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Lord Judd: My Lords, I apologise for detaining the House at this stage. Earlier the noble Earl said that he would look at Clause 21 and the possibility of refining the wording. I hope that when he does that and considers the arguments that we put forward, he will look also at the implications of this schedule to see how far it is tied to accommodating the points about which we are anxious as distinct from investigating ways in which the situation could be changed.

Earl Howe: My Lords, I am happy to take that point on board and I shall look into the matter as the noble Lord suggests.

On Question, amendment agreed to.

27 Feb 1996 : Column 1408

Schedule 10 [Repeals]:

Earl Howe moved Amendments Nos. 53 and 54:

Page 89, line 27, column 3, leave out from beginning to end of line 29.
Page 89, line 35, column 3, leave out from beginning to end of line 37 and insert ("Section 205(1)(c).").

On Question, amendments agreed to.

Social Security Benefits Up-rating Order 1996

4.59 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish) rose to move, That the draft order laid before the House on 31st January be approved [8th Report from the Joint Committee].

The noble Lord said: My Lords, in moving this draft order, I wish to speak also to the other five draft orders. The orders provide, as they have done in the past, an important opportunity to debate the central issue facing all developed countries; namely, the control of welfare spending.

Since the welfare state was established, spending on social security has grown by 5 per cent. a year faster than inflation and twice as fast as national income. On average the social security system costs every working person £15 for every working day. For the past three years we have carried through a widespread programme of reform as a result of which we have reduced the planned growth of the welfare budget to little more than 1 per cent. a year.

Next year, planned spending on social security will be £90 billion. That is below the planned spending we announced two years ago. The sum includes £3 billion for the up-rating of benefits. Generally, benefits will rise by 3.9 per cent.--at a time when the latest figure for the retail prices index is 2.9 per cent. That provides the largest percentage up-rating for key benefits such as retirement pensions for four years, even though inflation is running at the lowest level for more than two years. Income-related benefits, which rise in line with a different index more appropriate to the items covered by the benefits, will increase by 3 per cent.

Looking at the overall budget of social security, the fight against fraud remains our key priority in curbing spending. We are reviewing fraud, benefit by benefit. We have conducted a detailed survey of income support and unemployment benefit fraud. The survey showed that fraud in those benefits alone was costing the taxpayer more than £1.5 billion a year. A new strategy to prevent and deter that fraud was introduced.

We also reviewed housing benefit. Fraud and errors were costing £1 billion a year. We are introducing a comprehensive package of measures to tackle such fraud.

In addition to fraud, we are looking at ways to control all other aspects of the social security system. A few weeks ago I brought before your Lordships' House the asylum seekers changes that we have introduced in order

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to plug benefit loopholes in that sphere. Those regulations were introduced to restrict access to the benefits which were being widely abused by bogus asylum seekers. That abuse involved something like £200 million every year. Our reform restricts benefits for economic migrants but continues to meet our proper obligations to genuine asylum seekers. We had a significant debate a few weeks ago on the issue at the end of which, I am happy to recall, your Lordships were kind enough to support me in the Division Lobbies.

I turn now to another aspect of the benefit system where we have announced changes; namely, the position of lone parents. We have long recognised the difficulties faced by this group. We have announced a major pilot scheme to help lone parents back into work. However, we also recognise that benefits to lone parents will cost in excess of £9 billion this year--something like 10 per cent. of the total benefit budget.

Our strategy to ease the burden has three elements. We will improve incentives for lone parents to return to work through improvements in family credit. About 270,000 lone parents are already benefiting from family credit. We have previously extended family credit to those who work part time, and, from last July, it was raised by £10 a week for people working full time. From next April, we propose to raise the allowance for the cost of child care to £60 a week. That measure will be particularly helpful to those with more than one child and those in full-time work.

We also intend to ensure that the benefit system does not place married couples at a disadvantage compared to lone parents. In the words of Mr. Frank Field MP, the chairman of the Social Security Select Committee, in another place:

    "For decades, politicians would not talk about the issue. Tax and benefit policy was squeezed to help single parents and childless couples. Single parents gained more help than did two parents. The policy has got to be reversed".
As a first step we propose not to increase the one-parent benefit or the lone-parent premium in April.

The one-parent benefit was introduced in 1976 when it was described as an "interim" benefit until the child benefit scheme came into being. When the Child Benefit Bill was going through the House of Commons, the noble Baroness, Lady Castle of Blackburn, then Barbara Castle, said:

    "There is to be an interim benefit of £1.50 a week for the one-parent family for a year from April 1976 until the child benefit scheme comes into effect".
Since that day, through changes in the benefit and taxation system, it has become possible for a lone parent to have a higher net income than a couple even when both receive similar levels of gross income--and that despite the fact that the couple would have an extra adult to support. We do not believe that the situation is right. We intend to narrow the gap between benefits for lone parents and those for couples. Regulations have been laid before the Social Security Advisory Committee to enable that to be done at a controlled pace and, most importantly, in a way which does not produce cash losers. Our proposals will increase opportunities to work for all families. They will improve incentives for lone

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parents to avoid welfare dependency and they will reduce the burden on couples who support themselves. We will also ensure that more lone parents receive regular maintenance from the absent parent.

The Child Support Agency is now proving increasingly effective and is on target to collect and arrange 60 per cent. more maintenance this year than in the previous year. Absent parents on benefit should also contribute to the cost of their children. One of the measures included in the package of regulations we are discussing today will double the minimum contribution to 10 per cent. of basic income support.

We also propose to improve incentives for all workers and not just for lone parents. From April 1996 employers will qualify for one year's remission from their national insurance contributions for each person they take on who has been out of work for two years or more. One of the measures before us today will cut Class 4 national insurance contributions paid by the self-employed by 1.3 per cent. from April. We also intend to reduce the main rate of employers national insurance contributions by 0.2 per cent. from April of next year.

We are rightly proud of the extent to which we have encouraged people to provide for their own retirement in this country. More than three-quarters of employees who are eligible to do so have opted for a private scheme rather than remain in the state earnings related pension scheme. The total value of investment in British pension funds is nearly £600 billion. That is more than that of all the other European Union countries put together; indeed, in the past year, it has increased by £100 billion.

The next priority in our successful pension strategy is to encourage more provision for the cost of long-term care for the elderly. From April 1996 we propose to double to £16,000 the upper capital limit for income support for those in residential care and we are more than trebling the lower limit. We are consulting on the important issue of developing attractive schemes for self-provision for long-term care.

We are fortunate that there are fewer people out of work in this country than in any other major country in western Europe; indeed, there are more people in jobs and, of course, we have the lowest level of inflation for a generation. The measures before us will protect the most vulnerable; they will strengthen work incentives; and they will maintain our long-term control of social security expenditure. I commend the order to the House. I beg to move.

Moved, That the draft order laid before the House on 31st January be approved [8th Report from the Joint Committee].--(Lord Mackay of Ardbrecknish.)

5.9 p.m.

Lord Dean of Harptree: My Lords, I feel sure that the House is most grateful to my noble friend the Minister for his typically full and lucid explanation of this up-rating order; and, indeed, of the other orders that we are discussing today. I should begin by declaring an interest. I am lucky to be in receipt of a National Insurance pension and also of a war pension. I am most

27 Feb 1996 : Column 1411

grateful to the taxpayers and the National Insurance contributors who found the money for those two benefits.

When I had some responsibility for these matters in the early 1970s the up-rating was implemented by primary legislation. There were many hours of debate as the various stages of the Bills were discussed in both Houses of Parliament. Now, of course, we have much less time for such discussion. The present practice appears to be on the day following the Budget Statement to have a statement in which the appropriate Minister gives details of the up-rating proposals to come into operation at the beginning of the next financial year. Then we have a short debate at about this time of year, as we are now doing.

It is a pity that we spend so little time on this matter. This, after all, is one of the main financial transactions of the whole year. As my noble friend has said, we are dealing with expenditure of £90 billion in one year, which is over 40 per cent. of government expenditure. Nearly every man, woman and child in this country is affected. They are either payers or receivers. It is a pity that we allow these orders to be accepted after such a short debate.

My noble friend mentioned the main up-rating. He was too modest to say whether the government commitment is met by this. As your Lordships know, the Government have a firm commitment to increase pensions and the other main benefits each year in line with prices so that they maintain their value. I should be grateful if my noble friend could confirm that this commitment is fully honoured in this up-rating statement and that it also applies to war pensions which are, of course, increased by Royal warrant. I think I am right in saying that the commitment is more than honoured because of the downward path of inflation.

I now turn to a point briefly mentioned by my noble friend in regard to national insurance contributions for employers. This seems to me to be an immensely important provision which has not perhaps received the attention or the commendation it deserves. I welcome very much the remission of employers' national insurance contributions for a year for every person taken on who has been out of work for two years or more. I welcome, too, the cut in Class 4 contributions for the self-employed by 1.3 per cent. from April, and, finally, the cut in the main rate of employers' contributions by 0.2 per cent. from April 1997. These reductions will help to contain the cost of employing people and they will make a valuable contribution to maintaining competitive conditions in this country and to keeping down unemployment. Employers in other European Union countries face much bigger burdens of employment regulations and charges than is the case in the United Kingdom. I think I am right in saying that for every pound of pay in our country there are additional labour costs amounting to £18. In Germany the figure for labour costs is £32; in France £41; and in Italy £44.

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