This is the first of two Bills I intend to bring before the Seanad to implement the £850 million social welfare package announced in last week's budget. This is the second year running in which the social welfare package amounts to £850 million and the first time in many a year in which it has exceeded the income tax package. In the five years since this Government came into office Ireland has changed dramatically for the better. The Government has delivered on its commitment to ensure that social welfare recipients have benefited from economic growth.
Over the lifetime of the Government contributory old age pensioners received increases of almost 50%, compared to 10% under the rainbow coalition. Non-contributory pensioners got increases of no less than 56% compared to 11% under the previous Government. Child benefit was increased by over £60 per month per child for the first two children compared to only £10 under the previous Government.
The Government has massively increased spending on social welfare from £4.5 billion in 1997 to £7.4 billion in 2002 – an increase of almost two-thirds in just five years and over 20% on 2001. That gives the lie to some of the criticism from lobby groups.
The recent budget has been welcomed by a wide range of groups. The Combat Poverty Agency commended the policy direction of increasing welfare payments in line with earnings. People with Disabilities in Ireland, the representative body for people with disabilities, welcomed the improvements for people with disabilities.
In line with the commitments in our action programme and in the Programme for Prosperity and Fairness, all old age pensions have been increased by more than the rate of earnings growth over the period. When we came into office, the old age contributory pension stood at only 28% of average industrial earnings. We have increased that in each year to 31% in 2002 – well on the way towards the target set by the national pensions policy initiative of 34%.
The Bill addresses commitments set out in the Government Action Programme aimed at building an inclusive society, improves the living standards of everyone on social welfare and fulfils our commitments under the Programme for Prosperity and Fairness. With increases ranging from 9% to 11.8%, people dependent on social welfare will see real and significant increases in their incomes next year.
These are the key provisions of the Bill. While in Government we have given pensioners weekly increases of £5, £6, £7 and £10 in both 2001 and 2002 compared to increases of between £1.50 and £3 given by the previous Government. The increases provided for in sections 2 and 3 of this Bill more than delivers on our commitments. Last year I gave a commitment to increase the widow's and widower's contributory pension for those over 66 to the full old age contributory pension. The special increase provided for in section 2 of the Bill of £12.04 will bring the new rate to £114.04, within £2 of the full old age contributory rate.
The Government is also committed to substantial increases in other social welfare payments. Over the period from 1997, general social welfare increases have increased well ahead of inflation and indeed ahead of increases in gross average industrial earnings. In this budget, despite the difficult times caused by the world economic downturn and the resulting pressure on resources, we are giving very significant increases to those who are least well off. The increases being provided this year for people on the lowest payments are greater than last year and indeed much earlier. We are providing a general increase of £8 per week in respect of social welfare customers under pension and retirement age. In per centage terms, the £8 increase is between 7.4% to 9.4%, depending on the payment concerned.
In addition, we are providing a special increase of £9.56 for those on the lowest rates of social welfare rates, supplementary welfare allowance and short-term unemployment assistance. This brings the lowest social welfare rate up to £93.60. This increase of £9.56 is consistent with the majority recommendation of the Social Welfare Benchmarking and Indexation Group, which was established under the PPF and reported last September.
There is considerable merit in raising all payments, as and when this is possible, with the objective of ensuring a reasonable relationship in due course between the average living standards in the community and the level of social welfare payments. Not only have we made substantial progress towards the PPF target of £100 for lowest social welfare payments, we have almost reached this target this year and I have no doubt that the target will be exceeded in the remaining budget in the period of the programme. This Bill is fully in keeping with our commitments under the PPF.
We are also providing further very significant increases of £10 per week for qualified adults aged 66 and over and of pensioners with lesser amounts for those on reduced payments, a pensioner couple on a full social welfare payment will therefore get an increase of £20 per week. The qualified adult allowance for a person over 66 has been increased from 72% of the old age contributory pension in 1997 to 77% in 2002 and now represents 85% of the old age non-contributory pension. As I promised last year this will be increased in the coming years to the full old age non-contributory pension rate to benefit women in the home who do not qualify for the contributory pension.
There are also substantial increases for qualified adults under age 66. The qualified adult allowances are being increased by £8 and £9 per week. For example, a couple on the lowest rate of payment of supplementary welfare allowance will get a total increase of £17.50, bringing their weekly payment up to £155.60. If they have children obviously they will also benefit from the substantial increases in child benefit.
It has been a source of some complaint in the past that social welfare increases used to come into effect later than budget tax changes. We were berated on all sides of the House that increases were announced in December and not delivered until much later – the second week in June when we came to office. It was also a source of complaint that tax changes came in much earlier than social welfare increases. Last year I brought forward the implementation date of social welfare weekly rate increases to the start of the tax year, 6 April. Now that the tax year has moved to the start of January I am bringing forward the budget increases in weekly rates of payment to 1 January. This means that in 2002 social welfare clients will be paid their increase for the full 52 weeks of the year compared to 29 weeks when we came into office in 1997. In the case of an old age contributory pensioner, this is equivalent to an extra 4.4% annual increase, quite apart from the actual increases.
People receiving short-term payments such as unemployment payments will receive their increases immediately in the first week of January. In the case of people on longer term payments such as pensions, because of the time needed to print and distribute pension books, pensioners will receive their increases somewhat later. Some 210,000 people, mainly widows and widowers, one parent families, invalidity pensioners and persons receiving carer's allowance, will receive a lump sum payment for six weeks of the budget increases on 14 February, obviously backdated to 1 January. This will be included in their new order books effective from that date. For example, a widow on a contributory pension over 66 years of age will receive a backdated payment of £72.24, €92. A further 393,000 recipients, mainly old age and retirement pensioners and disability allowance recipients, who are due to get their new order books in April, will receive a special payment in mid-February comprising six weeks arrears of the budget increase and seven weeks' advance payment. For example, a pensioner couple over age 66 will receive a lump sum payment of £260 or €330 on 15 February.
Section 4 increases the weekly income thresholds for family income supplement from January next by amounts ranging from £34.22 to £35.09 for all families on FIS. This will lead to a net gain of £16 per week in the average FIS family payment; I must correct that – it is €34.22 to €35.09. The increased payments will be paid in the first week in January.
Section 5 of the Bill provides for an increase in the earnings ceiling for employees' social insurance contributions and the income ceiling for payment of optional contributions. Section 6 provides for a reduction of 1.25% in the employers' higher rate of social insurance contribution. The earnings ceiling is being increased in line with projected increases in average industrial earnings in 2002, by 8% from £28,250 to €38,740, with effect from the start of the income tax year in January. The employers' higher rate of social insurance contribution is being reduced from 11.3% to 10.05% from the beginning of March 2002, at a cost of €237 million in 2002 and €347 million in a full year.
Section 7 provides for a one-off transfer of €635 million in the 2002 financial year from the social insurance fund to the central fund of the Exchequer. This measure has provoked considerable debate over the past week. It is important to remind Senators that the fund was established in 1953 and that for all but the past five of the intervening 48 years, income contributed to the fund was insufficient to meet demand. During the first 43 years of the fund's existence, the shortfall in income has been met from Exchequer funds; in other words, by the taxpayer. Since 1997, income to the social insurance fund has exceeded spending, a remarkable turnaround resulting from the Government's prudent management of the economy. The social insurance fund now enjoys an accumulated surplus of over £1 billion. It is projected that the surplus will increase cumulatively to about £3 billion in 2004. It is entirely appropriate, therefore, that part of this surplus should be returned to the source from which earlier shortfalls were met. The value in real terms of transfers in the opposite direction since 1953 exceeds £11 billion.
The social welfare package in this year's budget equals last year's record amount of £850 million. As the public finances are so tight, it would not have been possible, if the transfer from the fund had not occurred, to achieve this level of spending without recourse to borrowing. In spite of the transfer, the social insurance fund will remain in a very healthy financial position. After the changes in this year's budget are taken into account, the projected accumulated surplus in the fund at the end of 2002 will be more than £960 million. It would not make any sense to have this money in the bank while borrowing to pay for social welfare improvements. Despite comments in the other House, the social insurance fund is the people's money and it is right that we should give it back to them. I do not doubt that the House agrees that the Government's prudent and successful management of the economy over the past four years has provided the foundation upon which the healthy state of the social insurance fund rests. It is appropriate that the taxpayer, who has contributed to much to the fund since its inception, should benefit in the circumstances I have outlined.
The Social Welfare (No. 2) Bill, the first of two instalments, clearly demonstrates the Government's commitment to looking after the needs of the elderly, widowed persons, carers, the unemployed and others who are dependent on our social welfare system. The Bill ensures that the £850 million package provided for in the budget will be directed to those most in need. I commend the Bill to the House.