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7.45 pm

Mr. John Lyons (Strathkelvin and Bearsden): I welcome this debate on national insurance, but I do not welcome the fact that it has been used to rubbish the NHS. That is both unfair and untrue. Since the announcements on national insurance, I have had the opportunity to speak to my constituents. I admit that they have not queued up to tell me that the Chancellor is brilliant, outstanding and has done a wonderful job on national insurance, but they have all accepted that it is a fair and decent way to pay the extra 1 per cent. Many constituents have also welcomed the fact that the money will go to the NHS.

My constituents know that the NHS is a key service for them and they want to preserve and defend it, so that it can flourish. They also know that spreading the cost widely is fairer. More people in my constituency now pay NI because more people are in work since 1997. Many of the young people among them are happy to pay those NI contributions because they are now in work.

The health service must be kept at the top of the agenda. I declare an interest in that I have spent a lifetime defending the NHS and fighting on behalf of its staff, so I have some bias on those matters. As a member of a

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health board in the past, I know that staff have been struggling against difficult circumstances across the health service for a long time, whether in acute services, primary care or elsewhere. The staff have fought hard to try to turn the situation around.

I am not the sort of person who goes around saying that everything in the health service is wonderful, but some brilliant work is being done. We need look no further than last Friday. The people dragged from the carriages at Potters Bar were treated by the best of our health service, and they were well looked after by firemen, ambulance workers and health care workers.

I welcome the NI changes, but we must ensure that the money raised goes to front-line services so that people can see real value for the health service from what has been asked of them. The money should be spent on investment in consultants, nurses and nursing auxiliaries to ensure that we have people in place to provide and deliver a proper health service for our constituents. However, the time delay in training staff, whether nurses or consultants, is a problem. Major changes cannot be made immediately, even though they are desirable politically.

It takes time for staff to qualify, but progress has been made. In 1997, 21,370 consultants were working in the NHS. By September 2001, the figure had risen to 25,690—an increase of 20 per cent. or 4,320. That should not be the end of the matter; I want us to build on those figures. Everyone will agree that an increase in the number of consultants will have a knock-on effect on a range of services. It does not matter how many nurses are employed, if there are not enough consultants to treat patients, thus reducing waiting times and waiting lists, we shall be stuck—we can achieve nothing. The first thing that we need is more consultants—that is important. Thereafter, by all means, let us have more nurses and auxiliaries to treat the flow of patients. I am not making a political point. Any Government would be proud if they could achieve that result—I am sure that no Member would deny it.

I have been a Member of Parliament for only 10 months, but during that time I have tried to listen to people and to my constituents—irrespective of their political view—on matters such as the health service. Across the political spectrum, people want one thing: a national health service equipped for the 21st century. They want a national health service that will deliver in a modern way, but they all realise that we cannot achieve that by wishing—we need proper investment. That is the key. Without that investment, we can forget about everything else. The national insurance changes give us, properly, the funding for the investment that people want.

My contact with the health service, especially during the 10 months since I became a Member, has done nothing but reinforce my awareness of the importance of the NHS and of its centrality to people's lives—along with the police, the fire service and so on. Our constituents value the staff of the health service. People who have been in hospital always talk about the kindness of the staff and about the quality of the care that they received. The public realise that NHS staff are delivering a first-class health service.

Members who oppose investment in the service need to consider their position as regards their constituency and the services provided there. People need reassurance—

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especially those working in the service. The rubbishing of the service and of the people who deliver it must stop; it is undermining and destroys morale. We should change our political attitudes in that regard.

Our constituents think that they are well served by the people who work in the service. Today, my right hon. Friend the Home Secretary was presenting awards to the outstanding public servants of the year. We need to keep making such awards, especially for health workers, to let them know that we trust them and, above all, that we value them and their commitment to public service.

We must tell them that our confidence in them will be matched by increased investment and increased training to allow them to fulfil their potential in the health service. We need to break down some of the old barriers, especially for nurses or auxiliaries who, because they are paid at a certain grade, are not allowed to undertake certain work. We should find the means for a spread of work for nurses and auxiliaries—we should use them to the best of their ability.

People want a real return for the investment—a qualitative change in many services. That can be achieved. We have taken the right approach; it is bold and open and has been well received by the electorate. At the end of the day, that is what counts.

7.53 pm

Mr. David Ruffley (Bury St. Edmunds): I am glad to be able contribute to this good-natured and thoughtful debate, with good speeches from Members on both sides of the House, especially my hon. Friend the Member for Stratford-on-Avon (Mr. Maples).

The Bill gives us the chance to meditate carefully on the contributory principle of social insurance that underlies the national insurance fund. On Budget day and since, we have heard much from Labour Members about William Beveridge—much has been done in his name. The reality is, however, that during successive decades and under successive Governments of all political persuasions, there has been an erosion of Beveridge's concept of genuine social insurance and the contributory principle, to the point where those ideas have become highly confusing and confused.

I regret that the process has continued in the Bill, whose author, almost inevitably, was the Chancellor of Exchequer—Complexity Brown—a man who unfortunately, Budget after Budget, not only welcomes confusion in the national insurance and taxation systems, but does much to generate even more confusion in those systems.

The essential element of the contributory principle is eligibility for certain benefits—in essence, at present, jobseeker's allowance, incapacity benefit, and retirement and widow's pensions—based on compulsory contributions from employees, employers and the self-employed. The system covers about 20 million employees, about 1 million employers and about 2.3 million self-employed—a great many people—all of whose national insurance contributions are paid into the fund. Until now, only a small percentage of those contributions has gone to NHS spending.

Figures produced by the Library show what the regime was like before the Budget announcements and before the Bill was introduced. Just over 1 per cent. of an employee's

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earnings between the primary threshold and the upper earnings limit was devoted to the NHS, and about 0.9 per cent. of the earnings in respect of which employer's contributions were paid. Most of the national insurance fund covers contributory benefit pay-outs.

The national insurance fund operates on a pay-as-you-go basis, so that today's contributions by today's workers cover and finance the current outgoings paid to today's benefit recipients. The problem is that there is little direct financial relationship between what an individual puts in over a lifetime and what that individual may or may not pull out by way of benefit. That point was powerfully and brilliantly exposed in the fifth report of the Select Committee on Social Security in June 2000. The Committee was worried about the future of the contributory principle and what it actually meant for the public in accounting and practical terms.

My contention is that the current national insurance system is light years away from the model of social insurance that Beveridge envisaged and that Ministers so assiduously pray in aid. Beveridge thought that the system should be fully funded. That is clearly not the case in the current national insurance system. He envisaged a fairly low flat rate for all contributors, thus allowing—in his view—middle and higher-income earners to make their own voluntary, private provision on top. They would have been able to do that because the flat rate was relatively low. That is not the case with the current system.

The fault does not lie merely with the Government over the past five years, but it has continued under them and it makes the system very different from Beveridge's model of social insurance. The problem with Beveridge's system—its corruption, some would argue—had much to do with the fact that, at an early stage, the Government of the day did not allow the social insurance fund to mature, which would have taken about 20 years of contributions. Instead, full pensions were paid at an early stage and swiftly resulted not in a fully funded insurance system but a pay-as-you-go system.

Other factors beyond the Government's control have, of course, contributed to the corruption of the original idea. In part, it has been caused by the change in women's employment in the work force, which we all celebrate but which Beveridge did not envisage at all. His view was that the man would continue to make the contributions and the wife would stay at home. Another example is life expectancy. When social insurance on a fully funded basis was talked about at the end of the 1940s, the life expectancy of a worker on retirement was one year. It is now in excess of 20 years. Those are changes that make a fully funded model very difficult to deliver. We now have a mish-mash in which what is paid into the fund, and what is received out of it, are, to say the least, untransparent transactions.

Another point about national insurance and the contributory principle properly defined was that there would be less reliance on means-tested benefits—under the contributory principle, means-tested benefits should have declined. In the last 40 to 50 years, of course, the reverse has occurred. At the end of the 1940s, more than 60 per cent. of Government social security expenditure was on contributory benefits, and only 13 per cent. was on means-tested benefits. Today, contributory benefits make up 47 per cent. of spending, and means-tested benefits have grown to more than a third of the total.

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Much of the growth in means-tested benefits is attributed to the failure of many people to qualify for the contributory national insurance benefits. It is also due to many new means-tested benefits: rent and rate rebates or the new housing benefit and council tax benefit. Undoubtedly, successive Governments have not done much to clarify in the public mind what should be paid out in relation to what is paid in by an individual payer of the stamp or national insurance contribution.

How many of our constituents, if asked about the Bill and about the contributory principle, would understand that the bulk of national insurance does not go to the national health service? Research undertaken by Dr. Bruce Stafford in 1998 for the then Department of Social Security produced some interesting findings. He discovered an individualistic approach underpinning views of the national insurance fund and the contributory principle:

In giving evidence to the Social Security Committee, the Trades Union Congress also complained about the lack of transparency in relation to the national insurance contribution system. When it was campaigning against the introduction of jobseeker's allowance—when it was cut from 12 months to six months, in relation to contributory benefits for the unemployed—it was surprised by the public's complete lack of understanding about the working of the contributory system. It blamed

This may be the first time that I have agreed with the TUC, but it is right in that regard.

Increasing evidence exists that the link between contributions put in and benefits drawn out is getting vaguer year by year, Budget by Budget. The restrictions on which contributions can be counted and when they can be counted will often mean that someone who has paid national insurance at the lower end will still end up not qualifying for benefit. In 1995–96, the then DSS estimated that there were about 4 million people, mainly those with low earnings, who paid standard or self-employed contributions for short periods during the year who did not obtain a qualifying year for basic state pension, even with the benefit of credits adduced to them. At the other end of the scale, much higher earners make a similar complaint about what they get for what they put in.

From whichever end of the income scale one looks at the issue, the idea of national insurance contributions as genuine social insurance is becoming outmoded. As Professor Disney of the Institute for Fiscal Studies has observed, national insurance is merely a device for raising money because people dislike the idea of paying income tax. He said:

the public—

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That observation reflects what successive Governments have increasingly done. They have always altered national insurance contribution rates and the benefit conditions attached to them without strict adherence to any kind of actuarial calculation. In short, although the idea of benefits as a right might be popular with some members of the public, it does not have much basis in economic or accounting reality.

It seems that it is high time to explode the myth that the current national insurance regime is "insurance". To be much more honest, the Government should admit that we have a social security tax—a straightforward redistribution mechanism—to get contributions from those in work and to make payments to those outside the labour market. I would not advocate or support such a system but that is what the new Labour Government and the Chancellor are perpetuating with every Budget that they pass. It is incumbent on the Chancellor to own up and admit it.

I have described the manifest confusion in concepts of national insurance, but that is not the only confusion attendant on the Bill. There was much confusion in the presentation of what was undoubtedly a tax increase, not a genuine national insurance contribution increase. The hike of 1 per cent. in alleged national insurance contributions together with the removal of the upper earnings limit in relation to that rise equals a tax increase identical to a 1 per cent. increase in the basic rate, a 1 per cent. increase in the standard rate, and a 1 per cent. increase in the top rate of income tax, with increases in liability for many of the categories to whom my hon. Friend the Member for Buckingham (Mr. Bercow) drew attention—nurses, police inspectors, firemen and many other public sector workers.

The Institute for Fiscal Studies is in no doubt that what we are talking about, effectively, is a back-door increase in income tax rather than any form of contribution. It says that the Government's increase in national insurance is,

Many sage observers in the City and in the newspapers have made the perfectly legitimate and far-sighted point that the increase opens the door for increases further down the line—from 1 per cent. to 2 per cent., 3 per cent. or 4 per cent.—gradually working up to a much higher increase in the top rate of tax by the back door. What we have seen in the Bill is merely the thin end of the wedge. On 20 April, The Economist followed the same line of argument and said:

The measures in the Budget and the Bill are in breach of the spirit of statements made by Her Majesty's Ministers at the time of the last general election. My favourite is from the Prime Minister in response to a question from Jeremy Paxman on "Newsnight" on 22 May and just before polling day. Mr. Paxman said:

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not to abolish the national insurance ceiling—

The Prime Minister replied, "They shouldn't" suppose that.

Then, of course, we had the all-time classic of its kind from the now Secretary of State for Trade and Industry. On the "Powerhouse" programme on 29 May 2001, she said:

The Select Committee on the Treasury also had some sage comments and judgments to pass on the Budget and the proposals in the Bill. I sit on the Committee and we observed the uncapped nature of the 1 per cent. rise in NICs and asked Treasury officials what they were up to. They said that the definition of the upper earnings limit on NICs is

That view seems to be greatly at variance with the previous, widely accepted and traditional definition of the upper earnings limit, which was that it was the maximum amount of weekly earnings in respect of which employee contributions are payable. The Committee went on to suggest rather insightfully:

That is the main thrust of my argument.

We have a national insurance system in which there is no direct relationship between what individuals pay and what it pays out. It is true that the Bill will direct more funds into the national health service. Conservative Members believe that more money should be put into the national health service, but that extra funding must be accompanied by reform. The Bill does not talk about reform at all. The extra financing must also be carried out with clarity and honesty, and the Bill does not do that.

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