CONTRIBUTIONS UNDER NATIONAL INSURANCE ACT 1965 (Hansard, 10 April 1974)

§ Sir B. Rhys Williams
I beg to move Amendment No. 2, in page 2, line 15, at end insert: '(2) In section 3 of the Insurance Act there shall be inserted after paragraph (c) the following proviso— Provided that any self-employed person to whom this paragraph applies may, on proof of his average weekly earnings in any financial year, exercise an option to pay a total contribution in respect of that year of a sum not greater than twice the amount of the combined graduated and flate rate contributions that he would have paid if he had been an employed person with the same earnings".' The object of the amendment is to draw attention to the problems of the self-employed. The formula that I have adopted, which has the effect of reducing the contributions which the self-employed on low incomes will be required to pay, makes the appropriate gesture to the self-employed in order to correspond more or less to what I calculate to be the effect of the combined changes in the flat-rate and the earnings-related contributions which apply to employees in the contracted-out section of the National Insurance Scheme. I am not certain whether I should have applied the formula to the contracted-out or the contracted-in, but I hope that the Committee will forgive 521 me, particularly in view of the time available, if I do not go more fully into that.
My object is that self-employed workers on low incomes should have a way of reducing the amount of the burden imposed on them by the flat-rate contribution. Had the House not been under such pressure I would have spoken on Second Reading and would have asked the Minister to give us the Department's thinking about the relationship between contributions and benefits, in particular the Secretary of State's thinking of earnings-related contributions and flat-rate benefits and the whole rôle of flat-rate contributions in the future of national insurance.
I tabled Questions to try to elucidate what Government policy was on this and received only evasive and unsatisfactory replies. I am an enemy of flat-rate contributions and always have been for reasons which I have gone over in the past and do not need to elaborate now. Flat-rate contributions for the self-employed are a particularly heavy burden because so many are on low incomes in any event. In some ways the object of the Bill appears to be to aggravate the disadvantages of the self-employed on low incomes. All of them have to pay the increase of 42p in the case of a man over 18 and 34p in the case of a woman over 18, bringing their rates to £2.41 for a man and £2.01 for a woman.
For a man whose total income is perhaps £18 to £20 a week such an exaction is an extremely heavy burden. We ought to consider the plight of the self-employed low paid just as much as we consider the plight of the low-paid employee when we are adjusting the burden of contributions to national insurance from time to time. The Government tend to forget the self-employed because they do not belong to trades unions and are not able to exert pressure on a Labour Government, yet there are about 1,800,000 of them. I believe, although I have no evidence for this, that the great majority of them have incomes below the national average wage of £40 a week. It is wrong that we should continue to impose the heavy burden of a flat-rate contribution on the self-employed without attempting to soften the edge at all, even for those whose earnings are very small.
522 If they are forced out of their gainful occupation because they cannot meet their contributions, we do not know what may become of them. They may not have the sort of skills or aptitudes which enable them to make a satisfactory career as employees. So they may be a far bigger burden to society and a serious social problem if we make it impossible for them to continue to meet their contributions. In this Bill the Government are taking an important step along the road to forcing many self-employed people out of the gainful employment by which they manage to survive and making them into a social problem.
The Bill takes further forward the process, to which I have often drawn attention, of what I call the "gipsification" of the self-employed. I hope that I shall receive a sympathetic comment from the Minister about the intention of the amendment. I do not intend to press it to a Division because much more attention needs to be given to the precise basis on which we exact contributions to national insurance from the self-employed. I express my conviction that the present basis is wrong and that the increase the Government are proposing is unjust and will cause hardship.

§ Mr. Raison
I believe that my hon. Friend the Member for Kensington (Sir B. Rhys Williams) has put forward a good point. While I appreciate that he does not wish to press the matter to a Division this evening, I hope that the Government will take this seriously in their consideration of future policy. There is no doubt that some self-employed people on low incomes can be badly hit by these new proposals.
I quote from a letter received by one of my hon. Friends which makes the point very well. The letter came from a rural dean writing on behalf of his clergy and protesting at the new contribution rates. He said: Although taxed through PAYE we are classed as self-employed. The new rates will take a considerable slice from what are already minimum incomes. Anyone who knows the sort of level of income which the clergy of the Church of England, and perhaps even more of the Nonconformist churches, are receiving will realise that this new measure imposes a considerable burden upon 523 them. I ask the Minister to take the problem seriously.

§ Mr. William Wilson (Coventry, South-East)
I should not like it to be thought that only Conservative Members of the Committee are concerned about this problem. Anyone who understands the needs of the self-employed will appreciate that under our national insurance provisions such people quite often get the wrong end of the stick. The self-employed person is not able to qualify for unemployment pay in the ordinary way. I should like my hon. Friend to tell us what is the Department's thinking about the self-employed person. There is no doubt that grave injustice is often done to folk who are not able to provide in the ordinary way of business for pensions, sick pay and so on. If it is possible to arrange a system whereby contributions can be paid into a national scheme a need will have been met.

§ Mr. Robert C. Brown
I am grateful to the hon. Member for Kensington (Sir B. Rhys Williams) for the way in which he moved his amendment and the indication which he has given. I take the points made by the hon. Member for Aylesbury (Mr. Raison) and my hon. Friend the Member for Coventry, South-East (Mr. Wilson). I do not believe that there is any monopoly of feeling for the low paid, whether self-employed or employed by some major undertaking.
The amendment is clearly aimed at relieving the low paid self-employed person of some of the contribution liability. We would all accept that this is a worthy aim. The contribution for a self-employed man under the Bill is £2.41 a week. A self-employed man with a weekly profit of approximately £17 would, under the proposal of the hon. Gentleman, pay £2.40—that is twice the proposed employee's contribution of 75p; namely £1.50, plus twice the graduated contribution of 45p, which is 90p. The profit level at which a self-employed person may claim exception from contribution liability is set out in the Bill at £650 a year; that is, about £12.50 a week. Since the amount of the contribution may, among other things, be excluded from the calculation, this means that a profit of £14.91 a week can bring exception. I find it difficult to accept the 524 amendment, and I am glad that the hon. Gentleman is not pressing it—

§ Sir B. Rhys Williams
Is the hon. Gentleman assuming that the comparison is with an employee who is not contracted out? I find it difficult to be certain where the most honest comparison would be; but the object of my amendment was to taper the flat-rate contribution of the self-employed from about the same point at which the contributions are tapered for employees as a result of the Budget and the Bill.

§ Mr. Brown
The hon. Gentleman is right; I am speaking of a not-contractedout individual. I was about to say that I found it extremely difficult to accept this amendment for a number of reasons. First, contributions of self-employed people are payable weekly. Fresh legislation would be needed to remove this requirement if it were possible to exercise the proposed option after the end of the contribution year. In many cases this would be long after the end of the year, since profits may not be determined for several months—often not until many months after the end of the individual's business accounting year, and it is most unlikely that that would coincide with the period over which contributions were required to be paid.
Secondly, the administrative complications implicit in introducing a variable rate of contribution for a self-employed person retrospectively and of his choice would, in themselves, rule out such a provision.
Finally, as the small income exception arrangements would reduce the numbers who could benefit financially from the amendment to the narrow band of profit of between £15 and £17 a week, there would seem to be very little to be gained. I am therefore grateful that the hon. Gentleman is to withdraw his amendment.

§ Sir B. Rhys Williams
I think that the hon. Gentleman has not taken the point made by Members on this side and hon. Members opposite. It is that this is a problem that needs the attention of the Government, and the Bill is aggravating it seriously. I sought to be in order and sought to make only a modest gesture 525 in the right direction which could not be ruled out on the ground that it would upset the finances of the national insurance system too much to be acceptable. The problem remains and has to be tackled.
This is a job with which we expect the Minister to deal, in view of what is being said and in view of the aggravation of the problem as a result of the Bill. I hope that he will give the Committee an assurance that it will be studied and that a way will be found of relieving the burden of flat-rate contributions on self-employed people with low incomes. We shall not be satisfied if we do not have that assurance.

§ Mr. Brown
Naturally, my right hon. Friend and I will consider what has been said. We all want to study the issue, and I hope that in our long-term proposals we shall be able to deal with the matter. I cannot give any absolute undertaking but I shall certainly confirm that we intend to look further at the matter.

§ Sir B. Rhys Williams
In view of the Minister's concluding remarks, I beg to ask leave to withdraw the amendment.