group of people brought into the contributory system because they are working or they are caring, how would we do it?"
160. I just want to come back briefly to this role of private and social insurance. As you have said in the area of disability it is almost impossible for individuals to get private insurance if they have already got some form of condition. When we visited the Netherlands last year as a Committee we talked to them about the ways they were trying to tackle what they perceived as the very big problem of a large increase in the number of people registering themselves as sick and disabled. One of the mechanisms that they used was to shadow the private insurance system in relation to employers because obviously employers did have a higher risk and will pay a higher premium and through the National Insurance system there, as I understand it, higher premia will be payable by those firms that have higher rates of sickness and disability amongst their workforce, thereby encouraging firms to improve their safety and reduce stress levels and do everything they can to improve occupational health. Do you think there is merit in looking at that as a modernisation of the National Insurance system in this country?
(Ms Reith) I would be worried. It might be something you would want to explore in relation to Industrial Injuries Benefits where you are clearly linking receipt of benefit to an injury or a disease that is work and occupation related. I think otherwise you run the risk that employers will say: "Well, we are not taking on people with a known history of disability or ill health because it might reflect badly on us" or "They might find it more difficult to cope with the kind of work here", not taking on people with any history of mental ill health, for example, because of the risk that stress in the workplace would impact. I think the danger would be that instead of the insurance companies excluding people, employers start to do it. Although you have got the protection of the Disability Discrimination Act it is actually very, very hard to prove those sorts of things in practice.
Mr Pond: I think I am right in saying that in the Netherlands they back it up with very considerable incentives to employ people with disabilities and very harsh penalties for those who discriminate against them, but this is something which the Committee will want to look at.
Chairman: Indeed. Lorna, thank you very much, it has been extremely useful, as always. Thank you very much for your assistance.