Clause 2. — (Higher Rates or Amounts of Contributions and Benefits Under National Insurance Act. 1946.)

Part of Orders of the Day — National Insurance Bill – in the House of Commons at 12:00 am on 22nd November 1960.

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Vice-Admiral John Hughes Hallett:

I do not propose to follow the hon. Member for Sowerby (Mr. Houghton) in his closing remarks, because it seems to me that they were more appropriate to the debate that we shall doubtless have on the Question, "That the Clause stand part of the Bill". I propose to keep strictly to the Amendment.

I was interested, in fact rather amused, to find that the hon. Member began by saying that this was an act of chivalry on the part of the Opposition, because it was helping the Government to keep their election pledges. I should have thought that there was some evidence that the Government were keeping this particular election pledge fairly well already. Indeed, the fact that we are all gathered in this Chamber discussing yet another Bill to increase pensions seems to me to be fairly conclusive evidence that that is so.

The idea that there should be a statutory review is not a new one. To be fair to the Labour Party, it has put it forward with great persistence for a number of years, and certainly throughout the short period in which I have been in politics. I am bound to say, however, that I very much question either the wisdom or the need for a regular statutory review of this nature.

Let me say a word, first, about the need. It is not accurate nowadays to speak of retirement pensioners as if they were a tiny, forgotten group in this country There are 5½ million of them, and their number is rising. It is true, and has been true for some time, that no political party can expect to succeed at an election if it were to pursue a policy which united the pensioners against it. The pensioners are potentially the most powerful single pressure group in the nation.

Furthermore, and for that reason, the whole question of retirement pensions, their levels, the contributions and the whole structure of this National Insurance system is continually in the very forefront of politics. I know that there are those who say that it ought not to be, and that we should take this matter out of party politics. I do not agree about that. I do not think that it can be done, and I remember that the last time we had one of these Bills before the House the hon. Member for Nelson and Colne (Mr. S. Silverman), with whom I do not often agree, pointed out what rubbish it was to talk of taking this matter out of politics and making the whole machinery automatic, because pensions are and will always remain the very stuff of party politics. I do not see how that can be avoided. I do not think that there is the slightest danger, and I am sure that the Opposition will guard against it, of the level of pensions being forgotten when they are raised continuously inside this House, by the pensioners' associations outside and they are under continuous review, I am quite sure, within the Government.

After all, the evidence is to be found in what has happened. I have been in this House for six years, and this is the third Bill to increase pensions which I have debated with other hon. Members during that short time. There is a certain familiarity in the arguments which take place on these Bills, although a stranger might wonder whether we were not engaged in the enterprise of reducing the pensions level. The only novel feature which I have noticed about the debate is the absence of the hon. Member for Coventry, East (Mr. Crossman) from our proceedings.

Let me now take the question of the wisdom of a review. It may be argued, in fact, I am sure it is, by some hon. Members, that although it is not necessary to have this review, nevertheless, for some of the reasons which the hon. Member for Sowerby gave, it would be wise so to do. I do not agree at all. I think that the great disadvantage of having a regular review is that it would lead the people, in this case the pensioners, to believe that when one of the various factors which have been mentioned indicates that an increase of pensions on these grounds would be justified, the rise would take place automatically. He spoke with some approval and pride of the various reviews which already exist for people still in active work. He might have added the undertaking given quite recently that there should be a biennial review of the pay of members of the fighting Services. I may be alone in this, but I think that it was very unwise of the Government to give that undertaking.

6.30 p.m.

It is a mistake to have these regular, automatic reviews. I say that because there is one factor which the Opposition have not included, one factor which has not been mentioned in this debate, but which is the most important. I refer to the current state of the national finances. I have never been one of those who, on public platforms, or in this House, have criticised or made disparaging remarks about the Labour Government for not having raised pensions to match the rising cost of living between 1948 and 1951. I have not done that because I am certain that the reason that was not done was not because they would not have liked to have increased pensions, but because the state of the nation's finances would not have justified it. It would have been a rash act.

Suppose, however, that when the right hon. Member for Llanelly (Mr. J. Griffiths) introduced his Bill in the first place there had been a provision in it of this nature. I believe that the Cabinet of the day would have been faced with an almost irresistible demand to make considerable increases every year in the level of pensions between 1948 and 1951 to match the rising cost of living. Had that been done, although it would then have been very agreeable to old-age pensioners, in the long run it would probably have had the reverse effect from what was intended because it would have embarrassed still further the nation's finances and retarded our recovery after the war.

Furthermore, it would have been unwise, even if the finances of the nation at that moment seemed to be adequate to bear a rise, to say that one should necessarily increase pensions merely because one of the three factors mentioned in this Amendment was justified. As I understood the hon. Member for Sowerby, although I may have misunderstood him, his theory was that we did not require all three factors to justify a rise, but any one would justify a rise. I will not say more about the cost of living, because I consider that as something quite distinct from the other factors and if the cost of living rises, if it is humanly possible the pensions must also be increased.

Taking the other factors in isolation, there have been periods since the war—speaking from memory, 1956 was one—when the average earnings of the country as a whole rose substantially faster than the rise in output. That resulted, naturally, in a rise in prices and, as night follows day, in considerable financial embarrassment during 1957. If we had chosen that moment, at the beginning of 1957, to make a bigger increase in all retirement pensions we should merely have intensified the financial crisis which followed in the autumn of 1957.

Nevertheless, this Amendment raises the very interesting question of what ought to be the yardstick which one should apply when carrying out a pledge such as the pledge to which we are committed, namely, to allow the old people to share in the rising prosperity of the country. That was a matter discussed at some length during Second Reading of the Bill, when three alternative suggestions were put forward. One was a rise in the gross national product, another the earnings level and the third the wage index. Although, at one time, I was an ardent supporter of the theory that if one could one should tie pensions to the earnings level, on reflection I have come to the conclusion that that would be a mistake.

I do not claim to be a great expert in statistics, but I have noticed—as I am sure all hon. Members have noticed—that in the Monthly Digest of Statistics there is always a considerable lag before the published earnings appear. Obviously, it takes some time to work them out, and, comparing one number of this interesting publication with another, one finds that sometimes they are corrected for back years. I presume that further information shows that the first estimate was wrong.

Earnings fluctuate violently from time to time and it would be a dangerous thing to use earnings as a yardstick for that reason. At present, earnings in the motor industry have dropped dramatically. Should that be a reason for lowering pensions? I think not. On the other hand, I do not think that the wage index is satisfactory because we know that earnings can be considerably increased and often are, with any change in wage rates. This happens when a shortening of the working week is negotiated. It is not reflected in any change in the wage index, but it results in a substantial increase in weekly earnings.

Pensioners would have a legitimate complaint if we said that we should relate their pensions solely to wage increases for that reason. If one is to have a yardstick at all, I think that the best is the gross national product. That is the yardstick by which I satisfy my conscience that the present Bill adequately fulfills the pledge which has been given because, at the end of 1957, when the last National Insurance Act was introduced and the last increase in pensions was made, the gross national product was running at £19,400 million a year.