As a result of the announcements in last year's Budget, we are already down the track of a thoroughgoing reform of the social security benefits system. We intend to ensure that it is better targeted on today's real needs and we intend to make it simpler and less susceptible to abuse.
Legislation to reform statutory sick pay and to introduce a new incapacity benefit was enacted in the previous Session. This Session will see the passage of the Jobseeker's Allowance Bill and a major Pensions Bill to modernise the framework for both state and occupational provision.
Tomorrow, my right hon. Friend the Secretary of State for Social Security will announce the details of the next phase of this programme of reform. I wish to mention now three of the initiatives that he will announce, from which I expect substantial public spending savings to flow.
First, there is housing benefit. My right hon. Friend will announce tomorrow a reform of the arrangements through which the general taxpayer subsidises local authorities' payment of housing benefit to the tenants of private landlords. The effect of this will be that authorities will not be fully reimbursed if they pay housing benefit on rents that are significantly above the average for the area and the type of property. Local authorities will, therefore, scale back the benefit they actually pay in line with the new restriction on central Government subsidy. They will, however, retain discretion and have some funding to pay the full rent in individual circumstances which they consider justify it.
The previous arrangements meant that neither the landlord nor the tenant usually had any incentive to negotiate a lower rent because housing benefit would usually pay the rent in full—[Interruption.] This has had the inevitable effect, as seems to be acknowledged, of driving up rents and public expenditure—[Interruption.] I see that that is a welcome reform. At the moment, the social security budget sometimes pays the rent in full in cases where the rent is far above the average rent for property of that type in the neighbourhood. In future, people on housing benefit will have an incentive to make the same judgments about what they can afford as people who have to pay all their own rent. The system will no longer be a prey to the unscrupulous landlord. The reform will take effect from October 1995. Existing claimants remaining in the same property where they live now will not be affected. My right hon. Friend the Secretary of State for Social Security will be glad to hear the encouraging response from Opposition Members—[Interruption.]
Let me see how far I can take the Labour party down the process of social security reform. Secondly, my right hon. Friend the Secretary of State for Social Security will announce tomorrow further measures to limit support for mortgage interest through the income support system to constrain the cost to the taxpayer and to minimise the distortion to work incentives.
Most people are readily able to insure their mortgage interest payments, if they wish, against periods of sickness or unemployment and many people already do so. For new mortgages taken out by people of working age after October 1995, support will not normally be available for the first nine months, although my right hon. Friend will consult on the precise arrangements, including different treatment for circumstances in which insurance might not be available. There will also be some scaling back of support for existing borrowers.
One reason why insurance has not become more widespread is that the taxpayer has picked up the interest bill too readily in too many cases. This change will give more borrowers an incentive to ensure that the mortgage costs of people who are temporarily unable to keep up with their payments will be met by the borrowers themselves and by lenders, rather than by the taxpayer.
Thirdly, my right hon. Friend the Secretary of State for Social Security will also announce a major intensification of the war against fraud in the social security system. We are already saving £700 million a year from existing efforts. The further measures on fraud, which include a major project to pay benefits in post offices by electronic means rather than by paper transactions, will, at a cost of £300 million, save another £2½ billion over the next three years.
The Government know that firm control of public spending and reduced public borrowing are essential to sustained recovery, prosperity and jobs. We will also show that strong control of public spending overall can be combined with improvements in key public services selected as Government priorities.