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Lord Higgins: My Lords, the House will be grateful to the Minister for his explanation of these two orders. It is helpful to take both orders together. As I said in the previous debate, a problem arises because of the extent to which the Treasury has taken over many of the former activities of what used to be called the Department of Social Security. As a result, there is now a considerable amount of overlap and confusion between the two departments.
We have before us an order that is a Treasury order—the draft Tax Credits Up-rating Order 2002— which uprates those benefits. Noble Lords on this side of the House certainly welcome the improvement made to the disabled person's tax credit and to the position of certain children and disabled adults, and so on. Indeed, that is certainly welcome. Of course, the
noble Baroness and I debated a corresponding order on 17th March—I refer to the Social Security Benefits Up-rating Order 2002—which uprated a number of other benefits.If we take those two lots of uprating together on, so to speak, the expenditure side, we must then consider what is happening on the income side. It seems to me that is the more interesting aspect of the matter. It is embodied in the Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2002, which we are debating this evening. That covers the income side, rather than the expenditure side. I leave unanswered why it is that the order should be headed "Social Security", rather than "Work and Pensions" or why it is not the Work and Pensions (Contributions) and so on Order. That is a debating point that it would be rather sordid to raise.
There are important issues to be raised on the contributions side. Our debate on the matter on 7th March was wide-ranging, as is traditional. I do not propose to go anywhere near as wide this evening; I hope to keep within the confines of the matters raised by the order. I shall, however, make one point. There have been suggestions in the press in the past few days that the Chancellor of the Exchequer is likely to increase national insurance contributions in order to fund increased expenditure on the National Health Service. I was rather surprised by that speculation—no doubt, it is speculation—because, as I understand it, national insurance contributions are nothing to do with the NHS, although they both originate in the Beveridge concepts. Perhaps, the Minister can confirm that.
On the contributions side, there is a report by the Government Actuary's Department. I find myself being increasingly suspicious of actuaries, particularly with regard to that report. We are told that it is based on the same assumptions as were made by the Chancellor in his pre-Budget statement, and it is apparent from the report that, as a result of the increases in benefits, to which I have already referred and which are partially covered by the other order, benefits will increase in the current year by £1,730 million. On the other hand, the re-rating order reduces the amount of revenue by £317 million in some areas and by £242 million in social security contributions. That is a total of £559 million. Expenditure has gone up by £1,730 million, and the contributions are going down by £559 million.
In a well worn phrase, the Minister described the fund as being at a reasonably prudent level. In fact, it is not. The actuary says that a reasonable working balance would be one sixth of annual expenditure. One sixth is a singularly inconvenient fraction if one wants to convert something into percentages. If we do convert them, we see that the balance for this year is, in fact, 52 per cent of benefit payments. The Minister says, "Oh well, it's a reasonably prudent balance at the moment", when the actuary regards it as one sixth and, in fact, it is over 50 per cent. That suggests that the balance is too high. Perhaps, the Minister might reasonably have recommended, had he been an actuary for a company pension scheme, that there
should be a contributions holiday, preferably not for the Treasury but for those who contribute. I should declare my interest as chairman of a company pension scheme.We seem to be accumulating more and more in the fund; so much that the Government Actuary's estimates are considerably out, when compared with what he said last year. The increase in the fund this year was, as he says in the report, substantial. He estimated that it would go up by £2.5 billion; it has gone up by nearly £5 billion. Not only is the balance, which is said to be prudent, way over what the actuary regards as prudent, but it has increased over the past year by nearly £5 billion. We are entitled to some explanation of why the contributions are being changed as they are, if that is the situation.
I have one or two other questions for the Minister about the Government Actuary's figures, on which the orders are based. On page 7 of the report, the actuary refers to an item that relates to what I have just said. The balance at the beginning of 2001-02 was £19,399 million, but, for 2002-03, it is £24,192 million. That confirms what I said.
Of particular interest are the questions raised in the Government Actuary's report and reflected in the orders about the state second pension. In paragraph 9 of page 5, the actuary says that the state second pension is, of course, about to come in in place of SERPS. The report says:
- "The new accrual regime for the State Second Pension, which was introduced by the Child Support, Pensions and Social Security Act 2000, will come into force in April 2002. Earnings-related pension will accrue at 40% of earnings".
There has been a mass of publicity in the past few days relating to the auditor's report and the rebates that are mentioned in it, suggesting that people ought to go back from a company system into the state second pension—or SERPS, at the moment. It is highly undesirable to have people switching back and forth between the state second pension and company pensions. It is because of the way in which the Government act in reaction to the Government Actuary's report that we find ourselves from year to year being unclear about whether the rebates are sufficient to push people in or out of the state second pension. A degree of stability would be desirable, as would a move to greater funding.
Those are my main points. I shall briefly ride my usual hobby horse. The whole of the Government Actuary's report is concerned with receipts and payments, not with the overall balance sheet of the fund. That still does not exist. I repeat my plea, which
the Minister will have heard on several occasions, that it is high time that the Government Actuary was asked to estimate the liabilities of the fund. At the moment we have no clear idea of that. Given his previous commercial experience, I am sure that the Minister will agree that an operation which concerns itself only with receipts, payments and cash-flow and not with the balance sheet does not a give a clear indication to shareholders or, in this case, to taxpayers, of what is the actual underlying situation.Having said that, although I have expressed some doubts with regard to the re-rating order, I certainly welcome the improvements in benefits on the other one.
Lord Addington: My Lords, the emphasis of my remarks will turn more to the second of the two orders, on which I have more distinct views. When it comes to national insurance orders, I always regard them as those addressing the tax that, in effect "dare not speak its name". When we change the figures, it is always important to bear very much in mind the general taxation position.
I am glad to say that we welcome the uprating of benefits. However, I have one query to put to the Minister about the general thinking behind the uprating. As a Treasury-based calculation, does it pay enough attention to general poverty rates and issues related to that?
Having made those few comments, we find nothing basically objectionable in the orders.
Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords for their reception of these two orders. I shall try to respond to the points that have been made.
The noble Lord, Lord Higgins, began by referring to speculation over recent days with regard to the rates and upper limits of national insurance contributions. Within a week of the Budget, the noble Lord will not expect me to make any comment on matters which are properly for the Budget, but he will be aware that ever since the election we have been consistent in our approach to these matters.
The noble Lord asked me a very interesting question about national insurance contributions and the National Health Service. It is a historical fact that part of the receipts from national insurance contributions goes to the National Health Service allocation. That figure this year is £7.3 billion. A comparable figure goes to the National Insurance Fund. I do not know how far back through the sands of time that division goes, but I rather like it as a concept. Indeed, I feel a little sentimental about it, just as I feel sentimental about the term "social security", which of course was originally Beveridge's phrase, but was changed to "national insurance" by post-war governments.
8.15 p.m.
Lord Higgins: My Lords, can the noble Lord say whether any of the money raised under the re-rating
order before the House goes to the National Health Service? Does it appear at all in the Government Actuary's accounts?
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