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Schedule 1

Consequential Amendments

Amendment made: No. 14, in page 11, line 43, at end insert—

'(4) In subsection (6), for "subsection (5)" substitute "subsections (5) and (5A)".'.—[Dawn Primarolo.]
Schedule 1, as amended, ordered to be the First schedule to the Bill.
Schedule 2 ordered to be the Second schedule to the Bill.
Bill reported, with amendments.
Order for Third Reading read.

8.44 pm

Dawn Primarolo: We have had a very good, interesting debate in which the House has explored in detail the Government's plans to use the national insurance fund to raise additional resources for the health service. In one way, the Bill is unprecedented, unlike previous changes to national insurance contributions, which have been linked to changes in the state of the national insurance fund. This Bill increases contributions for the other great pillar of the welfare state—the national health service. In another way, however, it is not new at all. Ever since the post-war Labour Government introduced the national insurance system and the national health service, part of the funding for the NHS has come from national insurance contributions.

National insurance contributions are paid by those who work and by their employers. Everyone who has a stake in the national health service will contribute while they are in work, when they can best afford it, and everyone has an interest in the improvements in the health service that this extra money for investment will deliver.

Let me remind the House of the scale of new investment that we have promised. The plans announced in the Budget represented the biggest ever increase in investment in the national health service, raising spending on average by 7.4 per cent. in real terms in each of the next five years. United Kingdom health spending will grow from £65.4 billion this year to £105.6 billion in 2007–08. Since 1997, health service investment has already doubled in real terms, and it will increase as a share of national income from 6.7 per cent. in 1997 and 7.7 per cent this year to 9.4 per cent. in 2007–08. That will mean 35,000 more nurses, midwives and health visitors, 15,000 more doctors and consultants and 42 major hospital schemes—real changes and improvements, giving the people of this country a standard of health care that they can be proud of.

The Government have also published plans to ensure that the public and the House can judge whether those improvements are being delivered. There will be independent audit, inspection and scrutiny of patient complaints, with a duty to account for money spent and standards achieved and to report to the public.

In future, an annual report to Parliament will be prepared by the new independent auditor, accounting for the money allocated to the national health service, stating where it has been spent and the results that have been achieved. There will also be local reports from every primary care trust that will spell out to each household in its locality the services available and the value for money that is being achieved.

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The Bill is simple and transparent. We have increased the rates of national insurance contributions for employers, employees and the self-employed by one percentage point. For employers and the self-employed, whose contributions are currently limited by the upper earnings limit and the upper profits limit, we have ensured that the burden is spread fairly, by applying the additional 1 per cent. to all earnings, including those above the limit.

We have also ensured that the national health service gets the benefit of the additional revenue by increasing the proportion of the national insurance contributions earmarked for the NHS by an equivalent amount. The Bill ensures that none of the changes will disturb existing arrangements for determining entitlement to contributory benefits or for the financing of contracted out, personal or occupational pension schemes.

Much of the debate that we have had on the Bill would have sounded familiar to those involved in the introduction of national insurance in the 1940s. We have heard a lot about the supposed unfairness of making employers pay a share of the cost of improving the health service. In response, the Government have quoted the CBI, which said that time off for sickness costs British industry some £10 billion a year.

We might as well have also quoted the Beveridge report, which said in 1942:

"Disease and accidents must be paid for in any case, in lessened power of production and in idleness, if not direct by insurance benefits."

I certainly echo the words of the then Minister of National Insurance, James Griffiths, who said during the debates on the National Insurance Bill:

"I have no hesitation in saying—I have said it before outside and I will say it now in the House—this scheme"—

the national insurance scheme—

"is the best and cheapest insurance policy ever offered to the British people, or to any people anywhere".—[Official Report, 6 February 1946; Vol. 418, c. 1751.]

The Chancellor of the Exchequer made similar comments during his Budget speech when he introduced the principle of using national insurance contributions as a way of raising money for the national health service.

The Bill shows that the Government are not afraid to be honest about what needs to be done to improve the health service and about the need to pay for it. The public appreciate that and have shown by their reactions to my right hon. Friend's Budget that they are willing to trust us to do what we have promised. The Bill is the first step and I commend it to the House.

8.51 pm

Mr. Chope: The Bill has been debated in the House on repeated occasions during the past few weeks. It appears to be almost a dialogue of the deaf. On the Opposition Benches, we are alone in saying that throwing more money at the national health service is no guarantee that there will be a better service. The Government have said on other occasions that they would put extra taxpayers' money into public services and that there would be public service agreements to ensure that that expenditure was worth while, yet they have not fulfilled those promises.

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In 1999, the then Chief Secretary to the Treasury, now the Secretary of State for Health—I congratulate the new Chief Secretary on his elevation to the Cabinet—said:

"We have fulfilled our commitment to publish Public Service Agreements covering all the public services. They set out the concrete improvements to be delivered in return for the extra investment we are making."—[Official Report, 24 June 1999; Vol. 333, c. 458W.]

However, the Paymaster General has just told us that we are starting again. We are forgetting about the three years that have passed since that commitment was made and there will be a fresh start. The Government tell us that—after more legislation—a fresh monitoring process will be set up and that in a few years we shall be able to see whether it has delivered any benefits in terms of better health care for the people of our nation.

We know that many of the new improvements—the extra nurses, doctors, hospitals and primary care centres about which the Secretary of State for Health tells us—are not even expected until 2008. We know that the Secretary of State merely hopes that legislation to establish the commissions for health care, audit and inspection will be introduced during the next Session, and that the first inspection report is unlikely to materialise before 2005. That is before we shall even know whether the extra billions of pounds taken in the higher taxes that the Government said they would never introduce have been well invested.

The Government, far from being unafraid to be honest about what must be done, as the Paymaster General claimed in her speech, failed to face up to the truth at the general election. They realised that they would have to put up taxes. They needed to put up taxes but denied that they would do so, and they specifically denied that they would increase national insurance contributions.

We shall continue to cite against the Secretary of State for Trade and Industry her comments on the "Powerhouse" programme on 29 May 2001. She said:

"We've got no plans at all to raise that ceiling on National Insurance contributions."

We have not received an apology for that gross inaccuracy from a senior member of the Government who was trying to persuade people to vote for her party during the general election campaign. The Paymaster General has the gall to tell the House that the Government are not afraid to be honest about what has to be done. That is just laughable. The Government disguised the truth from the electorate at the general election. We tried to expose the fallacy in the Government's thinking. Sadly, the people did not realise that our predictions were correct. We are now landed with what is, in effect, emergency legislation, introduced to raise national insurance contributions to fund the health service and to try to make improvements.

A host of Audit Commission reports, all of which are set out on the internet—some 10 or 12 of them have been issued in the past 18 months—contain recommendations on what should be done to improve the efficiency of our health service. What has been done to implement those recommendations? Of course the Government may be embarrassed by the fact that the Audit Commission has been so effective in probing in the past, but the trouble is that the Government have not followed those recommendations.

What prospect is there that some new commission will investigate all these things and that somehow everything will be better in future? The Government do not even

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apply the recommendations proposed by their own audit body, and we have many examples of that. A new development since Second Reading is the Bank of England's May 2002 inflation report, page 28 of which states:

"the cost of higher employer and employee contributions will ultimately be borne by employees."

That is very different from the story that the Government have put about that the burden will be shared by employers and employees, as though they can be separated. The national insurance increase represents an additional impost on the British economy and our competitiveness. As a result, it will damage our economy.

As the Bank of England says, if the burden were not ultimately borne by employees,

"firms would reduce their demand for labour in the face of a higher real product wage, leading to a temporarily lower level of employment and downward pressure on wage growth until equilibrium was restored. In the shorter term, however, the impact will depend on whether and the degree to which employees resist lower growth in their take-home pay."

The Bank of England says in its report that it is too early to say what the effects will be because we will have to see what happens in the marketplace, but it is obviously anxious that there will be inflationary pressure in the economy, fuelled by the increase in national insurance contributions for employers and employees.

I certainly have not seen any evidence in recent weeks that employees are saying, "Yes, I don't mind taking a cut in my take-home pay so money can go to the health service." I have not heard people who work in the NHS, the social services or the police, or head teachers say, "I'm looking forward to a reduction in my take-home pay, so more can be put into the health service."

People, especially those in the public sector, seem to be telling the Government, "Give us some extra money to compensate us for the additional national insurance tax, and we'll be content." Indeed, pay demands in the public sector are escalating frighteningly. Obviously, the demands from the fire service are the most prominent at the moment. The Government are fuelling that inflationary pressure by their actions in the Bill. That is why the Bank of England reported as it did in May. I hope that the Paymaster General will say in winding up the debate what she and the Government think of the Bank of England's observations. What the Bank of England has said is echoed by employers and employers' organisations up and down the land.

People working in the public sector and local authorities, as employers, are saying that they will have to pay extra because of the Bill. Will they be compensated? The only way that they can be compensated is with extra public money, again raised from taxes. So we have the spiral that we have seen so often under Labour Governments of increasing taxes to fund public sector organisations, which, in turn, have to spend a lot of money on additional employer costs rather than being able to put that money into better-quality services.

We are therefore extremely sceptical about the value of this Bill. The evidence of the Government's own experts is that, in England alone, waste and fraud in the national health service is of the order of £7 billion to £10 billion every year. We are amazed at the arrogance of a Government who, when faced with that evidence, rather than sort out that fraud and waste and improve the health

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service, come along to the taxpayer and the person paying national insurance contributions and say, "We are not going to sort out the fraud and waste, but we do expect you to make an additional contribution, and it will be all right in the end." That is not the way to run a Government in the thriving, competitive economy inherited from the Conservative Government. The Bank of England report makes the position clear:

"In the shorter term . . . the impact will depend on whether and the degree to which employees resist lower growth in their take-home pay."

In the longer term, however, the damage to the competitiveness of this country will be obvious. That is why people who are concerned about the future of our country are worried about this Bill and the additional taxation that it involves.

The Government did not go into the last general election saying, "We are going to increase taxes. These are the arguments for increasing them. Although we said in 1997 that there are only 24 hours to save the national health service, and we can save it without increasing taxes, we now realise, after four years, that we got it all wrong." What they are saying is, "Oh, now that the general election is behind us, we will increase taxes by stealth as much as we can. People will now have to see those tax rises." The Paymaster General has not heard the last of this. Next year, when people see the impact of this Bill in their pay packets, they will say, "What have we got in return? The health service has not been reformed, and the Government have once again broken their promises. They have put forward a proposition that has not been borne out in reality." That is why experts from the left and the right, from employers' and employees' organisations, are very worried about the Bill.

The Bill is best summed up as having been born out of a broken general election promise. The Government went back on what they said during the climate change levy debate—that imposing increases in employers' national insurance contributions was bad, which is why they made a virtue of reducing the burden on employers' national insurance. They have now abandoned that argument altogether. They have broken their promises and they are facing the country with additional taxes that we can ill afford.

That is why we shall vote against the Bill this evening—it will not deliver the improvements in the health service that we want, it will damage the economy, and it will raise taxes from people who are already being put under severe pressure as a result of stealth taxes introduced by the Government.

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