Social Security

I am glad to have the opportunity to contribute to this important debate. The hon. Member for Edinburgh, West (John Barrett) echoed a point that my hon. Friend the Member for South-West Bedfordshire (Andrew Selous) made from the Front Bench about the complexity of the benefits system and of the uprating that we are considering today, which is where I want to start. It is widely recognised that the system of benefits is complex. When the question, ““What is a reasonable amount of money for an income replacement benefit?”” is asked, there are many different answers. It has been thought for some time—the Work and Pensions Committee has reported on this—that we, as a country, should have a serious look at our benefits system and what a proper level of income replacement benefit should be. We should not have a situation in which carer's allowance goes up by one amount and jobseeker's allowance goes up by another, and we should not have a situation in which carer's allowance, which is supposed to be an income replacement benefit for carers, is a totally different amount from JSA, which is also supposed to be an income replacement benefit. Our system is over-complex, and the case for simplification is strong. I hope that the Minister and her colleagues will, in the quietness of their private discussions, examine whether we cannot move to a system that better suits the needs of the new century. There are, of course, temptations for Ministers in an over-complex system, and the devil is often in the detail. On the face of it, it is surprising that Ministers come here every year to announce ““handsome”” increases in benefits, yet at the same time the Institute for Fiscal Studies, which produced a major report on the matter last autumn, tells us that in 10 years' time pensioner poverty will be exactly the same as it is now. It is very surprising that with all those handsome increases, the Joseph Rowntree Foundation told the Work and Pensions Committee that over a 20-year period the effect of fiscal drag and benefit erosion, which lies in the detail of what has been announced, means that the Chancellor will recoup 3.6 per cent. of gross domestic product from the overall bill. That raises questions about the core benefits system, such as whether those benefits are sufficient for the people whom they are supposed to help and what is really going on behind the scenes. I suspect that a good deal of sleight of hand goes on, and I will give two examples after I have commented on the point made by my hon. Friend the Member for South-West Bedfordshire about the national insurance fund. Tolley's tax notes record that"““David Lloyd George stood before Parliament and introduced…the novel concept of National Insurance…as a 'temporary expedient'…It is a curious fact that despite the size and permanence of this levy, very many people know little about it””." In the fourth edition of their text on the matter, Ogus and Barendt record that"““People are prepared to subscribe more by way of contributions, which they see as offering returns in the form of personal and family security, than they would be willing to pay by taxation””." The Government have been diverting money from the national insurance fund into the health budget. The Minister may want to comment on that, but it did not used to happen to the extent to which it does now. That is why the parliamentary answer to which my hon. Friend the Member for South-West Bedfordshire referred pointed out that we must bump up income tax, or a tax, if we do not want a large balance in the national insurance fund—it is jiggery-pokery or sleight of hand. Turning to carer's allowance, the Work and Pensions Committee produced a major report on carers in the autumn. One of our points concerned the size of carer's allowance, which is much smaller than other income replacement benefits. We made the case that the Government should conduct a major review of carer's allowance and that they should treat it as a proper income replacement benefit. The Committee also made a more technical point, which the hon. Member for Blackpool, North and Fleetwood (Mrs. Humble) mentioned earlier. Each year, the decision about uprating the amount that people can earn if they are on carer's allowance is made in April, whereas the decision on the national minimum wage is made in October. The effect is that if the national minimum wage goes up by a certain amount, a number of carers are forced off benefit. In the spring, when the uprating takes place, they go back on to benefits, because the benefits have caught up. The Committee felt that that was unhelpful and that the changes should be synchronised, because that would help many carers organise their lives. The sad thing is that that would inevitably cost the Government a little bit of money, because those people would no longer be forced off benefit, which is an example of the sleight of hand that occurs. Maintaining that lack of synchronicity saves the taxpayer a little bit of money, but it messes up the lives of carers and is not helpful. Perhaps the Minister will care to admit that that is why the situation has not been changed. The Committee highlighted that problem and pointed out that it is making life very difficult for carers. It is therefore surprising that the limit for earnings by those receiving carer's allowance has been frozen, so carers will not catch up this year. Not only is there no synchronicity, which we wanted to help carers, but carers have been done down a little bit by the limit not being increased in line with inflation, which is slightly higher than normal this year. That is another example of sleight of hand. My other example concerns the savings credit element of the pension credit. This year—this is being done at a very odd time—the band of income covered by savings credit is being raised. The effect is to narrow the band of income that is eligible for savings credit, which means that pensioners who have got just a little bit more than the basic state pension will get less help than previously. The timing is odd, because the band was supposed to be raised in the context of the Government's introduction of the new system, under which the basic state pension will be uprated by earnings rather than prices. The argument was that if the basic state pension plus the new arrangements for the state second pension were in place, that would already be helping those who had a little more than the basic state pension, so it would be right at that point to start cutting back on the savings credit. However, to raise the band now, when nobody has even set a date for the introduction of the uprating by earnings, is an example of the Government taking advantage. They are trousering a little money now, when really that should be done later. It is the same sort of thing as happened last year with the National Insurance Contributions Bill. The Government introduced the upper accrual point for national insurance contributions—again, that was supposed to happen when the basic state pension was uprated by earnings. However, the Government introduced that early as well. They have another year or two, perhaps more, during which people with incomes in the band between the upper accrual point and upper earnings limit are paying national insurance contributions and getting nothing for it. That approach—eroding benefits through the details, with a little sleight of hand—is one of the things that leads to strange results. Generous announcements are made, yet the overall effect, when we consider the detail, is not as good as it seems. So, yes, I support the uprating measures that we are discussing; obviously, benefits should be uprated. However, why do Ministers not have a look at what such little sleights of hand say to the general public and savers? There is a consensus in the House that we should tell people that they should save for a rainy day and for their pensions so that they do not end up in the situation of so many in the past who said, ““There was no point in saving, because I'd have got just as much on benefits.”” We are trying to change that culture; we are saying that there should be a much more solid basic state pension and better inducements to save, and that we should gradually remove means-testing from the system. Yet the little lost battles that I have mentioned are working the other way. The system is not all moving in the same direction with a plan designed to encourage hard-working people who want to save. One has to ask why the Treasury is like that. There is a solid and long-standing history in the Department for Work and Pensions of wanting to encourage saving and, frankly, to minimise the means-tested benefits bill in the longer term. However, the Treasury looks at everything year by year in a short-term frame. It wants to make little salami slices so that it gets a little back-pocket money from its negotiations with the Department for Work and Pensions. However, overall, that is not in the national interest. The burden of my remarks is to ask the Minister whether it is possible for the Government to try to make longer-term decisions to sort out the benefits system. Does the devil always have to be in the system's detail? The result is that the Chancellor saves a little money in the longer term, but we do not get what we really want.