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Mr. Michael Fallon (Sevenoaks): The Chief Secretary says that national insurance contributions are the most equitable method of funding, but how does he square that with the pre-Budget report of 1999, in which the Government said, in relation to the climate change levy and the reduction in employers' NI contributions:


Mr. Smith: That is perfectly consistent, on the basis that I have already explained. We are acting in conformity with the Beveridge principles and the well established

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practice whereby contributions made through national insurance by people when they are in work, and by their employers, are used to provide cover for when they are unable to work. A contribution is also made from general taxation. Moreover, the way in which we are introducing the changes in the Bill is equitable and fair. It is also supported by the people of this country.

Phil Hope (Corby): My right hon. Friend is right. I have spoken to employers from businesses in my community and they are well aware that many people are off work ill and waiting for hospital treatment. Those employers are more than prepared to contribute to the NHS through the NI system, as employers have done for decades, because they recognise the benefits it brings to their businesses to have shorter waiting times or for people to see their general practitioner sooner. Employers want to see investment in the NHS and they know the benefits that this Bill will bring to their businesses.

Mr. Smith: My hon. Friend is right. That has been my experience, too, when meeting business groups in my constituency and elsewhere. It was, after all, the Confederation of British Industry that pointed out that the cost of ill health to business was some £10 billion a year. Employers as well as employees will benefit from the investment that we are making in the NHS. Anthony Goldstone, the president of the British Chambers of Commerce, said:


Mr. John Maples (Stratford-on-Avon) rose

Mr. Smith: I shall give way to the hon. Gentleman. Perhaps he will tell us how he would pay more.

Mr. Maples: I wish to take the Chief Secretary up on a point that he made earlier. The NHS system may be the best way to fund health care, but when he talked about social insurance and what happens in the United States, he set up a couple of men of straw. Much of the funding in the US comes through health maintenance organisations—and even if the premium is £100 a week, that is less than a family of four will pay when the Government have increased spending on health to £100 billion a year. A family of four will then pay some £7,500 a year for health care. The fact is that if we did not finance the health care system through taxation but in some other way, people's taxes would be lower. In this instance, that would more than compensate for the charges.

Mr. Smith: I take it from the hon. Gentleman's intervention that he advocates abandoning the NHS—

Mr. Maples indicated dissent.

Mr. Smith: Yes, from what the hon. Gentleman has said, it seems that he would cut taxation to make health care dependent on charges through insurance or individual charges for treatment. We should not forget that people in the US often have to pay supplements, on top of the insurance premiums that they have already paid, to get the operations that they need.

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An NHS free to all at the point of need has been the consensus in this country for 50 years. It was our hope that we could renew that national consensus on NHS funding, and we believe that the Bill is the vehicle for that. Before the shadow Chancellor, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), left the Chamber, I wanted to remind him—perhaps he saw it coming—that until the last general election, that was Conservative policy, too.

I also remind Conservative Members of the promise that the right hon. and learned Gentleman made in his election leaflet. He said:


That is what the shadow Chancellor said in his general election communication last year—but of course he and his right hon. and hon. Friends refuse to give that commitment at present.

While the Opposition are abandoning their promise and their commitment to the NHS, we are delivering on ours.

Dr. Stephen Ladyman (South Thanet): Before my right hon. Friend leaves the US examples, let us not forget that in the US, people on low incomes have to rely on other types of health care, because there is in essence a two-tier system. Did he see a recent television programme in which pharmaceutical companies were providing routine health checks for poorer people in the US? There was an interview with a lady in late middle age who said that that was the first time in her life that she had received a routine health check. Is that the sort of health care that the Opposition are promoting?

Mr. Smith: That is precisely the sort of system that the Opposition would head us towards. My hon. Friend gives a telling example.

Mr. Michael Weir (Angus): When the right hon. Gentleman referred to the CBI, he mentioned the savings to business if fewer people were off sick, and we would probably all agree about that. However, does he agree that there is a difference between companies that have the trade-off of lower corporation tax, and unincorporated businesses that receive no such trade-off? Even at this late stage, will he consider a mechanism for helping small unincorporated businesses?

Mr. Smith: We are already acting to help those businesses. Of course I understand the differences between their position and that of incorporated companies. However, the Budget proposals for VAT simplification will benefit those businesses—as will our measures concerning capital allowances and our creation of a general environment in which business can prosper. That is why there are now so many more small businesses than when we came into office. I think that 345,000 started up last year alone. We really are delivering for small business.

I have yet to hear from any representative of such a business that they are against extra resources for the national health service, or that they believe that our proposals are not an equitable way to provide those resources. We do not pretend that we can get something for nothing. It is right and proper that we set out transparently how we shall raise those resources.

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Employees and the self-employed will pay an extra 1 per cent. in national insurance on all their earnings above £89 a week. For example, a single person on the median income of £410 a week will pay £3.70 more in real terms as a result of the income tax and national insurance changes. Those on higher incomes will pay more, while those on lower incomes will pay less. That is only fair.

Mr. Steve Webb (Northavon): I should be grateful if the right hon. Gentleman would give us some clarification of the position of people in Scotland who pay national insurance contributions. Will their extra 1 per cent. eventually find its way back to the Scottish Parliament, which will not be obliged to spend that money on the health service? Can people in Scotland be sure that every penny of their national insurance contribution will go to the health service—or is there no guarantee of that under devolution?

Mr. Smith: The national insurance system is UK-wide. Scotland benefits enormously from that through the Barnett consequentials. The hon. Gentleman is right to say that this is a matter for the Scottish Executive. I understand that the Executive have given a commitment that the extra money will be invested in the health service in Scotland—[Interruption.]—as indeed has the Welsh Assembly. That point that I was coming to was that half of all families with children will pay less overall because of the interaction of these changes with the introduction of the child tax credit and the working tax credit.

As we know, both the British Chambers of Commerce and the Confederation of British Industry recognise that employers have a strong interest in a healthy and productive work force. They recognise that there is an economic rationale as well as a social and moral imperative underpinning our proposals. It is clear to me that the British people already draw a sharp contrast between the clarity, fairness and dynamism of our proposals, and the vacuous evasive manoeuvring of the shadow Chancellor and his colleagues. In public they say that they do not know what their policy is, while in private they say that charges—or, in the shadow Health Secretary's words, a "self-pay" system—are the way forward.

Clause 1 proposes how primary class 1 contributions are to be calculated. From April next year, the new employee contribution will consist of two elements: the main primary rate of 11 per cent., instead of the current 10 per cent., on earnings between the primary threshold and the upper earnings limit, and an additional primary rate of 1 per cent. on all earnings that exceed the upper earnings limit. In response to concerns raised by the Select Committee on the Treasury and others, I can confirm that the Bill does not provide any power for the new 1 per cent. rate to be changed by secondary legislation.

Clause 2 amends the current secondary class 1 contribution from 11.8 per cent. to 12.8 per cent. for employers so that they, too, will make an equivalent additional contribution. The rates paid by employers on benefits in kind and pay-as-you-earn settlement agreements—classes 1A and 1B—are also increased to 12.8 per cent.

Clause 3 proposes how class 4 contributions from the self-employed are to be calculated. Through this Bill they will pay an extra 1 per cent. on their profits or gains above

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£4,615 a year. From April next year, the new Class 4 contribution will also consist of two elements: the main class 4 rate of 8 per cent. on earnings between the lower and upper profits limits, and an additional class 4 rate of 1 per cent. on all earnings that exceed the upper profits limit. That new additional class 4 rate will not be amendable by secondary legislation, either.

As I have said, the measures in the Bill, and what we are doing overall to match investment in the national health service with reform, are the fairest and most efficient means of raising money for the national health service. It is interesting that, according to The Sunday Telegraph poll, more Conservative voters agree with us on this matter than agree with Conservative Front-Bench Members and their colleagues. I think that 54 per cent. of Conservative supporters backed our proposals for raising money to fund the NHS.


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