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National Insurance

Volume 885: debated on Tuesday 28 January 1975

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asked the Secretary of State for Social Services whether she is satisfied that the insurance principle remains the appropriate basis for financing the National Insurance Scheme.

Yes, Sir. We regard the contributory basis of national insurance as valuable and important, and we are proposing no change in this respect in the way our new pension scheme is financed.

Does the Secretary of State agree that since the levels of national insurance benefits are fixed by political decision and not by reference to the state of the National Insurance Fund, and since most benefits are already financed from general taxation, the notion that we are applying the insurance principle at present is a sham and an illusion? Would it not be more sensible to acknowledge that factor and to do away with contributions, since it would save a great deal of administrative time and also avoid a large number of unfair and anomalous cases?

My hon. Friend is right to say that national insurance has never been "insurance" in the commercial sense of the word. None the less, there has been an enduring feeling in this country, particularly among the trade unions, that there is a kind of guarantee about a contributory schemeā€”a guaran- tee that would not obtain in the same way if the scheme were financed entirely out of taxation. It gives some assurance that Governments will not use the lack of a contributory principle as an excuse to economise in the important matter of pensions.

The more favourable traeatment that we are giving to the self-employed, compared with the actions of our predecessors, shows that the self-employed are already beneficiaries.

Does my right hon. Friend agree that the retention of a contributory system enables the Government to pay lower benefits than if supplementary benefits were to be got rid of?

No, I do not accept that. I believe the way to get rid of supplementary benefits is to do as we are proposing to do in our "Better Pensions" scheme, namely, to lift the whole level of provision for security in old age.

Does the right hon. Lady accept that there is one point we cannot avoid in what was put to her by the hon. Member for Southampton, Test (Mr. Gould)? I refer to the fact that since we are now going over to earnings-related contributions and they are now being collected in large part by the Inland Revenue, contributors will feel that their contributions have the impact of a social security tax. Will the right hon. Lady accept that it will be indefensible to have a special rate for the self-employed which is unfair compared with that paid by employed persons?

I do not agree with the hon. Gentleman. We are proposing to give earnings-related benefits in relation to earnings-related contributions. As our predecessors have shown, the two things do not always go together. It is a question of what are the principles and what is the level of the whole pension scheme. The existence of the contributory principle does not prevent the development of a non-contributory, non-means-tested benefit, such as the attendance allowance and our new non-contributory invalidity pension. As for the self-employed, I find it remarkable that any Con- servative Member should pretend to act as their protagonist, in view of past Conservative policies.