§ 10.20 p.m.
§ The Joint Parliamentary Secretary, Ministry of Social Security (Mr. Norman Pentland)
I beg to moveThat the National Insurance (Earnings) Regulations 1967, a draft of which was laid before this House on 19th April, be approved.The Regulations that I now introduce to the House mark the first stage of implementing the recommendations recently made by the National Insurance Advisory Committee in its Report on the earnings rule for retirement pensioners. Perhaps I should start by reminding the House of the details of the present earnings rule for retirement pensioners.
The present level of earnings limit is £5. For earnings between £5 and £6, sixpence is taken off the pension for each complete shilling of earnings in excess of £5. When the earnings exceed £6 an additional Is. is taken off the pension for each additional Is. of earnings in excess of £6. Therefore, some part of the normal pension of £4 is payable, unless the pensioner earns more than £9 10s. in a week.
In February last year my right hon. Friend the Minister asked the National Insurance Advisory Committee to look at this rule. It was asked to examine not just the level of the earnings limit, but other associated matters. My right hon. Friend wishes me to express her appreciation of the Committee's work in thoroughly examining the question, on which it had received representations from various organisations, and from individual members of the public.
The Committee's Report, published in January, made a considerable number of valuable recommendations. Its main recommendations were threefold. The first was that the earnings limit should be raised from its present level of £5 to one of £6 10s. Secondly, it recommended that the range of earnings over which deductions are made from pensions at the rate of 6d. for each Is. of earnings should be extended so that it covered the band of earnings between £6 10s. and £8 10s. At present, it applies only on the band of earnings between £5 and £6.
Thirdly, the Committee dealt with the question whether, for the purposes of the earnings rule, earnings should be 676 looked at before Income Tax is paid under the P.A.Y.E. scheme, or after that tax has been paid. At present, we have regard to the earnings after tax but, as the Committee pointed out, this produces many anomalies. The Committee felt very strongly that these anomalies should cease, and it has recommended that in future we should have regard to the earnings before tax.
It also went out of its way to stress that this recommendation must go with the first two, because without it the figures that it has suggested would be higher than would be justified. This point about P.A.Y.E. tax is rather complicated, and perhaps I can best sum it up by pointing out that the earnings rule is concerned with the level of earnings, because that is the test of whether retirement has taken place.
On the other hand, Income Tax is related to income, and covers much more than earnings. If we make pension adjustments depend on Income Tax, and hence on income, we are getting away from the object of the earnings rule, which is simply to measure earnings. The effect is that some pensioners with additional income enjoy a higher earnings limit than others, which in the Government's view, is clearly unfair.
The Regulations give effect to all three of these recommendations. Regulation I prescribes that with Parliamentary approval, the Regulations will come into force on 5th June. Regulation 2 makes the amendments to the National Insurance Act to produce the new earnings limit of £6 10s., and to extend the 6d. reduction for each Is. of earnings to earnings between £6 10s. and £8 10s. Regulation 3 carries out the third main recommendation about P.A.Y.E. deductions, by suspending the operation of the Regulations under which at present these deductions are ignored in calculating the amount of a pensioner's earnings.
A preliminary draft of the Regulations has been submitted to the National Insurance Advisory Committee. Its report on them is contained in the House of Commons paper published on 19th April. Subject to a minor Amendment to Regulation 3 Which we have made in the 677 draft Regulations, the Committee recommended that the Regulations should be made in the form of the preliminary draft which had been submitted to it.
I am sure that hon. Members will join me in welcoming these very useful reforms of the earnings rule. The change in the earnings limit of £1 10s. is the largest ever made and, being a 30 per cent. increase, it is the biggest proportionate change made since the one we made in 1951. Apart from this, the changes will mean much greater fairness between one pensioner and another, ensuring that the improvements will be concentrated on the pensioner with the lower income.
§ 10.21 p.m.
§ Mr. Paul Dean (Somerset, North)
I am sure that the whole House is grateful to the Joint Parliamentary Secretary for his explanation of these rather complicated Regulations. I echo from this side the thanks which he gave to the National Insurance Advisory Committee for the review which it undertook into the working of the earnings rule. We on this side welcome the Regulations and this improvement in the earnings limit, but there are one or two points of criticism which I shall have to make.
As the hon. Gentleman said, the present £5 limit came into operation in March, 1964, over three years ago. That is a long interval when one considers that the interval between the last two was less than 12 months—the increase in May, 1963, to £4, and the increase in January, 1964, to £5. The hon. Gentleman will recollect that on two occasions since the last increase we on this side of the House moved for increases in the National Insurance Bill in 1964 and in the National Insurance Bill in 1966. Therefore, we welcome these increases, although we feel that they are somewhat overdue.
There are two points which emphasise this. The first is the relationship between average earnings and the earnings limit. As the National Insurance Advisory Committee makes clear on page 15 of its full Report, the relationship between the earnings limit as a percentage of average earnings has declined quite considerably since the last increase in April, 1964. As Table I, on page 15, makes clear, the percentage relationship in April, 1964, 678 was 28.4, whereas by April, 1966, it had declined to 24–7. I have no doubt that now it is slightly smaller than that.
The second point is the need to encourage those who are able and willing to work part-time to do so. The Advisory Committee concedes that the earnings of pensioners and the work that they do tend to increase when the earnings limit is raised. This is a particularly important point. The Committee summarised this on page 13 of its Report when it said:On the whole, the best judgment we can form is that there is a tendency for pensioners' earnings to increase as the earnings limit is raised, and, in so far as this is not merely a reflection of rising earnings levels, it would seem likely that increases in the limit do result in somewhat more work being done by some pensioners.It is undoubtedly desirable that there should be some link between average earnings and the earnings limit and, equally, that the earnings limit should be fixed in such a way that it does not discourage those who are able and willing to work.
For those reasons, we support these increases, both the raising of the limit and the raising of the proportionate band, two of the Advisory Committee's main recommendations which are embodied in these Regulations. But there is one other important point to which the Advisory Committee draws attention. It deals with the important question of the capacity for work of older people and the availability of suitable work, and I should like to question whether, welcome as they are, these Regulations deal adequately with this matter.
The Advisory Committee points out that both the T.U.C. and the C.B.I. suggested an inquiry into the work patterns of older people subject to the earnings rule and their employment opportunities. The Committee decided against conducting an inquiry itself and gave a number of reasons for that, one of which was the time factor which would be involved. But it said that an inquiry might well be appropriate by another body or at another time. I realise that the Ministry of Labour is doing some work in this connection, but do we know enough about this subject?
We have what we regard as the discouragement of the S.E.T., which makes it more difficult for older people to get work. When one recognises both the 679 economic and, perhaps more important, the social value of older people being able to do part-time work, one recognises, also, the importance of trying to discover whether there are sufficient suitable opportunities for employment on a part-time basis for old people and, if there are not, what more can be done to provide them. I hope that the hon. Gentleman is now able to tell us a little more about whether the Government are taking the advice of the Committee and looking into this matter in more detail.
The Parliamentary Secretary explained the withdrawal of the P.A.Y.E. concession. Frankly, we regret this withdrawal and believe it to be a mistake. The effect will be to cancel out the easing of the earnings rule for some pensioners. Admittedly, there is at present different treatment, depending upon the source of income, of the pensioner concerned, but this appears to be a levelling down rather than the alternative possibility, which would have been a levelling up. My information is that some pensioners will be worse off as a result of the withdrawing of the P.A.Y.E. concession in spite of the increase in the earnings limit.
One example I have before me concerns a man who believes that under the new Regulations he will be earning 14s. 3d. a week less than under the present Regulations. I hope that the hon. Gentleman will be able to tell us how many pensioners he thinks will be worse off and, if such cases exist, as I believe they do, what steps he is taking to ensure that such pensioners do not suffer.
When we make changes in the National Insurance sphere there is invariably a provision to ensure that nobody will be worse off. I trust, therefore, that the Parliamentary Secretary will assure us that there be special provisions to prevent people from being worse off. The National Insurance Advisory Committee stated in paragraph 4 of its Report—House of Commons Paper No. 441—when dealing with the withdrawal of the P.A.Y.E. concession:We are advised that this amendment has, in the form in which it was submitted to us, a wider effect in that it withdraws the disregard of any statutory deductions but we understand that this is a necessary preliminary to detailing … the disregards which are to be made in future.680 This is a disturbing way of going about the implementation of the full Report. These Regulations deal with only one aspect of it and the House is being asked to approve them when they make no provision for statutory deductions. I understand that the intention is that further Regulations will be introduced shortly, to come into operation at the same time, dealing with the statutory deductions which will be allowed. However, tonight we are being asked to approve Regulations which make no provision for statutory deductions.
Although I have no reason to doubt the Minister's word when he says that this matter will be dealt with later, it is unsatisfactory to ask the House to pass one part of the package when it makes no provision for statutory deductions, merely on his word that the next part will deal with that aspect.
What would happen were the Prime Minister to dissolve Parliament next week? [Laughter.] Hon. Gentlemen opposite may laugh, though no doubt, in the present malaise and unpopularity of the Government, it is highly unlikely that the Prime Minister would have an election now. But if he were to do so, we would find ourselves in the position of pensioners who work part-time being worse off because there is no provision for statutory deductions.
I hope that the Parliamentary Secretary will deal with this criticism. Apart from that, my hon. Friends have a general welcome for the Regulations, which will enable pensioners working part-time to earn a little more.
§ 10.39 p.m.
§ Mr. David Winnick (Croydon, South)
I welcome this general relaxation in the earnings rule, which will be equally welcomed by many retired people. For some time the view has been expressed, in my view rightly, that the existing Regulations are too strict and harsh. I have no doubt that many pensioners have expressed this view in letters to the Ministry, just as they have been writing to hon. Members for some time complaining about the present restriction.
I hope that I am not being a heretic in saying so, but I look forward to the time when we can consider some further relaxation and even the possibility of abolishing the earnings rule altogether. 681 When it first came into being, it was felt that it was one way of protecting full employment and, some years ago, perhaps, it was justified. But we are living in different times now, and the time may come when it will be possible to do away with the earnings rule.
There are a number of people who are forced to retire at 65 when they still have all their mental faculties. After a few months of retirement, they become bored and are quite willing to take up part-time employment. They do it not only for the money, though doubtless it is useful for anyone living on a limited income, but because they want something to do. It may be that, when they were working, they looked forward to retirement and saw it as an opportunity to rest alter years of hard work. Having been retired for a few months, they find a need to occupy their time. That is why many people take up part-time work when they have retired, and feel resentful when their pensions are reduced once they earn more than £5.
Even during the present Session, there have been Questions and debates on the subject. Therefore, I welcome the general relaxation which has been announced. I am sure that it will be widely welcomed by pensioners who are doing part-time jobs. Having taken this step, I hope that the Government will at some future date consider what further action they can take to relax and, eventually, abolish this rule.
§ 10.42 p.m.
§ Mr. John Pardoe (Cornwall, North)
I am not sure that one can join in the chorus of welcome for these proposals with a completely clear conscience if, as the hon. Member for Croydon South (Mr. Winnick) said, one believes that the proper policy would be to abolish the earnings rule in its entirety. The effect of the proposals on a Left-wing conscience might be to sooth away the feeling that there is further to go. I believe that there is a long way to go.
The hon. Gentleman said that he hoped there would come a time when the earnings rule could be abolished entirely. I hope that it will, but I fear that we may have to wait for a Liberal Government for it to come about, because we are the only party which has campaigned against the rule.
682 The hon. Member for Somerset, North (Mr. Dean) wondered what the situation would be if the Prime Minister were to get out and go to the country now. No doubt he has been reading the results from Greenock, where there has been a 28½ per cent. swing to the Liberals in the last 24 hours. We are alone in our campaign against the earnings rule in its entirety, and, though I welcome these proposals as a rather moderate reform in the right direction, I feel that we need to go very much further.
By making this change, the Government have accepted the arguments which I have always advanced in favour of changing the whole policy and getting rid of the earnings rule completely. By making the change, the Government accept that the rule is a disincentive to work, and we want to do everything that we can to persuade those who are willing and able to work to do so, even if it is only on a part-time basis.
There is the problem, too, that elderly people need a period of transition from full-time work to full-time retirement. Unfortunately, the working of the earnings rule tends to mitigate against this and to discourage people from carrying on working, even in part-time employment, after retirement.
One comes to the point of asking why we do not go even further? The hon. Gentleman will no doubt say that I am being dishonest in advocating a greater relaxation of the earnings rule because I cannot find the money to pay for it. The money would have to come. A considerable sum of money would be needed, and I am sure that it is lack of money—I hope it is not lack of conscience—which stops the Government from going the whole way with me tonight.
One can talk about growth. One can say that the methods of payment should be changed, but the real reason why the Government cannot go further tonight is that their policy is working towards a greater gap between private wealth and public squalor than was the case under Conservative Governments. I do not think that one can condemn a Labour Government in harsher words than that.
§ Mr. Deputy Speaker (Sir Eric Fletcher)
Order. We cannot embark on a debate on that subject on these Regulations.
§ Mr. Pardoe
I take your advice, Mr. Deputy Speaker. I realise that it might be difficult to discuss that without getting out of order. I shall, therefore, try to keep in order, and keep my remarks short.
We welcome these moderate proposals, but we prefer the Government to go the whole way. We believe that the principle of the pensions rule in future should be that the Government should pay a basic pension as of right to every pensioner, irrespective of earnings, or, indeed, of contributions.
§ Mr. Michael English (Nottingham, West)
I think I am right in saying that it would cost about £110 million to do that. Will the hon. Gentleman explain how the Liberal Party proposes to pay for this?
§ Mr. Pardoe
I would answer that, but Mr. Deputy Speaker has ruled that I would be out of order if I answered it in great detail.
§ Mr. Deputy Speaker
I think that the hon. Member would be out of order if he attempted to answer that question.
§ 10.47 p.m.
§ Mr. Pentland
I am glad that a general welcome has been given to these recommendations, even though the hon. Member for Cornwall, North (Mr. Pardoe) accepted them with reluctance.
Perhaps I might deal first with the questions put to me by the hon. Member for Somerset, North (Mr. Dean). He asked me about the inquiry into the availability for work. It is true that the recommendation to which he referred was made by the Committee, and it looked forward to other occasions on which adjustments to the earnings rule might be in prospect. This would not be the best time to undertake such an inquiry, but I assure the hon. Gentleman that the point has been taken.
The hon. Gentleman then asked about P.A.Y.E. deductions. I appreciate what he said about this, but 1 hope he will agree with me that the Advisory Committee insisted most strongly that these caused serious anomalies in the present earnings rule system and that these anomalies should cease. Indeed, the Committee said that… on grounds of equity, if for no other reason, this anomaly should cease …684 Having said that—and here I come to the other point made by the hon. Gentleman—the Committee recognised that pensioners who have enjoyed the tax concession and who would be worse off—and I assure the hon. Gentleman that there are relatively few of them—should not suffer undue hardship, and that something should be done to avoid this. The Committee said:What we have in mind is that, if the tax concession were withdrawn, as we think it should be, the earnings limit could be relaxed by rather more than would otherwise be justified, and that the change … the change we have in mind in the proportionate band could also be such as to take some account of the withdrawal.So it was conscious of the hardship which could be involved in this.
The Advisory Committee went out of its way to stress that these three recommendations must go together; that they must go hand in hand, because without acceptance of the third one the figures suggested in the first two recommendations would then be too high. I hope the hon. Gentleman will accept that.
§ Mr. Dean
I take the point the hon. Gentleman is making, but would he agree that even with these three recommendations taken together there will still be some pensioners who will be worse off than they are at present? If he accepts that this is the case, is he satisfied that that position should remain?
§ Mr. Pentland
Yes, I am accepting, and the Government accept, exactly what the Advisory Committee recommended in this instance—accepting, of course, that there will be a very small number who could be worse off in that their pensions would now be reduced more, because, as the hon. Gentleman is aware, in the past they have had a tax concession; in other words, they have had an unfair advantage in the earnings limit over other pensioners. Now we are levelling up, more or less; and indeed, the emphasis now is on fairness to the lower-income pensioners.
On the other point the hon. Gentleman made, about the other recommendations of the Committee, I can tell him that the Government accept the recommendations in full. All the other recommendations of this Committee have been accepted in full by the Government, and I assure the hon. Gentleman that we are proposing to bring them into operation 685 on the same date as that from which these Regulations operate, and that is 5th June.
The only other point I want to make is in reply to the hon. Member for Cornwall, North. It is quite true that members of the Liberal Party have on more than one occasion raised the point about complete abolition of the earnings rule. My hon. Friend the Member for Nottingham, West (Mr. English) was quite right: if there were complete abolition of the earnings rule tomorrow, or on 5th June, we should have to find £110 million a year. We on this side of the House believe, and I am sure the House will agree, that in the present situation, if we had £110 million at our command, we could find other priorities on which we could spend that amount of money—
§ Question put and agreed to.
That the National Insurance (Earnings) Regulations, 1967, a draft of which was laid before this House on 19th April, be approved.