Orders of the Day — Poverty and Low Pay

– in the House of Commons at 3:14 am on 10th March 1988.

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Photo of John Battle John Battle , Leeds West 3:14 am, 10th March 1988

I understand that there was some discussion about which would be the appropriate Minister to reply to my debate. It was not clear whether the topic was a matter for the Treasury or the Department of Health and Social Security. The difficulty seems to be that Britain's poor are not considered to be the concern of the Chancellor of the Exchequer who handles the large economic issues such as inflation trends, the exchange rate and the balance of payments. The Secretary of State for Social Services is primarily concerned with managing the Department of Health and Social Security budget with a brief to reduce that budget as a percentage of public expenditure.

It is precisely that dislocation of function which perpetuates the exclusion of Britain's poor from real consideration in the Budget discussion. In advance of next week's Budget, we ought at least to try to raise the question of the relationship of taxes to benefits. There is a connection this year between two dates. Obviously, the first date is 15 March which is Budget day. There is speculation that there will be large tax cuts. The other date is a few weeks after that, 11 April, when the poor in our society will have their budgets cut with the introduction of the social security reforms.

Mr. Malcolm Wicks, the author of the book "A future for all", makes a specific link when he says: consider, for a moment, the fate of two families … Family A comprises a married couple, with a single earner — a company executive on £30,000 a year, with fringe benefits and a substantial mortgage and pension contributions. Family B are an unemployed couple with two children, aged 4 and 6. Examples then from the two ends of two nations. Yet Family A receives each week from the 'welfare state' more than Family B — £103·41 as against £101·98. But whereas the poor family derive their income from the complex world of social security entitlement — supplementary and housing benefits, free school meals and welfare milk — Family A draws from a quite different pool of official beneficence—the privileged world of tax allowances and reliefs on mortgage, pension contributions and company cars. The context of the relationship between those two families is wealthy Britain. The Chancellor of the Exchequer regularly comes to the Dispatch Box, as he did today, to tell the House that Britain's economy is booming. We are advised by the economic commentators that he has about £4 billion to £5 billion to spend.

On 15 December the Prime Minister announced to the House: These are the times of the highest standard of living that this country has ever known." — [Official Report, 15 December 1987; Vol. 124, c. 920.] Recently it was proclaimed in the press that Britain has 20,000 millionaires. The difficulty with such announcements is their utilitarian exclusivity, because not everyone in Britain participates in these high standards of living or in the booming economy.

The greatest good of the greatest number takes no real account of the minority—substantial though it is—that is excluded and in the worst circumstances in our society. I should like to attempt to spell out something of the reality of the poverty in which a substantial number of our people live in modern Britain. This week when asked about the percentage of ethnic minority people living below the poverty line, the Under-Secretary of State for Health and Social Security replied: This Government, like previous Governments, do not accept that a poverty line can be drawn."—[Official Report, 7 March 1988; Vol. 129, c. 56.] Perhaps it was that remark that spurred me to choose this topic for debate. His answer seemed to be that poverty was indefinable. But surely that is not a new argument from the Government in response to poverty in our society.

I recall that the Green Paper "The Reform of Social Security", which provided the basis for the Fowler reviews, stated: there is now no universally agreed standard of poverty. Even earlier, just before Christmas day 1983, the Prime Minister told the House: There is no Government definition of poverty … the fact remains that people who are living in need are fully and properly provided for." — [Official Report, 22 December 1983; Vol. 51, c. 561.] It is certainly not my experience as the Member for Leeds, West that people are all fully and properly provided for. That is demonstrated by the letters that I receive every day and the advice surgery sessions that I attend every weekend when I return home from the House.

I put it to the Minister that the Government cannot make poor people disappear by claiming to have rubbed out the poverty line. If a poverty line—I would argue that one was recognised by Governments in the past—is no longer to be acknowledged, I am forced to ask whether the measure of people's real needs will be based on what the state decides that it can afford at the time or will be according to what people need to live on in our society.

The difficulties of defining poverty are not denied and have been discussed at great length throughout the history of our country. But surely we owe it to the poor in our society at least to attempt to define it in our own times and circumstances. There have been helpful attempts. A report that provides as good a starting point as any for a definition of poverty is the "Faith in the City" report which says: Poverty is not only about shortage of money. It is about rights and relationships; about how people are treated and how they regard themselves; about powerlessness, exclusion and loss of dignity. Yet the lack of an adequate income is at its heart. Indeed, the right hon. Member for Wallasey (Mrs. Chalker), who, I understand, is a former Minister at the Department of Health arid Social Security, said in November 1979: it is not sufficient to assess poverty by absolute standards: nowadays it must be judged on relative criteria by comparison with the standard of living of other groups in the community … beneficiaries must have an income which enables them to participate in the life of the community." — [Official Report, 6 November 1979; Vol. 973, c. 167.] I think that that phrase could do with underlining: enabled them to participate in the life of the community. The findings of the London Weekend Television MORI poll published in the book "Poor Britain" suggested that there was general agreement in our society about what constitutes the minimum standard of living. Two out of three people questioned thought that the following items were necessities: self-contained damp-free accommodation with an indoor toilet and bath—but many in our society do not have that; a weekly joint for the family and three daily meals for each child — many have not got that; two pairs of all-weather shoes and a warm waterproof; sufficient money for public transport; adequate bedrooms and beds; heating and carpeting; refrigerator and washing machine; enough money for special occasions, such as birthdays and Christmas; and toys for the children.

That almost sounds like a checklist for the people who come to my advice sessions and write to me.

There is one other comment that I want to put before the House. It was made by an unemployed worker, who said: People should be given enough money where they can actually live a life that's reasonably comfortable—that they can do things they enjoy. And not just survive— because everybody has a right to more than survive. I believe that living on the breadline is not just doing without things—and perhaps that is an approach that some would say is in the Lenten tradition—but about experiencing poor health, isolation, stress, stigma and exclusion, when life in society ought to be about enjoying and participating. A quotation which defines that view comes from Peter Golding's booklet "Excluding the Poor": Poverty curtails freedom of choice. The freedom to eat as you wish, to go where and when you like, to seek the leisure pursuits or political activities which others accept; all are denied to those without the resources … poverty is most comprehensively understood as a state of partial citizenship. It is the nature of that exclusion which needs addressing when considering the issues of poverty. The Government vaunt their commitment to freedom of choice as a kind of flagship phrase for their free market policies. Yet that freedom is denied to a substantial minority in our society.

Over 8 million people in Britain are living on supplementary benefit. In answer to a parliamentary question, the hon. Member for Kensington (Sir B. Rhys Williams) was told that between 15 million and 16 million people in Britain were dependent in one way or another on means-tested benefits. It is officially stated that between 5 million and 6 million people are eligible for those benefits but are not claiming them. It is estimated that 7 million people are in low-paid work, and that particularly concerns my constituents.

Following the publication of a striking report by the West Yorkshire Low Pay Unit on the extensions of low pay in our region, my hon. Friend the Member for Bradford, West (Mr. Madden) asked in a parliamentary question whether jobcentres are under instruction to display jobs the wages for which were covered by wages council orders. He was told that they should not be advertising jobs that were below the recommended minimum rates for that work. Yet the flouting of such minima is taking place in our region. What enforcement action do the Government propose?

It is clear from what is displayed, for example, in the Bramley jobcentre window that there is a shift in my constituency from traditional manufacturing industries such as printing, engineering and textiles to temporary, part-time and low-paid work in the service sector. People are asking for their living standards to be properly protected with a legal minimum wage so that they do not fall behind the rest of society.

For the 2·5 million who remain unemployed in Britain, the Government's response — to the effect that rising employment prospects will resolve any residual poverty — is calculatingly misleading. A recent report by Professor Brown of the University of Stirling entitled "Taxation and Family Labour Supply in Great Britain", which was commissioned by the Treasury, said that of those in work, four out of five were unable to work longer hours in their main jobs; that only 3 per cent. had a second job and that only a quarter of those could work longer hours in those second jobs; and that of the 97 per cent. without a second job, only 12 per cent. had the potential to take one on.

It was found that among non-workers, nearly half were unable to work under any circumstances, three out of five because of having dependants and one out of five because of poor health. Of those non-workers who were able to work, two thirds, or 63 per cent., could not find jobs.

I get the impression that in answering parliamentary questions Ministers try to create the impression that people are free to decide for themselves, without consulting their employers, whether to work overtime, whether to choose to enter the labour market or whether jobs are available for them. That is not the reality in Leeds, West.

In recent weeks we have received from the Government an extension of social security disqualification clauses. The time period was first changed from six weeks to 13 weeks and more recently to six months. That is the reality that faces those who are unemployed. Those are the facts of life that are more apparent in constituencies such as mine.

In political terms, the Government's strategy is to shift the poor in the direction of the low-wage economy. A Government report published in 1985 entitled "Employment: a challenge to the nation" included the sentence, Jobs will be provided to the extent that people are prepared to work at wages that employers can afford. The markers were clear in the Green Paper on the reform of social security which provided the underlying intentions for the 11 April negative Budget for the poor.

The Green Paper included the proposal to increase the moral surveillance of the poor by sinking the poverty line to develop a low-wage economy which divides those who are in reasonably-paid, full-time work from those who are in temporary, part-time, low-paid work.

Last night the right hon. Member for Henley (Mr. Heseltine) addressed the Employment Institute and recommended once again that the American system of workfare, the pricing of people into work, be taken up in Britain. Underlying those proposals is the Government's refusal to acknowledge that individuals who are unable to work and save are full citizens in our society.

In the Green Paper, the cost of social security was defined as a millstone preventing general economic improvement. For the poor in our society, life is truly a millstone. As the report "Poor Britain" made plain, the poor are those who run out of money most weeks in the year.

Recently, the Child Poverty Action Group published a report entitled "Single payments: the disappearing safety net". That report catalogued the impact of the cuts in the one-off grant for exceptional needs such as for furniture, chairs and tables, cookers, bedding, clothes, babies' cots, shoes and heaters. Those cuts were imposed by the Government in August last year.

I cite a graphic summary of its impact: This is Britain's welfare state today. A young girl is refused a grant for shoes—she has three pairs of socks and the DHSS official advises her parents that, worn together, they would make a suitable alternative to shoes. A young couple, the wife six months pregnant, move at last into a council flat, but they have no furniture; they have to sleep on the floor in a sleeping bag and eat out as they have no cooker. The official who refuses a grant says that they should obtain credit.A young mother's pushchair and her baby's coat are stolen. An official refuses to replace them as she 'did not take reasonable care'. A man with no bedding is instructed to keep warm by sleeping with his dog. A young man in my constituency was forced to make do with a dangerous second-hand gas cooker which blew up in his face.

Will the Minister comment on those cases and tell us his view of those people's circumstances, the approach of the officials and the difficulties that they face because of the cuts in the single payments?

We are entitled to ask what is the future prospect for the poor in Britain. In my constituency, the introduction of the social fund means a reduction in the projected budget of something like £500,000 in the incomes of the poorest.

Yet the Government's social security advisory committee, in an official report last July, spelt out that weekly rates of benefit leave little scope for saving towards major items. In other words, the weekly income from benefit does not provide enough money to provide for those special items, yet the special items are being taken away by the changes in single payments.

The new Social Security Act will deepen and extend the poverty trap. Tax cuts will make little difference to those who are caught in the poverty trap. The new family credit and housing benefit that will come into force next April will result in benefits being withdrawn as net incomes rise. It will no longer be calculated on the basis of gross earnings. The Institute for Fiscal Studies estimates that about 2·5 million taxpayers on means-tested housing benefit or family credit — the pensioners and the low paid—will receive little or nothing.

In the case of a couple, only one of whom is employed, who are living on £100 a week, a 2p tax cut will give them exactly 2p. It will no longer he possible to end up worse off after earning additional money, but those on low incomes will find that the marginal rate of tax means that the number of people who are caught by the poverty trap doubles from 270,000 to about 545,000. The social security reforms will reduce the extremes of the poverty trap but they will suck more people into poverty. I anticipate that at my advice surgeries there will be queues of people after 11 April asking me to explain why their income has gone down.

There will also be increases in prescription charges. The Health and Medicines Bill will result in increased fees for dental treatment and eye tests. The price of electricity is expected to rise by 15 per cent. over the next two years. Child benefit is to be frozen. The breaking of the earnings link in 1980 has led to a reduction in pensions. The decision not to uprate child benefit will have the effect, as the hon. Member for Kensington pointed out, of putting another 40,000 people on to means-tested benefit. The introduction of the community charge may lead to an additional 2 million people being on means-tested benefit.

We have to tackle such potential poverty by means of the Budget. The Budget options ought to be looked at from the poverty perspective. It is not good enough for the Secretary of State for Social Services to dismiss those who are on benefit as sufferers from, as he put it, the sullen apathy of dependence. The benefits system and the taxation system are interlinked. The difficulty is that the poor are funding the rich.

The poor regard the taxation changes since 1929 as an increase in the burden of taxation. They believe that the taxation burden is higher now, despite the fact that the Government claim that they have reduced taxation. People believe that they are paying more tax. The number of people in the classic poverty trap has trebled since 1979. Nearly 9 million households are paying more direct tax than they were in 1979. That includes 4 million single people who are earning between £65 and £150 a week. There are 3·4 million couples on joint incomes of between £137 and £370 a week, and 1·5 million couples with a single income of between £65 and £200 a week are worse off.

There has also been a shift from direct to indirect taxation. Again that is a move that hits hardest those who are poor. The very poorest one tenth of the population has seen its indirect tax burden rise from 22 to 23 per cent. The low-paid household pays substantially more in value-added tax, domesic rates and other indirect taxes. The poorest households pay almost one quarter — 23 per cent.—of their income in indirect taxes. That has to he contrasted with the richest households. They pay only 16 per cent. of their income in indirect taxation. The low paid have seen their income tax cuts eaten up by the increase in national insurance contributions.

The poor may well ask: why does a low-paid home help or nurse pay 27p in the pound, when a man earning £250,000 can avoid paying any tax at all? What the poor see in the Budget is the well off getting wealthier, because they know that most of the tax cuts have provided generous concessions to the highest income groups.

The poor may well ask how on earth a tax cut helps the 10 million married couples and single people who pay no tax, while the top fifth of the tax-paying population have enjoyed more than half the tax cuts that have taken place since 1979. The richest households have received a weekly tax cut larger than the weekly gross wage of most full-time wage earners.

Let me give a practical example. A family of lour among the poorest one fifth of wage earners saw their net real income rise by just 2·9 per cent. between 1979 and 1986, yet a similar family whose wage earner was among the best-paid one fifth would have found their living standards improve by 21 per cent. over the same period. In other words, the direct effect of tax changes since 1979 has been to widen sharply the gap between the bottom and the top of the pay scale—between the poor and the rich.

How can it be, then, that the top taxpayers should be a priority in the coming Budget? It is the low paid who pay too much tax, and they should be tackled first. High income groups have enjoyed substantial increases in their net real incomes in recent years as a result of tax cuts and earnings increases. People on over £50,000 a year have already had income tax cuts worth £10,710 a year from successive Budgets. A two-earner married couple on five times the average earnings, £54,000, would gain three times more from a cut to 40 per cent. in tax than a single pensioner would receive in a year on income support.

The other point that the poor would see in the Budget is that the tax leakages go to the better of. The relief on private pensions and on mortgage interest payments, and the new tax loopholes such as the executive share option schemes, the business expansion plan and the personal equity plans, are narrowing the tax base. All those schemes provide a hidden welfare state—perhaps what is now being called the "fiscal" or "occupational" welfare state. That, too, shows that more than half the personal disposal income in our society is no longer even subject to tax. Tax relief and allowances are today worth billions of pounds. The Inland Revenue statistics for 1983–84 show that for directors earning £50,000 or above, tax fringe benefits alone were worth £3,430 a year.

As the rich now enjoy a much larger proportion of the nation's income, why is the view so scorned that they should expect their proportion of the tax burden to increase? What is behind the Chancellor's appeal to the "moral basis" for tax cuts? Speaking in January to the Centre for Policy Studies, the Chancellor said that he would introduce a lower burden of taxation as an essential element in developing the enterprise culture". There was, he said, a new acceptance of the basic human instinct of self-interest. He referred to that as the moral basis for tax cuts.

A point made in the Financial Times of 2 March cut against the grain of the Chancellor's advice: The principle that taxes should vary according to 'ability to pay' should be heeded: high earners can well afford to pay a larger share of their income in tax than those at the bottom of the pile. Any cuts in top rates should thus be balanced by restrictions in other benefits to the better off. I hope that the Chancellor will take that advice.

As a new Member of the House, about to participate in my first Budget debate, I urge the Minister to work with the Chancellor to use the 1988 Budget as an opportunity to grasp the connection between benefits and taxation in our economy and to introduce measures to redistribute the common wealth of our society and deliver justice to the poor.

We know from the Institute for Fiscal Studies that the Government's receipts in the financial year 1988–89 will be some £9 billion higher than was forecast in 1987. The Treasury has already admitted that it seriously underestimated receipts in the current financial year. I know that there are £2 billion of national insurance receipts. I think that that was revealed in the Second Standing Committee on Statutory Instruments, &c.

In other words, the resources are there to introduce a Budget that would stimulate public investment to generate jobs, and our top priority should be to support and develop the National Health Service. The Budget resources could also be used to introduce justice into the taxation and benefit structure so that the Social Security Act 1986 is not a crude and negative instrument that takes more from the poor on 11 April to underwrite the tax cuts for the better off.

The Budget could be used to reduce the rate band for the low paid and to increase child benefit to take families out of poverty. A Budget could be introduced to broaden the tax base to ensure a fairer share of the tax burden.

In response to the Chancellor's moral claims for tax cuts, I seem to recall that even Adam Smith, the high priest of the free market, in his "Theory of Moral Sentiments," stressed that economic individualism had to be founded upon a theory of social obligation. As W. A. Coates summarised: Men could safely be trusted to pursue their own self interest without due harm to the community, not only because of the restrictions imposed by law, but also because they were subject to built in restraint derived from morals, religion, custom and education. In other words, the pursuit of individual responsibility and self-reliance must not undermine the collective obligation and provision for those who have no choice or whose choices are at best forced ones. Nor can wealth creation be viewed in isolation from its just distribution.

The Budget could be used to introduce the positive integration of income tax and social security as a step towards the development of a fairer tax and budget structue in our economy.

To go for tax cuts to provide individual private reward will be socially divisive, ecnomically unjust and morally indefensible. Therefore, I appeal to the Minister to work with the Chancellor to use the Budget to deliver justice to the poor in our society and not to continue, through present policies, to drive them out into the margins of dehumanising poverty, leaving them with no bottom line while the well-off are publicly encouraged increasingly to enjoy the advantages of our common wealth.

Photo of Harriet Harman Harriet Harman Shadow Spokesperson (Health) 3:49 am, 10th March 1988

I thank my hon. Friend the Member for Leeds, West (Mr. Battle) for bringing the important topic of poverty before the House. It is an outrage that, although we are one of the wealthiest countries in the world, millions of people face a daily life of struggling with poverty. Of some 4 million children in poverty, about half are in families in low-paid work, families who earn their poverty—the working poor.

The Government concentrate their comments on help for the low paid and claim to be concentrating their resources on that group, in particular through family credit. However, for those families, as for all claimants, we must consider the net effect of the poverty package which will be introduced in April, to which my hon. Friend the Member for Leeds, West referred, quite apart from the effect of the Government's low-wage policy on employment. The Government claim they are putting in some £200 million extra for those families.

Family credit rates are obviously better than rates for family income supplement. Not only are there offsetting losses for some or all the family, but the Government arrive at such a high figure partly because they assume that the take-up of family credit will be at least 60 per cent., whereas take-up of family income supplement is only 50 per cent. Perhaps the Government could justify why they think there will be a 10 per cent. increase in family credit over family income supplement. When family income supplement was introduced, the then Secretary of State said that he expected a take-up rate of at least 80 per cent., which was obviously a misplaced hope.

In any case, families will lose the right to free school meals or welfare food. Although the Government have built into the family credit rate, compensation for those losses in many parts of the country—some one third of local authority areas — councils have had their own concessionary meal schemes for low-paid families who are not getting family income supplement. The Government have removed the council's right to operate the schemes, so families who get free meals but are not entitled to family income supplement and may not be entitled to family credit are straight losers. Perhaps the Government would justify the position for those families.

Child benefit is frozen this year. This is justified by saying that the Government needed to target help on the poorest families through family credit. The cuts made a couple of years ago, by failing to raise the benefit sufficiently to compensate for inflation, saved the Government £175 million per year, and the recent cuts saved a further £120 million. Are the Government still saying that all the child benefit savings have gone to the poor, or have some of them gone back into the Chancellor's overflowing coffers for tax cuts?

Although rates for family credit are higher, the lowest paid gainers from higher family credit lose on the roundabout of housing benefit what they gain on the swing of family credit. They may gain £19 per week on family credit, only to lose it all on housing benefit. There will be other losers among the low paid, whether now in full-time or part-time work, apart from those caught in the specific net earnings trap. Full-time work will be defined as 24 hours per week, not 30 hours as at present, and the partner of a low-paid, full-time worker who works more than 30 hours may still be able to claim supplementary benefit, weekly additions and so on, if the household income is below the supplementary benefit entitlement. In future the partner of anyone working more than 24 hours will not be able to claim income support, no matter how far below the poverty line their income is.

For income support, housing benefit and family credit, common rules will apply in the treatment of savings. Benefit will be withdrawn on a sliding scale for savings above £3,000 and will be lost altogether on £6,000, so someone made redundant and later being lucky enough to find work, although low paid, could lose out.

Another common feature is that the benefits are based on earnings net of tax and national insurance, so tax cuts are of little worth, as my hon. Friend the Member for Leeds, West pointed out. As he said, the Low Pay Unit calculated that a tax cut worth a nominal 92p to a typical low-paid household will give a net income gain of just 4p per week, when all the benefit losses are worked out. The families in any case face high marginal tax rates.

The Government have scrapped the worst of the former poverty traps, where a wage increase could result in a lower income, when all the benefits have been recalculated. But some 500,000 more families will be affected by the new low-pay trap, where for every pound extra in wages they will lose 85p to 90p in benefit, with the worst affected losing 98p in every pound, which is the highest marginal tax rate, whereas the highest marginal tax rate for the highest paid is 60p in the pound. We suspect that that may be lower after Budget day next Tuesday.

As my hon. Friend the Member for Leeds, West said, the low paid also contribute quite disproportionately to national insurance. The lower poverty trap hits more people. All earned income over £41 a week is subject to the full rate of contribution deduction, and that is about 10 per cent. of earnings at this level. Someone earning £1,600 would pay the equivalent of 2·6 per cent. of earnings and someone earning £100,000 would pay the equivalent of about 0·5 per cent. That disproportion is bad enough at any time, but it is especially outrageous this year when we expect tax cuts for the rich in the Budget while the Government are manipulating the national insurance arrangements so that they will make a profit of £2,000 million, which is roughly equivalent to between 1p and 2p off income tax. That is substantially more than the Government claim that they are adding to social security payments.

Of course no contributions are paid on unearned income. Apart from the rates bill which everyone will now face, there are other costs that bear more harshly on the low paid. My hon. Friend the Member for Leeds, West mentioned the spread of VAT, and electricity costs are expected to rise by 15 per cent. in two years, with possibly similar increases in water charges. They will all hit low-paid families harder than families on average incomes because those charges will represent a larger share of their budgets.

We fear for the future for many families who receive low pay. The Government are apparently reeling from the outcry about the cuts in the National Health Service. We suspect that after April there will be a second front to that public outcry which will be centred on poverty in an increasingly unequal society.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate 3:56 am, 10th March 1988

I congratulate the hon. Member for Leeds, West (Mr. Battle) on obtaining this debate, albeit at this late hour. He began by saying that it was the duty of Ministers at the Department of Health and Social Security to reduce the proportion of public expenditure on social security. That is of course not true. It it were, it would be staggering how successive Secretaries of State for Social Security had failed in that respect.

Since the Government came to office, the proportion of public expenditure spent on social security has risen from about 26 per cent. to rather more than 31 per cent. today. The budget for social security for the coming year is £48 billion. If the hon. Gentleman is concerned about the "collective obligation of society", as he called it, I can think of no better demonstration of how that presently stands than that enormous budget of £48 billion for the coming year.

The hon. Member for Leeds, West and, to a lesser extent, the hon. Member for Peckham (Ms. Harman) dwelt for some time on the Budget about which I cannot say anything, not least because I do not know what it will contain. However, they both misunderstood the role of cutting taxation and what that can do to stimulate the economy.

Has it not been the case that time and again the Government have cut taxation and time and again the revenue from taxation has risen? There was a somewhat familiar strain of envy running through the hon. Gentleman's remarks. For instance, his reference to the number of millionaires in the country has nothing to do with the debate except that by lowering the higher rates of taxation we have encouraged people with enterprise, who are creative and who are good at creating jobs, to stay in this country to the benefit of the economy and to the benefit of many thousands of people who have gained employment. Those people have, in turn, become taxpayers and have contributed to the higher tax revenues.

The hon. Gentleman's speech and his remarks about the Budget were very much in terms of how much money my right hon. Friend the Chancellor of the Exchequer had to give away. The Budget has nothing to do with giving away; it is to do with raising the revenue that is required to finance the public expenditure decisions that have already been announced. The Budget is about taking away and removing in the form of taxation money that people have earned.

There was another misunderstanding when the hon. Gentleman referred to the need to increase child benefit to remove people from poverty. The point which I have been at pains to make is that increases in child benefit have no effect on the incomes of the people who are on income-related benefits, because child benefit is taken into account. As the hon. Member for Peckham (Ms. Harman) pointed out, the Government have ensured that in the reforms more money goes into the benefits that are directed towards families with children.

The hon. Gentleman's remarks about taxation were all directed to the proposition that my right hon. Friend the Chancellor of the Exchequer will cut the rate of tax. I have no idea what my right hon. Friend has in mind for the future, but in the past thresholds have been increased well above inflation, by 22 per cent. during the Government's period in office, which means that 1·4 million people have been taken out of paying tax. Much of what the hon. Members for Leeds, West and for Peckham said concerned the undesirability of high marginal rates of tax combined with the withdrawal of benefit. I agree with that as a general proposition, but it is made up of two elements—the withdrawal of benefit as income rises, and taxation. For the hon. Gentleman not to mention the important factor that 1·4 million people have been taken out of paying tax showed a lack of balance.

The hon. Gentleman displayed a similar lack of balance when he failed to mention that the reduced rates of national insurance contribution introduced by the Government mean that employees on low incomes and their employers now pay £1·5 billion less than they would otherwise pay.

The hon. Gentleman made the point, which he rightly recorded had been made also in Standing Committee, that there is to be a surplus in the national insurance fund in the coming year. As I explained to the Standing Committee, that is an appropriate surplus given the number of uncertainties about the fund in the coming year, particularly relating to the new pension reforms. This means that the flows out of and into the fund are not quite as clear cut as usual.

I remind the hon. Gentleman of another point made in Standing Committee. Surpluses taken together year after year become a balance in the fund. The hon. Gentleman's colleagues have levelled considerable criticism at the Government because, they say, the balance is too high. For the coming year it will be about 33 per cent. Much larger balances were maintained by the Labour Government, in one year reaching 40 per cent. of the fund. Those figures are considerably above the minimum recommended for the fund, but no maximum is recommended and it must be for the Government of the day to decide what should be a prudent surplus and prudent balance in any year. The Government's view for the coming year is that a balance of 33 per cent. is not inappropriate. The Labour Government believed that in almost no year was a balance of less than 33 per cent. appropriate.

The hon. Member for Leeds, West spent some time wrestling with the question whether there should be a definition of poverty. In a throw-away line he said that he believed that previous Governments had recognised the poverty line. I am not aware that any previous Government have recognised the poverty line. If we establish poverty merely as a relative concept, no matter how much we increase the living standards of the population, there will always be a poorest 40 per cent. or a poorest 20 per cent., and it will be claimed that they are living in poverty. For instance, if we take the poverty level that is sometimes peddled, but to which I give no credence, of 140 per cent. of supplementary benefit, that would include an average family man with two children who was earning £167 a week. According to such a definition, when supplementary benefit increases, the number of people involved increases, too.

Photo of John Battle John Battle , Leeds West

Is the Minister suggesting that poverty is so relative as not to exist, or is he suggesting that people can get by? Does he refute the evidence that people who are trying to survive on benefits do not have enough money on which to live most weeks of the year? Is he prepared to say that that is unacceptable and unnecessary?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I am prepared to say that income-related benefits have tended to increase year by year. Supplementary benefit is now about twice what it was in 1948, in real terms, and while the Government have been in office supplementary benefit has increased in real terms. The hon. Gentleman is right to say that Governments take a view from year to year as to the appropriate level of benefit, but the tendency has been to increase benefit in real terms.

Another important indicator of poverty or of living standards is the real take-home pay of a family, and during the debate we have dwelt considerably on families in work. The real take-home pay for a family with two children on average earnings has increased by 23 per cent. under this Government, whereas under the previous Government it barely increased. Spending on benefits for the long-term sick and disabled has increased by about 80 per cent. in real terms under the Government. The supplementary benefit scale rates for children under five have increased by a quarter under the Government. The value of the scale rates has doubled since 1948 and increased by 6 per cent. since 1978.

In 1980, the changes that we made meant that extra help was available after one year rather than two years for lone parents and for the sick and disabled, and we estimate that the real value of support for children on benefit is more than £150 million higher than if we had maintained the 1978 value and structure. The improvements in the adult scale rate for unemployed couples with children on benefit are worth £75 million, and for lone parents about £50 million. By August 1986, the extra help for families with children in benefit was worth over £250 million annually.

The hon. Gentleman will be aware of the extent to which pensioners have benefited from the increase in living standards under the Conservative Government. Their average net incomes grew by 2·7 per cent. a year in real terms between 1979 and 1985—the most recent year for which we have figures. That is 18 per cent. over the period, compared with 0·6 per cent. a year between 1974 and 1979, or 3 per cent. over the period. Between 1979 and 1985, the rate of growth was twice as fast as for the population as a whole.

Labour Members always talk about pensioners purely in terms of the state retirement pension and how it relates to inflation. They ignore the high inflation during that period, and the effect of inflation on pensioners' savings. That is why, despite the Labour Government's efforts to increase pensions ahead of prices, the living standards of pensioners were hardly increasing at all because of the heavy toll of inflation on their savings. That demonstrates the folly of viewing the battle against poverty as being only about the amount of benefit that one pays out. There are other features, too, many of which can be impoverishing, and there is no better example than what happened with inflation under the Labour Government.

Spending on the elderly in the United Kingdom is the third highest in the European Comunity as a share of GDP, at 9·6 per cent. in 1983. The partial figures that we have for 1984 show that United Kingdom spending was increasing in that year, whereas spending in some other states was going down. That basis of comparing the proportions of GDP that are spent on the elderly is the only measure of pensioner support that the European statistical bureau says that it can be happy with, and the accuracy of which it can confirm.

I should like to say something about the reforms that will come into effect in April, because the hon. Member for Leeds, West referred to them as a cut. Almost anybody who has had dealings with the social security system would admit that it is time for a change. The system is regarded as far too complex and it is difficult for customers and claimants to find out what they should be receiving. It is equally difficult for staff to provide the sort of dependable quality advice that we all want. These are deep-seated complexities that reflect many years of incremental refinement and adjustments.

It goes further than that and reflects an unwillingness to consider the structure of social security as a whole, with supplementary benefit, housing benefit and family income supplement, each of which has grown up separately and has its own detailed rules and procedures. Each benefit can be justified in its own terms, but the overall effect is inconsistency and complexity and a system that, despite the huge sums expended, cannot guarantee a proper level of help to all of those with real needs.

The combination of separate schemes creates paradoxical and perverse results that have the effect of locking people, often against their will, into protracted dependency on benefits. The combined effects of housing benefit and family income supplement rules produce the absurd position of a parent working on low pay being worse off than if he or she worked harder or for longer hours and received a pay increase and thus boosted gross earnings. The lack of proper alignment between the benefits available to people who are in and out of work creates the risk that some may find themselves worse off by taking a job than by staying on benefit. These problems will not be effectively tackled within the present structure. We need a new structure that is based on clear and straightforward principles and that looks at the provision of help for those in need in a more comprehensive and wide-ranging manner.

I was quite startled to hear the hon. Member for Peckham launching, as I understood it, an attack on basing benefits on net rather than gross incomes. The problem of using the measure of gross income has led to rates having a difference of well over 100 per cent. I think that we are united in the House in saying that we are very pleased to see the back of that sort of effect.

The new structure of income-related benefits that is being introduced in April will be a major step forward in tackling the problems. The new income support scheme, for instance, will be based on clear-cut and straightforward criteria that everyone can understand. In addition to the basic personal allowances, there will be a system of premiums that will focus special additional help on the priority groups whose needs are greatest, that is, pensioners families with children, the sick and the disabled, and single parents.

At present, some of those categories of people benefit from the supplementary benefit structure, based on long-term and short-term rates, and weekly additions for diet, heating, laundry, and so on. But the present rules are somewhat hit and miss. Families with children never receive the long-term scale rate, however long they are on benefit. Under the new structure, they will receive family premium from the moment that they start on income support. Similarly, additions to heating allowances have become a kind of extra surrogate blanket for pensioners. The new structure will continue to focus extra help on pensioners but in a more clear-cut and explicit fashion.

Despite all the criticisms that have been made, the new structure will be widely welcomed and will stand the test of time much better. We are also drawing a clearer distinction between the provisions for regular weekly income, particularly in the form of income support, and the special provisions that must always exist for exceptional one-off needs that the majority of income support families will face from time to time.

One of the absurdities of the present supplementary benefit scheme—and I do not know whether the hon. Member for Leeds, West defends the scheme to the hilt—is that such exceptional help can be provided only where the need falls clearly within the bureaucratic framework that is laid down by regulations.

In practice, although a small minority of supplementary beneficiaries have, in the past, done rather well out of single payments, the great majority have received nothing. By replacing this whole edifice with the social fund we will be able to respond rather more flexibly.

We are also overhauling the housing benefit scheme so that, for the first time, it is aligned with income support.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

The hon. Lady has only just entered the Chamber.

For the first time the same level of help with housing costs will be provided for people on equivalent levels of income whether they arc in or out of work. That is a major improvement.

Photo of John Battle John Battle , Leeds West

It is clear that there is no allowance in the public expenditure White Paper for any increase in housing benefit as a consequence of rent increases arising from the Housing Bill, currently under discussion. In other words, there is no allowance in the budget for housing benefit for people's rents to be met when they increase as a result of the Bill. Therefore, there will he a further cut in housing benefit on top of the one contained in the public expenditure White Paper.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I do not understand the hon. Gentleman's argument. One of the features of the new housing benefit system is that, for people on supplementary benefit— by then called income support—their housing benefit will include 100 per cent. of their rent. At present the starting point is 60 per cent. of the actual rent. Therefore, people who are on income support will be fully protected against increases in their rents. That is different from the present position, and I should have thought that the hon. Gentleman would welcome it as an improvement.

Photo of Clare Short Clare Short , Birmingham, Ladywood

Those on supplementary benefit get 100 per cent. housing benefit already.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

The hon. Lady is wrong. The present basis is that 60 per cent. of actual rent is taken into account in supplementary benefit. The new basis will be 100 per cent. actual rent. Therefore, there will be absolute protection against rent increases.

Let us consider how people will fare under the new income support system. The hon. Gentleman is not untypical of critics of the social security system in producing lists of people whom he believes will be worse off. Equally, there are many people who will be better off. I remind the hon. Gentleman that there is transitional protection for income support claimants so that their cash benefit will not go down in April. There are many striking increases that people will enjoy.

Photo of Clare Short Clare Short , Birmingham, Ladywood

The Minister will be aware that the Government are planning to introduce a scheme for the long-term unemployed in September that will pay them £10 on top of their benefit, although they will have to pay the first £5 of the cost of travelling to work. Will people who take a place on that scheme—we understand that it will, increasingly, become compulsory—maintain their transitional benefits or will they lose them? If the latter, they will be worse off when they leave the scheme.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

Obviously transitional protection is there for people who are current claimants. If, for any reason, a claim lapses, a person becomes a new claimant and transitional protection cannot be applied to a new claim. If someone continues to be a claimant, he continues to enjoy transitional protection until such time as inflation takes its effects.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I cannot help the hon. Lady any further on that point at the moment.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I am sorry, but I cannot help any further at the moment.

Let us take the example of a rent-paying, lone parent with two children aged four and 11 claiming for a period of three months. The present supplementary benefit gives such a person £62·02, and the new system will give £70·10. Under the old system a lone parent with a mortgage and three children who had been claiming for six months and who received attendance allowance, heating and laundry additions for one child would receive £97·78. The new system will give that person £103·65.

Many people will benefit under the new system because, as the House will be aware, an extra £200 million will be put into family credit and an extra £100 million into help for families under income support.

The hon. Member for Peckham asked about take-up. It is reasonable to assume that the take-up of family credit will be higher than that of family income supplement. After all, we are talking about a benefit which, as she acknowledges, is more generous. If it is more generous, it will benefit people more and it will benefit more people. For the people who claim it, therefore, it will be more worthwhile to claim. It will be better known because more people will receive it. If more people receive it, more people will talk about it and, therefore, it is fair to assume that there will be a greater take-up.

The hon. Lady says that predictions of take-up in the past have been inaccurate. That was when family income supplement was being introduced as a new benefit with no experience of the past. We are introducing family credit which is based on family income supplement. We have a great deal of experience and, with a more generous benefit going to more people, it is fair to say that more people will claim.

The hon. Lady also referred to school meals under family credit. She will know that the combined effect of paying £2·55 per week in the family credit rates for school meals will mean that 100,000 more children will be receiving that cash benefit than at present receive the combination of school meals under family income supplement and local authority discretionary systems. The reason for abolishing the local authority discretionary systems is to avoid double provision for the same children because, obviously, if one builds in a cash benefit and gives children free school meals, ratepayers and taxpayers are providing twice for the same child and that does not appear to be appropriate.

The hon. Member for Peckham will know that, under family income supplement, only about 70 per cent. of the children who are entitled to free school meals were taking them. On the other hand, the £2·55 is automatic. It goes to anybody on family credit and, therefore, will be that much more adequately spread among those families.

The hon. Lady claims that gains in family credit will be mopped up by losses in housing benefit. She is taking a pretty unusual example because the proportion of family credit families who receive housing benefit help with both their rents and rates is only about 4 per cent., or about one family in 25. It is only in those circumstances that the maximum deduction occurs. That is because the family credit rates are sufficiently generous to lift most families out of housing benefit altogether so that only a small minority of family credit families receive any housing benefit. Among those, it is only a further minority who receive housing benefit, both through their rent and their rates. It is only the combination of rent and rate tapers which gives those high rates of withdrawal.

Equally, there has been a substantial misunderstanding about how family credit will affect families because of the nature of the distribution of tenure among family credit families. Among those on family credit, those with mortgages, outright home owners and non-householders will usually gain from the new structure. In some parliamentary questions that have been tabled, the concentration has been on selected hypothetical families who pay rent. That rather obscures the point that those people are not very common. Although rent payers are more likely to experience net income losses that non rent payers, about half of the rent payers eligible for the family credit stand to gain. In any case, those who have mortgages are in all respects similar to rent payers who have similar housing costs and they have the lowest pre-reform net spending power.

For example, at present, at £100 per week of gross earnings, the net spending power of someone with a mortgage and two children and a net mortgage payment of £18·87 is £11·21 lower than that of a similar rent payer with a weekly rent of £19.12. After reform, their respective net spending powers are £99·60 for the rent payers and £100.11 for the owner-occupiers. A similar equalisation occurs for the larger family with three children, so that, after reform, even rent payers who lose are still in broadly the same financial circumstances as those with mortgages with comparable earnings and housing costs.

The pre-reform structure of marginal tax rates produced the bizarre result that the gross earnings, particularly of rent payers, could at least double, while their net spending power remained the same. They are therefore just as needy as people who, in gross earnings terms, are apparently a good deal worse off. People in the poverty trap, for example, on £120 a week are worse off than those earning £70 a week.

As part of our reforms, targeting more efficiently on need means targeting not only on those on the lowest earnings but on those with the lowest pre-reform spending power. That is an important point. The make-up of tenure within the family credit population is that those who are rent paying tenants are about half, those with mortgages are 38 per cent., outright owners are 8 per cent., and non-householders are 4 per cent. The data from the family expenditure survey shows that under the family credit system there will be more gainers under than losers. The concentration in certain parliamentary questions on those with rents and those receiving housing benefit is artificial because such people are a small minority of the population.

The hon. Members for Leeds, West and for Peckham referred to the social fund, but ignored past experience with single payments—except for the years 1985–86 and 1986–87. If they take the longer view of what was happening with single payments, they will realise that, had they been the party in government, they too would have been concerned about what was going on. Between 1979 and 1980, the amount spent on single payments was £40 million.

Photo of Clare Short Clare Short , Birmingham, Ladywood

The increase was due to unemployment.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I shall come to that in a moment.

Revalued in 1986 prices, that is £67 million. By 1985–86 it had grown to £346 million in 1986 terms. The hon. Member for Ladywood says that that was due to the increase in unemployment, but the connection cannot be established.

Between 1980–81 and 1984–85 the costs of single payments increased by almost four times in real terms, and the number of payments by three times. Between 1983–84 and 1984–85 alone, costs increased by £75 million—by more than 40 per cent. But the total number of claimants receiving regular weekly help increased by less than three-fifths between August 1979 and August 1985, yet the number of single payments was more than three and a half times higher. The total number of unemployed was two and three-quarter times higher but the number of payments received was five and a half times higher. The number of other allowance cases nearly doubled, but the number of single payments more than trebled. What was particularly disturbing was that access to those payments was so uneven. Only one in five claimants on benefit at the end of 1984 had received a single payment. That is the background to establishing the social fund.

Photo of John Battle John Battle , Leeds West

Will the Minister comment on the remarks made by the social security advisory committee, which said that people perhaps needed the single payments because the level of benefit neither provided for their needs nor enabled them to save to provide for them?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I have already said that, whatever the level of benefit may be in real terms, it is twice what it was in 1948. It is 6 per cent. higher than it was in 1978, and the changes that have been made in benefit levels have been particularly concentrated on families with young children, especially children under five.

The hon. Member for Leeds, West and other Opposition Members consistently concentrate on a single year of single payments and then deduce that the social fund will cause cuts. That leaves out of the calculation the extra £200 million going into family credit and the extra £100 million going to help families under income support. If Opposition Members want to make comparisons, they must add those amounts to the equation. They know that the single payment expenditure has been much lower during the year that will end in April. The amount of money being provided for the social fund is very similar to the amount being spent on single payments during the current year. About £203 million has been put into the social fund. It is too early to give an exact figure for the amount spent on single payments this year, but it will be close to £200 million.

If we take, for example, the local offices in the Leeds area, we find that the amount spent on single payments from the beginning of April 1987 to the latest date that I have, 9 February 1988, was £767,000 in Leeds, North. That compares with a social fund allocation of £1,018,000. In Leeds, North-West the amount spent so far this year on single payments is £440,000. The amount being made available in the social fund budget is £497,000. In Leeds, West the amount of money spent so far this year is £412,000 and the amount being made available in the social fund is £469,000.

I do not think that the situation is as the Opposition claim, and I say that for two reasons. First, the sums being put in are much the same as the single payments, and, secondly, the amount of basic help being put into income support and family credit has been increased during the course of the reforms by the figures that I have mentioned.

There has been a great deal of debate about how the allocation was made between one office and another. We have taken some trouble to spell that out in a note that we have placed in the Library for hon. Members to consider. They will see that the basis of calculation has been that six sevenths of the money is distributed on the basis of the past single payments record, and that one seventh is distributed on the basis of the underlying need of the area. The underlying need has been defined in terms of the supplementary benefit case load and how that divides between elderly unemployed and other groups.

Far from there being political bias as alleged by the Opposition Front Bench, the result is rather striking. It is that the allocation per head of case load—the number of people on supplementary benefit in the local office area—is, for example, in Bathgate £51 per head; Glasgow, Provan £106; Coatbridge £99; and Glasgow Springburn £92. None of those is a notably strong Conservative area. In Bristol the allocation per head is £30 in Bristol, Central; £24 in Bristol, East; £30 in Bristol, Horfield; £36 in Bristol, South; and £21 in Bristol, West. In Bournemouth the allocation is £21 per head, and in Epsom it is £16.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

If I had known that the hon. Lady would be here for this debate, I can assure her that I would have had the figure. I shall be very pleased to supply it to her in due course. There is certainly no political bias, and I stress to the House that the figures that I have given are the amounts of social fund allocation per head of the population on supplementary benefit. They are not figures for the population as a whole. We are simply dividing the number of people on supplementary benefit into the social fund allocation. The House will appreciate that the allocation tends to be very much higher in Scottish cities and, as it happens, in Labour seats. The allegation that there has been any political bias in this matter is absolutely untrue.

We have had an interesting debate that has given us an opportunity to think about the reforms. I believe that the reforms achieve the Government's objective. They provide a much simpler system and one that it will be easier for claimants to understand. It is also a much fairer system. In the past, the additional requirements have been used as sorts of surrogates to help particular groups of people, and the system has depended on individual claimants then making a claim for a dietary, heating or laundry addition, or whatever it might be. In future they will be automatically entitled to the premium that is appropriate to their group. If they are disabled, they will automatically qualify for the disability premium; if they are severely disabled, they will automatically qualify for the severe disability premium. That, I believe, is a great step forward.

It must have been of concern not only to Government Members but to Opposition Members that the single payments regime meant that the way in which need was met was very patchy as between one part of the country and another and one sort of claimant and another, so that only a small minority of claimants were receiving single payments. Those single payments could, of course, be very large sums of money. That also raised a very important point of equity between those people who were on income-related benefits and those who were only a very short way above income-related benefits.

All of that has an effect on the unemployment trap, because the more such very large payments are made available to people on benefit, the more the incentive for people to be in work is removed and the greater the sense of inequity felt by people who are in work and having to make provision for that sort of payment from a budgeted income. One of the strengths of the social fund as it will be introduced is that it will provide greater equity between one sort of claimant and another without in any way removing the support from the most vulnerable groups of people, who will continue to qualify for community care grants, for which there is a budget of £60 million.