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Lord Barnett: My Lords, before my noble friend sits down, can she explain this? If the Government know how they will eliminate fraud by 2006, why cannot they do so now?

Baroness Hollis of Heigham: My Lords, if my noble friend had the advantage of hearing the frequent Questions in this House on fraud, he would be familiar with all the policies which the Government have brought into practice, including extended powers for the Benefit Fraud Unit, working with local authorities to check the fraud in housing benefit, clarifying benefit

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claim forms, introducing hotlines and trying to "fraud-proof" a range of the benefits we are now introducing. I am very happy to add to that at great length to persuade my noble friend that, though our target to halve the level of benefit fraud by 2006 is challenging, we shall strive to meet it--and we hope and expect to do so.

3.30 p.m.

Lord Saatchi: My Lords, it is an honour to open this debate on the gracious Speech on behalf of our Benches, particularly because it is clear from this afternoon's list of speakers that we are going to have an excellent debate.

Before I begin, I have one duty to perform. Your Lordships can imagine the pleasure that it gives me to congratulate the noble Baroness, Lady Hollis, on her party's spectacular election victory, which was a very fine achievement. Nothing could be more tedious for listeners to the debate nor more painful for the losers than to rehearse yet again all the arguments from the election campaign.

Most people say that Labour's great victory was based on the strong economy. That focus on economics above everything else led Labour on its heroic journey from four defeats to two great victories.

I shall concentrate on the two opening sentences of the gracious Speech, which concern the economy. My noble friend Lord Higgins will look more deeply into aspects of social security and industry.

As we have just heard, the Government like to wear their heart on their sleeve when it comes to their good intentions for the public services and looking after the poorest people in society. That is how they gained their caring reputation. They routinely condemn our Benches for ice-cold brutishness. I shall apply the Government's criteria to the plans described in the gracious Speech.

The first sentence of the Speech refers to investment in public services. During the election campaign, the Labour Party said that it would put schools and hospitals first, so let us start there. How will the Government help? I hope that it will not be done in the way suggested by a headline that appeared the day after the election, which said, "Labour abandons waiting list targets". Apparently, hospital waiting lists had been rising again, so, when in doubt, the Government's reflex was to change the target from length of waiting list to maximum waiting time--not even average waiting time. I am sure that they do not really intend their help for schools and hospitals to be only in image and not in reality, although that has been the story so far.

I have just discovered some statistics that I found dazzling. I found it amazing to discover that under this Government spending on public services has risen by 1.3 per cent a year, while under the last Conservative government it rose by 1.7 per cent each year. I found it even more amazing to discover that spending on health and education as a percentage of GDP has been less than under the previous Conservative government. Believe it or not, these are the official annual spending

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increase figures from the Treasury: on health, Labour plus 5.4 per cent, Conservative plus 5.5 per cent; on education, Labour plus 4.6 per cent, Conservative plus 5 per cent.

Does that not make you gasp? Have we all been hypnotised? The redoubtable Andrew Dilnot, head of the Institute for Fiscal Studies, says:

    "One striking area of especially low growth is public investment, where the Government has failed to achieve its own plans, which were designed to correct what it identified as public under-investment. In government, the four years 1997-98 to 2000-01 have seen the lowest level of public sector net investment of any four-year period in recent decades, well below the average under the Conservatives. This is a real puzzle".

However, it is not as much of a puzzle as how the Government are going to do any better in their second term, when they have a second chance.

For example, to raise the UK's level of overall spending on health and education to German proportions, which I believe is a stated aim, public spending would have to jump by 4 per cent of GDP. That is an extra £40 billion a year. On present plans, even after the proclamations about good intentions, the share of health spending in GDP will rise by only 1 per cent between now and 2004. That would still leave us 3 per cent of GDP below Germany's level and 1.4 per cent below the EU average. That is puzzling.

Perhaps most astonishing of all is that the Government's figures show that after what will have been nine continuous years of Labour government, UK spending on health will be running at less than half of that in a country that the Government regularly deride for its heartlessness and cruelty--America, where health spending accounts for 13 per cent of GDP. That is more than double the 6 per cent offered by the romantic souls on the Government Front Bench. The truth is that after what will be nine continuous years of Labour government, public spending as a percentage of GDP will be lower than in all but three of the 18 years of Conservative government.

However, there are even more extraordinary statistics relating to the next phrase in the gracious Speech, which refers to,

    "a more prosperous and inclusive society".

The noble Baroness referred to inclusion earlier. It is a word that affects the hearts of all who hear it. It is all part of the Government's drive against poverty among children and pensioners and is all very touching. How striking it is, then, that poor people--the lowest decile of income distribution--are now paying a record amount in tax. A Government who say that they want to extend their generous hand to the poor as well as to schools and hospitals now extract £3 billion a year from 8 million taxpayers with gross annual incomes below £10,000, which is much less than half the average income of £24,000 a year.

Even more astoundingly, the Government tax poorest people most. Those on the lowest decile of gross income, counting cash benefits as well as original income, now suffer an average tax burden of over 50 per cent--up from 44 per cent when this Government came to power. Households in that group

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without children now pay a staggering 63 per cent of their income in tax, up from 47 per cent when this Government came to power. So much for the knights in shining armour in the Government.

However, if the poorest bear the heaviest tax burden, perhaps the Government are paying out more to them in benefits. Not at all. The Government are no Robin Hoods here either. The poorest tenth receive barely 12 per cent of all benefit spending, while, incredibly, the top half of the income distribution receives 30 per cent of all benefit expenditure. Meanwhile, the hated means test goes marching inexorably on.

Lord Haskel: My Lords, do the figures that the noble Lord has just quoted include the tax benefit scheme?

Lord Saatchi: Yes, my Lords, they include all taxes paid and benefits received. I shall go into a little more detail about benefits.

According to the Government's Red Book figures on the effects of the means testing of benefits, after what will be nine years of Labour government, 38 per cent of the UK population will be on some kind of means test--a figure rising to 57 per cent for pensioners. Why? It is because the Government first tax people on low incomes, then they means test the income to satisfy themselves that the people are in need, then they offer benefits to restore the income back to where it was before the tax was paid, then they tax the benefits. The DSS family resources survey for 1999 reports that in that year, 24 per cent of benefit units--an Orwellian definition that apparently roughly equates to households--received at least one income-related benefit.

However, the House of Lords Library notes that:

    "By 2003 the proportion of non-pensioner households on means-tested benefit could be around 29 per cent. The population of pensions households being means-tested could be around 57 per cent. These imply an average for all households of 38 per cent".

Therefore, means testing of the population will have increased from 24 to 38 per cent in five years, which is all very sensitive.

In the meantime, I believe that the noble Baroness said that the Government considered it to be important and placed great priority on people being able to receive their benefit. However, the gruesome fact is that the Government are hoarding billions of pounds which they should be paying out to eligible households. According to my co-author, Dr Peter Warburton, who has had a good look at the DSS social security statistics for the year 2000, between £2 billion and £4.3 billion of income-related benefits are not being paid to those who are entitled to them. That massive sum is being retained by the Government. When the Minister replies to the debate, perhaps he will tell us what will happen to that money.

Baroness Hollis of Heigham: My Lords, for information, will the noble Lord tell us to which benefits he is referring and to which claimant groups?

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