Select Committee on Social Security Minutes of Evidence


Examination of witness (Questions 340 - 359)

WEDNESDAY 24 NOVEMBER 1999

MR ALISTAIR DARLING

Mr Dismore

  340. I want to kick off with the answer that you gave to the question before last. I want to look at some of the philosophy behind Beveridge. He proposed a scheme that was supposedly comprehensive on a contributory basis, with means-tested benefits being less desirable and a last resort. Do you think, with the benefit of hindsight, 50 years on that that was ever achievable? The system as set up was a pay-as-you-go scheme. We were never, as individuals and collectively, prepared to pay for that sort of system? In practice what we have had since then, as you have indicated, is a sort of mixed economy of means-tested and contributory benefits which, basically, is what continues now.
  (Mr Darling) The difficulty was that Beveridge was constrained by where he started from. He set up the National Insurance Fund, which I think I am right in saying he intended would be a funded fund. That depended on nothing being taken out of it for 20 years. When you ask yourself, "Was that ever a goer for any government of any political colour?", the answer is probably no, because you have 20 years' worth of voters who would probably say, "What about us?" I think that there is limited value in going back and saying, "Right, if we were Beveridge, would we have done something different from what he did?", or "Would we have designed a system that was better than his?" He designed it for the world of the 1940s, although much of the research on which he drew took place in the 1930s. The statistics that he drew on were different, of necessity because he wrote it some time earlier, and what the world expected from a benefits system in the 1940s and 1950s was different from what they expected in the 1930s and it is very different from what we want in the 1990s and beyond. Without wishing to be accused of being repetitious, which I think is still a crime in the House of Commons, I come back to the point that you should ask yourself, in any policy area that you like, what your objective is and then you ask yourself how you achieve it.

  341. Turning to a point that Archy mentioned, public awareness of the current system, research that was done last year by the department and our own experience shows that people have only a vague, if any, understanding of how the system works and what it pays for. People think that they have paid in all their lives and, therefore, they are entitled to take something out at the end. I was talking to one of the Doorkeepers only yesterday and she seemed to think that the system paid for the NHS, means-tested benefits and contributory benefits all at once through the National Insurance contributions. I do not think that is an unusual experience. To what extent do you think that people need to have a better understanding of how the system works and what it pays for? Do you think it matters that people do not really know because in the end what counts is the outcome rather than what goes in?
  (Mr Darling) I think people need to have a clear understanding of the relationship between what they put into a system and what they get out of a system. Most people tend to think about these things when they have recourse to the benefits system or pensions system. Pensions are slightly different in that most of us expect to retire and to draw a pension. I suspect that most of us do not intend to be sick or we do not expect to become disabled and we do not intend to be unemployed. We always assume that that will not happen to us. I suspect that the first time that we would ask ourselves, "What do I get?" is when that event happens. Having got to the benefits office, or having picked up the telephone to find out what you get, I think the question is, "How much do I get?" rather than "Please explain to me how much of this is based on my contributions and how much is based on means-tested and am I entitled to DLA if it were universally available?" and there is a certain extra cost-benefit there. Let us be realistic, the anatomy of the benefits system is something that comparatively few people would want to turn to, although clearly some do. Some excellent work has been written on it. Perhaps I ought to say that, given the audience. As with all these matters, the public tend to judge all governments on what they get at the end of the day. One of the reasons that we are reforming the pensions system is that it cannot be right as we have it at the moment. If we did nothing, maybe a third of people now working will retire on a minimum income guarantee from day one or shortly after retirement. That cannot be right. Anyone would say to a government, "Do something about it". Here we have the political problem to which you referred: clearly it takes time to build that up. If you have a system that gradually builds up it takes time. You should always be ready to ask the questions, "How is the system built up? What do you get?" Of course, you should do that. Most people are more concerned with what the system actually delivers for them.

  342. On that point, do you see any contradiction between means-tested benefits which are contributory benefits at the same time?
  (Mr Darling) No, I do not.

  343. I have one or two questions that Frank Field put to us about the way in which the benefits system can impact on people's behaviour. On the one hand he said that means-testing was bad because it means that if you work you will lose benefit, therefore it militates against people working, that if you save you will be disqualified because your savings will take you over the limit and if you tell the truth then you will lose your entitlement. He also came up with some other ideas in a more detailed way about how changes in benefit and cutting benefit could affect people's behaviour. One example that he suggested to us was that if children did not attend school their parents may have their child benefit cut as an incentive to make their children attend school, which I think is a rather simplistic approach. Another example put to us was that problem families on estates may have their retirement pensions docked for not being worthy members of society. He seemed to think that somehow you could use the benefit system to affect people's behaviour in life. What do you think about those ideas?
  (Mr Darling) Frank is entitled to his ideas. I see from today's Financial Times that last night he took his ideas further when speaking to a think tank. Let me deal with one complaint that he has made, the Working Families Tax Credit. I believe this illustrates the differences of opinion between my approach to these matters and his and perhaps others. The objective is that we want to get as many people who are able to work into work. The problem faced by many people is that they have found that if they were on benefit they faced very high effective rates of taxation when they went into work. Indeed, a number of people found when they went into work that they were worse off. That cannot be right on any view. The idea of the Working Families Tax Credit is to make sure that when someone comes off benefit and goes into work they see the cash advantage of that in their pay packet at the end of the month. I believe that will change people's behaviour and their attitude towards going into work. At this time of year, for example, it is quite common for companies to advertise for seasonal workers and many people may decide that they want to do some work over that period—perhaps mothers with children and so on. If they think that it is not worth the trouble of going to work because they may be worse off or it will mean the household coming off whatever entitlements it has, then any sensible government needs to tackle that. I think that the Working Families Tax Credit will change people's behaviour. Frank seems to come at it from the point of view that if you do that people will say, "No, I will not work because some of that money is coming from the state instead of from my employer and it is a disincentive". I disagree with him. He is entitled to his view, but I disagree with him. That is an example of where the Government have an economic as well as a social objective: getting people into work so that they can make a contribution. The Working Families Tax Credit delivers that. I saw in the Financial Times this morning that Frank, in describing a group of people, spoke of the deadly cocktail of idleness, drink and drugs that is producing social anarchy. People who are on drink and drugs and who are social anarchists tend not to be too troubled about the contributory principle. There are other problems that the benefit system is not designed to deal with but there are other agencies that will.

  344. I have one last question along these lines. That relates to women who are affected by means-testing as opposed to the contributory principle. The availability of benefits is assessed for them on a household test rather than on an individual test. To an extent that militates against women looking for work because of the potential impact that that will have on the household economy.
  (Mr Darling) By making sure that work pays we are trying to ensure that the answer to someone's question, "Does it pay to work?" should always be yes. Clearly we need to look at other changes to make sure that that is always the case. The alternative—moving away from household assessment on which the benefit system has always operated—of going to an individual assessment is to raise the obvious point of the duke and the duchess. The duchess has no money but the duke has millions. Do you say that you should pay the duchess income support or do you say that the duke has an obligation to his family that the state does not always have to have. The main thing that both of us I think would agree on is that we should always try to arrive at a situation, in any household, where the answer to the question, "Does it pay to work?", or "Should I go to work if I can work?", should be overwhelmingly yes. Therefore, the state has to ask itself, "How does that come about?" I am willing to bet that if you rounded up 100 people in that position and you said, "What is more important to you, getting £200 a week in your pay packet guaranteed or did you know you are now getting a contributory benefit?", I think they will go for the former rather than the latter. If you are interested in behavioral patterns that matters.

  Mr Dismore: Maybe the duchess should go out to work, especially as the duke has been thrown out of his job in the House of Lords!

Mrs Humble

  345. I shall not follow on with the idea of the duke and the duchess or I shall get into sartorial statements. The answer that you have just given seems to suggest that you think that you have solved what, in the past, were very real problems to do with means-tested benefits trapping people in poverty. Do you believe that you have an answer to that now? Do you believe that the way in which you have introduced the Working Families Tax Credit and other mechanisms that people will no longer be trapped in the way in which they were, either on benefit or in low paid work?
  (Mr Darling) I think the answer is that we are getting there. We have made some good progress. There are still things that we need to do. The objective is to ensure that for as many people as possible the answer to the question, "Will I be better off in work?" ought to be yes, and the Working Families Tax Credit does that. It is one of a number of things that we are doing. For example, the national minimum wage deals with the other problem which was that a lot of people in that position were faced with going into work but the pay was so low that they could legitimately say, "This is nonsense working for £1.50 an hour", or whatever. If your question is, "Are there more things that I need to look at?" then yes there are. There is, for example, housing benefit. Today I am not in a position to tell you what the solution is there. As you know the government is committed to producing a Green Paper on housing. There are other areas that we need to look at.

  346. Can I go back to a point that you made at the beginning? In your initial statement you said that people will support the welfare system if they can see the point of it. One of the arguments presented to us about the contributory principle is that people feel that they are paying into something lest there is an eventuality in the future when they can get something out of the system. Therefore, they are reasonably happy. In so far as they understand the system, that is the general perception. Means-tested benefits have been aimed much more at alleviating poverty and providing a safety net. Do you think, as the mixture of benefits becomes more heavily means-tested, that people who are paying into the system will still want to pay into the system when they see benefits targeted much more at alleviating poverty and to helping that section of society that has not contributed?
  (Mr Darling) The answer is yes, provided people can see that if they are paying their money in through the National Insurance system or through general taxation that they are getting value for it. People in this country do not mind paying their taxes because that is what funds most of the National Health Service. They get a National Health Service and they prize the fact that they have a system that is there when they need it. Most of us hope that we will not need it for most of our lives, but it is there. As long as people can see a good quality National Health Service—something to which the Government are committed to building—they will be satisfied. So far as benefits are concerned, people are probably going into a Benefits Agency as we speak, saying, "I have paid my contributions, I'm out of work and I have a family", and they get income support and they say, "I've paid for that", but income support is not contribution-based. You would not expect them to know that. Why on earth should they have troubled with that? They want to know that there is a system there when they need it and that it works efficiently and is delivered efficiently. I think we have far more to do. At the end of the day, what will make the welfare state in this country popular or what will sustain it—remarkably in this country it has endured for some 50 years and we, as a government, are committed to it being there for the next 50 years and the 50 years thereafter—is if it delivers what people want. If it delivers a service in an up-to-date way and it delivers help that is appropriate for people, they will support it. The last thing I say in reply to you is that I believe that most people will accept that the welfare state helps us all in different ways, but especially in terms of supporting people on low income. The greatest help ought to go to those in the greatest need. That is what we are trying to do because those are the people who otherwise would be left high and dry.

  347. I am sure that we can do a lot to argue about a cohesive society working together to support the disadvantaged. If there is one group that perhaps does differentiate between contributory benefits and means-tested benefits it is older people, especially older pensioners who can remember pre-Beveridge and the old Poor Laws and the stigma attached to that. There was some of the stigma attached to means-tested benefits in the early post-Beveridge period and there were the concepts of the deserving poor and undeserving poor. I know from my personal experience that is borne out by your department's research that many pensioners who have entitlement to income support do not claim it. I recall that you announced fairly recently that the department will have a publicity drive to encourage pensioners to claim. What can we do about overcoming that reluctance to claim, which is partly the fact that they do not want to get involved in what they see as form-filling and procedures, but also that perception that income support is somehow "undesirable"? What can we do to help the poorest pensioners whom we have identified as needing that help?
  (Mr Darling) You have touched on what is a problem for many people. Many older pensioners would have been alive during, and have recollections of, the 1930s, for example, when there was mass unemployment and poverty was rife. Then the means test had slightly different connotations because it was not just the immediate household that was involved; it was wider than that. People talked about the deserving and undeserving poor, and thankfully not many people use that expression these days. Clearly, we want to ensure, where people are entitled to support from the state, that they get it. I shall be saying something in the not too distant future as to how I think we can improve that. Some of the delivery mechanisms and some of the ways in which we tell people what is available and help them to get that could be improved. Let me return to the point I made earlier. Firstly, in future I want to avoid a situation in which there are so many pensioners arriving at retirement dependent, right at the start, on income support. That is why I made the longer term policy changes in the state second pension, the stakeholder pension and so on, based on contributory benefits. The problem today is that arguably the contributory system failed a lot of pensioners who, as I said earlier, could never put in enough in order to receive a decent pension. The only way in which you can boost their incomes is through providing greatest help to those in greatest need, which we do through the minimum income guarantee. It is worth pointing out that if you take the minimum income guarantee, and you take the changes made in the fuel allowance and the impact of the free television licences for the older pensioners who are the poorest, some will be about £500 a year better off than they were at the time of the last election. We need to get that across to them. They are entitled to these things and they ought to be getting that help. We need to do a lot more in breaking down some of the barriers that people face.

  348. Many of the means-tested benefits are specifically targeted to alleviate poverty. Do you think that contributory benefits also have a role in targeting that?
  (Mr Darling) The idea of a contributory insurance system is to try to avoid poverty in the first place. The pension system accounts for nearly 80 per cent of the expenditure of National Insurance contributions, but by reforming SERPS and introducing the new state second pension that will radically change the amount of money that people receive after retiring. So that helps. A contributory system cannot deal with a situation where today you have someone who does not have enough money to live on. Contributory systems, by their very nature, take time to build up. If you want to help those people, the best way is through direct help through means-tested benefits. That is what we are doing because that is the way of getting money to the people who need it quickly.

Chairman

  349. I cannot resist pointing out to you that the last time I checked there was a current balance in the National Insurance Fund of £12 billion, going on £13 billion according to the Government Actuary. That is a departmental underspend for good reasons, because you are getting people off benefit and into employment, over the next three years of £13 billion. Surely, there is flexibility there to do things with the contributory principle if you want to.
  (Mr Darling) Let me explain the position for the sake of accuracy. There is a balance of about £13.6 billion. There is a surplus of about £5.9 billion at the moment, but you have to be careful about that. That is a surplus now. The rules of the National Insurance Fund are designed to ensure that it does not go into deficit. The Government Actuary tells us how much he thinks we ought to put into it, having regard to what is happening in benefits and the general economic outlook. To give you an example, some people have said that if you increase the state pension by a little more this year, you will use that surplus and that is fine. However, that would take the surplus away in two years and you would then be left with a National Insurance Fund deficit. You cannot make long-term decisions on benefits based on what could be a temporary surplus. The Government Actuary tells us how much we ought to put into that fund. There is a surplus now, as you rightly say, because we have a sound, stable economy and we are getting more people into work. It would be imprudent to then say that we can embark upon expenditure that will commit you for the next 20 or 30 years without having consequences on how you should fund it. I do not think that that argument holds much water, although I am aware that it is being advanced by certain quarters.

Dr Naysmith

  350. When before this committee, the TUC argued that tax credits constitute a genuine attempt, at least, at a third way in social security which may be able to side-step the means-tested versus the National Insurance debate. Although you have answered this question already in a number of different ways, I want to ask whether it is really government policy. To what extent do you see the development of the tax credits paid for by the taxpayers in general as the new focus for the Government's activity on social security, as opposed to the benefits system that we have been talking about? Is it Government policy to expand that area?
  (Mr Darling) As the Chancellor said in his pre-Budget report, the Government are looking at extending tax credits. The Working Families Tax Credit was introduced in October and the child credit will be introduced next year. The Chancellor also said that the Government are looking at an employment credit. There are a number of cases where the extension of credits may be helpful. It depends what you want to achieve. As I said earlier, if the object of the exercise is to get money into people's pay packets so that they see a reward for work, for example, that is a good way of doing it. There are other areas as well. There are some constraints of which two are obvious. One is that it has to be technically possible to deliver it. As this committee will know, and I certainly know, the department's technical ability to deliver things is something about which you need to think long and hard. The other thing, of course, is that the tax system basically is designed to get things right every year. We are a lot better than the Americans in this respect in that we are getting money into people's pockets every month. The benefit system is designed to get things right every week so I do not think you would ever have a situation where you did not have any benefits at all, but the development of tax credits is something that has a great deal of potential and, as you know, as the Chancellor made clear in his pre-Budget report, the Government is looking at how we might further develop that.

  351. What you are saying is that the Government is moving down that road and eventually we can get to the stage where we have very little left of the contributory principle. Most of it is coming through the tax credit system, is that right?
  (Mr Darling) As I said to you, I do not envisage a situation where the entire benefits system is delivered by the tax system. It would be very difficult then to deal with people who have immediate day-to-day needs. You are always going to have a mix. The underlying theology is important. Always ask yourself: what is the end point you want to be at? If you take children, for example, the Government is using child benefit, which is universal. It has increased it by record amounts, it helps all children, but it goes a long way towards getting children out of poverty. The child credit is more geared particularly towards those families who have not got so much money. It is aimed at basic rate taxpayers. You ask yourself: what is the end point you want to achieve? And then: what system can best deliver it? If your starting point is: I have this great idea about the delivery system, now what I can do with it? I think you will run into some difficulty.

  352. Frank Field, when he was here, raised a number of very interesting and stimulating ideas. One was related to Working Families Tax Credit. He suggested to me that one of the outcomes of it would be inevitably to lower wages and to encourage fraud. The quotation, which I have written down here from his evidence was: "The estimated bill for the tax year will quickly soar, while the distribution of earnings towards the bottom end of the scale will take a marked downward shift." Are you worried that taxpayers may be enjoined to paying ever larger sums to subsidise low wages, whilst people on Working Families Tax Credit have an incentive to stay on low wages and work out deals with employers because if they earn too much they will lose it?
  (Mr Darling) One of the things we have done with the Working Families Tax Credit is to have a very flat taper because clearly the problem that people faced in the past was that you had this cliff-edge effect. It did not pay to earn an extra pound. The reason we have a flat taper is to try to reduce that. Those who criticise the Working Families Tax Credit would be on firmer ground if we did not have the national minimum wage, although, to be fair, there were some people who criticised the Working Families Tax Credit who did not like the national minimum wage either. This brought about a situation precisely where people were working for ridiculously low wages, so the national minimum wage does underpin the Working Families Tax Credit and there are means at the disposal of the Inland Revenue who administer that, as well as ourselves, to deal with employers or employees who are colluding. We are getting a lot better in concentrating our efforts on dealing with fraudulent behaviour in that way. I do think the Working Families Tax Credit, the objective of which is to make work pay, is the right way to be going. For years, people in this country used to complain, rightly, about the fact that for many people work did not pay. What can you say to somebody who is at home with a partner or wife and children when they could perfectly well work, and they can genuinely say that if they went to work they would be worse off? You cannot say: Nonetheless you should go and do it because it is spiritually uplifting and the rest of it. They have the mouths of their families to feed. The Working Families Tax Credit say that there are refinements and developments, no doubt in the future, but is it the right way of getting people into work? For example, you can ask yourself: what do you want to achieve? Of course, you have to guard against abuses and the rest of it. But, come on, look at the entire benefit system. We spend a considerable amount of time trying to be vigilant against people who are trying to defraud the system and all the rest of it. That is always going to be a problem if you have any benefit system at all. The only way you can guard 100 per cent against that sort of thing is not to have a benefit system. Most of us do not think that would be a very civilised thing to do.

  353. You seem to be conceding that there would be a danger that has to be guarded against. You have to make sure that all is in place to ensure that fraud is not happening.
  (Mr Darling) With the national minimum wage, there are mechanisms to make sure employers actually pay it. With the Working Families Tax Credit we want to make sure it is going to go to the right people and there is no abuse to the system. But we do it for every single part of the benefit system. We employ a lot of people who do nothing else. We are about to take more powers to make the system better. I believe that most people think the Working Families Tax Credit—and I accept Frank is not amongst them—is quite a good thing. He has other remedies which may or may not find favour. However, I think the Working Families Tax Credit is an extremely good way of making work pay and demonstrating to people. Remember, the important thing here is to make work pay so that they are materially better off, but it is also important that we avoid the situation which we have seen in this country develop—all of us have seen this—we have a second generation growing up where the fathers and mothers do not work, they do not work, their friends do not work, the entire culture is not to work. This is the thing that Frank, quite rightly, was complaining about. The question is what do you do about it? I think the Working Families Tax Credit, the national minimum wage, the New Deal, are the correct ways of dealing with this problem.

  354. A very quick and unrelated question: throughout this investigation and previously, I am sure all Members of Parliament will be aware of it, people do not really know what they are entitled to as a result of paying National Insurance contributions. Before, in this Committee, there has been a recommendation that people should get an annual statement of what they would get if they were to be out of work tomorrow, what their benefits would be for them in the way of insurance. Do you think that would be a good idea? Is it technically possible? If it is, do you think it would be a good idea?
  (Mr Darling) If you ask me, could we produce a statement of what you can get from the state at any one time?

  355. The individual.
  (Mr Darling) If you go into one of our benefits offices and look at one of the manuals it has: this is what you get; and then it goes through one thousand and one reasons why it might be different. I suppose you could have a stab at it but it would be difficult. What I can say, because I think you have raised a good point, is that the Government's annual pension statement is a start in the right direction where people can say: Here I am. This is what I pay to the state, this is what I pay to the employer, this is what I am putting in myself. All other things being equal, (and there will be some small print for obvious reasons), but when I retire, when I hit 65, this is what I will get. That transparency is important because I want people to know that in some cases, if they do not do something about it, they are going to be a lot poorer on retirement than they think. We are providing state help, we are providing private help, we are providing the means for people being better off in retirement, but they have to realise that so that they can take the necessary steps to be better off. Suppose something happened to you and you could not work here any more and you are unemployed, what could you get? I could tell you for the next hour or so what you might get, but then I would finish off by saying: But it really depends on what the circumstances are the day you come and see the DSS. That is the difficulty I see there.

Mr Robertson

  356. Minister, the Chairman has touched on the fact—and indeed you confirmed it—that there is a £13.6 billion surplus.
  (Mr Darling) No, not a surplus, that is the balance in the fund. The surplus is £5.9 billion.

  357. Sorry, a balance of £13.6 billion. You suggested that this is a movable feast, but the Government Actuary suggested that this is likely to increase. Now we get lots of letters—I am sure you get hundreds of letters—from pensioners who say: why provide a minimum income guarantee which many pensioners will not benefit from because they will not claim? We get hundreds of people saying: why is the incapacity benefit being tightened? Why is the widow's benefit pension being tightened? What answer do you advise my colleagues and me to answer to these people when they see such a surplus?
  (Mr Darling) Let me go through them in turn. You asked about widows' benefit, the bereavement benefit. The reason why that has been changed is because the European Court said that it was illegal under European law because it did not benefit men in the same position who lose their wives. We had a choice. Clearly what you could do is right, we will give all the money that we presently give to women who lose their husbands to men as well. This would cost about £250 million extra and the question you have to ask yourself is: is it wise to do that when you bear in mind that nearly half the women who were getting this benefit were in the top half of the income bracket. Is that where you would spend £250 million, repeating the same problem with men?

  358. We do it with child benefit.
  (Mr Darling) It seemed to us far better to say: let us do two things. First, let us treat men and women equally. Let us look after the children. The other thing we have done is that for people who were on income support, we allowed them to keep the extra money they get, more of that money, because otherwise they were not seeing the benefit. That is why we made changes there. On incapacity benefit, the reason why we made changes there—remember, these are long-term changes—was because incapacity benefit was designed to replace people's income when they came out of the workforce early. 50 years ago very few had personal private provision for doing that. Now nearly 86 per cent of men do. That is why we made the changes. Then the money that is saved builds up over the longer term. Again, it is a point I have made on many, many occasions. If the welfare state is going to be popular, it has to be sustainable. On the one hand, the Government must bring it up-to-date and do more for people who were left out in the past, but where circumstances change—and it is people being helped, whom I suspect the founders of the system did not have in the forefront of their minds when they designed it—then we need to make changes because most people would like to see the system help those who need help most. You ask about pensions. If you increase the basic state pension by whatever amount you want, it does not help the poorest pensioners because there comes a point when they lose the benefit because of the way the income support rules work. Of course, for those pensioners who are better off—and remember that in the last 20 years pensioner income has risen quite substantially for some pensioners—they probably would not notice the extra amount you are giving to them. So what we have done is that we have accepted the problem we face here. We have about 2 million pensioners who have lost out over the last 20 years; whose incomes did not increase the same way as other pensioners did; and that is what the minimum income guarantee is designed to do. These and other measures mean that some of these pensioners are some £500 a year better off. I think most people, asking themselves: What should you the Government do? would say: Yes, you really need to help those who lost out the most. That is precisely what we are doing. I am sorry that the answer is a lot longer than you probably bargained for, but one final point that I think you ought to be aware of because you asked about the National Insurance fund. Perhaps one way of demonstrating that the problems you face about taking a decision based on an immediate surplus is that if you look at the Treasury grant—this is the money that the Treasury has got to pay into the National Insurance fund in order to keep it solvent—in 1994/1995, which was under the last Tory Government, following one of the deepest recessions which we have seen since the last war, they had to put in an extra £6.3 billion. This year the Treasury does not have to put in any grant because the conditions are much better, because of the changed economic circumstances and so on. If you had taken a decision on what the position looked like in 1994/1995, and assumed that would continue, then you would have been making a big mistake. You cannot take long-term decisions in relation to the National Insurance fund based on a surplus that is here at the moment but may not be here at some point in the future. Clearly the Government Actuary advises on that, and the Treasury has to take a view on these things every year of what the actual rates ought to be, but if you are constructing a welfare state, a sustainable one, you have to ask yourself whether whatever you do will last? Too much of what was happening, especially in the last 20 years of policy generally, was what was good for the moment rather than what was good for the longer term.

  359. I agree with that point but you finished on the question I asked, which was that the Actuary is suggesting that the surplus is likely to grow.
  (Mr Darling) The Actuary advises us. He does a quinquennial review and the Treasury is obliged to look at these things every year and lay them before us. If you cannot justify the surplus, then you have to decide whether or not the rates are appropriate. That is a decision which you have to take. All I am saying to you is that what you cannot do is to decide on a policy of raising pensions or whatever, that this would endure for 20 years based on a surplus that happens to be there this year. I said earlier there are some people who said: why do you not raise pensions to £75 a week? Based on the surplus, in two years that would have gone.


 
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