Select Committee on Social Security Minutes of Evidence



Examination of witness (Questions 220 - 239)

WEDNESDAY 3 NOVEMBER 1999

RT HON FRANK FIELD

Ms Buck

  220. Just quickly on that point. As I understand it you argued for a relatively low introduction of the minimum wage and that obviously happened quite early on in the life of the Government. You seem to be arguing against any form of State sponsored earnings top up. What I am not clear about is would you not accept that having an earnings top up, backed up particularly by the New Deal, has had a positive behavioural impact by enabling people to enter the work place who might not otherwise have been able to have an entry level job with that company, with all the positive associations that come with employment rather than remaining on benefit? And it is all very well saying we should review the minimum wage and use that as a foundation and I do not disagree with that, but we have only just had the minimum wage for the last four months and where are we now in 1999/2000 on your thinking?
  (Mr Field) I do not disagree with anything you say. It is the sequence of events and the build up which I think is important. Governments have a duty to help people now and hopefully do that in a way which does not actually add to problems in the future, but actually lessens them. Of course it is true that the tax credit has made it easier to get into work because the Chancellor has been adamant that people who work would be paid more than people who do not work and I could not agree more with that. The danger of seeing what was a working tax credit beginning to develop into other areas as well, that we would see the downside of that tax credit become more relevant in public policy rather than less in public policy. May I make an extreme analysis? Taking a drug for the first time can be, I am told, pleasurable but I am told it can become addictive and the problem with the means testing approach is that it makes it terribly difficult for people to move beyond that means-tested support and they see themselves, as they are trying to free themselves which is a proper way of individuals and families advancing, feeling that they cannot make progress because any progress they make is actually just lost off the tax credit. That is the danger I foresee. It may not work effectively as a stimulus, and we have not just got Working Families Tax Credits, it is going to be for the disabled, it is going to be for child care, we are told in the press we are going to have it for replacing housing benefits, it is becoming a mega part of the social security system. It is not just a single addition to help people move from benefit into work.

  221. All I would say is that you could turn that argument on its head and say that it is a stepping stone and that anything that gets people off permanent life on benefit into work has positive behavioural associations which at least partially if not probably, in my view, wholly outweighs some of the disadvantages as you were saying?
  (Mr Field) Right, and you could also accompany that by saying that in future the Working Families Tax Credit will not be increased but we will see that the next and continuous advance will come from raising the minimum wage in a sensible and sensitive way, because we do not want to make people unemployed, so that a greater proportion of people's earnings actually comes from the wage packet from the employer rather than from tax subsidies. Now, the question is how do we make it a real incentive for people to go to work, and my worry is that we will start pressing the Chancellor: "When are you going to review the Working Families Tax Credit thresholds". So it then becomes—it starts to grow and every move seems sensible; it is the long term effects, but I do not for one moment—I applaud the Government and the way it has said that it—well, I am trying to point out the dangers. I have endlessly emphasised during this session what I have agreed with. I have also tried to centre on the disagreements so at least you were aware of these, rather than coming here and me spending the whole time trying to speak in code to you.

Chairman

  222. Mr Leigh has been very patient, but let me get this absolutely clear. You do not think that the development of tax credits as a philosophical approach to welfare reform can sit squarely with a devout social insurance system? The two are incompatible, is that basically what you are saying?
  (Mr Field) The growing strength of the tax credit system will inevitably lead to people logically arguing the insurance side becomes less and less relevant and therefore the means testing of insurance benefits will continue.

  Chairman: Mr Leigh, you have been very patient.

Mr Leigh

  223. Is it a fair criticism, Mr Field, that you are a great Old Testament prophet, but you are a rotten politician?
  (Mr Field) I will answer yes to that, but I will not spoil your question!

  224. I mean that as a compliment because you climbed the top of your mountain and you rail against the evils of means testing and we all agree with that. From Beveridge on, everyone has recognised that if you pay poor people for being poor, the chances are they are going to stay poor and you provide enormous incentives. Everybody knows that. The difficulty though, Mr Field, that we are all labouring under from Beveridge onwards is how you change public attitudes, to educate people so that they are prepared to pay these sort of massive contributions which are necessary to sustain the kind of contributory principle you and I believe in. Now we have not asked you along here to talk to us as a former Director of the Low Pay Unit or as a pamphleteer. We have asked you as a former Minister for Welfare Reform. You were the only person who was made a Minister of State on the first weekend of this Government and a Privy Councillor—Minister of Welfare Reform—and you blew it, did you not? I mean, a year went and your figures did not add up. You could not square the circle with the Treasury and I think there is no point just telling us that the Working Families Tax Credit is a rotten idea, that the Government is attacking the contributory principle, unless you give us some inkling of why you were unable to progress your ideas which I personally believe in strongly. I sat at your feet for years, you know; I feel you let me down. Why could you not succeed in government?
  (Mr Field) Well, I agree with Mr Leigh's strictures and as I do not think it is advisable to go into what went on in Government and issue instant memoirs and all the rest of it, I will resist your kind invitation to tell you more, Mr Leigh. All I would say is that I resigned that position because I was not allowed to continue in it and I was not prepared to go elsewhere. There were two spinning operations afterwards; one was that there was nothing done and the other was that the figures did not add up. Well of course the two spinning positions were not consistent and there will come a time when the papers are made available and how far the Government got is revealed. I think my resignation is a sign that I was not winning.

  225. Okay, well that is the history. You are clearly not prepared to tell us more about that, which is a pity, because it is very difficult to—I know you do not want to reveal confidences. All right, let us look to the future then. Without actually describing what went on when you were in there, surely you can give us some better idea—I am trying to find it, perhaps it is my misreading of the memorandum you have given us—okay, let us put it this way. Assuming you are now in Alistair Darling's position and you have to be practical about this, you have to be aware of public attitudes, you have to be aware that young people even coming into the system, we are not dealing with a young country like Chile which you and I studied, we are dealing with the practicalities of a highly developed country with an enormous mass of people who were stuck in the poverty and unemployment traps. You cannot force young people into a fully funded system where they are going to provide for their old age, their sickness. You have all the problems of people who are in uneven levels of unemployment, low levels of pay and all the rest of it. You are now Minister for Welfare Reform; what practical guidance can you give to us as to how we can turn things around and create the contributory principle which will reinforce positive moral attitudes in society?
  (Mr Field) Two things, Chairman. One is I think Chile might object that somehow it is that young country; I think its history goes back as far as we do, but that says something about us probably. What would be the first move? The first move would be that it is very difficult to make sense of welfare reform unless you get the pensions reform right, because not only is the largest element in the budget, but if you get it right other reforms will follow from it. The model which I favour is one that you can only expect as a community to provide minimum. You cannot expect to provide pensions which are going to reflect people's earning differences; that is for the private market and the mutual sector to do. But you have to create a pool of interests whereby people are prepared to pay contributions which will enable you to bring poorer people in as well who will not be able to pay all or sometimes any of those contributions, but because they are good citizens you want them actually in the scheme. Therefore you move away from the idea which is the conventional wisdom now that stakeholder whatever it is, is in a sense an individually owned pension with a little pot of money at the end of the day. What you move towards is a system which offers a pension guarantee, which is part funded and the guarantee is made up of two parts.

  226. Funded by whom? Sorry.
  (Mr Field) There will be two parts to it. There will be the National Insurance side, which is declining as we know as a proportion of average earnings, and there will be a funded side which over time is going to pay for a greater proportion of that pension guarantee. You would begin the scheme by saying that on the vesting day, say everyone at 25 would be in the scheme and expected to contribute to the scheme. They, at the end of the day, when they have done their 40 years' contributions would get a pension guarantee and the government actuary would do the calculation to ensure that, but there would obviously have to be a community underpinning - because only communities can give that underpinning—giving you a pension which takes you above means-tested level. So throughout your life's journey you know that every other bit of capital you acquire is capital you are actually going to keep and is not going to be clawed back because you are defeated at the end of the day by an inadequate pension and you resort to means testing for the top up. The debate at the moment is—and I am trying to get figures from the Government—is whether you put that at 25 percent of, or just slightly above 25 percent of average earnings. The guarantee, as I say, comes from your insurance contributions and your funded contributions you are making actually over time. Once you have everybody in that scheme you can say that life insurance is very cheap, because there is no picking around, there is no cherry picking. So for those groups you then begin to close widow and widower's cover because they would be covered by the insurance coverage as part of their pension entitlement. So it is not welfare reformers saying, as we have in the Bill now, that you might have paid 40 years' contribution to cover your wife should you die, those benefits would continue but for the new people coming into the scheme eligibility to the old benefits would cease because they would be covered by the new contributions. But the funding of this does entail that there will be some graduated contributions for what is, in fact, a flat rate guarantee at the end of the day and the judgment has to be whether they would buy that package. My view is that most people would like to have that guarantee. You cannot buy such a guarantee in the private market, it is a real advantage for anyone to have, and you can build on it by additional pension contributions. But at the same time you actually bring the poor in, so it is a scheme which is inclusive and it is one which again is not just preaching good behaviour. The very nature of the scheme actually encourages it because you know you do not have to hide stuff away, you do not have to fiddle. Whatever additional coverage you have done on top of that, you keep. Now that was one of the alternatives which the Government could have considered. It is not included in the Welfare and Pension Reform Bill. I think at some stage we will have a proper debate about that and while people will rightly say I am still a failure, I hope—

  227. Well we are all failures; I would not worry about that, Mr Field.
  (Mr Field)—still to be around when we actually have that debate.

  228. Now, was this an idea you proposed in Government, the one you just described to us?
  (Mr Field) Indeed.

  229. Right, you proposed it in Government. You have outlined it to me in a perfectly satisfactory way, but I did not have the expertise to look at the sort of actuarial thinking behind it, but presumably from the resources available to you in Government you could put this through quite stringent actuarial tests, could you not, at the time?
  (Mr Field) I am anxious not to—when the Green Paper was finished I was asked to submit my views on pensions reform. This was the view that I put forward. We are talking about the last 12 weeks I was in Government.

  Chairman: Dr Naysmith?

Dr Naysmith

  230. It is just on that point. What do you do about people who do not earn enough to contribute, either because they are in part time work or they are in or out of the labour market? For people like that, how do you make it that they feel they are part of the contract?
  (Mr Field) This is where the Chancellor's Welfare to Work reforms are so important. In the past, despite the amount of goodwill you might have, our constituents feel that if some of their neighbours can fiddle, they might well fiddle, and the problem was of saying well, we will bring other people in as well, you will always find voters who say: "Oh, I know so and so who is onto some old lark on this". When you have a system where people who are registering for work are met with a pro-active welfare system which the Chancellor is progressively, thank goodness, developing whereby the services of the Employment Exchange and Job Centres are concerned with how you fit people into jobs and seeing that they turn up or offering them guarantees if they do not fit, then you have actually at one stroke wiped out the scope for people just sitting on their backside, pretending they were trying to do things and claiming all the benefits. With the system the Chancellor is developing, with the quite stringent controls which are also being applied to people abusing the system, those who are at the bottom struggling along are actually there because they are trying to do better, but cannot at the present time. So there are not the problems of bringing people in and saying: "Well done; you are part of this scheme. Your contributions are being financed by people on higher pay because they think it is actually a good buy for them to have the guarantee" and you do not have to have a system where you are saying the people at the bottom will actually mis-use this, because you have moved from a passive welfare system where you just drew benefits and no-one cared what you did, to an intelligent one helping people who have difficulties getting work to get work, but also having a careful little push for those who thought they were up to something else. With this pro-active welfare it makes it easier to bring people in on low earnings because you know what they are telling you is genuine.

  231. Will that apply to the relatively small number, but important number, of self-employed who are low paid? How are they going to be brought into the scheme?
  (Mr Field) I think you would have to build a Chinese wall, which we do anyway to some extent with the self-employed, in that you would have the contribution for the self-employed and they would be required to pay that if they wanted to be in the scheme. If they did not, they would be in the much tougher means-tested one for those outside. If the contributions suggested they had higher incomes from their businesses than they actually had, I think you would keep the Chinese wall because they might be getting sources of income from elsewhere in the family to pay those contributions simply because they actually want to pay their pension contributions, and that should be the real effort. The Government has made a very important advance in the pensions part of the Bill we have before us and it is saying, "you can continue to pay contributions when you are not working". Furthermore, and we are not going around with a magnifying glass to find out where the money comes from.

  232. If we are moving towards this contract system rather than the altruistic system that you described so eloquently at the start, we have to start identifying new needs possibly in this system? Do you think, for instance, there should be a new benefit for carers?
  (Mr Field) I do, and I think the way I hope it might be introduced is again by thinking about how we finance long term care. At the moment, people rightly feel aggrieved in that if they have saved their savings are used in a way which they thought they were not going to be used and you could say: "Well, that is hard luck; that is life". Or you could have a system which says that only one in five, one in six of us are going to need intensive long term care and that this is a proper area for a new insurance benefit, that it is probably best to be run collectively but not by the State. You could have collective services which are not State services. Indeed, people may well want insurance at arm's length because they would not be too keen on future governments getting their sticky fingers on it. That is how the German system operates; people make choices about whether they have residential care or whether they pay people to look after them in their own homes. In that way you are making a big advance for carers as well.

  233. The system of National Insurance credits, does that need improving in this kind of way?
  (Mr Field) Well, the Government is making very welcome proposals. My argument is it would be even better if we actually paid up front their contributions so that they were like everybody else in the scheme, rather than at the present time. A future government could ensure from insurance contributors that the money is there to actually meet their contributions. It is a half way house, but it is a million times better than no house at all.

  Dr Naysmith: Thank you.

Chairman

  234. These would be compulsory contributions?
  (Mr Field) You cannot run it on the basis of allowing people to choose in these basic areas because there are always more pressing needs and always the thought: "Well, if I do not make the contribution, taxpayers will pick me up later on". What you have to do is make sure that those who cannot make the contributions actually have their contributions covered, providing you approve of their decency and most people fall into that category and I do not think we should be too worried about it. Most of our voters can make that distinction and I think we should be reflecting that.

Dr Naysmith

  235. Surely that is in order to try and avoid topping up by means testing benefits later?
  (Mr Field) Yes.

Ms Buck

  236. The National Insurance contributions at the moment, as I understand it, is not a progressive element within the overall system. If you are going to expand it in the way that you have outlined, what are the implications for the additional contributions for a higher paid worker? I am not saying I am against it; in a sense I would just like to know what your workings out are because if we are going to have the redistribution element that you have outlined and which is clearly essential, that does carry with it an implication of probably quite significantly higher contributions for the higher paid. And that just leads me to another question which is just a general question really, which is that the DSS research did convey a message that people did not have a clue really. I mean they liked some of the ideas that you have already outlined about what National Insurance did, but they do not really know. A lot of people think it funds the Health Service, they do not really distinguish between what National Insurance contributions pay for, what tax pays for. If you had to actually increase contributions, do you honestly think that higher paid people would differentiate between increased contributions and increased taxes and is that something that we could overcome?
  (Mr Field) This Committee, Chairman, made the suggestion in the last Parliament that the insurance system should become more active and people should get statements about what their contribution record is and what their benefit entitlements are. It would also be a very useful check for people who have been mis-using numbers because you would find that out that benefits were being drawn, so it would actually help in securing the system. So I am in favour of not leaving the insurance system as it is—I hope that is plain—but developing it in one very small way that this Committee suggested in the last Parliament, that we receive regular statements about our insurance fund and what our contributions are and what our entitlements are as a result. It is true that what I am advocating is that people on higher incomes would pay more than people on lower incomes and I unashamedly put that forward, but as I—

  237. Only in the sense of the scale of it?
  (Mr Field) Yes, but as I in previous Parliaments was anxious to caution Labour about thinking that you could tax anybody any old how and they would all turn up and vote for us on the day, because they clearly did not, I have not thrown caution to the wind, and if you are going to do this you do it in an area where there is going to be considerable popular appeal. I have suggested already, too, people are genuinely worried about the increasing cost of long term care and I believe it would be a popular move to suggest that you could have some form of insurance which all of us are in, which need not be run by the State, but would be a collective scheme in which there were formal progressive contributions. For that you might want flat rate ones, but whatever you decide the scheme is universal. On the pensions side, any person can devise a pension scheme for the rich. The trouble is how to design one for the poor which is viable and the only way to do that is to have one in which the appeal is such that richer people are prepared to pay something more because they see it in their interests to be in that scheme and as I was outlining to Mr Leigh, that comes from offering a guarantee against average earnings at the point you retire, rather than saying you have built up a little pot. It means you are through the annuities thing because the only reason we have annuities now is to stop people using money they have built up with the help of taxpayers and then falling back on taxpayers for means-tested help. If you have a basic pension which is above your means-tested support, then it is up to you whether you choose an annuity with the rest of your money or not, so there are lots of simplifications and richer people would see advantages, particularly in something they cannot buy in the private market and for that it could not work without some form of redistribution. We got to the stage just prior to my resignation where similar proposals were going to the Government actuary to cost. It is up to the Government to say whether it was actually costed and what the contributions would be. I am not in favour of trying to open up fronts about making the insurance system more progressive in an abstract way. I think you pick the topics where there is a commonality of interests and you say: "Is this not the way to advance on that"? I did say in my memorandum, Chairman, that there is a research budget the Commons Commission allows for Select Committees and while the Department has done some research, those who have read it know it is not as detailed as one might like and maybe that is an area the Committee might think about asking for a research budget so that you could look and probe more deeply on what people think on this whole area of how they see national, as opposed to State, insurance developing.

  Chairman: Time is almost out, but just let us concentrate, if we may, in the time that is left to us to thinking about how we can improve, how you could find sensible ways, in your own opinion, of improving the National Insurance system. Mr Dismore would like to ask you some questions in that area.

Mr Dismore

  238. I would just like to carry on from where you left off really, Mr Field. Are you effectively saying that people just pay more, but we do not know how much more, to secure the same benefit or is the logical conclusion for what you are saying that you could end up with some sort of earnings related rates of benefit, depending on the level of contribution, that is on a sliding scale not necessarily reflecting a direct equation or the opposite? We have just, as you know, been to Scandinavia. They operate earnings related benefit systems there and quite substantially high proportions of earnings, but then again it is quite expensive to operate.
  (Mr Field) No, I am not advocating, Mr Dismore, overthrowing the status quo for the benefits which we have. What I am suggesting is that developing insurance into new areas, whether it be by care insurance or by a savings principle in the end for pensions, does offer the opportunity to re-think how the contributions are made and I am in favour of having that debate on the new areas where the voters may be with us, rather than trying to tear scar tissue off the old debate about whether to throw everything up in the air at once on the National Insurance scheme. I am not in favour of that. I believe the status quo should remain while we think, hopefully imaginatively, in new areas. It may then be that the debate moves on, decades later, to the question of whether it would be sensible to merge these systems and have a more progressive system? But that would naturally evolve without people being threatened because they would have seen the advantages. But I do generally think that we are in an age where people do want to spend more of their own money and that if we are going to protect public services we actually have to have a new agreement with the electorate and in areas like, increasing, on health, on care and on pensions we are going to have to offer a different deal to the sort of deal we offered taxpayers in the past.

  239. May I just explore, going on from that, the relationship between the National Insurance scheme and private arrangements or occupational pension schemes, private insurance, that sort of thing? Are you effectively saying therefore that the minimum provision which you have identified has to be on the basis of compulsory contribution before you start looking at any private arrangements that you have managed to put on top?
  (Mr Field) Yes, and the conversations I have had since resigning with occupational schemes have revealed that they could not fit current arrangements, within the current scheme I am advocating. There is always the danger in introducing something new that those running occupational schemes think: "This is the last straw, let us get out of the game". What one would also have to do is offer occupational schemes, who would have to run new schemes along this former stakeholder pension, very significant reductions in the administration that they have at the present time to fit in with current Inland Revenue rules in particular. There would have to be a proper negotiation with them if we were not to, as in the pensions being paid, damage overwhelmingly and clearly the one great welfare success this century.


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 1 December 1999