THIS DOCUMENT IS THE PROPERTY OF HER BRITANNIC MAJESTY'S GOVERNMENT Printed
for
the Cabinet.
November
1962
C. (62) 177
8th November,
Copy No.
g 1
1962
CABINET
NATIONAL INSURANCE
BENEFITS
MEMORANDUM BY THE MINISTER OF PENSIONS AND NATIONAL INSURANCE
Introductory
I n T h e Q u e e n ' s Speech at t h e o p e n i n g of t h e Session w e h a v e said t h a t w e
are going t o k e e p t h e p o s i t i o n of t h o s e w h o a r e receiving n a t i o n a l i n s u r a n c e
benefits (and w a r p e n s i o n s ) u n d e r close r e v i e w ; a n d it is, I t h i n k , n o w a c c e p t e d
that a n increase in t h e r a t e s of t h o s e benefits a n d p e n s i o n s will h a v e t o b e m a d e
d u r i n g the Session. T h e p u r p o s e of this p a p e r is t o c a n v a s s , as far as c a n b e
d o n e at p r e s e n t , t h e m a j o r p r o b l e m s w h i c h will arise in c o n n e x i o n w i t h s u c h
an increase, a n d t o seek t h e C a b i n e f s a g r e e m e n t t o t h e solutions I p r o p o s e t o
those p r o b l e m s .
A m o u n t of t h e i n c r e a s e a n d t i m i n g a n d s c o p e of t h e Bill
2. It is n o t yet possible t o c o m e t o a conclusion o n t h e a c t u a l a m o u n t of
the increase t h a t n e e d s to b e m a d e . T h a t will h a v e t o b e decided n e a r e r t h e t i m e
of the i n t r o d u c t i o n of t h e Bill a n d will d e p e n d u p o n t h e m o v e m e n t of t h e r e l e v a n t
earnings, prices a n d o t h e r indices u p t o t h a t t i m e a n d t h e state of t h e n a t i o n a l
e c o n o m y . I s h o u l d , h o w e v e r , tell t h e C a b i n e t n o w t h a t I c a n n o t conceive t h a t
w e c o u l d m a k e an i n c r e a s e of less t h a n 7s. 6d. in t h e single u n i f o r m r a t e of
benefit u n d e r t h e n a t i o n a l i n s u r a n c e s c h e m e , w i t h c o r r e s p o n d i n g increases in
t h e o t h e r r a t e s a n d increases also in t h e benefits u n d e r t h e i n d u s t r i a l injuries a n d
war pensions schemes which would broadly maintain the relationships between those
three schemes as they exist at p r e s e n t . W e m a d e t h e b a s i c single r a t e of benefit
32s. 6d. in 1952, increased it b y 7s. 6d. t o 40s. Od. in 1955, by 10s. Od. t o 50s. Od.
jn 1958, a n d b y 7s. 6d. t o its p r e s e n t level of 57s. 6d. in 1961. A n y increase of
a lesser a m o u n t w o u l d I t h i n k clearly b e politically q u i t e u n a c c e p t a b l e . I give in
p a r a g r a p h s 4 t o 10 b e l o w m y r e a s o n s for t h e view t h a t t h e i n c r e a s e t o b e m a d e
should t a k e t h e f o r m of a s t r a i g h t f o r w a r d increase in the basic rates r a t h e r
t h a n of differential increases for different classes of beneficiaries.
3. O n t i m i n g it is again, I t h i n k , t o o early a t t h e p r e s e n t t i m e t o arrive at
any decision a b o u t t h e d a t e of t h e i n t r o d u c t i o n of t h e Bill, w h i c h will b e d i c t a t e d
b y t h e general r e q u i r e m e n t s of t h e P a r l i a m e n t a r y time-table. E a r l y spring m a y
well b e a c o n v e n i e n t m o m e n t , w i t h a v i e w t o the increases c o m i n g i n t o o p e r a t i o n
in the a u t u m n ; b u t if t h e C a b i n e t agree, as soon as w e h a v e r e a c h e d decisions o n
t h e issues w h i c h I a m s u b m i t t i n g in this p a p e r i n s t r u c t i o n s c a n b e given to
P a r l i a m e n t a r y C o u n s e l t o p r e p a r e a s k e l e t o n Bill, T h e Bill c o u l d t h u s b e r e a d y
for i n t r o d u c t i o n at s h o r t n o t i c e at a n y t i m e from t h e e n d of J a n u a r y o n w a r d s .
I s h o u l d h o w e v e r w a r n t h e C a b i n e t at this stage t h a t t h e c o m p l i c a t e d n a t u r e of
t h e g r a d u a t e d p e n s i o n s a n d c o n t r a c t i n g o u t provisions involved will m a k e the Bill
s o m e w h a t l o n g e r t h a n p a s t i n c r e a s e Bills a n d offer m u c h s c o p e for P a r l i a m e n t a r y
debate.
Differential benefits
4. T h e first m a j o r issue is w h e t h e r t h e increases in n a t i o n a l insurance
benefits s h o u l d b e m a d e in t h e s a m e w a y as in 1955, 1958 a n d 1961—that is to
say, b y u n i f o r m increases for all beneficiaries-—or w h e t h e r t h e r e s h o u l d be any
f o r m of differential increases f a v o u r i n g any special class o r classes.
5. A t t h e 1959 election—-prior to t h e last benefit i n c r e a s e — w e u n d e r t o o k
" to e n s u r e t h a t p e n s i o n e r s c o n t i n u e t o s h a r e in the g o o d things w h i c h a steadily
e x p a n d i n g e c o n o m y will b r i n g " .
I n t h e d e b a t e w h i c h t o o k place o n an
O p p o s i t i o n M o t i o n last M a r c h , t h e G o v e r n m e n t s A m e n d m e n t
expressed
confidence t h a t w e s h o u l d c o n t i n u e to e n s u r e t h a t recipients of n a t i o n a l insurance
a n d o t h e r social security benefits " s h a r e in the rising s t a n d a r d s of the n a t i o n "
b u t did n o t single o u t p e n s i o n e r s i n p a r t i c u l a r .
F r o m w h a t w a s said in the
d e b a t e , h o w e v e r , a n d f r o m s u c h s o u n d i n g s as I h a v e m a d e it is clear t h a t m a n y
of o u r s u p p o r t e r s feel t h a t " t h e o l d " h a v e a special c l a i m to consideration,
p a r t i c u l a r l y b e c a u s e of t h e erosion of their savings t h r o u g h inflation. T h i s feeling
is often linked w i t h t h e view t h a t w e s h o u l d try to ensure t h a t increased benefits
are given o n a selective basis w h e r e they c a n b e of m o s t h e l p t o t h e individual
— w i t h a s t r o n g t e n d e n c y to view t h e older r e t i r e m e n t p e n s i o n e r s as a n e e d y class
a n d to place t h e m h i g h e s t o n the list of priorities. I h a v e therefore been
c o n s i d e r i n g w h e t h e r , as p a r t of t h e n e x t i n c r e a s e in benefits, s o m e t h i n g extra
c o u l d b e d o n e for the aged.
6. O n e w a y w o u l d b e t o p a y a h i g h e r r a t e of p e n s i o n for b o t h sexes f r o m 70,
t h e age w h e n p e n s i o n is p a y a b l e t o m e n w h o satisfy t h e c o n t r i b u t i o n c o n d i t i o n s
w h e t h e r or n o t t h e y h a v e ceased w o r k i n g . S e v e n t y is also t h e age at w h i c h w a r
w i d o w s receive a n a d d i t i o n a l 10s. Od. a w e e k . T h e exact a m o u n t of a n y increase,
w h e t h e r w i t h a differential for the old o r n o t , is a s I h a v e said a m a t t e r of j u d g m e n t
t o b e decided at t h e a p p r o p r i a t e time. B u t it m a y help to clarify t h e general issues
of p r i n c i p l e if I p u t i n t o m o n e y t e r m s t h e sort of differential s c h e m e t h a t w o u l d b e
possible b y t a k i n g t h e c o s t of a u n i f o r m i n c r e a s e of 7s. 6d. for a single p e r s o n , which
as e x p l a i n e d in p a r a g r a p h 2 is t h e m i n i m u m u n i f o r m increase w h i c h in m y j u d g m e n t
w o u l d be a c c e p t a b l e . W i t h i n a b o u t the s a m e level of cost, it w o u l d b e possible
i n s t e a d to raise b y 5s. Od. t h e single r a t e of r e t i r e m e n t p e n s i o n for t h o s e u n d e r 70
a n d of sickness, u n e m p l o y m e n t a n d o t h e r n a t i o n a l i n s u r a n c e benefits, while
r e t i r e m e n t p e n s i o n e r s o v e r 70 c o u l d b e given a n i n c r e a s e of 10s. 0d., t h u s creating
a 5s. Od. " differential " for t h e m .
7.
s o m e of
is t o m y
national
T h i s c o u r s e h a s t h e a t t r a c t i o n t h a t it offers a w a y of m e e t i n g t h e desire of
o u r s u p p o r t e r s for g r e a t e r selectivity in t h e d i s t r i b u t i o n of benefits. B u t it
m i n d o p e n to several objections b o t h in t h e n a t i o n a l i n s u r a n c e a n d in t h e
assistance fields. T o t a k e n a t i o n a l i n s u r a n c e first:
(i) T h e a m o u n t of the differential could n o t b e large. A differential of 5s. Od.—
t h a t is, t h e difference in m y e x a m p l e b e t w e e n a preferential r a t e of 67s. 6d.
for single p e n s i o n e r s over 70 a n d a r a t e of 62s. 6d. for y o u n g e r
p e n s i o n e r s a n d for o t h e r n a t i o n a l i n s u r a n c e beneficiaries—might be
criticised as insignificant.
T h e differential could be i n c r e a s e d within t h e s a m e total cost only
b y further r e d u c i n g t h e size of t h e i n c r e a s e for t h e y o u n g e r p e n s i o n e r s
a n d o t h e r beneficiaries. F o r e x a m p l e , if t h e latter w e r e increased b y
only 4s. 0d., it m i g h t be possible t o increase the over-70 r a t e b y 12s. Od.
(ii) A d m i t t e d l y , w e c o u l d s h o w t h a t t h e t o t a l cost of a differential s c h e m e
as in p a r a g r a p h 6 was e q u a l to the cost of a u n i f o r m increase
of 7s. 6d. B u t it seems to m e q u e s t i o n a b l e w h e t h e r , even w i t h a
differential s c h e m e , an increase of 5s. Od. for t h e g r o u p n o t receiving
t h e differential—that is, t h e y o u n g e r p e n s i o n e r s a n d o t h e r beneficiaries
— w o u l d generally b e r e g a r d e d as a d e q u a t e , b e a r i n g in m i n d o u r p a s t
increases a n d pledges for the f u t u r e .
(iii) I t is often said t h a t there is a s t r o n g political a p p e a l in t h e p r o p o s i t i o n
t h a t r e t i r e m e n t p e n s i o n e r s over t h e age of 70 f o r m a class w h o s e
c i r c u m s t a n c e s o n the a v e r a g e w a r r a n t special s t a t e i n s u r a n c e
p r o v i s i o n . B u t it could n o t be said t h a t m o s t of t h o s e w h o w o u l d
receive t h e differential w e r e t h o s e in t h e greatest n e e d ; a n d a
differential w o u l d n o t satisfy t h e school of t h o u g h t a m o n g o u r
s u p p o r t e r s w h i c h c o n s i d e r s t h a t i m p r o v e m e n t s in benefits s h o u l d b e
m o r e selectively given o n t h e basis of i n d i v i d u a l need. I t certainly
w o u l d n o t please t h e u n d e r - 7 0 r e t i r e m e n t p e n s i o n e r s w i t h few
resources a p a r t f r o m t h e i r p e n s i o n .
(iv) D o u b t s as t o t h e justification for s u c h a differential w o u l d m a k e it t h e
more.difficult in t h e l o n g r u n to limit it to the over-70's. T h e r e w o u l d
b e a sense of g r i e v a n c e a m o n g p e n s i o n e r s c o m p e l l e d b y their
c i r c u m s t a n c e s to r e t i r e earlier, for e x a m p l e , b e c a u s e of c h r o n i c ill
health, r e d u n d a n c y o r t h e r e t i r e m e n t r u l e in their calling.
They
w o u l d c o m p a r e their p o s i t i o n w i t h t h a t of the p e n s i o n e r s receiving t h e
differential w h o h a d b e e n able t o w o r k u p t o 70 a n d so h a d e a r n e d a
larger p e n s i o n — a t p r e s e n t u p to a b o u t £1 m o r e , w i t h further a d d i t i o n s
if they h a d c o n t r i b u t e d u n d e r t h e g r a d u a t e d s c h e m e — a n d w h o m i g h t
even still b e at w o r k o v e r t h a t age. I n 1951 t h e L a b o u r G o v e r n m e n t
i n t e n d e d originally to confine t h e i r scheme of increases in r e t i r e m e n t
p e n s i o n s t o t h o s e aged 70 o r o v e r (65 for w o m e n ) b u t w e r e forced b y
their o w n b a c k b e n c h e r s t o e x t e n d this differential a r r a n g e m e n t t o all
w h o h a d r e a c h e d m i n i m u m p e n s i o n age on t h e a p p o i n t e d d a y . T h e
following y e a r we r e m o v e d t h e differential a n d t o o k credit for
r e s t o r i n g u n i f o r m i t y of benefit r a t e s . M o r e o v e r , a differential increase
for r e t i r e m e n t p e n s i o n e r s o v e r 70 w o u l d p r o v o k e d e m a n d s for similar
t r e a t m e n t for y o u n g e r g r o u p s w h o a t t r a c t p u b l i c s y m p a t h y , s u c h as
t h e l o n g - t e r m s i c k — d e m a n d s w h i c h could h a r d l y be m e t w i t h o u t c r e a t i n g
grave anomalies.
8. T h e i n t r o d u c t i o n of a n a t i o n a l i n s u r a n c e differential for p e n s i o n e r s over
70 w o u l d raise c o m p l i c a t i o n s for n a t i o n a l assistance. U n l e s s parallel increases
w e r e m a d e in n a t i o n a l assistance, it w o u l d b e said (however illogically) t h a t as
regards p e n s i o n e r s o v e r 70 receiving s u b s t a n t i a l n a t i o n a l assistance s u p p l e m e n t a t i o n
w e w e r e giving with t h e o n e h a n d a n d t a k i n g a w a y w i t h t h e o t h e r . T h a t o b j e c t i o n
could b e forestalled either b y i n t r o d u c i n g a preferential n a t i o n a l assistance scale
for the over-70's or b y d i s r e g a r d i n g for n a t i o n a l assistance p u r p o s e s the n a t i o n a l
i n s u r a n c e differential.
E a c h of t h e s e c o u r s e s , h o w e v e r , h a s its o w n difficulties
and d a n g e r s :
(i) A n a t i o n a l assistance differential for the over-70's, w h e t h e r t o m a t c h
a similar differential o n n a t i o n a l i n s u r a n c e or n o t , is o u t of k e e p i n g
w i t h w h a t h a s s o far a l w a y s b e e n the b a s i c c o n c e p t i o n of n a t i o n a l
assistance. T h e twin f o u n d a t i o n s of n a t i o n a l assistance a r e (a) t h e
scale rates (with r e n t a l l o w a n c e for h o u s e h o l d e r s ) for w h a t m i g h t b e
called t h e n a t i o n a l a v e r a g e n e e d s of v a r i o u s categories (single
h o u s e h o l d e r , m a r r i e d h o u s e h o l d e r , lodger, etc.) a n d (b) t h e u s e of
d i s c r e t i o n a r y a l l o w a n c e s t o s u p p l e m e n t t h e m e a n s of t h e i n d i v i d u a l
w h o s e p a r t i c u l a r c i r c u m s t a n c e s w h a t e v e r his age b r i n g his needs a b o v e
t h e g e n e r a l level of his c a t e g o r y . W i t h i n this s t r u c t u r e , t h e r e d o e s
n o t seem t o b e any p l a c e for t r e a t i n g t h e over-70's, w h a t e v e r t h e i r
scale r a t e c a t e g o r y , as if t h e i r n e e d s w e r e always g r e a t e r t h a n t h o s e
of u n d e r - 7 0 ' s in t h e s a m e c a t e g o r y ; n o r d o I believe t h a t a preferential
scale r a t e for t h e over-70's c o u l d long w i t h s t a n d t h e pressures o n
behalf of y o u n g e r p e o p l e , f o r e x a m p l e invalids, w h o s e n e e d s a n d
h a r d s h i p as i n d i v i d u a l s w e r e fully as great. I n so far as t h e n e e d s of
i n d i v i d u a l old p e o p l e a r e g r e a t e r t h a n t h o s e of o t h e r s t h e N a t i o n a l
A s s i s t a n c e B o a r d c a n m e e t t h e m b y their d i s c r e t i o n a r y p a y m e n t s , as
t h e y are d o i n g a l r e a d y for t w o - t h i r d s of t h e p e n s i o n e r s on n a t i o n a l
assistance.
(ii) T h e a l t e r n a t i v e of d i s r e g a r d i n g t h e n a t i o n a l i n s u r a n c e p e n s i o n differential
for t h e p u r p o s e of n a t i o n a l a s s i s t a n c e w o u l d n o t h e l p t h e p e o p l e over 70
w i t h o u t a n y n a t i o n a l i n s u r a n c e p e n s i o n w h o a r e receiving n a t i o n a l
a s s i s t a n c e — a g r o u p of n e a r l y 200,000 in w h i c h a r e p r o b a b l y to b e f o u n d
t h e m o s t n e e d y of all. M o r e o v e r , i n t r o d u c i n g a d i s r e g a r d of s o m e p a r t
of t h e n a t i o n a l i n s u r a n c e r e t i r e m e n t p e n s i o n — w h i c h w o u l d involve
l e g i s l a t i o n — c o u l d h a r d l y fail t o p r o v o k e d e m a n d s for the d i s r e g a r d t o
b e e x t e n d e d to o t h e r p a r t s of t h e r e t i r e m e n t p e n s i o n . I n d e e d t h e r e h a s
a l r e a d y b e e n p r e s s u r e to d i s r e g a r d w h a t is a d d e d to r e t i r e m e n t p e n s i o n
b y w a y of i n c r e m e n t s for deferred r e t i r e m e n t a n d of g r a d u a t e d pension.
S u c h extensions of d i s r e g a r d s , b y increasing t h e p r o p o r t i o n of pensioners
receiving n a t i o n a l assistance, w o u l d inevitably increase its cost. I n turn
d e m a n d s w o u l d b e s t i m u l a t e d for further increases in the s t a n d a r d rate
of p e n s i o n .
F o r these r e a s o n s , unless w e a r e p r e p a r e d t o m a i n t a i n t h a t t h e needs of the over-70's
differ in q u a l i t y f r o m all o t h e r s a n d exceed t h e m in m a g n i t u d e in such a w a y that
t h e y c a n n o t be met b y d i s c r e t i o n a r y a l l o w a n c e s , n e i t h e r course seems to me
defensible.
F l a t - r a t e increase
9. I c o n c l u d e t h a t , despite the a t t r a c t i o n s of a differential increase provided
it w e r e large e n o u g h , t h e b a l a n c e of a d v a n t a g e lies in m a k i n g the n e x t changes in
n a t i o n a l i n s u r a n c e benefits a n d n a t i o n a l assistance scales follow t h e conventional
p a t t e r n of u n i f o r m increases. (This does n o t m e a n of c o u r s e that w e s h o u l d n o t
c o n t i n u e t o give preferential n a t i o n a l i n s u r a n c e t r e a t m e n t t o the w i d o w e d m o t h e r
t h r o u g h h e r c h i l d r e n ' s a l l o w a n c e s , a n d possibly, as r e g a r d s her pension, b y s o m e
r e l a x a t i o n of the e a r n i n g s rule.)
10. T h e r e r e m a i n s t h e u n d e r l y i n g q u e s t i o n of w h a t is the desirable
r e l a t i o n s h i p b e t w e e n t h e n a t i o n a l i n s u r a n c e increases a n d the i m p r o v e m e n t s in
t h e n a t i o n a l assistance scale r a t e s w h i c h w o u l d b e n e e d e d at the s a m e t i m e . At
p r e s e n t t h e n a t i o n a l i n s u r a n c e r a t e for a single p e r s o n h a p p e n s t o be t h e same
as the n a t i o n a l assistance scale r a t e (57s. 6d.) for a single h o u s e h o l d e r — b u t t a k i n g
t h e r e n t a l l o w a n c e i n t o a c c o u n t , as w e m u s t , t h e n a t i o n a l assistance r a t e s h a v e
a s u b s t a n t i a l lead. If a n e q u a l increase w e r e m a d e in b o t h t h e n a t i o n a l insurance
a n d n a t i o n a l assistance r a t e s , t h a t lead w o u l d b e m a i n t a i n e d . B u t in t h e past
n a t i o n a l assistance scales h a v e m o v e d m o r e frequently t h a n n a t i o n a l i n s u r a n c e
r a t e s . F o r e x a m p l e assistance i m p r o v e m e n t s w e r e m a d e in S e p t e m b e r 1959 and
in S e p t e m b e r 1962 w h e n t h e r e w a s n o c h a n g e in t h e n a t i o n a l i n s u r a n c e provisions.
So far it h a s b e e n o u r policy to c o m p e n s a t e for t h e s e " in-between " increases
in n a t i o n a l assistance b y giving a smaller n a t i o n a l assistance increase w h e n n a t i o n a l
i n s u r a n c e r a t e s a r e raised. M y o w n view is t h a t i t , w o u l d b e s o u n d a n d m o r e in
k e e p i n g w i t h feeling in the c o u n t r y to m a i n t a i n this p a t t e r n at any r a t e , f o r the
p r e s e n t . T o d e p a r t f r o m it b y k e e p i n g t h e p r e s e n t r e l a t i o n s h i p b e t w e e n n a t i o n a l
i n s u r a n c e a n d n a t i o n a l assistance p a y m e n t s at t h e n e x t m o v e w o u l d restrict the
G o v e r n m e n t ^ f r e e d o m of action in f u t u r e ; for w h e n a s u b s e q u e n t m o v e on
n a t i o n a l assistance w a s n e e d e d t h e G o v e r n m e n t w o u l d b e faced w i t h t h e d i l e m m a
either to allow n a t i o n a l assistance rates increasingly t o o u t s t r i p n a t i o n a l i n s u r a n c e
benefits o r t o m a k e a p r e m a t u r e n a t i o n a l i n s u r a n c e increase. T o go further a n d
m a k e a g r e a t e r increase in n a t i o n a l assistance p a y m e n t s o n a differential basis
for old p e o p l e alone t h a n in n a t i o n a l i n s u r a n c e benefits w o u l d r e p r e s e n t a swing
t o w a r d s reliance on m e a n s - t e s t e d r a t h e r t h a n i n s u r a n c e benefits which would
b e highly c o n t r o v e r s i a l , a n d a l t h o u g h it m i g h t b e w e l c o m e d in s o m e q u a r t e r s it
w o u l d b e bitterly a t t a c k e d in o t h e r s . M o r e o v e r it m i g h t be unwise t o m a k e a
m o v e in this direction until w e are able t o review o u r social security a r r a n g e m e n t s
w i t h a b e t t e r k n o w l e d g e of w h a t m a y b e involved h e r e b y e n t r y into the C o m m o n
M a r k e t . T h i s c o n s i d e r a t i o n seems to indicate t h a t t h e n e x t c h a n g e in n a t i o n a l
i n s u r a n c e a n d n a t i o n a l assistance s h o u l d b e a h o l d i n g o p e r a t i o n a n d n o t an
uncharted move on what might turn out to be the wrong course.
Finance
11. Since at this stage I a m n o t seeking the C a b i n e f s a g r e e m e n t t o a n y
p a r t i c u l a r figure for t h e i n c r e a s e in benefits, it w o u l d b e p r e m a t u r e to e l a b o r a t e
precise figures of cost, a l t h o u g h it will illustrate t h e o r d e r of w h a t is involved if I
e x p l a i n t h a t a 7s. 6d. i n c r e a s e in t h e basic single r a t e of n a t i o n a l i n s u r a n c e benefit
w o u l d cost a b o u t £150 million in t h e first full y e a r ( a n d c o n s e q u e n t i a l increases in
i n d u s t r i a l injuries benefits a n d w a r p e n s i o n s w o u l d cost a n extra £19 million).
T h e r e are, h o w e v e r , t w o q u e s t i o n s of principle o n m e e t i n g t h a t cost w h i c h will need
t o b e decided w h a t e v e r t h e figures m a y b e . T h e first is w h a t increase, if a n y , should
b e m a d e in the s p a n of i n c o m e liable t o g r a d u a t e d c o n t r i b u t i o n . T h e second
(which is d e p e n d e n t o n t h e first) is b y w h a t a m o u n t s c o n t r i b u t i o n s s h o u l d be
i n c r e a s e d for t h o s e w h o are c o n t r a c t e d o u t of the g r a d u a t e d p a r t of t h e s c h e m e .
SECRET
-
S­
12. T h e p u r p o s e of the g r a d u a t e d c o n t r i b u t i o n w a s twofold—first, to e n a b l e
the c o n t r i b u t o r t o i n c r e a s e his p e n s i o n in r e l a t i o n t o his e a r n i n g s a n d , second, to
get f r o m it a s u b s t a n t i a l a n d b u o y a n t s u b s i d y t o w a r d s t h e g r o w i n g cost of the flat­
r a t e n a t i o n a l i n s u r a n c e s c h e m e a n d so k e e p d o w n t h e c o n t r i b u t i o n s "of l o w e r - p a i d
w o r k e r s to a tolerable level. Since m a n y e m p l o y e r s h a d a l r e a d y m a d e p r o v i s i o n
for their e m p l o y e e s ' r e t i r e m e n t b y w a y of p e n s i o n s c h e m e s , a n d it w a s desired to
e n c o u r a g e t h e s p r e a d of s u c h p r o v i s i o n , it w a s t h o u g h t r i g h t to allow t h o s e employers
w h o wished a n d w h o s e p e n s i o n s c h e m e s c o u l d satisfy c e r t a i n c o n d i t i o n s to c o n t r a c t
o u t of the g r a d u a t e d s c h e m e . I t w a s t h o u g h t originally t h a t a b o u t 2\ million
employees m i g h t b e c o n t r a c t e d o u t . S o far a b o u t
million h a v e b e e n c o n t r a c t e d
out. I n o r d e r t h a t t h o s e c o n t r a c t e d o u t s h o u l d n o t e s c a p e entirely f r o m m a k i n g
a n y c o n t r i b u t i o n t o w a r d s t h e solvency of t h e n a t i o n a l i n s u r a n c e scheme, they a r e
obliged to p a y a h i g h e r c o n t r i b u t i o n t h a n t h e flat-rate c o n t r i b u t i o n p a i d by p e o p l e
in the g r a d u a t e d s c h e m e .
Range of earnings attracting graduated contributions
13. U n d e r t h e N a t i o n a l I n s u r a n c e Act, 1959, t h e r a n g e of e a r n i n g s o n w h i c h
g r a d u a t e d c o n t r i b u t i o n s w e r e p a y a b l e w a s fixed at £9 t o £ 1 5 . A v e r a g e i n d u s t r i a l
earnings h a v e n o w s u b s t a n t i a l l y i n c r e a s e d . I n A p r i l 1962 they w e r e £15 12s. lOd.
a week for m e n — a b o v e t h e m a x i m u m for g r a d u a t e d c o n t r i b u t i o n s — a s c o m p a r e d
with £12 16s. 8d. a w e e k in O c t o b e r 1958 w h e n t h e £ 9 - £ 1 5 r a n g e w a s first a n n o u n c e d
in the W h i t e P a p e r o n P r o v i s i o n for O l d A g e ( C m n d . 538). It t h e r e f o r e seems n o t
u n r e a s o n a b l e t o e x t e n d t h e r a n g e of g r a d u a t e d c o n t r i b u t i o n s — i n d e e d , if this w e r e
n o t d o n e t h e s c h e m e w o u l d in t h e n o t very d i s t a n t f u t u r e b e c o m e o n c e again a
mainly fiat-rate o n e , at a n y r a t e for m e n , w i t h e v e r y o n e p a y i n g c o n t r i b u t i o n s o n
earnings of £15 a w e e k . T h e last i n c r e a s e in benefits in A p r i l 1961 w a s financed
b y increases in flat-rate c o n t r i b u t i o n s b e c a u s e it w a s felt t h a t it w o u l d n o t b e
feasible t o alter t h e g r a d u a t e d s c h e m e at t h e m o m e n t of its inception. It seems
inevitable t h a t o n t h e occasion of t h e n e x t increase s o m e p a r t of t h e cost s h o u l d
b e financed f r o m g r a d u a t e d c o n t r i b u t i o n s — i n d e e d , I see n o r e a l alternative t o
increasing the r a n g e . W h a t we s h a l l h a v e t o decide is b y h o w m u c h . M y p r o v i s i o n a l
view is that, a s s u m i n g t h e k i n d of i n c r e a s e in flat-rate benefits I h a v e in m i n d , t h e
r a n g e s h o u l d b e i n c r e a s e d f r o m £ 9 - £ 15 t o £ 9 - £ 1 8 . T h i s w o u l d seem r e a s o n a b l e
in relation to t h e m o v e m e n t of e a r n i n g s . S u c h e n l a r g e m e n t of t h e g r a d u a t e d s c h e m e
w o u l d , I t h i n k , b e a c c e p t e d as c o n s i s t e n t w i t h w h a t w e said in t h e W h i t e P a p e r
( p a r a g r a p h s 32 a n d 33) a b o u t t h e p r o b l e m of d i m e n s i o n s of a S t a t e S c h e m e a n d
t h e need to avoid excessive e x t e n s i o n of c o m p u l s o r y State provision.
14. T h e i n c r e a s e in t h e r a n g e w o u l d p r o d u c e an e x t r a £ 4 4 million f r o m
g r a d u a t e d c o n t r i b u t i o n s in t h e first full y e a r a n d this w o u l d e n a b l e t h e a c c o m p a n y i n g
increase in flat-rate c o n t r i b u t i o n s t o b e k e p t w i t h i n t o l e r a b l e limits. F o r instance,
t h e increase in t h e r a n g e w o u l d a l l o w a 7s. 6d. u n i f o r m i n c r e a s e t o b e financed
w i t h a n e x t r a 9d. a side o n t h e flat-rate c o n t r i b u t i o n for e m p l o y e d m e n .
15. A n y i n c r e a s e in t h e r a n g e is b o u n d t o c a u s e s o m e inconvenience t o
e m p l o y e r s w i t h c o n t r a c t e d o u t s c h e m e s . T h e m i n i m u m a m o u n t of p e n s i o n w h i c h
these s c h e m e s a r e r e q u i r e d t o p r o v i d e w o u l d h a v e t o b e increased t o m a t c h t h e
increased g r a d u a t e d p e n s i o n p a y a b l e u n d e r t h e S t a t e s c h e m e — f r o m t h e p r e s e n t
£2 6s. 2d. of p e n s i o n p e r a n n u m for e a c h y e a r of c o n t r a c t e d o u t e m p l o y m e n t t o
£3 9s. 3d. It is e s t i m a t e d t h a t , of a t o t a l of 21,000 p e n s i o n schemes c o v e r i n g a b o u t
4 ^ million c o n t r a c t e d o u t e m p l o y e e s , a b o u t 8,000, covering r a t h e r m o r e t h a n
\ \ million e m p l o y e e s , w o u l d n e e d t o r a i s e t h e i r m i n i m u m level of p e n s i o n — w h i c h
m a y in s o m e cases r e l a t e only t o t h e lowest p a i d w o r k e r s in t h e s c h e m e — t o m e e t
t h e n e w r e q u i r e m e n t . W e s h o u l d h a v e t o allow a t r a n s i t i o n a l p e r i o d for necessary
a d j u s t m e n t s t o b e m a d e , a n d it m i g h t b e t h a t s o m e e m p l o y e r s w o u l d wish t o
r e c o n s i d e r their p o s i t i o n as r e g a r d s c o n t r a c t i n g out. M o s t s c h e m e s h o w e v e r s h o u l d
h a v e little or n o difficulty in satisfying t h e n e w r e q u i r e m e n t s for c o n t r a c t i n g o u t if
t h e r a n g e of g r a d u a t e d c o n t r i b u t i o n s w e r e e x t e n d e d t o e a r n i n g s of £ 9 - £ 1 8 .
16. I s h o u l d w a r n t h e C a b i n e t t h a t I d o u b t w h e t h e r w e c o u l d g o o n enlarging
t h e s c h e m e in t h e w a y a n d t o t h e e x t e n t I h a v e , suggested every t i m e benefits a r e
increased in i m p l e m e n t a t i o n of t h e G o v e r n m e n t ^ pledges. W e shall n e e d t o
give m o r e t h o u g h t t o h o w t h e s c h e m e is t o d e v e l o p in f u t u r e ; this m a y face u s
w i t h c o m p l i c a t e d a n d difficult p r o b l e m s , a n d it is o n e of t h e p o i n t s I h a v e in
m i n d in c o n n e x i o n w i t h t h e r e v i e w t o w h i c h I refer in p a r a g r a p h s 26 a n d 27 b e l o w .
Contracted out contribution
17. T h e r e l a t i o n s h i p b e t w e e n t h e c o n t r a c t e d o u t c o n t r i b u t i o n a n d the flat­
r a t e c o n t r i b u t i o n p a i d b y t h o s e i n t h e g r a d u a t e d s c h e m e w a s settled o n grounds
of c o n v e n i e n c e r a t h e r t h a n of p r i n c i p l e , t h e 1959 A c t k e e p i n g t h e t h e n existing
level of c o n t r i b u t i o n for t h e c o n t r a c t e d o u t , while p r o v i d i n g a r e d u c e d
flat-rate
c o n t r i b u t i o n for t h o s e in t h e s c h e m e . T h e r e l a t i o n s h i p established in 1959 was
p r e s e r v e d w h e n benefits a n d c o n t r i b u t i o n s w e r e increased in 1961. T h e contracted
o u t c o n t r i b u t i o n , t h o u g h h i g h e r t h a n t h e m i n i m u m c o n t r i b u t i o n paid by t h e
m a n e a r n i n g £9 a week, is m u c h l o w e r t h a n t h e c o n t r i b u t i o n p a y a b l e b y the m a n
in t h e g r a d u a t e d s c h e m e w h o is e a r n i n g a r o u n d t h e p r e s e n t m a x i m u m of £15 a
w e e k a n d , e v e n allowing for t h e fact t h a t t h e m a n in t h e g r a d u a t e d scheme is
e a r n i n g g r a d u a t e d p e n s i o n , t h e c o n t r a c t e d o u t m a n at t h a t level of earnings is
p a y i n g less t o w a r d s t h e cost of fiat-rate benefits. As m o s t of t h e c o n t r a c t e d out
a r e t h o u g h t t o b e e a r n i n g £15 a week or m o r e , they are escaping their full share
of t h e cost of fiat-rate benefits. I n this w a y p r i v a t e schemes h a v e been encouraged
t o c o n t r a c t o u t b u t at s o m e cost t o t h e finances of the State s c h e m e a n d to those
p a y i n g g r a d u a t e d c o n t r i b u t i o n s in it.
18. If w e increase t h e r a n g e of g r a d u a t e d c o n t r i b u t i o n s , w e shall n e e d to t a k e
a c c o u n t of this b y raising t h e c o n t r a c t e d o u t c o n t r i b u t i o n b y m o r e t h a n the increase
in t h e m i n i m u m flat r a t e c o n t r i b u t i o n p a i d b y t h o s e in t h e g r a d u a t e d scheme. A
s u b s t a n t i a l p a r t of t h e e x t r a g r a d u a t e d c o n t r i b u t i o n s will g o t o w a r d s meeting the
cost of flat-rate p e n s i o n s a n d the c o n t r a c t e d o u t m u s t also m a k e a c o n t r i b u t i o n to
this. T h i s is fair a n d logical a n d will n o t , I t h i n k , b e u n e x p e c t e d b y those familiar
w i t h t h e principles of the s c h e m e . T h e r e m a y , h o w e v e r , b e c o m p l a i n t s from the
l o w e r p a i d a m o n g t h e c o n t r a c t e d o u t t h a t they will h a v e t o p a y as m u c h as they
w o u l d if they w e r e in t h e g r a d u a t e d s c h e m e b u t w i t h o u t e a r n i n g a n y State g r a d u a t e d
p e n s i o n . T h i s m a y lead e m p l o y e r s w h o h a v e c o n t r a c t e d o u t employees with
e a r n i n g s at t h e l o w e r e n d of t h e scale t o r e c o n s i d e r their p o s i t i o n . W h i l e this is
likely t o b e very m u c h a m i n o r i t y p r o b l e m in t h e p r i v a t e sector, employers in the
p u b l i c sector (including t h e Civil Service) m a y find it necessary t o reconsider the
p r e s e n t p o s i t i o n w h e r e g r o u p s of their e m p l o y e e s a r e c o n t r a c t e d out irrespective
of t h e level of their e a r n i n g s . O n the o t h e r h a n d a p r o p o r t i o n a t e increase in the
c o n t r a c t e d o u t c o n t r i b u t i o n will still leave m o s t of t h e c o n t r a c t e d out, w h o h a v e
relatively h i g h e a r n i n g s , in a f a v o u r a b l e p o s i t i o n c o m p a r e d w i t h p e o p l e with the
s a m e e a r n i n g s in t h e g r a d u a t e d s c h e m e . This t h r o w s into relief t h e d i s a d v a n t a g e of
a single flat-rate c o n t r a c t e d o u t c o n t r i b u t i o n , w h i c h will b e c o m e m o r e difficult to
justify t h e w i d e r t h e r a n g e of g r a d u a t i o n b e c o m e s t h r o u g h successive increases.
19. O n e r e m e d y w o u l d b e to g r a d u a t e c o n t r a c t e d o u t c o n t r i b u t i o n s according
t o e a r n i n g s as w a s suggested in 1958 b y t h e I n s t i t u t e of A c t u a r i e s a n d the F a c u l t y of
A c t u a r i e s . S u c h a c h a n g e , h o w e v e r , raises serious difficulties a n d w o u l d b e
i m p r a c t i c a b l e o n this occasion.
20. M y c o n c l u s i o n is t h a t w e m u s t k e e p a flat-rate c o n t r i b u t i o n for t h e
c o n t r a c t e d o u t a n d t h a t t h e a m o u n t b y w h i c h it exceeds the m i n i m u m c o n t r i b u t i o n
p a y a b l e b y t h o s e in t h e g r a d u a t e d s c h e m e m u s t b e i n c r e a s e d a t least p r o p o r t i o n a t e l y
t o the increase in t h e r a n g e of g r a d u a t e d c o n t r i b u t i o n s ; a n d t h a t w e s h o u l d consider
w h e t h e r s o m e small further i n c r e a s e m i g h t b e d e s i r a b l e t o a v o i d creating a vested
interest in the p r e s e n t a r b i t r a r y r e l a t i o n s h i p b e t w e e n t h e c o n t r a c t e d o u t c o n t r i b u t i o n
a n d t h e flat-rate c o n t r i b u t i o n p a y a b l e b y t h o s e in t h e g r a d u a t e d s c h e m e .
Quinquennial increases of contributions
2 1 . T o k e e p receipts a n d o u t g o i n g s in b a l a n c e a n d , in p a r t i c u l a r t o m e e t t h e
steeply rising cost of flat-rate p e n s i o n s over t h e n e x t 15 t o 2 0 y e a r s , the N a t i o n a l
I n s u r a n c e A c t , 1959, p r o v i d e s for q u i n q u e n n i a l increases in t h e levels of all the
c o n t r i b u t i o n s u n d e r the n a t i o n a l i n s u r a n c e s c h e m e . A s f r o m t h e beginning of the
financial y e a r 1965-66 ( a n d at t h r e e s u b s e q u e n t five-yearly intervals thereafter)
section 1(2) of t h e A c t lays it d o w n t h a t fivepence a side shall b e a d d e d to the
m i n i m u m c o n t r i b u t i o n s , t h a t t h e r a t e s of g r a d u a t e d c o n t r i b u t i o n s shall b e increased
b y o n e q u a r t e r p e r cent a side for e m p l o y e r a n d e m p l o y e e w i t h o u t r a n k i n g for
e x t r a g r a d u a t e d p e n s i o n , a n d t h a t n i n e p e n c e a side shall b e a d d e d t o the c o n t r a c t e d
o u t c o n t r i b u t i o n s . E a c h of these q u i n q u e n n i a l increases w o u l d yield a b o u t £80
million a y e a r . I t is, h o w e v e r , p r o v i d e d t h a t t h e M i n i s t e r c a n , b y o r d e r m a d e with
t h e c o n s e n t of t h e T r e a s u r y , v a r y these a m o u n t s t o a n y lesser a m o u n t s w h i c h m a y
b e specified in t h e o r d e r .
22. T h e effect of these p r o v i s i o n s , if left u n a m e n d e d , is t h a t within a p e r i o d
w h i c h is likely t o be n o t m o r e t h a n 18 m o n t h s from t h e c o m i n g i n t o o p e r a t i o n of
t h e n e w rates of c o n t r i b u t i o n s r e q u i r e d in a n y case t o finance t h e increases in
benefits, there will b e i m p o s e d u p o n c o n t r i b u t o r s u n d e r t h e s c h e m e a further
c o n t r i b u t i o n increase w h i c h will c a r r y n o i n c r e a s e in benefits w i t h it. T h i s seems
to m e to pose a n a w k w a r d political p r o b l e m .
23. I h a d c o n s i d e r e d w h e t h e r t o i n c l u d e a p r o v i s i o n in t h e Bill to b e t a k e n
this Session in effect a d v a n c i n g t h e d a t e of t h e first q u i n q u e n n i a l increases from
1965, by s u b s u m i n g t h e m with t h e o t h e r n e w a n d higher c o n t r i b u t i o n rates p r o v i d e d
in the Bill. T h e a d v a n t a g e s w o u l d b e t h a t it w o u l d avoid t w o c o n t r i b u t i o n changes
within a space of p e r h a p s 18 m o n t h s ; t h a t t h e flat-rate c o n t r i b u t i o n increases w o u l d
b e associated w i t h benefit increases and, b e c a u s e of t h e i n c r e a s e d i n c o m e f r o m
g r a d u a t e d c o n t r i b u t i o n s , could b e k e p t w i t h i n t o l e r a b l e l i m i t s ; a n d t h a t t h e increase
in the g r a d u a t e d c o n t r i b u t i o n w o u l d b e allowed to r a n k for e x t r a g r a d u a t e d pension.
24. O n t h e o t h e r h a n d w e w o u l d b e strongly c h a l l e n g e d for p u t t i n g i n t o effect
c o n t r i b u t i o n increases n o t c u r r e n t l y n e e d e d to finance e x p e n d i t u r e s o m e 18 m o n t h s
before they w e r e r e q u i r e d a n d t h u s c r e a t i n g a s u b s t a n t i a l s u r p l u s in t h e first year.
25. I a m t h e r e f o r e in f a v o u r of leaving t h e p r o v i s i o n s in t h e 1959 A c t for a
q u i n q u e n n i a l i n c r e a s e in 1965 u n c h a n g e d a n d n o t increasing t h e level of
c o n t r i b u t i o n s u n d e r t h e f o r t h c o m i n g Bill o n a c c o u n t of it, a l t h o u g h I a m sure I
shall h a v e t o m a k e it plain w h e n p r e s e n t i n g m y p r o p o s a l s t o t h e H o u s e t h a t , as
t h e costings will s h o w , t h e finance of t h e s c h e m e will rely u p o n t h e q u i n q u e n n i a l
increases in c o n t r i b u t i o n s , t h e first of w h i c h will be d u e o n 1st A p r i l , 1965, a n d
will n o t e a r n a n y e x t r a benefit.
R e v i e w of t h e s c h e m e
26. I recognise t h a t the o u t l i n e p r o p o s a l s in this p a p e r for a s t r a i g h t f o r w a r d
increase in n a t i o n a l i n s u r a n c e benefits a n d a limited increase in t h e s p a n of
g r a d u a t e d c o n t r i b u t i o n s d o n o t in a n y w a y c o n s t i t u t e a " n e w l o o k ". I n fact they
would c o n s t i t u t e a h o l d i n g o p e r a t i o n — t h a t is a c o n t i n u a t i o n of p r o g r e s s o n o u r
p r e s e n t c o u r s e (which includes s t e a d y i m p r o v e m e n t in t h e real v a l u e of pensions)
until w e h a v e a clearer view t h a n w e c a n h a v e at p r e s e n t of t h e a d v a n t a g e s a n d
d i s a d v a n t a g e s of o t h e r p a t h s w h i c h v a r i o u s schools of t h o u g h t , b o t h a m o n g o u r
s u p p o r t e r s a n d elsewhere, might h a v e us t a k e . M y o w n view is t h a t w e o u g h t n o t
to v e n t u r e along a n y of t h e m w i t h o u t a c o m p r e h e n s i v e r e v i e w of the w h o l e field.
27. A p a r t f r o m t h e n e e d t o p r e s e n t a f o r w a r d l o o k i n g p u b l i c i m a g e in t h e
social security field t h e r e a r e plenty of social security issues o n w h i c h s u c h a review
would be v a l u a b l e , p r o v i d e d t h e n a t u r e , c o m p o s i t i o n a n d t e r m s of reference of t h e
reviewing b o d y c o u l d b e a r r a n g e d so as t o p r o d u c e , as n e a r as m a y b e , r e s p o n s i b l e
and objective r e c o m m e n d a t i o n s . I refer t o s u c h issues as : t h e r e l a t i o n s h i p b e t w e e n
n o n - m e a n s tested benefits ( n a t i o n a l i n s u r a n c e a n d family allowances) a n d m e a n s
tested benefits; t h e r e l a t i o n s h i p b e t w e e n flat-rate and g r a d u a t e d c o n t r i b u t i o n s a n d
benefits; t h e r e l a t i o n s h i p t o g r a d u a t e d c o n t r i b u t i o n s of t h e c o n t r a c t e d o u t
c o n t r i b u t i o n ; t h e q u e s t i o n w h e t h e r , a n d , if so, h o w , w e s h o u l d ultimately get t h e
latter also o n t o . a g r a d u a t e d basis b u t at a lower p e r c e n t a g e ; a n d , n o t least
i m p o r t a n t , t h e a p p o r t i o n m e n t a m o n g t h e v a r i o u s c o n t r i b u t o r s to social security
(employer, e m p l o y e e , t a x revenue) of the a m o u n t s necessary t o s u s t a i n w h a t e v e r
level a n d k i n d s of benefits t h e c o u n t r y c a n afford. C o n s i d e r a t i o n of all these
m a t t e r s , p a r t i c u l a r l y of t h e last, w o u l d h a v e t o t a k e into a c c o u n t C o m m o n M a r k e t
d e v e l o p m e n t s . I t t h e r e f o r e seems t o m e t h a t w e w o u l d b e wise ourselves to indicate
o u r i n t e n t i o n t o institute a review. I w o u l d w e l c o m e t h e C a b i n e f s views o n this.
Summary
28. I ask t h e C a b i n e t t o a g r e e —
(i) t h a t t h e n e x t increase in n a t i o n a l i n s u r a n c e benefits, to b e u n d e r t a k e n
s o m e t i m e in t h e 1962-63 Session, s h o u l d b e a u n i f o r m o n e for ail
beneficiaries a n d include n o differential e l e m e n t s ( p a r a g r a p h s 4 to 10);
(ii) t h a t t h e s p a n of earnings liable t o g r a d u a t e d c o n t r i b u t i o n s s h o u l d
increased ( p a r a g r a p h s 11 t o 16);
be
(in) t h a t t h e a m o u n t b y w h i c h t h e c o n t r a c t e d o u t c o n t r i b u t i o n exceeds the
m i n i m u m c o n t r i b u t i o n s m u s t b e increased at least p r o p o r t i o n a t e l y to the
i n c r e a s e in t h e r a n g e of g r a d u a t e d c o n t r i b u t i o n s ( p a r a g r a p h s 17 to 20);
(iv) t h a t n o steps s h o u l d b e t a k e n t o a d v a n c e t h e q u i n q u e n n i a l increase in
c o n t r i b u t i o n s d u e in 1965 ( p a r a g r a p h s 21 t o 25);
and t o consider—
(v) w h e t h e r t h e a n n o u n c e m e n t of t h e increase s h o u l d b e a c c o m p a n i e d by an
a n n o u n c e m e n t t h a t t h e G o v e r n m e n t w e r e instituting an a p p r o p r i a t e
r e v i e w of t h e basis a n d financial s t r u c t u r e of t h e n a t i o n a l insurance
schemes ( p a r a g r a p h s 26 a n d 27).
N. M.
Ministry of Pensions
6th November,
and National
1962.
Insurance,
W.C. 2,