Standing Committee F
Tuesday 8 February 2000
[Sir David Madel in the Chair]
Earnings from which pensions derived
Mr. Paul Burstow (Sutton and Cheam): I beg to move amendment No. 145, in page 23, line 39, leave out subsection (1).
The Chairman: With this it will be convenient to consider the following amendments: No. 161, in page 24, line 2, after `Class 1', insert `and Class 2'.
No. 146, in page 24, line 10, after `class 1', insert `and 2'.
No. 162, in page 24, line 10, after `Class 1', insert `and Class 2'.
No. 163, in Clause 28, page 24, line 20, after `Class 1', insert `and Class 2'.
No. 166, in Clause 28, page 25, line 19, after `Class 1', insert `and Class 2'.
Mr. Burstow: Good morning, Sir David. It is nice to be starting the sitting on another part of the Bill after our long and thorough examination of part I, which deals with the Child Support Agency. Even if we do not take as long to scrutinise part II as we did to consider part I, I hope that we will be as thorough, as it raises a number of long-term issues concerning the provision of a better income for retired people.
My view, which is shared by my hon. Friend the Member for St. Ives (Mr. George) and Liberal Democrat colleagues, is that the provisions in part II, including the establishment of a state second pension that attempts to target resources more on the lower income pensioner groups, are welcome. We also welcome the distributional effects of the proposals. However, as we consider these and subsequent amendments, we shall want to explore a number of concerns that have been expressed to us and to other Committee members about the way in which the relevant clauses will work in practice. Although the principles enshrined in the clause should be applauded, the timing of bringing them into full effect and the qualifications that must be met to gain access to the state second pension make a hurdle that will be too high for some people to surmount.
The amendments are intended to deal with self-employed people, who face a completely insurmountable hurdle because of the Bill. The clause sets out the framework for people to qualify for national insurance contribution credits to the state second pension. In effect, it is a gateway to the second-tier pension. Amendments Nos. 145 and 146, in common with the amendments tabled in the names of hon. Members representing the official Opposition, are intended to probe the reasons why the Government decided to exclude self-employed people from the terms of the state second pension.
Self-employed people are included, at least in part, in the state earnings-related pension scheme. Class 2 national insurance contributions are taken into account in the calculation of the amount of surplus earnings on which SERPS entitlement is based. Under the clause, class 2 contributions will no longer count, which will leave self-employed people unable to accrue rights to an additional pension. The amendments seek to find out why that is the case. The clause will leave self-employed people with a lower final pension than they would otherwise have been able to receive. Credits on earnings in employment, yes, but not credits in respect of self employment in the same tax year. That is the issue that we want to explore. A person could be employed for one part of the year and self employed for another. Such a person would clock up credits for the period in which he was employed but would not be entitled to any credits towards a state second pension during the period of self employment. With flexible labour markets, people will increasingly have different forms of employment at different parts of the year.
The Library tells me that it has had discussions with officials which have revealed that some 150,000 people will lose out as a result of the provision. Beyond that figure of 150,000, it is difficult to get hard facts on how the provision—or lack of it—will work. The Bill will deprive people whose income is made up of employment and self-employment of a full entitlement to credits, especially class 2 credits, that go towards a state second pension. They may have to retire on a lower income than other categories of people. Why have the Government decided to do that? They consulted on it in the Green Paper. It would be useful to spell out why they are not willing to countenance changing the rules so that self-employed people can be counted in. That is especially relevant to those on lower incomes whom the Government are trying to support and assist in their retirement.
Mrs. Jacqui Lait (Beckenham): I should like to speak to amendments Nos. 161, 162, 163, which are similar to amendments Nos. 145 and 146, and 166. Like the hon. Member for Sutton and Cheam (Mr. Burstow), I note that we have moved on to part II, which some of us see as the second Bill in this compendium.
Clause 28 is relatively easy to understand. In contrast, clause 29 contains more complex ideas that will be best explained if we become a high-tech Committee that uses slides, videos and other paraphernalia. Clause 28 concentrates on the groups that will be brought into S2P, the state second pension: we should try to avoid jargon, but I suspect that over the next few days we will spend many hours debating it. S2P is being extended to people who do not have access to a pension. There is, however, a category that will be excluded, and it is unfair that the poorly paid self-employed, or those with mixed work records, should not benefit from the credits.
The hon. Member for Sutton and Cheam said that about 150,000 people will fall into that category. It does not take a great deal of imagination to construct patterns of work that put people in that mixed category of employment and self-employment. For example, in my previous constituency, where wages were low and the local economy was weak, people moved with great frequency between employment and self-employment. They benefited from SERPS. The proposal will hit those people hard. Skilled tradesmen, such as plumbers and electricians, who for much of the year are employed as sub-contractors, use their skills to work for other people on a self-employed basis when their contracts end, perhaps fixing washing machines or—this happened to me over the Christmas holiday—replacing a central heating boiler.
That category of people will be hardest hit by the exclusion from S2P. Part of the reason for that—this theme will run through many of our arguments on the clause—is the fact that people will receive credits for S2P only if their condition exists for a whole year. The reason why the Government have excluded the self-employed is because if a self-employed person had one credit, he or she would be credited with a whole year of contributions to S2P. I should be grateful if the Minister would tell us whether it is the Government's policy that, although all categories of people are set out in the clause, only a person who has claimed for a whole year will receive the credits. That suggests that the clause introduces a rigid rule instead of providing the flexibility that is necessary when dealing with the self-employed.
I have spoken about people who currently move in and out of the self-employed world. As the hon. Member for Sutton and Cheam said, as employment becomes more flexible, more people will want to mix and match. In the same way as, in a previous part of the Bill, we were trying to create a more flexible child support system, it behoves us to provide a more flexible pension system that will relate as closely to future work patterns as to today's work patterns and to the old-fashioned patterns of secure employment that fewer and fewer people recognise.
By excluding approximately 150,000 people—I am grateful to the Library for its work on that—the Bill will result in a hidden cut in Government expenditure. My calculations show that the proposals will be hugely expensive in the long run. It looks as if the second option for rebates will cost £18 billion by 2050. The credits of 150,000 people will not provide a huge saving that will help the Department to balance the books, but it is a cut. Last night, the Secretary of State announced benefit savings of £200 million. He budgeted for inflation at 1.3 per cent., whereas in September it was only 1.1 per cent., so there is an extra £200 million skulking around the departmental budget.
The Minister of State, Department of Social Security (Mr. Jeff Rooker): It is not a saving.
Mrs. Lait: It is a budget saving because the Department's budget included a figure of 1.3 per cent. instead of 1.1 per cent., but I must say no more on that subject. I thought it was iffy to mention the subject in the first place, and wondered whether the Chairman would call me to order. However, there is potentially a hidden cut in current spending on national insurance and entitlement to SERPS. I hope that the Minister will respond to that point.
I want briefly to mention amendment No. 166, which relates to labour market attachment for disabled people. Again, it is not difficult to imagine that, as disabled people are helped increasingly to return to work, more of them will move through patterns of employment, such as self-employment. They may find that, because of their disability, it is easier to be self-employed, although the work will often be low-paid—hence, they will be looking for S2P credits.
In that situation, it is especially hard that such people will not get S2P credit for self-employment. I hope that the Government did not deliberately intend to do that, that they overlooked the issue and that they will be willing to reconsider. If not, I hope that they will give us an explanation that will stand up, which we might offer to the disabled people who will inevitably come to us for help, asking why they have been discriminated against. Will the Minister give us an explanation that we could give with pride to disabled people trying—desperately and with difficulty—to return to work?
I would be grateful if the Minister could explain why he is excluding the self-employed and whether our surmises as to why are correct, and if he could answer our questions.