Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

Social Security

Part of Ways and Means – in the House of Commons at 10:46 pm on 20th December 1983.

Alert me about debates like this

Photo of Mr Archy Kirkwood Mr Archy Kirkwood , Roxburgh and Berwickshire 10:46 pm, 20th December 1983

I am glad to speak after the hon. Member for Mid-Kent (Mr. Rowe). I shall not take up his remarks, save to say that he has a point about the burden being endured by the self-employed. There are not many obvious increases in the orders, but the burden, particularly of national insurance contributions, has become unacceptably high.

I should like to ask the Government some questions about the Government Actuary's report. I am not experienced in perusing such documents, but in table 2, on page 4, there seems to he a quite significant increase in the cost of administering the national insurance fund. The administration costs for 1983–84 are there shown as £707 million, while the administration costs for 1984–85 are shown as £761 million. That is a significant increase of more than £1 million per week, if my understanding of table two is correct, perhaps it is not an increase of £54 million, and my ignorance and inexperience have led me to make a mistake. However, if I am right, it is an astonishing sum of money, I hope that the Minister will deal with that point.

I confess, again, that I am relatively inexperienced in interpreting the figures. It seems that the surpluses shown in table 2—£257 million in 1983–84 and £200 million in 1984–85 — represent considerable sums. There is a substantial balance in fund of £4,280 million for 1983–84, and a substantial projected balance of £4,480 million for 1984–85. I am aware that the Government Actuary has recommended that something like 16·6 per cent. of the total benefit expenditure must be held in reserve, and that is only sensible. However, it has been said that we are on target for 21·6 or 21·7 per cent. of benefit expenditure. That gives a leeway of 5 per cent., which is a lot of money in this context. I shall be interested to hear the Minister's comments on that.

I shall follow the line taken by the hon. Member for Birkenhead (Mr. Field), who showed in exemplary fashion that the system of taxation under discussion today is regressive. I believe that it is wrong to shift the burden further from the Exchequer to the contributors and to place a greater burden on employees than on employers. The hon. Gentleman certainly proved to my satisfaction that over the distance there has been an increase in the total taxation burden for all groups when national insurance fund contributions are included.

Since 1979, class 1 contributions have increased from 6·5 per cent. to 9 per cent. The Minister may try today to make a virtue of the fact that there is no further increase, but he must accept that the increase since 1979 is not insignificant.

Like the hon. Member for Mid-Kent, I appreciate that there is pressure on people in self-employed classes 2 and 4. The Government would do well to consider not just saying complacently that they are glad not to have to increase the contributions further but actually looking for ways to reduce them.

As the hon. Member for Birkenhead said, the Treasury supplement has already fallen from 18 per cent. to 13 per cent. and the Government now seek a further reduction to 11 per cent. that is an unfair sharing of the burden between contributors and taxpayers and a disincentive to work.

The reduction of the Treasury supplement from 18 per cent. to 11 per cent. before contracted-out contributions are taken into account will seriously affect pensions. The Select Committee on Social Services and the Social Security Advisory Committee in its second annual report, both highlighted the future problems for people with very little earnings-related contribution in their pensions. A gulf will inevitably open up between those people and younger people on earnings-related pensions as the present scheme matures. The oldest will thus be the poorest in terms of national insurance pensions until all those born before 1933 have died. How do the Government intend to deal with that problem if they wish to reduce the Treasury contribution to the national insurance fund still further?

On 30 November I attended a seminar organised by the Institute of Actuaries at which an actuary, Mr. G. T. Pepper, pointed out that the cost of national insurance pensions was expected to rise from about 9·5 per cent. of total wages and salaries to 19 per cent. in about 50 years. That is a 100 per cent. increase. At the same conference, the Government Actuary estimated that contributions would ultimately increase by about 50 per cent. That assumed a Treasury supplement of 13 per cent., however, and it is now proposed to reduce the supplement to 11 per cent. It also assumed unemployment at pre-recession levels.

As the Select Committee and the Social Security Advisory Committee stressed, a long-term problem will inevitably arise. There will be a serious shortfall in the long-term when pensions must be produced by the national insurance contributions system. Far from decreasing the amount of money that comes from the Treasury supplement, the Government might be forced to find resources and should be considering the long-term increase necessary to cover that problem if no other.

Because of the regressiveness of the proposals, the strength of the argument advanced by the hon. Member for Birkenhead, the fact that we believe that the Government have reneged on their promises and the lack of long-term planning which we believe is necessary, we shall be voting in the No Lobby.