Select Committee on Social Security Minutes of Evidence

Examination of witness (Questions 327 - 339)




  327. Good morning, ladies and gentlemen. I formally declare open the public session of evidence with the Secretary of State. We are extremely grateful that the Secretary of State has found the time to share the morning evidence session with us. The committee is looking at the contributory principle and its future. For the avoidance of doubt, we are hoping to make the transcript available early tomorrow morning, under the new powers that we have. That involves quite a tight schedule for the reporters, so I ask my colleagues not to get excited and to take care in using our Scottish accents—of course, I refer to myself and no one else, Secretary of State—so that the proceedings are accurately captured. Last time you were with us I said that it was not "Mastermind". We are not trying to catch you out in any way. If any of your professional team want to send you notes to qualify some of the adjectives that you may be provoked into using, I am absolutely comfortable about that. No one is trying to catch out anybody. It is an important new service, to try and make the work of the Select Committee more readily and quickly available. Although it is an experiment—we have not done this before—I hope you will not feel constrained in any way about it. The second thing is that I do not know who produced the memorandum that the Department gave us earlier this year, but they ought to be promoted. It is an absolute model of its kind. I have it by my bedside. It describes the development of the National Insurance scheme right from 1911. Half of this I did not know. It will form an absolutely invaluable appendix to our report and it will need careful study. Anyone who is a serious student of this subject will find it valuable. Whoever wrote it—it may have been yourself for all I know—deserves credit, praise and thanks. I know you hate this because you have a reputation, rightly, for being someone who gets things done and this is philosophical stuff, but it is important philosophy. It would be helpful if you could say a word about how you think the contributory principle of National Insurance schemes has been developing recently and how will it develop in the future. After that we shall ask you various questions.
  (Mr Darling) Firstly, thank you for your compliments in relation to the paper that we sent to you. I am glad that you found it so riveting that you have it by your bedside. I shall pass on your congratulations to the officials who drew it together—under my direction of course! None the less, I appreciate that. Sometimes we as MPs are rather slow to commend public servants when they do a good job. I have looked at the evidence that you have had over the past few months. I have read a great deal of it. Some of it is very familiar. I approach this problem from a different angle from most people from whom you have heard so far. That is not because I am against looking at the philosophical underpinning of the system—far from it, as I believe that is important—but because, as you suspected, it is important that you should ask yourselves how much the system is delivering and what it is delivering, rather than concentrating on the means of delivery almost, in some cases, to the exclusion of the outcome. Our long-term and radical change of view from the past is that we believe that the welfare state needs to be focused on outcomes rather than on the means of delivery. For example, we want to eradicate child poverty. One way of doing that is to increase child benefit. That is not a contributory benefit, but increasing child benefit is one way of doing that. We want to get people into work. We want to get everybody who can work into work. You may want to ask me about the Working Families Tax Credit. That is not a contributory benefit, but we believe it is a means of making work pay. We want to provide security for those who cannot work and we need a mix of benefits to do that. Of course, we are helping people to build better pensions. You must ask yourselves, "What is the policy objective, what is the outcome that you want to achieve in terms of eradicating child poverty, getting people into work and giving people better pensions?", and then you ask yourself, "How do we deliver that?" In other words, the broad criteria ought to be, "What works is what is right in the particular circumstances". Perhaps the best way to illustrate that is to see what we have done over the last two years in relation to the pension system, which shows how we have developed what I regard as what is colloquially known as a mixed economy of delivery systems to achieve our objectives. Taking pensions, we have two objectives: one is to ensure that in the longer term everybody who works throughout their lives can retire on a decent income above income support levels. The way that we have done that is to develop and strengthen the contributory system. I think this committee looked at our Green Paper on pensions some time ago and you will know that we have reformed SERPS. We now have a much better system through the new state second pension, for which we are about to legislate. That will mean that people will be able to work throughout their lives and achieve a good income in retirement, topped up in most cases by people's own occupational pension, stakeholder pension and so on. That is an example of how we are benefiting some six million low paid people, some two million carers, three million disabled people with broken work records, by developing the contributory principle and the contributory system through the new state second pension. The second objective on pensions is to deal with the problems with today's pensioners, some two million of whom have seen their incomes go up by very little in the last 20 years, who you could arguably say that the contributory system has failed. Of course, most of them did not have very much during their working lives and as a result they do not have very much in retirement. We are increasing their incomes through the minimum income guarantee, which again patently is not a contributory benefit, but a means«-tested benefit. However, the result is that one-and-a-half million pensioners will now get substantially more than they would have done had we not changed the system. So the pension reforms that we are making and the policies that we have adopted in the last two years, illustrate how using a mixed economy of delivery systems we can achieve two objectives, one is that people should retire on a decent income after a life-time's hard work and the second is that, dealing with today's problems which are that too many pensioners are far poorer than they should be, we deal with that through a different delivery mechanism. When you come to write your report, bear in mind that the contributory principle or means-tested benefits, or universal benefits, or those benefits for extra costs are not an end in themselves, but simply a means of delivering a policy objective. I conclude by saying that the outcome that we want—this theme is touched on especially by some of your academic contributors—is a welfare state that is as popular as it was intended to be when built in its present form in the 1940s. I believe that it will be popular and that the public will support it, both financially and politically, if they can see the point of it, if they can see a welfare state that works, when we have eradicated child poverty, when we have got everybody into work and when we can provide decent pensions. That is what people want. I think they will rally around that flag rather than around a flag that is staked on one particular delivery mechanism or another.

  328. That answer is valuable and basically what I expected you to say at the beginning. A couple of years ago you produced a Green Paper entitled New Ambitions for our Country: A new contract for welfare. Indeed we have been up the hill and down the other side a couple of times since then and there was supposed to be a great debate. The foreword by the Prime Minister says: "There has been no true and comprehensive review of the welfare state in all its elements since Beveridge", and it goes on to say that it is about time we had a framework and a proper debate. Do you believe, hand on heart, that over the last 15 months there has been a coherent debate which can give ordinary potential customers of the benefits system some clearer notion of the ideas you are trying to explain? Do you think that there has been a serious and meaningful debate recently about this subject?
  (Mr Darling) Everyone of us is concerned about the welfare state because everyone of us at some stage in our lives will depend upon it. I mean the welfare state as broadly defined, including the National Health Service, pensions and other benefits. What has changed since we came into power is a recognition that the welfare state that was built in the 1940s was designed for a very different world. Beveridge was quite clear that it was designed for a world where all men—not women—would be in work all the time, probably in the same job, throughout their whole lifetime. He wrote his report at a time when the average life expectancy of a man after retirement was one year.[15] People are now living for 20 or 30 years in retirement. We have said, "What do you want the modern welfare state to do?" I come back to three things that I think are important: firstly, the eradication of child poverty, coupled with our policies of driving up standards in schools to give all children the best possible chance in life; secondly, the policy of getting people into work, and having a welfare system that does not ask, "How much benefit can we pay you?", but asks, "How can we get you back into work so that you can contribute rather than have to depend on benefits?"; and, thirdly, making sure that we resolve the problem that too many pensioners face today. I believe that those three ingredients have the makings of what I believe would be popularly supported in the proper sense of that word. If you asked me, "Will you ever get a debate in the pubs, clubs and on the streets in which the contributory principle is discussed?", I doubt it. You have looked at the research that is produced by Loughborough University which is interesting in that the findings were that many thought that the contributory principle was a good thing and then went on to say that most people did not know what it was. A further examination raised more questions in their minds than provided answers. I come back to the point that the important thing that any government ought to consider and anyone interested in social policy should be concerned about in my view is the outcomes that you want to achieve. Even if you have a system that is totally dependent on the contributory principle—I believe that would have a lot of problems and difficulties—if the public did not say, "Actually in this country we have quite a good social security system and a good welfare state", then they would be open to arguments for getting rid of it and doing something completely different. We are trying to focus the welfare state on delivering objectives that most people in this country would be happy with and would sign up to. Of course, the debates will carry on. Some debates will be conducted more widely than others, but you have to be realistic. Most people tend to be concerned about things when they are acutely bothered by them and if they see some immediate threat to them. I think, with some humility, that people recognise that what this Government is doing with the welfare state is something that they broadly support.

  329. Is the department doing any research into the National Insurance contributory principle? The last piece of research that I have is dated August 1998. Is there any active planning going on? How do you talk to the customers? I have just had the benefit—as I know your Minister of State has—of looking at the work that Pearl Assurance has been doing. That is listening behind a screen to ordinary folk talk about their problems. That is a fascinating experience. How do Ministers get hold of what is in the mind of the public rather than what is in academic research?
  (Mr Darling) That is a difficult question in the sense that we get information from all sorts of places. As MPs, one of the great strengths of the constituency system in this country is that most of us spend our weekends and other times in our constituencies where we pick up a lot of intelligence, some of which is better than others. As Minister of the DSS we have a lot of contact with members of the public who use the system. I and my ministerial team make a point of visiting our offices and during the course of that we meet members of the public.

  330. Is that true?
  (Mr Darling) Do we meet members of the public? Yes, it is true, Archy.

  331. This is a serious question. As a committee, we find it quite hard to do that. If 11 people in suits—or twin-sets—
  (Mr Darling) You are in deep water.

  332. I am trying to be "equal-opportunistic". When we collectively go into a situation and genuinely try to seek after the knowledge and the truth and find out what is in people's minds, it is an intimidating experience for them. If the Secretary of State for Social Security descends into an ordinary group of claimants, my guess is that it would take a long time before they would relax and give you meaningful information.
  (Mr Darling) In my experience people are not afraid to address you when things concern them.

  333. Obviously, you are more user-friendly than I am.
  (Mr Darling) You gather information through a variety of means such as speaking to staff who administer the system and speaking to people who have to deal with the system. As MPs we all know the things that are wrong with the present system and the shortcomings. Let us step back to the three points that I was making to you. We published our strategy for combating poverty last September. I am not sure that the committee has had a chance to look at it.

  334. It is very comprehensive.
  (Mr Darling) That is important. For the first time you have a government that recognise that you cannot, in any decent society, tolerate a situation where nearly a third of children have been born into circumstances where the chances are that they will be disadvantaged for the rest of their lives unless we intervene. As we know as MPs, it is not just income, but also the housing in which some children are brought up, the quality of some of the schools in some parts of this country, their health, and so on. You gather the information from academic research, from your own experiences, from what people tell you and from a variety of means. Let us come back to the important point. We know that there is a problem with child poverty; we know that many of our children can and will do better because of the changes that we are making. We know that there is a problem with many pensioners who have lost out over the last 20 years. For example, when I was drawing up the Green Paper, at the front of my mind was how we stop that happening in the future. Your information comes from a variety of means, but to come back to your first question, before you were side-tracked with your fashion observations, I am not aware that Loughborough is doing any further research so far as people's attitudes are concerned, because I am not sure that the story can be taken much further so far as what people think of the contributory system. Because of its very nature it is not surprising that people do not talk about it at night. You may have trouble sleeping at night and read about these things, but I think most people do not.

  335. This is all transatlantic—that is the charge that is made against the Government. Distinguished commentators on these matters say, that you—the Chancellor or the Secretary of State—are fixed on all these new American ideas, that it is all tax credits and that earned income tax credit was an idea that the Chancellor brought back last time he was with his pals in the Democratic Convention and so on. How do you react to that?
  (Mr Darling) I plead guilty to having visited America, but I have also visited most countries in Europe. My first observation is that Britain is one of the few countries in the world where we have a universal benefits system. We do not have a system where you can completely fall through the net. In the United States, when they talk about welfare reform they are talking about lone parents. In many states that is it; that is the extent of it. If you say to me and if you look at some of the programmes that we have adopted for getting people into work, and you say some of them are modeled to some extent on what happens in America, I shall quite happily accept that. The Americans were ahead of us in realising that there are a lot of people who are written off by the system, people who could work. I strongly believe that most people who can work, ought to be in work not just from the point of view of their income, but from just about every other possible position. You talk about the cohesiveness of society. A society in which people are in work rather than hanging about with nothing to do must be a better society. I would not want to import into this country some of the things that they do in America. Some of the things that they do in America do not actually work, even in America with the American rules and so on. No government anywhere in the world should ever be afraid of looking around the world and saying, "Do they do things better than we do?" Your starting point must be what we have here in the UK. We did not start with a greenfield site. Our culture, political and in every other way, is different from other countries. The objectives that we have set ourselves for helping children, helping parents and others to get into work and for building a secure pension system seem to be the right way to go. Pensions must be sustainable, which our system most certainly is, but you cannot say that about every other system in the world. If you accuse me of being a pragmatist or being concerned with outcomes rather than theories, I shall plead guilty. That is what I was appointed to do. I was appointed to try to make some sense of the social security system and to deliver the Government's broader policy objectives. That is what I intend to carry on doing.

  336. That is a beautiful way of avoiding the question, is it not? Who could be against being in favour of pragmatic, good, modern outcomes? I plead guilty to that as well. But it is a lovely way of ducking the question.
  (Mr Darling) You asked me about it. You asked whether we import all this from the United States. My answer was that there are some ideas in America which I think are good and have been adapted, but there are other things in America which are wholly inappropriate because their welfare system is completely different from ours. They have food stamps and we do not. I do not think any of us want to go down that road.

  337. One final question from me. I am old-fashioned enough to believe that the contributory social security principle is worth modernising, supporting and trying to make better, but I would be happier in my bed at night if the adage was "Work for those who can", which I support. I think the Government have done a lot of excellent work that should be acknowledged in that field. But if the adage is "Contributory benefits for those who can" and if the Government is serious about changing the culture and getting bigger numbers into work—the early evidence is that they are and I hope that is true—they are going to be left with a harder and harder cohort who cannot usefully go into work for a variety of reasons. If the contributory system was being designed in a way that would help them better, I would be happier because my fear is that as you get that number reduced, if the policy on welfare to work terms is successful, you will end up just with a core, an underclass—to use pejorative language—that will simply be on means-tested benefits. If the welfare to work policy is successful, why do you need a National Insurance contributory principle at all?
  (Mr Darling) With respect, your suggestion does not have a very good base to it. You are concerned, as we all are, with people who cannot work and many of those people probably never could work. A contributory system is of no help whatsoever to them because they will not be making any contributions.

  338. Precisely. In that case what you want is a means-tested system.
  (Mr Darling) That is what I am saying. In any social security system you have to have a mix of benefits. I gave you an example on pensions where we have extended and strengthened the contributory system. If you look at the amount of additional help that is going to those on low incomes, the state is doing what it should do and provides a redistributive system that helps those people as well as through the rebate structure which helps people on moderate earnings to go into funded pensions. The contributory system there works. Something like 80 per cent of the contributory benefits now go into pensions. That has happened over the years. Most of it goes into pensions. Very little of it goes anywhere else. There is a little that goes into incapacity benefit and a little to widows' benefit and bereavement allowances, but most of it goes into pensions. On doing something for those who will not work, in the last Welfare Reform Bill, for example, we increased the amount of money going to the severely disabled—they are people who probably will never be able to work—and we increased the amount of money they get by nearly £30 a week. That is an example of how you need the mixed economy if you want to achieve an outcome where everybody who can work does work and they contribute to pensions and other things as well, but for those who cannot work, the contributory system does not actually help them. The lack of help for poorer people who do not work has always been recognised as being a problem with a pure contributory system. Beveridge's National Insurance Fund arguably started to go wrong as soon as it was realised that the people he wanted to help most by definition could not pay enough money into the system, therefore, from 1948 it was recognised that you had to do other things to help them. I repeat that point, as we are coming to the end of your questions, that I suggest to you that we should concern ourselves, firstly, with what outcome we want to achieve with each policy and, secondly, how do we actually achieve that.

  339. It is not death by stealth?
  (Mr Darling) The contributory system as a proportion of our benefits system has changed over the years. It is now about 46 per cent of the entire benefits system. Most of that goes into pensions, although it is different from the contributions that you make into your occupational pension fund and people understand that relationship. They pay their money in and get the basic state pension and they get the new state second pension and they will be helped because of that. The corollary of your question is, "If you think it is such a jolly good thing, will you then extend it to a lot of other benefits?" Perhaps I can give you an example. If we were to go back to the mix between contributory and means-tested benefits of 1979 when the Tories were elected, that would cost something in the order of some £50 billion. If you have £50 billion to play with I suggest to you there are other things you may want to do with it. I come back to the point that I think that the philosophy and theology of a social security system is important, but you have to think about how you raise the money. The key matter for me is what are you trying to do? What is your objective for children, people of working age and pensioners? What is your objective and how do you do it? We must always remember that we start from where we are rather than from where we may want to be if we were in a laboratory or something like that.

15   Note by Witness: The average age a male born in 1942 in England and Wales could expect to live to, if the 1942 mortality rates were to prevail throughout his life was 62.1 years. [Source: Government Actuary's Department]. Back

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