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Social Security

Volume 981: debated on Wednesday 26 March 1980

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I have already stressed the scale and importance of the social security programme. In the coming year it will absorb a quarter of public spending and cost about £20 billion—which works out at no less than £1,000 a year for every household in the country. Its volume has grown by about 50 per cent. in the last 10 years, allowing both for inflation and the switch from family allowances and child tax allowances to child benefit. That rate of growth is more than three times the 15 per cent. increase in GDP over the same period. Some of this growth is accounted for by an increase in the number of beneficiaries, particularly the elderly. But much of it has come about not through any conscious decision but because the level and scope of benefits have been improved in anticipation of a growth in output which has not been achieved. It is a striking example of the nations capacity for spending money before it has been earned.

Any effort to curb the growth of public spending must, therefore, include this programme. One must recognise the differences between its various components. The programme covers a big range of benefits and beneficiaries. Any changes must reconcile the need, which we all recognise, to protect the most vulnerable members of society with the need to ensure that scarce resources are distributed in a way which does not unduly inhibit the creation of wealth. Standards of living and the benefits people are willing to finance must depend on a healthy, growing economy.

Any civilised society has a special obligation to those who have completed their working life. The standard rate of retirement pension will accordingly be increased next November by £6·15 to £43·45 for a married couple and by £3·85 to £27·15 for a single person. These increases fully reflect the Government's estimate of the rise in prices between the last uprating and the next. In addition, a £10 Christmas bonus will again be paid. Moreover, we propose substantial extra help for poorer consumers with their fuel costs next year. Much of this will go to the elderly. My right hon. Friend the Secretary of State for Social Services will be giving details tomorrow.

Again, any civilised society should provide a safety net below which a poor person's standard of living should not fall. We can all debate what is the proper level. Should it be a relative level or, as Beveridge had contemplated, an absolute level, which seeks to meet the basic needs of a person and his family? These are difficult questions. The answers are not made any easier by the fact that the supplementary benefit scheme covers so many varied circumstances, with more than 3 million beneficiaries at any one time, ranging from the old and infirm to healthy young people capable of work. But clearly no action we take should be at the expense of the really weak and needy. Accordingly we propose that supplementary benefit rates, too, will be increased next November in line with the projected level of prices. A large part of the additional help with fuel costs which I have just announced will also go to supplementary benefit recipients, particularly the old and those with young children.

Besides the old and the poor there are others with special needs. One-parent families face particular problems. We propose that the additional payment to them should go up from £2·50 to £3 per week—an increase of 50 per cent. since the government came into office. The disabled also face special difficulties. The mobility allowance will therefore go up by £2·50 per week to £14·50 per week next November—again an increase of nearly 50 per cent. since we came into office. The family income supplement scheme will be improved so as to extend help to a further range of low income families where the breadwinner is in work. These families will also benefit from the fuel help scheme.

This demonstrates our determination to look after the elderly and the needy. But there is another aspect of the social security programme. The Government and the vast majority of the British people want hard work and initiative to be properly rewarded and are vexed by disincentives to work. One of the biggest problems is the lack of balance between social security benefits and incomes in work.

As my predecessor so often reminded this House, the net extra reward to a low earner from going out to work can be so close to the benefits he can get when on social security as to extinguish his incentive to find or stick to a job. Indeed, there are people whose incomes out of work exceed what they could reasonably expect to get when in work. There is undoubtedly widespread and justified public concern about this disincentive. It is doubly demoralising: first, to those directly affected; and, second, to the large numbers around them, who quite reasonably see such provisions as unjust as well as harmful to the proper workings of the economy.

This is a complicated problem which cannot easily be resolved, but the Government are determined to tackle it. We intend to start with tax. Successive Administrations have always intended that short-term social security benefits should form part of a person's taxable income, in the same way as pensions and widow's benefits always have. The 1948 legislation said they should be taxable. It is only fair that a man who in the course of the year derives his income partly from work and partly from social security benefits should pay as much tax as a similar man who has earned the same total income. So far the administrative difficulties have always appeared insuperable. Now we are going to act.

First, we have the scheme, which my right hon. Friend the Secretary of State for Social Services announced before Christmas, whereby employers would have the responsibility for the payment of a minimum level of sick pay during the early weeks of sickness. This will bring the bulk of sickness payments into tax through PAYE. This scheme should be operating from April 1982. Secondly, we intend to bring benefits paid to the unemployed into tax at the same time. This will be done in such a way that in general the claimant will neither receive refunds nor suffer deductions of tax until he is back at work. We are also considering how best to bring into income tax at an early date the remaining short-term benefits, and invalidity benefit, which, primarily for administrative reasons, are at present untaxed.

But we do not have to wait until 1982 to do something about this problem. Subject to the approval of Parliament, these short-term benefits and invalidity benefit will, at the next uprating, be increased by 5 percentage points less than would fully reflect forecast price movements. In addition, the entitlement formula for earnings related supplement to these benefits will be altered from January 1981 so as to reduce the proportion of earnings reflected in benefit. None of these benefits comes within the tax net at present. What I am now proposing takes account of the general agreement by successive Governments that they should.

The ERS scheme itself has been diminishing in worth and effectiveness over recent years. Redundancy payments are now more generous, and the development of the employers' sick pay scheme means that ERS is much less needed than formerly. Of the unemployed, only about 10 per cent. to 15 per cent. are in receipt of ERS at any one time. All in all, the Government would find it difficult to justify its retention. We therefore propose that the State provision of short-term benefits should in future be on a flat-rate basis and that ERS should be withdrawn in 1982, with no fresh claims being taken from the beginning of that year.

The large increases in the social security programme over the years reflect in part the heavy cost of automatically indexing the value of benefits in an open-ended way. One aspect of this is the system of index-linked pensions in the public sector, which includes those payable to retired Ministers and Members of Parliament. Serious doubts have been raised as to whether adequate allowance is made for the value of present pension arrangements in settling public sector pay. The Government intend, therefore, to set up an independent inquiry into that question.

I come now to child benefit, where a judgement is needed how far the impact of inflation should be offset. I have already explained the general problem that has to be faced in relation to both benefits and taxation. The Government propose that this benefit should be raised in November from £4 to £4·75 per week for each child. For nearly all basic taxpayers, this increase of 18¾ per cent. in child benefit will ensure that they are better oil than they would have been if child tax allowances and family allowances had continued and had been uprated in line with prices—and people who pay no tax at all are substantially better off.

Child benefit is, of course, paid in respect of every child in the country, regardless of the parents' circumstances. The increase that I have just announced will add over £400 million to public spending in a full year. An extra 10p per child per week would cost nearly £60 million a year. I have no doubt that in all the circumstances, I have done everything that is reasonable to match the claims of those who are entitled to child benefit with those other recipients of social security.

Within the limited resources available, given the other pressures on the social security programme, these decisions represent the best balance between protecting the old, the poor and the needy, strengthening work incentives, and securing fairness as between the taxed and the untaxed. Full details of the changes will be announced tomorrow by my right hon. Friend the Secretary of State for Social Services.

Finally, I turn to an area where our social security system touches on industrial relations. More than 10 years ago one of my distinguished predecessors said:

"we need to facilitate the smooth working of the process of collective bargaining in industry and to help to prevent the occurrence of unnecessary and damaging disputes, of which we have seen all too much recently, and which are totally incompatible with our economic objectives."—[Official Report, 15 April 1969; Vol. 781, c 1006.]

That is what Mr. Roy Jenkins said in 1969, when he announced the then Government's intention to press ahead with their proposals, "In Place of Strife". Eleven years later, little indeed has changed, except for the worse.

I shall refer today to only one aspect of this self-inflicted industrial damage. The social security payments that a striker may claim on behalf of his family can be one of several factors that sometimes tilt the balance of industrial power against employers and responsible union leadership alike. These payments have helped to sustain some very damaging strikes. The sums involved can sometimes be substantial. During the present steel dispute, for example, such payments have so far amounted to over £8 million. That figure would be enough, for example, to pay the full-year cost of another 50p a week on the one-parent premium or an extra £1 a week on mobility allowance. Payments to strikers are widely and understandably resented and we have carefully considered how best to change present procedures.

Supplementary benefit for strikers' families will not be withdrawn altogether, but once Parliament has passed the necessary legislation we intend that assessments for benefits will assume the striker to have provided £12 per week himself, whether in strike pay or in some other way. Strikers' tax refunds will continue to be taken into account in assessing needs. Until now, part of the tax refund—equivalent to £4 per week—has been disregarded. In future regard will be had to the full refund. We propose, too, that when benefits paid to the unemployed are brought into tax, benefits paid to strikers' families shall be taxed similarly.

This is an overdue reform. The Government believe that it is entirely fair to assume that strikers have made some provision for their families' financial support, either through their union or by some other means. It can hardly be denied that unions need to accept fuller responsibility for supporting their members when on strike than some of them have done recently. This change will make an important contribution to restoring the balance that has so long been lacking in our industrial relations.

After the changes announced today, the social security budget will still be higher, in real terms, in each of the next four years than it was last year. These changes reflect new and responsible priorities, such as are inevitable in a period in which resources are scarce. Successive Governments share credit for the Welfare State, but social security cannot be regarded as exempt from re-examination and entitled always to take absolute priority over spending on defence, the police, hospitals or schools—or over the need for proper control of public spending as a whole. Once that fact is recognised, there can be no denying the case for modest economies in this programme.