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Standing Committee Debates
State Pension Credit Bill [Lords]

State Pension Credit Bill [Lords]

Standing Committee A

Thursday 25 April 2002


[Mr. Peter Atkinson in the Chair]

State Pension Credit Bill [Lords]

New clause 2


    'The Secretary of State shall as soon as practicable after the end of the fiscal year 2004–05 and as soon as practicable after the end of each year thereafter lay before Parliament a report setting out—

    (a) the extent of fraud in state pension credit claims; and

    (b) the measures he has taken to deal with fraudulent claims for state pension credit.'.—[Mr. Clappison.]

Brought up, and read the First time.

Question proposed [this day], That the clause be read a Second time.

2.30 pm

Question again proposed.

Mr. James Clappison (Hertsmere): I was about to bring my remarks to a close before we adjourned for lunch. I was talking about individual learning accounts, about which my hon. Friend the Member for Daventry (Mr. Boswell) memorably asked the Deputy Prime Minister at Prime Minister's questions. The lesson that we must learn from the problems that arose with ILAs is that there is no room for complacency. If we do not scrutinise such provisions with the right degree of rigour, a great deal of fraud may suddenly come to light. That is what happened with ILAs, which had to be precipitately withdrawn.

Having highlighted the dangers that we face, I should say that I am grateful to the Minister for his remarks. As in other areas, we shall hold the Government to account as regards fraud. On that basis, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 4


    'The Secretary of State shall as soon as practicable after the end of the fiscal year 200405 and as soon as practicable after the end of each fiscal year thereafter lay before Parliament a report setting out the number of self-employed persons entitled to—

    (a) the guarantee credit alone;

    (b) the guarantee credit and the savings credit; and

    (c) the savings credit alone.'.—[Mr. Clappison.]

Brought up, and read the First time.

Mr. Clappison: I beg to move, That the clause be read a Second time.

New clause 4 is about pension provision for the self-employed and how they fare under the state pension credit. As a result of evidence that it received during its investigation, the Select Committee on Work and Pensions directed its attention to this subject. In its memorandum to that Committee, the Association of British Insurers categorised the position of the self-

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employed as an anomaly within the pension credit proposals. The Association said:

    ''One of the stated aims of Government pension policy is to ensure that all pensioners share in rising prosperity. The current system manifestly fails to ensure that this is the case for the self-employed. The Pension Credit proposals will extend this inequitable situation. ABI urges Government to grasp this nettle and address the issue of pension provision for the self-employed. We endorse the recommendations put forward by the Pension Provision Group, namely that the self-employed, as a group, ought to be brought into the State Second Pension (S2P). Doing so would allow all self-employed persons to benefit from S2P—thereby enabling them to gain access to the savings credit element of the Pension Credit.''

That submission quotes the Pension Provision Group. In its December 2001 report, the group concluded that excluding the self-employed from the state second pension when it moved to being a flat-rate pension would further increase the gap between pension provision for employees and the self-employed. The group, which examined precisely that question, said:

    ''Last November the Government published its outline Pension Credit proposals, and we decided we should take the opportunity to review this report in the light of them. Our view is that Pension Credit, as proposed then, and in the absence of our recommendations in this report, would further widen the pensions gap between employees and those in self-employment.''

At the time that the report was published, the Government said in a written parliamentary answer:

    ''We also welcome the group's report on pension provision and self-employment. It makes a useful contribution to the debate on this important issue.''—[Official Report, 19 December 2001; Vol. 377, c. 384W.]

Apparently, it was a useful contribution in December 2001, but it does not seem to have got much further. In a later reply, to my hon. Friend the Member for Havant (Mr. Willetts), the Minister said:

    ''As with SERPS, self-employed people cannot join the State Second Pension because they do not pay class 1 national insurance contributions.''—[Official Report, 20 March 2002; Vol. 382, c. 429.]

That is right; the self-employed do not pay class 1 contributions, but they do pay class 2 and class 4 contributions. Although their national insurance liability remains below that of employees who pay class 1 contributions, self-employed persons above the lowest rung of earnings pay ever more in combined class 2 and class 4 contributions. Their liability has increased significantly because of changes that the Government have already made. Indeed, that is something of an understatement, given that those on moderate incomes have seen a whacking increase in their contributions,; even before we take into account the effects of the Budget that was unveiled last week.

According to figures supplied by the House of Commons Library, if we take into account class 2 and class 4 contributions, the national insurance liability of a self-employed person earning £30,000 a year has increased from £1,350 in 1997–98 to £1,881 in 2002—a £531 increase. Those are the figures up to this year, but when the Budget takes effect, the same person will be a further £253 worse off. The liability of a self-employed person earning £30,000 a year will, therefore, have risen £784 since 1997; from £1,350 to £2,134.

The increase in contributions at higher levels of income is even more dramatic. The national insurance liability of a self-employed person earning £50,000 a

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year, for example, will have increased by more than £1,000 since 1997 because of the Budget and earlier changes. Indeed, the Budget means that contributions for self-employed people at every level of income will increase over the levels for 1997 and 2002.

Many self-employed people have seen whacking increases in their national insurance contributions. According to the Association of British Insurers and the Pension Provision Group, however, the Government are offering such people nothing in return; beyond their entitlement to the basic state pension, they have been excluded from the Government's plans. To put it mildly, many may feel a sense of grievance about their contributions. I need hardly remind the Committee that a substantial number of our constituents are self-employed; there are more than 3 million self-employed people in the country. They form one of the most productive and important groups in the economy and often provide vital services.

In his Budget statement, the Chancellor said that he wanted people to move from employment to self-employment and that he wanted to ease the transition for those who sought to do so. However, the Government's pension plans and the whacking increase in national insurance contributions do little to help the self-employed. We need only consider some of the facts that the Pension Provision Group provides about the self-employed to see why it is so important that we consider the Bill's implications for them.

Over the past 20 years, self-employment has grown, become more diverse and expanded into new, non-traditional occupations, while contracting in others. More people now move between self-employment and employee status. The growth of dependent self-employment and subcontracting means that work previously done by employees is now done by self-employed people. There are ever more self-employed people, and ever more of our constituents are moving between self-employment and employment.

Those facts led the Pension Provision Group to conclude that the distinction between employed and self-employed people in state pension provision was outdated. The group's analysis of the pension situation of the self-employed leaves, at the very least, a large question mark as to whether all self-employed people make appropriate provision for their retirement. The group found that self-employment increased the risk of retiring on a very low income, particularly for those working in personal services, and that:

    ''Those with experience of self-employment tended to retire later than their employee counterparts and were more likely to work beyond state pension age. This partly reflected a desire (and ability) to continue working, but also in some cases a financial need to do so.''

Those interesting conclusions were submitted to the Select Committee in the course of its inquiry in relation to the Bill about how the self-employed would fare under the proposals. It is important to raise the issue, because the position of the self-employed seems, in some respects, to have been overlooked in the proposals; that is the view, at

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least, of authoritative groups commenting on the proposals, as well, possibly, as that of the self-employed. A representative of the Federation of Small Businesses described the self-employed in this context as ''a forgotten army''.

We shall try to remember them. We raise the subject in order to ventilate it and look forward to hearing from the Minister what the Government's response is to this, to the important submissions that were made to the Select Committee and to our concerns about how self-employed people will fare under the proposals.

Mr. Steve Webb (Northavon): I support a good deal of what the hon. Member for Hertsmere (Mr. Clappison) said. It is important that the Conservatives have raised the issue of the self-employed, whose pension provision is often neglected. I shared his near-despair at the Minister's written answer in response to the Pension Provision Group that it was a useful contribution to the debate; that is the worst brush-off that one can imagine. That contribution does not seem to have informed policy since. The distinction between employed and self-employed is much less clear-cut—


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