Orders of the Day — National Insurance Bill

Part of the debate – in the House of Commons at 12:00 am on 10th April 1974.

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Photo of Kenneth Clarke Kenneth Clarke Shadow Spokesperson (Work and Pensions) 12:00 am, 10th April 1974

I realise that in the Bill the Government have committed themselves statutorily to an annual review and therefore to keeping and maintaining the present position they have reached. If it turns out that they have committed themselves to more than they might have achieved had they not put in that statutory obligation, instead of their again not being able to maintain the improvement of benefits at all this time—as happened under the last Labour Government—they may get themselves into even more difficulty in trying to keep to that obligation, with which they have burdened themselves and successive Governments

Those doubts are not likely to materialise, I trust, but there is this background. Under the last Labour Government we found ourselves in a similar position politically. In 1964 the Labour Party came into office having overbid the previous Conservative Government and put into its election patform an attractive commitment to increase national insurance benefits, with a particular commitment to pensioners. One of the first actions of the Labour Government when they took office in 1964 was to produce legislation giving effect to their election commitment. There was a considerable increase in the real purchasing power of the pension and other associated benefits

I will not enter into the arguments as to whether that rapid commitment in the circumstances of the time led in some measure to the financial crisis which later dogged the Labour Government but, sadly, they were never able to carry on from the particular base they had set themselves in 1964. There was a massive increase in the purchasing power of the retirement pension in 1964, but that purchasing power vis-à-vis prices remained absolutely static for the six years that followed

Since 1970 there has been not a sudden acceleration at any one stage but a steady improvement of the purchasing power of benefits alongside prices. We on this side gradually accepted a commitment to keep those benefits going up at least as fast as prices and finally, after a considered period, saddled ourselves with a statutory commitment to an annual review to keep benefits in line with prices. It was not a sudden surge on that occasion. It was a continual improvement and an extremely respectable record over four years

Now we find ourselves in some ways in a similar position to that of 10 years ago, when the Labour Party then took over. The Conservative Government had won a great deal of respect and support amongst those people who were benefiting from what we were doing, but Labour overbid what we did and have begun their social policy, as they began last time, by putting into effect what is merely an election commitment-—an election slogan—which I believe began as a gleam in the eye of Mr. Jack Jones of the Transport and General Workers' Union in his attempts to improve the public relations of his union at difficult political times

Nevertheless, the Labour Government have overbid what was happening before to a slight but appreciable extent. I concede that what they are doing exceeds modestly our commitment—the review based on prices on a six-monthly basis—and they are, therefore, now going to bring in this new obligation. They are placing upon themselves and on successor Governments a statutory obligation which future Governments will have to live with. That very statutory obligation seems to me, with respect, to be entirely based on sheer overbidding of what we were doing. Something had to be found for the election platform. Our statutory obligation was to keep benefits in line with prices. The Labour Government have now brought in the proposal to keep benefits in line with average wages or prices, whichever is the most beneficial for those in receipt of benefits. They have accepted that obligation quickly—so quickly, indeed, that the right hon. Lady had to accept that she had not had time to consider detailed policy problems and needed further legislation to sort out long-term priorities

The right hon. Lady had no time to deal with detailed choices of priorities and small amendments that could have been made. She has not the resources to do very much to the substance of the National Insurance Scheme this time. The Committee stage of the Bill might as well be truncated because so much is swallowed up by this election commitment that, where there are gaps in the present system, no resources have been left which the House could possibly use to plug them

The Labour Party found itself in opposition from 1970 to 1974 with a not very good record in government. It faced a Conservative Government who were achieving success with social policy. Now, the Labour Government have launched out on policy based on an election commitment. They must settle down now to the serious business of relating their social policy to the resources of Government expenditure and to a slightly more —if I may say so without sounding too patronising—responsible approach to the development of social policy than this particular legislation represents

Finally I visualise, even in the short term, some difficulties being faced in taking on the burden and the obligation which is implicit in this legislation and this review of benefits. One matter I should like the Minister to deal with is the way in which the national insurance contributions have been raised, the method which has been used and which has placed such a heavy increase upon the employer

I am not today advocating that the House should oppose doing this. I am not suggesting that the Bill should not be given a Second Reading because of the expense of any feature of the contribution problem. However, what the Government are doing in the Bill already indicates the difficulties that we shall get into in financing this sort of commitment entered into on such a blanket basis because of an electoral slogan

The large increase in the employer's contribution is a payroll tax and, as there are many right hon. and hon. Members on the Government side who genuinely believe in the fiscal merits of payroll taxation, I hope that the Minister will face up to that and give us some justification for the way in which so much of the burden has been put on the employers. A payroll tax of nearly 50p is being placed on employers. That is what is underlining this change. There was much advocacy in the Labour Party for a payroll tax before the Budget. That is what is presented here. This is the beginning of a payroll tax, one that will have a significant impact on some small employers

I ask the Minister to give us some straightforward justification of the basis of a payroll tax and to tell us how his Government felt able to embark on it in the form of these increased national insurance contributions. Also, in the light of the Labour Government's experience of selective employment tax, can the Minister reassure the House on the likely effects on employment of such a sudden increase in the employer's contributions, particularly as regards the lower paid, those nearing retirement and those groups in marginal employment who proved to be so badly affected under selective employment tax? Will the Minister review the principle of this if there is the possibility of a downturn in demand, a recession in the economy or an increase in unemployment over the coming year? It is an important change in the burden of taxation

I hope that the Minister will not simply repeat what was said in the Budget Statement about merely bringing employers into line with the continental level of contributions, because that comparison cannot be made without bearing in mind the other level of corporate taxation on employers on the Continent

I hope the Minister will accept that in effect the Government have chosen—perhaps they are able to defend themselves and to justify it—a payroll taxation basis for financing a substantial part of the burden of the Bill, and I hope that he will deal quite straightforwardly with that part of the matter when he replies to the debate