HL Deb 08 May 1967 vol 282 cc1192-6

3.0 p.m.

LORD BOWLES moved that the draft National Insurance (Earnings) Regulations 1967, laid before the House on 19th April 1967, be approved. The noble Lord said: My Lords, these regulations make some changes in the earnings rule for retirement pensioners which were recommended by the National Insurance Advisory Committee in their recent report on that rule. I am sure your Lordships will welcome these changes. It might be for the convenience of your Lordships if I start by describing the present earnings rule for retirement pensioners. The retirement pension of a man between 65 and 70 or of a woman between 60 and 65 is adjusted if the pensioner has earnings which exceed the amount of the "earnings limit". This rule is necessary because the pension is a "retirement" pension and not just an old age pension, and is only provided for people who have retired from regular employment. Without an earnings rule to reinforce this retirement condition there would be nothing to prevent token retirements to obtain the pension followed by a return to full work.

The present 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. Where the earnings exceed £6, an additional shilling is taken off the pension for each additional shilling of earnings in excess of £6. The effect of this is that where the pension is at the normal rate of £4 a week, some part of it remains payable unless the pensioner earns more than £9 10s. a week.

The Government consider it necessary to retain an earnings rule, but they considered that the time had come to review the details of its working. In February last year my right honourable friend, the Minister of Social Security, referred the question of the earnings rule to the National insurance Advisory Committee, the independent Committee who advise the Minister on National Insurance matters. They were asked to examine not just the level of the earnings limit but all the other matters associated with the working of the rule. My Lords, the Committee have given the question the thorough and perceptive examination which we have come to expect of them. They received many representations from various organisations and from individual members of the public. We must all be grateful to the Committee for the time they have devoted to this matter. The Committee's report, which was published in January, contains many valuable recommendations, all of which we propose to carry out.

The regulations before us carry out the main recommendations of the Committee, which were: first, that the earnings limit itself should be raised from its present level of £5 to one of £6 10s.; secondly, that the range of earnings over which deductions are made from pension at the rate of sixpence for each shilling 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, that dealing with the question whether for the purposes of the earnings rule earnings should be looked at before income tax is paid under the P.A.Y.E. scheme or after that tax has been paid. This issue is rather more complicated than the first two.

The essential point about the relation between the earnings rule and deductions of P.A.Y.E. income tax is that the earnings rule is concerned with the level of earnings because the level of earnings is a measure of whether retirement has taken place. Income tax, on the other hand, is related to income and if we have regard to the earnings after that tax has been paid we are adjusting the pension in a way that depends on income. One consequence of this is that the pensioners with the smaller incomes have often been those whose pensions have been reduced by the largest amounts. Now this is quite inconsistent with the main objective of this aspect of the National Insurance scheme. As the Advisory Committee pointed out, it produces many anomalies, and in particular it has meant that up to now some pensioners, particularly among those with income other than their retirement pension and earnings, have been enjoying in effect a higher earnings limit than others. The Committee have recommended that in future we should not have regard to the earnings after tax but to the earnings before tax. They appreciated that this would mean that some pensioners who have hitherto been gaining some advantage from these anomalies, would be worse off. With these pensioners in mind they recommended new figures for the earnings limit and what I might call the proportionate band, which are higher than would have been justified on other grounds. The Committee went out of their way to stress that these three main recommendations must go together—without acceptance of the third one, the figures they have suggested in the first two would be too high.

The draft regulations that I am asking your Lordships to approve give effect to all three of these main recommendations of the Committee. Turning to the regulations themselves, I would say that Regulation 1 prescribes that the regulations, subject to your Lordships' approval, will come into operation on June 5. Regulation 2 makes the amendments to the National Insurance Act to produce the new earnings limit of £6 10s. and to extend the range of earnings over which deductions are made at the rate of sixpence for each shilling of earnings to that band of earnings between £6 10s. and £8 10s. Regulation 3 carries out the third main recommendation about pay-as-you-earn deductions, by suspending the operation of the regulations which at present allows those deductions to be ignored.

A preliminary draft of these regulations has been considered by the National Insurance Advisory Committee. Their report on the preliminary draft is contained in the House of Commons Paper published on April 19. Subject to a minor drafting amendment to Regulation 3 which has been made in the draft regulations put before your Lordships, the Committee recommended that the regulations should be made in the form of the preliminary draft that had been submitted to them.

My Lords, I should perhaps mention here that the other recommendations of the Committee have also been accepted in full by the Government, and we are proposing to bring them into operation at the same time that the regulations at present before your Lordships will operate; that is, June 5. Again, preliminary draft regulations have been referred to the Advisory Committee, who are in fact still considering them. Their report on them is expected later this week and the regulations will be made as soon as possible after that report has been received. I mention this in case any noble Lord might think that the present draft regulations should deal with some matters in more detail. The regulations now before your Lordships are, as I have said, intended only to carry out the three main recommendations of the Committee. I can certainly assure your Lordships that all the other recommendations have been accepted by the Government and we shall give effect to them from the same date. My Lords, I beg to move that the draft Regulations be approved.

Moved, That the draft National Insurance (Earnings) Regulations 1967, laid before the House on 19th April, 1967, be approved.—(Lord Bowles.)

LORD DRUMALBYN

My Lords, on behalf of your Lordships I should like to thank the noble Lord for the very clear explanation he has given of these Regulations, and also, if I may, to thank the National Insurance Advisory Committee, under the chairmanship of Sir Ifor Evans, for a very clear and excellent report on which these Regulations are based. I do not think I need say anything more about these Regulations except to point out that the terms of the remit to the National Insurance Advisory Committee were to examine the level of the earnings rule, and not whether there should be an earnings rule. That is fortunate, otherwise we might have been detained by a debate for quite a long time this afternoon, as your Lorsdhips have different views. I would ask only one question; that is, what is the estimated cost?

LORD BYERS

My Lords, may I say that we, too, welcome the readjustment to be made, but having heard the complications which the noble Lord has outlined we are reinforced in our policy of wanting to see this rule abolished.

LORD PARGITER

My Lords, can my noble friend tell the House whether or not this earnings rule applies to the joint earnings of a husband and wife where the wife is in receipt of a pension in the right of her husband's earnings?

LORD BOWLES

My Lords, I cannot answer my noble friend on the last point. I think they are all individual retirement pensions, but I will find out. The noble Lord, Lord Byers, wants what the Liberal Party have always wanted; that is, to abolish this earnings rule. That would cost about £110 million a year, and we still believe that there are other priorities more deserving than that at the present time. With regard to the cost, I can tell the noble Lord in one sentence, and if he wishes I will show him the breakdown of the figures afterwards. The net cost for a full year is between £350,000 and £500,000.

On Question, Motion agreed to.