§ 'In section 4(6) of the principal Act, with effect from the tax year 1981–82, after the word "as" there shall be inserted the words "exceeds the current lower earnings limit and".'.—[Mr. Rooker.]
§ Brought up, and read the First time.
§ Mr. RookerI beg to move, That the clause be read a Second time.
The effect of the clause has basically been debated throughout the debates on most of the other amendments, certainly those to clause 1. What we are seeking to do is to put into practice what many of us have advocated, namely, that a person should not pay the national insurance contribution on earnings that are less than the lower earnings limit. In other words, we want there to be a national insurance threshold in the same way as there is a tax threshold.
We admit that we do not know how much the new clause would cost. We suspect that it would be a substantial amount, but we have had no time effectively to cost it, because of the way in which the Bill is being bounced through the House of Commons. [HON. MEMBERS: "A week."] No. It may be that the Bill has been in print for more than a week, but the Government secured the Second Reading of the Bill only on Monday. There has not been much time to consider what new clauses should be tabled.
We believe that there is a case to be made for looking it the upper and lower earnings limits anyway. By implication, we have not quite tied ourselves to the complete abolition of the upper earnings limit We want to review the whole system. As regards low-paid workers, there is a substantial case for having a national insurance threshold. We cannot see anything technically defective in that method of proceeding. It would require a simple form of words to be inserted into the principal Act.
§ Mr. Andrew F. BennettWe on this side had hoped for some short comments from the Minister.
§ Mr. Patrick Jenkin rose—
§ Mr. BennettIf the Minister wishes to speak, I will give way and will seek to intervene later.
§ Mr. JenkinI had thought that it might be for the convenience of the Committee if I heard the Opposition arguments first, but if it will be helpful for me to state the Government's views on the clause I am happy to do so.
I must tell the hon. Member for Birmingham, Perry Barr (Mr. Rooker) that, with the possible exception of amendment No. 5, which would have renewed the entire revenue-raising function, this is by far the most momentous amendment tabled by the Opposition. It would have the effect of reducing the employee contributions by £1.7 billion, the employer contributions by £2.5 billion and the employer surcharge by £800 million. I make that a sum of about £4 billion. We shall be interested to see whether the Opposition vote in favour of their clause.
What the Opposition have not recognised is that this first slice of income on which contributions is paid by anyone whose income is higher than the lower earnings limit is absolutely crucial to the whole structure of the 1975 pension scheme and is the basis on which agreement was reached with the occupational pension interests.
Perhaps I should explain to the Committee why this is so. The Committee will remember that it was agreed in 1975 that the scheme would remain contributory and that people would receive benefits and pensions in return for their contributions. The basis of the new scheme was that the retirement pension would consist of two elements. First, there would be 100 per cent, replacement of income for the first slice of earnings. That was up to the lower earnings limit. Then, for income above the lower earnings limit, there would be a 25 per cent, replacement once the scheme had become fully mature, once one had the full 20 years of contributions. That would apply to earnings lying between the lower and the upper earnings limits. Nevertheless, contributions were to be levied at a uniform rate on all earnings up to the upper earnings limit. That was the basis on which the scheme was constructed.
Thus pensioners will get a very good return on the contributions paid on the first slice of earnings and a less good return on the rest of their contributions. It was for that reason that it became so much more important after 1975 to ensure that as many people as possible had an opportunity to ensure that their contribution records, up to the lower earnings limit, were as complete as possible. That was an important part of their entitlement.
5.30 am
It was for that reason that credits were introduced for sickness and unemployment. In addition, the home responsibility protection was put in to ensure that people who had interrrupted work would still qualify for a full pension. Contributors were given the opportunity to pay voluntary class 3 contributions to repair gaps in their contribution records. All of that was to ensure that emphasis was placed on the need to secure a full record of contributions in respect of the lowest slice of earnings, the very slice that the new clause seeks to remove from contribution liability. For the slice of earnings between the lower and upper earnings limit, pension return was to be 1239 strictly contribution-related, and there was to be no help by way of credits, home responsibility protection, class 3 and so on.
The back-up for ensuring that as many people as possible qualify for the basic pension—based on contribution records—is linked to that first slice of income. It goes right to the heart of the second pension scheme and to the arrangements negotiated and agreed with the occupational pension interests outside. If the Opposition are hooked on trying to exempt that first slice of income, the entire scheme will have to go back to the drawing board. The whole shooting match will have to be renegotiated.
The hon. Member for Renfrewshire, West (Mr. Buchan) will discover, as he becomes acquainted with pensions interests outside, that the last thing they want is to see that concordat upset. After "ping-pong pensioneering" from Boyd-Carpenter to Crossman, from Crossman to Joseph and from Joseph to Castle, the Howe-O'Malley concordat was reached. They want to stick with that. The new clause would destroy its basis. In addition to costing £4 billion, it would destroy the basis of the 1975 scheme. I cannot recommend my hon. Friends to do that.
§ Mr. RaceThere is no reason why the House should not agree to £4 billion of reflation. Conservative Members may believe that it would be damaging to increase the public sector borrowing requirement by that amount. My hon. Friends and I do not. We want the economy to expand and unemployment to fall. To do that, one could increase public expenditure. The Secretary of State's argument to the effect that we cannot afford £4 billion does not stand up.
One must consider the differences between the national insurance scheme and income tax. Why on earth is tax not paid on income below the tax threshold when under the national insurance scheme there is an impost on income below £27.50 a week? That is an unjustified impost on the lowest paid. We must find a way of protecting the pensions of those who are part-time workers. They pay a substantial marginal national insurance rate once they earn £27.50 per week. If the pensions system is based on people being discriminated against in that unjustified way, it ought to be changed. There ought to be a method of dealing with it during this Parliament.
I believe that the new clause is correct in identifying this as a problem to be rectified. Many low-paid workers who are seriously affected by this form of taxation, whereby they pay national insurance contributions on anything below £27 a week, will welcome any attempt by Parliament to review that situation, especially as many more people will be brought into that position by virtue of the freezing of the lower threshold.
For those reasons, the new clause is entirely justified. I hope that we shall vote for it.
§ Mr. Andrew F. BennettThe Secretary of State seems to think that the so-called concordat or agreement that he made can be infinitely varied and yet still hold good. Having broken the earnings link with pensions and having in the Bill started to put in extra expenses for the National Health Service and on cutting back the Treasury supplement, he is altering the rules and the agreement. If 1240 he is changing matters in that way, it seems reasonable for us to insist on making this form of taxation not regressive, as it is now, but more progressive.
Clearly, there will be much argument on this issue in the future. We now have an extremely regressive tax. Introducing an allowance or pushing back a lot of expenditure into the income tax system rather than the national insurance system is the only way to make the system more progressive and less regressive.
Therefore, I hope that, as an indication of our feeling that the national insurance system is particularly regressive, we shall vote for the new clause. We are dissatisfied with the present system. We want a change. We do not accept that the concordat that was made has any value now because of the way that the Government have torn so many holes in it.
§ Mr. RookerWhen moving the new clause, I said that I suspected that the cost was high. I still think that I should not put my figure on record. However, I can correct the Secretary of State's arithmetic. The figure is £5 billion, not £4 billion. My record shows that I have been prepared to put my hand into the taxpayer's, or the Government's pocket, for large sums. In this instance the sum is £5 billion.
I accept the point made by my hon. Friends that the fact that earnings up to the lower earnings limit pull in £5 billion show the unfairness in the system. In our own defence, because the wisdom of the Chair cannot be challenged, I must say that one of our intentions was to move new clause 2. One of our arguments would have been that one would basically pay for the other. But we could not do the costing in the time that the Government made available to the Committee.
Because it is not possible for the Opposition to put on record their support for a proposal such as that in the new clause 2 as the other side of the equation, I have to advise my hon. Friends that we would be putting our heads in a noose, and that we would regret. [Interruption.] What is wrong with that? It is all very well for the Conservative Members to come into the Chamber at 5.39 a.m. This is a debating Chamber. We have been seeking information during the past 13 hours, some of which has been satisfactory and some of which has not.
Given the fact that we cannot put the other side of the equation on record, I must advise my hon. Friends not to vote for the new clause. However, before Conservative Members pooh-pooh that fact, I should point out that the sum involved is the mythical surplus in the national insurance fund. It is of that sort of scale. It represents one-third of a year's outgoings in respect of the national insurance fund. It is roughly the same sum as the Government handed to the well-off within three or four weeks of taking office. A total of £5 billion is an enormous sum which people find difficult to comprehend. The fact remains that about £4.5 billion was handed out to the well-off.
However, as we cannot put the other side of the equation on the record, I beg to ask leave to withdraw the motion.
§ Motion and clause, by leave, withdrawn.
§ Bill reported, without amendment.
§ Mr. Patrick JenkinI beg to move, That the Bill be now read the Third time.
§ Question put:—
§ The House divided: Ayes 191, Noes 15.
| Division No. 31] | [5.43 am |
| AYES | |
| Alexander, Richard | Jenkin, Rt Hon Patrick |
| Atkinson, David (B'm'th,E) | Johnson Smith, Geoffrey |
| Baker, Nicholas (N Dorset) | Kershaw, Anthony |
| Banks, Robert | Knight, Mrs Jill |
| Bendall, Vivian | Lamont, Norman |
| Benyon, Thomas (A'don) | Lang, Ian |
| Benyon, W. (Buckingham) | Latham, Michael |
| Best, Keith | Le Marchant, Spencer |
| Bevan, David Gilroy | Lennox-Boyd, Hon Mark |
| Biggs-Davison, John | Lester Jim (Beeston) |
| Blackburn, John | Lloyd, Peter (Fareham) |
| Blaker, Peter | Loveridge, John |
| Boscawen, Hon Robert | Luce, Richard |
| Bottomley, Peter (W'wich W) | Lyell, Nicholas |
| Bowden, Andrew | McCrindle, Robert |
| Bright, Graham | MacGregor, John |
| Brinton, Tim | MacKay, John (Argyll) |
| Brittan, Leon | McNair-Wilson, P. (New F'st) |
| Brooke, Hon Peter | McQuarrie, Albert |
| Brotherton, Michael | Madel, David |
| Brown, M.(Brigg and Scun) | Major, John |
| Browne, John (Winchester) | Marland, Paul |
| Bruce-Gardyne, John | Maues, Michael |
| Bryan, Sir Paul | Mather, Carol |
| Buck, Antony | Maude, Rt Hon Angus |
| Budgen, Nick | Mawhinney, Dr Brian |
| Butcher, John | Maxwell-Hyslop, Robin |
| Cadbury, Jocelyn | Mayhew, Patrick |
| Carlisle, Kenneth (Lincoln) | Mellor, David |
| Chalker, Mrs. Lynda | Meyer, Sir Anthony |
| Channon, Rt. Hon. Paul | Miller, Hal (B'grove) |
| Churchill, W. S. | Mills, Iain (Meriden) |
| Clark, Hon A. (Plym'th, S'n) | Mills, Peter (West Devon) |
| Colvin, Michael | Miscampbell, Norman |
| Cope, John | Moate, Roger |
| Corrie, John | Montgomery, Fergus |
| Costain, Sir Albert | Moore, John |
| Cranborne, Viscount | Morrison, Hon C. (Devizes) |
| Crouch, David | Morrison, Hon P. (Chester) |
| Dean, Paul (North Somerset) | Myles, David |
| Dickens, Geoffrey | Neale, Gerrard |
| Dorrell, Stephen | Needham, Richard |
| Douglas-Hamilton, Lord J. | Nelson, Anthony |
| Dunn, Robert (Dartford) | Neubert, Michael |
| Durant, Tony | Newton, Tony |
| Eggar, Tim | Normanton, Tom |
| Elliott, Sir William | Onslow, Cranley |
| Emery, Peter | Osborn, John |
| Eyre, Reginald | Page, Rt Hon Sir G. (Crosby) |
| Faith, Mrs Sheila | Page, Richard (SW Herts) |
| Farr, John | Parris, Matthew |
| Fell, Anthony | Patten, Christopher (Bath) |
| Fenner, Mrs Peggy | Pattie, Geoffrey |
| Fraser, Peter (South Angus) | Pawsey, James |
| Gardiner, George (Reigate) | Pink, R. Bonner |
| Gardner, Edward (S Fylde) | Price, Sir David (Eastleigh) |
| Garel-Jones, Tristan | Proctor, K. Harvey |
| Goodhart, Philip | Raison, Timothy |
| Gorst, John | Rathbone, Tim |
| Grant, Anthony (Harrow C) | Rees, Peter (Dover and Deal) |
| Greenway, Harry | Renton, Tim |
| Grieve, Percy | Rhys Williams, Sir Brandon |
| Griffiths, E.(B'y St. Edm'ds) | Ridsdale, Julian |
| Griffiths, Peter Portsm'th N) | Sainsbury, Hon Timothy |
| Gummer John Selwyn | St. John-Stevas, Rt Hon N. |
| Hamilton, Hon A. | Shaw, Michael (Scarborough) |
| Hampson, Dr Keith | Shelton, William (Streatham) |
| Hannam, John | Shepherd, Richard |
| Haselhurst, Alan | Shersby, Michael |
| Hawkins, Paul | Silvester, Fred |
| Hawksley, Warren | Sims, Roger |
| Heddle, John | Smith, Dudley |
| Henderson, Barry | Speller, Tony |
| Hooson, Tom | Spence, John |
| Howell, Ralph (N Norfolk) | Spicer, Jim (West Dorset) |
| Hunt, David (Wirral) | Sproat, Ian |
| Hunt, John (Ravensbourne) | Squire, Robin |
| Stainton, Keith | Walker, B. (Perth ) |
| Stanbrook, Ivor | Wall, Patrick |
| Stevens, Martin | Waller, Gary |
| Stewart, Ian (Hitchin) | Ward, John |
| Stokes, John | Warren, Kenneth |
| Tapsell, Peter | Watson, John |
| Taylor, Teddy (S'end E) | Wells, John (Maidstone) |
| Tebbit, Norman | Wells, Bowen |
| Thomas, Rt Hon Peter | Wheeler, John |
| Thompson, Donald | Whitney, Raymond |
| Thorne, Neil (Ilford South) | Wickenden, Keith |
| Townend, John (Bridlington) | Wilkinson, John |
| Townsend, Cyril D, (B'heath) | Winterton, Nicholas |
| Trippier, David | Wolfson, Mark |
| Trotter, Neville | Young, Sir George (Acton) |
| van Straubenzee, W. R. | |
| Viggers, Peter | Tellers for the Ayes: |
| Waddington, David | Mr. John Stradling Thomas |
| Wakeham, John | and Mr. Anthony Berry. |
| Waldegrave, Hon William |
| NOES | |
| Bennett, Andrew(St'kp't N) | Race, Reg |
| Buchan, Norman | Rooker, J. W. |
| Campbell-Savours, Dale | Wainwright, R.(Colne V) |
| Cocks, Rt Hon M. (B'stol S) | Welsh, Michael |
| Cryer, Bob | Winnick, David |
| Davis, T. (B'ham, Stechf'd) | |
| Dobson, Frank | Tellers for the Noes: |
| Dormand, Jack | Mr. Walter Harrison and |
| Field, Frank | Mr. Hugh McCartney. |
| Haynes, Frank |
§ Question accordingly agreed to.
§ Bill read the Third time and passed.