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Baroness Hollis of Heigham: My Lords, I am intrigued that the Minister persists in treating the Opposition as though we are the Government, and responsible for the up-rating system. Is he getting into practice?

Lord Mackay of Ardbrecknish: My Lords, all I am doing is getting into practice for next year and the year after--

Baroness Hollis of Heigham: My point precisely.

Lord Mackay of Ardbrecknish: We shall have exactly the same speech from the party opposite without a single indication of what it would do to contain the total amount of expenditure--a point to which I shall return. We have only a few weeks to wait before the party opposite unveils its proposals. Therefore I say to my noble friend Lord Dean of Harptree that it will be very interesting to see what the Opposition decide on a number of issues, but in particular on the expensive issue of linking pension increases to earnings and not to prices.

When he pointed to the national insurance contribution changes, my noble friend quite rightly underlined the importance of keeping non-wage costs down. The noble Baroness made a great deal in her speech of the need to improve the opportunity for people to find work. There is not much between us on the principles involved, though there may be something between us on how we go about doing it.

I am absolutely sure about one thing. Had the noble Baroness been present for the debate introduced last week by the noble Lord, Lord Dahrendorf, she would have heard the figures quoted on a number of occasions. I am absolutely sure that increasing non-wage labour costs is not one of the routes which should be followed. If it were, the countries quoted by my noble friend Lord Dean that have gone down that road would be showing lower unemployment in general and, for example, in the youth sector. The simple fact is that they are not. In some cases they are showing hugely higher unemployment levels in both those sectors than we are. Therefore, before we move down the social chapter route, described by my noble friend as the European tax on jobs--and indeed the route of the minimum wage so beloved of the party opposite--the British people ought to ask why we have such significantly lower unemployment, especially in the youth field, than such countries as Spain, France and Italy. Indeed, the Germans have often been held up as the example to follow. They are now seeing their unemployment rate rising to a figure above ours and continuing to rise, whereas ours continues to fall. Therefore, when it comes to non-wage costs, people ought to consider those examples.

Earl Russell: My Lords, the Minister quoted the German example. Can he say what comparable burden to German reunification this country has borne in the past five years?

Lord Mackay of Ardbrecknish: My Lords, I do not believe that that has anything to do with the point about non-wage labour costs. Non-wage labour costs were there long before German reunification came about.

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I fully accept that the German economy has indeed had to absorb considerable problems from Eastern Europe. The fact that it has done so is a great credit to that country. However, it does not get away from the simple fact that Germany's non-wage labour costs were considerably higher, and always have been, and that unemployment is now rising. Powerful companies, which I suspect would have been considered by most noble Lords to be unassailable--companies such as Daimler-Benz--are now suffering great problems. Again, that was mentioned in the debate last week on the Motion tabled by the noble Lord, Lord Dahrendorf.

The noble Earl, Lord Russell, asked me a number of questions. He asked why, when unemployment is falling, does income support rise? That is an interesting question. I shall have to study it in a little more detail. Certainly, one factor must be the rise in single parenthood, which I mentioned earlier. That has to be one factor in the growth in income support. Pensioners too are a factor. There is an increasing number of pensioners. In relative terms, although, as my noble friend Lord Dean points out, an increasing percentage of pensioners are making their own pension provision, the fact is that the absolute number of pensioners is increasing, and that therefore the total number requiring income support to back up the retirement pension will probably increase as well. The noble Earl has exercised my interest. I may look into that point in a little more detail. Certainly, however, those two factors must provide an important part of the answer.

The noble Earl asked me specifically, as he did last year--he was kind enough to give me a year's notice--why I have not up-rated the capital provisions, the £8,000 and £3,000 limits. I am surprised that I did not give him an answer last year. Indeed, I thought that I had done so and I must check that. My answer is the same as the one that I gave, or would have given, last year. We do look at capital limits, but we believe that we have to give second priority to them. We give first priority--I appreciate that the noble Earl thanked us for it--to up-rating the benefits themselves. We believe that capital limits are not of the first priority. When there are so many priorities to be met and, in our view at least, control to be kept on the total amount of social security spending, I must say to the noble Earl that capital limits must remain where they are. A disregard of any real consequence is an expensive provision to make. I do not have the figures to hand but I remember looking at them when I considered this question. To give a significant increase in capital limits costs quite a considerable amount of money. That would probably have to be taken from the up-ratings. We should prefer to concentrate on the benefit levels themselves.

I return to points made by both the noble Earl and the noble Baroness about work incentives and trying to encourage people to get back into work. The noble Baroness, as always, made a great deal of what she called the perverse effect of income-related benefits. For the life of me I cannot see any other conclusion than that the noble Baroness would in fact countenance an increase in expenditure on those benefits. If we did not take into account the earnings of the spouse or some of the part-time earnings of the individual, inevitably that

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would mean that we would spend more money on benefits. That is the inevitable conclusion to the noble Baroness's argument on this point, which I have heard on a number of occasions.

Baroness Hollis of Heigham: My Lords, perhaps the Minister will allow me to intervene. We have had this argument on a couple of occasions and I am sorry that he did not take the main point. In seeking short-term savings, which is what happens when moving to means-tested benefits, the Minister produces longer term costs because he pulls the second partner out of work. As ever, the Government sacrifice the longer term benefits for short-term gains.

Lord Mackay of Ardbrecknish: The noble Baroness has made that point also on a number of occasions. I am not too sure that there is a great deal of evidence for it. In any case, even if there are what she calls short-term gains, they would fall to be an increase in the social security benefit system, which, as her honourable friend down the Corridor said when he answered the Question last week of my right honourable friend Mr. Lilley, can be contained within its present limits.

But the noble Baroness, the noble Earl and I agree on the need to encourage people back to work. We also agree that, even when someone has found a job, there is a problem of crossing the bridge between being on benefit and not being on benefit. We have taken and are taking steps to try to improve the situation; namely, the faster processing of family credit; the housing benefit and council tax benefit extended payment, the run-on for an extra four weeks; the back-to-work bonus; and the child maintenance bonus. We have also taken steps to improve the advantages to people of working for longer hours. There is the longer hours premium, which from July this year will mean £10 a week extra in family credit and disability working allowance for people working 30 hours or more a week.

So, we all agree on the objective of trying to make sure that, when somebody finds a job, there will not be economic disincentives for them in taking the job and moving off benefit. I believe that the steps that we have taken over the past two years and those that we are currently taking will help to solve that particular problem.

The noble Baroness and the noble Earl discussed the lone parent provision. The noble Earl sometimes has a suspicious turn of mind when it comes to the Government's motives. But it is not the Government's policy to reduce income support to lone parents in order to increase work incentives. There will be no cash losers from the changes to the lone parent benefit. Our policy is to narrow the gap between lone parent benefits and those benefits which go to couples with children.

I do not want to weary the House with details. But there are a number of scenarios in which the gross income in a household is not big but, taking together the income and the benefits, a single parent with one child can get more income in the week than a married couple with one child. That cannot be a correct position. It is especially odd when one considers that in the family with the greater income there are only two mouths to

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feed, whereas in the two-parent family there are three mouths to feed. It seems to me that we must guard against appearing in the benefits system to be approving of that and of saying to two-parent families, "No, you can live on a smaller income than a one-parent family".

Undoubtedly, at constituency surgeries of my honourable and right honourable friends from the other place there will be couples who come and say, "We shall be better separated or divorcing." A decade ago, I came across young couples looking for housing who found that they were being constantly jumped over by single parents and who asked whether the solution to the problem would be to separate in order to get a house.

Undoubtedly, all the facts tell us that it is only by working that lone parents can improve the living standards of themselves and their children. On average, lone parents in work improve their income by some £30 a week. We could not possibly, especially as we are attempting to contain expenditure--the party opposite says that it will do the same--increase the amount of income support by that amount. As I said in my introductory remarks, lone parents already consume 10 per cent. of the total social security budget. Our aim must be to reduce that figure and not increase it. We can only do that by encouraging lone parents into work. That will benefit them and society.

We are attempting to do that in a number of ways. They receive the same adult credit as two-parent families for family credit and disability working allowance. We have taken a series of measures, some of which I have mentioned already, to improve the position. We have reduced the qualifying hours for family credit and that has helped lone parents in a very big way. I believe that no responsible government can hide from the considerable increase over the past years in the number of lone parents and their cost to the taxpayer. We believe that the way to improve their position is to give the lone parent far greater opportunities to gain work. That is what we propose to do.

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