§ 3.8 p.m.
§ The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)My Lords, I beg to move that the Commons amendments be now considered.
Moved, That the Commons amendments be now considered.—(Baroness Hollis of Heigham.)
§ On Question, Motion agreed to.
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§
COMMONS AMENDMENTS TO CERTAIN LORDS AMENDMENTS
[The page and line refer to HL Bill 55 as first printed for the Lords.]
§
LORDS AMENDMENT
64 After Clause 50, insert the following new clause—
CLASS 1 CONTRIBUTIONS
(".—(1) For subsection (1) of section 5 of the Contributions and Benefits Act (earnings limits for Class 1 contributions) there shall be substituted the following subsections—
(1) For the purposes of this Act there shall for every tax year be—
(1A) For the tax year 1999–2000, the lower earnings limit (for primary Class 1 contributions) shall be £81.
(1B) For the tax year 2000–2001 and each subsequent tax year, the limits and threshold referred to in subsection (1) above shall be specified for that year by regulations which, in the case of those limits, shall be made in accordance with subsections (2) and (3) below.
(2) For subsection (1) of section 6 of that Act (liability for Class 1 contributions) there shall be substituted the following subsection—
(1) Where in any tax week earnings are paid to or for the benefit of an earner over the age of 16 in respect of any one employment of his which is employed earner's employment—
(3) For subsections (1) and (2) of section 8 of that Act (calculation of primary Class 1 contributions) there shall be substituted the following subsections—
(1) Where a primary Class 1 contribution is payable, the amount of that contribution shall he the primary percentage of so much of the earner's earnings paid in the tax week, in respect of the employment in question, as—
but this subsection is subject to regulations under section 6(5) above and sections 116 to 120 below and to section 41 of the Pensions Act (reduced rates of Class 1 contributions for earners in contracted-out employment).(2) For the purposes of this Act the primary percentage shall be 10 per cent; but the percentage is subject to alteration under sections 143 and 145 of the Administration Act.
(4) For section 9 of that Act there shall be substituted the following section—
"Calculation of secondary Class 1 contributions.
9.—(1) Where a secondary Class 1 contribution is payable, the amount of that contribution shall he the secondary percentage of so much of the earnings paid in the
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tax week, in respect of the employment in question, as exceeds the current earnings threshold (or the prescribed equivalent).
(2) For the purposes of subsection (1) above, the secondary percentage shall be 12.2 per cent; but the percentage is subject to alteration under sections 143 and 145 of the Administration Act.
(3) Subsection (1) above is subject to regulations under section 6(5) above and sections 116 to 120 below and to section 41 of the Pensions Act.").
The Commons agreed to this amendment with the following amendments—
64A Line 4, leave out ("subsections") and insert ("subsection").
64B Leave out lines 12 to 15 and insert ("and those limits and that threshold shall be the amounts—").
§ Baroness Hollis of HeighamMy Lords, I beg to move that the House do agree with the Commons in their Amendment No. 64A to Lords Amendment No. 64. In moving this amendment, I shall speak also to Amendment No. 64B.
These amendments remedy the damage caused by the introduction to Government Amendment No. 64 of changes put forward by noble Lords opposite at Third Reading—changes that I condemned as ill judged, irresponsible and imprudent and that I urged the House to reject. Noble Lords opposite sought to introduce into the Bill a change that my right honourable friend the Chancellor of the Exchequer has said he will make at a later date. But the way they sought to do so would have had extremely damaging effects. They would have removed access to certain contributory benefits for up to 1 million low paid workers, four-fifths of them women. They would have cut future SERPS occupational and personal pensions for millions of others and would have reduced national insurance contribution revenue by approaching £1.5 billion a year without any consideration of whether the financial circumstances were right.
It is not, and never has been, the Government's intention to make this change to the lower earnings limits in April 1999. The Chancellor never said that it was. As he explained, he would not implement the change until accompanying measures were in place to ensure that people did not lose access to contributory benefits as a result. That is why, as I explained to your Lordships at the time, despite the noble Lord's amendment, the Government would not and did not introduce the measure into the Bill.
The other place has now had the debate—at some length—so unnecessarily wished upon them by noble Lords opposite. The result is the amendments before us today, amendments which clearly and unequivocally reject the changes proposed by noble Lords opposite and repair the damage that those changes would otherwise have done to the Government's carefully considered package of proposals for restructuring the national insurance system.
The Government's proposals have been widely welcomed. They will help to make work pay. If the new structure was in place today, each and every employee paying national insurance would pay £1.28 a week less. Our proposals will also encourage employers to create jobs for people moving from welfare into work and they 1283 will simplify the administration of the scheme for business. The overall effect will be to improve work incentives and make it more attractive to employ those moving from welfare into work. The Government will build further upon these measures in future reforms, but only when the time is right and when the benefit implications have been properly addressed.
Amendments Nos. 64A and 64B clearly show that the other place believes that the Government's approach to the reform of the national insurance system is the right one. The noble Lord opposite said at the time that his prime concern was to allow the other place the debate which it has now had. As a result, I urge the House to support the Government's reforms by agreeing to Amendments Nos. 64A and 64B.
Moved, That the House do agree with the Commons in their Amendment No. 64A to Lords Amendment No. 64.—(Baroness Hollis of Heigham.)
§ Lord HigginsMy Lords, the noble Baroness said a moment ago that your Lordships had unnecessarily wished upon the Commons the amendments we are now considering. It is often said that the purpose of this noble Chamber is to be a revising Chamber. However, what we did in our amendment was not to ask the Commons to think again but to give it an opportunity for the first time to consider the important issues raised in our debates. It is surely entirely appropriate, even more so than asking the Commons to think again, that your Lordships should have sought to do that. I reject wholeheartedly the noble Baroness's charge that this was in any way irresponsible.
It is, of course, the case, as the noble Baroness rightly pointed out, that the sums of money are considerable. I shall return to that in a moment. The fact is that we asked the other place to look at measures which were widely thought, particularly in the media in reports of Budget day, to have been part of the Budget. Therefore, I regret the fact that the other place was not prepared to accept the amendment which your Lordships put before it; or, indeed, if the other place did not like the exact terms, to amend the amendment.
To some extent, this whole issue turns on timing. I do not wish to weary the House again—we debated the matter at some length at Third Reading—about the way in which the Chancellor of the Exchequer has behaved. It is now clearly on the record that he went before the Treasury Select Committee and in terms said that he had said something in his Budget speech which only a superficial examination demonstrates he did not say. I regret that. It would have been more appropriate simply for him to have apologised and to have explained why the misunderstanding arose. It is widely thought that he used the words he did in the Budget speech to create the impression that he was going to give concessions which he is not at the moment prepared to do. To be absolutely frank, I cannot conceive of any of the Members of your Lordships' House who have previously been Chancellor of the Exchequer behaving in the way in which the present Chancellor of the Exchequer behaved in front of the Treasury Select Committee. However, I leave the matter there and turn to the issues of substance raised by the noble Baroness.
1284 Timing is, in a sense, the essential part of this issue, which is why we put forward an amendment referring specifically to 1999–2000. If, as appears to be the case, the Chancellor does not propose to go ahead with his original proposal—indeed, he has gone so far now as to have it voted down in the Commons so he himself did not appear to defend it—it would have been perfectly appropriate for the Government to have put down an amendment to the amendment saying that they did not like the dates and that they would change them.
§ Baroness Hollis of HeighamMy Lords, I am grateful to the noble Lord for giving way. He stated that the Chancellor was not going ahead with his original proposal. I have to say, and it has been said dozens of times, that the Chancellor never made that as an original proposal. The noble Lord should not attribute to the Chancellor words which were not given.
§ Lord HigginsMy Lords, I may have misunderstood what the noble Baroness has just said. If she is saying that the Government are not at any stage proposing to go ahead with what the Chancellor said in his Budget speech, that would be an interesting statement. However, at all events, it would have been perfectly appropriate for the Government to have changed the dates. The Government did not change the dates and they are not now proposing to accept the amendments in the form in which they were originally tabled.
Why are they not prepared to put dates on what the Chancellor felt appropriate to put forward in his Budget speech? My purpose today is to get an answer from the noble Baroness in that regard. If the Chancellor thought it appropriate to go ahead and mention this—it was very much a central part of the press coverage which he received—it is not inappropriate for us to ask to have a date put upon it. The reality is that we have not had a date put upon it.
The Red Book did not contain the £1.5 billion figure which one would expect. The purpose of the Red Book is to set out the Government's plans for the economy for the following four or five years. Yet we have something here which the Chancellor put in his Budget speech but we have no idea whether it will happen in those five years or at a time beyond the next election. If economists and others are to judge correctly what the Government's position is, the expenditure should be set out in the appropriate place. But that has not happened. We are therefore forced to the conclusion that it will happen in the next Parliament. I hope very much that that will not be the situation. One cannot have a sum of 1.5 billion knocking around in the forecast for the next four or five years without people having some idea in which year this will take place.
The noble Baroness said that we ought to say where we will find the money. Alas, that is not the task of those on this side of the House. If we were on the other side of the House, it would be our task. However, the Chancellor has floated this idea—we are now told that it was no more than an aspiration—without saying where he will find the money in the following years. That has not turned up. We are not clear about the reason for the delay.
1285 I should say in passing that we reject the argument put forward by the noble Baroness both at Third Reading and again today that our amendment would have the effect which she set out on 1 million low-paid people and so on. The Government themselves made clear that when these proposals are implemented they intend that every employee in the country who has had an income of between £64 and £81 a week will have his position protected. What we are not clear about is the reason for the delay.
There seem to be two obvious reasons. First, the Chancellor does not know where he will get the money from. If that is the case it is appropriate to put that in the Red Book. The second reason is that the Government have not yet thought how to protect the position of those with incomes of between £64 and £81 a week. As the Chancellor took the trouble to mention this specifically in his Budget speech, we are entitled to ask the Minister to give the options for protecting people in this particular group. The impression created at the moment—it is difficult to draw any other conclusion—is that the Government do not have the remotest idea of how to carry out what the Chancellor said in the second part of the controversial paragraph which has now been quoted so often both in your Lordships' House and in the other place.
This is an ideal opportunity for the noble Baroness to clarify the position and to say whether this matter will be delayed until we have the Green Paper on pensions reform. This has become a very movable feast. When these proposals were first put forward after the election we were told that the Green Paper would be published in the early part of this year and then in the middle of the year. The noble Baroness will correct me if I am wrong, but we understand from press reports and leaks, that it will not be until the latter part of the year—perhaps the final quarter—that we shall get the Green Paper on pensions reform. Can she now say when we shall get it and specifically whether the Chancellor's proposals for protecting those earning between £64 and £81 will be included in the Green Paper? If that is not the case, are we to get the news before that or some time yet further in the future?
It is helpful to have this debate this afternoon. We want to move the matter forward. It is an important matter. Therefore, first, when are we now likely to get the proposals which the Chancellor foreshadowed—it was no more than that, although it did not seem that way at the time? Secondly, can the Minister say what the options are for protecting those in the income groups to which I have referred? Finally, can she say when we are likely 'o have the Green Paper? The amendment was entirely appropriate and in no way irresponsible. Indeed, believe we would have been failing in our duty if we had not given the other place the opportunity on a specific amendment to debate this very important issue.
§ Lord GoodhartMy Lords, the noble Lord, Lord Higgins, was severely critical of the method by which the Government introduced the extremely important changes to national insurance contributions. Those changes were introduced at Report stage in this 1286 House after the Bill had completed all its stages in the other place. We on these Benches entirely agree with those criticisms. It is not right that matters of such importance should be introduced at Report stage in this House on a Commons Bill, especially when that Bill relates to the raising of money.
At Report and Third Reading I made that view clear on behalf of my party. Therefore, I take the view that the amendment put down by the noble Lord, Lord Higgins, was a useful peg on which to hang a debate at Third Reading. However, I take the view that it was quite wrong to press it to a vote. As the Minister pointed out extremely powerfully in her speech at Third Reading, it will cut Government revenue by £1.5 billion, which is not an appropriate action for this House to take. Even more importantly, the amendment as it stands would deprive those with incomes between £64 and £81 a week of the right to contributory benefits.
The alleged justification for this amendment was the Chancellor of the Exchequer's undertaking in the Budget to raise the threshold for employee contributions, but that is not really sufficient to justify it. I have re-read the Budget speech and press releases which accompanied it. It certainly seems to me that the Chancellor of the Exchequer was ambiguous as to whether those changes were to be introduced in 1999. It is justifiable to criticise the Chancellor on that ground. What he said confused people, if only for a short period of time. But it certainly does not go beyond ambiguity to anything in the nature of an undertaking. It is clear that the Chancellor of the Exchequer never said that he would raise the lower earnings limit for the single person's allowance in 1999.
The amendment of the noble Lord, Lord Higgins, gave rise to a very lengthy debate in the other place: it took some three and a half hours. I have skimmed through it and I must say that I am left with a feeling of some pleasure at not having had to listen to it. The noble Lord's amendment has served its purpose by leading to a full and intelligent debate in this House and to what can only be described as an interminable one in the other place. I believe that it is now time that that amendment is put to sleep and that the Government's amendment be accepted by this House, with the amendments proposed by the Government.
§ Baroness Hollis of HeighamMy Lords, I thank the noble Lord, Lord Goodhart, for his contribution. Perhaps I may comment very briefly on some of the points made by the noble Lord, Lord Higgins, before inviting the House to accept the amendments made by the other place.
The noble Lord, Lord Higgins, made the point that the amendment served its purpose by giving the Commons the opportunity to debate at some considerable length issues associated with national insurance and LEL which would otherwise be denied to us had this amendment not been passed by this House. That is not true. A range of national insurance amendments went from this House to the other place, but whether they should have gone to that place first is a different issue. There was plenty of opportunity for the other place to discuss national insurance at as great a length and with such degree of 1287 detail or tedium as it chose to bring to bear. The notion that somehow this House was obliged to offer that hook to the other place was not true at the time and it was not true in the event. It is still a spurious argument for the noble Lord to advance.
Nor is it true that the media thought that, arising from the Chancellor's Budget Statement, the lower earnings limit was going to be introduced in just 11 months' time. The Chancellor never said that at the time. He said that from April 1999 the 2 per cent. entry fee contributions paid by employees on the portion of their earnings up to LEL would be abolished which would lead to the figure of £1.28. The Times the next day said that Gordon Brown had told MPs that his reform of national insurance would put an extra £66 in the pocket of all employees or £1.28 a week, as did the Daily Telegraph. In other words, the Chancellor's own words and those reported by two national newspapers made it very clear that they understood that the Chancellor was addressing the issue of the 2 per cent. entry fee and not the wider issue of the lower earnings limit, knowing perfectly well that that required a whole set of other changes which were not explored in that Budget. There should not have been any of the misunderstanding that the noble Lord, Lord Higgins, appears to have suffered.
Equally, it was clear that the Chancellor was not giving a date when the raising of the lower earnings limit would be introduced. He never intended it to be April 1999. It has not yet been determined when it will be introduced, but only when we believe that the situation is right. It is therefore obvious that there will not be an indication in the Red Book as to the financial consequences flowing from the change because the timing of that has still to be determined.
For the noble Lord to criticise the Chancellor for making a commitment that he did not make and for then not having it in the Red Book, presuming that the commitment had been made, is to criticise him in a back to front way. The Chancellor has a settled intention to raise the lower earnings limit when he believes that the arrangements for contributory benefits are fully in place and that the £1.5 billion implication for the national insurance fund will be met. When he has done that and he is sure that the circumstances are correct, he will introduce that change and not before. Surely, that is the prudent way to behave. As a result, I believe this amendment was irresponsible—
§ Lord HigginsMy Lords, as regards the amendment, the question was whether the other place had an opportunity to vote on these issues. In a general sense they could have debated it a little but not voted. As regards the Red Book situation, that covers the next four years. If it going to happen in that time, clearly this measure should be included in the calculations, otherwise no one has any idea what the forecast means. Looking at the Red Book now, the only inference is that it is not going to happen in the next few years.
§ Baroness Hollis of HeighamMy Lords, I suggest that the noble Lord is wrong on both counts. As regards the first, a number of amendments went from this House on national insurance. The other place can debate any issue that it wishes to raise which is relevant to national insurance and by amending our amendments had they chosen to do so. It is not true that it required the noble Lord's amendment in order to discuss this issue. It was not true in this House and nor was it true for the other place. It is not true now that the matter has come back to us again. On three occasions it has not been true so it is unlikely to be true now.
The second point that the noble Lord made was that it was not in the Red Book and therefore there is some assumption that it will not happen in the next four to five years. The noble Lord does not need me to tell him, because he has much greater expertise on this than I would profess to have, that the Red Book outlines a rolling programme. Each and every year there is a new Red Book.
Were the Chancellor to have indicated a date when the financial consequences would have to be addressed he would have already made up his mind about when the changes were to be introduced. If he had not made up his mind he could not possibly indicate in the Red Book the date at which the financial consequences would be experienced by the public finances. When he determines that they will be introduced, that will be reflected in the Red Book for that year, with its rolling programme for the next four years. That is standard procedure and the noble Lord knows it perfectly well. You cannot include in the Red Book the fact that X will happen if you have not decided when X will happen. If you have not decided when X will happen, you cannot put it into the Red Book as a proposal on which all relevant government departments must operate. The noble Lord knows that perfectly well. He is yet again producing a red herring for the House that I would hope the House is not misguided enough to follow.
He finally made a point of asking when the pensions review would take place. We expect to see a pensions Green Paper later this year. At that point, some of these issues will be discussed, although not necessarily the lower earnings limit.
I hope that with that assurance on pensions, the House will be minded to accept the amendments put forward by the other place. I commend the amendment to the House.
§ On Question, Motion agreed to.
§ 3.30 p.m.
§ Baroness Hollis of HeighamMy Lords, I beg to move that the House do agree with the Commons in their Amendment No. 64B to Lords Amendment No. 64.
Moved, That the House do agree with the Commons in their Amendment No. 64B to Lords Amendment No. 64.—(Baroness Hollis of Heigham.)
§ On Question, Motion agreed to.
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LORDS AMENDMENT
166 Schedule 6, page 80, line 8, at end insert—
(".For subsections (1) and (1A) of section 41 of the Pension Schemes Act 1993 (reduced rates of Class 1 contributions) there shall be substituted the following subsections—
(1) Subsections (1A) to (1C) apply where—
and in subsections (1A) and (1B) "the relevant part", in relation to those earnings, means so much of those earnings as exceeds the current lower earnings limit but not the current upper earnings limit for that week (or the prescribed equivalents if the earner is paid otherwise than weekly).(1A) The amount of the primary Class 1 contribution in respect of the relevant part of those earnings ("amount A") shall be reduced by an amount equal to 1.6 per cent of that part.
(1B) The amount of any secondary Class 1 contribution in respect of the earnings ("amount B") shall be reduced by an amount equal to 3 per cent of the relevant part of those earnings ("amount C").
(1C) Where amount C exceeds amount B, the excess shall be set off against the amount which the secondary contributor is liable to pay (under paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992) in respect of amount A.
. For subsections (1) and (2) of section 42A of that Act (reduced rates of Class 1 contributions, and rebates) there shall be substituted the following subsections—
(1) Subsections (2) to (3) apply where—
and in subsections (2) and (2A) "the relevant part", in relation to those earnings, means so much of those earnings as exceeds the current lower earnings limit but not the current upper earnings limit for that week (or the prescribed equivalents if the earner is paid otherwise than weekly).(2) The amount of the primary Class 1 contribution in respect of the relevant part of those earnings ("amount A") shall be reduced by an amount equal to the appropriate flat-rate percentage of that part.
(2A) The amount of any secondary Class 1 contribution in respect of the earnings ("amount B") shall be reduced by an amount equal to the appropriate flat-rate percentage of the relevant part of those earnings ("amount C").
(2B) Where amount C exceeds amount B, the excess shall be set off against the amount which the secondary contributor is liable to pay (under paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992) in respect of amount A."").
§
The Commons agreed to this amendment with the following amendment—
166A Line 2, leave out from beginning to ("(reduced") in line 3 and insert—
(". In subsection (2) of section 8 of the Pension Schemes Act 1993 (meaning of "minimum payment" etc.), for the words "section 42A(2)" there shall be substituted the words "section 42A".
. For subsections (1) and (1A) of section 41 of that Act").
§ Baroness Hollis of HeighamMy Lords, I beg to move that the House do agree with the Commons in their Amendment No. 166A to Lords Amendment No. 166.
I shall be extremely brief. This amendment is consequential to the changes made by Lords Amendment No. 166 to Section 42A of the Pension Schemes Act 1993. It clarifies the definition of minimum payment in Section 8(2) of that Act. I commend the acceptance of the amendment.
Moved, That the House do agree with the Commons in their Amendment No. 166A to Lords Amendment No. 166.—(Baroness Hollis of Heigham.)
§ On Question, Motion agreed to.