I am particularly happy to follow my hon. Friend the Member for Stockport (Mr. Favell), who made a notable maiden speech which I hope will attract the attention that it deserves. I am naturally delighted that he should be campaigning on behalf of a subject for which I have myself campaigned for many years. He did so with style, knowledge and assurance. I am sure that all hon. Members who heard him, and many others who will read his speech, will look forward to his next contribution. I hope that he will continue to fight on this subject.

I should also like to express my thanks to my hon. Friend the Member for Leominster (Mr. Temple-Morris) who has been taking an increased interest in the subject. He did not expect that he would have the privilege of opening a three-hour debate at this difficult hour, but he rose to the challenge in a way that I appreciated. I hope that the Department has taken particular note of what he said about the National Health Service, which I do not intend to deal with.

The financing of the social services raises immediately the question that I have asked on previous occasions: who is paying what, to whom and why? I feel that the Chancellor should publish his accounts in a new form. It is a proposal which has been recommended in a recent leader in The Times and I believe has significant support in the Treasury. It is a matter upon which I hope my right hon. Friend the Chancellor of the Exchequer will take the initiative.

I should like my right hon. Friend to make a clear distinction between the Government's spending on current account, showing where the money comes from; the Government's spending on capital account and where the capital is raised; and the transfer account by which the Government churn money round but do not spend it.

I received a disappointing parliamentary answer today from the Chancellor in reply to a question, when I suggested that he might publish information and tables showing Government expenditure under those three headings. He referred me to an article in Economic Trends in 1981, which merely analyses data from the family expenditure survey and does not attempt to deal with the information that the Government must have as to what they are doing about the redistribution of income.

My view is that it is important not to speak of pensions, child benefit, unemployment insurance and the rest as Government expenditure in the sloppy way that we do, because the Government do not spend that money. The pensioners, the mothers or the unemployed spend it at their own discretion. That money is not, properly speaking, Government expenditure, but the way in which the Government draw the money out of the system and hand it back can create significant effects on the propensity to work, to consume and to save. This is an aspect of the Government's intervention in the working of the economy that the House should study. We should be given more accurate and precise data on which to base our examination of what is happening. I suggest that if the information were published on the lines that I have recommended, it would be just as interesting and important for Ministers as it would be for Back Benchers on both sides of the House.

It is a commonplace, as we all have to admit, that the economy is in bad balance. We are consuming too much —particularly imports—and we are producing too little. We are saving too little, adapting too slowly, giving too much effort, particularly in the public sector, to repeating old routines, and not giving enough attention to innovation. The way in which we operate the support system for incomes accentuates all these faults in the economy. The redistribution of income industry, which must occupy hundreds of thousands of people, is as much in need of drastic overhaul, modernisation and slimming down as any of the long-established industries in the private sector, and any of the public industries, such as steel, which have been shown in recent years to be grossly overmanned and obsolete by exposure to the forces of competition.

However, there are no effective powers of competition to the redistribution of income industry. It operates according to its own rules, to a great extent, and we cannot examine its efficiency by comparison with similar industries in other countries. There has been some revival of the private sector as a form of competition, but it is partial and incomplete. We need the opportunity to make a real examination. A situation has now arisen which is sure to draw the attention of the House to the operation of the redistribution of income. We know that the Government are looking for ways of saving a large sum of public expenditure, and it seems that the social services are under attack.

I shall take an example to illustrate the point that I am making. It may be a fanciful one, but it makes my point. Let us imagine that 100 people, more or less at random, were chosen to stand in a circle and that each was asked to hand £1 to the person standing on their right. When they saw the object of the game, they would probably be quite willing to do so, because they would see that nobody was suffering and everybody would gain as much as they lost.

Having done it once, we might persuade those same people to do it with £10. They would probably agree if they had the money on them. We might even ask them to do it with £100, which would create a few more difficulties, but it might be possible to imagine a redistribution cycle in which everybody was benefiting in the same way as everybody else.

Let us imagine what would happen if we said to this group of people instead that we wanted to start on a different basis—that we wanted some of them to put £1 in the hands of the man on their right, some of them £10, some £100 and others nothing. The game would soon break down, and there would be chaos. That is a little image of the redistribution of income as we are now conducting it.

We have lost sight of the principles. People do not know who is paying what, to whom and why. Unless the Government can provide an acceptable and rational explanation for why some of us part with money, others receive money and the majority do both simultaneously —for example, taxpayers who receive child benefit—there will be increasing friction and resentment about what the Government are doing. We must have clarity as to the Government's intentions. We must clear away the years of obscurity that have made it almost impossible for members of the public—or hon. Members of this House — to discern what is actually happening about the financing of the social services.

The social services have turned into something like a bran tub with prizes for the people who are roughest, reach furthest or work longest to extract the benefits. On the other hand, taxation has become for almost everybody an imposition which is seen to be unfair and felt to be essentially and deeply unjust. Socially and politically, those are two extremely bad developments. Everyone thinks that he is paying too much tax and that others are not paying the taxes that they ought to pay. That causes resentment in itself. At the same time, many people think that others are gaining too much in benefits and that too much money is spent on welfare. That also causes resentment. Our comprehension of what the Government are doing has been clouded, and the result has been extremely disadvantageous and disruptive to the unity of society.

When the Government start to tinker with this unhappy system, which we reluctantly accept and mostly criticise, there are outbursts of intense opposition. Such resentment leads to worse dangers of tax evasion and social security frauds, which are becoming increasingly widespread and socially acceptable. I implore my right hon. Friends to publish the figures showing how expenditure on income support has grown, how it may grow in future and what the Govermnent's intensions really are. They must make clear the basis on which public money is allocated between one citizen and other.

I hope that the Minister shares my view that a clear statement of intention is needed from the Government so that the public can understand how the Government intend to deal with the redistribution of income.

I would like to touch briefly on the principles by which money can be redistributed, so that we can see what we are aiming to finance, what the Government are trying to pay for and where savings can be made. We could have a universal system of benefit, such as child benefit, which relates to citizenship. I was delighted to hear my right hon. and learned Friend the former Chancellor of the Exchequer in his Budget speech a few weeks ago say that child benefit was a keystone in the Government's policy. I felt that that must be the position, but it was good to hear him affirm it.

The concept of insurance was another great innovation that was brought into the finances of the social services at about the turn of the century. The idea is that one is entitled to receive benefits not because of need but on the strength of contributions made over the course of time. That concept has entitled people to receive benefits at certain phases in their life-cycle without proof of need. The insurance concept was a great step forward when it was introduced, and it is tragic that it has broken down. We still have the trappings of an insurance system, and important benefits such as unemployment benefit, are paid with deference to the insurance principle. Unfortunately, the scope for that is rapidly diminishing.

Going back still further, William Pitt introduced a kind of secret or negative welfare state into the tax system. As long ago as 1798, the proposal for the introduction of income tax embodied the idea of child benefit. Pitt was so far sighted that he included in the tax system from the outset the concept that a man with children to support must be allowed to bear a smaller tax burden than a man without such family responsibilities. That was, as it were, a left-handed way of redistributing income by diminishing the liability to contribute to income tax for those who were felt to have the larger obligations.

Even further back, the Elizabethan poor law was based on the principle of giving selective assistance to those established as being in need.

We still operate all those systems, but in a muddled way. A large element of relief of need is based on the Elizabethan poor law principle. We have an income tax system which has been partially cleaned up in gradual pursuit of the idea of a tax credit scheme but which still has very large negative allowances; a national insurance system which is tottering but is still maintained as a kind of magic formula by the Government; and we have a universal child benefit in place of the family allowance, together with some other examples in which the principle of universality has been accepted. Thus, in financing the social services the Government are applying four completely different principles evolved over time, but they are not declaring their hand as to which is to be the basis for redistribution of income in the future.

I said that the insurance principle had failed. I shall say a little more about that, although it is a subject on which my views are well known to the House. It was a fine idea that flat rate contributions should finance flat rate benefits, albeit with a large element of Government subsidy. That was the original concept that inspired Winston Churchill and Lloyd George 70 or 80 years ago. Since then there has been enormous growth in the demand for income support, and I welcome that. The awakening of our social conscience to the need to support the destitute, the disadvantaged, the invalids and so on was right. The inevitable consequence of it, however, has been that flat rate contributions cannot possibly provide sufficient money, even when substantial elements of Government subsidy are introduced here, there and everywhere in the scheme.

A few years ago, the House recognised that flat-rate contributions for national insurance made no sense and had to be abandoned. We then went over to the principle of earnings-related national insurance contributions; but it was really no more than a farcical gesture to the insurance principle, as it now operates on a system totally unlike any other insurance principle and is not in fact an insurance principle at all. The national insurance system is financed out of income tax, but, to maintain the illusion, part of the money collected through PAYE is described as the national insurance contribution.

Many other aspects of the national insurance scheme prove that the time has come to wind it up at once to stop all the time wasting and the irritating, pettyfogging aspects of its operation, which no longer maintain the illusion of independence for the beneficiaries and merely add to the inefficiency of the entire redistribution of income operation.

In the increasingly difficult economic circumstances of recent years, the Government have in practice returned to selectivity while retaining the trappings of insurance and maintaining the universal benefit system as far as it has gone. But where has that reversion to selectivity taken us? Many people who have studied the whole question, albeit rather superficially, have concluded that selective benefits are the correct answer, that they are intrinsically right and that subsequent developments in the principles of benefit have been wrong. They are so anxious to achieve a system where the finance of welfare is reduced to its bare minimum that they have shut their eyes to the consequences of selectivity.

Where has the reversion to the principle of selectivity brought us in recent years? We all know about the poverty trap—the inevitable consequence of applying benefits selectively. We all know about the "Why work?" syndrome. The facts are incontrovertible and often published, and there is no question but that large numbers of the population are affected.

There is also the problem that for many people there is no point in saving or joining an occupational pension scheme because, by the time they retire, if they have deprived themselves during their careers in order to save, they discover that they have simply excluded themselves from benefits which would be available to them immediately had they not saved or joined an occupational pension scheme.

More than 7 million people are now dependent on supplementary benefit. This scheme is therefore not just a safety net kept ready for a small fraction of the population which, for one reason or another, is not self-reliant and unable to look after itself. People who advocate selectivity envisage a Utopian society where almost everyone is self-reliant, able to look after himself, his wife and family, to save, to be independent and to owe nothing to the community. In this vision it is recognised that an element in the population will be unable to rise to such a level of self-reliance and will need help; but it is hoped that it will be small.

I have heard speeches from hon. Members explaining the difference between the deserving poor and the undeserving poor, as though both were small categories of need which could be dealt with without destroying the principle that the British population is basically self-reliant and independent. I reject that line of thought, because the facts make it impossible to accept such thinking.

Now that we have over 7 million on supplementary benefit, we have again created two nations—those in work and those in need. We cannot continue like this. The number of people on supplementary benefit is increasing. The Government's policies are increasing the number and we have no hope of arriving at a time when the number will be sharply reduced.

If my hon. and learned Friend the Minister for Health disagrees, perhaps he will say when he expects the number of people dependent on supplementary benefit to fall below 6 million, 5 million, 4 million, 3 million, 2 million and 1 million. Even 1 million people on supplementary benefit is infinitely more than we should be willing to tolerate in our society.

The aim of selectivity is to assist one of the Government's important aims — the reduction of the burden of taxation so that it is no longer a disincentive to work. Although the financing of selective benefits calls for a lower level of Government activity at the money raising end of the redistribution function, and therefore seems to assist the financing of the social services at minimum cost, it creates effects that are the precise opposite of the Government's much-praised and often-stated aims of hard work, thrift and self-reliance. Those aims are sacrificed while we persist with the policy of selective benefits.

Millions of people have been drawn into a humiliating dependency from which it is demonstrably fruitless to strive to release themselves. That should not be allowed to continue, and it must not be made worse by ill-considered Treasury pressure on the DHSS at the present time.

Can we cure the problems being created by the application of the selective principle? Can we apply it in a more subtle manner and so dispose of its disadvantages? Or do we have to reconcile ourselves to high rates of taxation of income to finance the social services? An effort is being made to raise the tax threshold so that at the point where people enter work again on low incomes or where people on low incomes have the opportunity of bettering themselves by obtaining a small increase in their earnings, the tax burden does not apply in such a way as to hamper or frustrate their interest in harder work.

There is a move to limit or even to cut the benefits of the unemployed, so that the gap can be increased in that way. We may also see the introduction of a national minimum wage, which would have the effect of raising the point at which people enter work, to achieve the concept of clear water between what people receive when they are out of work and what they receive in a full-time job.

I have studied the facts in considerable detail, and I believe that it is not possible to create clear water between what people receive when they are out of work and what they may earn when they re-enter employment, unless we take dramatic steps to make income tax yield more from the better off—even at lower basic rates of tax—at the same time as we lift the tax burden from the lower paid. We need a large yield from income tax, even if we arrange matters so that at the lower level of income the tax burden appears to be reduced.

To create that area of clear water we must do a number of other things, some of which are socially unacceptable. It will be necessary to end the favourable treatment of husband and wife who are both at work and have no dependants. I have advocated that for a long time. Few people would regard it as wrong if the Government were to tread that path; but it is not possible to find the necessary money to end the various tax disadvantages at the point where people at the low end of the scale have to be encouraged to save and to work, unless we also do other things that are not likely to be acceptable.

It will be necessary to end mortgage interest relief and the concessions to life insurance, which largely diminish the amount of the real yield from income tax. It will be necessary to cut the standards of living of the unemployed in a way that would cause serious social unrest. It will also be necessary to impose a national minimum wage at a level that would put many more people out of work. I hardly have to say more to convince the House that I do not favour the application of the principle of selectivity in financing the social services.

Of course, the principle can be applied — and is applied—in a half rate manner. For instance, a half rate selectivity exists in the administration of the family income supplement. As someone improves himself, if he is in receipt of family income supplement, there is a long delay before he loses his entitlement, and then he loses only 50 per cent. of his benefit. It is like a 50 per cent. tax, but it operates in such a way that, when he loses the benefit, it overlaps with entry into the income tax system. There is the simultaneous burden of the loss of benefit and the loss of earnings through tax. That system means, yet again, a return to the disincentive effect.

Should we aim to provide a social system which gives a basic income guarantee to every citizen? That is the ideal of universal benefit. In point of fact it is what we do at present. It is not so monstrous, because very few people in Britain fall below the minimum standards which we think it necessary for a citizen to have because the forms of relief which we offer fail to reach them. A regrettable number of people live below the supplementary benefit level for one reason or another, but we are, in a rough and ready manner, applying the principle of the basic income guarantee to every British citizen as best we can.

Let us suppose that the Government were to go over to a basic income guarantee or tax credit scheme as a matter of policy. There is no reason why it should be introduced in such a way as to add enormously to the burden of financing the social services. I have discussed this with my right hon. and hon. Friends, many of whom pay tribute to the idea of tax credit and agree that it is a Conservative party commitment, but they say that it is not possible to introduce it in today's circumstances because it would be too dear. They take the view that it must wait many years — at least until the computerisation of the existing PAYE system is completed. If a basic income guarantee system were introduced, the computerisation of PAYE would be superfluous, so I do not respect that argument.

The question is whether such a scheme would involve great cost. There is no reason why it should not be introduced in such a way as to leave most people where they are now on the static balance. From the dynamic view we must imagine what would happen in the economy after the reform had been achieved. I believe the results would be fruitful. There would be great advantages in terms of the Government's objectives, except in one respect. There would be more incentive to work, more incentive to save and a greater degree of self-reliance among citizens. They would all feel free to better themselves. There would be huge savings in casework and administration, and we would come back to the ideal of one nation in contribution and in benefit.

We would, on the other hand, be bound to accept a high marginal rate of income tax. The actual burden of income tax would not be increased, but the marginal rate of tax would have to be at least as high as it is now, taking into account national insurance contribution, the employer's contribution and the national insurance surcharge.

The Government have to face that problem. They have to make a choice between their incompatible objectives. It is a matter of balance whether they go for low taxes and low benefits or accept a higher rate of tax to finance a range of social services which is more in line with public expectations and demands.

If one wanted to over simplify, one could say that the Government have to make the choice between love and money. They must choose whether to look to the people who want to take more out of the system for themselves or to pay attention to those who are willing to afford a generous level of transfer from those who have to those who need.

We must call on the Chancellor and other responsible Ministers to clarify the facts, to make known their principles, and then to let the public make the choice.