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Social Security

Part of Ways and Means – in the House of Commons at 10:28 pm on 20th December 1983.

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Photo of Frank Field Frank Field , Birkenhead 10:28 pm, 20th December 1983

Although the House is debating three orders, I wish to concentrate on the one that changes the Treasury supplement. While concentrating on one order, I wish to show that it forms part of a consistent pattern under the Government of bringing forward changes in national insurance regulations that have shifted the burden of taxation to poorer people and those on average earnings from those who are richer. Whereas in this Parliament and the last Parliament it does not have the sort of appeal it used to have on the Government Benches, I also wish to show, by looking at the orders tonight and those that have preceded it from 1979, that they all helped to undermine three key election pledges made by Conservative Governments not only in 1983 but in 1974.

In those two manifestos the Government gave three clear commitments. One was to increase the incentive to work. I wish to argue that these orders, along with other orders the House has considered since 1979, have decreased the incentive to work. I wish to argue that, far from fulfilling the election manifesto pledge of decreasing taxation, the orders the House is now considering and other orders that it has considered since 1979 have increased the burden of taxation. Far from meeting the Conservative manifesto pledge of giving value for money, these measures and previous ones give the lie to that pledge.

I said at the outset that I would concentrate on the Treasury supplement. Changes in that supplement have shifted the burden of taxation from different groups in the population and have resulted in a decrease in the incentive to work. The Minister said that he would like to debate at some time the position that we have reached today compared with the position which Beveridge thought we should have reached today. As we cannot debate these matters tonight for more than an hour and a half, I will limit my comments to where Beveridge thought we should be today in respect of the Treasury supplement.

Surprisingly, given the detail of the Beveridge report, it contained no specific figure for the Treasury supplement in the years following the establishment of the welfare state. There was a figure, however, in the White Paper that followed the Beveridge report. It was suggested in that that by 1975 — there were no figures beyond 1975 — the Treasury supplement should be about 67 per cent. of total national insurance expenditure.

In the last year of Labour Government, the Treasury supplement made up 18 per cent. of the national insurance fund. If this instrument is approve tonight, the Government will have reduced that share from the Treasury to 11 per cent. Thus, more money is to be raised by way of national insurance contributions, and of all the forms of taxation that we have, that is the most regressive in the British fiscal system, because the threshold is so low. For a worker with children, the national insurance threshold is below the supplementary benefit poverty line and way below the eligibility point for family income supplement.

It is regressive also in the sense that national insurance contributions are collected in the way in which income tax used to be collected under the old exemption system; as soon as one passes the threshold, not just additional income but all one's income becomes taxable. As one passes the £34 threshold, not just the additional £ 1 becomes liable to the national insurance surcharge, but every £1, including the first that one earned. If that were not enough to make this form of taxation regressive, we have not only a low threshold, but a ceiling on contributions as a result of which, as contributions are increased, those on the highest earnings pay relatively less than those on lower earnings.

The Government are therefore seeking permission tonight for a decrease in the Treasury supplement, and as that process has continued since 1979, the Government have had to seek increases in the rates of contribution. They made much of the fact that the rates would not be increased, but it is instructive to consider the way in which they have changed the balance, not just between the Treasury contribution and those who are making contributions as employers and employees, but also between the employer and employee.

When the Conservatives assumed office, the employer's contribution was 10 per cent. It now stands at 10·45 per cent., and if one adds in the surcharge, the cost to employers of the national insurance fund has fallen. I hope that hon. Members, including my hon. Friends, will say that that is a welcome development, as would anybody who is concerned with increasing the number of jobs in society. But is it fair to shift the burden not only from the Treasury to contributors but within the contributors' sector, from employers to employees, in the way that the Government have? When the Conservatives came to office, the national insurance contribution for those of us in work was 6·5 per cent. Today it stands at 9 per cent.

That is not the end of the sorry tale. The Government have set out to raise a greater percentage of all revenue from this most regressive of all forms of taxation. When the Conservatives came to office in 1979, for each £100 of taxation raised by other forms of taxation, the national insurance fund raised an additional £64. If these instruments are approved, for each £100 of revenue raised by all other forms of taxation, the national insurance fund will contribute an additional £70. That is the magnitude of the shift in the burden of taxation to the national insurance fund. The result is that the level of taxation has increased for most income groups. but especially for the poor. The national insurance contribution rates have increased from 6·5 per cent. to 9 per cent. The Government have helped to deepen the poverty trap, and have thus gone back on their election pledges of 1983 and 1979 to increase incentives to work.

I hope, therefore, that I have established my first point. By looking at the shift in the burden of taxation I have tried to explain who is contributing a greater proportion to the national insurance fund today than in 1979. That is not the entire tale behind the three instruments. Along with higher contributions have gone lower benefits, and sometimes no benefits at all. That policy hardly squares with the promises made at the 1979 and 1983 elections that there would be value for money. That was to be one of the key principles of Tory policy.

I shall briefly remind the House why, on the one hand, we have been paying more into the national insurance fund, and how on the other hand we are getting fewer benefits as a result of the increase in taxation. Some benefits have been scrapped altogether. The industrial injury benefit and the earnings-related supplement to short-term national insurance benefits have disappeared. The invalidity pension and the maternity and sickness benefits have been cut in value, although the Government prefer the word "abatement". Labour's pledge to increase long-term benefits in line with earnings of prices has gone. If that pledge had been held by the Government, the national insurance pension for a single person would stand not at £34 but at £37.

The second point that I have sought to establish is that those of us who are paying higher contributions throughout the country have received lower benefits. That hardly squares with the Government's election promises to give value for money.

Perhaps we should be making an even more serious charge against the Government. The national insurance contribution increases have resulted in practically the whole of the increase in the tax burden since 1979. We well recall the pledges in both elections that the Government's aim was to decrease taxation.

An interesting reply was given to my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) recently, when he asked what the burden of taxation was on different income groups since 1979. I do not think that I am misrepresenting the reply when I say that it showed that practically all groups had seen an increase in the burden of taxation since 1979, except the very rich. After seeing the answer, I asked the Library to re-work my hon. Friend's answer and to establish what the burden of taxation would be if the national insurance contribution of those in work had been not increased but held at the level when the Labour Government left office. Once those calculations are to hand, one sees that the Tory Government would have fulfilled their election pledge of reducing taxation not just for the very rich but for all groups, especially those with families, had there been no increase in the national insurance contributions since 1979. We are debating three instruments in a series dating from 1979, which have undermined one of the key planks of Government policy—to reduce the burden of taxation not just for the very rich but for every worker in the land.

I end my speech by referring to another parliamentary reply. that given to my hon. Friend the Member for Oldham, West (Mr. Meacher), who wanted to know what had been the extent of tax cuts since 1979 on those earning more than £30,000 per year. The Government's reply was staggering. Each of the very rich in our society has had a reduction in his tax burden since 1979 of £9,260, compared with an increase in the burden of taxation—largely through the national insurance contribution increases—that has hit virtually every other worker.

The Opposition will vote against the instruments because they increase the tax burden on those least able to bear it—those people whose benefits have also been cut. If our appeal to shift the burden of taxation from the weakest in our society does not appeal to Conservative Members, I hope that they will recognise that these instruments, which are part of a pattern introduced since 1979, undermine three crucial Conservative election pledges.