Norman Fowler – 1985 Speech on Social Security and Education

Below is the text of the speech made by Norman Fowler, the then Secretary of State for Social Security and Education, in the House of Commons on 11 November 1985.

The immediate context of the debate on social security is that in two weeks’ time we will be uprating social security benefits. That will add another £2 billion to spending on social security. It will bring total spending on social security to well over £40 billion a year—almost a third of all public expenditure.

Uprating pensions and other linked long-term benefits by 7 per cent. will raise the single person’s pension by £2·50 a week and the married couple’s pension by £4 a week. That will mean that between November 1978 and November 1985 pensions will have gone up by over 96 per cent.—some 10 percentage points ahead of the rise in prices. Thus we have more than fulfilled our pledge to protect the value of the retirement pension, and that is a pledge that we stand by as firmly today.

This month’s uprating means that since 1979 this Government have increased the social security budget by 30 per cent. in real terms. Some of that increase has been due to unemployment. I make no apology for the fact that we have given that substantial support to those in need of it, but it is important to recognise that the major part of that real increase in spending is due to real increases in the value of benefits, and in particular to the increased number of pensioners. Since 1979 the total number of pensioners has increased by over 750,000. The result is that we are now paying higher value pensions to more pensioners than ever before in history.

This Government have done even more. We have more than doubled the mobility allowance and taken it out of tax. We have abolished the invalidity trap and taken war widows’ pensions out of tax. We have cut national insurance contributions for the lower paid. Therefore, let us be clear. The debate is about the policy of a Government, who, by any measure, have already committed vast resources to social security and, as the Chancellor of the Exchequer’s statement tomorrow will show, are planning to maintain that commitment.

There is a further fundamental point. Since 1979 we have also cut inflation to a fraction of the 27 per cent. peak that it reached in the mid-1970s. It is now below 6 per ​ cent., and falling. The reduction of inflation is of crucial importance to all those on low incomes and to pensioners in particular.

The hon. Member for Oldham, West (Mr. Meacher) tends to have a short memory on this matter, but when we look back to 1976, when inflation was running at 20 per cent., and more for a whole year on end, we see that it was the hon. Gentleman who, according to The Times, was shouted down at a pensions rally. The report stated:

“Old age pensioners shouted down Mr. Meacher, Under-Secretary of State at the DHSS yesterday as he tried to explain the Government’s record on pensions”.

In fact, those pensioners had learnt from bitter experience a fact that we should all face—that one cannot separate economic policy from social policy. High spending and the high inflation that follows will always undermine a Government’s social objectives, however worthy they may be. Inflation is a social evil as well as an economic one. It attacks the poor hardest and destroys the security of the pensioners first. It must therefore be a first social priority to drive inflation down and to keep it down. We must never return to the days of hyper inflation of the mid-1970s.

There is another aspect of the debate that goes beyond comparisons of past performance, and that is the case for reform for the future. The fact is that the present system cannot be sustained. Social security has become a creaking structure in danger of collapse, and parts of the system are simply indefensible.

We cannot defend a system whose rules are frequently contradictory and which can leave so many people trapped in a position where it is not worth saving, not worth bothering to earn more and where a man can actually lose money when he takes a job. We cannot defend a system that is so complex that it creates major difficulties, both for those who operate the system and for those whom it is supposed to help.

We cannot defend a system that fails to deliver adequate support to many of those who are in the greatest need. For example, the evidence accumulated during the course of the social security review pointed to a clear need to provide help to working families on low incomes, which the present system fails to meet. We cannot defend a system that makes promises for the future that are clearly beyond the capacity of this generation to command and of the next to fulfil.

Presented with those challenges, it is simply no good to proclaim that every existing benefit must be preserved, or to come out with a stream of worthless promises to raise public spending more and more. The question is not whether social security should be reformed but how it should be reformed. That is a challenge from which no party can stand aside.

That is why the Government have carried out their review of social security with the aim—for the first time since the 1940s—of looking at social security overall rather than in a piecemeal way. In developing our approach, we believe that the system should meet three main objectives.

First, social security must be capable of meeting genuine need. That means rather more than constructing an adequate income support scheme to replace supplementary benefit. It means recognising that needs change. In particular, it means today recognising that one of the groups which are by any definition in most need are low-income families with children—not just those where ​ the head of the family is unemployed, but where the head of the family is in work. It is for that reason that we have set out proposals for a family premium with income support.

Mrs. Elaine Kellett-Bowman (Lancaster)

Although I very much appreciate my right hon. Friend’s sterling work and his sympathetic attitude towards the least well off in our community, I must ask whether he accepts the grave anxiety among women that child benefit may not continue to be paid direct to them? Many women, not only those in the lowest income group, have child benefit as their only source of independent income. If that is to be frozen, they will be very annoyed.

Mr. Fowler

Indeed, I thought that my hon. Friend would go on to make a further point about how child benefit is paid. I cannot pre-empt the uprating statement that I shall make on child benefit, but clearly the whole intent of the Green Paper and the policy that we have set out is to continue child benefit as a basic support that is paid to women, but also to do something more.

I think my hon. Friend accepts that it is no good relying only on child benefit. The problem that has been highlighted in our inquiry into social security is that a whole range of low-income families with children need additional support. Family income supplement is not reaching those children. That is why I believe that although FIS rightly sought to tackle the issue and at the time was undoubtedly a major step forward, it suffers now from a number of defects, not least that it has not adequately tackled either the unemployment or the poverty trap. Our view is that it cannot be justified to have a system where a man can be worse off in work than out of work, or where his take home pay may actually fall even though his nominal pay rises. Our proposals for family credit—using net income—seek to tackle that problem and to bring increased help to some of our poorest families.

Mr. Frank Field (Birkenhead)

We welcome the Secretary of State’s statement that the working poor will be given substantial help. I should like to question the right hon. Gentleman about what he means by substantial and extra help. May we have a guarantee that when one takes account of the loss of family income supplement, the cuts in housing benefit and the freezing of child benefit, the new family credit will amount to more than the loss of income on those three fronts?

Mr. Fowler

The purpose is to bring extra help to low-income families in work. We shall set out the objectives and the tables in the White Paper. By introducing family credit we mean extra support, not less support, in that area.

Mr. Tony Favell (Stockport)

Is it not also important to bear in mind the Government’s avowed intention to reduce the income tax burden on the poor? Are not many people in receipt of family income supplement paying tax?

Mr. Fowler

The whole House will share the aspiration to raise tax thresholds. We all agree that many people on low incomes who are paying tax now should be taken out of tax. That is the Government’s aim. I am sure that there is widespread support throughout the country for that.

Mr. Frank Field

Poor families will not be reassured by the statement that more money will be available globally. People want a commitment that individually they will be better off. Will the right hon. Gentleman give that clear commitment?​

Mr. Fowler

I have tried to answer that precise point. These issues will be set out in the White Paper. Like everyone else, the hon. Gentleman, even with his expertise, will have to wait until the White Paper is published.

Our second objective is that the social security system must be simpler to understand and easier to administer. I do not see how anyone can be happy with a supplementary benefit organisation which requires almost 40,000 staff to administer, but which, through absolutely no fault of the staff, is not always able to provide the service which is needed.

I do not see how anyone can be happy with a system under which all the main income-related benefits—supplementary benefit, housing benefit and family income supplement—use different measures of income and capital. I do not see how anyone can be happy with a system where local offices simply lack the modern aids which are necessary to provide a modern service.

It is for all these reasons that we are proposing the reform of supplementary benefit, the introduction of a common basis for our systems of income support, housing benefit and family support, and that we are now embarking on the biggest computerisation programme in Europe so that offices will not depend on manual records in the same time-wasting and inefficient way as they do now.

Mr. Charles Kennedy (Ross, Cromarty and Skye)

DHSS staff are experiencing difficulty throughout the country. Will the Secretary of State comment on articles which appeared in the press last week about the confidential Ernst and Whinney report, which apparently advises that 10,000 extra civil servants will be needed to administer the complex new schemes which the right hon. Gentleman intends to introduce?

Mr. Fowler

We are examining the staff implications of the new proposals. A reduction in DHSS permanent staff is expected, and we are examining the temporary, transitional implications. I do not advise the hon. Gentleman to rely on reports about that matter. A newspaper report should not be relied upon for an accurate opinion.

Our third objective is that the social security system must be consistent with the Government’s overall objectives for the economy. The scope for sustaining social security provision depends on the performance of the economy and the creation of wealth. Equally, it means that social security itself should not place barriers in the way of economic development—barriers such as high national insurance rates, which can discourage jobs, or restrictions on pensions which can prevent job mobility.

The Government’s proposals for the reform of social security are set out with those objectives in mind. Clearly the final proposals will be set out in the Government’s White Paper shortly.

Mr. Patrick Cormack (Staffordshire, South)

When?

Mr. Fowler

In the next weeks. At this stage, there are two major points to make. The first, is on the current problems we face, and the second is on future policy. The first point is this. Inevitably, there must be a limit to the resources that any Government can devote to social security. The lesson of that is that resources cannot be wasted—that can only mean areas of undoubted need ​ getting less. However difficult the problems may be, we must ensure that resources are properly directed at those who need them.

That is why we are seeking the control of board and lodging spending. Spending in this area has risen from around £200 million a year at the end of 1982 to £600 million a year by the end of 1984. For ordinary board and lodging it rose from £166 million to £380 million in those two years. There was evidence of abuse—both by landlords and claimants—and young people were being drawn into accommodation which they could not afford to pay for if they were in work. Our aim has been to ensure that proper help goes to those with a genuine need to be in board and lodging, while excluding those who do not.

One part of the regulations was called into question by a High Court judgment at the end of July, and as a result we have appealed to the Court of Appeal. The question of what to do in the interim obviously arises. There is a prospect of prolonged uncertainty, because, whatever the outcome in the Court of Appeal, it will be open to either side to consider an appeal to the House of Lords. So if we do nothing there is the risk of confusion—while at the same time calling into question the increase in benefit payable later this month to people in residential and nursing homes. That is an effect that no one wants.

So, for all the reasons that I set out in my statement at the end of last month, I am laying fresh regulations today which the House will have the opportunity of debating very shortly. They meet the Government’s immediate objectives, while at the same time responding to the Joint Committee’s concerns.

The revised regulations establish the framework of board and lodging areas, time limits and financial limits, without providing for any of the powers questioned in the High Court. They provide for the time limits to be reintroduced for new claimants as soon as regulations are made, but they will not be applied to existing boarders on benefit until 28 July 1986, coinciding with next year’s general uprating of benefits. The regulations also give statutory backing to the increase in the limits for residential care and nursing homes due to come into effect on 25 November.

A number of other provisions enable us to deal with difficult cases. I am taking powers to exempt from the time limits claimants who would otherwise suffer exceptional hardship. I am also taking discretionary powers to help in individual cases of genuine hardship. This will mainly help people in residential and nursing homes who before last April were meeting their own charges, but are unable to carry on doing so and are now entitled to supplementary benefit.

The House will have a very early opportunity of debating these regulations, but there is a further important point that I should make on action which is clearly now necessary to combat the emerging evidence of fraud in this area. The House will recall that a special investigation earlier this year in Euston showed that about half of those claiming to be residents in particular hotels were no longer there—about 600 cases out of 1,200. Following that, I asked for other checks to be carried out in all regions. They are not fully completed. When they are, I shall make the full results available to the House during, I hope, December.

Nevertheless, it is clear already that there is similar evidence of abuse in other parts of the country. The evidence that we have from other parts of London, parts ​ of Manchester and Edinburgh, and from towns like Southend, show that an appreciable proportion of claimants were found not to be resident at the hotel named on their claim form. One address which had been given for 24 claimants proved on investigation to have not a single claimant in residence.

Such examples of abuse involve not only claimants but the proprietors of accommodation. This cannot be totally prevented by the passing of regulations alone, although the size of the abuse can be reduced. Clearly, what is needed is a further effort to reduce fraud and abuse, and I intend, therefore, to increase the scale of our effort in this area. I hope that, whatever else we may disagree on, there will be agreement that fraud, whether committed by claimants or landlords, or both in co-operation, should be combated as effectively as possible. I give notice now that this will be our intention in the coming months.

Norman Fowler – 1985 Statement on the Social Security Review

Below is the text of the statement made by Norman Fowler, the then Secretary of State for Social Services, in the House of Commons on 3 June 1985.

I will with permission, Mr. Speaker, make a statement on the review of social security.

During the last 18 months the Government have been examining the major areas of social security provision. In that time more than 40,000 consultation documents were issued, 4,500 pieces of evidence were received, and 62 organisations and individuals gave oral evidence at public sessions. The Government are today publishing a Green Paper which sets out their proposals. We will now be seeking comments on the proposals from interested organisations and will be providing an opportunity for the House to debate them.

The social security system in the United Kingdom owes a great deal to the report of Sir William Beveridge in 1942. Although much of what he proposed was changed when it came to implementation, and more has been changed since, many of the principles on which his proposals were founded remain sound. The Government remain committed to the concept of a national insurance system, under which entitlement to the major benefits is earned by the payment of contributions during a working life. The Government also believe that our tradition of state support for those in need is one which should be maintained and developed. However, social security is not a function of the state alone. It should be a partnership between the individual and the state—a system built on twin pillars.

Any review of social security must recognise its considerable achievements, but the review has shown that there are several major causes for concern. By common consent the social security system is too complex. That is to the disadvantage of both the public and the staff. In particular, the research evidence shows that substantial numbers of supplementary benefit claimants do not understand how their entitlement is worked out, in spite of the fact that 38,000 staff are now working exclusively on supplementary benefit. With the pressures now being faced there is a danger that some parts of the system will break down. It is, therefore, a matter of urgency that we devise a simpler and more coherent system.

The social security system also needs to be modernised. It is not properly co-ordinated with the tax system and operates with outdated equipment. We now need a major computerisation strategy for social security, which can link effectively with other Government systems, including that of the Inland Revenue.

In terms of spending, the cost of the social security system has increased fivefold in real terms since the war and now totals some £40 billion a year. That is over 30 per cent. of all public spending and represents over 11 per cent. of gross domestic product compared with only 4·7 per cent. after the war. Nor has the pressure for growth in spending ended. In the first part of the next century we need to provide for an extra 4 million pensioners. That, taken together with the state earnings-related pension scheme, means that spending on pensions will at least treble. We must ensure now that we have a soundly based social security system which the country can afford.
Above all, perhaps, the social security system does not always help those most in need. More than half of those living on the lowest incomes are in families with children. This affects not only the unemployed, but families where ​ the head is working. Yet, under the present system, low income working families can face both the difficulty of escaping the poverty trap, where they may get no increase in total income when their earnings rise, and the unacceptable position that they can be better off out of work. That position must be changed.

To make better provision to meet the needs of poor working families with children has been a major priority of the review. We therefore propose to introduce a new benefit, to be called family credit, to provide better help for such families. Family income supplement will be abolished. Family credit will have three main features. First, it will be paid on the same basis as help to unemployed families, in that help will be related to the age of children. That means that families with children cannot generally be better off out of work than in work.

Secondly, family credit will be related to take-home pay, not to gross earnings, as is family income supplement. The worst effects of the poverty trap will be eliminated by making it impossible for people to face a marginal tax rate of more than 100 per cent. Thirdly, it will be paid by employers through the pay packet. Families will see their benefit as part of their income from work, whether as an offset to tax and national insurance, or, in the case of the lowest paid, as an addition to gross pay.

Family credit will be paid in addition to child benefit. The Government believe that the extra responsibilities carried by all those bringing up children should be recognised. Child benefit will, therefore, continue to be paid for all children, irrespective of the means of the family.

Family credit will be part of a coherent system of income-related benefits. That system, covering basic income support, assistance with housing costs and help for low income families, will be based on a common income test and a common structure. It will be simpler, fairer and easier to administer, and it will provide the same level of help at the same level of income for those in and out of work.

We propose to replace supplementary benefit with a new income support system. The central concept of the income support scheme is that the regular extra payments, now made on the basis of detailed individual assessment, should be absorbed into the main rates of benefit. Those rates will provide a special higher level of benefit for pensioners, the long-term sick and disabled and lone parents. Families with children will not only receive assistance for each child, but a premium to reflect the extra pressures that they must cope with. At the same time, the capital rule will be eased by introducing a taper between £3,000 and £6,000, instead of the present inflexible £3,000 cut-off. We shall also ease the earnings rule for the long-term unemployed and the disabled.

The income support scheme should provide for the needs of almost all claimants, but we recognise that the system must be ready to cope flexibly and quickly with particular problems. Instead of the present single payments system, we propose to set up a social fund which will be operated on a discretionary basis by specially trained staff at Department of Health and Social Security local offices. It will provide emergency help where needed, and help those who face particular difficulties. We also expect that ​ the social fund will, in time, provide a better basis for contributing cash help to enable people to be cared for in the community rather than in institutions.

Today I am also publishing the report of the housing benefit review team, and have accepted most of its recommendations. The review team found that housing benefit was excessively complicated, involving six different tapers applied to different groups at different income levels. It is also expensive and poorly targeted, with more than one third of all households, some with incomes up to average earnings, receiving benefit.

We intend to move to a simpler and clearer system. It will be based on the same net income assessment basis as the income support and family credit systems. It will also provide help on the basis of rent and rates together rather than separately, as at present.

For the poorest families, housing benefit will meet 100 per cent. of rent. At present 100 per cent. help goes only to those on supplementary benefit. In future, it will apply equally to those in and out of work.

We believe, however, that the basis on which help is provided with rates needs to be changed. At present some 7 million householders receive help with some or all of their rate bills and over 3 million householders pay no rates. As a result, a large proportion of people live in households in which no rates are paid. This means that there is no effective link between payment for and use of local services. The whole structure of rates is currently under review, but the Government believe that, so long as domestic rates remain, all householders should be directly responsible for making some payment towards them. The Government have in mind a figure of the order of 20 per cent.

The review also examined the contributory national insurance benefits for unemployment, maternity and widowhood. As I have already made clear, the Government remain committed to the principle of basic provision for these contingencies organised by the state through the national insurance system. We propose no change in unemployment benefit, which will continue to be paid for 12 months.

For widows under 60, we propose to replace the widow’s allowance currently payable for the first six months after bereavement by a single lump sum payment of £1,000 to give them more help when it is most needed. In addition, widowed mother’s allowance will now be paid from the time of bereavement rather than after six months as at present. Widow’s pension will also be paid from the time of bereavement, but the rules of eligibility will be modified to concentrate help more on older widows who are least likely to be able to resume work. The changes will not affect the benefit paid to any existing widows.

In maternity, we propose to adjust the rules governing maternity allowance so that the mother can have greater freedom in choosing when, around the time of her confinement, she wishes to be paid the allowance. We also intend to change the qualification period so that the benefit is more likely to be paid to women who have had to give up work in order to have their babies.

The maternity grant and the death grant have been left at their present level—£25 and £30 respectively—for many years and are now quite inadequate for their purpose. The average cost of a funeral is now over 10 times as much as the death grant, and it costs £20 in administration to pay out each £30 grant.

We propose instead a new maternity grant of £75—three times the level of the present grant ​ —available to all low income families. Help with the full cost of funerals will also be made available more widely than at present to anybody who has responsibility for a funeral and lacks the resources to pay for it. Help will be provided through the social fund to ensure that it can be given quickly and flexibly and with the minimum of detailed inquiry. These changes will concentrate help where and when it is most needed instead of providing a token contribution to everybody when it may be of little practical use.

The largest single area of social security spending is on pensions. The basis pension alone accounts for over £15 billion a year and is paid to 9 million people. That pension accounts, on average, for half the income of pensioners and has been a major factor in raising pensioners’ living standards since the war. It is, and must remain, the basis on which individuals can build additional pension provision. The question is how that extra provision should be made.
At present only about half the working population belong to occupational pension schemes. The develop-ment of occupational pension schemes has been an important factor in improving living standards since the war, but the coverage of schemes has not increased since the mid-1960s. The development which it was hoped would follow the Social Security Pensions Act 1975 has not taken place. Nor has the forecast of cost on which the 1975 scheme was based proved sound. The analysis undertaken during the review has shown that the number of pensioners for whom we will eventually need to provide is 3 million greater than was recognised in 1974 and 4 million higher than it is today. It is clear, therefore, that the long-term costs of state pensions are set to rise steeply in the first 30 years of the next century. If the basic pension was uprated in line with prices, its cost would increase in real terms by half to £22 billion. If it kept pace with earnings, the cost would treble to nearly £45 billion. On top of that, the cost of the state earnings-related scheme will add another £23 billion. Thus, the total pensions bill will at least treble and could increase by over four times. At the same time the ratio of contributors to pensioners will worsen, and it is estimated that there will be only 1·6 contributors for each pensioner compared with 2·3 now.

As a country we cannot ignore these emerging costs. If the best estimates available to us lead us to question whether we will be able to afford the promises we are making, we have a duty to re-examine the position. It would be an abdication of responsibility to hand down obligations to our children which we believe they cannot fulfil.

The real question is not whether action should be taken on the state earnings-related scheme, but what action. There are those who argue that we should restrict the emerging cost of the state scheme by changing its provisions. The difficulty of that course is that contributions would remain the same while benefits would be reduced. There is no reason to believe that there would be any increase in occupational pensions to fill that gap. The Government have concluded that it would be better to adopt a different approach. This would be based on the aim of ensuring that in addition to the basic pension everyone has his own pension with his job—whether it be an occupational pension, membership of an industry-wide scheme or a personal pension. In all cases every employee would have the right to a contribution from his employer.
​ We recognise, however, that relatively older workers would have difficulty in building up adequate occupational pension cover. We have decided, therefore, not to make any changes for those within 15 years of retirement. For men aged 50 or over and women aged 45 and over at the time of implementation, the existing state earnings-related arrangements will continue. This means that no one retiring during the rest of this century will be affected by the change and nor will any existing pensioner.

All rights built up in the state scheme at the time of the change will be honoured. In addition, we also intend to give a special enhancement of rights for men aged between 40 and 49 and women aged 35 to 44. They will be given a bonus of added years of entitlement, which will give them higher pensions when they eventually retire.

For those to be covered by the new arrangements the Government will lay down a minimum contribution level of 4 per cent. of earnings, at least half of which must be provided by the employer. The new arrangements will be phased in over three years. These changes will mean that in due course all employees will be contributing to their own additional pension through their jobs. This will represent the biggest ever extension of occupational pension coverage in this country and will add to the reforms of occupational pensions, involving improved rights for early leavers and transfer of pensions, currently in legislation before Parliament.

The Government must also ensure that the social security system is managed as effectively as possible to provide the best possible service to the public. The Government’s benefit proposals will in themselves make the system simpler, but we are now to embark on the largest programme of computerisation ever undertaken in this country to modernise and improve its operation.

The benefit changes and the computerisation both of my Department and the Inland Revenue will provide opportunities to achieve better co-operation and closer working between the tax and benefit systems. The Government intend to take advantage of those opportunities and will be considering this further in the context of the Green Paper on personal taxation.

Meanwhile, we have decided to take a major step towards better harmonisation by aligning the tax and benefit years. Instead of benefits being uprated in November each year, the uprating date will be moved to April. This means that all tax and benefit changes will be implemented at the same time. It will also be of considerable assistance to local authorities which at present have to reassess housing benefit cases twice a year.

The change in the benefit year will be brought in at the time of implementation of the major structural reforms. We expect this to be in April 1987. After the uprating of benefits due at the end of November 1985, there will, therefore, be a 16-month period before the change in April 1987. It would clearly be wrong to allow such a gap between upratings, but it would not be practicable to have upratings both in November 1986 and April 1987. Accordingly, the Government have decided that, following the November 1985 uprating, there will be two upratings at eight-month intervals, the first in July 1986 and the second in April 1987.

The programme of reform that I have announced will provide a system which is easier to understand and simpler to administer. It will mean the most substantial changes in income-related support for 50 years, and for the first time give equal support for those in and out of work. It will ​ provide more help for low income families with children.It will establish a better partnership between state and individual provision, especially in pensions, giving everyone the right to his own pension with his job. Above all, the reforms will provide a modern social security system to take us into the next century.