Draft Social Security (Contributions) (Re-Rating and National Insurance Funds Payments) Order 2001

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Mr. Michael Jack (Fylde): It is a pleasure to be under your chairmanship this morning, Mr. Illsley. My hon. Friend the Member for Hertsmere (Mr. Clappison) has made some telling points about the burden of the proposals on small businesses, but I do not know whether he has had a chance to refresh his memory about the emphasis in Budget 2000 on help for small and medium-sized enterprises. Listening to the facts put before the Committee this morning, one wonders whether this document should not be rewritten under the Trade Descriptions Act 1968. It seems to be at odds with the Government's stated proposals.

The Paymaster General referred to the national insurance fund, which is the subject of comment in the Government Actuary's report. The hon. Lady fleetingly nipped past the point about the state of the national insurance fund by telling the Committee that there was no need for Treasury input into that fund. She did not dwell as long as she might have done on paragraph 4 on page 3 of the Actuary's report, which states that the fund is substantially in surplus—well above the one-sixth limit required to meet the expenditure on benefits. In money terms, the fund is some £10.5 billion above the required minimum limit. Will the hon. Lady confirm whether that figure is correct? My figure comes from Command 4920—that may help those assisting her to find an answer.

Will the hon. Lady also confirm the projected future surpluses from the national insurance fund up to the end of the financial year 2005-06, so that we can understand the future background to the proposals? As my hon. Friend said, in his reference to small businesses in relation to paragraph 5 of the order—[Interruption.]

The Chairman: Order. I ask the hon. Member for Bedford (Mr. Hall) not to let that happen again.

Mr. Jack: One wonders why on earth the Government need to extract increased revenue from the small business sector. The Paymaster General challenged my hon. Friend in an intervention, referring to changes in national insurance rates made by the previous Conservative Government. She may like to tell us about the interaction of flows of money into the national insurance fund during a period of economic recession. She might remind us of the duty of any Government under such circumstances to ensure that the fund had adequate moneys to meet its obligations. Perhaps she would also like to remind the Committee of the days when the former Government had a surplus in the national insurance fund, in the better economic times that we enjoyed as a result of a change in the economic cycle and the changed international climate.

Dawn Primarolo: Will the right hon. Gentleman explain why, under the Conservatives, national insurance contributions rose to such an extent that by 1997, in the final months of the previous Government, they raised 60p of national insurance for every pound that they raised in income tax. Was that a stealth tax? Was the national insurance fund in difficulties with its surplus, or are hon. Gentlemen simply trying to score points?

Mr. Jack: The hon. Lady accuses me of raising spurious matters, but they are important. The term ``stealth tax'' did not stick until the present Government came to office. I do not recall the previous Government being criticised for the changes that we had to make in the context of the difficulties that the economy faced as the result of a worldwide recession.

Mr. Clappison: As my right hon. Friend will have gathered, I was careful to keep to the effects of this article in the present financial situation. However, the Paymaster General asked where things stood in 1997. Is my right hon. Friend aware that, although the hon. Lady had the cheek to complain about the position then, insurance liability for a self-employed person with profits of £30,000 has increased by £529.55?

Mr. Jack: I was not aware of that telling fact. My hon. Friend has clearly done his research well and has answered the barbed comments that the Paymaster General pointed in my direction. The word ``contributions'' figures largely in the title of the order. It would be interesting to hear from the hon. Lady why the Government feel that it is necessary to run the national insurance fund at a level so substantially above the minimum figure required to meet its obligations for the foreseeable future—certainly for the rest of this Parliament and the lifetime of the next. One wonders what an earth is going on.

My hon. Friend the Member for Hertsmere rightly drew the attention of the Committee to the effect of the proposal on manufacturing industry. I do not intend to repeat those arguments, as my hon. Friend put them adequately, but a misdistribution of the benefit arising from paragraph 3 to another sector of human activity will have a bad effect.

As the Paymaster General may recall from our consideration of the Finance Bill, I talked at length about the horticulture industry. Although the Government made some changes to ameliorate the effect of the climate change levy on those activities, they did nowhere near enough fully to compensate for that effect on an industry that is carbon neutral. What will be the national insurance effect of these proposals on the horticulture industry? What will be the deficit and how much more will be extracted from that industry?

The Chairman: Order. By referring to individual industries within the climate change levy, we are skirting wide of the order.

Mr. Jack: I raised that issue because I thought that the Government would have no difficulty answering questions of detail. Ministers must have had a briefing on how the numbers in the order were to be constructed. Why was it deemed that the reduction shown in paragraph 2 was of a correct level to achieve the universal rebate for the climate change levy? By mentioning—albeit en passant—the horticulture industry, I was showing that the effect of the paragraph was not even but lumpy.

My hon. Friend the Member for Hertsmere raised another important matter. He rightly drew to the Committee's attention the annual nature of this order. He asked—with his suspicious legal mind—what would happen if there were changes in the climate change levy. Would there be a further amendment, which is not within the current terms of paragraph 2, if the climate change levy went up? I pray in aid of his argument and of mine the precedent of the landfill tax, which makes us suspicious, because there was a reduction in the employer's level of national insurance charge when that tax was introduced. However, in the last but one Budget, if my memory serves me correctly, the main rate of landfill tax changed, but was not rebated by a further change in the employer's national insurance contribution.

My hon. Friend has assiduously alerted the Committee to the fact that this seemingly respectable piece of legislation may be the Trojan horse that turns the whole area into a nice little earner. Given the state of the national insurance fund to which I referred earlier, it looks as though the Government have decided that national insurance, being the tax that does not bark, is an area in which money can be stored.

My memory might not serve me well on the matter, so as a point of information, will the Paymaster General tell me what provisions there are to take money out of the fund if it is above its legal minimum? Can the Government of the day do that, or can they reduce the surplus back to the legal minimum only by granting the populace a contributions holiday? Most people believe that they are contributing to something. Given the benefits that must be paid out of the fund, they are clearly contributing to considerably more than the annual payment, as alluded to in Command 4933. I look forward with keen interest to the Paymaster General's response.

11.12 am

Dawn Primarolo: This has been an interesting debate, if only because we apparently have a Trojan horse that does not bark and Conservative Members seem to have temporary amnesia. It is as well to remind the Committee of the right hon. Gentleman's record on national insurance when in office. The previous Conservative Government increased national insurance contributions from 6.5 per cent. to 10 per cent. for employees. They claim that that was not a stealth or a hidden tax—or any kind of tax.

Mr. Jack: Will the hon. Lady remind us about the additional taxes on employment introduced by the previous Labour Administration, of which we were relieved when the Conservative Government took office?

Dawn Primarolo: What was interesting about the Conservative Government's management of the national insurance fund was not only that they increased the payments on national insurance to such an extent that by 1997 they were raising 60p in national insurance for every £1 of income tax, but they were doing that at the same time as reducing people's entitlement to contributory benefits. When they were in government, it did not occur to them to be concerned about the state of the national insurance fund and its surpluses.

I will deal with the specific points made about the fund in the order that they were made by hon. Members. When one is considering contribution rates payable by employees and employers, one must remember that the self-employed underpay into the national insurance fund by approximately £2.5 billion compared with the benefits that they receive from the fund. Opposition Members advanced the case that somehow that was a bad deal for the self-employed. Not only is it a good deal, but it is good value for money considering the benefits that they receive from the fund.

I also remind the Committee that around 16 million employees will pay less national insurance because of the structural changes—the package to which the hon. Gentleman referred—that the order will introduce. They will benefit by about £2.10 a week compared with 1999.

The upper earnings limit for employees is measured as a percentage of average earnings—that is interesting. The limit is 124 per cent. of average earnings, compared with 156 per cent. under the Conservative Government. The different classes of national insurance contribution, as varied by the order, help to ensure that the distribution of payments is fair. The structural reforms that the Chancellor has undertaken will ensure that people who receive the lowest incomes do not pay a disproportionate rate of national insurance contributions, but a fairer one.

The arguments of the hon. Member for Hertsmere covered three categories: the self-employed, the climate change levy and the national insurance fund. The climate change levy is being introduced on a revenue-neutral basis. The package is designed to be revenue neutral in overall terms, not on a sector-by-sector or firm-by-firm basis. As a practical measure, it would be incredibly difficult to find a mechanism—as hon. Members knows from Finance Bill debates—to ensure revenue neutrality across all sectors and circumstances at all times. They will also know that the climate change levy encompasses, for example, 80 per cent. discounts for energy intensive sectors and exemptions for electricity generated by renewables and good quality combined heat and power. There have been—and continue to be—extensive discussions about certain sectors. The rt. hon. Member for Fylde (Mr. Jack) has assiduously pressed the Government on horticulture. My hon. Friend the Financial Secretary, who deals with the levy, has expressed his intentions on a number of occasions, in debates in the House and parliamentary questions.

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Prepared 23 January 2001