Clause 3

National Insurance Contributions Bill – in a Public Bill Committee at 11:00 am on 7 December 2010.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 11:00, 7 December 2010

I beg to move amendment 8, in clause 3, page 2, line 2, leave out ‘50’ and insert ‘90’.

Amendment 8 is short and simple, but it may require some explanation. Clause 3 refers to the Social Security Administration Act 1992 and the percentage rates that form part of the health service allocation. The Bill seeks to change the additional primary percentage rate and the additional class 4 percentage rate from 100% to 50%. The additional rate in both cases is being increased from 1% to 2%. The Government’s intention is that the same quantum of money raised by the original 1% additional rate should continue to go to the health service allocation, but that the revenue from the additional 1% should go not to that allocation but to the general national insurance fund.

The clause and the amendment are crucial in many ways. The clause reminds us that expenditure for the national health service, which is cherished by many of our constituents throughout the country, is at the front and centre of people’s minds during general elections and beyond, because they want to protect NHS investment. The clause and the amendment give us the opportunity to discuss the sums of money allocated to the NHS. The NHS benefited considerably from the 13 years of Labour Administration when increases in its resources grew at a rate never before seen. We have seen great improvements in the quality of care.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

It was absolutely necessary that the expenditure increased at that rate during that period. Is it not the fact that health service expenditure when we came into office in 1997 was so appallingly low that we had to do something about it?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed, that is absolutely the fact. My hon. Friend will remember that in 2003, the then Chancellor of the Exchequer felt it necessary to go even further and boost NHS investment above and beyond that which normally resulted from spending review processes. The introduction of the additional 1% of national insurance came with hypothecation—something that the Treasury traditionally resists, but it acquiesced in that case; the money it raised was earmarked for the health service allocation. That is certainly something of which I am very proud.

It is important to note that the Bill seeks for all the additional revenue from all that extra 1% to go generally to the national insurance fund. We have heard this morning that the fund is already in healthy surplus and that it cannot be used for current expenditure, but that it could perhaps be loaned back to the Debt Management Office and, in turn, be used to fund certain capital expenditure or infrastructure expenditure.

It is worth noting that in the spending review the Chancellor and the Health Secretary did a bit of double counting on the changes to the national health service budget, because, as hon. Members may recall, over the four-year period the definition of NHS health care has changed. Whereas the Conservative party manifesto and the coalition agreement promised that the NHS would grow “in real terms” year on year, in reality that is not the case. The Government are counting £950 million on average over those four years, but that money is actually for social care and social services, and would otherwise have been line-itemed in a different part of the nation’s account—local government social care expenditure. By changing the classification with a stealthy accountancy trick, they are somehow able to claim that there is a real-terms rise in the NHS budget of 0.4%. But on the traditional basis, looking beyond the spin, the NHS will receive a 0.54% real-terms cut.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

Order. The hon. Gentleman has taken us quite some way into the realms of NHS funding. Could he perhaps come back a little closer to the detail of his amendment?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed, Mr Brady. I appreciate your reining me in slightly, but it is important that we note that the 0.54% equates to a £500 million shortfall. That figure is important, because, in essence, it is the amount represented by my amendment.

The amendment seeks to take four fifths of that extra one percentage point rise in national insurance—essentially moving from a 50% take to a 90% take—so that the £500 million shortfall in the Government’s promise of a real-terms increase would have to be delivered to the NHS allocation through the national insurance change. In shorthand, the amendment is designed to keep the Government to their word, and keep Ministers to their promise of a real-terms increase in the NHS budget.

Kelvin Hopkins rose—

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

Order. Before I call Mr Hopkins, I ask him, too, to be punctilious in tying his points about the NHS directly to the amendment.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Thank you for that advice, Mr Brady.

I support my hon. Friend by saying that hypothecation is generally not supported by the Treasury or by most Members, because we want taxation to be spent as appropriate and as needed, particularly at this time. Although the contributory principle that underlies national insurance contributions is not as pure as it used to be, the amendment retains that contributory principle in the national insurance fund.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Quite; and it is important to note that, as the Bill states, there is now a well trodden path where national insurance contributions may be vired to the health service allocation. The point that we are debating today is the proportion of those additional rates of national insurance that ought to be allocated to the health service allocation. It is important that we reflect on those amounts, and I am attempting to press the Minister on that point. My calculation is that, roughly speaking, there is a £500 million shortfall in what would be needed for the Government to keep their promise of a real-terms increase in the NHS health care budget. That is based on the traditional definitions, had they not made that slight double-counting change on social care.

Photo of Gavin Shuker Gavin Shuker Labour, Luton South

Is not the amendment even more important given that the national health service will pay additional levels of employer’s national insurance contributions?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

That is indeed true. The Government have already allocated some of that money to specific items of expenditure. We may come to that point later. The amounts we are talking about are needed by the national health service for several reasons. First, the drugs budget in the NHS is considerable and traditionally has more inflation than most other areas of the economy. Medical technologies are changing apace and they too require significant investment. Our ageing population means that a real-terms increase in the national health service budget is needed and it is something that the general public expect and have voted for historically. Again, they may have felt that they were voting for the parties now in government under the illusion that they would be getting a real-terms increase, but detailed exploration of what is happening to the national insurance revenues and other NHS allocations shows that the Government are falling short of that.

Photo of Heidi Alexander Heidi Alexander Labour, Lewisham East

My hon. Friend mentions public perception. I feel that the public understand the need to pay employer’s and employee’s national insurance contributions on the basis that they are going towards a service that they value greatly. Does my hon. Friend share my concern that perhaps this move away from that norm muddies the water somewhat in terms of the public’s perception of what national insurance is used for?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Yes; it would be useful for the Treasury to embark on a fresh wave of public information about national insurance more generally because there is a lot of confusion among members of the public about where their money goes. For a start many do not recognise that there is a pay-as-you-go element. They sometimes feel that the money is paid into a fund, invested for the long term and then called upon at a later date, which is not the case. There is an understanding that there is some NHS amount in that, which is, essentially, the point of our debate today. The amendment would ensure that 90% of that additional revenue was allocated to the NHS.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

May I again help the hon. Gentleman with his history? This time it is Labour history. In 1947, when the second greatest Welshman of the 20th century,  Aneurin Bevan, was drafting the National Health Service Bill, he was determined to move away from the contributory principle in health care, which is what many people had had to do until then. He was determined that the NHS should be funded from general taxation, not national insurance.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am intrigued by that Liberal Democrat intervention, which suggests that we might expect an amendment from the hon. Gentleman on Report that would go even lower than the 50% level set out in the Bill. Surely he would support at least 50%, but I expect he will fall into line on Thursday behind the Conservative Front Bench. [ Interruption. ] “We shall see”, say voices off. We shall indeed see. On this issue we were promised a real-terms increase, but that is not what the Government are delivering. We need the amendment to keep them to the investment that will be necessary.

When the Prime Minister said in his speech to the Conservative party conference: “The NHS—protected”, in that classic staccato way that leaders tend to speak at party conferences, it turns out that that was not the case. The Chancellor of the Exchequer said:

“This coalition Government made a commitment to protect the NHS and increase health spending every year. Today we honour that commitment in full. Total health spending will rise each year over and above inflation.”—[Official Report, 20 October 2010; Vol. 516, c. 959.]

Yet the small print shows that the Government are around £500 million short on that. There has been a series of criticisms from many notable individuals. For example, Dr Peter Carter, the chief executive of the Royal College of Nursing, has attacked the urban myth that the NHS is being protected, stating:

“The evidence we have gathered is quite clear: that is not the case.”

The Royal College of Nursing points out that there are 27,000 potential redundancies and that posts are being removed across the national health service. In my constituency the ambulance service is very worried about the shortfall from the real-terms increase that is implicitly promised by the Bill and the other package of measures that the Government have put together. The service may have to reduce the number of ambulance staff from 3,000 to 2,600. Those are significant cuts. Dr Peter Carter has said:

“The public should be really concerned about the potential impact to the NHS. I predict waiting will rise. It won’t be too long before people start asking what is going on.”

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee 11:15, 7 December 2010

Order. I sense that the hon. Gentleman is moving towards a conclusion, so I am being quite tolerant.

Photo of Gavin Shuker Gavin Shuker Labour, Luton South

Does my hon. Friend agree that a good way of conceiving of the clause in the context of the amendment is that although money is being taken away from the NHS by the changes, up to 90% would be given back?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Yes, and it is important that we understand what the Bill does. The move from 100% to 50% would essentially freeze the amount in quantum terms that is going to the NHS. Through the amendment we are  saying that the Government are falling short of their promise to give a real-terms increase, which is why the figure 90 needs to be substituted in the Bill. Good reasons exist for doing so; for example, Ministers have broken their promise to the Royal College of Midwives for the 3,000 extra midwives they said would be delivered by 2014. According to the Royal College of Midwives, the Government said—

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

Order. This is not a general debate on health policy. I ask the hon. Gentleman to return to his point or move to a rapid conclusion.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Obviously, Mr Brady, I accept your entreaties, and it is important that we look at things specifically in terms of the amendment. Moving from 50% to 90% in the Bill may enable Ministers to keep their promise to deliver those 3,000 extra midwives. That is all I seek to do; I do not want to detain the Committee in any way, because that is not my role here today.

It is important to recognise that significant issues face our NHS, and the amendment would at least help to address them. I hope that the Minister admits that the sophistry of Government accounts is such that they fall short of a real-terms increase, and that an amendment such as this is necessary to ensure that the Government keep their promises.

Photo of David Gauke David Gauke The Exchequer Secretary

I thank Opposition Members for tabling the amendment. It may help if I provide some history to put it in context. Hon. Members know that during the 2003-04 tax year there was a 1% increase in national insurance contributions, and the introduction of a new national insurance contributions liability—the additional rates—on earnings above the upper earnings limit and upper profits limit. The allocation of the additional rates is the subject of the amendment. In 2003, the whole of the increase was earmarked for improvements to the NHS, and the legislation reflected that policy with the whole of the additional rate being allocated to the NHS, as well as the 1% increase in the main rates of national insurance contributions on earnings below the upper earnings and upper profits limits.

Following the election, the coalition Government confirmed in our programme document that we would increase the rates of national insurance contributions by 1%, but that we would reverse the most significant impacts of those rises through increases in the employees’ and employers’ thresholds. The Government and, as far as I am aware, the previous Labour Administration when announcing the increases in the pre-Budget reports of 2008 and 2009, did not at any stage announce that the 1% increases are specifically for the NHS. The Government have said that they will increase NHS spending in real terms in each year of the Parliament. We can afford to do so without additional funding from the national insurance contributions increases as proposed by the amendment.

In the emergency Budget on 22 June, the Chancellor announced that from April next year we will re-link the basic state pension to earnings. Pensioners will also be protected by the triple lock, which will guarantee each and every year a rise in the basic state pension in line with earnings, prices or a 2.5% increase, whichever is  greater. I know that this is a point that we debated earlier, but although the national insurance fund is currently in surplus, the commitment makes it sensible for the whole of the 1% increase to be channelled into the national insurance fund rather than the NHS.

If I may, I shall address one or two points that arose in the lengthy debate we have just had. The hon. Member for Luton South made a point about the impact of the national insurance contributions rise. Due to the increases in thresholds that reverse much of the effect of that, that will indeed reduce the burden on the NHS. I am grateful to the hon. Gentleman for drawing attention to that point. It will enable us to fund new cancer drugs by up to £200 million per year.

Photo of Gavin Shuker Gavin Shuker Labour, Luton South

Is the Minister saying that the net effect of the changes will be to reduce the amount of employers’ national insurance that the NHS is paying overall?

Photo of David Gauke David Gauke The Exchequer Secretary

It will reduce the amount that the NHS is paying as compared with the plans that we inherited, yes. Would we like to do more? Of course we would always like to do more, but I am afraid that those are the plans that we inherited and the NHS would be facing a much greater burden had we not been able to reverse much of that.

A point was raised about social care. The additional expenditure we found for social care—an additional £2 billion in all, with £1 billion coming from the NHS—is very important. It will pay a vital role in helping to keep people healthy and independent, and we are proud of that.

On the issue of ring-fencing the NHS, Mr Brady, you will be pleased to know that I have no intention of going into a detailed speech on NHS spending. We are proud that despite the very difficult circumstances we are in, we have been able to protect health spending. If the hon. Member for Nottingham East is supportive of that, then we welcome it. I have to point out, however, that it was not that long ago that the then shadow Secretary of State for Health, now the shadow Secretary of State for Education, said:

“It is irresponsible to increase NHS spending in real terms within the overall financial envelope” that the Chancellor was setting. What is more, not long ago, the current shadow Chancellor said in respect of the policy of ring-fencing NHS spending, that there was

“no logic, sense or rationality” to the policy.

I am pleased that the Opposition appear to have changed their approach. We are able to ring-fence NHS spending without an amendment relating to the additional funds raised through national insurance contributions. I therefore recommend that the Committee rejects the amendment, should it be pressed to a Division.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am surprised that the Minister did not really address the issue of the double-counting of the social care element, because that is absolutely the crux of why we needed to table the amendment in the first place. He ought to have confirmed that had we  been following the previous classification of NHS health care expenditure, that equates to a 0.54% real-terms cut in the NHS budget.

I would also have been grateful if the Minister had confirmed my calculations that in order to bridge that gap, and return to the 0.4% real-terms increase that the Government claim to be pursuing, would have equated to roughly £500 million. That was the purpose of the amendment. Clearly, the Government seek just to rebut it, and to deny that they are reducing the health care budget in real terms, but the evidence is actually there, not just from the comments that I have made, but from the real-life experience of health service users and health service staff who report daily the squeeze that they are feeling on the NHS allocation. We will clearly need to return to the issue on Report.

I want to look in more detail at the specific amounts of money. The Minister has not been able to detail the rationale for the change in the accounting for social care, so we need to burrow deeper into it. The clause is a central component of the Bill and I am not content with the Minister’s simple claim that all is fine and dandy, and that real-terms increases are happening. That is not what people are experiencing, nor is it what we see in the reports when we look at the real accounting arrangements.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I support my hon. Friend’s point. Real-terms increases are absolutely necessary to the health service to retain and support the level of service, not only because, with an ageing population, there are more demands on the health service, more techniques in medical treatment and more drugs on the market, but because labour intensity in the health service cannot be reduced. Therefore, to ensure pay and pay increases that are comparable to the rest of the world, we have to have above-inflation increases in health service spending to keep pace with necessary pay.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Absolutely, and that is a point that the Conservative and Liberal Democrat parties clearly do not get. They do not understand it and have not figured out what a real-terms increase in the NHS would entail. They panicked. They must have thought, “Quick, where can we steal a little bit of money here and there to make the figures appear to add up?” As on so many different fronts under this Administration, the truth is bursting out of the seams as the stitches begin to pop on the edges of the coalition’s garments.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

They have no garments—they are wearing the emperor’s new clothes.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed. The emperor has no clothes, as my right hon. Friend rightly says. I give way to the emperor.

Photo of David Gauke David Gauke The Exchequer Secretary

I merely wanted to point out that the hon. Gentleman’s metaphor is somewhat threadbare.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I realise that the Minister may be a little chilly in this Committee Room. Many gentlemen have retained their outer garments, but my point is that the arguments of the Conservative and Liberal Democrat parties are falling apart. They have not kept to the  real-terms increase in the NHS budget and we will certainly want to return to the argument on Report. We will seek to refine the precise details, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

We have had a wide-ranging debate, so we should move on without further debate on clause stand part.

Clause 3 ordered to stand part of the Bill.