HL Deb 18 February 1985 vol 460 cc389-91

2.48 p.m.

Lord Monson

My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government why an unskilled individual working a 20-hour week whose pay is raised from £1.70 to £1.75 an hour must suffer tax and/or national insurance deductions at an effective rate of 315 per cent. on his additional £1 per week, given that a highly skilled individual working the same hours whose pay is raised from £14.75 to £14.80 an hour suffers tax and/or national insurance deductions of only 30 per cent. on his additional £1.

The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie)

My Lords, the effects to which the noble Lord refers are the inevitable consequences of the lower and upper earnings limit of national insurance contributions, as fixed in the Social Security Pensions Act 1975. As my right honourable friend the Secretary of State for Social Services has said in another place, this whole question is being examined in the context of the social security reviews.

Lord Monson

My Lords, I am grateful to the noble Earl for that reply. Would he not agree that the combined rate of tax-cum-national insurance upon the earnings of lower paid workers is much too high, particularly when one compares Britain with other industrialised nations? Secondly, does he not agree that if the first £10 of weekly earnings were totally disregarded for the purpose of calculating both the employee's and the employer's national insurance contributions, at a total annual cost of a maximum of about £1.826 billion, then the net take home pay of low-paid employees would rise in real terms by more than 1 per cent., with higher-paid employees receiving proportionally less, as seems only reasonable? Also, would not the poverty trap be considerably narrowed, and above all would not employers have considerably more incentive to take on juvenile and low-paid adult workers?

The Earl of Gowrie

My Lords, I certainly agree with the noble Lord that the poverty trap—or, as I prefer to consider it, the unemployment trap—is one of the most severe problems facing our political economy. I share with the noble Lord a lack of admiration, perhaps, for the 1975 legislation. It is for that reason that I am very glad my right honourable friend is engaged in looking at it.

Lord Kilmarnock

My Lords, has the noble Earl seen the suggestion, in an article by two Conservative Back-Bench MPs in The Times today, that the lower earnings limit should be raised to £60 and the upper earnings limit to £305? Does he agree with that? If it were implemented, would it not solve the anomaly which has been pointed to by the noble Lord, Lord Monson?

The Earl of Gowrie

My Lords, I have not yet read The Times today, but I shall be doing so. The point is fairly taken, but may I refer the noble Lord and the House to remarks made last November by my honourable friend the Minister of State for Social Security, who is responsible far contributions? He said: I do not think that any of us would say that we think that the existing limits for lower and upper earnings are perfect and should stand unquestioned for all time. Clearly, the operation of those limits is one of the aspects that we shall be considering in relation to the social security reviews."—[Official Report, Commons, 22/11/84; col. 509.]

Lord Avebury

My Lords, as a matter of interest, can the noble Earl say how much money would be saved if the national insurance contributions were raised by an equivalent amount on the income tax and corporation tax of companies, and if the machinery for the collection of national insurance contributions as a separate entity were to be eliminated?

The Earl of Gowrie

My Lords, I could give that information only if I or my department had time to reach for our calculators. If the noble Lord will put it down in writing, I will try to answer it.

Lord Stoddart of Swindon

My Lords, is the noble Earl aware that his answers have been extremely helpful and sensitive to date? However, will he consider one particular aspect of the problem which militates against one-parent families, particularly widows and women who have been deserted? The difference between the threshold taxation allowance and the national insurance threshold is £1,231 in that case. It militates very hardly against widows and women who have been deserted by their husbands, and who are trying to make ends meet. Will the noble Earl ask the Chancellor to give particular attention to that aspect of the problem?

The Earl of Gowrie

My Lords, I agree with the noble Lord that the problems facing single-parent families are acute, and I know that my right honourable friend will bear them in mind as he looks at this whole vexed question.