It is inevitable and understandable that a Bill of this kind, designed to bring more cash help to the most hard-pressed members of our community, should receive a general welcome. It is also inevitable that it should happen at a time of acute economic stringency when the poorest are the most hard hit by the blizzard of inflation. Again it is inevitable that a Bill of this kind should provoke a number of detailed and substantial criticisms from those who feel that they have not received enough consideration or that they have been left out altogether. I shall return to some of them in a moment.
Before doing that, I wish to strike a much more sombre note. It would not be right for this House to be carried away in a mood of euphoric benevolence and pride in its own generosity with the passage of legislation of this kind. We do that at the expense of our sense of reality. I have received letters of the kind quoted by the Secretary of State. They are extremely moving, because there are many people in real want in our society who are moved to write in that way to people in the position of the right hon. Lady. But we should not allow letters of that kind to conceal from ourselves that the £10 bonus is now worth far less than it was a year or two ago—I make no party point—and that the money with which we are making it available is running away and losing its value fast.
We should not allow ourselves to speak with pride about this being the second largest increase made in the pension, as though in itself that was automatically a source of pride, when the foundation of the increase is no more than to protect people against the ravages of inflation. Rather than a sense of pride, we should have a sense of failure, because it is a measure of our failure. It is a revealing insight into the right hon. Lady's mind when she says, "Last July we had an increase, and here we are again." Here, indeed, we are again on the inflationary roundabout.
That is not to say that the Opposition do not like the Government's conversion to the proposition that in our present circumstances a more rapid pattern of increases is necessary. We still argue that, if the Government were committed to that, it should be possible to achieve a more regular pattern. But let us not deceive ourselves into thinking that this is a magnificent state of affairs and cast away our sense of reality.
We all wish to help those most in need in our community. But when doing that we must not forget that our ability to provide that help depends on our capacity to produce and to be able to spend the basic wealth on which this benevolence depends. There are strict limits in our capacity to spend resources because of the oil crisis and the deficit facing us. There are severe and growing constraints on our capacity to produce the wealth needed because of the continuance of the inflation against which this legislation is no more than a defence—inflation fired to a significant extent by the collective selfishness of coercive industrial action.
We must not allow these harsh and uncomfortable truths to be concealed from ourselves by the mechanism, acceptable though it may be, of earnings-related contributions to the National Insurance Fund. The total cost of these changes is £1,125 million, of which £810 million will be met from the National Insurance Fund.
In paragraph 3 of the White Paper accompanying the Bill, the Government Actuary says in bland prose characteristic of that distinguished gentleman:
With a system of mainly earnings related contributions the income will rise automatically with increases in the general level of earnings and will broadly be sufficient to meet the cost of corresponding increases in the level of benefits. …
The right hon. Lady made the same point more simply in announcing these increases on 13th November:
…the inherent buoyancy of revenue from fully earnings-related national insurance contributions is expected to be sufficient to cover this additional fund expenditure."—[OFFICIAL REPORT, 13th November 1974; Vol. 881, c. 419.]
So be it. In so far as it is designed to keep the fund, and so the beneficiaries, in line with the growth in real wealth, such a system is fine. But we must not overlook that it also keeps benefits no more
than in line with the on-going pace of inflation. That may also be acceptable, but it can also serve to conceal from us the reality of inflation, to accustom us to it, even to the point of accepting it. If we leant on that crtuch, it would be disastrous. We must guard against any such feeling.
It was said by someone some years ago that national insurance brought the magic of averages to the help of millions. But we must guard against the comparable but profoundly different danger that the mystique of earnings-related contributions may bring false comfort to tens of millions.
That is why I say with due solemnity that I must utter the earnest warning that all that we try to do in this kind of legislation may turn out to be of no real value unless and until inflation is brought under control. The Government themselves must be more robust in that direction. If that does not happen, the right hon. Lady may find that she has been building castles of compassion on foundations of sand.
For this reason, it is important for the House to examine the assumptions about inflation on which the Bill is founded. I begin with the fact that the Government Actuary's report accompanying the last up-rating Bill which came into effect in July was founded upon Government expectations that the rate of increase in earnings would be 12½ per cent. per annum. In the Government Actuary's report accompanying this Bill it is assumed that between now and March 1976 average earnings will increase at an annual rate of 17½ per cent. There is a large and deeply disturbing increase there.
On 13th November the Secretary of State explained that the present increase in long-term benefits was founded on the fact that earnings, over the last available nine months, had risen by 15½ per cent. That is an annual rate in excess of 20 per cent. Today she said that the latest figures showed that even this latest increase is not high enough, and she promised even further escalation.
We have cause for grave alarm if these figures are right and if average wages have increased at the rate of 12½ per cent., then 17½ per cent., and now more than 20 per cent. The rate of wage inflation underlines the Government's lack of impact on the basic problem besetting all of this, which is the runaway pattern of increase promised us in the future in relation to pay settlements in the public sector.