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Lord Evans of Parkside rose--

Baroness Gardner of Parkes: My Lords, I am sorry but I should like to come back and ask a supplementary question?

Lord Evans of Parkside: A long time has been spent on this question.

Baroness Gardner of Parkes: We do have 20 minutes and I would like to ask a supplementary. Is the noble Baroness saying that no consideration is being given to the fact that this huge business rate, non-domestic rate, is going entirely to the Treasury? Is the City of Westminster to get no benefit for its council tax payers from that?

Baroness Farrington of Ribbleton: My Lords, all local authorities get benefit from the Treasury because the previous government nationalised the business rate. They nationalised it and ensured that it was then distributed by central government. We have said that we want to look at the situation and the circumstances in which it would be possible to consider returning that to local authorities and to local discretion. I have given an indication of the sorts of things that would have to be in place as part of that total change. I feel it is a little unfair to hold me to account for all the actions of the noble Baroness's party in government.

Lord Evans of Parkside: My Lords, will my noble friend accept my sincere congratulations on the way she presented the Statement to the House and answered questions? Local government finance is notoriously an appallingly difficult subject, surrounded by its own jargon. Frankly, the overwhelming majority of the population can make neither head nor tail of it. Is my noble friend aware that over the last five or six of my 23 years' representing St. Helens in the other place, I always spent a full day with the borough treasurer after he had devoted a whole weekend to going through masses of documents like those confronting us today to arrive at what the final settlement would mean to the borough of St. Helens? Is my noble friend aware that I am astonished when I still hear representatives of the Conservative Party get up and proclaim the unfair treatment that Westminster has received over the years?

Is my noble friend aware that if the borough of St. Helens had received precisely the same standard spending assessment and support grant as Westminster, not only would we have been able to provide the services entirely free of any charge but we would also have been able to send every single council tax payer a cheque for £750? That is a measure of the appalling unfairness in the circumstances. Is my noble friend also aware that much of the non-domestic rate of the borough of St. Helens was wiped out by successive Tory governments closing factories, collieries and other places that once employed thousands of people?

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Finally, can I say to my noble friend that I think that the Government have done a magnificent job in a short space of time in a notoriously difficult area. But will she ask her right honourable friend the Deputy Prime Minister to ensure that when the rate support grant settlement comes to us next year the Government will then have 12 months behind them and there will have been much more consultation with local authorities, so that next time round we will get a fair settlement which means that impoverished boroughs like St. Helens and others in the north of England will finally start to get a fair and honest deal from central government?

Baroness Farrington of Ribbleton: My Lords, as the noble Baroness, Lady Hamwee, referred to me as a poacher turned gamekeeper, my long experience in local government makes me hesitate to give a definite and categoric assurance of a particular date for ending a process of consultation between central and local government on the basis of future financial arrangements. We are fully committed to ensuring that a proper, fair and mutually respectful system is brought in as quickly as possible, in line with its being effective.

I understand the emotions. As I said earlier, I declare an interest, as a former Lancashire county councillor. None of us can doubt that there are high needs in areas in parts of local authorities such as the City of Westminster. We walk home at night past some of those needs. All that this settlement seeks to do is to ensure that those needs are recognised and met on a fair and equal footing, matching the percentage of needs existing in leafy Kingston with the percentage of needs in St. Helens. Fairness and equity is the hallmark of what we seek to do.

Lord Bridges: My Lords, may I, from these Benches, support the suggestion made by the noble Baroness, Lady Hamwee, that the extremely complicated nature of these statements makes their content rather difficult to digest, particularly if one does not have the benefit of a text. It seems to me, given the very complex gobbledegook language used, that it is difficult for those of us who are not versed in local government finance to understand fully. There might be some advantage in considering a different way of dealing with important Statements like this, for example, by the circulation of a printed text a day or so in advance so that we might have a rather more considered debate. I am aware that in this House a number of Members have expert knowledge of local government finance but I think we would be able to make a more considered and valuable contribution if we were given the opportunity to consider the matter shortly before speaking about it.

Baroness Farrington of Ribbleton: My Lords, I do take the point. Certainly, as I said in reply to an earlier question, I personally, at this moment, would like to see a different system in place. I am sure that particularly those Members of your Lordships' House who are still actively and individually involved in local government will ensure that the system of announcement and debate of the announcement will be considered. I understand

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that, apart from one year, this the first time for several years that the RSG settlement statement has actually been given in your Lordships' House.

Social Security Uprating

6.19 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, with the leave of the House, I shall now repeat a Statement on the uprating of social security benefits and re-rating of national insurance contributions which has been made in another place by Mr. Keith Bradley, the Parliamentary Under-Secretary of State for Social Security. The Statement is as follows:

    "With permission, I should like to make a Statement on the uprating of social security benefits and the re-rating of national insurance contributions for 1998-99. I should also like to report to the House on our objectives for reforming social security.

    "This is the first benefits uprating announced by this Administration and unlike those of previous years it will not be marked by a long list of cuts to the welfare programme. Not that we are content with the size of the Budget. We cannot be complacent when despite growing prosperity, spending on social security has continued to grow. It now consumes one-third of government expenditure and is set to break through the £100 billion barrier before the end of the century. That is more than is collected in income tax, twice what is spent on the NHS and nearly three times what is spent on education.

    "As importantly, we are not content with the way the money is spent. The huge cost that is our legacy has done so little to reduce the amount of poverty. The inability to harness social policy, to use it as a tool for change, has not only been the main driver of welfare spending, it has resulted in the greatest social division we have seen for generations.

    "We are committed to breaking with the past. We are undertaking a systematic review of the welfare programme. This review is both necessary and timely. We need a modern welfare system to reflect modern circumstances.

    "Our welfare to work programme will provide people with a route out of benefit dependency. And our comprehensive spending review will lead to the modernised system that we need. I will say more about this later.

    "First, we have immediate business. The House knows we are required to review the rates of benefits and national insurance annually. Our intention for the year 1998-99 is to uprate most national insurance benefits, child benefit, benefits for disabled people and carers by 3.6 per cent. This is the increase in RPI in the year to September. War pensions will also be uprated by RPI.

    "As in previous years, jobseekers' allowance and the main income-related benefits, will be uprated by the Rossi index, which at September had a year on year increase of 2.4 per cent. The Rossi index, as

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    Members will know, is RPI less those elements for housing costs. It is a more appropriate index to use for the income-related benefits where housing costs are, in the main, met separately. Most rates of deductions in respect of non-dependants have been increased over and above inflation. This will reduce the benefit paid in respect of housing costs to claimants who have non-dependants living with them.

    "Taking forward this measure allows us to reverse the previous Government's planned measure to extend the single room rent restriction. The withdrawal of the extension, which would have restricted housing benefit to those aged over 25, has been welcomed both inside and outside the House.

    "This was a hard choice in maintaining our commitment to live within existing spending ceilings. It is important to remember that the mandate we so recently received was based on a manifesto which committed us to controlling public expenditure.

    "Moving now to national insurance, we do not propose to increase the rates of Class 1 contributions paid by employees and their employers or the earnings brackets for the three lower rates of employers' contributions. The rates of Class 4 profits-related contributions paid by self-employed people will also remain unchanged. The lower earnings limit for Class 1 contributions will increase broadly in line with the basic rate of retirement pension, as will the upper earnings limit which applies to employees' contributions only. Similar increases apply to the lower and upper profits limits for Class 4 contributions. The weekly Class 2 contribution paid by self-employed people and the voluntary Class 3 contribution also increase in line with this formula.

    "The cost of the uprating will be £2.45 billion. The maximum available Treasury grant for the National Insurance Fund will be set at £800 million. Most new rates of benefit and the changes made to national insurance contributions come into effect from 6th April next year. Schedules showing the new rates of benefit and the new rates of national insurance have been sent to all Members today.

    "The most pressing need is to develop our approach to people of working age. They are responsible for the support of their children. Their actions while in work will determine how adequate their income will be in retirement. The best we can do for people of working age is to give them the opportunity to work. This is our first objective for welfare reform.

    "The wage motivation to work is for most people compelling--with the best will in the world benefits can never be a substitute for earnings. Equally, there are also very strong non-wage motivations for working which in total reflect and influence the shape of society. Work enables people to be in the mainstream of society, to make their own contribution, to develop their potential, and to offer a positive role model for their children. Work also provides access to social networks, and access to new opportunities for advancement.

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    "None of this is new. It could be argued that making work the best form of welfare has always been an objective of social policy. But the facts show that the current social security system fails actively to promote a return to work.

    "The fact is that an indifference to social policy, and an assumption that unemployment is a price worth paying for economic success, have meant that millions of people have been set aside from the labour market and condemned to a life of dependency.

    "Our objective is to root out worklessness, and to give all people of working age a chance of economic opportunity. That is why our New Deal programme extends beyond the unemployed. We also need to give lone parents and sick and disabled people a hand-up. And we need to make sure that where possible, work pays and that tax and benefit systems encourage and not deter work.

    "That is why we have a Whitehall task force on tax and benefits to help deliver the Government's pledge to streamline and modernise the welfare system. It is why we are introducing a minimum wage. It is why we are looking carefully at every benefit to see whether it helps or hinders people in achieving their aspiration to be in work. We are seeking to recast totally the aim and operation of welfare, to make clear that work, rather than benefit payment, is the right solution both economically and socially, for people of working age. And we will continue to support those people who cannot work.

    "The second group needing our attention are children. Our objective here is to ensure that all children are supported, wherever possible, by their working parents. Nearly 3 million children now live in workless households, a threefold increase since 1979. The best way to support these children is to ensure that their parents are working. They benefit from the lasting financial security that work ensures and from role models which help them to learn how they too can live independent lives when they grow up.

    "Our new deal for lone parents is helping to tackle this problem by providing a comprehensive package of back-to-work help for lone parents. Effective childcare arrangements are vital as nine out of 10 lone mothers would work if they could afford childcare. This Government are committed to a national childcare strategy, which will help parents, especially women, to balance family and working life.

    "Child support maintenance has a major part to play here. Receiving regular maintenance payments helps lone parents work, independently of all other powerful influences on their ability to work. And we must move to a point where an absent father's failure to provide proper financial support for his children is seen as socially unacceptable.

    "Our ambitions do not stop at people of working age. It is also essential to help pensioners. On average, pensioners' incomes have grown over the last 20 years but the gap between the poorest pensioner and the richest has widened. And projections show that this gap will continue to widen unless urgent corrective action is taken.

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    "Our objective is to promote financial security in retirement in a way which enables people to build up a stake in their own provision. It is clear that the difference between richer and poorer pensioners is a result of the extent to which the former have had access to second tier pension opportunities, and have taken advantage of the chance to save during their working lives. Secure income in retirement will be achieved when people of working age realise that the more they and their employers make contributions to their own pension, the greater will be the reward when they retire.

    "Work, to fund savings, is the best form of pension provision. That is why we have launched the pensions review. That is why we are consulting on stakeholder pensions, and developing citizenship pensions. This will extend the opportunities for good value pensions to the 8 million people who are poorly serviced by the existing arrangements. It will also begin to address the current inequalities between the opportunities of women and men to have adequate pensions.

    "We are also taking action to ensure fair treatment of pensions on divorce, giving greater rights to women who have contributed to the build-up of pension by supporting their husbands in the home. And we are determined to tackle the situation where nearly a million pensioners do not take up the income support to which they are entitled. We have already commissioned research to establish the reasons why they do not. And from April we will begin a number of pilot exercises to find out the best ways of delivering income support to older citizens.

    "As the manifesto made clear, we believe pensioners should share fairly in the increasing wealth of the nation. This is not just a long-term aim. We have already reduced VAT on fuel and from next year will abolish the gas levy. This shows we will act quickly. And in his pre-Budget Statement the Chancellor announced the winter fuel payment, paying pensioners £20 and the poorest £50. These payments will be made in time for the winter fuel bills. They will be on top of the normal pensions payments which will be uprated next April, as I have already announced.

    "We are a modernising government. We believe in bringing opportunities to all sections of the community equally, but also believe that these opportunities bring responsibilities. Our reforms will be guided by our objectives for the main groups we are seeking to help: welfare to work for those of working age; security for older citizens for now and in the future; and support for children.

    "As the House knows, the orders introducing the new benefit rates and the main elements of national insurance require affirmative resolution. We look forward to the wide debate on our programme for social policy that occasion lends itself to. I commend this Statement to the House".

My Lords, that concludes the Statement.

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6.32 p.m.

Lord Higgins: My Lords, the House is grateful to the noble Baroness for repeating the Statement made earlier this afternoon in another place, not least because she does so, I understand, at some personal inconvenience.

The annual uprating Statement is an important Statement and, indeed, one of the few fixed points in the annual financial timetable. Before we had a unified Budget we had an Autumn Statement, the uprating Statement in the autumn, and the Budget in the spring. We then moved to having a Budget, an Autumn Statement and the uprating Statement in the autumn. This year, because of the election, we find that we have a Budget in the spring, an uprating Statement in the autumn and no Autumn Statement at all. We are grateful for that.

I ask the noble Baroness one question which arose from her closing remarks with regard to the orders but relates also to an off-the-cuff remark made by the noble Lord, Lord McIntosh of Haringey, in response to a question from my noble friend Lady Hogg when he was commenting on the so-called "green" Budget. He cast some doubt on the future timing and also on whether there would continue to be a unified Budget. Can the noble Baroness confirm that the orders we are discussing will be debated in the spring and whether the Government have any further view as to how the timing of the Budget and these orders will be related?

In considering these matters one of the notable omissions of detail in the Statement is the question of the extra benefits which have been previously paid to lone parents. There was a reference to the welfare to work programme, as one might expect, and a strange categorical statement that,

    "nine out of 10 lone mothers would work if they could afford childcare".

I was not clear what the source of that precise statement was.

The noble Baroness has a history in relation to lone parents. For example, in November 1995 she commended the idea of the lone parent premium and the single parent benefit and condemned the then government saying that they would deliberately make those families poorer. She went on to describe this measure as,

    "vindictive, punitive and utterly wrong".--[Official Report, 29/11/95; col. 601.]

Yet, as I understand it, that is what the Government are now proposing to do. The noble Baroness went further. In only February of this year, referring to those benefits, she said,

    "It is one of the very few benefits that do not trap a parent in dependency. So, lo and behold, the Government propose in future to remove it. Why? What on earth are the Government thinking of?"--[Official Report, 20/2/97; col. 850.]

Perhaps the noble Baroness can now tell us what it is that the Government are thinking of, because this is very much a reversal. She went on yet further and said:

    "It is as simple as that, and the Government are removing one of the very few benefits that target help on lone parents without a means-testing penalty. It is batty".--[Col. 850.]

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Whether "batty" is an expression normally used in your Lordships' House, I do not know. But we are entitled to know why the noble Baroness thought it was batty in February and does not think it is batty in November.

The implication in the Statement is that it is somehow due to the fact that the Government are under severe spending restraints which were imposed by the present Chancellor when in opposition. He said that he would stick to the then government's spending limits. But those limits were perfectly well known at the time the noble Baroness made those statements. Therefore, the argument that it was because of tight spending limits or the need to restrain public expenditure is not one which stands up to examination. We need an explanation as to why there has been this change of policy.

In relation to new recipients of the benefits, because the benefits will be abolished there is no question of uprating them. As I understand it, the Government propose to freeze the benefits of those who are already in receipt of them. Is it the Government's policy to allow those benefits to wither on the vine or is it a temporary situation which they hope later to reverse? I hope the Baroness can tell us.

Can the noble Baroness confirm also whether it is the case that, taking all the benefits that are now to be paid to lone parents, even after this Statement, the total amount being expended on lone parents is actually less than it was before the Budget and before this Statement? I say again--the noble Baroness may have been distracted--what is the total amount, including the welfare to work programme and everything else, which is now being spent on extra benefits for lone parents? Is that total amount less, greater than, or the same as that which was previously announced? My understanding is that the overall amount is in fact less rather than more. If so, that is something that many of the interest groups particularly concerned with lone parents would wish to hear. I am not disputing the basic underlying policy; it is the question of why the reversal has taken place which one needs to consider.

I turn next to the question of what is happening within the spending limits mentioned. I was particularly puzzled by a Question asked in another place on public funding:

    "what is [the] estimate of the additional expenditure by her Department, its agencies and other non-departmental bodies in (a) 1997-98 and (b) 1998-99 as a consequence of higher uprating for inflation than was assumed at the time of the November 1996 Budget".--[Official Report, Commons, 5/11/97; col. WA 247.]

Mr. Field replied:

    "Higher inflation than expected in the 1996 Budget has no effect on 1997-98 benefit spending".

That is straightforward enough. He continued,

    "1998-99 benefit rates will be announced shortly. Increases in line with prices would mean an increase in benefit spending of about £600 million above that assumed in the 1996 Budget. The Government are committed to staying within its overall spending plans".--[Col. WA247.]

There is a puzzle here which has not been cleared up by the Statement we have just heard. If I understand it correctly, there is to be uprating in line with prices or, in the other cases, with the Rossi index. Is it the case,

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or is it not, that another £600 million has been allocated? I found the answer in another place rather puzzling. It seemed to imply either that there would not be uprating in the traditional way or that there would be an increase in the amount spent. It is not clear from that answer to the question in another place what the position is.

At all events, as I understand it, it is the Government's intention, as set out in the Statement, to uprate the benefits in the way in which the noble Baroness has described; namely, in line with the RPI or, in other appropriate cases, in line with the Rossi index. The answer may be that some benefits are not to be uprated. Indeed, the noble Baroness's opening remarks referred to uprating "most" of the national insurance benefits. Perhaps she will specify precisely which ones are not to be uprated.

Perhaps I may make a more general point. The implication of the Statement seems to be that the Government are now committed to controlling public expenditure. That is not the formula which has normally been used. What the Government have done up to now is to say that they will stick to the spending limits which were produced by the previous government. These nuances are sometimes rather important. We ought to be clear. Has the noble Baroness just announced a change in the policy? Is the Government's commitment simply to controlling public expenditure; or are the Government still maintaining the position that they will stick to the spending limits imposed by the previous government? If there is a change, it is a matter of considerable interest to your Lordships.

I should like to turn now to some points about pensions. There is a rather odd change really. The implication of what the noble Baroness said was that better off pensioners seemed to be getting a better deal than those on lower pensions. It is worthwhile looking at the department's press release of only a few days ago. As part of the overall survey of those in the lower income groups, the department said:

    "There were far fewer pensioners in the bottom quintile (20 per cent.) of the income distribution in 1994/95 than in 1979: on ... conventions for adjusting household incomes for household size, pensioners accounted for 24 per cent ... of the bottom quintile in 1994/95 compared with 41 per cent ... in 1979".

In other words, the position of pensioners has significantly improved in relation to the population as a whole. Perhaps I have misunderstood it, but that seems to be what is being said. Where they stand in relation to other pensioners is another matter. However, it seems to be an unfortunate policy if the Government are to argue that the differential between one group of pensioners and another is what is important rather than seeking to raise the level of those at the bottom without affecting the position of the pensioners who are better off. There is no doubt at all--I do not want to labour this point because it has been made many times--that the position of many pensioners will be significantly affected by the measures taken in the Budget. That seems wholly inconsistent with the Statement that has just been made.

The noble Baroness will know that many people have been advised to invest in PEPs rather than in personal pensions. Indeed, a number of people have felt that PEPs are a better long-term investment than going in for

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an ordinary pension scheme. The PEP arrangement is good in that respect. However, if I understand correctly the press statement which was issued by the Treasury this afternoon, it is proposed that the amount that can be invested in a PEP is now to be limited to £50,000. There may be many people who by now have accumulated a greater amount than that and will be relying in their retirement on the fact that they will be able to use that amount to invest in an annuity.

It is not clear from the press statement but it is important to know--this will no doubt be taken up in the newspapers in the next few days--whether or not those who have invested more than £50,000 in a PEP in anticipation of their retirement rather than invested it in some other form of pension will be "grandfathered"; that is to say, whether, if they have more than £50,000 in a PEP now, they will be allowed to leave it in a PEP. Otherwise, they may well find--this may apply to someone who is just about to retire--that, as a result of the changes announced this afternoon by the Treasury, the sum available for buying an annuity is less than they expected; and at very short notice. Perhaps they will be retiring in just a few months' time. It is important that the noble Baroness should clarify that point before we go any further into the matter. The press release was not as clear as it might have been.

I have one final point. Is it not the case that, despite the upratings which were announced by the noble Baroness this afternoon, the overall changes in government spending plans and their proposals for a new tax credit scheme, which were announced in the "green" Budget by the noble Lord, Lord McIntosh of Haringey, only a few days ago, will penalise women and favour men? The Institute of Fiscal Studies has been looking at this issue and thinks it is a basic trend--and, for all I know, a basic policy--of the Government to introduce changes, the overall effect of which is to penalise women and to favour men.

I well recall many years ago, when we were looking at the benefits system, that we were extremely anxious that the amounts should be paid to the wife rather than to the husband. There are real problems when families are faced with a situation where money is paid to one spouse rather than to the other. Therefore, against the background of the Statement, it would be helpful to know whether it is the Government's intention to do this or whether it is simply an accidental effect.

In her closing remarks the noble Baroness said that we shall have further opportunities to go into these matters in greater detail. I hope that that will be so. We should be grateful also if she will clarify when these further debates are likely to take place.

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