But with unemployment in Britain still far too high, it is vital that we do everything we can to reduce the cost of providing employment. Having reviewed the position, I have therefore decided that, even in a year of acute fiscal stringency, we can and should go further.
Long-term unemployed people are most likely to find unskilled and semi-skilled work at the lower end of the pay scale. To improve companies' incentives and ability to provide that kind of job, I propose, again from next April, to reduce each of the lower rates of employers' national insurance contributions by one full percentage point. Overall, the reductions in national insurance contributions I have announced will reduce the cost to employers of providing jobs by £830 million next year, rising to £1 billion by 1996-97, well above the overall cost to employers of the reform to statutory sick pay.
In our discussions within the European Union, my RHF the Prime Minister and I have repeatedly made clear our view that the surest route to higher employment is not the dirigisme of the Social Chapter, but measures to reduce the cost of creating jobs. This is the message we will be taking with us to the European Council in Brussels next week.
The Government has decided to make a number of changes to the benefit, which will refocus it for the future on those who are genuinely incapable of work. My RHF proposes to introduce a new benefit - incapacity benefit - to replace sickness and invalidity benefit. The new benefit will involve a tighter and more objective medical test.
The Government has always made clear its intention to bring the tax treatment of invalidity benefit into line with that of the retirement pension and most other income-replacing benefits. Now that the necessary administrative arrangements can be made, I propose from April 1995 to bring its replacement, the new incapacity benefit, into tax.
STATE PENSION AGE Finally,I can announce one further decision which will have little immediate effect, but will make a considerable difference to the affordability of the modern welfare state in the next century. After careful consideration, the Government has decided that the state pension age should eventually be equalised at 65. The change will be phased in over ten years, starting in the year 2010, so it will not affect anyone currently aged 44 or older. By the year 2020, the state pension age in Britain will be broadly in line with that of most of our industrial competitors, though we will still have more generous arrangements than in the United States, where the pension age is to be equalised at 67.
All developed countries are making similar changes for similar reasons. Women nowadays tend to spend more of their lives in paid employment. They also live longer than men. Pension schemes need to recognise this, and end the current discrimination between the sexes. In the next century the ratio of working people to retired people will fall sharply and the burdens on taxpayers will rise. The Government's decision will moderate those burdens, eventually by some £5 billion a year, and so help to ensure that they are sustainable. The basic pension is, and will remain, a cornerstone of the welfare state. The Government is committed to it and to retaining its value.
Mr Deputy Speaker, the proposals I have announced today will in themselves save some £2 1/2 billion a year by 1996-97. Nevertheless, even taking these savings into account, we will still be spending £5 billion more on social security in that year than we planned last year. The social security budget will continue to grow in real terms, but at a more affordable rate than we have seen in recent years. At the same time, we have honoured our Manifesto commitments, we have fully protected the real value of pensions and benefits, and provided generous help with fuel bills.
These are not short-term measures to deal with today's problems. This Government has the courage to take a clear and far-sighted view of the modern social security system. We must make sure that it is a system that future generations will be able to afford. This Government will never take part in any attempt to dismantle the welfare state. We want to see a better welfare state, well-run, well-judged and one that meets the priorities of modern society. My RHF the Secretary of State for Social Security will fill out the details in his uprating statement tomorrow.
OTHER PROGRAMMES Mr Deputy Speaker, let me turn now to a number of other areas where savings have been found this year.
LOCAL AUTHORITIES First, local authorities. Growth in total standard spending in England, adjusted for changes in responsibilities, will be limited to 2.3 per cent next year. There will in addition be extra provision for community care. The Government will continue to use its powers to cap excessive spending by local authorities where that is necessary to protect the local taxpayer.
HOUSING Second, housing. Here too savings have been made on last year's plans. Nevertheless, the new plans for social housing provide for more than 153,000 new homes over the three years to 1994-95, fully meeting our Manifesto commitment. In addition, the Government will press ahead with plans to improve value for money in the housing association sector and to introduce more private finance into the development of social housing.