Orders of the Day — National Insurance Contributions Bill

– in the House of Commons at 4:21 pm on 13th May 2002.

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Order for Second Reading read.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

I should point out that Mr. Speaker has selected the amendment standing in the name of the Leader of the Opposition.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury 5:18 pm, 13th May 2002

I beg to move, That the Bill be now read a Second time.

There is a simple reason for supporting the Bill: it supports an NHS that is collectively funded, comprehensively available and free at the point of need, and which is the best insurance policy in the world. We are building on the Beveridge principles by raising resources to help fund the cost of the national health service through national insurance contributions. The Bill will raise resources to enable record extra investment to be made in a reformed NHS.

The question is not whether we need increased investment, but how to raise the money for that investment, and the Bill points the way forward. We have examined alternative health care systems and found them wanting. The Wanless report identified the flaws in alternative models. Social insurance schemes are complex; the tax base is narrower and administration costs escalate. In France the typical employer pays £60 a week per employee.

Charging for clinical services means patients paying rising bills for individual operations and treatments. Basing our health care system on medical charges would mean that those who are ill would have to pay more for being ill. Private funding mechanisms tend to be inequitable and regressive, they have weak incentives for cost control, they have high administration costs, and they can deter appropriate use. In the United States, family premiums average about £100 per week and are set to rise next year by £13 a week.

An independent study of health care systems in eight countries, prepared by the European Observatory of Health Care Systems, was published alongside the Budget. We are open to new ideas. Where there are lessons to be learned we will learn them. We have examined the alternatives, but the principle remains: funding through national insurance and general taxation is simply the most equitable, stable and efficient means of raising money for the national health service.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

The Chief Secretary says that national insurance contributions are the most equitable method of funding, but how does he square that with the pre-Budget report of 1999, in which the Government said, in relation to the climate change levy and the reduction in employers' NI contributions:

"This is consistent with the Government's policy of switching the burden of taxation from 'goods' like labour"?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

That is perfectly consistent, on the basis that I have already explained. We are acting in conformity with the Beveridge principles and the well established practice whereby contributions made through national insurance by people when they are in work, and by their employers, are used to provide cover for when they are unable to work. A contribution is also made from general taxation. Moreover, the way in which we are introducing the changes in the Bill is equitable and fair. It is also supported by the people of this country.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

My right hon. Friend is right. I have spoken to employers from businesses in my community and they are well aware that many people are off work ill and waiting for hospital treatment. Those employers are more than prepared to contribute to the NHS through the NI system, as employers have done for decades, because they recognise the benefits it brings to their businesses to have shorter waiting times or for people to see their general practitioner sooner. Employers want to see investment in the NHS and they know the benefits that this Bill will bring to their businesses.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

My hon. Friend is right. That has been my experience, too, when meeting business groups in my constituency and elsewhere. It was, after all, the Confederation of British Industry that pointed out that the cost of ill health to business was some £10 billion a year. Employers as well as employees will benefit from the investment that we are making in the NHS. Anthony Goldstone, the president of the British Chambers of Commerce, said:

"Any of us in business know that we get what we pay for. If we want a world-class health service in the UK we need to pay more."

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I shall give way to the hon. Gentleman. Perhaps he will tell us how he would pay more.

Photo of John Maples John Maples Conservative, Stratford-on-Avon

I wish to take the Chief Secretary up on a point that he made earlier. The NHS system may be the best way to fund health care, but when he talked about social insurance and what happens in the United States, he set up a couple of men of straw. Much of the funding in the US comes through health maintenance organisations—and even if the premium is £100 a week, that is less than a family of four will pay when the Government have increased spending on health to £100 billion a year. A family of four will then pay some £7,500 a year for health care. The fact is that if we did not finance the health care system through taxation but in some other way, people's taxes would be lower. In this instance, that would more than compensate for the charges.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I take it from the hon. Gentleman's intervention that he advocates abandoning the NHS—

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

Yes, from what the hon. Gentleman has said, it seems that he would cut taxation to make health care dependent on charges through insurance or individual charges for treatment. We should not forget that people in the US often have to pay supplements, on top of the insurance premiums that they have already paid, to get the operations that they need.

An NHS free to all at the point of need has been the consensus in this country for 50 years. It was our hope that we could renew that national consensus on NHS funding, and we believe that the Bill is the vehicle for that. Before the shadow Chancellor, Mr. Howard, left the Chamber, I wanted to remind him—perhaps he saw it coming—that until the last general election, that was Conservative policy, too.

I also remind Conservative Members of the promise that the right hon. and learned Gentleman made in his election leaflet. He said:

"There will be no charges. Do not believe the lies which are being spread by our opponents. Conservatives will retain a free and comprehensive National Health Service."

That is what the shadow Chancellor said in his general election communication last year—but of course he and his right hon. and hon. Friends refuse to give that commitment at present.

While the Opposition are abandoning their promise and their commitment to the NHS, we are delivering on ours.

Photo of Stephen Ladyman Stephen Ladyman Labour, South Thanet

Before my right hon. Friend leaves the US examples, let us not forget that in the US, people on low incomes have to rely on other types of health care, because there is in essence a two-tier system. Did he see a recent television programme in which pharmaceutical companies were providing routine health checks for poorer people in the US? There was an interview with a lady in late middle age who said that that was the first time in her life that she had received a routine health check. Is that the sort of health care that the Opposition are promoting?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

That is precisely the sort of system that the Opposition would head us towards. My hon. Friend gives a telling example.

Photo of Michael Weir Michael Weir Scottish National Party, Angus

When the right hon. Gentleman referred to the CBI, he mentioned the savings to business if fewer people were off sick, and we would probably all agree about that. However, does he agree that there is a difference between companies that have the trade-off of lower corporation tax, and unincorporated businesses that receive no such trade-off? Even at this late stage, will he consider a mechanism for helping small unincorporated businesses?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

We are already acting to help those businesses. Of course I understand the differences between their position and that of incorporated companies. However, the Budget proposals for VAT simplification will benefit those businesses—as will our measures concerning capital allowances and our creation of a general environment in which business can prosper. That is why there are now so many more small businesses than when we came into office. I think that 345,000 started up last year alone. We really are delivering for small business.

I have yet to hear from any representative of such a business that they are against extra resources for the national health service, or that they believe that our proposals are not an equitable way to provide those resources. We do not pretend that we can get something for nothing. It is right and proper that we set out transparently how we shall raise those resources.

Employees and the self-employed will pay an extra 1 per cent. in national insurance on all their earnings above £89 a week. For example, a single person on the median income of £410 a week will pay £3.70 more in real terms as a result of the income tax and national insurance changes. Those on higher incomes will pay more, while those on lower incomes will pay less. That is only fair.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I should be grateful if the right hon. Gentleman would give us some clarification of the position of people in Scotland who pay national insurance contributions. Will their extra 1 per cent. eventually find its way back to the Scottish Parliament, which will not be obliged to spend that money on the health service? Can people in Scotland be sure that every penny of their national insurance contribution will go to the health service—or is there no guarantee of that under devolution?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

The national insurance system is UK-wide. Scotland benefits enormously from that through the Barnett consequentials. The hon. Gentleman is right to say that this is a matter for the Scottish Executive. I understand that the Executive have given a commitment that the extra money will be invested in the health service in Scotland—[Interruption.]—as indeed has the Welsh Assembly. That point that I was coming to was that half of all families with children will pay less overall because of the interaction of these changes with the introduction of the child tax credit and the working tax credit.

As we know, both the British Chambers of Commerce and the Confederation of British Industry recognise that employers have a strong interest in a healthy and productive work force. They recognise that there is an economic rationale as well as a social and moral imperative underpinning our proposals. It is clear to me that the British people already draw a sharp contrast between the clarity, fairness and dynamism of our proposals, and the vacuous evasive manoeuvring of the shadow Chancellor and his colleagues. In public they say that they do not know what their policy is, while in private they say that charges—or, in the shadow Health Secretary's words, a "self-pay" system—are the way forward.

Clause 1 proposes how primary class 1 contributions are to be calculated. From April next year, the new employee contribution will consist of two elements: the main primary rate of 11 per cent., instead of the current 10 per cent., on earnings between the primary threshold and the upper earnings limit, and an additional primary rate of 1 per cent. on all earnings that exceed the upper earnings limit. In response to concerns raised by the Select Committee on the Treasury and others, I can confirm that the Bill does not provide any power for the new 1 per cent. rate to be changed by secondary legislation.

Clause 2 amends the current secondary class 1 contribution from 11.8 per cent. to 12.8 per cent. for employers so that they, too, will make an equivalent additional contribution. The rates paid by employers on benefits in kind and pay-as-you-earn settlement agreements—classes 1A and 1B—are also increased to 12.8 per cent.

Clause 3 proposes how class 4 contributions from the self-employed are to be calculated. Through this Bill they will pay an extra 1 per cent. on their profits or gains above £4,615 a year. From April next year, the new Class 4 contribution will also consist of two elements: the main class 4 rate of 8 per cent. on earnings between the lower and upper profits limits, and an additional class 4 rate of 1 per cent. on all earnings that exceed the upper profits limit. That new additional class 4 rate will not be amendable by secondary legislation, either.

As I have said, the measures in the Bill, and what we are doing overall to match investment in the national health service with reform, are the fairest and most efficient means of raising money for the national health service. It is interesting that, according to The Sunday Telegraph poll, more Conservative voters agree with us on this matter than agree with Conservative Front-Bench Members and their colleagues. I think that 54 per cent. of Conservative supporters backed our proposals for raising money to fund the NHS.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

The right hon. Gentleman says that this is the fairest way, but would he concede that some forms of taxation, particularly some forms of income taxation, would be even fairer, to use his terms, than the rise in national insurance contributions, which does not, for example, tax very wealthy people who have unearned income and are not in work?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

It is perhaps a consequence of debating these matters four times in two weeks that no points have so far been raised that have not already been exhaustively explored. The answer to that question is that because we are raising the money through national insurance contributions, many pensioners on fixed incomes will not have to make the additional contribution. Equally, raising the money through income tax would have hit and penalised savers. The hon. Gentleman points to rich people, and a very complex system might have exempted the other groups, but we decided that this measure was a fair, efficient, widely and appropriately based means of raising the money. My experience, my hon. Friends' experience in their constituencies and the evidence of the polls show that the public overwhelmingly understand and support what we are doing.

These measures, along with the Budget, have enabled the Government to announce the largest ever increase in investment in the NHS, raising spending on average by 7.4 per cent. in real terms each year. That is an annual cash increase of 10 per cent, and it is not just for three years but for five years, creating the stable platform necessary for long-term investment. With the year-on-year rises, UK health spending will grow from £65.4 billion this year to £105.6 billion in 2007–08. Even allowing for inflation, that is a rise of 43 per cent. over five years. Since 1997 there has been a real-terms doubling in health service investment. UK health spending will rise from 6.7 per cent. of national income in 1997, and 7.7 per cent. of national income this year, to 9.4 per cent. by 2007-08, and that investment is being matched by reform.

First, on accountability, there will be independent audit, inspection and scrutiny of patient complaints, with a duty to account for money spent and standards achieved, and report to the public. In future, an annual report to Parliament will be prepared by the new independent auditor, accounting for the money allocated to the NHS, where it has been spent and the results that have been achieved. That will be matched by a local report from every primary care trust that will spell out to each household in its locality the services available and the value for money that is being achieved.

The second principle of reform is devolution. As the Secretary of State for Health has already announced, there will be vital new reforms. They will include new financial incentives for hospital performance, greater freedoms for high-performing hospitals and trusts, powers and resources that are devolved to front-line staff and primary care trusts, reform of social services care for the elderly, and a series of measures increasing choice for patients.

Patient choice will help to drive the reformed system. Money will follow the patient, so resources will be tied to performance. The NHS will treat more patients more quickly and to a higher standard.

Let me give some examples of what the extra investment will mean in constituencies throughout the country. There will be 35,000 more nurses, midwives and health visitors, 15,000 more doctors and consultants, and 42 major hospital schemes. That is the difference: more nurses, more doctors, more hospitals, more care centres and better treatment. That is what the Bill is about—investment in the nation's health and investment in the future.

Throughout the whole debate, the dividing line has not just been between those who support raising national insurance and those who do not. It is between those who support an NHS comprehensively available and free at the point of need and those who would abandon it. There is a very clear choice before us all. Do we want a high quality national health service to meet the needs of the British people and funded through general taxation, or a system in which families are forced to take out private insurance and have to pay more for their treatment through charges? That is the real choice. We choose the NHS, whereas the Conservative party chooses charges.

We are providing record new investment combined with reform. Money and change together will deliver results as we reaffirm the basic principle of the NHS—that health care should be available on the basis of need, not of ability to pay. To vote for the Bill is to back the NHS that the British people want and deserve. I commend the Bill to the House.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury 5:38 pm, 13th May 2002

I beg to move, To leave out from 'That' to the end of the Question, and to add instead thereof:

"this House declines to give a Second Reading to the National Insurance Contributions Bill because its provisions fail to reflect the need for change and improvement in the NHS to match additional resources, will hamper job creation and further increase the burdens on business, and will impose additional taxes on employees, including those on whom the public services rely."

I begin by drawing the House's attention to my declaration in the Register of Members' Interests—specifically, that I do occasional work on staff communication skills with employees of J. P. Morgan and Deutsche Bank.

If Ministers' statements were to be believed—a mighty if, it has to be acknowledged—this is the Bill that was never to be. During the election campaign, the Prime Minister told the Daily Express—I quote for the delectation of the House—

"We are not going to clobber people on higher incomes. We are not going back to 1992 and the shadow Budget. We have not the slightest intention of hammering people on £30,000 and £35,000 and the higher income brackets."

Not to be outdone, the Chancellor, on 23 May 2001, described suggestions that he would raise the national insurance ceiling as a Tory smear, which, he said, "I utterly repudiate." Speaking on the "Powerhouse" programme on 29 May last year, the current Secretary of State for Trade and Industry insisted:

"We've got no plans to raise the ceiling on national insurance contributions", adding unwisely:

"It is not going to happen."

Less than 72 hours before polling day, Keith Hill declared:

"Gordon Brown has made it perfectly clear that we have absolutely no plans to raise the ceiling on national insurance".

The hon. Gentleman got his reward: no longer a junior underling at the Department for Transport, Local Government and the Regions, he is now the Government's Deputy Chief Whip.

"To Byers" could be the new verb that describes the contagious disease of misinformation that rampages through the Government.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

In a moment. I will not accuse Ministers of lying. Suffice it to say that they are in a class of their own in giving credence to untruths.

The changes outlined in the Bill that the Chief Secretary to the Treasury has commended to the House today will help to raise £8.6 billion in 2003–04 and similar sums in years thereafter. It is notable, although the right hon. Gentleman did not mention it, that the 1 per cent. increase in the rate of primary class 1 national insurance contributions represents a proportionately bigger increase to those married women who took up the option—prior to its withdrawal—to pay national insurance contributions at a reduced rate, earning no entitlement to contributory national insurance benefits as a result of those contributions. That reduced rate is currently 3.85 per cent; it will rise to 4.85 per cent. in April 2003.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I can resist the hon. Gentleman's soothing bromides not a moment longer. I give way.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

The hon. Gentleman is practising his communication skills most eloquently this evening. I have a couple of questions for him. Given that they are to vote against the Bill tonight, have the Opposition given up on the NHS and its principle of treatment according to need, not ability to pay? If they intend to match the spending on the NHS that we have pledged, how will they pay for it? Will they make the sick pay for being sick?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

No, we are certainly not going to do that. I am indebted to the hon. Gentleman for giving me the opportunity to confirm that we believe passionately in the ideals of the national health service. However, we believe that after five years of mismanagement and ineptitude under a benighted Labour Administration we are now further away than ever before from those cherished ideals. The Opposition are committed to reform—

Photo of Bill Rammell Bill Rammell Labour, Harlow

Will the hon. Gentleman give way?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

In a moment—the hon. Gentleman must contain himself with what resilience he can muster.

The Conservatives are committed to reform. We will look at the options. We want a service that is better. Next week Phil Hope and I are to play alongside each other in a tennis match on behalf of the House. Let me say, in all charity, that it is to be hoped that his excellence at tennis is rather greater than his capacity to make incisive interventions in debate.

Photo of Bill Rammell Bill Rammell Labour, Harlow

I welcome the hon. Gentleman's statement that he remains committed to the national health service free at the point of use. If that is the case, can he explain what the shadow Secretary of State for Health meant by "self-pay"? What does that concept mean to the Conservatives?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

The hon. Gentleman has not grasped the reality of the situation in which we find ourselves. We have a two-tier system. Last year, 250,000 people without insurance paid for their operations. It should not be necessary in the year 2002 for people to use their life savings to save their own lives. My hon. Friend the shadow Secretary of State for Health has said that people are having to pay, and he does not want that situation to become worse. He recognises the need for reform and he is considering the various options. He knows that the Government have made a mess of things. I say to Mr. Rammell that my hon. Friend has probably forgotten more about the national health service than the Secretary of State knew in the first place.

Mr. Chas Roy-Chowdhury spoke about the savage imposition on married women, as reported in the Financial Times on 3 May. He is the head of taxation at the Association of Chartered Certified Accountants. He said:

"This extreme and disproportionate increase for those currently paying the lower rate is grossly unfair and is a case of the Government wishing to wring as much money as possible from everybody, even widows and older women. Many of these women"— this is hardly a laughing matter, even for Mr. Miliband

"are near retirement, and the last thing that they need is this tax hike to upset their finances."

There is speaking with forked tongue, the breaking of promises and picking on the most vulnerable. It is clear that there are no depths now to which new Labour will not sink.

John Whiting is a tax partner at PricewaterhouseCoopers and president of the Chartered Institute of Taxation. He often quizzes people as to what is the second biggest tax after income tax. It is not value added tax, it is not corporation tax and it is not petrol duty. It is the national insurance contribution. As he said:

"We now have a top tax rate of 41 per cent., and another hole in the fiction that national insurance contributions are anything other than a tax."

What has been the reaction of business to what has been unveiled by the Chief Secretary and his ministerial colleagues? The CBI says:

"It is the worst kind of tax rise as it adds straight to the cost base and is unrelated to profits."

The head of the Engineering Employers Federation, Martin Temple, observes:

"£3 billion of extra costs is £3 billion less to invest."

Nick Golding of the Forum of Private Business labels the rises

"a further disincentive to employ."

Ian Fletcher of the British Chambers of Commerce attacked the rise as "indiscriminate".

Photo of Vernon Coaker Vernon Coaker Labour, Gedling

The hon. Gentleman has quoted many organisations. Will he quote ordinary people? Will he quote what individuals in our constituencies are saying about the extra investment that will go into the national health service, and how important they think that extra investment is? Does he think that to quote them would be worth more in this debate than quotations from representatives of the organisations to which he has referred?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I am slightly perturbed by the hon. Gentleman's intervention. The individuals to whom I have referred would find it peculiar to be described as in some way extraordinary. They have the advantage of the hon. Gentleman because they boast experience and expertise that lend authority to their pronouncements. However, the hon. Gentleman is always good at egging me on and encouraging me in debate. If he will exercise some patience, which is a virtue, he will recognise that I intend to refer to the impact of the measures set out in the Bill on the very ordinary people for whom he purports to care.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

Is the hon. Gentleman prepared to quote the shadow Chancellor of the Exchequer, who may be an ordinary person? At the last general election, he said:

"Conservatives will retain a free and comprehensive national health service."

Will the hon. Gentleman repeat that pledge? If he cannot, why not?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I am disappointed in the Chief Secretary. He should know by now that my right hon. and learned Friend the shadow Chancellor of the Exchequer is an ordinary person blessed with extraordinary abilities. That should be patently apparent to all Members of this place and others well beyond. [Interruption.] Mr. McFall must contain himself; he must exercise what restraint he can muster. I know that he is a distinguished Member of this place and I believe that he is the Chairman of the relevant Select Committee. I say to him in all kindness that if he behaves himself, I will give way. If he does not, I will not. He has a simple choice, but he must allow me to deal first with the Chief Secretary, which I shall relish. My right hon. and learned Friend the shadow Chancellor, and all my right hon. and hon. Friends and I are committed to an improved NHS which serves the people of this country instead of letting them down. I reiterate the fundamental principle that the availability of health care should be determined on the basis of need, not ability to pay.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

The hon. Gentleman must wait.

That consideration is so strikingly clear that, as the late Enoch Powell used to say, only an extraordinarily clever person could fail to grasp so simple a point.

Photo of David Cameron David Cameron Conservative, Witney

On the impact of the increase on ordinary people, is my hon. Friend aware that the John Radcliffe hospital, which serves the Oxford, East constituency of the Chief Secretary, as well as the constituencies of Dr. Harris and myself, is short of 300 nurses and its vacancy rate is running at 14 per cent? Has my hon. Friend calculated the effect of increased national insurance contributions on trying to hire badly needed staff in our hospitals?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

It is very simple; the bull-headed and short-sighted policy on which the Government seem intent will make a difficult task much more difficult.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

In due course; I do not want to squander the hon. Gentleman's contribution. His professorial interventions are of great value and it would be a pity to waste one just yet. If he will allow me, I shall store him up and deal with him a bit later.

Most strikingly of all, Stephen Alambritas of the Federation of Small Businesses stressed that taxes will rise for 3 million self-employed workers. Pointing out that the average income from self-employment is just £13,890 a year, compared with an average income from employment of £21,842 a year, he rightly castigated the Government for undermining any attempt to help the low-paid. My right hon. and hon. Friends will have noticed that whenever I have spoken today about increased burdens, higher taxes and objections from business and other organisations, Government Members have been determined to throw me off the scent. They do not want to talk about damaging consequences, to focus on the realities or to acknowledge the protests that are springing up from reputable organisations and individuals the length and breadth of the United Kingdom, because they prefer to live in an ivory tower. They can try to do so, but it will not work; we shall point out the damage inflicted by their policies.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

The hon. Gentleman is a regular contributor to our debates; I anticipate eagerly what he has to say, but he will not say it just yet.

The timing of savage tax rises could scarcely be more insensitive. In the past year, manufacturing output has fallen at its sharpest rate for a decade. Manufacturers are struggling in a sea of tax, regulation and administrative complexity which is deeper and more hazardous than ever before. Ministers' response has been to deliver a financial body blow by jacking up the cost of employment. It is no wonder in those circumstances that representatives of no fewer than nine manufacturing industry trade associations from the plastics, rubber, coatings and associated machinery and tool-making sectors, speaking for 315,000 employees, fired off a letter of protest to the Chancellor and the Secretary of State for Trade and Industry only last Wednesday, complaining that a staggering 78 per cent. of all the new money to be raised in 2003–04 will be grabbed from business. If the Chancellor knows that for 20 plastics companies the extra bill will be £3.4 million a year, or that 60 per cent. of them plan to meet that cost by cutting jobs, he should be ashamed. If he is ignorant of that important fact, it is frankly time he did his homework.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Earlier, the hon. Gentleman said that the shadow Chancellor was an ordinary man of extraordinary talents; he seems to be proving this afternoon that he himself is an extraordinary man of ordinary talents. He said that the increases in national insurance contributions on both sides may be a tax on jobs. What is unemployment in his constituency, and what was it in 1997? How does he explain the fact that it has fallen by 55 per cent.?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

The hon. Gentleman really ought to do better than stick to a prepared script that ignores what I have said. I do not know about his educational attainments and other attributes, but let me explain my position in easily intelligible terms. If a tax rise has not yet taken effect, it should not be too difficult for him to grasp that the damaging employment consequence that I predict has not yet taken effect. Ordinarily, for his edification, the impact follows the policy; the policy will have an impact in due course. I am a charitable fellow, so if he is still in doubt and requires further illumination, I will happily go to any recess in the House later and give him a tutorial on that elementary point.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

No, the hon. Gentleman made a mess of it once; he can hardly be so unreasonable as to expect me cruelly to compound his embarrassment.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

Of course, I shall give way to the good professor.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

The mention of tutorials got me going.

The hon. Gentleman implied that employers' national insurance is a tax on jobs and that increasing it will damage jobs. Does he think that employers' national insurance contributions are at an optimal rate, or should they be cut?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

That is a useful intervention. We shall set out our position on taxation levels with clarity and specificity well in advance of the next general election. The hon. Gentleman, who is a reasonable fellow, will accept the proposition that for a party which aspires to government—I cannot credibly accuse his party of that—it does not make much sense, having lost an election 11 months ago on its last manifesto, to be expected to produce today the contents of its next one.

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

Does my hon. Friend agree that the tax increase is particularly unwelcome for the plastics industry? I recently visited a plastics manufacturer in the automated components industry in my constituency. It faces the prospect of price reductions of 7 to 15 per cent. being forced on it by its customers. It is desperately trying to pare costs and is having some success, but is nevertheless confronted with a bill of an additional £70,000 to £80,000. It told me that the change is particularly unwelcome because it pays national insurance whether or not it is making a profit; I do not believe that the Government have realised that.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

My hon. Friend is correct; the cost is incurred, regardless of whether a profit is being made. The Government's message to companies in my hon. Friend's constituency and elsewhere can be succinctly encapsulated: "Thank you for trying to bear up under competitive pressures. Here's our solution—please pay another tax so that it is more, rather than less, expensive, for you to employ people." The National Association of Pensions Funds has warned that more companies are likely to axe final salary pension schemes to recoup the cost of the 1 per cent. rise in employers' national insurance bills. It said that the change, which will cost companies about £4,000 million a year, would drive businesses to seek out ways of cutting costs. That is the considered verdict of people at the grass roots, not the self-appointed judges on the Government Benches.

Photo of John Mann John Mann Labour, Bassetlaw

The hon. Gentleman has quoted various business spokesmen to support his case. The chairman of the Bassetlaw chamber of commerce, a small business man in a heavy manufacturing area, describes the Budget as fair. Why?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I do not know. It must be something in the water in Bassetlaw. The hon. Gentleman and I served together on Lambeth borough council from 1986 to 1990. I thought then that the hon. Gentleman was a peculiar fellow, and I have never had any reason since to revise my opinion. Quite what caused the people of Bassetlaw to vest their faith and confidence in the hon. Gentleman I do not know, but I cannot be held responsible for the results.

Tax rises—I know that Labour Members do not want to hear about the tax rises, but they will keep hearing about them—mean that a house officer in the national health service will be £276 a year worse off. A nurse consultant will be £312 a year worse off. A specialist registrar will be £408 a year worse off. A senior house officer will be £516 a year worse off. A consultant will be £672 a year worse off. The Government are punishing the very people whom they disingenuously claim to support. The Chancellor stands exposed. Far from being a generous distributor of largesse, he is now seen in his true light as the nation's most outrageous pickpocket.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I want to make progress, but if the hon. Gentleman contains himself—I do not think he is about to pop like a champagne cork—I shall happily give way to him later.

Just as older women have been singled out for discriminatory treatment, so too have those on modest earnings. A self-employed person on £20,000 a year, even after allowing for the offsetting effects of tax deductibility, can expect to pay an extra £143 a year.

Perhaps the most shaming fact of all is that those who possess the least must cough up the most. Over the past five years, tax on the poorest quintile of households rose from 38 per cent. to 41 per cent., as against a rise of only 1 per cent. for the highest quintile. The net result is that a 2 per cent. gap favouring the richest has risen to 4 per cent. since the party of Bernie Ecclestone and Lakshmi Mittal took office. [Hon. Members: "And Richard Desmond."] Indeed, and Richard Desmond, as my hon. Friends helpfully advise me from their sedentary positions.

What about the public sector? The cost of the employer increase to the police service, with just under 125,000 people, will be an extra £32 million a year. The cost to the teaching profession, with more than 361,000 staff, will be an extra £79 million a year. The cost to local government—

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

In a moment. The hon. Gentleman is spectacularly misnamed, in view of his speedy commitment to the abolition of our national currency and its replacement with another, but he is a jovial character, and I can resist him no longer.

Photo of Steve Pound Steve Pound Labour, Ealing North

I am reluctant to interrupt the hon. Gentleman's flow, and I can understand why, on public service broadcasting in America, he is already considered something of a cult. [Interruption.] Perhaps that lost something in translation.

May I ask the hon. Gentleman a couple of questions? Has there ever been a time in the proud and glorious mercantile history of this nation when any honest cordwainer or cooper has said, "Whacko! More taxes. I'm happy with that."? Has there ever been an occasion when people have not objected to taxation? Has there ever been a time when manufacturers in this country have not recognised that the health of the nation is essential to the productivity of the nation?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

What people object to is paying their money and getting no value in return. That is the answer to the hon. Gentleman.

The cost to local government, which has been lumbered with more responsibilities than ever before and forced by Government to set the highest level of council tax since its inception, will be an extra £300 million a year. Perhaps the most depressing irony of all, in the context of a Bill which ostensibly is designed to bolster our national health service, is that the NHS itself will face a bill of an extra £200 million a year as a result of the increase in employers' national insurance contributions.

Look at the care home sector. [Interruption.] I know that Mr. Bryant, who is chuntering to himself—a very worrying sign at this early stage in his parliamentary career—does not want to discuss this important matter, but I say to the hon. Gentleman and to the House that since 1996–97 almost 50,000 care home beds have been lost, creating personal tragedies for thousands, owing to the blithering incompetence of Ministers. Now they seem hell-bent on strangling what remains of a sector whose margins are often slim—not infrequently, for the smallest care homes, less than 5 per cent.—and whose wage bills account for about 80 per cent. of their total costs. The Registered Nursing Home Association, the National Care Homes Association and individual nursing home owners have united in a chorus of condemnation of ministerial short-sightedness.

Yet the Chief Secretary claims that the Bill will bring about the improvements in health care that we all want to see. Of course, as my right hon. and hon. Friends are painfully aware, every year Ministers promise that reform and extra spending will go hand in hand, but every year that promise is broken. We see no reform; we see no change; we no improvement. We see only the higher taxes which are the instinctive response and the favourite sport of Labour Governments, new as well as old. Without change—

Photo of John Mann John Mann Labour, Bassetlaw

Will the hon. Gentleman give way?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

The hon. Gentleman has had one opportunity. He made a frightful, blithering mess of it. He can hardly expect me to have another go at indulging him—that I will not do.

Without change, we will not see the difference. In Scotland—

Photo of Kevan Jones Kevan Jones Labour, North Durham

What reforms would the hon. Gentleman propose, in line with the tax plans that he does not intend to lay out tonight? [Interruption.] I accept his point about the election, but can he give a commitment that the Conservative party is committed to health care free at the point of need?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I do not know how many times one has to underline one's commitment to a comprehensive national health service which is available to people on the basis of clinical need and not on the strength of ability to pay. I have said it many times before; I am saying it again. I am reiterating the commitment of the Conservative party to a fundamental, wholesale and searching review of the basis of delivery and funding of health care in this country. It could not be more explicit. It is not my fault that the intervention of Mr. Jones was spoiled by the sedentary interjection of his hon. Friend Mr. Pound.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

No, I will not give way again. I want to develop the arguments.

The Chief Secretary claims that the Bill will secure improvements. As I said, every year we see no reform, no change, no improvement; we see only the higher taxes which are both the instinctive response and the favourite sport of Labour Governments, new as well as old. Without change, as I said, we will not see the difference.

In Scotland, Wales and Northern Ireland spending on health is much higher than it is in England, but in key respects the service is getting worse. In Scotland over the past five years, spending has risen by 28 per cent. in real terms, but over exactly the same period the average waiting time for an out-patient appointment has risen by 25 per cent.

There could hardly be a more graphic testament to the sheer inadequacy of the status quo. The chairman of the British Medical Association said recently:

"The NHS in its current state cannot survive without radical change."

That change is essential if we are to translate care from a word to a deed. Even the Health Secretary has blurted out the worst kept secret in Britain—that the national health service is the last great nationalised industry.

Waiting lists and waiting times are rising. The number of care home beds is falling. Bed blocking and cancelled operations have soared. Mixed sex wards abound. Doctor and nurse shortages put us to shame in the league tables of the Organisation for Economic Co-operation and Development and of the European Union. Patients travel as far as South Africa for treatments that should be available here.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Will the hon. Gentleman give way?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

No.

In 2000–01, the Department of Health failed even to spend £693 million that was allocated to it by the Chancellor. There are now more bureaucrats in the NHS than beds, and the morale of NHS staff is at an all-time low. Waste and fraud cost the service £10 billion a year.

Photo of Mr Tam Dalyell Mr Tam Dalyell Labour, Linlithgow

Will the hon. Gentleman help us with his credentials for being quite so certain about what is happening in Scotland, as I know personally that many improvements have been made there?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I always listen carefully and with respect to the hon. Gentleman. My assessment is that the service in Scotland has not improved as one would expect consequent upon the increase in resources that it has enjoyed under his Government. I say to him that I have not depended on advocacy, but grounded my case in evidence. I have referred to what struck me—and I hope would strike him—as the significant fact that in precisely the same period as spending on health has increased by 28 per cent. in real terms, there has been a 25 per cent. increase in the average waiting time for an out-patient appointment. That is the reality; it may not seem natural and might not have been expected, but it is the consequence of the mismanagement of our national health service and the defects of the status quo that reigns within it.

There are now more bureaucrats than beds in the NHS—[Interruption.] These points are important, so I shall repeat them. The morale of NHS staff is at an all-time low and waste and fraud cost the service £10 billion a year. All too many wards are breeding grounds for MRSA—methicillin resistant staphylococcus aureus—and the Public Accounts Committee found but 18 months ago that infections caught while in hospital killed about 5,000 people a year. Perhaps most tellingly all, one's chances of surviving cancer are markedly worse in the United Kingdom than in many other industrialised countries.

What was the response of the Secretary of State for Health to the miserable catalogue of underperformance that is failing the British people? The night before his statement to the House on the NHS plan, according to the 21 April edition of The Sunday Times, the right hon. Gentleman sat in his office with colleagues with a collection of papers strewn all over the place, munching on Marks and Spencer ready-made pasta and sweating over what he could possibly say to the House fewer than 24 hours later. Professor Alan Maynard, the eminent economist from York university, dismissed the Government's proposals for reform as "horse manure".

I shall not go as far as that because I am a charitable soul, as you can testify, Madam Deputy Speaker. However, what we do know is that the extra nurses, doctors, hospitals and primary care centres about which the Secretary of State for Health talked are only expected, not promised, and are not even expected until 2008. We know that he merely hopes that the legislation to establish the Commission for Health Care Audit and Inspection will be introduced in the next Session and that the first inspection report is unlikely to materialise before 2005.

We know that the Secretary of State has not even begun to consult local councils on the plans to make them responsible for bed blocking. He wants to pass the buck from a Government whose fault it is to local government, whose fault it is not, and he has not even had the decency to let the fall guys know of his plans to stitch them up. What a shower these Ministers are.

Photo of Ian Liddell-Grainger Ian Liddell-Grainger Conservative, Bridgwater

My hon. Friend is no doubt aware of the reduction in beds—256 of them have gone in Somerset—and that bed blocking is now a major problem in rural areas and is getting worse. Does he agree that unless the Government take action, care homes in rural areas will disappear and people will have to go into hospitals, as there will be nowhere else to go?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

My hon. Friend is entirely right; he speaks from personal experience. It is only to be hoped that even now, at the 59th minute after the 11th hour, the Chief Secretary might be prepared to reconsider the matter. I am sorry to say, however, that he has specialised in putting his own case even if that has meant distorting the statements of others. For example, he referred to Anthony Goldstone and his supposed verdict, but did not quote all his remarks. Of course, Mr. Goldstone, whom he prayed in aid, said:

"we now have to live with these tax increases, but we say to the Chancellor there is no coming back for more, whether openly or stealthily."

Mr. Goldstone indicated that he did not think that the Government were going about things in the right way. What a pity that the right hon. Gentleman chose not to—or inadvertently omitted to—give the full context and flavour of Mr. Goldstone's remarks.

While the Secretary of State for Health ducks, dithers and delays, damage is done every day. The Bill offers no answer. It shows that the Government have a closed mind and refuse to learn from abroad. To adapt the celebrated and justified verdict on the Wilson Government,

"Never in the field of political affairs has a Government taxed so much, delivered so little and been in such an indecent haste to blow its own trumpet."

Photo of Vernon Coaker Vernon Coaker Labour, Gedling 6:16 pm, 13th May 2002

I am very pleased to follow Mr. Bercow and to have the chance to respond to one or two of the points that he made. I think that we are taking part in an historic debate in which we see clearly the divide between his side of the House and ours—it was made plain in his speech. It is historic as for the first time in a number of years, we have seen a clear argument put for the introduction of increased taxation to pay for improved public services.

With respect, I thought that the hon. Member for Buckingham made a strategic and tactical error when he referred to a range of occupations and professions and specified what the taxes would cost people in each of them. His mistake and that of the Conservative party is that they have not realised what Labour Members realise, which is that, far from seeing that cost in the old way in which they saw tax—money that they paid without getting anything—people are now saying that they want to invest in their public services. They have accepted the argument that was advanced at the last election for investment and reform in our public services. They now want to see that investment and they understand and realise that they will have to pay for it. The point is not what tax people pay, but what they get for it. The Government will be judged not on the amount of tax that we are asking people to pay through the increased national insurance contributions, but on whether they see the results of that increased investment that we are putting into the national health service.

The shift in the debate has been huge. I remember standing for election and arguing the case for increased taxes to pay for improved public services a number of times only to lose significantly. It is a great credit to our Government, the Treasury team and others that we have now shifted the debate away from tax cuts and on to investment and reform as the winning combination. That is a significant shift in our political culture.

We will pay for massive increases in health spending of 7.4 per cent. in real terms in the next five years. As my right hon. Friend the Chief Secretary said, the amount spent will shift from £65.4 billion this year to £105.6 billion in 2007 and 2008. Those are staggering figures—huge figures—but people accept the need to pay more because they want new hospitals, shorter waits, new drugs and a modern NHS with more doctors and nurses.

It is a mistake on the part of Conservative Members to rubbish the NHS as it currently stands. To say that there has been no improvement in the NHS over the past few years completely belies people's experience. It is not true to say that it is a complete shambles and that nobody receives decent service, decent treatment or a decent operation—every single day, tens of thousands of people go to hospital or to their doctor and receive treatment that they are proud to be able to receive and about which they write letters of thanks to ward staff and doctors.

We need more investment, and significant problems remain to be addressed, but to say that every single hospital, every single surgery and every single operation goes wrong and is a disaster is not true, and it is not the experience of ordinary people.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

Does my hon. Friend agree that what the Tories are doing is not an accident, but part of a carefully laid out strategy? They are running down the national health service to try to convince people that it does not work. Once they have done that, they can say that they have an alternative—that is, to charge people and force them into private health insurance. Their strategy is aimed at the eventual privatisation of the NHS, and we should reject it absolutely.

Photo of Vernon Coaker Vernon Coaker Labour, Gedling

I thank my hon. Friend for that important point. Every time we see a Conservative spokesman on television or hear one on the radio, they simply rubbish what is happening in the NHS. When I speak to people who work for the NHS, they say that although there are real problems, we should recognise progress where it exists. We all have people in our constituencies who come to us to complain that they are waiting too long for an operation, there are not enough consultants, the buildings they have to visit are too old, there is not enough of this or that, or that a certain drug is not available. There are real problems and challenges still to be met, but we should reiterate that progress has been made. The solution outlined by my right hon. Friend the Chief Secretary at the beginning of the debate—to increase investment in the NHS through the rise in national insurance contributions in the Bill—is the fair and equitable way to rebuild the NHS and to respond to the difficulties that people describe to us.

We agree with the Wanless report that general taxation is the best way to achieve that. It is the fairest and most equitable system that we have, but it has been rejected by the Tories—they want more private medical insurance or social insurance, which are more inequitable and costly. My right hon. Friend quoted figures on the social insurance systems in France, where employers pay on average some £60 a week towards health care for an employee on average earnings, and in Germany, where employers pay on average £30 a week. We heard about the United States, where family premiums for private insurance average £100 a week and are set to rise on average by £13 a week.

Those are the choices that confront us. It is perfectly reasonable for people to say that we should fund the health service through private health insurance or social insurance, but I am proud that we have rejected those options and said that we want improvements in the NHS to be paid for through increases in general taxation and national insurance. That is because we believe that that ensures equitable access to treatment, that it is the fairest means possible, and that it remains true to the original principles of the national health service.

Photo of John Maples John Maples Conservative, Stratford-on-Avon

I share the hon. Gentleman's allegiance to the principle of care being free at the point of use, but I want to ask him the question that the Chief Secretary failed to answer. The national health service may be a far better way to fund health care than either social insurance or health maintenance organisations—the main component in the United States—but the hon. Gentleman cannot quote figures that hide what is being paid here. When we are spending £100 billion a year on the health service, the average family of four will pay £7,500 a year in tax towards it. That may be good value, but he should not pretend that it is cheaper than what people pay in France, Germany or the United States, because it is not.

Photo of Vernon Coaker Vernon Coaker Labour, Gedling

With respect to the hon. Gentleman, he will have to put those arguments to the electorate. My argument will be that general taxation is the fairest and most equitable way of funding improvements to the NHS and of ensuring that we have the standards that we want. I am happy to present that argument to the electorate, as are my hon. Friends.

The rise in national insurance contributions is paying for improvements. We all remember what happened under the Conservatives between 1979 and 1997, when national insurance rose from 6.5 per cent. to 10 per cent. without any corresponding improvements in the social wage. Our increase will lead to improvements in the NHS, with a £2.7 billion package for the low paid through a new tax credits system. The 1 per cent. rise that continues above the upper earnings limit ensures that the contribution increase is progressive. That is what people want—a fair and progressive way of raising the additional funds that are needed, then invested, in their health service.

Alongside that investment people want reform, and I am pleased that that will happen. There will be more beds, new buildings, increases in social services spending and structural change. I remind my right hon. and hon. Friends on the Front Bench that although we must ensure that patients are given more choice, that should be based on quality, not price competition.

The new health inspectorate, the Commission for Health Care Audit and Inspection, is important. It will not only audit the use of the new money, but consider private sector quality. More co-operation with the private sector is another important aspect of reform.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I always enjoy listening to the hon. Gentleman, because he is decent, sincere and well informed. I know that he is a Nottinghamshire, not a Scottish, Member, but may I nevertheless ask him this question? Why has Scotland experienced, throughout the same periods, both a real terms rise in health spending of 28 per cent. and an increase in the average waiting time for an out-patient appointment of 25 per cent.?

Photo of Vernon Coaker Vernon Coaker Labour, Gedling

The hon. Gentleman makes a mistake about the argument being for either resources or reform—it has to be for both, as we propose. We believe that increased investment and reform together will lead to shorter waiting times and a whole range of improvements in our national health service.

The country has faced a choice between publicly funding improvements to our national health service through higher taxation and taking the route of more private money. For many years, I stood for election calling for increased taxes to pay for improved public services. Then, I lost that argument. Now, thankfully, we are winning it. I am proud to be part of a Government who are increasing taxes to improve our public services. Reform must take place alongside that investment. The Bill will go a long way towards ensuring that we have the funds and resources to provide the national health service that we need for the 21st century.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon 6:29 pm, 13th May 2002

The shadow Chief Secretary is right that much has been said about the subject of the debate—for example, by him, the Chancellor and my hon. Friend Matthew Taylor, who is giving me a chance to get my teeth into Government health policy this afternoon. I am pleased to see him in his place.

Several matters have not been tackled, and I hope to cover them this afternoon. It is important to emphasise that Liberal Democrats welcome the additional resources for which the Bill provides, and we will vote for the measure. After all, we called for the resources in the first place, not shortly before the Budget, and not one, two, three or four years before it but five years ago. We called for additional resources from general taxation to save the national health service. The Government made the same commitment in 1997, but without the resources to go with it. Year after year, we called for the very aspect of the Budget that is so popular with electors: increased revenue from fair taxes. Although I do not believe that the Government have gone far enough, the taxes should be as fair as possible in order to pay for the health service.

We welcome the resources, but we have several anxieties and criticisms. The measure is five years too late, and it came as a surprise to those who listened to the Labour party before the election. It said that taxes, which by implication included national insurance contributions, would not go up. Such behaviour damages the integrity of politics, because politicians should be honest with the electorate.

The Chief Secretary has stayed to hear my contribution, and I invite him to admit that, before the election, he did not predict that national insurance contributions would increase significantly. I give him the opportunity to say that he had no idea that that would happen or, alternatively, that he realised that national insurance contributions would rise, but did not believe that it was worth making that explicit to the electorate.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Will the hon. Gentleman give way?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

I was hoping that the Chief Secretary would reply, but I shall give way to a fine substitute.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

I am glad that I will do. Does not the hon. Gentleman remember last year's general election campaign? The subject was extensively discussed; many journalists pushed the Chancellor and tried to get him to make specific commitments on the upper earnings limit and various other aspects of national insurance. My right hon. Friend pointedly refused to do so.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

The Chancellor pointedly refused to say that there was a good chance that national insurance would have to rise significantly shortly after the election. But it is in fact a popular act, and yet refusing to be honest with people before an election is destructive to the electoral process. I shall revert to that briefly later.

The measure is not as progressive as it would be if income tax were used. The 1 per cent. increase in employers' national insurance contributions is a stealth tax, which can represent a significant burden on industry and have an impact on job creation. To some extent, it is self-defeating because organisations such as local government, for which some of the money is intended, will lose through having to pay employers' national insurance contributions. I shall consider exactly how much money should be spent on local government later.

Photo of Stephen Ladyman Stephen Ladyman Labour, South Thanet

The hon. Gentleman became a Member of Parliament in 1997, at the same time as me. Does he remember the manifesto on which he stood? It promised a grand total of £540 million a year extra for the national health service—half the sum that the Government put into it. Liberal Democrats intended to raise that money through changes to the national insurance system. Why was it right then but wrong now?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

The hon. Gentleman needs to go back to our manifesto, because the funding was not intended to come from the national insurance system.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

Let me deal with the point. Our commitment has always been over and above existing Government spending plans, not to burn the money that Labour found for investment but to add to it and to be honest and say that if people want decent public services they have to pay for them. I therefore believe that the hon. Gentleman deceived his electorate twice. Before people claim that they will save the NHS or invest in public services, they must specify the source of the money. In costed manifestos that were audited independently for two elections, we stated that funding for education would come from a penny on income tax. In the last election campaign, we said that money for the health service would be raised through an increase in the top rate of income tax. Does the hon. Gentleman believe that that is an honest and progressive way of raising the money? Will he answer that?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

Perhaps he is more honest than he was in the general election campaign.

Photo of Stephen Ladyman Stephen Ladyman Labour, South Thanet

The hon. Gentleman began by challenging me to go back to the Liberal Democrat manifesto, which I have. It states:

"We will:

Invest more in the NHS. We will invest at least an extra £540 million every year in the NHS to pay for our policy priorities."

It goes on to say that the money will be raised through the national insurance system. It is crystal clear. The penny on income tax applied to the health service only in the 2001 manifesto.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

The hon. Gentleman has the misfortune of being patently incapable of quoting and of facing an author of the document, my hon. Friend the Member for Truro and St. Austell. If the hon. Gentleman has the courage to provide the quote, we can refute his words. We have been clear about the matter. [Interruption.] All the fuss from Labour Members is simply defensiveness because they did not have the guts to do what they have subsequently done. They did not have the courage to put to the electorate before an election the fact that income tax or other taxes must increase to pay for public services.

Several hon. Members:

rose

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

I can take as many interventions as Labour Members like, but they are on dangerous ground. However, I shall give way first to my hon. Friend the Member for Truro and St. Austell.

Photo of Matthew Taylor Matthew Taylor Liberal Democrat Spokesperson (Treasury)

My hon. Friend might find it helpful to know that our 1997 manifesto proposed cuts in employers' national insurance contributions, funded by the carbon tax, which the Government adopted in a different form through their energy levy.

My hon. Friend might also find it helpful to reflect on the fact that while we proposed an upfront increase of £540 million for the health service after the election, the Labour Government were elected on a pledge to save the NHS, but imposed two years of real-terms cuts by adopting Conservative Budget proposals.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

They went further. They not only stuck to Tory spending plans, which were savage for public services, but found resources to fund tax cuts for the well off, beyond published Conservative spending plans. That was simply twisting the knife

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester

The hon. Gentleman has not answered the question put by my hon. Friend Dr. Ladyman. Is it true that the 1997 Liberal Democrat manifesto proposed only an extra £5 billion for the NHS, when the Government provided an increase of £20 billion in three years?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

The hon. Gentleman mentions a £5 billion increase proposed by the Liberal Democrats. That sounds like Treasury calculations in a press release, given the Government's history of triple counting.

We are worried about not only the method of raising the money and the fact that it is not progressive, was not honestly advertised, is late and, in the case of the employers' national insurance increase, self-defeating, but the way in which it is spent. We are worried about whether it will go to the parts of the health and social care organisations where it can be most effective, or be channelled specifically to achieve political targets without making the maximum impact on patient care. We are worried about the way in which the Government continue to manage the health service through too much interference, centralisation and structural change for the sake of change, not the benefit of patients.

Labour Members, in pushing at an open door or facing an open goal with the lack of Conservative policy, talk about a health service that is universal, comprehensive and free at the point of delivery, but they should consider the health service that they have delivered. It is not free at the point of delivery; there are prescription charges for those who are not exempt. Many believe that that is a regressive method of asking the sick to pay for the health service.

Many people cannot afford to pay prescription charges for all their medication. Patients often ask my former colleagues in the health service to specify the prescription medicines that they do not need so much, so that they do not have to pay for them. We have made a commitment to try to remove the unfairness in exemptions for prescription charges. People believed that the Labour party might do that for cystic fibrosis sufferers, since it made a pledge in opposition to exempt those who survived into adulthood from prescription charges. Again, it reneged on that in government. Similarly, eye checks and dental checks are not free at the point of delivery, as the Liberal Democrats would wish them to be, not only because that is a fair way of doing things, but because it would encourage people—

Photo of Vernon Coaker Vernon Coaker Labour, Gedling

Free eye tests, free dental checks, free prescriptions—how much is all that?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

If the hon. Gentleman had read our manifesto more than his colleague has, he would know. If such screenings were free, people would go for such checks, which would help them to have good health in the future.

Photo of Bill Rammell Bill Rammell Labour, Harlow

As usual, I have taken the opportunity to read the alternative Lib Dem Budget. Many people listening to the hon. Gentleman's last contribution will have gained the impression that the Liberal Democrats are in favour of abolishing prescription charges. Will he confirm that the alternative Liberal Democrat Budget—the only document on which he can be reasonably judged—does not propose to abolish prescription charges?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

In the alternative Budget, we made it very clear that we would freeze prescription charges—[Hon. Members: "Ah!"] Well, I think that people who find it hard to pay prescription charges would prefer, in the first instance, a policy of freezing the charges that the hon. Gentleman's Government have increased year upon year. The increases in prescription charges under his Government—increases similar to those that he and his colleagues used to criticise when the Conservatives implemented them—have been significant in this Parliament.

We made it clear in our manifesto that we would seek to abolish prescription charges. If the hon. Gentleman looks at our next manifesto, he will see how that is going to be funded, because, unlike the Labour party, we say how we are going to fund our commitments. Rather than making empty promises to save the NHS—as Labour did five years ago, four years ago, three years ago and two years ago—without having the resources to do so, we will provide an indication of where those resources would come from.

Labour Back Benchers, in criticising the Conservatives, suggest that the NHS is somehow comprehensive at the moment. I do not blame the Labour party for the fact that it is not comprehensive, and that there is rationing, but it is important that those of us who want to save the NHS are at least honest about the fact that not every treatment is available to everyone who could benefit from it. Labour Members who campaigned on these issues know that, for example, someone suffering from multiple sclerosis will not necessarily have access to beta interferon. People wanting prompt surgical treatment might have to wait, sometimes for too long, and sometimes beyond the point at which their condition is operable. A whole series of drugs in cancer treatment, and in others, are not available to people.

The question that we all face today—it is also one that the Conservatives must address—is not whether there is going to be rationing but how much rationing there will be, and how comprehensive we can make the health service. That will depend on the amount of resources going in, the amount of preventive work that is conducted, which the Government often ignore, and the efficiency with which the resources are spent. So, let us not pretend that, under Labour, the health service is as comprehensive as we would wish. The Government have to recognise that, before they attack the Conservatives for seeking to make it less comprehensive.

I want to return to my earlier point about this not being the most progressive way of funding the health service. Income tax would clearly have been a more progressive way of funding this increase, and that is what we propose in our alternative Budget. The Chief Secretary was singularly unable to recognise that an increase in the top rate of income tax would ensure that those who were paying for an increase in funding for the health service were those most able to pay.

I gave notice to the hon. Member for Bolsover Mr. Skinner) that I intended to point out his rather ridiculous intervention in Treasury questions last Thursday. I know that I am taking my life in my hands by saying this, but I did give him notice. He argued that, because some pensioners pay income tax—he said that half of them did so, when it is actually one third—it was a bad, regressive tax, and that obtaining these funds through national insurance contributions was fairer. I do not know on what basis he feels that it is his job to protect the interests of Baroness Thatcher and her husband, who are wealthy pensioners living off a large unearned income and who will not pay a penny more on their national insurance contributions.

Before Labour Members argue that income tax is somehow regressive because wealthy pensioners would have to pay it, they must recognise that if we want to find the most progressive way of funding these increases in public services, we have to look at the better off who have done very well and ask them to pay a little more, in a fair way, before we ask people earning small amounts—as little as £5,000 a year—to pay more through national insurance. Before we ask those people to pay, we should ask the very wealthy.

Photo of John Mann John Mann Labour, Bassetlaw

I would not dream of putting words into the mouth of my hon. Friend Mr. Skinner, but our constituencies share quite a long border and very similar characteristics, having both been mining constituencies. I want to ask the hon. Gentleman a question about pensioners in my constituency, who have the same characteristics as those of my hon. Friend. The vast majority of pensioners in mining areas have a second pension from British Coal and—because of the scandal of health and safety in the coal industry—now receive industrial injuries compensation to the tune of £6 billion. They are precisely the pensioners who would lose out if this increase were to be funded through income tax rather than national insurance contributions. How would the hon. Gentleman answer that point?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

I refer the hon. Gentleman to the answer that my hon. Friend the Member for Truro and St. Austell gave to his almost identical, but more briefly expressed, question at column 975 on 1 May. I suggest that he picks up a copy of Hansard.

The point that the hon. Gentleman's pensioners will make clear to him, as mine do to me, is that pensioners rely on the health service and on adequate funding being given to it. They are of one voice in wishing that these increases had been introduced five years ago. By now, we could be five years into a 10-year plan, instead of one year into it. We could be watching the first newly qualified medical students emerging at the end of their training, rather than seeing new medical schools being set up only this year. Nurses whose training places had been funded by increased resources could already be on the wards by now. Five years have been wasted. For the many pensioners who cannot write to the hon. Gentleman because, sadly, they have passed away, this increase has come too late, as has the delivery that the Labour party promised.

The Government published the NHS plan in 2000. In the following year, and in this one, they have published details of the delivery of the NHS plan. Perhaps, in 10 years' time, we shall see a new document outlining how they will deliver the delivery of the NHS plan. The Government's history on the management of health service funding consists of a series of comprehensive spending reviews that have not been comprehensive and in which the money has sometimes not been spent. The only thing in their favour is that they have constantly been reviewed and revised. In 1997, this Government hit the ground reviewing, rather than running. They have not dealt with the health service in the way that it needed to be dealt with.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

I shall give the hon. Gentleman one more chance.

Photo of Bill Rammell Bill Rammell Labour, Harlow

One of the difficulties with these debates with the Liberal Democrats is that we hear spending commitments sprayed around like confetti, but when we analyse them they do not add up. Will the hon. Gentleman tell the House clearly and precisely what net additional health service spending—above and beyond the Government's current plans—the Liberal Democrats are committed to, and how they would finance it?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

As I said earlier, we welcome the current plans. The level of resources that the Government are now talking about for the NHS—social services are still to be the poor relation—is about the level that we would wish to see spent. Indeed, the hon. Gentleman can look at our manifesto and our alternative Budget to see that we were the only party at the time to be honest with the electorate about what these resources would be. I know that the hon. Gentleman is not used to straight counting and straight figures, because of the triple counting and re-announcing that he is used to from his own side, but I think, in all modesty, that he should give us credit for announcing our spending plans to the public before the election.

The 1 per cent. rise in employers' national insurance contributions is a stealth tax, and is a potential significant burden for industry. Indeed, the Government recognised that when they announced, in their March 1999 Budget, that they were going to tax the "bads" and not the "goods", and cut tax on employment to encourage employment opportunities. That was in reference to, yes, a cut in employers' national insurance contributions. What applied in 1999 to employers—particularly those in manufacturing industry, faced with the problems of a high pound and the decline in manufacturing—should really apply now if this really is a Government of stability, at least in terms of policy.

The proposal is also self-defeating, because the local authorities will have to pay in NICs about the same amount extra that they will receive to fund care of the elderly, even before the ridiculous and punitive fines system is imposed. It has been estimated that the additional costs for the care homes sector will be £50 million in NICs. That has not been factored in. If it has been factored in by the Government, they must give a net figure for an increase in funding in those important care sectors. They have not done so, because they fear that there may be a negative net figure in certain areas—a cut in the money available to social services.

The Government want to spend the money on the health service and they have set out examples of how in a Department of Health document. Some issues are worrying, and I would be grateful if the Minister addressed our concerns when she winds up the debate. The idea that those moneys should be spent on financial incentives for hospitals wholly misunderstands the basis on which people in the health service work. They work because of a public service ethos to treat patients to the best of their abilities.

The idea that we can wring more out of those dedicated professionals by giving hospitals financial incentives to get people in, to get people out and to treat them as day cases or not as day cases suggests that their inspiration is mercenary rather than professional and dedicated. It also runs the risk of significantly distorting clinical priorities and makes the health service more of an accountants' paradise, moving to a bottom-line analysis of health care delivery rather than one based on consideration of the patient's needs.

The Government say that they will establish a new commission to reassure us on how the extra funding is spent. The first place to which a new commission examining whether funding is spent correctly should look is its own creation. Remember, the Government rightly set up the Commission for Health Improvement under the Health Act 1999. They followed that with a refusal to allow it to consider the private sector, setting up the National Care Standards Commission a couple of years later, to begin functioning this April.

Then, while debating the latest NHS deform Bill on Report, we heard about another structural reform, as the Government said that they would merge the CHI and the newly established NCSC after all, despite saying that they would not when we advocated it during consideration of the previous legislation. All that money was spent on establishing a commission that was dissolved shortly afterwards. We heard nothing more until another announcement of a new health commission—this time, merged with Audit Commission functions and the NCSC. How much money has been wasted on the failed attempts to get this right?

We also hear that the Government are to insist that primary care trusts send patients prospectuses to tell them what services are available. That would be even more worth while if the Government insisted that PCTs openly and explicitly tell patients what services are not available. I return to the point about rationing: we should consider not the question whether there is rationing for the health service, but how explicit we are, so that people who are deciding whether to vote for the resources to go to the health service know that some services will not be available if they do not vote for those resources.

The major concern, and our biggest problem with the Government's proposals for spending the money, is how social services are being treated. The Government must recognise that, across the country, local authorities are spending £1 billion more—taken from council tax and other services—than what the Government say they should spend on social services. So, the Government are saying that there is £1 billion of cuts to be had from social services spending or they are happy for education or, more likely, environmental budgets, as education is protected, to be cut to pay for the care of the vulnerable.

Perhaps the Government want council tax to rise. Whatever we say about NICs and income tax for pensioners, Labour Members must accept that council tax is much more regressive, particularly for pensioners on a fixed income. The failure of the standard spending assessment to match need means that the most vulnerable—pensioners paying council tax or children who want funding for education or special needs provision—have to pay for the vulnerable users of social services.

The Government have not only failed to fund social services adequately, but they now say that social services will be fined if funding is not provided to deal with bed blocking and the problem of delayed discharge. We know what that means—not that social services and local authorities will pay the fines, but that they will cut other social services funding on which they will not be fined to avoid those fines. Spending on responsibilities without statutory protection, including vulnerable children, the mentally ill and the disabled, as well as some where statutory duties apply, will be cut.

Indeed, pressures on social service spending come not only from the elderly, but from the vulnerable young and the huge increase in the number of looked-after children who need those resources. Forcing local authorities to rob Peter to pay Paul or to rob Darren to pay Dora to avoid those fines is low politics of the worst kind.

The Government should ensure that their social services funding matches if not exceeds NHS funding. The Wanless report is revealing in that respect. Table 5.4 shows personal social services spending in England and every column covers four years of projected increase, except that for the current spending review period. Instead of covering the years 1998–99 to 2002–03, it covers the three years from 1999–2000 to 2002–03. Every projection in that column lists average real-terms growth of only 1.2 per cent. compared with about 7 per cent. for the NHS. That shows the low priority that the Government plan to give to social services.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

In a moment. What the Wanless report does not show is that between 1997 and 1999, according to the Library, there were real-terms cuts made under Tory spending plans, imposed by the Government on the most vulnerable. [Interruption.] I note that the Paymaster General is yawning at this point.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

In a moment. Vulnerable people who use social services will want to know why the Government felt it possible to cut social services in real terms—after allowance was made for the additional duties funded by the special transitional grant—in those first two years. Was not that asking the most vulnerable social services users to pay for the Government's unfunded education promises in those early years?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I was listening closely to the hon. Gentleman, but will he return to the point made by my hon. Friend Mr. Rammell? I studied the shadow Budget produced by the Liberal Democrats not two months ago and the total spending raised for all public services, including health, would not match even what we are spending on health. Would the hon. Gentleman like to apply some of the honesty that he implores the rest of the House to apply by talking about what the Liberal Democrats have costed instead of his wish list?

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

I am delighted that the Minister is paying attention. If so, she will see that our investment in the early years of that projection, which is what our alternative Budget was due to cover, is higher and made quicker than what the Government promise. One of our main concerns about the Government's proposals is not only that they are one, two or five years too late to meet their commitment to save the NHS, but that they are slow to start. That is why not all the proceeds from NICs are going into the health service, particularly in the early years.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

If what the hon. Gentleman says is true, the Liberal Democrats would need to raise more than the Government are currently raising to invest in the NHS. Will he now tell the House, as he recites his wish list, how much it would cost and where the Liberal Democrats would raise the money to pay for it? That is not in their shadow Budget.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

It most certainly is in the shadow Budget. I take every opportunity to make the point that we would ask the best off in society to pay not the extra 1p NIC on employees that trickles through as the only progressive measure, but 10p on the top rate of income tax on incomes of more than £100,000. That means that those who have done particularly well out of the Minister's Government—many of whom may have contributed to her party, we hear—would be asked to pay for the health service. If she looks at our figures, which have been independently costed, she will see that our funding matches what she is providing over the cycle, but that it provides more in the early years.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

The Paymaster General has still not replied to my question, but perhaps the hon. Gentleman who is seeking to intervene can tell us why the Government cut social services funding in the early years. Does the Paymaster General now regret cutting social services spending in the first two years?

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

The Chancellor stood up on Budget day and announced that the economy would grow substantially faster than the Government had previously thought. The Government had billions of pounds, which provided these substantial extra sums for the health service. That information was not available to my hon. Friend when he set out our proposals.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

That is the point we are making. The funds and the taxation that we promise are additional to Government projected revenues.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

The hon. Gentleman will know and will be jealous of what we have been able to achieve in government in Scotland, and we could do more if the Labour party in Scotland had not shackled itself to the commitment not to raise fair taxes, which is what the Government did for far too long.

I question the Government's position on money following the patient; it is sad to see the Labour party parroting the Tory line on money following the patient, which it opposed when it was in opposition. The Labour party said that it would abolish the internal market. That internal market never really existed, except that money followed the patients for the services that were commissioned—which is the new Labour word for purchased—by fundholders. The Government have created primary care groups and primary care trusts, which are fundholders writ large. Now they are saying that money will follow the patient. But that does not mean more choice if the money merely follows the patient from queue to queue. People who write to me do not want a choice of which 12-month queue to join; they want access to their local hospital. A litany of local health services have been closed under the Government, so local choice has been denied, not increased.

What is the Conservative position on the future of the health service? The Tories are the second greatest danger to the health service, were they to come to power. It is clear that they do not love the NHS, because their strategy is to talk it down in the hope that they can persuade people to move to a different system that is palpably less fair.

The Government are hoist on their own petard, because one of the strongest Tory arguments is that Labour put huge resources into the health service in their first four or five years in office—a false argument—and the health service has not got any better. I think that the Government accept—it is certainly accepted by Wanless—that that funding was not the step change that they are now proposing.

The Labour party cannot have it both ways. It cannot agree with us that the funding it is now proposing is required and is a step change, and also argue that that happened five years ago. We are not where we want to be already, because the Government have not put in the resources.

It would be fine if the Government had said that they were not going to put in the resources because no one wanted to pay more tax, so we would not save the health service. Instead, they stuck to Tory spending plans and provided only limited increases, and during that time they repeated announcements, triple counted and talked about billions of pounds. To the people who are now asking what has been delivered that made it seem as though the money had gone into the health service.

The Tory posters saying "You paid the taxes, but where are the teachers and the doctors" were only half wrong. The Government announced significant increases—although presumably from Santa Claus and not from taxation—but never put in those resources.

We do not have the health service we require, because we do not have the doctors, the nurses and the beds. The resources that the Bill will make available will provide those doctors, nurses and beds. I hope that the five-year delay and the Government's failure to be honest does not make it too late to save the NHS with the funds provided in the Bill, which we will support tonight.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister 7:04 pm, 13th May 2002

A filibuster is traditionally used in Parliament when Members oppose legislation, not when they are in favour of it. Given the previous contribution, I am surprised to learn which way the Liberal Democrats intend to vote.

What we are doing in the Bill is historic. This is landmark legislation, and will place the national health service on a sound and robust financial footing. It puts a roadblock in the way of Tory plans to privatise and break up our national health service. The Bill produces a structural shift in the resources available to the NHS. That is the important point. It will provide a permanent future for health care, built on Labour's principles of a free health service based on need, not on ability to pay.

Under the Tories we experienced 18 years of deliberate disinvestment. Money was taken out of the NHS to pay for tax cuts. We know what happened. Every day we see all around us in our constituencies the legacy of that disinvestment. The Tories run down the NHS—I was sad to hear the Liberal Democrats doing the same just now—criticise it endlessly, and never accord it the success that it is having, so that people lose confidence in it. As people lose confidence in the service, in come the Tories with their plans for charges and private health insurance. They play on people's fears to force them down that route. They have no moral right to do that.

Photo of David Ruffley David Ruffley Conservative, Bury St Edmunds

I do not want to interrupt the hon. Gentleman's robust start to his speech, but should I deduce from what he is saying that any future increases in health spending that necessitate more Government money will come from national insurance increases rather than income tax increases? That seems to be the logic of what he is saying.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

The hon. Gentleman has hit on exactly the point I was trying to make. As a consequence of the 7.4 per cent. increase year on year that the Bill will generate, spending on the national health service from national insurance contributions will rise from £65 billion in this financial year to £105.6 billion in 2007–08. He is right to point out that as a result of the Bill, national insurance contributions will provide the robust financial security for the NHS that it never had under previous Tory Administrations. That is why the Bill is historic.

For a century, Labour has campaigned and fought for social equality and social justice, and for the fundamentals that matter in society, such as people's health. I feel privileged to be in the Chamber for the Second Reading of a Bill that is placing the NHS beyond the ravages of a Tory Government, and putting it in the hands of the people for its future longevity and sound delivery.

It is also significant that this is not just about a system of health care in the United Kingdom. If we get this right, it will be a model for other countries. It will show every western democracy and every emerging democracy in other parts of the world that we can deliver health care through general taxation that meets people's needs without forcing them to pay from their own pockets, without making the sick pay for being sick. We do not have to go down that route. The Labour Government in the United Kingdom are showing the world one of the most spectacular success stories. [Interruption.] Tory Members are shaking their heads. They cannot bear the thought that a Labour Government are showing the world how to produce one of the finest health services on the planet, which is fairly funded and efficiently delivered.

I could not believe it when Dr. Harris said that national insurance contributions were not a progressive form of taxation. Of course they are. That is the point about national insurance: people pay according to how much they earn. Moreover, pensioners on low fixed incomes will not have to pay because they do not pay national insurance. As we know, pensioners use the NHS disproportionately; the older people get, the more ill they will be. How much more progressive can you get? Those who need the health service most will not have to pay for these extra resources.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

We had 35 minutes of the Liberal Democrat spokesman, and that was plenty of time for him to make his points.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

My hon. Friend is right to say that the Liberal Democrats' argument is nonsense. In their 1997 manifesto they promised to spend £540 million extra on the health service. We spent more than that on the health service during that Parliament. They promised to fund increases by putting up taxes on cigarettes—which the Government did—and by tinkering with national insurance. It is utter tripe for them to suggest that they would have spent more on the health service than we have spent.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

Tripe may be too polite a word to describe the contribution of the Liberal Democrats. It was interesting that the Liberal Democrat spokesman signally failed to answer the question that my hon. Friend the Paymaster General asked about exactly how the Liberal Democrats were going to fund their proposals. What was it they announced today for their manifesto at the next election? I think I heard it said that they would abolish all prescription charges. I think that free eye tests and free dental checks were mentioned. It will be interesting to read the Liberal Democrats' manifesto. Their current spending plans do not match what we are putting into the NHS, and they would put extra costs on top, which they do not have a clue how to fund.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

We can dismiss the Liberal Democrats. In the hon. Gentleman's 35-minute contribution, he failed signally to deal with—

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Phil Hope has made it clear that he has no intention of giving way.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

There is another reason why this debate is important. Why do we need to put more money into the NHS? The Labour Government have spent five years investing in the NHS. In my area, we have a totally refurbished accident and emergency unit. We have a new orthopaedic centre, a new endoscopy suite and a new eye care ward. I have a list here. There has been hundreds of thousands of pounds of new investment under a Labour Government in the past five years, which I am proud of and which my constituents are benefiting from—but all is not right in the NHS. We would not be here raising money through national insurance contributions and putting through wholesale reforms of the NHS if all were well with the world. We know that it is not. That is why we have the Bill. We need more resources and more reform.

There are still huge problems to be addressed, but unlike the Tories and the Liberal Democrats, instead of running down the nurses and doctors who work in the health service, instead of rubbishing what has already been achieved, we acknowledge what we have achieved, but rightly say that we have a lot more to do.

I shall now make a small constituency point—a plea to the Economic Secretary to the Treasury, who is now on the Front Bench. I know that she does not have responsibility for health care spend, but forgive me if I make the point that a recent report by Northamptonshire health authority showed that Corby had the highest inequalities in Northamptonshire. Corby people have the lowest life expectancy, the highest levels of coronary heart disease, the highest death rates from cancer, the worst rate of respiratory diseases and the highest levels of child poverty in Northamptonshire. Therefore, Corby desperately needs the extra investment. Increased spending on the NHS is literally a question of life or death for my constituents, so while we may argue about the niceties of how to raise the money, the fundamentals are there, staring us straight in the eye.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

I guess the hon. Gentleman still does not realise that he had 35 minutes, and we do not want to hear any more from him.

This is not just about the treatment that people receive from their general practitioner, or their hospital operation. We all have people with those particular needs in our constituencies, but I want to emphasise what I call the softer side of health care, which is about preventing ill health. The money should be used to promote a healthy lifestyle. Activities such as the sure start programme, which is partly funded by the health service, make a real difference to children and families in the poorest estates in my constituency.

In the rural area of my constituency, we have some innovative schemes run jointly by health and social services. We have a hospital at home service, funded by the NHS but allowing patients in rural areas to return home sooner than they would otherwise do after their operations. We have heard a lot of nonsense from the Opposition about bed blocking. We know that bed blocking causes a squeeze in the system because people cannot leave hospital, but we are putting the resources in. We are investing in social services and in provision such as intermediate care for elderly people, so that people can leave the NHS when they have had their treatment and recuperate away from the hospital bed, freeing that for another person to be treated. In a place near home, or even in their own home, they can receive the treatment that they need after an operation.

Corby has many needs that still need to be met. That is why I support the Bill—to raise the money to meet the needs of my constituents. We need a new cardiac diagnostic centre for people in the town because we have such a high level of coronary heart disease. We need improved dental services. There cannot be one hon. Member who does not know of problems with the delivery of good dental care in his or her constituency. We also need better services for people with cataracts—basic ways of delivering services, which can be improved through raising resources and reforming the NHS as we are doing at the moment.

The Tories' contribution today was shambolic. They have not said that they will match our spending plans, yet they say that they believe in an NHS free at the point of delivery. How will they pay for the expenditure that is clearly needed for an NHS free at the point of delivery? They hide. They do not say how they will do it. They say, "That will be explained in four years' time at the general election"—but that is not good enough. The challenge is on the table. Would Conservatives charge patients for their care? Would they force people into private health insurance?

We have seen some clues to what the answers may be. We have heard the shadow Secretary of State for Health publicly state that he wants to break the link between the NHS and health care. We have heard the shadow Chancellor talk about a Stalinist NHS. Clearly, that is a message that they want to break up what we have had since—

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

What does the hon. Gentleman think about the 250,000 people who last year had to pay for their health care by using their own money to obtain operations and appointments?

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

That almost indicates the Tory mentality exactly. Their answer is not to provide a decent NHS but to offer tax incentives for people who have the money to get a better health service. They want a two-tier health service—one standard for the rich who can afford it and a second-class health service for those who cannot. That is the essence of Conservative philosophy.

Photo of Ann McKechin Ann McKechin Labour, Glasgow Maryhill

Is it not the height of hypocrisy for Conservative Members to talk about the rise in national insurance, because last time they were in government they increased national insurance in 1995 but cut benefits? This Government may be increasing national insurance, but they are doing it for the benefit of the whole population.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

My hon. Friend is absolutely right. That is the essence of Labour's approach: a fair form of raising taxation to be distributed equally, so that people in most need do not have to worry about whether they can afford to have an operation, because it will be provided for them through the NHS. Under the Conservatives, people would wake up and say, "Can I afford that operation? Should I put a bit by? How will I afford to pay for my visit to the doctor?" Can hon. Members imagine a Conservative world where people wake up every morning thinking, "I hope I don't fall ill today, because I haven't any money in the bank to pay for an operation"? That may be the Conservative world, but it is not the world that I want to live in.

Photo of Bill Wiggin Bill Wiggin Conservative, Leominster

The hon. Gentleman will understand that those 250,000 people who have paid for their operations are waking up thinking exactly the things that he has just mentioned. I understand why he is so excited about the expenditure that the Government are promising, but if things do not get better, at what point will he recognise that that expenditure alone has not been enough?

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

I will know that I do not have to worry when the Conservatives decide to vote for the NHS for the first time in their history—when they decide tonight to walk through the Aye Lobby to support the Bill in favour of a national insurance contribution increase that will fund year on year the kind of health service that we want. This is not just about money. We know that. It is also about reform. I hope that in years to come the Conservatives will walk through the Division Lobby with Labour, voting for a reform of the NHS that will deliver a fair and efficient health service, as well as the money to go with it.

That will become the test, as my hon. Friend Vernon Coaker said earlier. When we go to the electorate we lay out the choices, and today we see the choice that they will have. We are not having an election now, but I think that if we were, the Tories would probably have to abstain rather than vote against this Bill, because they know how damaging that decision would be.

This is a fundamental choice between left and right; it is back to good old politics. This is what we are about: an NHS funded through general taxation—a comprehensive system free at the point of delivery, and delivered according to people's need, not their ability to pay. When the Conservatives walk through the No Lobby they will be saying, "Look after yourself." That is the choice. It is a simple choice. Strangely enough, the Liberal Democrats will vote with us, despite the contribution of their spokesperson earlier—and I know that the Conservatives will vote against. I know that people in my constituency will welcome the fact that we are making a historic decision, and I am proud to be part of it.

Photo of John Maples John Maples Conservative, Stratford-on-Avon 7:19 pm, 13th May 2002

It is always interesting to listen to somebody describing one's party's policy when they are getting it so comprehensively wrong. If the Conservatives wanted to do as much damage to the NHS as Phil Hope says, why did we not privatise it or start charging people when we were in charge? The fact is that we did not.

Vernon Coaker put his finger on what the debate is all about. Will the Government's dramatic increase in health spending—from £60 billion to £100 billion—show up in better health outcomes? He said that it will, as though it were a given. I would say that the crucial test is whether it does or does not.

The issue within the health service is clearly a lack of capacity. We see that in waiting lists, rationing and poor health outcomes compared with a lot of other countries. That is partly due to the fact that we spend less money than comparable countries, but it may have something to do with the model or the system by which we turn that money into health care.

The Government ought to think about the example of Scotland. In Scotland, health spending is at the level of our main European competitors in this regard, but the outcomes and waiting lists are not that much better. One must ask what is going wrong there; why is that extra money not being turned into better health outcomes? Will our model use this enormous increase in spending efficiently? If it does, we will have as good a health service as France, Germany and Holland, which are the most interesting countries to compare us with. If it does not, it will throw into question whether the model to which we have been wedded for many years is the right one.

The Government have produced an interesting combination of a massive increase in money and a reform of the way in which that money is spent within the health service. It is a change from when I used to shadow on this subject for the Opposition in the first years of the Government, when they were doing exactly the opposite of what they are proposing to do now, in terms of the using the driver of the internal market. It is an interesting combination and, I say to my hon. Friends, it may work. We all have doubts about whether the system can deliver, but it may work.

My belief is that the jury is out and will not be back for three years or so. We have had three years of quite large increases in health spending. By the next election, we will have had another three, making six. If at that time we are seeing far better outcomes, the Government will have been proved substantially right in the way in which they have handled the issue. But if, by the next election, we are not seeing dramatically lower waiting times, better health outcomes and less rationing, the Government and their supporters will have to examine whether the model they are using to turn the money into health outcomes is the right one. It is an interesting experiment, but I have my doubts.

One problem is that there are huge supply-side constraints within the health service, at least in the short term. In the long term, one can train more doctors and nurses and build more hospitals. In the short term, one cannot. The proposal could lead to health sector inflation, about which the Government must be careful. They could spend all the money on increasing everybody's pay and have no additional outcomes. They could also introduce an enhanced role for the private sector on the supply side of health care. There may well be greater flexibility and less short-term constraint there than in the public sector.

The NHS is very good at controlling costs at a macro-level—largely because the Chancellor decides how much money will be spent—but not at a micro-level. This will be the crux of the issue.

Photo of Stephen Ladyman Stephen Ladyman Labour, South Thanet

The hon. Gentleman is one of the more thoughtful Conservative Members and I accept his goodwill in this matter. But does he agree that the logical conclusion of what he is saying is that the Opposition should support the Bill, to give us the money to see if our modernisation programme works, while possibly making proposals to amend the modernisation programme? To deny us both the opportunity to modernise and the money to do it with is nonsensical.

Photo of John Maples John Maples Conservative, Stratford-on-Avon

The Government will get a lot of support for what they call their modernisation proposals. But it is a bit much to expect the Opposition to support the Government over a stonking great tax rise that is in breach of their own manifesto. There is only so far I am prepared to go in helping the Government to make their case.

There is little choice within the NHS for patients or GPs. In the private sector, choice is what drives efficiency and quality because it produces competition. That cannot happen in the NHS, so we try to create proxies for it. The Government have created some interesting proxies that are similar to what we did some time ago; their supporters will argue that they are different. They are trying to create proxy drivers for efficiency and quality in outcomes, which are missing, by definition, from a nationalised and Government-run service.

One other concern that I have is what in the jargon is called "turbulence". The Government are trying to get a hugely increased amount of money turned into health care: something that has never been done before. Very senior civil servants who are friends of mine say that they have never done it before, and that it is difficult to get 7 per cent. real terms increases in spending through into the front line. At the same time as doing this—and while introducing a new way in which money moves around the system to create incentives—there has been a huge reorganisation, with the creation of primary care trusts and strategic health authorities as well as new monitoring organisations and their merging.

At the moment, health authorities are being abolished and strategic health authorities and primary care trusts are being created. In my constituency—other Members will have noticed this as well—for the last six months, people have been concerned about what job they will do and whether they will still have a job when the authority is abolished. When they do get a job, they spend the next six months setting up the organisation, hiring the staff and ensuring that the working methods and protocols are in place. Those very people—particularly the senior managers in the health service—who will be responsible for driving the money through into health care have been massively distracted over the last six months and are likely to be so distracted over the next six months.

Photo of Phil Hope Phil Hope Parliamentary Under-Secretary, Office of the Deputy Prime Minister

Like my hon. Friend Dr. Ladyman, I welcome the thoughtful approach of the hon. Gentleman. Our dilemma is that if we are to achieve the increases in spending needed to deliver real health care, we require leadership. He has given an academic view; he stands back and says it will be interesting to see whether the model works or not, and we will decide in three years' time. Does he agree that we have to show leadership, and that we as a country must show that we want the spending and that we want those NHS managers to deliver? We need the managerial ability to drive the measure through. It is not an academic exercise in which we can make our minds up at some point in the future. It requires real leadership, which the Government are giving to the NHS.

Photo of John Maples John Maples Conservative, Stratford-on-Avon

I agree that we will require effective management to turn the money into health care. That is what I have been trying—perhaps rather laboriously—to say. I am concerned that those very managers will be distracted by the change in the bureaucracy and the structure of the health service that has been going on for the past six months and which is likely to take another six months, or longer, to bed down. However, I agree completely that management may well be the key.

I want to refer to the "but if". If the plan does not work, people will have to be prepared to look at other ways of working. Ours is the only OECD country of which I am aware—certainly the only advanced European economy—that uses this model for funding and running a national health service. Clearly, it has attractions; the primary attribute, of which we are all in favour, is that it provides care free at the point of use on the basis of need. But anyone who pretends that there are no problems with the system, that some people's needs are not more easily met than others, or that some of the rationing is not very arbitrary, is pretending that there are not flaws in the system, which there are.

My friends and colleagues who are Members of Parliament in Germany, Holland or France do not have weekend surgeries and postbags full of complaints from people about the time they are waiting. It is worth looking at how others do these things. We ought not to treat this subject like religion—something that you either believe in or not. We are looking for an effective way of turning a citizen's money, however it is paid—whether through taxes, social insurance or whatever—into the best possible health outcomes.

There has been much trashing of the United States system, and I do not advocate it. What is wrong with the US system is that it is very bad for the poorest third of the population, but it is jolly good for the other two thirds. If you are rich, there is no question but that the United States is where you would choose to be if you fell ill. The US has a self-funding and classic insurance system that wealthy people tend to use. In the middle, they have developed health maintenance organisations, which are extremely interesting. They ration health care, but do so openly. The system involves the money that a family spends as an insurance premium; whether one pays it as a premium or in tax seems a relatively minor detail. However, health maintenance organisations are interesting. They present the health care that they are going to provide openly and honestly.

That model is worth looking at, but a yet more interesting one is the social insurance model that Holland, France and Germany use in one way or another. In those countries, such issues seem not to be as political as in Britain, in that they do not bother their elected representatives quite so much. The model allows some choice and gets more money into the system. When people can see money going directly into health care, they are willing to pay more than if the Chancellor takes the money in tax and then decides how much he is going to spend on health care. In other words, when the arrangement is more direct, people are prepared to pay more, and the service can still remain free at the point of use. That said, it should be pointed out that our health care system—and those of other countries—does make charges, but basically it is free at the point of use.

Under that model, rationing does not disappear, but it is more open. Other things being equal, the more money spent, the less rationing there will be. However, it is a fallacy to imagine that it will disappear altogether, and that we can eliminate waiting times completely and create a health service that is prepared to provide any drug that anybody wants. Drugs are becoming incredibly expensive.

If we are to go down this route—I agree that it is worth looking at—I should like to adopt the model used by Germany and Holland, in which people can contribute to several social health funds. At the moment, we spend about £60 billion a year on health care—a 10 per cent. levy on everybody's taxable income produces roughly that sum—but we should consider a system in which people's taxes are reduced by 10 per cent. Here, the "straw man" of the £60 or £100 a week cost arises. The idea is that, if the sum is being paid as an insurance premium, it is not being paid in tax, but we should consider a system similar to that suggested by the Liberal Democrats, under which a 10 per cent. levy on people's taxable income is put into the health fund of their choice. It is at this point that I part company with the Government's thinking. Under my suggested model, the national health service would become one such health fund, and other organisations—the Confederation of British Industry, the Trades Union Congress, insurance companies—could set up others. People would have a choice. The Government would lay down the minimum standard of care to be provided, but people could top it up if they wanted to. Again, that should be done as a percentage of one's income, so that equality can be maintained.

One thing that I do not like about the health service is that, although we pay a lot of money in tax for our families' health care, we cannot choose to pay a little more in order to get a bit more of a service; we must either take it, or leave it. If we leave it, we have to pay for the whole thing over again out of private resources, while not getting anything for the taxes we have paid. A social insurance system would combine the two incentives. The Prime Minister and the Minister have mentioned scare stories about the £60 a week that employers pay under such a system, but as I have pointed out, projected health spending of £100 billion a year will amount to about £1,700 per person per year, or about £7,500 for a family of four. In other words, we are paying a hell of a lot of money for health care, and we want to know that the existing system for delivering it will use the money to maximum effect. Describing the costs of other health care methods as additional to, rather than a substitute for, current costs, is a straw man. It is not an honest way to argue.

Photo of Stephen Ladyman Stephen Ladyman Labour, South Thanet

The hon. Gentleman quotes the Dutch model, but as chairman of the all-party group on the Netherlands, I can tell him that the biggest issue in this week's Dutch general election—excluding the death of Pim Fortuyn—is long waiting lists in their health care system. The Dutch perceive that their health care system does not work. Social insurance is not the panacea that he perhaps suggests.

Photo of John Maples John Maples Conservative, Stratford-on-Avon

Nothing is a panacea, and we will never be prepared to pay enough for the health care that we need at a particular point. If I had been making this speech three or four months ago, I would have suggested that my alternative is a better one. Given that the Government have pursued a policy whereby a huge sum of money is being raised in order to make a difference, my question now is whether the medium of the national health service can translate that into an equivalent increase in health care. If it cannot, it is worth looking at other systems, and it would be sensible to consider the one that I am describing.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

The hon. Gentleman is right: we need a grown-up debate, and it is wrong to argue that private health insurance will cost X amount, implying that it is more than people are paying in tax. However, as he will recognise, the problem that many have with alternative models concerns equity. It is difficult to find a more equitable way of providing health care than the current system, which, arguably, should prove more efficient thanks to the lack of cost to the administrative system of national and social insurance.

Photo of John Maples John Maples Conservative, Stratford-on-Avon

If there is a trade-off—I am not sure that there is—we are paying a high price for it. We are enforcing a system on those who would perhaps pay more for their health care, and reducing that care to a level that everybody is prepared to pay for. I want people to be able to top up a minimum guarantee from their own resources. There are many health procedures that people want to undergo—the hon. Gentleman is a doctor, so he knows far more about such matters than I do—but which are not strictly necessary for their health. Perhaps such people are prepared to pay a little extra for such procedures, but at the moment they cannot.

I have not heard continental social insurance systems being criticised as inequitable. I would imagine that my proposed system would have exactly the same equity as the national health service; however, it would provide rather more choice, and enable people to spend more money.

Photo of John Maples John Maples Conservative, Stratford-on-Avon

Perhaps I can move on. None the less, I agree that the jury is out on the matter. We need to wait two or three years and see whether the Government are right and their system works, and I am simply describing the system that we should consider if it does not.

I welcome the Government's change in attitude to the private sector. When I was shadow Secretary of State for Health, we discussed the abolition of various mechanisms such as local health plans, in which local hospitals are used for various purposes. Money certainly did not follow patients under those plans, and I am glad that they are being reinvented. I genuinely welcome that change of heart. Choice in the commissioning of health care will drive improvements in efficiency and quality, and replicate the drivers that one normally expects to find in economic mechanisms in the NHS. I am also glad that the purchaser-provider split is being retained. Internally, at least, that will offer a choice between providers.

The Government abolished fundholding on taking office, and in a sense they have recreated it through primary care trusts. My worry about such trusts is that they are a bit too big. I hope that some flexibility will be allowed internally, so that they will not corral every GP into exactly the same choices. Allowing such flexibility is more likely to drive up efficiency and quality.

The Government will need private sector involvement on both the supply and demand side if they want to meet their targets and ambitions, and we certainly share their ambitions. On supply, we must recognise that many elements of the health service are already provided by the private sector. The drugs industry and the medical supplies industry are private, and hospitals are now built—and in many cases operated—by the private sector. In fact, GPs are private sector contractors to the health service. We as a nation spend well over £1 billion a year on over-the-counter drugs.

One business in my constituency owns several MRI and CAT scanners, and operates them on behalf of hospitals on various bases. Although every head of radiology wants a scanner, some hospitals do not need constant access to one. Given that they cost £1 million, why should such hospitals buy one? That business will supply such a scanner for, say, two days a month. Such scanners are mobile. The business will staff them, or hospitals can staff them themselves. Hospitals can pay so much per week, or so much per episode. The private sector provision of capital is likely to prove more efficient than the purchasing by small and medium-sized hospitals of their own facilities. That system could be replicated across many clinical services, such as pathology. Unlike large hospitals such as the one across the river, some others might not be able to justify a full-scale pathology service. That is another example of how huge capital expenditure items can be more productively shared among several hospitals.

Cataract surgery is the fifth most common surgical procedure. It accounts for nearly 4 per cent. of admissions, 5 per cent. of waiting list admissions, and 11 per cent. of total waiting list days. The average wait for a cataract operation is 203 days. Given that most people who are in need of a cataract operation are already pretty old, that constitutes a significant part of their life expectancy. Subjecting people to such waits is scandalous. There is clearly a capacity constraint, whether through choice, or because certain fundamentals are difficult to effect. Commissioning authorities should get together and say, "Let us commission a cataract service from the private sector, which will perform a certain number of operations at X cost per year." That way, perhaps we can eliminate the scandal of the 203-day wait.

The Government could use the private sector to supply health care in several similar areas. The Government will have difficulty in turning money into health care because of the serious short-term supply-side constraints that they will face, and they might find it easier to meet their targets by using the private sector.

Private sector funding could also be used imaginatively on the demand side. Nobody would seriously suggest that private health insurance should be used to provide all health care, but I shall give an example of how it might be used. Ten surgical procedures account for 35 per cent. of all admissions and all waiting list days, and 20 procedures account for between 46 per cent. and 49 per cent. of admissions and waiting list days. A relatively small number of surgical procedures account for a huge amount of the work. That is the old 80:20 rule and—I suppose—it is what one would expect to find, but it is surprising that it is true on examination of the figures.

Given those figures, we might do a lot to reduce waiting times and lists by giving a modest tax subsidy to a limited private insurance subsidy that covered only those operations. That would be sensible for the Treasury to consider. I understand the arguments on private health insurance about dead-weight cost—many people already have insurance, so why give them the tax subsidy?—but the subsidy could be pitched much lower than the cost in lost taxation and still create an incentive. People could be encouraged to spend more of their own money and, in the process, could help the Government to meet their targets by taking some of the pressure off the NHS.

I am glad that we have Treasury Ministers on the Government Front Bench, because I have another idea to suggest. One of the problems that we face is that people are not saving enough for their retirement. When I worked at the Treasury, it was one of the main concerns of senior officials that people are heading for retirements during which they will cost the state a lot of money. However, we could allow people who have significant pension funds to spend some on private health care. Some people have pension funds considerably in excess of what is needed to keep them off state benefits, and we could encourage people to have a retirement fund not only for income purposes but for residential care or nursing care in their old age. If they need an operation or a hospital stay, they could also be allowed to spend money from their fund on that.

Photo of Ann McKechin Ann McKechin Labour, Glasgow Maryhill

The hon. Gentleman has expressed some interesting opinions. However, one of the difficulties faced by the NHS is the lack of specialist staff, especially consultants. He mentioned cataracts and the length of the waiting lists in particular, but consultants in Glasgow are already tempted to move to other areas where they are likely to get more private work. If we spend too much time focusing on the needs of people with private insurance, it skews the health service away from those who are most in need, which is those who suffer from the worst poverty.

Photo of John Maples John Maples Conservative, Stratford-on-Avon

I do not know about the Glasgow example, but the supply of health services is probably more flexible and less constrained in the private sector than it is in the public sector, at least in the short term. The Government have decided to chuck a huge amount of money at health services, but because of the constraints they will find it difficult to turn the money efficiently into health care. I do not argue that all the money should be spent in the private sector, but in the Secretary of State's statement on delivering the NHS plan he clearly envisages purchasing services from the private sector. By giving some examples, I hope to suggest an efficient way to spend a marginal amount of the money. The supply-side constraints are less in the private sector, although in the long run there are constraints on both sectors, because the problem is the number of consultants and nurses. Nurses can be trained relatively quickly, but it takes about 15 years to become a consultant.

It will be an interesting experiment to see whether the Government's model and the increase in health spending will work. We will not know for two or three years whether they will. We obviously all hope that the Government get the outcomes they want, but if the experiment does not work we will need to recognise that the model will have been tested close to destruction. Those who have been its passionate advocates will have to be prepared to look at other systems; and I suggest that we should look to our continental partners, who are not all completely crazy, to offer systems that differ from ours. I am glad that the Government are encouraging the use of private sector suppliers and encouraging private sector demand. They are likely to find that a less constrained and more productive way to spend some of the money than trying to increase capacity at the margin in the NHS.

Photo of Mr John Lyons Mr John Lyons Labour, Strathkelvin and Bearsden 7:45 pm, 13th May 2002

I welcome this debate on national insurance, but I do not welcome the fact that it has been used to rubbish the NHS. That is both unfair and untrue. Since the announcements on national insurance, I have had the opportunity to speak to my constituents. I admit that they have not queued up to tell me that the Chancellor is brilliant, outstanding and has done a wonderful job on national insurance, but they have all accepted that it is a fair and decent way to pay the extra 1 per cent. Many constituents have also welcomed the fact that the money will go to the NHS.

My constituents know that the NHS is a key service for them and they want to preserve and defend it, so that it can flourish. They also know that spreading the cost widely is fairer. More people in my constituency now pay NI because more people are in work since 1997. Many of the young people among them are happy to pay those NI contributions because they are now in work.

The health service must be kept at the top of the agenda. I declare an interest in that I have spent a lifetime defending the NHS and fighting on behalf of its staff, so I have some bias on those matters. As a member of a health board in the past, I know that staff have been struggling against difficult circumstances across the health service for a long time, whether in acute services, primary care or elsewhere. The staff have fought hard to try to turn the situation around.

I am not the sort of person who goes around saying that everything in the health service is wonderful, but some brilliant work is being done. We need look no further than last Friday. The people dragged from the carriages at Potters Bar were treated by the best of our health service, and they were well looked after by firemen, ambulance workers and health care workers.

I welcome the NI changes, but we must ensure that the money raised goes to front-line services so that people can see real value for the health service from what has been asked of them. The money should be spent on investment in consultants, nurses and nursing auxiliaries to ensure that we have people in place to provide and deliver a proper health service for our constituents. However, the time delay in training staff, whether nurses or consultants, is a problem. Major changes cannot be made immediately, even though they are desirable politically.

It takes time for staff to qualify, but progress has been made. In 1997, 21,370 consultants were working in the NHS. By September 2001, the figure had risen to 25,690—an increase of 20 per cent. or 4,320. That should not be the end of the matter; I want us to build on those figures. Everyone will agree that an increase in the number of consultants will have a knock-on effect on a range of services. It does not matter how many nurses are employed, if there are not enough consultants to treat patients, thus reducing waiting times and waiting lists, we shall be stuck—we can achieve nothing. The first thing that we need is more consultants—that is important. Thereafter, by all means, let us have more nurses and auxiliaries to treat the flow of patients. I am not making a political point. Any Government would be proud if they could achieve that result—I am sure that no Member would deny it.

I have been a Member of Parliament for only 10 months, but during that time I have tried to listen to people and to my constituents—irrespective of their political view—on matters such as the health service. Across the political spectrum, people want one thing: a national health service equipped for the 21st century. They want a national health service that will deliver in a modern way, but they all realise that we cannot achieve that by wishing—we need proper investment. That is the key. Without that investment, we can forget about everything else. The national insurance changes give us, properly, the funding for the investment that people want.

My contact with the health service, especially during the 10 months since I became a Member, has done nothing but reinforce my awareness of the importance of the NHS and of its centrality to people's lives—along with the police, the fire service and so on. Our constituents value the staff of the health service. People who have been in hospital always talk about the kindness of the staff and about the quality of the care that they received. The public realise that NHS staff are delivering a first-class health service.

Members who oppose investment in the service need to consider their position as regards their constituency and the services provided there. People need reassurance—especially those working in the service. The rubbishing of the service and of the people who deliver it must stop; it is undermining and destroys morale. We should change our political attitudes in that regard.

Our constituents think that they are well served by the people who work in the service. Today, my right hon. Friend the Home Secretary was presenting awards to the outstanding public servants of the year. We need to keep making such awards, especially for health workers, to let them know that we trust them and, above all, that we value them and their commitment to public service.

We must tell them that our confidence in them will be matched by increased investment and increased training to allow them to fulfil their potential in the health service. We need to break down some of the old barriers, especially for nurses or auxiliaries who, because they are paid at a certain grade, are not allowed to undertake certain work. We should find the means for a spread of work for nurses and auxiliaries—we should use them to the best of their ability.

People want a real return for the investment—a qualitative change in many services. That can be achieved. We have taken the right approach; it is bold and open and has been well received by the electorate. At the end of the day, that is what counts.

Photo of David Ruffley David Ruffley Conservative, Bury St Edmunds 7:53 pm, 13th May 2002

I am glad to be able contribute to this good-natured and thoughtful debate, with good speeches from Members on both sides of the House, especially my hon. Friend Mr. Maples.

The Bill gives us the chance to meditate carefully on the contributory principle of social insurance that underlies the national insurance fund. On Budget day and since, we have heard much from Labour Members about William Beveridge—much has been done in his name. The reality is, however, that during successive decades and under successive Governments of all political persuasions, there has been an erosion of Beveridge's concept of genuine social insurance and the contributory principle, to the point where those ideas have become highly confusing and confused.

I regret that the process has continued in the Bill, whose author, almost inevitably, was the Chancellor of Exchequer—Complexity Brown—a man who unfortunately, Budget after Budget, not only welcomes confusion in the national insurance and taxation systems, but does much to generate even more confusion in those systems.

The essential element of the contributory principle is eligibility for certain benefits—in essence, at present, jobseeker's allowance, incapacity benefit, and retirement and widow's pensions—based on compulsory contributions from employees, employers and the self-employed. The system covers about 20 million employees, about 1 million employers and about 2.3 million self-employed—a great many people—all of whose national insurance contributions are paid into the fund. Until now, only a small percentage of those contributions has gone to NHS spending.

Figures produced by the Library show what the regime was like before the Budget announcements and before the Bill was introduced. Just over 1 per cent. of an employee's earnings between the primary threshold and the upper earnings limit was devoted to the NHS, and about 0.9 per cent. of the earnings in respect of which employer's contributions were paid. Most of the national insurance fund covers contributory benefit pay-outs.

The national insurance fund operates on a pay-as-you-go basis, so that today's contributions by today's workers cover and finance the current outgoings paid to today's benefit recipients. The problem is that there is little direct financial relationship between what an individual puts in over a lifetime and what that individual may or may not pull out by way of benefit. That point was powerfully and brilliantly exposed in the fifth report of the Select Committee on Social Security in June 2000. The Committee was worried about the future of the contributory principle and what it actually meant for the public in accounting and practical terms.

My contention is that the current national insurance system is light years away from the model of social insurance that Beveridge envisaged and that Ministers so assiduously pray in aid. Beveridge thought that the system should be fully funded. That is clearly not the case in the current national insurance system. He envisaged a fairly low flat rate for all contributors, thus allowing—in his view—middle and higher-income earners to make their own voluntary, private provision on top. They would have been able to do that because the flat rate was relatively low. That is not the case with the current system.

The fault does not lie merely with the Government over the past five years, but it has continued under them and it makes the system very different from Beveridge's model of social insurance. The problem with Beveridge's system—its corruption, some would argue—had much to do with the fact that, at an early stage, the Government of the day did not allow the social insurance fund to mature, which would have taken about 20 years of contributions. Instead, full pensions were paid at an early stage and swiftly resulted not in a fully funded insurance system but a pay-as-you-go system.

Other factors beyond the Government's control have, of course, contributed to the corruption of the original idea. In part, it has been caused by the change in women's employment in the work force, which we all celebrate but which Beveridge did not envisage at all. His view was that the man would continue to make the contributions and the wife would stay at home. Another example is life expectancy. When social insurance on a fully funded basis was talked about at the end of the 1940s, the life expectancy of a worker on retirement was one year. It is now in excess of 20 years. Those are changes that make a fully funded model very difficult to deliver. We now have a mish-mash in which what is paid into the fund, and what is received out of it, are, to say the least, untransparent transactions.

Another point about national insurance and the contributory principle properly defined was that there would be less reliance on means-tested benefits—under the contributory principle, means-tested benefits should have declined. In the last 40 to 50 years, of course, the reverse has occurred. At the end of the 1940s, more than 60 per cent. of Government social security expenditure was on contributory benefits, and only 13 per cent. was on means-tested benefits. Today, contributory benefits make up 47 per cent. of spending, and means-tested benefits have grown to more than a third of the total.

Much of the growth in means-tested benefits is attributed to the failure of many people to qualify for the contributory national insurance benefits. It is also due to many new means-tested benefits: rent and rate rebates or the new housing benefit and council tax benefit. Undoubtedly, successive Governments have not done much to clarify in the public mind what should be paid out in relation to what is paid in by an individual payer of the stamp or national insurance contribution.

How many of our constituents, if asked about the Bill and about the contributory principle, would understand that the bulk of national insurance does not go to the national health service? Research undertaken by Dr. Bruce Stafford in 1998 for the then Department of Social Security produced some interesting findings. He discovered an individualistic approach underpinning views of the national insurance fund and the contributory principle:

"Generally, the respondents believed that through their contributions they had secured a contract with the state that gave them a 'right' to contributory benefits. In some instances, respondents thought, incorrectly, that their contributions were paid into a 'personal kitty', which was available when needed, and this was linked to the notion that contributory benefits 'top-up' other state benefits and/or private insurance."

In giving evidence to the Social Security Committee, the Trades Union Congress also complained about the lack of transparency in relation to the national insurance contribution system. When it was campaigning against the introduction of jobseeker's allowance—when it was cut from 12 months to six months, in relation to contributory benefits for the unemployed—it was surprised by the public's complete lack of understanding about the working of the contributory system. It blamed

"the complexity of national insurance and the widespread ignorance of its main features".

This may be the first time that I have agreed with the TUC, but it is right in that regard.

Increasing evidence exists that the link between contributions put in and benefits drawn out is getting vaguer year by year, Budget by Budget. The restrictions on which contributions can be counted and when they can be counted will often mean that someone who has paid national insurance at the lower end will still end up not qualifying for benefit. In 1995–96, the then DSS estimated that there were about 4 million people, mainly those with low earnings, who paid standard or self-employed contributions for short periods during the year who did not obtain a qualifying year for basic state pension, even with the benefit of credits adduced to them. At the other end of the scale, much higher earners make a similar complaint about what they get for what they put in.

From whichever end of the income scale one looks at the issue, the idea of national insurance contributions as genuine social insurance is becoming outmoded. As Professor Disney of the Institute for Fiscal Studies has observed, national insurance is merely a device for raising money because people dislike the idea of paying income tax. He said:

"They"— the public—

"think that if they pay contributions somehow they have a greater entitlement than if they pay income tax . . . You can make the argument 'I have paid contributions all my life, I ought to get more pension'. Why not make the same argument 'I have paid income tax all my life. Why do I not get the pension I deserve?' To me they are almost identical statements."

That observation reflects what successive Governments have increasingly done. They have always altered national insurance contribution rates and the benefit conditions attached to them without strict adherence to any kind of actuarial calculation. In short, although the idea of benefits as a right might be popular with some members of the public, it does not have much basis in economic or accounting reality.

It seems that it is high time to explode the myth that the current national insurance regime is "insurance". To be much more honest, the Government should admit that we have a social security tax—a straightforward redistribution mechanism—to get contributions from those in work and to make payments to those outside the labour market. I would not advocate or support such a system but that is what the new Labour Government and the Chancellor are perpetuating with every Budget that they pass. It is incumbent on the Chancellor to own up and admit it.

I have described the manifest confusion in concepts of national insurance, but that is not the only confusion attendant on the Bill. There was much confusion in the presentation of what was undoubtedly a tax increase, not a genuine national insurance contribution increase. The hike of 1 per cent. in alleged national insurance contributions together with the removal of the upper earnings limit in relation to that rise equals a tax increase identical to a 1 per cent. increase in the basic rate, a 1 per cent. increase in the standard rate, and a 1 per cent. increase in the top rate of income tax, with increases in liability for many of the categories to whom my hon. Friend Mr. Bercow drew attention—nurses, police inspectors, firemen and many other public sector workers.

The Institute for Fiscal Studies is in no doubt that what we are talking about, effectively, is a back-door increase in income tax rather than any form of contribution. It says that the Government's increase in national insurance is,

"for somebody whose sole source of income is from paid employment exactly like increasing the starting, basic and higher rates of income tax by 1 percentage point."

Many sage observers in the City and in the newspapers have made the perfectly legitimate and far-sighted point that the increase opens the door for increases further down the line—from 1 per cent. to 2 per cent., 3 per cent. or 4 per cent.—gradually working up to a much higher increase in the top rate of tax by the back door. What we have seen in the Bill is merely the thin end of the wedge. On 20 April, The Economist followed the same line of argument and said:

"NICs are barely distinguishable from income tax, except that they are levied only up to a ceiling of around £30,000. There is no ceiling on this extra new percentage point. So Mr. Brown has not raised 'income tax'; he has simply changed the incidence of NICs so that . . . they are exactly the same thing, and raised that instead."

The measures in the Budget and the Bill are in breach of the spirit of statements made by Her Majesty's Ministers at the time of the last general election. My favourite is from the Prime Minister in response to a question from Jeremy Paxman on "Newsnight" on 22 May and just before polling day. Mr. Paxman said:

"I am merely asking why you could give this guarantee"— not to abolish the national insurance ceiling—

"last time but you can't give it this time and whether any reasonable person wouldn't suppose that you therefore propose to increase national insurance contributions?"

The Prime Minister replied, "They shouldn't" suppose that.

Then, of course, we had the all-time classic of its kind from the now Secretary of State for Trade and Industry. On the "Powerhouse" programme on 29 May 2001, she said:

"We've got no plans at all to raise that ceiling on National Insurance contributions . . . It is not going to happen."

The Select Committee on the Treasury also had some sage comments and judgments to pass on the Budget and the proposals in the Bill. I sit on the Committee and we observed the uncapped nature of the 1 per cent. rise in NICs and asked Treasury officials what they were up to. They said that the definition of the upper earnings limit on NICs is

"the point at which 11 per cent. stops and 1 per cent. starts with respect to employees."

That view seems to be greatly at variance with the previous, widely accepted and traditional definition of the upper earnings limit, which was that it was the maximum amount of weekly earnings in respect of which employee contributions are payable. The Committee went on to suggest rather insightfully:

"To insist, therefore, that the Upper Earnings ceiling remains intact seems to us mere sophistry. We note this departure from previous practice which could be viewed as a move of the national insurance contribution system towards that of general taxation."

That is the main thrust of my argument.

We have a national insurance system in which there is no direct relationship between what individuals pay and what it pays out. It is true that the Bill will direct more funds into the national health service. Conservative Members believe that more money should be put into the national health service, but that extra funding must be accompanied by reform. The Bill does not talk about reform at all. The extra financing must also be carried out with clarity and honesty, and the Bill does not do that.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Will the hon. Gentleman give way?

Photo of David Ruffley David Ruffley Conservative, Bury St Edmunds

I hope that the hon. Gentleman will forgive me, but I am coming to the end of my remarks.

Honesty, transparency and clearly delineated reform are not characteristics of the Bill or any other part of the Chancellor's legislation. Unfortunately Complexity Brown has complicated an already confused national insurance regime by a further damaging blurring of the distinction between general taxation and national insurance contributions.

Photo of Jon Cruddas Jon Cruddas Labour, Dagenham 8:13 pm, 13th May 2002

I briefly want to consider the Bill in terms of two general criticisms levelled against the national insurance increases announced in the Budget. The first is that it marks a break with Government strategy since 1997, and the second is that it compromises the national insurance fund through its extra financing of the NHS.

The Bill enacts the national insurance elements signalled in the Budget. From April next year, the primary threshold for the level of earnings at which national insurance contributions begin will be frozen at £89. Employees' contributions will be increased from 10 to 11 per cent. Employers' contributions will be increased by 1 per cent. to 12.8 per cent. From next year, the 1 per cent. increase will also apply to earnings above the limit. A person on median earnings, or £21,400, will pay £3.70 extra each week.

When considering those proposals, it is worth remembering that, between 1979 and 1997, NICs were raised for most workers from 6.5 per cent. to 10 per cent. As my hon. Friend Vernon Coaker said, at the same time, there were no discernable increases in what might be described as the social wage. Indeed, when the increase from 9 to 10 per cent. was announced in 1995, it worked alongside cuts in national insurance support—down to six months—for unemployed workers.

In contrast, these national insurance proposals work alongside the developing tax credit regime to ensure that a two-child family with one adult in full-time employment on average pay will be nearly £4 a week better off even after the freezing of personal allowances. Under the Government's proposals, tax will rise as a proportion of national income from 37 per cent. in 2001–02 to 38.3 per cent. in 2005–06. Even then, average European Union tax takes are 3 per cent. higher. Moreover, our main rate of corporation tax is lower than in any other major European country. For small businesses, the situation is even more favourable.

The response to the revenue-raising proposals announced in the Budget was very interesting. Many commentators assume that the Budget marks a rupture with the patterns of economic management and investment sustained by the Government since 1997. That argument is worth addressing, because any specific proposals, such as these for national insurance, must be analysed in terms of the general strategy that underpins them.

I prefer to consider the national insurance proposals in terms of the evolution of Government strategy since 1997 rather than as a form of rupture that began on the day of the Budget. In that sense, four core elements in Government economic strategy are identifiable since 1997. First, the priority of efficient macro-economic management means that we have witnessed the lowest interest rates for 40 years, the lowest mortgage rates since the 1950s and the lowest inflation rate since the early 1960s. At the same time, debt estimates stand at a healthy 31 per cent. through to 2004. Secondly, we have attacked unemployment through our active labour market policy and work subsidies. Using those two strategies, the Government have dramatically altered the trade-off between levels of unemployment and accelerating rates of inflation. In one sense, that is one of the greatest hallmarks of their activity since 1997.

Thirdly, we have attacked poverty through re-incentivising work and by helping pensioners, especially poorer ones, and young families. Fourthly, I refer to our historic refinancing of public services. The effects of fiscal drag, debt repayment and reductions in unemployment have allowed us to refinance the public services with some £36.1 billion extra of annual cash expenditure by 2003–04 compared to 2000–01. As such, since 1997, we have witnessed an incremental strategy at work that systematically redistributes while simultaneously locking in stability and comparatively high growth rates. Rather than breaking with that incremental strategy, the Budget develops it further. The hallmark is its continuity in terms of stability, re-activating the supply of labour and confronting poverty and refinancing public services.

Within that overall strategy, three areas stand out in the Budget. The first is the way in which our comparative productivity shortfalls have moved centre stage in terms of our economic strategy, which I very much welcome. The second is the announcement of £33.5 billion of investment in the health service between 2003–04 and 2007–08, which, again, I very much welcome. The third is the acceptance of the revenue implications of such a strategy and, therefore, the national insurance proposals that we are discussing today.

The national insurance elements will raise £7.9 billion in 2003–04 and, alongside that, the freezing of allowances will raise £700 million. Despite those revenue-raising mechanisms, the Red Book projects that general Government net borrowing will be 1.1 per cent.—or some £12 billion—for next year, which is the end of the current comprehensive spending review period, and will rise further through the next CSR period.

I mention that briefly to highlight a prospective problem in the development of the overall strategy of refinancing public services—namely, the growth and stability pact that might interfere with this incremental domestic strategy and break the link with public service refinancing.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

Before the hon. Gentleman moves on to discuss the growth and stability pact, will he assist me? I do not have his mastery of the figures, but will he explain how the 1p cut in the basic rate of income tax in 1999 and the 1p increase in employee and employer national insurance contributions reflects a continuity in Labour Government policy?

Photo of Jon Cruddas Jon Cruddas Labour, Dagenham

I tend to perceive three distinct phases, which gradually paint a picture. Furthermore, it is possible to see evolution in the devolutionary strategy. First, after 18 years of Tory government, the focus between 1997 and 1999 was on reinforcing our bona fides in respect of general economic management. That moved us into a second phase—the three-year comprehensive spending cycle, which ensures real-terms reinvestment across all public services and, through the effects of the tax revenues of fiscal drag, retains healthy balances on the accounts to allow for that investment. The third phase, which was signalled in the Budget, is to accept the revenue consequences of another three-year real-terms refinancing of the health services, and at the same time to retain the core macro-economic conditions that allow real-terms growth across all public services. That strikes me as an incrementally radical agenda that systematically confronts poverty and inequality while retaining healthy economic conditions within which that radical agenda operates. I see no contradictions.

The growth and stability pact might interfere with the incremental domestic strategy and break the link between public services reinvestment and our revenue-raising initiatives. In so doing, we might compromise the reason why the public elected us last year, which I believe is also the reason why they will accept the national insurance contributions changes, in that they are being levelled so as to refinance our public services systematically. That link could be broken if we were seen to use the receipts to finance net balance at the expense of those investment plans. I therefore welcome the national insurance estimates and the way in which they will allow us incrementally to deliver the agenda on which we were elected.

The second argument—that the national insurance proposals signal a rupture with the past—relates to the historic role of the national insurance fund itself. The argument runs that, in contrast with the original assumptions behind the contributory principle, the new proposals, with their explicit link to the national insurance fund, weaken the link between contributions and benefits by cross-subsidising public service investment, which should come out of direct taxation. At the same time, because national insurance contributions are a payroll tax, the proposals act as a disincentive to employment.

However, the national insurance system has never been the wholly earmarked social insurance system that such arguments imply it was: for example, apart from a brief period between 1988–89 and 1993–94, there has been a Treasury supplement to the fund from the Consolidated Fund. At the same time, a portion of contributions income is paid into the NHS; the House of Commons Library estimates that, at various times, it has amounted to between 6 per cent. and 17 per cent. of NHS costs, and the figure for 2001–02 is some 12 per cent. of NHS revenue. If we assume that all of the increase in contributions is directed to the Consolidated Fund for use specifically in the NHS, in 2007–08, £13.2 billion from the insurance fund will amount to some 12.5 per cent. of NHS income.

It can therefore be argued that in a period of massive reinvestment in the NHS in the current CSR period, with £36 billion coming in the next CSR period, the national insurance proposals simply ensure that the proportion of contributory income directed to the NHS remains relatively stable at 12 to 12.5 per cent. Therefore, the proposals continue the principle established in the 1940s of raising resources towards the cost of the NHS through national insurance contributions.

It seems to me that these initiatives are in turn consistent with the arguments deployed by Beveridge in "Social Insurance and the Allied Services", specifically in terms of the anticipated comprehensive national health service. That is because of Beveridge's continuous emphasis on the link between the provision of social insurance, a national health service and continued paid employment. All his proposals have to be seen in the light of his desire to retain income maintenance. He states on page 8:

"the Plan for Social Security . . . takes abolition of want after this war as its aim", and later he argues that

"the provision of an income should be associated with treatment designed to bring the interruption of earnings to an end as soon as possible."

The corollary of treatment was the anticipated form of socialised medicine. It is therefore entirely legitimate to direct an element of contributions to health care, not least because, as the CBI states, workplace absence cost British business about £10 billion in 1999. As for the employment effect, any effect of the national insurance proposals must be seen alongside the totality of initiatives that have helped to reduce unemployment to about 1 million, reactivated much of the labour supply and created about 1.5 million jobs since 1997.

Overall, I strongly support the national insurance proposals. On the ground in my constituency, Dagenham, we are beginning to see real changes in health provision. A new hospital will be up and running within a few years, and the health authority is working on increased budgets. None the less, the needs of the community are immense: the incidence of heart and lung disease, infant mortality and life expectancy, especially for males, are among the worst in the capital. Yet the new PCT faces GP shortages and a swathe of GP retirements, while health inflation squeezes out its real-terms budget increases.

In coming years, the proposals will help to deliver the sort of health care that my constituents should receive as of right. The Bill is part of the Government's overall strategy to refinance that care effectively, and I strongly welcome it.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr 8:25 pm, 13th May 2002

It is usual at this point in proceedings for an unearthly calm to settle upon the debate. Thus far, it has been quite lively. Mrs. Curtis-Thomas declared, with characteristic chutzpah, that this was a landmark Bill. In a slightly different tone, Jon Cruddas has just told us that new Labour is now in the third phase of an evolutionary strategy.

Photo of Chris Mole Chris Mole Labour, Ipswich

I think that the person whom the hon. Gentleman has in mind is my hon. Friend Phil Hope, not my hon. Friend Mrs. Curtis-Thomas.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

I am grateful. My English geography has always failed me, but I am sure that hon. Members will forgive me.

It should be acknowledged that the Budget represents a welcome change in direction by the Government. Given the comments of Vernon Coaker, it should be said that it is a change for which many people, both inside and outside the Labour party, have fought.

The Chief Secretary to the Treasury said that the debate was not about whether we need the extra investment in public services. We wholly agree with that assertion—we are glad that the Government have now adopted the view that Plaid Cymru and the Scottish National party have held for some time. The debate is about how that money should be raised, and it is on that that I shall focus my speech, as it is where some of the problems arise. Clearly, we will support the Government on Second Reading, because the investment in our public services is sorely needed.

The Bill marks a small step forward, but hon. Members will forgive me for believing that half a step backwards has been taken in terms of the mechanism by which the Government have chosen to raise the funds. Despite claims to the contrary, national insurance contributions are relatively regressive. Increases in employer contributions have a deflationary impact on jobs and investment, and that will to some extent eat into the extra investment in the public sector.

In March, the Deputy Prime Minister tried to justify the use of national insurance contributions for the health service, saying:

"What people forget is that the health service started off as a payment out of national insurance".

He forget to mention that he was referring to the National Insurance Act 1911, which created a form of mandatory health insurance scheme whereby all wage earners and employers paid into a scheme, in return for which they received some degree of medical support. Anyone familiar with the novels of A. J. Cronin will know that that was not an entirely satisfactory arrangement, which is why the Attlee Labour Government placed direct taxation at the heart of the funding arrangements for the national health service. The National Insurance Act 1946 contained a partial link to health service funding, but was primarily about funding the provision of welfare benefits such as retirement pensions and sickness and unemployment benefits. A small proportion—it is now about 10 per cent. of national insurance contributions—goes to the NHS.

As we heard in a thoughtful speech from Mr. Ruffley, the value of contributory benefits demonstrates a breaking of the link between national insurance contributions and welfare benefits. Unfortunately, the hon. Gentleman is no longer in his place. I do not remember who said that the two things that can be said reliably about the national insurance fund are that it is not a fund and it is nothing to do with insurance. That is more the case now than ever before.

Semantics aside, the increase in national insurance contributions is an increase in taxation. When the Government transferred responsibility for national insurance contributions, the Inland Revenue probably gave the game away, although I need not detain the House too long on that.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The previous Government believed that national insurance should be transferred to the Inland Revenue, on the basis that it made sense to make some alignments to reduce the burdens on employers that result from some of the mechanisms. It was not a statement of what was to come, but I think that the hon. Gentleman is making some interesting points.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

I am grateful to the Minister. One of the things that gives me the greatest pleasure in this place is that I never have to speak on behalf of the Conservative party. I certainly do not claim responsibility for the previous Government.

I believe that there has been some discussion within Government, or at least some feasibility studies, of the pros and cons of amalgamating the tax and national insurance systems. That might suggest that national insurance contributions, to a greater or lesser degree, are a form of taxation.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I am listening to the hon. Gentleman carefully and he is making some pertinent points. One of the problems, as business tries to persuade the Government that we should amalgamate national insurance with tax, is the loss of the contributory principle of the national insurance fund, which flags up benefit entitlement. That is precisely the point that the hon. Gentleman is saying is missing. The very thing that keeps the national insurance fund in its present form is the fact that it is contributory and flags benefits.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

I am grateful for that clarification. I note that the payroll sub-group of the Government's better regulation task force said that

"we understand that the really big regulatory gains would come from either combining national insurance contributions and tax into a single charge for those who currently pay both or NICs being shown as a social security surcharge."

I will happily person the barricades jointly with the Minister to oppose any further erosion of the contributory principle, but I would like to move on to the regressive nature, as I see it, of the national insurance contribution mechanism as it provides for general Government expenditure.

Generally, national insurance contributions are regressive because workers on average incomes pay a greater proportion of their income on contributions than those on higher incomes. The Chancellor could have abolished the upper earnings limit, but the anomaly of the ceiling would remain. Those earning £31,000 a year face a marginal tax rate of 23 per cent., whereas those earning less have a marginal tax rate of 33 per cent. That is clearly unacceptable for those who support a progressive income tax system.

To be fair, the Chancellor has been progressive to some degree in the way in which he has dealt with national insurance contributions. Previously, he has raised the lower earnings threshold faster than the upper earnings limit. In the most recent Budget, he introduced the additional primary percentage to operate above the ceiling. That is a partial breach of the upper earnings limit, and we hope that there is more to come. As a recent OECD study concluded, the shift from income taxation to payroll taxes leads to an overall decline in the progressivity of the tax system.

Labour Members would do well to be aware of those dangers. There has been extremely rapid growth in payroll taxes over recent years. If we include the employer contribution, we find that many people pay more in payroll taxes as a proportion of their total wage bills than they do in income tax. We have seen a continuous upward trend. Employer contributions have risen from 10 per cent. in 1997 to 12.8 per cent., according to the Government's proposals. Employee contributions have increased from 6.5 per cent. in 1979, under the Conservatives, to 10 per cent. in 1997, and now to 11 per cent. Both the employee and employer contributions represent the highest ever figures in terms of payroll taxes.

The problem is that the burden falls disproportionately on those on average and lower incomes. There are fewer bands within national insurance contributions because of the upper earnings limit. As we have heard from Dr. Harris, unearned income is not taxed in this context. We live in interesting times when we hear Mr. Skinner defending the rights of what used to be called the rentier class in days gone by in the Labour movement. I am referring to wealthy people who do not rely on employment for their income.

There is the rejoinder that those of us who are in favour of fairly taxing unearned income are in favour also of taxing pensioners. It should be remembered that the Labour Government introduced the tax on dividends from occupational pension funds. That has had a considerable impact on the welfare of those who rely on income from such sources.

If the NIC proposal is not classically redistributive, it certainly will be deflationary in its impact on the economy. We heard about the Beveridge principles from the Chief Secretary. It is true that the Government embraced the idea of shifting the burden of taxation from employment to phenomena that are more negative in terms of social welfare, such as environmental pollution. We saw that with the climate change levy. We now see a shift of the burden back on to employment. We have not had a satisfactory explanation of the rationale that lies behind that.

It is irrefutable that if non-wage labour costs are increased, ceteris paribus, there will be a negative impact on job creation.

Photo of Kevan Jones Kevan Jones Labour, North Durham

The hon. Gentleman has been speaking for 12 minutes, and I am fascinated by his economics lecture. He obviously welcomed the extra investment in the health service, but where would his party get that extra investment, if not from national insurance?

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

I do not want to detain the House long, but I am happy to send the hon. Gentleman a copy of our alternative Budget, which has not been mentioned so far in our debate, although I am waiting. We favour abolishing the upper limit, introducing a higher tax band to restore a progressive element in the tax system and raising the standard rate. That is probably enough to be getting on with.

The increase in employers' national insurance contributions will affect business's ability to invest in growth and will delay economic recovery. It will hit labour- intensive businesses disproportionately, particularly small businesses with higher staff-related costs. A major Canadian study estimates that a 1 per cent. increase in payroll costs one year reduces total employment by 0.2 per cent the following year. As a 2 per cent. rise is proposed in the Bill, that analysis suggests a loss of 110,000 jobs in the United Kingdom in the year ending April 2004. Oxford Economic Forecasting has come up with the not dissimilar figure of 110,000 job losses over the next three years.

If predictions of an economic recovery in manufacturing are true, that recovery remains fragile, which is certainly the case in Wales, Scotland and areas where labour market problems involve not supply side constraints but an effective lack of demand.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

I should like to make progress. The hon. Gentleman cannot have it both ways; he cannot accuse me of speaking at length and being generous in giving way.

There was an opportunity to introduce an element of regional economic policy in the Government's thinking following the pre-Budget report, when we were promised a review of such policy. A number of us in Wales and Scotland have called for a look at regional incentives in economic policy, especially in national insurance contributions. There is an opportunity to target reductions in national insurance on economic black spots where they could have a significant impact. Indeed, Mr. Field made such a proposal two years ago, when he suggested targeting reductions in employers' national insurance contributions on unemployment black spots. It is therefore a shame that we are still waiting for Government proposals on regional economic policy.

Previously, we have discussed the impact of employers' contributions, particularly on the public sector, where there are still pent-up demands and wage inflation. Public sector employees, particularly nurses and ancillary staff in the NHS, believe strongly that much of the extra investment going into the public sector should be used to improve their wages and conditions. Logic is on their side; we cannot improve the NHS and other public services without tens of thousands of extra members of staff, as the Government have admitted, who will have to be enticed with higher wages, which involves a significant deadweight cost.

In that context, the increase in employers' and employees' national insurance contributions will only add to pent-up demands and public sector wage inflation. Scotland and Wales, because of the operation of the Barnett squeeze, will have a lower real-terms increase than that promised across the rest of the UK—6.8 per cent. and 6.5 per cent. respectively—and, in addition, the rise in national insurance contributions will increase public sector wage inflation. The public sector in Wales may therefore be left with a small real-terms increase, which is why Plaid Cymru and the Scottish National party have argued for the public sector to be exempted from the employer contribution. That solution is not perfect—we are not arguing that it is—but at least it would ensure that the NHS receives the full benefit of the promised additional revenue.

In conclusion, we support Second Reading, because the Bill is the only way to overcome the 20 or 30 years of underinvestment referred to in the Wanless report, including the last five years of wasted opportunity, raised expectations and little delivery. We look forward to continuing the debate not just about the additional investment now going into health, but about other public services facing a similar shortage of funds. We hope that this is a beginning of a new debate with a different emphasis on taxation and public expenditure than has hitherto been the case.

Photo of Stephen Ladyman Stephen Ladyman Labour, South Thanet 8:44 pm, 13th May 2002

The debate has been going on for some time. Elements of it were being discussed before the Budget, and discussion has continued at a fierce pace since then. Much of what needs to be said has been said, but that will not stop me saying it again, though perhaps not at the same length as one or two Opposition Members have spoken, as I know that some of my colleagues want to get in. Before my own contribution, I shall comment on some of the remarks from those on the Opposition Benches.

We have heard much about whether the tax is progressive or regressive, but we cannot look at just one tax. We must consider the whole tax system, which is made up of progressive taxes, regressive taxes and contributory taxes. The entire package must be examined and a judgment made about whether people at particular levels of income are paying the right contribution to society.

In choosing national insurance contributions to fund the proposed increase in public spending, the Government made some finely balanced judgments. We can argue about whether they have got it right, and Opposition Members can suggest that they have not, but the Opposition cannot attack the increase on the grounds that rich people are not paying enough into the tax system. That is an argument about the whole tax system, which we should have as part of the wider Budget debate, not in the context of a rise that is being levied specifically for the purpose of rebuilding the health service.

The Liberal Democrats tried to wriggle out of accepting that in their 1997 manifesto, they proposed an increase in national insurance to fund national health service spending. They cannot deny it; the proposal is there in black and white for anybody to see. Admittedly, the amount was piffling. The sum that the Liberal Democrats claimed was necessary to rebuild the NHS in 1997 was just £540 million a year, of which half would go on making prescriptions free. Their total extra spending on NHS investment for a five-year period would have been one fifth of the sum that the present Government put into the NHS.

The Liberal Democrats cannot claim now to be guardians of investment in the national health service. They were not when they faced the electorate in 1997, and all that they have done since is ramp up their demands every time Labour has put more money into the health service.

As for the contribution from the Conservative Front-Bench spokesman, the less said, the better. It was a typical performance from Mr. Bercow—more entertainment than information. If the national insurance increase that we are debating is so anti-employment, why did the Conservatives leave employers' national insurance at 10 per cent. through 18 years in government? Why, when unemployment was rising from about 750,000 to 4 million, did they never once reduce that national insurance? Why, when manufacturing jobs were disappearing at hundreds of thousands every year, did they never once reduce it? Now they claim that the 1 per cent. increase is anti-jobs.

When asked how the Conservatives would deal with the health service in the future, the hon. Member for Buckingham said that they had not yet decided. On previous occasions he said that he was not in Parliament for the 18 years of Conservative Government, so he washed his hands of everything that they did in the past. Conservative Front-Bench policy focuses on the present—it will never predict or take responsibility for the past. The Conservatives cannot be allowed to get away with that.

We should concentrate on four questions: how the national health service should be funded, in general terms; whether it needs more money; if so, whether we will raise that through some form of direct taxation, and whether national insurance is the right form of taxation for that; and how we will make sure that the money is spent wisely. We can discuss the various alternatives for funding the NHS.

Although they deny it, the thrust of the Conservatives' thinking is clearly towards some sort of private health care system or the increased involvement of the private sector. I say to the Opposition that there are many different business models, but two tend to predominate: high-turnover, low-margin businesses and low-turnover, high-margin businesses. In health care systems such as that of the United States, which is predominantly private, exactly those two business models dominate: the wealthy go into low-turnover, high-margin and high-quality health care systems and the poor go into high-turnover, low-quality and low-margin systems.

I mentioned in an intervention on the Chief Secretary a recent initiative in Florida, Jeb Bush's state, in which the pharmaceutical industry tried to help the state to reduce its Medicare budget, which was running out of control. The state has to provide such a budget for the health care of poorer people. The industry was asked to help and said that it would try to do so by providing preventive health care and decent primary care systems, on the basis that that might ultimately be the best way of driving down overall costs. For the first time in that state, poor people received preventive health care checks and saw general practitioners who took an interest in their underlying concerns. As we have seen in reports on television and elsewhere, many of those people, a significant number of whom are elderly, could say "This is the first time in my life when I have had a proper conversation and interview about my health needs with a GP."

That is what happens in an essentially private health care system, which is why we should never take that route. In this country, we have a system that is equitable and provides for people's needs when they arise—and it does so for free. Let me give the House a personal example. My mum has quite severe Parkinson's disease and the health care with which she has been provided is absolutely fantastic. She has never wanted for any medication or for the attention of her GPs. The level of care is such that we as a family could never have dreamt of providing it from our own resources. The health service does not quibble about providing that care. She needs it and gets it in its entirety for free. That is the dream on which our health system was built and we must not give it up easily.

My next question was whether we needed more money. I can tell the House that we have put substantial extra amounts into the health care system. In east Kent, I have seen the £2 million renovation of accident and emergency facilities and a new ward block in the Queen Elizabeth the Queen Mother hospital in Margate. Three wards around the area have been refurbished and new scanners have been provided, but it is still not enough. The East Kent Community NHS trust is the sixth biggest trust in the country and we have an elderly population of 20 per cent. above average. Despite the extra money, 835 people are still waiting more than 12 months for in-patient surgery and almost 4,000 people are waiting more than 13 weeks for out-patient work. We have done a huge amount, but we still need to do more. The total increase in spending between 1996–97 and 2002–03 has been almost 50 per cent. The level has gone from £262 million in east Kent to £521 million, so nobody can argue that we have not pumped extra money into the health service in east Kent or that we have not made real gains—but the gains have not gone far enough.

Finally, I asked whether national insurance was the right way of raising the extra money that we need. Opposition Members would do well to read the Bill; I fear that many of them have not done so. They would see provisions that I would have thought they would welcome. One of them asked whether the changes that are being made were the thin end of the wedge. The Bill is necessary because many of the changes that are being made require primary legislation. If we were further to increase the contribution that national insurance makes to the health service, that would require further primary legislation. I should have thought that Opposition Members would say that it is a good thing for taxes to be raised in a way that requires primary legislation. I should also have expected them to welcome the fact that clause 4 gets closer than the Chancellor has ever got to hypothecation by making it clear that the extra money has to be spent on the health service.

As we have heard, pensioners will not have to pay because they do not pay national insurance. That also applies to people saving for their retirement. That may give rise to anomalies. Baroness Thatcher and people of similar wealth will not pay any extra towards the health service, but that is a small price to pay for raising the money that the health service needs and delivering it to where it has to go.

There are already 31,000 extra nurses, 9,000 more doctors and 12 new hospitals as a result of the work that the Government have done. In a thoughtful contribution, Mr. Maples went a long way towards saying that the money would have a real impact, with the proviso that the jury was still out on whether it would have the impact that Labour Members hope. He is right, and I accept his challenge. In four years' time, if the extra money that we are putting in has not reformed health care and our NHS modernisation programme has not turned things around, the onus will be on Labour Members to admit that we were wrong and to be prepared to consider alternatives. However, as the money that we have already put into the health service has led to demonstrable and good progress, there is no reason not to believe that the additional funding—which I hope that the House will take the first step towards approving tonight—will be the next step towards proving that the national health service can deliver the dream of its creators.

Photo of Bill Rammell Bill Rammell Labour, Harlow 8:57 pm, 13th May 2002

I am pleased to make a contribution to this debate on one of the most significant pieces of legislation that the Government will pass in all their years in office. I genuinely mean that. Just as the Tory privatisation programme in the 1980s was emblematic of what the Tories in government were about, and fundamentally changed our society, the Bill and the budgetary changes associated with it define more clearly than anything what the Labour party and the Labour Government are about, and will change this country for the better.

The Bill is the culmination of a careful, deliberate and gradualist strategy to rehabilitate the concept that direct, progressive taxation can be used as a tool to achieve a social good. Our arguments make that clear, and they have resonance with people. We are telling them that society does not get something for nothing and that if we want a world-class health service, we will have to pay a little more through extra direct taxes.

There is public support for that view, and I am confident that we are also beginning to win the debate in the House of Commons. Nothing gives me more confidence in saying that than the fact that, although this is one of the most significant pieces of legislation that the Government will introduce, for most of the debate no Tory Back-Bench Members have been present—currently, there is one. That shows that they do not have the stomach for debating this issue. They know the direction in which the public debate is going and how the public mood is moving.

Photo of Bill Wiggin Bill Wiggin Conservative, Leominster

On a point of order, Mr. Deputy Speaker. I have been here for virtually the whole evening. I popped out to see a constituent, having made you aware that I was doing so. The hon. Gentleman is, perhaps inadvertently, attempting to mislead the House.

Photo of Bill Rammell Bill Rammell Labour, Harlow

Mr. Wiggin is the exception who proves the rule. If Conservative Members believed that they were in tune with the public mood and that they could win the argument, they would fill the Opposition Benches and try to make their case. Their absence speaks volumes.

Let us consider the substance of the Bill. I warmly welcome the measure because it firmly establishes the principle that taxation, and sometimes increases in direct taxation, is necessary in a civilised society. The Government are building on the developing consensus by introducing the measure.

In the 1980s, the public mood, to which the Conservative Government responded and which they also led, was tax cuts at almost any price. After more than 18 years, people have realised that such a strategy entails enormous cost in damage to schools, hospitals and public services generally. In 2002, there is greater public recognition that we do not get something for nothing. People look increasingly to Europe and countries such as France and Germany where waiting lists do not exist. People logically conclude that that is not unconnected to the substantially greater sums of public money that are spent on their health care systems. According to figures from the Library, of the 15 European Union countries, Britain has historically spent the second lowest percentage of GDP on health.

I increasingly believe that people are ready to endorse a preference for progressive taxation to fund the improvements that we need in the NHS rather than social insurance, private medical insurance or direct charges. I was interested to listen to the shadow Chief Secretary, who denied that the shadow Secretary of State of Health had advocated direct charges in the NHS. He may not have realised that his comments were recorded, but he went out of his way to advocate what he termed "self-pay". Self-pay or direct charges take no account of ability to pay and are far more regressive than direct taxation to pay for public expenditure. To appreciate how disastrous such a system can be, we should consider the United States, where 40 million out of 200 million people simply do not have access to decent health care. That is genuinely worrying.

We are moving in the right direction, but the key question is whether we can convince the public that direct tax changes through increases in national insurance constitute the right way forward. Initial opinion polling evidence gives ground for optimism. The Daily Telegraph poll shows that 77 per cent. of people support the increased expenditure for the health service and 63 per cent. believe that we were justified in raising national insurance.

I urge some caution. People have not yet started paying the taxes and we should never underestimate the capacity of people to support tax rises in principle but, when the crunch comes, to find all sorts of reasons against them. If we are to win the debate fundamentally and in the long term, we need to take some action. First, we must provide the extra doctors, nurses and beds to increase NHS capacity.

Secondly, we must be careful about the way in which the additional money is spent. I speak as a Member of Parliament for a south-east constituency, and I am conscious of the need to increase health professionals' pay, especially to meet additional housing costs. I give a word of warning. If the bulk of the unprecedented, substantial increase in public expenditure is spent simply on additional pay, and the public do not perceive sufficient improvements in the services that they receive, they will not thank us in the long run. I therefore welcome the fact that the Secretary of State for Health went out of his way to say that higher salaries must be accompanied by higher productivity and increased responsibility.

We must also make it clear, in terms of winning this debate, that this is long-term investment for long-term change. We have underfunded the national health service for more than a generation, and this is not going to be a quick fix; it is going to take time to build up the capacity. We need to say that because, otherwise, when the taxes start to bite in a year's time, the Conservatives will say to us, "People are paying the extra taxes. Where are the improvements?" There will be improvements—there are already improvements—but this is a long-term strategy. We need to make the point very clearly that we cannot underfund the national health service for 18 years and expect everything to be put right in just a short period of time.

I shall deal with some of the criticisms that have been put forward today by the Conservatives. First, they said that we had broken our election promises, but I certainly remember the Chancellor and the Prime Minister repeatedly refusing to rule out rises in national insurance contributions during the general election. Secondly, I simply will not take lessons from the Conservatives about keeping our promises on tax during a general election campaign. We all remember the 1979 campaign, in which they said that they would not put up VAT; they doubled it immediately after the general election. Similarly, in 1992, they said that they had no plans to raise the rate or change the scope of VAT. What did they do straight after the general election? They increased it by 2.5 per cent.

I question the integrity of the Conservatives position when they say that they are committed to extra spending on the national health service. I have been staggered in recent weeks to read some of their statements, particularly when the shadow Health Secretary said:

"we agree on the need to spend more on health care in the United Kingdom".—[Hansard, 23 April 2002; Vol. 384, c. 162.]

Forgive me, but I simply do not believe that statement. The Conservatives were in power for 18 years—the longest period of one-party rule in this country since the second world war—but never did we see the increased investment levels that this Government are now introducing.

This is a debate about extra resources, and about the need for those resources. It is also about the fundamental choice that we face: do we want a socialised system of health care that is free at the point of use, or do we go down the road to private medical insurance and charging? The most revealing moment in this debate was when the shadow Chief Secretary was invited three times to say that he supported a national health service that was free at the point of use. Three times he ducked the opportunity to confirm that; he simply said that he was in favour of a better national health service. Put alongside what the shadow Health Secretary has said about wanting self-pay and private medical insurance, that makes it very clear that the fundamental choice is between rebuilding the national health service—free at the point of use—under this Government or being forced to pay for it, in a way that takes no account of the ability to pay, by the Conservative party. I am absolutely confident which way people will go.

Photo of Bill Wiggin Bill Wiggin Conservative, Leominster 9:08 pm, 13th May 2002

I can see that other hon. Members wish to speak, so I shall take no interventions and try to keep my speech as short as possible. I should like to begin by heaping praise on Dr. Ladyman for having actually read the Bill. Labour Members who refer to "ordinary people" should show those people the Bill and see whether they can make head or tail of it. The implementation of the Bill will raise about an extra £10 billion a year, and the Government have earmarked those funds to part-fund a 43 per cent. increase in national health service spending over the next five years. They are demanding yet more of the taxpayer's hard-earned money, but have so far failed to propose any policy for spending the extra cash that even hints at being effective.

My constituents are paying £1,600 a year more in tax than they were in 1997, yet waiting lists are rising again and the chances of surviving cancer in Britain are among the worst in Europe. The Chancellor's increase in employers' national insurance contributions will hit the public services hard. The Government have admitted that their changes to national insurance will cost the public sector £1.2 billion, of which £200 million represents the increase in the total salary bill for employing 1 million national health service workers in England. So, although the Budget has been heralded by the Government as the saviour of the NHS, it will actually start off by costing the health service money.

It is not just the Conservative party that has labelled the Budget as more tax and more talk, but making no difference. The message from the public is clear, too: it is not good enough. The British public lost faith in the Government several broken promises ago, so no wonder the Chancellor's latest money-grabbing initiative has not been as well received as they hoped.

Employees and employers are rightly unwilling to pay more of their hard-earned income in national insurance contributions, because of the Government's track record of failing to deliver. In Herefordshire, last-minute cancellations of operations for non-critical reasons have risen by 121 per cent. in the past year. That group, as a percentage of elective admissions, has doubled in size over the last year—and the number of those unfortunate patients not to be admitted within a month of the cancellation is up by 260 per cent. The number of patients in my constituency who are not admitted within a month in the first instance rose by 58 per cent.

In conjunction with Mr. Keetch—sadly, he is not in his place now—I have recently been involved with a petition that received more than 26,000 signatures from people in Herefordshire. The "Give us the beds we need" petition was part of my campaign for much needed funds to provide the new hospital at Hereford with the additional 120 beds that it needs to operate efficiently. It also needs those 120 beds to make it the same size as the hospital that it is replacing.

A large group of doctors, nurses and hospital workers from Hereford hospital made the 150-mile journey to London last month to present the petition to Downing street and to demonstrate their dissatisfaction with the Government. The message from my constituents is loud and clear: the situation is unacceptable. I am sure that the good people of Herefordshire are not the only ones in the country who have had enough of broken promises, increased taxes and decrepit public services.

The situation in the NHS is that waiting lists are rising again, hospital beds are blocked—mainly because care home beds have been closed—and the odds of surviving cancer in Britain are among the worst in Europe. Last year 250,000 people without insurance paid for their own operations—more than ever before. More talk and more tax will not give people the standard of health care that they deserve. Scotland spends as much as Australia and Holland on health, and Wales and Northern Ireland spend as much as France, yet patients are receiving inferior treatment.

The Budget is a missed opportunity, and the Treasury has a closed mind on health care. It says that we have nothing to learn from other countries, despite the fact that Germany has no national waiting lists, and Danish patients have a legal right to treatment within four weeks of seeing a GP. We have an open mind. We have visited other countries that deliver better health care, simply to see what we can learn from them. Yes, Britain needs to spend more on the health service, but spending it on how the NHS is run today, and raising higher and higher taxes, will not give this country the health care standards that it has a right to expect.

Patients are paying to be treated outside the NHS. When the Independent Healthcare Association says that more than 250,000 people are having to self-fund their operations in the private sector this year, we know that things are not right. An article on BBC Online has revealed that hundreds of British patients are flying to South Africa for treatment to avoid NHS waiting lists in the UK. Over the last six months, the number of Britons travelling to South Africa to take advantage of cheaper and quicker hospital treatment has risen dramatically.

The west midlands area health authorities, which cover my constituency, last year reported more than 1,000 delayed discharges from hospitals due to the shortage of care homes. The same was true the year before. To make matters worse, research has shown that over one third of those discharges are delayed by more than a month.

The NHS is in turmoil—we all know that—but the delayed hospital discharge problem could be eased greatly if the Government addressed the shortage of care home beds and the lack of funding for existing homes. Instead, their proposed national insurance contributions tax will have a dramatic effect on the operating margins of those homes—to their detriment, sadly.

Many small care homes in England are running at a 5 per cent. margin, but for an average care home, wages are 80 per cent. of costs. Therefore, the national insurance increase will reduce margins by 20 per cent. That increase may impose costs that are too onerous for many smaller care homes to cope with. Frank Ursell, the chief executive officer of the Registered Nursing Homes Association, said:

"For those care home owners who are already teetering on the brink, this tax increase on wages could be the final straw. Many care home owners could say 'I've had enough'".

In the current year, total NHS spending in the UK is expected to be about £68 billion. The Wanless review estimates that there will need to be a rise of between £154 billion and £184 billion by 2022–23 in order to deliver the high quality service envisaged. That implies total NHS spending increases at an average rate of between 4.2 and 5.1 per cent. a year in real terms over that 20-year period.

The increased activity implied by the projections in the report would result in a substantial increase in demand for health care workers. Derek Wanless estimates that at least two thirds more doctors and a third more nurses will be required over the next 20 years. Under the existing plans, which Wanless describes as "ambitious", the report estimates a small shortage of nurses by 2020, and a shortfall of 25,000 doctors, especially GPs.

That caused the British Medical Association much concern. In a statement to the House, the Secretary of State for Health pledged that the Government's plans for health reform would deliver 15,000 more doctors. I am left wondering where the other 10,000 will come from. It is time that the Government ceased promising everything and actually delivered. I accept that there are no quick fixes, and everyone realises that the situation is difficult and problematic, but the sensible route is not one of unattainable objectives. The Government would do well to forgo their announcements of miracles, because the public are no longer fooled. Only real results and real policies will do for the NHS and for the people of Britain.

Sadly, it is typical of the Government that the Wanless report was released on Budget day, when media attention was focused elsewhere. Perhaps the disparity between the number of doctors needed and the number pledged by the Government led to that attempt to bury the report.

The best insurance policy in the world is one that people can claim on and which delivers without delay. I do not believe that the Bill can do either. 9.17 pm

Photo of Chris Mole Chris Mole Labour, Ipswich

The debate on national insurance contributions is important, because we must find the right way to raise funds fairly and efficiently for the NHS. It is clear that we should use national insurance, not income tax. The Budget package seeks to take progressive and significant steps on behalf of pensioners, and this is one way in which we can provide resources without calling on pensioners.

Investment clearly works—we have only to look at the cash for change funds that the Government made available from late 2001. In my constituency, that scheme is already delivering reductions in the number of acute hospital beds blocked by delayed transfer of care. The Ipswich hospital in Heath road has seen a reduction from 64 last November to 24 in March.

I would also like to draw attention to the investment of £1.9 million in intermediate care at the Ravenswood development in my constituency, which will help to meet the need of the elderly for the mixture of social and health care that increased resources can deliver.

The Opposition should lay out their proposals for a costed practical alternative. They need to explain to people what their proposals would mean and what they would cost. They must say whether, under their proposals, the health service would be free at the point of usage.

As we have heard, there are many reasons why there is increasing demand for additional health care expenditure. Demographic changes, new technology and rising expectations of the health care system demand that we take a close look at its financial needs. Many illnesses and injuries are now survivable that perhaps 50 years ago, at the inception of the NHS, were not. They can now be treated with some confidence. We are in the middle of a pharmaceutical and biological revolution, with new procedures and new practices. There are new technologies such as minimally invasive surgical procedures, and new drugs with greater efficacy and acceptability. My local primary care trust has confirmed evidence gathered nationally that the amount of medicines, dressings and appliances dispensed in the community has been rising by about 10 per cent. a year over recent years.

To return to the point about demography, the number of people over 65 is expected to increase by nearly one third over the next 20 years. That is why I welcome the element of the Budget that will raise real-terms spending on social care by some 6 per cent. per annum. Much ill health is age related, and that additional social care investment will be important if we want to deliver on the expectations of our health service, which I believe we all do.

If we compare our performance with that of many of our European competitors in areas such as life expectancy, infant mortality, premature mortality and survival rates for cancer and heart disease, we know that we can and must do better. People want us to deliver on improved use of new technology, shorter waiting times and enabling them to spend more time with their GP.

When we look at the Bill, we have to question what the alternatives might be. Clearly, there are alternatives such as charging, private insurance and social insurance. Most countries rely on a mixture of those. The trouble with charging is that, unlike a regular trip to the shops, our individual demands on health care are not predictable. In many instances, consumers of health care will have much less information and less expert knowledge than they would have when purchasing other goods and services. There is a risk of professionals setting the price for their service.

Eighty per cent. of patients in France take out supplementary insurance to pay for charges. If that is what the Conservative Opposition are proposing, that really is a stealth tax by any other name. It is important to us all that we do not go down that route, because if people are put off seeing the doctor, they are likely to end up back in the health care system with more severe health problems. Charging makes the sick pay for their sickness, so it is not a good idea.

Private insurance is not an efficient system. Administrative costs are higher. In the United States, administrative costs are about double those in Canada, which has a more general tax-funded system. In those countries, the people who need health care most are the least likely to be able to afford it. The evidence is that the sickest 10 per cent. of the American population spend six to seven times what the average American citizen does on health care. Someone with a private insurance policy that may cover only 80 per cent. of their charges can be faced with additional costs of, for example, $2,000 for hospitalisation during child birth. Many insurance policies exclude primary care and emergency care. I do not think that that sort of approach would drive consumers to change their pattern of consumption, because most of the costs of health care are initiated by the doctors, not the patients.

Let us have a brief look at social insurance, Compulsory contributions paid into and managed by independent, not-for-profit sickness funds are also a stealth tax by any other name. Is that what the Opposition are recommending? Employers end up footing much of the bill, paying on average £60 per week per employee, compared with the £5 or so that employers pay in this country through national insurance, or perhaps a total bill of £10, if we include the company's contribution through general taxation. It is also a system in which costs can fall on companies whose employees are sick. In our system, there is a significant sharing of risk among employers, which helps many small and medium-sized businesses.

We should now look at the national insurance system that the Bill is asking us to put our faith in. It offers a good deal over the lifetime of the individual, allowing us to have a health service more comprehensive than those funded by other systems. It gives us the general practice system, community nurses and other facets of our health service. It covers all of the people all of the time. Some 80 per cent. of the NHS is now funded from general taxation, and funding and costs do not fall on one group only.

We should affirm our support for a system that does not impose higher costs on those predisposed to illness and does not demand that employers bear the main burden of health costs. It is a modern and rational choice, and it is the best insurance policy in the world.

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester 9:26 pm, 13th May 2002

Before considering the Government's proposals on funding the NHS through national insurance contributions, I thought that it might not be a bad idea to have a look at some of the alternatives. Last Wednesday, Mr. Lidington said that the nation could expect his party to examine the experience of other countries and to offer clear and costed proposals when they have completed that period of analysis.

The hon. Gentleman does his own colleagues something of a disservice. I would like to take this opportunity to sketch some of the ideas that his colleagues already have, and about which they have, to some extent, thought long and hard. They are well documented, if one digs a little.

The hon. Gentleman said that it would be necessary to examine the experience of other countries, and that is all well and good. Let us take a slightly closer look at the American model. I understand that Mr. Chope, on hearing that 14 million Americans are not covered by any health insurance at all, has ditched his American model, and quite rightly so. He ditched the American model in favour of a Swedish one. He said that in 1999, St. George's hospital in Stockholm was sold to the private sector, producing a reduction in costs of between 10 and 15 per cent. He said:

"If health care can be improved in Sweden without taxing spending and wasting, we can do it in this country as well, given the will."

I was somewhat surprised to hear a member of the shadow Cabinet expressing admiration for the public service policy of the one country in the world that is renowned for heavy taxation, but I am pleased that he has such an open mind. However, I do not think that the hon. Gentleman's Swedish model could be employed in this country, for the simple reason that while Sweden has, for the last 30 years, had one of the highest tax and spend policies to provide for its health service, the NHS in the United Kingdom has been chronically underfunded by the Conservative party.

I fear that the shadow Cabinet will have to ditch both their American and Swedish models. But it is quite astonishing how far they are prepared to go find a suitable model for the NHS. Let us turn to Canada, and to the example of the provincial Government of Saskatchewan. Between 1987 and 1989, the current shadow Home Secretary—a former Treasury spokesperson for the Conservative party—worked as an assistant director for N. M. Rothschild and Sons and advised the provincial Government there on a series of privatisation programmes. Most of us are aware of the hon. Gentleman's ideas about the public services, but before we consider the Saskatchewan model, I want to remind the House of some of his constructive contributions to the debate on funding public services in years gone by.

In 1987, in an article entitled "The privatization of education", the hon. Gentleman said:

"You can privatize just about anything."

In 1988, he wrote a thesis entitled—I am not making this up—"Privatising the World". In 1996, he described the privatisation of nuclear power stations as

"intrinsically an entirely bankable proposition."

He probably thinks, therefore, that his party could indeed consider privatising as many of the public services as it can get away with, including the national health service.

The Saskatchewan Government listened to advice from the person who is now the shadow Home Secretary about various privatisation programmes. He was obviously very good at his job. His company was reportedly paid $30,000 a month for his services—very good work, for those who can get it. In his view, the Saskatchewan Government had not done a particularly good job of privatising the dental service, but his advice to them was heavily criticised in the state legislative assembly.

The Saskatchewan Hansard of 23 March 1989—I can provide a copy—says of the shadow Home Secretary that he

"will tell them that—and has told them, I understand—that the way they went about privatizing the dental plan was one of the worst examples that he has ever seen. He says: you don't do it that way. You got to be smoother. You got to con the people more. You got to work slower. Privatize some other things first and then work your way to health once you soften people up."

I doubt whether the shadow Home Secretary is very popular in Saskatchewan province. Given the verdict of the Saskatchewan Government, it may be best for the shadow Cabinet to ditch this model, along with the American and Swedish ones—unless they really do want to con the people, privatise some things first and work their way slowly towards health, once they have softened people up.

The shadow Cabinet need to clarify their policies on national insurance contributions and the funding of the national health service, and I am pleased to say that they need look no further than the House of Commons Library. In 1993, Mr. Duncan Smith, now the Leader of Her Majesty's Opposition, co-authored a pamphlet entitled "Who Benefits?" Four of the five Conservative Members of Parliament who wrote it are now shadow Ministers.

On page 19, under the heading "Privatising Insurance", the pamphlet states:

"The private sector should be encouraged to take on the role of providing the kind of insurance for which National Insurance Contributions must currently be paid."

It proposes giving rebates to those who can afford to pay for their own health insurance, and to those who can afford to insure themselves privately against unemployment, invalidity and even pregnancy. In return, a Conservative Government as envisaged by the Leader of the Opposition could scale down the national health service massively, because it would be a service only for the poor, the unemployed, the disabled, the elderly and the particularly needy—those who could not pay the premiums in a private health insurance scheme.

The proposals would make healthy and very wealthy people better off, and leave the rest of the country dependent on an underfunded two-tier NHS. However, the pamphlet also suggests that that state of affairs would be only a temporary solution. The Leader of the Opposition had longer term ideas, which the pamphlet puts succinctly:

"Ultimately, the state may provide no insurance of its own."

That is what the right hon. Gentleman put his name to, and I hope that it is helpful to the shadow Cabinet as they try to clarify their position on NI contributions and the NHS.

By contrast, the Government have laid their policy out clearly. The Bill says that they seek to make provision for

"increasing national insurance contributions and for applying the increases towards the cost of the national health service."

The Bill will do exactly what it says on the tin. The Government will raise NI contributions by 1 per cent. and increase UK health spending to £65.4 billion this year and to £105.6 billion by 2007–08. For the extra penny in the pound paid in NI contributions, my constituents can expect their local health authority to receive more than £430 million in the coming year, which is £206 million more than it received in the last year of the last Conservative Government, so I welcome the Bill. Its aims and means are clear, and it will guarantee an NHS that is free to all at the point of use.

Photo of John Mann John Mann Labour, Bassetlaw 9:36 pm, 13th May 2002

We have heard lots of bluster and a smattering of supposition from hon. Members on the usually empty Opposition Benches, but that is not surprising because they are in a quandary. Last week, I challenged Mr. Lidington to ask his voters, through his website, what they thought of the NIC increases. Unfortunately, he does not appear to have done so. Let me help him out. Last Thursday, I visited Bassetlaw hospital with the Under-Secretary of State for Health, my hon. Friend Ms Blears. The hospital presented 60 staff, from consultants to cleaners, and not one of them had any opposition to paying more NICs for the NHS. My hon. Friend also asked every patient whom we saw at random in the hospital what they thought of the NHS. Every single one was positively in favour of the NHS and what the Government are doing.

I have asked several times what model is preferred. I was told repeatedly, and Hansard will show, that the American model has been discounted, which can leave only the west European high taxation model. My hon. Friend Mr. Dhanda mentioned Sweden and Canada, but my example is Germany. The German model is a pluralist, corporatist and regional model. Many of the hospitals are funded by organisations. For example, the trade unions run their own hospitals through the Workers' Welfare Agency—the Arbeiterwohlfahrt—as do the Lutheran church and the Roman Catholic Caritas agency.

If the Opposition have discounted the American model and the British model, do they prefer the German model? If so, which trade union will they invite to run the hospitals? Will they be honest and tell people that is what will happen? In fact, in the German model, health care funding is overseen at the regional level by the trade unions and the employers. One similarity between Germany and the US is collective bargaining. Some 99 per cent. of large employers in the US which run an insurance scheme have collective bargaining. The Teamsters in Ohio have five separate schemes that they attempt to negotiate with their members' employers. That is why the employer cost is higher. The employer cost in Germany is also higher, thanks to the system built up since the war and first created by Bismark. The trade unions are a full part of that system. Social insurance costs employers in Germany three times more than employers in the UK, and it costs employers in France six times more.

I am not sure what Baroness Thatcher would make of the Conservatives' move towards the social partnership model, but if they discount the model of the NHS and the model of privatisation in the US with its collective bargaining, that leaves only the high-tax Swedish model or the decentralised German model. It is make-your- mind-up time. Perhaps the Conservatives' spokesman will tell us when he winds up which one they are plumping for.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport) 9:39 pm, 13th May 2002

Three things have been established during the debate: first, the Government have broken their promises; secondly, there will be damaging tax rises for employees, the self-employed and employers; and thirdly, there is no evidence that concrete improvements will flow as a result of the additional expenditure—any more than there was on any previous occasion.

The Government are always talking about extra concrete improvements as the return for extra concrete investment. On 24 June 1999, the then Chief Secretary to the Treasury—the present Secretary of State for Health—stated:

"We have fulfilled our commitment to publish Public Service Agreements covering all the public services. They set out the concrete improvements to be delivered in return for the extra investment we are making."—[Hansard, 24 June 1999; Vol. 333, c. 458W.]

Those concrete improvements have not been delivered, yet the Government are talking about massive extra investment with no guarantee that we shall get the reforms.

Let me dwell on those broken promises—a serious issue. During the—

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

That is exactly what the hon. Gentleman and his party did while we were in government—they ran down the NHS and tried to undermine confidence in it.

During the last general election campaign, the Chancellor of the Exchequer was repeatedly questioned as to whether Labour intended to raise the national insurance ceiling. His spin doctors briefed journalists in a dishonest way. On the BBC 6 o'clock news bulletin on 22 May 2001, Mark Mardell said:

"Those close to Gordon Brown say it's completely wrong to interpret this reluctance as meaning there is a plan to put up national insurance. They say that's not his intention."

At that time, no one was much closer to the Chancellor of the Exchequer than the Chief Secretary. Earlier in the debate, Dr. Harris challenged the Chief Secretary to deny that he knew a year ago that national insurance would have to be raised.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

It is a pity that the right hon. Gentleman did not say that earlier. I am glad we have pressed him into saying it now. Perhaps it shows that he is not as close to the Chancellor as he thought.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

Does the hon. Gentleman find it surprising that the Treasury No. 2 could not foresee such a huge increase in taxation and NHS spending six months or a year before it happened? One would have thought that the Treasury team would be capable of predicting that.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I agree with the hon. Gentleman; many people would think that surprising, but our experience teaches us otherwise.

We shall continue repeating the comments of the Secretary of State for Trade and Industry on the "Powerhouse" programme on 29 May 2001. She said:

"We've got no plans at all to raise that ceiling on National Insurance contributions."

This is the fourth debate on the national insurance changes since the Budget, but the Government have still not apologised for having blatantly misled the electorate on the issue.

Let me conclude my account of the broken promises by referring to the Prime Minister's words in Mr. Desmond's Daily Express. The right hon. Gentleman said that the Government had not "the slightest intention" of hammering people on £30,000 and £35,000 and the higher income brackets. Of course, if we consider the Prime Minister's words carefully, we realise that when he said that they had not slightest intention, that left the way open for them to have the greatest intention. That is an example of the way the Government use words to deceive the electorate. It is no surprise that the leading article in The Economist, referred to by my hon. Friend Mr. Ruffley, attacked the brazen claim that the Government had not broken any promises in the Budget.

A more important consideration for some people is whether extra employers' national insurance contributions will damage industry. On 6 October 1999, the Government's response to the Select Committee on Trade and Industry stated:

"The climate change levy and the associated reduction in employers' National Insurance contributions represents a shift in the burden of taxation from 'goods', such as labour, to 'bads', such as environmental pollution. The reduction in National Insurance contributions will reduce the cost of labour and thereby encourage employment opportunities throughout the economy."

That is what the Government were saying in 1999. By the Government's logic, therefore, the Bill will add to the cost of labour and discourage employment opportunities throughout the economy. That is endorsed by businesses large and small.

Mr. Anthony Goldstone, who was quoted selectively by the Chief Secretary in his opening remarks, said at the British Chambers of Commerce conference:

"There is no point simply pouring our money into a bottomless pit."

That will have severe implications for the public sector as well. It is interesting that the Treasury is going back on what Lord McIntosh of Haringey said in another place:

"the cost . . . to public sector employers is estimated to be around £1.2 billion in 2003–04."

He also said that

"the cost to the National Health Service is £300 million, not the £200 million to which the noble Baroness, Lady Noakes, referred."—[Hansard, House of Lords, 24 April 2002; Vol. 634, c. 244-45.]

Those figures now seem to be disputed by the Government's spokesmen, but that was what was said immediately after the Budget.

Are these national insurance increases necessary? Mr. Lyons said that they were particularly fair because they were going to the NHS. He and his constituents are the victims of a massive confidence trick. If one looks at the Red Book and the Budget in detail, one sees that they add £4 billion to departmental expenditure limits for next year, £2.4 billion of which has been immediately allocated to United Kingdom health spending and £0.4 billion to personal social services. That adds up to £2.8 billion extra next year for the health service. The additional national insurance contributions, however, will yield £7.9 billion, and freezing income tax, personal allowances and national insurance thresholds will yield a further £700 million, which is again justified on the basis that it is needed for the NHS. Last week, in winding up the debate on North sea taxation, the Economic Secretary justified the £450 million taxation increase on North sea producers on the basis that it would be

"revenue that will help put the NHS back on a sustainable long-term financial footing".—[Hansard, 9 May 2002; Vol. 385, c. 359.]

If we add that yield of £450 million to the total, we are talking about tax increases of £9 billion next year, only £2.8 billion of which is necessary for the national health service.

This is a massive confidence trick. Like a child who says, "I'd like some more pocket money to spend on books, Daddy", and then spends it on sweets, the Government are saying to the taxpayers of this country, "Please pay up because we're going to spend it all on the NHS", whereas they are going to spend a heck of a lot on dealing with the waste already incurred in other Departments.

We have debated whether we will be able to achieve proper improvements in the NHS as a result of this expenditure. Nobody was able to show any evidence of improvements in the NHS as a result of increasing expenditure from 6.7 to 7.7 per cent. of GDP. Nobody was able to answer the question: why are a record 250,000 people paying for their own treatment? In many respects, performance is deteriorating. That is confirmed by the King's Fund five-year health check. Under the NHS plan, there were targets for July 2000 that no one should wait more than six months for in-patient treatment. By December last year, 277,500 people were waiting, which was more than in March 2001. Similarly, in July 2000, the NHS plan set a target for attainment by March 2002. No one was to wait more than 26 weeks for an out-patient appointment, but we now know that, by December 2001, the figure was 84,300 and higher than it had been in March 2001. That shows that performance is moving away from the targets that have been set and that bad performance is continuing with impunity, as far as the Government are concerned.

People have spoken in the debate of what things were like under the Conservatives. At least under the Conservatives, 89 per cent. of accident and emergency patients were admitted within four hours. By 2000, the figure had dropped to 76 per cent. So the proportion of accident and emergency patients not admitted within four hours has more than doubled under this Government. In 1996, 73 out of every 100 patients were seen by a doctor within one hour. In 2000, only 53.5 patients in 100 were seen by a doctor within an hour. Again, that is a manifest deterioration in the quality of service. The Audit Commission has said that there appears to be no link between work load and the speed of treatment.

Since 1996, there has been a drop of 49,700 in the number of places for long-stay residential care for the elderly and the disabled, and a host of care homes have closed as a result. In 1997, 50,505 operations were cancelled but, in 2001, 77,818 operations were cancelled. In 1996, there were 30,000 fewer administrators than now, but there were 13,000 more beds. Is it surprising that an increasing number of people say, "Bring back the Conservatives"? We know how to administer the health service.

My hon. Friends the hon. Members for Stratford-on-Avon (Mr. Maples) and for Leominster (Mr. Wiggin) drew attention to what has been happening in Scotland. Of course, as people know, expenditure on health in Scotland is extremely high compared with in England. In 1999, NHS spending per head in England was £740; in Wales, it was £822; and, in Scotland, it was £904.

Before Labour Members troop into the Lobby to support the Government, they should be reminded of an interesting article that appeared in Public Finance on 29 March this year. It said that

"under devolution, so much cash is being thrown at NHS Scotland that health spending is projected to reach 8.1 per cent. of the nation's national income by the end of next year. This won't just be above the European average—it will be higher than in any other country in Europe.

Yet, for all this, the Scottish NHS is being denounced as a disaster by its patients. Waiting lists refuse to die down, the national health record is atrocious and, worst of all, the public is furious. Scotland is living Tony Blair's future, and it demonstrably does not work . . . The Scottish NHS has the cash that Blair covets so badly—and has nothing to show for it . . . If Blair's logic is correct, the Scots should be a pretty healthy bunch—and far happier with the NHS than the patients of the cash-strapped English system. But there is the rub.

The Scots have the worst health record in the UK. The death rates, also measured by National Statistics, show Scotland doing worse than any other part of the UK in everything from cancer to suicide rates. For every 100,000 people, 58 Scots die of bronchitis (49 for England) and 228 from coronary heart disease (205 for England) . . . A government survey of NHS patients, taken in Scotland last year, shows that 25 of every 100 patients were so dissatisfied that they considered making a formal complaint. This was true for only ten of every 100 patients of the lower-budget, longer-waiting list English NHS."

That is what is happening in Scotland, and that is what will happen in England if we have more expenditure without reforms.

The Government have been presiding over an NHS that is riddled with fraud and waste—[Hon. Members: "Oh!"] We want a better system. Labour Members seem surprised. The amount of fraud was revealed by a senior civil servant, Stuart Emslie, who estimates that of the £54 billion annual budget of the health service in England, between £7 billion and £10 billion has been lost through waste and fraud.

The Labour party is not interested as long as it can carry on taxing. That is the difference between Labour and the Conservatives. We believe in getting value for taxpayers' money, and that is why we will oppose the Bill until we see reforms.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 9:55 pm, 13th May 2002

If Mr. Chope is in favour of the national health service, everyone listening to this evening's debate will understand why the national health service is not safe in Tory hands: he made not one positive statement about the national health service.

Many hon. Members on both sides of the House have contributed to the debate. Essentially, they broke into two camps: those who agree that the national health service needs more money and investment, although they may disagree on how the money is raised, and those represented by most of the Conservative speakers, who prefer to state why the national health service should not receive any more funding and why they believe it should be privatised and broken up. The notable exception was Mr. Maples, who made a thoughtful speech. I intend to return to some of the points he made.

My hon. Friend Vernon Coaker started the Back-Bench speeches. He pointed out that the Chancellor's Budget set out plans for an unprecedented increase in spending in the NHS, and proposals for financing that increase in spending in public services which ensure that the investment achieves results. The Bill will deliver the funding for a sustained improvement in the NHS—unlike the alternatives of private insurance or employer-based social insurance policies.

Our proposals mean that the NHS will continue to be available to all, without restriction, not based on ability to pay, and funded through general taxation. Despite repeated requests and challenges to commit themselves to a national health service comprehensively available and free at the point of need, Conservative Members continued to decline to do so.

Using the national insurance contribution means that the money is raised as fairly as possible. Employees and the self-employed will pay an extra 1 per cent. of all of their earnings above £89 a week, and employers will make the same contribution, acknowledging the fact that an efficient health service is also in their interests. After the changes to national insurance, British companies will still pay less towards the cost of their employees' health than many other countries, particularly European countries.

Adam Price referred to the OECD study of the rising imposition on employment of social insurance taxes. He should remember that the 2002 OECD study "Taxing Wages" showed that the social contributions in the United Kingdom are significantly lower than those in our major European partners, and they will continue to be so. The very problem that many of our European partners are experiencing is of a social insurance nature and to do with the high cost of their health system.

In an excellent contribution, my hon. Friend Jon Cruddas said clearly that because of the new tax credits, no family with an income of less than £18,000 a year will be worse off. The new tax credit system ensures that lower earners will still have an incentive to take jobs and increase their earnings. Together with the freezing of the income tax personal allowances, the changes allow for a substantial increase in investment in the NHS.

There are no broken promises. The Government promised not to raise the basic or top rate—[Interruption.]

Photo of Michael Martin Michael Martin Speaker of the House of Commons

Order. Many conversations are taking place in the Chamber. The Minister is addressing the House, and she should be heard.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The Government said that there would not be a rise in the basic or top rates of income tax, and that the NHS would be rebuilt after decades of neglect. No promises have been broken.

Given the provisions that are set out in the Bill and the scale of the funding that is being directed to the NHS—from £65 billion this year to £105 billion in 2007–08—we can show that all the resources being raised by the increase in national insurance contributions are being directed to the NHS.

A few points were made about the quality of the health service, especially in Scotland. Questions were asked and observations were made, particularly about spending in Scotland on health care. In-patient waiting lists are about 8 per cent. higher in England than in Scotland. On average, people in Scotland have been waiting for admission for more than a month less than in England. Each year, there are about 10,000 more operations per thousand of the population in Scotland than there are in England. Investment is needed throughout the NHS in England, Wales, Northern Ireland and Scotland, but the clear reforms and the clear investment that the Government are making prove that the NHS can work.

There have been comments about the imposition of 1 per cent. and the likely effects on employers. Raising money through the national insurance system ensures that we spread evenly the burden of the increased raising of tax. We have never disputed that. It is not true, as some sought to assert, that because of the national insurance changes, employers would seek to reduce pension contributions, for example, or to move away from particular pension funds.

Commentators are already suggesting that employers should increase contributions into pension funds because such contributions, unlike pay, are not liable to national insurance contributions. When we consider the benefits to employers of a healthy labour force, of reductions in costs for ill health, of low inflation, of low tax and of a high-growth economy, we can see that Britain is still a good place in which to be an employer. It is a climate that ensures that employers can continue to grow.

Comments have been made about the need to increase the number of care homes. Care homes and the care of the elderly stand to gain from higher NHS and social service spending. Increased resources for social services will include payments for more places for people who need that care. Personal social services spending is to increase by 6 per cent. in real terms.

The Bill will increase the amount of finance that goes into the NHS. It is a service that is valued and respected by our communities, even if it is not by the Conservatives. The Bill will ensure that the reforms take place and that the money is in place to ensure that we have a first-class health service for the people of this country. Investment must match reforms. We must have accountability. Money must go to front-line staff and primary care trusts to ensure that there is developing and improving care.

As my hon. Friends made clear throughout this evening's debate, this is a long-term strategy to put right the long-term problems in the national health service. It is a long march—no one is expecting immediate results—but with the finances and reforms provided in the Bill, at least this Government will be keeping their election promises and delivering a first-class health service.

Question put, That the amendment be made:—

The House divided: Ayes 134, Noes 357.

Division number 235 Orders of the Day — National Insurance Contributions Bill

Aye: 134 MPs

No: 357 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on second or third reading), and agreed to.

Bill accordingly read a Second time.