The mantra that we cannot afford to pay the 3.9 million 50s women their pensions until they are 65 and soon 66 is based on the premise that there is no money in the National Insurance Fund. The big question is why?
I have already in a previous report for #Backto60 shown that the accounts of the National Insurance Fund are in fact in surplus. But detractors point out that they soon won’t be if the government hands back £77 billion owed to the women.
But what if we have reached this situation because the government has raided a fund which is 91 per cent spent on pensions for other benefits. And what if the Treasury deliberately decided to undermine the fund by avoiding paying any money into it?
This is what I have found out by investigating the history of this fund.
The original fund was set up in 1911 by Lloyd George and did not cover pensions – but helped pay medical bills for wage earners and provided unemployment benefit for some workers. Employers and employees had to make compulsory contributions.
Pensions were introduced for those over 70 in 1908 and were means tested and supervised by local councillors. People could be disqualified from getting a pension if they had been imprisoned for ten years, weren’t of good character and were drunkards. The money came from general taxation. There is a House of Commons library report about the act here.
The real major changes came under the Attlee government which set up the welfare state. The National Insurance Act, 1946 introduced compulsory NI for all working people except married women. It set the pension age at 60 for women and 65 for men. Pensions, unemployment benefit, sickness benefit and a maternity allowance and death grant were paid out of it. There is a useful summary in the National Archives here. But it was run as a ” pay as you go ” scheme with money topped by the Treasury.
It is the attack on these provisions which began under the Thatcher government in the 1980s that has led to the 50s women losing out.
An excellent report by the House of Commons library describes what happened. It is worth quoting parts in full.
“In each year from 1948 to 1989, the National Insurance Fund received a grant from the Treasury, known as the Treasury (or Consolidated Fund) Supplement. The origins of the Supplement lay in the Beveridge Report, which envisaged a tripartite scheme of contributions to the Fund, whereby the Treasury would pay one third of the cost of unemployment benefits and one sixth of the cost of pensions and other benefits. In practice, the level of the Supplement tended to be around 18% of contribution income, a level at which it was fixed by the Social Security Act 1973.
“From 1980, the value of the Supplement began to decline, reflecting partly the growing level of contribution income and partly the constraining of spending on benefits by the abolition of earnings linking of the pension and other long-term benefits and earnings-related supplements to unemployment benefit. By 1988 the Fund’s contribution income exceeded its benefit expenditure, leading to a steady growth in the balance of the Fund (from £5.3bn in April 1986 to £10.4bn in April 1989 ).
In this context, the then Secretary of State for Social Security, John Moore, stated in 1989 that:
“The tripartite principle is already effectively a dead letter. The rationale behind it has gone, and the Supplement has been shrinking steadily as a proportion of the Fund’s income from about one-third in 1948. It now stands at only 5%. We consider that there is now no need for it all. The £26bn of expenditure from the Fund is fully covered by contributory income and the abolition of the Supplement will have absolutely no effect on that expenditure”
“The Supplement was abolished by the Social Security Act 1989.”
It was a disaster – the fund which then had big surplus – went heading into the red – as it was now being raided for the full cost of unemployment and sickness benefit at a time of high unemployment.
So in 1993 the Major government had to partly retract by reintroducing a Treasury supplement because money in the fund had fallen by a staggering 50 per cent due to benefit pay outs as well as pensions. Pensioners were robbed.
But the government fixed the rules so it was much less generous than the system they bequeathed from Attlee. As the report says :
“There are a number of differences between the Treasury Grant and the Treasury
Supplement. First, the levels of Treasury Grant are set by reference to benefit expenditure rather than to contribution income. Second, and more significantly, whereas the Treasury Supplement was paid annually, irrespective of whether it was actually needed to finance a particular year’s expenditure, the Treasury Grant is paid at the discretion of the Secretary of State.
“The amount of Grant paid to the Fund was limited to a maximum of 20% of forecast benefit expenditure in 1993-94, and to a maximum of 17% of forecast benefit expenditure in subsequent years.”
The truth of the matter is that the rules were skewed so the Treasury never had to pay out any money ever. If the Treasury had returned to its original support under the Major, Blair and Brown governments, the Tory Liberal coalition and Cameron’s government, billions of pounds would be available now to help pay the 50s women. Instead as we know successive governments ruthlessly decided to solve the problem by raising the pension age.
On top of this the government also amended the benefits that would be paid out from the fund – including some new benefits like paternity benefit for example.
Anyone who believes the changes that happened – both the removal of Treasury contribution to the fund and the subsequent rise in the pension age – was a happy coincidence is deluding themselves. You can see and hear here in an article in the Daily Express what George Osborne, the former chancellor, told investors at the Global Investment conference in 2013. He believed raising the pension age was a non controversial measure which saved enormous sums for the Treasury. Need I say more.
George Osborne speaking at the 2013 Global Investment Conference