Schedule 1 — Consequential Amendments

Orders of the Day — National Insurance Contributions Bill – in the House of Commons at 8:29 pm on 10th June 2002.

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Amendment made: No. 14, in page 11, line 43, at end insert—

'(4) In subsection (6), for "subsection (5)" substitute "subsections (5) and (5A)".'.—[Dawn Primarolo.]

Schedule 1, as amended, ordered to be the First schedule to the Bill.

Schedule 2 ordered to be the Second schedule to the Bill.

Bill reported, with amendments.

Order for Third Reading read.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 8:44 pm, 10th June 2002

We have had a very good, interesting debate in which the House has explored in detail the Government's plans to use the national insurance fund to raise additional resources for the health service. In one way, the Bill is unprecedented, unlike previous changes to national insurance contributions, which have been linked to changes in the state of the national insurance fund. This Bill increases contributions for the other great pillar of the welfare state—the national health service. In another way, however, it is not new at all. Ever since the post-war Labour Government introduced the national insurance system and the national health service, part of the funding for the NHS has come from national insurance contributions.

National insurance contributions are paid by those who work and by their employers. Everyone who has a stake in the national health service will contribute while they are in work, when they can best afford it, and everyone has an interest in the improvements in the health service that this extra money for investment will deliver.

Let me remind the House of the scale of new investment that we have promised. The plans announced in the Budget represented the biggest ever increase in investment in the national health service, raising spending on average by 7.4 per cent. in real terms in each of the next five years. United Kingdom health spending will grow from £65.4 billion this year to £105.6 billion in 2007–08. Since 1997, health service investment has already doubled in real terms, and it will increase as a share of national income from 6.7 per cent. in 1997 and 7.7 per cent this year to 9.4 per cent. in 2007–08. That will mean 35,000 more nurses, midwives and health visitors, 15,000 more doctors and consultants and 42 major hospital schemes—real changes and improvements, giving the people of this country a standard of health care that they can be proud of.

The Government have also published plans to ensure that the public and the House can judge whether those improvements are being delivered. There will be independent audit, inspection and scrutiny of patient complaints, with a duty to account for money spent and standards achieved and to 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 national health service, stating where it has been spent and the results that have been achieved. There will also be local reports 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 Bill is simple and transparent. We have increased the rates of national insurance contributions for employers, employees and the self-employed by one percentage point. For employers and the self-employed, whose contributions are currently limited by the upper earnings limit and the upper profits limit, we have ensured that the burden is spread fairly, by applying the additional 1 per cent. to all earnings, including those above the limit.

We have also ensured that the national health service gets the benefit of the additional revenue by increasing the proportion of the national insurance contributions earmarked for the NHS by an equivalent amount. The Bill ensures that none of the changes will disturb existing arrangements for determining entitlement to contributory benefits or for the financing of contracted out, personal or occupational pension schemes.

Much of the debate that we have had on the Bill would have sounded familiar to those involved in the introduction of national insurance in the 1940s. We have heard a lot about the supposed unfairness of making employers pay a share of the cost of improving the health service. In response, the Government have quoted the CBI, which said that time off for sickness costs British industry some £10 billion a year.

We might as well have also quoted the Beveridge report, which said in 1942:

"Disease and accidents must be paid for in any case, in lessened power of production and in idleness, if not direct by insurance benefits."

I certainly echo the words of the then Minister of National Insurance, James Griffiths, who said during the debates on the National Insurance Bill:

"I have no hesitation in saying—I have said it before outside and I will say it now in the House—this scheme"— the national insurance scheme—

"is the best and cheapest insurance policy ever offered to the British people, or to any people anywhere".—[Hansard, 6 February 1946; Vol. 418, c. 1751.]

The Chancellor of the Exchequer made similar comments during his Budget speech when he introduced the principle of using national insurance contributions as a way of raising money for the national health service.

The Bill shows that the Government are not afraid to be honest about what needs to be done to improve the health service and about the need to pay for it. The public appreciate that and have shown by their reactions to my right hon. Friend's Budget that they are willing to trust us to do what we have promised. The Bill is the first step and I commend it to the House.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport) 8:51 pm, 10th June 2002

The Bill has been debated in the House on repeated occasions during the past few weeks. It appears to be almost a dialogue of the deaf. On the Opposition Benches, we are alone in saying that throwing more money at the national health service is no guarantee that there will be a better service. The Government have said on other occasions that they would put extra taxpayers' money into public services and that there would be public service agreements to ensure that that expenditure was worth while, yet they have not fulfilled those promises.

In 1999, the then Chief Secretary to the Treasury, now the Secretary of State for Health—I congratulate the new Chief Secretary on his elevation to the Cabinet—said:

"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.]

However, the Paymaster General has just told us that we are starting again. We are forgetting about the three years that have passed since that commitment was made and there will be a fresh start. The Government tell us that—after more legislation—a fresh monitoring process will be set up and that in a few years we shall be able to see whether it has delivered any benefits in terms of better health care for the people of our nation.

We know that many of the new improvements—the extra nurses, doctors, hospitals and primary care centres about which the Secretary of State for Health tells us—are not even expected until 2008. We know that the Secretary of State merely hopes that legislation to establish the commissions for health care, audit and inspection will be introduced during the next Session, and that the first inspection report is unlikely to materialise before 2005. That is before we shall even know whether the extra billions of pounds taken in the higher taxes that the Government said they would never introduce have been well invested.

The Government, far from being unafraid to be honest about what must be done, as the Paymaster General claimed in her speech, failed to face up to the truth at the general election. They realised that they would have to put up taxes. They needed to put up taxes but denied that they would do so, and they specifically denied that they would increase national insurance contributions.

We shall continue to cite against the Secretary of State for Trade and Industry her comments 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."

We have not received an apology for that gross inaccuracy from a senior member of the Government who was trying to persuade people to vote for her party during the general election campaign. The Paymaster General has the gall to tell the House that the Government are not afraid to be honest about what has to be done. That is just laughable. The Government disguised the truth from the electorate at the general election. We tried to expose the fallacy in the Government's thinking. Sadly, the people did not realise that our predictions were correct. We are now landed with what is, in effect, emergency legislation, introduced to raise national insurance contributions to fund the health service and to try to make improvements.

A host of Audit Commission reports, all of which are set out on the internet—some 10 or 12 of them have been issued in the past 18 months—contain recommendations on what should be done to improve the efficiency of our health service. What has been done to implement those recommendations? Of course the Government may be embarrassed by the fact that the Audit Commission has been so effective in probing in the past, but the trouble is that the Government have not followed those recommendations.

What prospect is there that some new commission will investigate all these things and that somehow everything will be better in future? The Government do not even apply the recommendations proposed by their own audit body, and we have many examples of that. A new development since Second Reading is the Bank of England's May 2002 inflation report, page 28 of which states:

"the cost of higher employer and employee contributions will ultimately be borne by employees."

That is very different from the story that the Government have put about that the burden will be shared by employers and employees, as though they can be separated. The national insurance increase represents an additional impost on the British economy and our competitiveness. As a result, it will damage our economy.

As the Bank of England says, if the burden were not ultimately borne by employees,

"firms would reduce their demand for labour in the face of a higher real product wage, leading to a temporarily lower level of employment and downward pressure on wage growth until equilibrium was restored. In the shorter term, however, the impact will depend on whether and the degree to which employees resist lower growth in their take-home pay."

The Bank of England says in its report that it is too early to say what the effects will be because we will have to see what happens in the marketplace, but it is obviously anxious that there will be inflationary pressure in the economy, fuelled by the increase in national insurance contributions for employers and employees.

I certainly have not seen any evidence in recent weeks that employees are saying, "Yes, I don't mind taking a cut in my take-home pay so money can go to the health service." I have not heard people who work in the NHS, the social services or the police, or head teachers say, "I'm looking forward to a reduction in my take-home pay, so more can be put into the health service."

People, especially those in the public sector, seem to be telling the Government, "Give us some extra money to compensate us for the additional national insurance tax, and we'll be content." Indeed, pay demands in the public sector are escalating frighteningly. Obviously, the demands from the fire service are the most prominent at the moment. The Government are fuelling that inflationary pressure by their actions in the Bill. That is why the Bank of England reported as it did in May. I hope that the Paymaster General will say in winding up the debate what she and the Government think of the Bank of England's observations. What the Bank of England has said is echoed by employers and employers' organisations up and down the land.

People working in the public sector and local authorities, as employers, are saying that they will have to pay extra because of the Bill. Will they be compensated? The only way that they can be compensated is with extra public money, again raised from taxes. So we have the spiral that we have seen so often under Labour Governments of increasing taxes to fund public sector organisations, which, in turn, have to spend a lot of money on additional employer costs rather than being able to put that money into better-quality services.

We are therefore extremely sceptical about the value of this Bill. The evidence of the Government's own experts is that, in England alone, waste and fraud in the national health service is of the order of £7 billion to £10 billion every year. We are amazed at the arrogance of a Government who, when faced with that evidence, rather than sort out that fraud and waste and improve the health service, come along to the taxpayer and the person paying national insurance contributions and say, "We are not going to sort out the fraud and waste, but we do expect you to make an additional contribution, and it will be all right in the end." That is not the way to run a Government in the thriving, competitive economy inherited from the Conservative Government. The Bank of England report makes the position clear:

"In the shorter term . . . the impact will depend on whether and the degree to which employees resist lower growth in their take-home pay."

In the longer term, however, the damage to the competitiveness of this country will be obvious. That is why people who are concerned about the future of our country are worried about this Bill and the additional taxation that it involves.

The Government did not go into the last general election saying, "We are going to increase taxes. These are the arguments for increasing them. Although we said in 1997 that there are only 24 hours to save the national health service, and we can save it without increasing taxes, we now realise, after four years, that we got it all wrong." What they are saying is, "Oh, now that the general election is behind us, we will increase taxes by stealth as much as we can. People will now have to see those tax rises." The Paymaster General has not heard the last of this. Next year, when people see the impact of this Bill in their pay packets, they will say, "What have we got in return? The health service has not been reformed, and the Government have once again broken their promises. They have put forward a proposition that has not been borne out in reality." That is why experts from the left and the right, from employers' and employees' organisations, are very worried about the Bill.

The Bill is best summed up as having been born out of a broken general election promise. The Government went back on what they said during the climate change levy debate—that imposing increases in employers' national insurance contributions was bad, which is why they made a virtue of reducing the burden on employers' national insurance. They have now abandoned that argument altogether. They have broken their promises and they are facing the country with additional taxes that we can ill afford.

That is why we shall vote against the Bill this evening—it will not deliver the improvements in the health service that we want, it will damage the economy, and it will raise taxes from people who are already being put under severe pressure as a result of stealth taxes introduced by the Government.

Photo of Steve Pound Steve Pound Labour, Ealing North

I hope that the hon. Gentleman will understand me when I say that I do not mean to be presumptuous, but to my mind his dire prognostications for the United Kingdom economy echo precisely the comments that were made from the Conservative Benches about the national minimum wage. The Conservative party was wrong then. Why should we believe it tonight?

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I am not making any dire prognostications about the economy. All I am saying is that, each time the Government increase the burden of taxation, they make our economy less competitive. The process occurs gradually—a point that is flagged up in the inflation report produced by the Bank of England. I do not know whether the hon. Gentleman had the chance to read the Bank of England's inflation report of May 2002 during his recent two-week break in his constituency, but I commend it to him. It shows that the Bank of England is on the ball and realises what is happening, even if the Government are not prepared to face up to its criticism.

We will see the consequences over a period of time. We will not see much immediately, because the national insurance contribution increases will not come in until next year. However, when people get their pay packets next year, they will see exactly the high costs that they are paying and, over time after that we will see the damage that the Government have done to the economy.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon 9:05 pm, 10th June 2002

The Liberal Democrats' support for the Bill is based on reasons opposite to the Conservative party's reasons for opposing it: we support the increase in funding for the health service. The health service and social services desperately need extra funding, and that has to be welcomed.

We are not entirely happy with the precise way in which the funding is to be raised. For the reasons that have been outlined in the debate, we have made it clear that we would rather have an increase in the top rate of income tax on incomes of more than £100,000 and not an increase in employers' national insurance contributions. Such an increase will impose a burden on businesses that are struggling to cope with a strong pound and the difficulties of exporting.

The Government have previously recognised that taxing employers for employment is a negative approach. As Mr. Chope said, when we debated the climate change levy in 1999, the Government said that they wanted to reduce tax on good things such as employment. Although we support the extra funding and support raising the extra money through taxation on income, we are not happy about raising the money from businesses. However, the NHS is so desperate for the increase that we will not take the position that it should not receive any extra funding at all. Unlike the Conservatives, we do not want to defend a view that means that there would be no extra money, or a cut in the growth in funding. We are therefore prepared for the money to be raised in the way suggested in the Bill.

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

Goodness gracious. I never thought I could be taken aback by a contribution from a Liberal Democrat Member. However, on this occasion, Dr. Harris has confounded me. In the light of what he has just said about how the Liberal Democrats opposed the increase in national insurance contributions, did not want it to happen and tried to stop it but are prepared to support a Bill whose principal element is such an increase, is he surprised that the Liberal Democrats are regarded as two-timing, fence-sitting, unprincipled political chameleons?

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

When the hon. Gentleman grows up, he will know that grown-up politics is about making choices that are not necessarily in one's hands. He must understand that a mature attitude to politics involves saying that this is what we would like to happen, but that we have a second-best option if it cannot happen. For us, the second-best option is to raise money partly through employers' national insurance contributions even though we are concerned about that.

Our top priority—the hon. Gentleman will rue the fact that the Conservative party does not recognise this—is public investment in the public services. Although we accept that they need changes and reform, they fundamentally need resources, and we are prepared to accept tax changes that we would not otherwise have supported because that is such an important priority. That is nothing new and, if the hon. Gentleman is dumbfounded by that approach, he will have a dumbfounded political career.

We are critical of the way in which the Government have governed the health service and their history of investment in it. The investment has arrived five years later than it should have done under a Labour Government and five years later than people expected when they voted in 1997 for a party that said that it would save the NHS as soon as it was elected.

Let us consider how much the Labour party has put into the health service in those years and compare that with what the Government are proposing now. On Second Reading, I invited the Paymaster General to specify by how much social services spending—adjusted for special transitional grant, community care arrangements and population changes—had increased between 1997 and 1999, because the figures for 1997–98 and 1998–99 are missing from the Wanless report. She did not answer that question, but a Library paper clearly states the percentage changes. In 1995–96, under the Tories, it was minus 2.9 per cent.—a real terms cut in funding to social services for the vulnerable. In 1996–97, again under the Conservatives, it was minus 1.8 per cent. In 1997–98, under Labour—despite "24 hours to save the NHS"—the change in real-terms spending, adjusted for special transitional grant and population changes, was minus 2.7 per cent. In 1998–99, it was minus 2 per cent.

So after years of Tory underfunding, when many social services departments could not take any more, they got another hit from the Labour Government from which many, including the social services department in Oxfordshire, have not recovered. Five years later, we have the opportunity to give social services departments, as well as the health service, the funding that they need. However, we do not believe that the Government will adequately allocate the funding provided by the Bill into social services. It is clear from returns from social services departments around the country that they are more than £200 million overspent on their budgets. The Government may say that that is tough and that they should simply cut £200 million from caring for the elderly, the mentally ill, the disabled or the vulnerable young and children in care. Many are having to do that. However, as the bulk of their funding comes from central Government, central Government will have to account for that.

On top of that, there is a £1 billion gap between what the Government say social services departments should be spending—the standard spending assessment—and what they are spending. That is £1 billion taken from other services and from steep rises in council tax, which is a more regressive tax than that proposed in the Bill. Before considering tackling the problems of delayed discharges and the underprovision of funding to deal with the crisis in care for the elderly and for children, the Government should deal with the £218 million overspend and the £1 billion reality gap between what social services departments are having to pay and what the Government say they should be spending. The Government are giving a welcome few hundred million pounds to tackle the issue of delayed discharges, but that in itself will not be enough.

As the hon. Member for Christchurch said, there are questions to be asked about how well funding for the health service is being spent, and it is right that we should ask those questions. There are false economies in three areas, for which the Government must take some responsibility. I hope that the new Chief Secretary, who is in charge of public service agreements for spending Departments, will ask the Department of Health to explain how huge amounts of NHS capacity can be lost because of delayed discharges. If funding was made available to social services departments and, indirectly, to the private health care sector, we could at a stroke release significant amounts of capacity—much more quickly than by training more nurses to open more beds, as we need to do and are doing.

Photo of John Mann John Mann Labour, Bassetlaw

The hon. Gentleman may care to visit my constituency to see what a Labour county council can do. I am perplexed by his prognosis on cuts. Where does the money come from for the 20 brand new intermediate care beds that were opened last year in my constituency? Where does the money come from for the 20 or more additional intermediate care beds at an alternative site that is being developed in my constituency? Is that the difference between the prioritising of a Labour county council and that of his county council?

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

Oxfordshire county council has been subject to cuts under Liberal Democrat-Labour administrations, Labour-Conservative administrations and Conservative-Liberal Democrat administrations. I have never criticised those administrations in the House, even when my party was not involved. All local politicians recognise that without central funding to ensure that services grow, let alone remain the same, we let down the most vulnerable in society.

The hon. Gentleman should look at the figures on delayed discharges, especially for areas outside his constituency, with its ministerial visits. I am delighted that a few more beds have been provided in his area. I suspect, however, that he does not issue a press release every time a private care home bed closes there. What we have is closure by stealth and announcements by acclamation. I am happy to visit Bassetlaw to see what is happening there, and I urge him to come to Oxfordshire where councillors of all parties are in despair at the cuts. I suspect he does not want to come—see no evil, hear no evil, speak no evil. Nevertheless, the cuts are taking place in many authorities, including some that are Labour run.

The second false economy is the cost of employing agency staff. The Chief Secretary and I know that the problems of health service staffing, including under- recruitment and under-training, are predominantly the fault of Conservative Administrations and have been inherited. None the less, the fact that the investment was not provided as early as it should have been has meant that the problem of paying agency staff over the odds remains because of a shortage of established posts in the NHS. That has cost a huge amount of money that need not have been spent. Indeed, we could be five years into a significant increase in funding.

The third false economy is the use of the private sector as a short-term measure. Some people are getting their operations quicker than would otherwise be the case, but in terms of value for money, the Chief Secretary must understand that it is highly likely that spot contracts, the costs of which are usually kept secret because of commercial sensitivity, are more expensive than releasing the capacity in the health service to tackle delayed discharges. We have to consider whether the money raised from an increase in NICs will simply be chucked away as we pay over the odds in secret contracts with the private sector. Even when private firms bid for contracts, they do not bear the same overheads as the NHS, which provides almost all the training and research. It is the only market for contracts in which one competitor trains the staff of its leading competitor, which has to bear none of the overheads. The time must come when we impose a training levy on private sector employers to pay back the costs to the NHS of training those staff.

The Government did not announce before the election that the increase would be needed. To some extent, I agree with the hon. Member for Christchurch on this. He said that the Labour party failed at the election to recognise the truth that taxes would have to rise to pay for the health service. On that basis, the Conservatives also failed to recognise the truth, although they would say that taxes do not need to rise to pay for the health service, and we discussed how they would pay for everything that is needed.

On Second Reading, I asked the Chief Secretary's predecessor why, as No. 2 to the Chancellor, he could not forecast that a year after the election he would be raising taxes in such a significant way through national insurance contributions. He did not answer, but the hon. Member for Christchurch kindly put the point to him again in summation, for which I am grateful. He said:

"At that time"— during the general election

"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."—[Hansard, 13 May 2002; Vol. 388, c. 603.]

Mr. Smith said that he had no such knowledge.

The right hon. Gentleman is a man of his word—he is an hon. Member—and I am sure that that is true, but it worries me, as it should all hon. Members, that the second-in-command at the Treasury had such a poor grasp of the economic outlook and of Government receipts for public spending that he could not predict at the general election a year ago that taxes would have to increase in this way. I think that that is either frightening or that he was mistaken. I would be interested to know whether the post's current incumbent believes that it was reasonable for his predecessor to be out by a factor of a few billion pounds and in terms of significant tax changes within one year. Can he not look a year ahead?

One aspect that has not been covered in our short debate is the complexity that the Bill produces in the tax regime. In an ideal world, we would have a simplified tax system that would make things more transparent, keep money from accountants and leave more money in taxpayers' pockets. We have a very complex tax system. My hon. Friends have been proposing that simplification should be one of the Government's priorities. It is sad that the welcome resources that are to be raised by the measure are to be raised in such a complex way.

We must consider how the Government will face the next election in terms of delivery. What worries me is that it will take a long time for the health service to produce the changes. I am worried for the patients who have to lie in pain awaiting their surgery, and I also worry that people will think that the extra resources that are going in so late were not sufficient to do the trick. Hon. Members should realise that even the resources that are going in now will take some time to work through to increased capacity. I am worried that the Government have been five years late, so that people will think in the next few years that the money is going in and will not allow enough time for improvement. In that respect, the Government are hoist with their own petard. They announced huge increases in 1997 and 1998, but the significant increases that we have seen recently were not made at that time. I think that the health service as a national service is more under threat now than at any other time as a result of the Government's complacency in terms of giving it the resources and reform that it needs.

I fear that the Government will seek to blame anyone but themselves for their slowness to deliver. They will blame the hard-working staff in the health service, scapegoat a few hospitals that do not have sufficient capacity and seek to pick fights with the unions for opposing untested and unreasonable reforms. As we have heard, they will also seek to blame patients for not turning up. The reason why many patients do not turn up for appointments is that they are either already dead or in hospital. The idea of fine collectors wandering around cemeteries to try to fine patients for not turning up to appointments is beyond the pale.

I hope that the Government will accept in humility some responsibility for the delay in delivery that their lateness in putting in the resources has caused. In supporting the Bill on Third Reading, it is right to let the Government know that the resources are welcome but that to date their record on managing the health service has not been good.

Photo of Peter Luff Peter Luff Opposition Whip (Commons) 9:23 pm, 10th June 2002

May I say what a privilege it is to see the new Chief Secretary to the Treasury in his place? I am sure that the right hon. Gentleman will be as robust in dealing with his colleagues in spending Departments as he is in dealing with sloppy arguments in Committee or on the Floor of the House. I wish his colleagues in those spending Departments well in their negotiations during the coming weeks and months.

There are at least five reasons why the Bill should be resisted with absolute clarity and certainty. The first is the impact on the business sector. The second is the cost to the public sector. Thirdly, there is the cost to individual voters, who will pay the taxes directly or indirectly. Fourthly—this is very important—the Bill represents a massive broken promise by the Government. It should be a matter of considerable concern to the House that they have broken their promises as spectacularly as they have done by introducing the Bill. Finally, the Government are simply proposing to pour money into the existing health system without seeking the reform of that system that is essential to ensure that it will use those additional resources effectively.

To put it simply, in the past five years taxes have gone up and up, but as we all know, public services have got worse. The country deserves a great deal better, not more of the same. The Government have increased taxes with great abandon, but they are not addressing the problems in our health service with the open mind that they should have in dealing with such an important matter. I am particularly concerned that the Government seem so unprepared to learn lessons from other countries—lessons that Her Majesty's official Opposition are most anxious to learn.

Let us look at the first of the reasons why the Bill should be resisted: the impact on businesses. Under the Labour Government businesses have been hit by higher taxes, and in particular by increased red tape and regulatory burdens. In my discussions with the south Worcestershire council of the Hereford and Worcester chamber of commerce shortly after the Budget, I learned just how concerned businesses were about the Bill, coming as it does on top of all the other burdens that they now have to bear.

Photo of John Mann John Mann Labour, Bassetlaw

What is those people's view on the reduction in corporation tax, and what is the hon. Gentleman's?

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

As far as I know, they have no view on that matter—but in inviting me to express mine, the hon. Gentleman has anticipated my next remarks. In that tantalising intervention he alluded to the fact that the Chancellor claims to have cut business tax. He has announced—I think I have the litany right, but I am sure that the Chief Secretary will correct me if I get it wrong—a cut in small companies corporation tax rate from 20 to 19 per cent.; the exemption of companies from corporation tax on sales of substantial shareholdings; a reduction in the starting rate of corporation tax from 10 per cent. to zero; and a cut in capital gains tax to 20 per cent. for business assets held for one year and more, and to 10 per cent. for assets held for two years and more. Is that the sort of list that John Mann sought? [Interruption.] Obviously, the hon. Gentleman broadly agrees.

That is all very well, but it is more of the smoke and mirrors—the spin—that we are used to from the Government, because the Chancellor's changes to employers' national insurance contributions will raise as much as a 3 per cent. rise in corporation tax. He gives a little with one hand and takes a great deal more back with the other. That is the fundamental point.

Employers who pay national insurance contributions on all earnings above the threshold—that is frozen at £89 a week—face a rise from 11.8 to 12.8 per cent. That is a big increase, which more than makes up for all the good things in the Budget. The hon. Member for Bassetlaw is right—there were good things in the Budget.

Photo of John Mann John Mann Labour, Bassetlaw

Is it not the case that the main rate of corporation tax has been reduced by 3 per cent. and the rate for small companies by 4 per cent., which, with the changes in capital gains tax for any entrepreneur who sells his business, will mean that the overall benefit for any small business will be 10, 20, 30 or 40 times the increase in national insurance?

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

I am glad to have flushed the hon. Gentleman out. He appears to be greatly concerned about that point. I could not persuade him with my previous argument, but perhaps I can persuade him with this one.

When the Chancellor announced his business tax cuts, of which the hon. Gentleman is so proud—it gives me great pleasure to hear Opposition Members—[Interruption.] I am sorry; they will be Opposition Members again soon, but I meant to say that it gives me great pleasure to hear Government Members boast about their desire to cut the rate of business taxation. Even if they are not succeeding in doing so, I am glad that at least they seem to want to try. When the Chancellor announced his so-called business tax cuts, he did not mention—

Photo of John Mann John Mann Labour, Bassetlaw

Will the hon. Gentleman give way?

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

I will deal with one intervention at a time. If when I have finished, the hon. Gentleman is not satisfied with my answer, I shall happily give way to him a third time.

Let me make this point: a company that does not make a profit does not pay corporation tax, but it does pay national insurance contributions. That is tremendously important. For struggling businesses, new businesses, or businesses facing short-term difficulties, the national insurance contributions increases are far more damaging than any corporation tax increase, and any NIC cut would be far more beneficial than any corporation tax cut. The hon. Gentleman should remember that even in the brave new world created by the Chancellor, many businesses find life tough. That is why the national insurance contributions increases are so serious for business.

Photo of John Mann John Mann Labour, Bassetlaw

The hon. Gentleman suggests that the cuts in corporation tax are illusory. They are real cuts that any business person can see—real cuts, year on year, for anyone who runs a business. That is why there are so many more successful businesses, and 1.5 million people back in work. For anyone running a business, the key issue of certainty centres on interest rates. Are not current interest rates the lowest since the 1960s? Is not the cost of borrowing money for a business, small or large, lower than ever? Is that not the reason for the increased profitability in the small business sector in the past five years?

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

I ought to invite the hon. Gentleman to make his own speech, because that was a long intervention. I suspect that you would rule out a discussion on interest rates policy, Mr. Deputy Speaker—I am glad to see you nod in agreement, Sir.

I agree that not everything is a problem in the modern British economy. I am glad that not everything that the last Conservative Administration put in place has been squandered by the incoming Labour Government. I fully agree that we have enjoyed a sustained period of growth over many years—much longer than the Government have been in office. That is excellent news, but it does not justify swingeing increases in business taxation, which are disguised in the Bill and have been condemned by the business sector.

I am worried that the Government are not prepared to assess the implications of the changes for employment. They were happy to boast about the impact of reductions in national insurance contributions accompanying the climate change levy, and their beneficial effect on employment, but now they are increasing national insurance contributions, that willingness to calculate has disappeared entirely. The CBI estimates that companies will pay £4 billion more in tax because of the 1 per cent. increase in national insurance from next April, which comes on top of the additional £6 billion a year net in extra taxes that has been imposed on the business sector and the £5 billion-worth a year of extra red tape. Those burdens are beginning seriously to impede companies' ability to win orders and create jobs.

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

It is no good the hon. Gentleman shaking his head in disbelief. Ernst and Young, in its ITEM—independent Treasury economic model—club report for spring 2002, said:

"Many companies will be taking another look at headcount before the increase in payroll tax comes in next April".

The report also said:

"The risk is that employers, already under pressure from high labour costs, and in many cases unable to pass costs on to the consumer"— the hon. Gentleman needs to bear that important point in mind—

"will take another look at staffing levels before next April. An extra 1 per cent. on the wage bill may not seem much but it adds up to £3.9 billion in a full year, 12 per cent. of the corporation tax bill. For many companies, an extra 1 per cent. on labour costs may prove to be the last straw".

I do not share the hon. Gentleman's optimism about the Bill's impact on the business sector; far from it—the impact could be serious.

The Bill's impact on the public sector concerns the whole House. There are, for example, about 1 million NHS workers in England alone; the 1 per cent. rise in employers' national insurance contributions will increase the cost of employing them by about £200 million. In my constituency, that is of particular concern to general practitioners. In south Worcestershire, the settlement for our primary care trust was not generous, as the area was split up to form the new trusts that replaced the old primary care groups.

Pay settlements for ancillary workers in surgeries impose a burden on GPs' budgets, and on top of that, those doctors have to pay a 1 per cent. increase in national insurance contributions. Local GPs are wondering what economies they will have to make in the running of their surgeries and what reductions in service they will offer my constituents—their patients—as a direct result of the increase in national insurance contributions and other factors of the Government's making. There are therefore genuine concerns about the Bill's impact on the quality of the service provided by the NHS in my constituency.

The police are another interesting example. Today the Home Office announced that three constabularies in the west midlands, including West Mercia police, would get an extra £900,000 to help in the fight against terrorism, which would mean an extra £300,000 each. I am sure that that figure will be dwarfed by the increase in the national insurance bill for the West Mercia constabulary alone; the Lord giveth and the Lord taketh away. It was ever thus, I suppose, but the impact is serious and will impose a further burden on a service that had to raise its council tax precept by 33 per cent. to achieve an acceptable level of policing in my constituency.

Those changes, coupled with the changes in income tax, will have a direct impact on ordinary people—the voters themselves—not just the businesses or public sector services that employ them. A nurse consultant on £34,000 a year will be £26 a month worse off from next year, a police inspector on £37,000 a year will be £30 a month worse off, and an employee earning £20,000 a year will be £15 a month worse off. Those increases in personal taxation directly break the Government's promises to the people of Britain in the election campaign. That is an important point. For a Government, within a year of an election, to bring forward legislation that directly contradicts the promises that they gave to the people at that election should be a cause for shame, not for pride. However, that is what this Government have done.

On 22 May 2001 the Prime Minister was interviewed by Jeremy Paxman, who asked him:

"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."

I agree that that is rather a convoluted question, but the Prime Minister's reply was, "They shouldn't." He said that people should not make that supposition. However, a year later legislation is introduced to do precisely what the Prime Minister clearly implied would not happen.

The previous Chief Secretary, who is now the Secretary of State for Work and Pensions, was asked on the Dimbleby programme:

"You say that you won't rule it out because you can't afford to. Do you also accept that as far as voters are concerned, National Insurance is regarded as a tax on income?"

This is the nearest that we get to an honest answer from a Minister to such a question. The right hon. Gentleman said:

"Well, certainly it comes out of the wage packet."

It certainly does, and people will feel it next year.

I am glad to see that Keith Hill, the Government Deputy Chief Whip, is in his place. On "Your Call" on Sky News on 4 June 2001, he said:

"We have no plans to raise any kind of so-called stealth taxes. Gordon Brown has made it perfectly clear that we have absolutely no plans to raise the ceiling on National Insurance."

You know now, Mr. Speaker, that if Ministers or their representatives say that they have absolutely no such plans, you should start reaching for your wallet as a matter of urgency, because plans certainly exist.

I should add that I have great affection for the Government Deputy Chief Whip, who made possible an important bypass in my constituency, for which I shall always be in his debt, as will the people of Wyre Piddle—but I will not labour that point for fear of upsetting the hon. Gentleman any further.

Then there is the reform of the health service itself. The Government are effectively hypothecating their national insurance increases for the health service. I have said already that they have had a closed mind about the reforms that are necessary in the health service to make sure that it can use the moneys effectively.

I now have four questions for whichever Minister will wind up the debate. I am not entirely sure which of the two present that will be, but I am sure that whoever it is will do it extremely well. By the time of the next election, spending on the NHS will have increased by 70 per cent. in real terms since 1997. Does the Minister think that the NHS will have improved by 70 per cent. in that period? When patients in Britain are dying of diseases that they would not die of if they lived in other European countries, why did the Chancellor tell Mr. Wanless not to consider any of the ways of administering health care that have proved more successful elsewhere?

Next, can the Minister explain why despite the fact that NHS spending has increased by nearly one third since the Government came to office, the number of people waiting to get on the NHS waiting list has increased by 113,000? During Prime Minister's questions my right hon. Friend the Leader of the Opposition asked:

"By the time of the next general election when health spending in Britain has reached the European average, will we have European standards of health care?"—[Hansard, 24 April 2002; Vol. 384, c. 328.]

The Prime Minister refused to say that we would. Why did he refuse to answer that question? These are important questions that the Government need to answer.

I remain unconvinced by my experience that the Government are making effective use of the spare resources that exist in the private health sector in my constituency. I remain concerned that some of the problems of the health service have been created directly by the policies introduced by the Government. The question of social services beds, which was referred to by Dr. Harris, is crucial. The burdens imposed on the caring sector have been huge, and have contributed directly to delayed discharges from hospitals in Worcestershire. Those problems could have been avoided not by spending money but by having a more friendly and sensible regulatory regime.

The Bill should be resisted, for the five reasons that I have set out. There is the impact on business, the cost to the public sector, the cost to voters, the broken promises and the Government's failure to reform the health service appropriately to ensure that money is spent appropriately. I am sad that the Government have not seen the error of their ways, and I hope that the House will vote to oppose the Bill on Third Reading in a few minutes' time.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport) 9:39 pm, 10th June 2002

With the leave of the House, Mr. Speaker.

I congratulate my hon. Friend Mr. Luff on an excellent speech, and hope that the Government will respond to his powerful comments. Let me make a few more points, very briefly.

Dr. Harris made an important observation when he said that throwing more money at the NHS would not produce quick results. I think that if the Government deployed their resources in tackling existing inefficiencies immediately, they would secure much quicker results. Only last month, an Audit Commission report suggested that inefficiency in the NHS was costing the equivalent of 150,000 operations a year—the number of operations that the NHS plans to buy from the private sector this year. Think of the enormous sums that could be saved if the existing system were reformed.

We still feel that the Government have gone for the easy socialist option of increasing taxes and throwing more money at the public service, when what we really need to do is make the public service better. That can be achieved only through proper, substantial reform.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 9:41 pm, 10th June 2002

There are now more than 107,000 fewer people on NHS waiting lists. No one is waiting more than 15 months for operations, whereas nearly 60,000 were doing so in March 1997. There are 6,000 fewer people waiting more than 12 months for operations, and we are on course to eliminate that figure by the end of next year. Just 500 people—500 too many, admittedly—have been waiting more than six months to see consultants, compared with more than 70,000 in March 1997.

There are now 25 per cent. more heart operations—some 10,000—every year. There are 171 more cardiologists, an increase of over 40 per cent. More than 95 per cent. of people urgently referred by their general practitioners with suspected cancer now see consultants within two weeks, compared with 63 per cent. in 1997. There are 566 more cancer consultants, an increase of 18 per cent. There are 50 per cent. more computerised tomography scans, and 86 per cent. more magnetic resonance imaging scans. An additional 500,000 operations are performed in the NHS every year, an increase of 10 per cent.

Last year there were 700 more general and acute beds in the NHS—the first increase in bed numbers for 30 years. NHS Direct has been rolled out across the country. The number of delayed discharges has been reduced; 4,700 such people now occupy acute hospital beds. Of course we desperately need to ensure that those people have appropriate care and support, but that compares with 6,800 delayed discharges in 1997.

Twelve major hospital schemes have been completed, and a further 15 are under construction. Every accident and emergency department that needed modernisation has now been modernised. Moreover, there are now 31,000 more nurses and 9,500 more doctors, including 2,000 new, modern matrons.

Despite all that, Dr. Harris has the cheek to suggest that nothing has changed and that the Government have not been investing more money in the health service and ensuring that it grows. I must tell him that his constant parroting of "We, the Liberal Democrats, will cost you 1p," or "We, the Liberal Democrats, would raise the money in a different way," is no substitute for hard policies and delivery of services in the NHS. As the Chancellor of the Exchequer has made clear, the Bill sets out plans for an unprecedented increase in spending in the NHS, together with responsibility for proposals for financing that increased spending.

What of the Tories? We have gone through yet another debate on national insurance, but are we any the wiser about their policy? No. The Tories are still thinking about it—open-minded and empty-headed. There are no proposals from them. They are so empty-headed that they cannot even make it clear on the Floor of the House that they are committed to a comprehensive health service available on the basis of need, not ability to pay. Have we heard one of them utter that principle? No.

What we have heard the Tories say is why we should use taxpayers' money to subsidise private medical health care, why they believe that employers should not meet their obligations in contributing to a fine and first-class NHS, and why they believe that there is a magic formula out there to produce a health service that will respond to people's requirements and needs but will not require any extra resources. If they had learned anything from their defeats in 1997 and 2001, it would have been that the British electorate rejected their policies of underfunding the public sector and the NHS, and that the British electorate want their health service to be the best in the world and are prepared to pay for that on a fair and equal basis built on the fine principles of the Beveridge proposals. Yet again, all we have heard today from the Tories is why they want to stop that happening.

I say to the House and to the British electorate that if they had any doubts that the intention of the Conservative Opposition is to privatise the NHS, to cut it and to create a two-tier NHS, they have seen the proof of that intention in the debate tonight. This Bill guarantees, for the first time in the history of the NHS, consistent investment in the NHS: staff, beds, buildings and services to respond to the needs of the British people. I commend the Bill to the House.

Question put, That the Bill be now read the Third time:—

The House divided: Ayes 336, Noes 129.

Division number 258 Orders of the Day — National Insurance Contributions Bill — Schedule 1 — Consequential Amendments

Aye: 336 MPs

No: 129 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Question accordingly agreed to.

Bill read the Third time, and passed.