HL Deb 29 January 1981 vol 416 cc837-43

3.25 p.m.

The Minister of State, Department of Education and Science (Baroness Young)

My Lords, I beg to move that this Bill be now read a third time. When moving the Second Reading of this Bill I said that it was an essential feature of the Government's economic strategy. This is because it is designed to achieve the following effects: first, it will raise considerable extra revenue and hence help to ease the pressure on the public sector borrowing requirement; second, it will bring about a very necessary adjustment in the balance of responsibility for financing the national insurance system; third, it will help to ease the pressures on industry by providing that employers' national insurance rates will not rise and their total contributions will reduce, in real terms; and fourth, it will restore the value of the National Health Service contribution.

It will achieve these effects by three means. Clause 2 will reduce the Treasury supplement to contributions, producing a reduction in the public sector borrowing requirement in 1981–82 of £529 million. The Government's case for this has been subjected to particularly searching scrutiny. The case for the readjustment in the balance of responsibility for financing the national insurance scheme, and for providing a measure of flexibility for the future which Clause 2 will bring about, has, I think, been made. Clause 3 will increase the element of national insurance contributions paid towards the cost of the National Health Service. Your Lordships will now be familiar with the case for this provision. The Government are determined to maintain the NHS spending programme and the clause is essential to this aim.

Clause 1 provides for increases in contribution rates to take account of the changes in Clauses 2 and 3 and of the expected increased demands on the national insurance fund from rising unemployment. Overall, in the case of the primary Class 1 employee contribution, the increase will be one percentage point. The increase of the self-employed contributions equates to the increase of the primary Class 1 rate, except that the self-employed will not be required to pay additional contributions to take account of higher unemployment because they do not qualify for unemployment benefit.

The noble Lord, Lord Spens, subjected the self-employed contributions to critical examination. I should like to stress, once again, that the position of the self-employed in the national insurance scheme will not be eroded by the changes in the Bill. It treats them as they have been treated in the past. Consideration of whether changes should be made to the method of calculating their contributions cannot take place until the response to the Government's consultation document is known.

The effects and provisions of this Bill, which I have briefly outlined, have been exposed to lengthy and detailed examination, both here and in another place.

I recognise that there are differences of opinion—very strong differences of opinion—about this Bill, but I believe that the Bill is necessary for the success of our economic policies and that the increase in contributions, though not welcome, will be accepted as necessary by employees and employers alike. I commend the Bill to the House, and I beg to move that the Bill be read a third time.

Moved, That the Bill be now read 3a. (Baroness Young.)

3.29 p.m.

Lord Wells-Pestell

My Lords, it was my intention to apologise to your Lordships for running the risk of being criticised for making a Second Reading speech at Third Reading. But as my noble friend—and I say that advisedly—has done so, there is perhaps no need for me to apologise. There is a very good precedent, if I may say so, for anyone who wishes to review a Bill at this particular stage. I can recall having introduced into your Lordships' House some five years ago the Health Services Bill which came as a tremendous shock to noble Lords opposite. They contested it not clause by clause, but line by line. They were so upset about it that on the very last stage of the proceedings, when the Motion before your Lordships' House was that this Bill do now pass, the noble Baroness who led for the Conservative Party in your Lordships' House got up and made a speech and was followed by no fewer than 12 others. They took 2 hours and 24 minutes. It is not my intention to take quite that long today. However, I think it right to raise a matter on a Bill which causes at least some of your Lordships grave concern, and this stage of the passage of the Bill provides a legitimate opportunity to look afresh at what has been done, and I propose to do that, although I shall not take long over it.

I want in particular to deal with an amendment I tabled dealing with a 1 per cent. increase. Noble Lords may remember that I tried to persuade the Government to charge an increased contribution of 1 per cent. on those earning over £200 a week. In other words, I wanted them to pay an extra £1 for every extra £100 earned over £200. That seemed to me then, as it seems to me now, of supreme importance, but it made not the slightest impression on the Government, despite their continued protestations that all their policies are designed in the best interests of the community and, we are told, with the object of being fair.

My amendment to raise an extra 1 per cent. to be paid by those earning over £200 a week would not have been the end of the world for people earning that amount of money. However, with the usual approach of Conservative philosophy, the Government decided to squeeze the last penny out of those earning less, and they concentrated on those earning between £27 and £200 a week. It is not the amount but the principle that matters. The case for accepting my amendment could not have been stronger, and I want to say—and I want to be careful how I say it—that it was perfectly scandalous of the Government to resist that proposal.

It may not have brought in more than £40 million to £50 million, but the Government's attitude showed, as their record shows, a clear determination to cushion the highest paid people in our society from any form of increase in taxation, however it is employed. Perhaps that is understandable, considering that the Government draw most of their support from those earning over £200 a week. That extra 1 per cent. of insurance contributions now falls exclusively on those earning less than £200 a week.

I submit that there should be a sense of fairness in these matters. When moving my amendment I conceded that the Government must raise money. As a society, we are spending £5,000 a year for every unemployed person, and with 2½ million unemployed we are spending £12½ billion for no return to keep people idle. We who are in work—I use "we" in a general sense—are pleased to make a contribution, but that contribution should be made by the whole of the community and not by a small percentage, by those earning £200 a week or less.

Throughout the lifetime of this Government we have experienced one cut after another and there is not a noble Lord opposite who can point to where those cuts have affected people who are not hard up; they have fallen in the main on the shoulders of the have-nots while the haves have been able to get away without making any real contribution. I hope nobody will say, "Yes, but the higher income group pay increased taxation". Of course they do; but the amount of taxation paid by somebody earning between £27 and £200 a week is such that it falls more heavily on their shoulders than on those earning over £10,000, £15,000 or £25,000 a year. And we must bear in mind that the very first action of this Government was to give away billions of pounds in income tax relief to the higher income group. I am sorry to go on like this but it is a matter of supreme importance.

Lord Boyd-Carpenter

Really!

Lord Wells-Pestell

I know noble Lords opposite do not like it, my Lords, because the truth is hard to bear. We all know that, but it is sometimes very good for us. I am surprised at how many noble Lords opposite who I respect and admire and know well can just sit there and accept this sort of thing without bleating about it. How they can do that is a matter of great concern and surprise to me.

Lord Derwent

My Lords, would the noble Lord remember that the truth is many-sided?

Lord Wells-Pestell

It depends entirely on what kind of person you are, my Lords.

Lord Derwent

Hear, hear!

Lord Wells-Pestell

In any event, my Lords, one can take some comfort from reading in the newspapers this morning that some 20 Conservative Members in another place are getting so fed up with the Conservative Party that there is a suggestion that they might be joining the Council for Social Democracy.

Lord Boyd-Carpenter

What about the noble Lord's friends?

Lord Wells-Pestell

We arc in the right party, my Lords.

Lord Boyd-Carpenter

Where is it?

Lord Wells-Pestell

Looking at you. My Lords, I appreciate that we joke and try to carry on our affairs in a friendly manner in this House, but I urge noble Lords to look at this legislation. There is nothing we can do about it now; the noble Baroness and the Minister have taken good care to see that we cannot do anything about it, so we must accept it. But for how long can we, as part of the Houses of Parliament, expect people outside to go on putting up with a constant erosion of their standard of living when day by day they see extreme wealth walking hand in hand with some considerable poverty? That is not the kind of society I want. Nor do I believe it is the kind of society some noble Lords opposite want. For the Government to have resisted an amendment which sought merely to take a bit more each week—£1 out of every extra £100—from those earning over £200 a week was petty, paltry and quite scandalous.

3.40 p.m.

Lord Banks

My Lords, during our debate on the Bill we have had considerable discussion about the Government's case that the Treasury supplement to the national insurance fund has increased at a greater rate than national insurance contributions since 1975–76, and despite all that has been said about that from the Government Front Bench, I still feel that that argument is not valid and that the figures which were given in another place by the Secretary of State would not have suggested that had they not covered the period during which the new earnings-related pension scheme was introduced in 1978.

If one takes the figures from 1975–76 to the year before that scheme was introduced, one will not find any disparity; and if one takes the figures from that year to today one will not find any disparity. It is only because of the change in the whole system in the middle of the period under review that it appeared as it did. In my view there is no disparity, but I do not think that it would be right for me to develop that argument any further this afternoon. We have from these Benches sought to make clear during our discussions that we do not agree with seeking to reduce the public sector borrowing requirement by means of increasing national insurance contributions for personal contributors.

Lord Spens

My Lords, I am most grateful to the noble Baroness for the mention that she made of my fight on behalf of the sell-employed, but I feel that I must say a final word about the matter before we put the Bill to rest. What surprises me, and disheartens me considerably, is the fact that there has been no support for the self-employed from Government Benches, and when this morning I looked at the records of what happened in another place I found that there had been exactly the same situation there; there had been no support for the self-employed from Govern ment supporters. There was quite an argument from the official Opposition at the Committee stage about the Class 2 and Class 4 contributions, but there was no mention from Government Benches of the problems which those contributions bring.

We do not fight the Class 2 contribution—that is the flat-rate contribution which all self-employed people must make unless they have a very small income—even though under the Bill that contribution is to be increased by 36 per cent., from £2.50 a week to £3.40, whereas the Class 1 employee's contribution is to go up by less than 15 per cent. However, we do object to the additional Class 4 contribution which self-employed persons who make profits of more than a very small amount will have to pay besides their Class 2 contribution. Under the Bill they will find that they will be charged an additional 5.75 per cent. on their profits between the lower band of £3,150 and whatever they make, provided it is not more than £10,000 a year, which is the upper limit.

Let us take the middle figure there: the man earning £5,200 a year in profits—and remember, my Lords, that profits are not the same as salary. Profits have to cover much more than the takeaway pay which an employee can do what he likes with once he has suffered the tax deductions at source. The man with a profit of £5,200 a year is in fact making a profit of £100 a week, and in about 18 months' time he will find that he is suddenly to be assessed by his inspector of taxes with an additional £100 a year for Class 4 contributions on those profits. We are told that the self-employed person has to be compared not only with the employee, but with the employer, too, in terms of rates of assessment, but the employer's share of an employee's contribution can be deducted from tax before the employer's profits are finally reckoned, whereas the self-employed person's contributions cannot be deducted from tax. I believe that if the Government were to decide to allow the self-employed Class 4 contribution to be deducted from profits before tax was assessed, that would go a long way towards helping the self-employed to accept this additional burden.

I am not talking about the firms of accountants, solicitors, and barristers at the top end of the scale. I have half a dozen clients of my own who are selfemployed—the owner of a small corner shop, a market gardener, a sheep farmer, a saddler, and so forth. They are the people who arc making profits of perhaps £5,000 a year. They are assessed by the inspector of taxes on those profits and they see that they have to pay income tax like everyone else. Then suddenly they see at the bottom of the assessment an additional assessment in regard to Class 4 contribution of another £100, and they turn to me and ask, "What is that for? What benefits am I getting from the Class 4 contribution that mean that I have to pay it?" I have to reply to them, "I am sorry—you are not getting any additional benefits at all. All the benefits that you receive from your national insurance contributions come from the Class 2 contribution. What you are doing by paying your Class 4 contribution is helping other people to get benefits".

That is not a very good thing to have to tell one's clients, and no matter how much we have been blinded by science, by the Government Actuary's reports, to the effect that it is absolutely fair that the figures should be assessed in this way, I feel that it is a bad assessment and that we should not have to put up with it for very much longer.

3.48 p.m.

Lord Drumalbyn

My Lords, I should like to say a word in reply to what the noble Lord, Lord Spens, has said. Of course, it is true that in this Bill the self-employed are being treated in the same way as everybody else. The calculations seem to work out against the self-employed, but this is because of their particular situation. I believe that the noble Lord is wrong in his complaint that he has not received any support from this side of the House. I suggest to him that if he looks back over the years, for example, to the occasions when my noble friend Lord Boyd-Carpenter and I had to deal with the up-rating, he will see that we were at pains to keep down as much as possible the contributions of the self-employed, because we recognised those arguments. I returned to being self-employed just at the time when the 1975 Bill was going through Parliament, and it was then that we were penalised so very heavily—absolutely astonishingly heavily.

However, this Bill is not seeking to deal with the self-employed as a separate case. I understand that that question is being considered separately at the present time; my noble friend will perhaps confirm that a committee is now sitting. I suggest that it would be absurd to anticipate the results of the consideration of the Green Paper that was published last October. A lot of evidence has no doubt been received with regard to that, and I suppose it will all be considered by the Government in the normal way. So I hope the noble Lord will not resent too much not being supported on this occasion. I think he will agree that he has often been supported by this side of the House, but he cannot expect to be supported every time. That, at any rate, is my experience.

As to what the noble Lord, Lord Wells-Pestell, has said, of course we understand his particular position in this, but anyone who has had anything to do with the running of this fund knows how very delicate is the balance to be kept, and it is for that reason that one has an upper and a lower limit. Aside from what is called the earnings-related element, people pay in accordance with their earnings, and they all get the same benefit in relation to that contribution. But, surely, at some point in a scheme of that kind you must have and keep an upper limit; otherwise, there is no end to it. You could go on charging I per cent., 2 per cent. or 3 per cent. on earnings over the limit; there is no end to it at all, and it is not right.

This is something which should be borne by the taxpayers as a whole under the normal Exchequer arrangements, and under the Budget. If the noble Lord felt as strongly as this, no doubt he would make representations in that regard, that the higher rates of taxation should be increased by, say, 1 per cent. for this particular purpose. I do not know how it would be received, but that would be the logical way to do it. However, it is not logical to do it here in this Bill, however strongly we may feel about it.

Lord Wells-Pestell

My Lords, may I ask the noble Lord whether I am right in thinking that the man who earns £200 a week will be paying, on the 7¾ per cent., £15.50 per week national insurance, which is precisely the same amount as the man earning £300, £400, £500 or £600 a week will be paying?

Lord Drumalbyn

My Lords, it is really a matter for my noble friend to answer, but I would have thought that if you express something as a percentage then it is a percentage in relation to wages.

Baroness Young

My Lords, I will be very brief because I think the points that have been raised in the course of this Third Reading were those which were thrashed out very fully at the Committee stage of the Bill. In particular, I am grateful to my noble friend Lord Drumalbyn for his intervention on this. I should like to say to the noble Lord, Lord Spens, that we on this side of the House are very conscious of the importance of the self-employed and the contribution which they make to our economy, and we should like to do what we can to help them. It is precisely for that reason that we issued the consultation document in the autumn; we have invited comments by the end of March; and they are canvassing certain possibilities, such as changing the balance between the Class 2 and Class 4 contributions, making the self-employed eligible for an increased range of benefits and making national insurance for the self-employed voluntary. We are asking for comments by the end of March of this year; and, as obviously the noble Lord is very knowledgeable on this matter, I hope that he and those he is working with and for will comment, so that we may take their views into consideration when this matter is reviewed by my right honourable friend in the spring.

Lord Wells-Pestell

My Lords, before the noble Baroness sits down, could we have a clear answer on this? Is it not true that a person earning over £200 a week will in fact pay the same amount of national insurance as the person earning £200 a week?

Baroness Young

Yes, my Lords; that, of course, is perfectly true. But that is the point of having the upper earnings limit. I think the noble Lord has made a great confusion about all this matter by describing the national insurance contribution as a tax. It is not it is a contribution towards a benefit, which is quite different.

On Question, Bill read 3a and passed.