|State Pension Credit Bill [Lords]
The Chairman: Order. The hon. Gentleman is straying rather wide of the new clause, which relates to pensions for the self-employed.
Mr. Brazier: I understand that entirely.
As two of my hon. Friends have already remarked, the net result is that a growing proportion of people are self-employed. The catch is this. Where does it leave the self-employed if the Government continue, through a range of measures that I will not list again, trying the Committee's patience, to provide incentives for employers to ensure that the proportion of self-employed people in the total work force goes up each year, while self-employed individuals find that they are making almost the same contributions—7 per cent. compared with 10 per cent.—and providing more than two thirds of the contribution of their employee counterparts? Where does that leave those people, who will not be part of the great new pensions future that is allegedly unfolding before us in the Bill? It will leave us with a two-tier economy.
The statistics quoted by my hon. Friend the Member for South-West Bedfordshire a moment ago were chilling. They showed that some 40 per cent. of self-employed people had made no contribution, but the saddest statistic was that 10 per cent. had tried, but had now stopped making contributions. That is why the new clause is necessary. We must have a system to monitor what is going on in the self-employed sector. The Government say that their measures are designed to provide better pension prospects, but if that sector, which is growing fastest in the market, is left out of the picture, the provisions will be unfair in the long run.
Mr. McCartney: Good afternoon, Mr. Atkinson.
I want to take this matter at a leisurely pace because I think that, in moving the amendment, the hon. Member for Hertsmere intended to probe the issues surrounding the self-employed, rather than the issue of reporting to Parliament in a specific way. He tried to work us up into a frenzy by suggesting that the state system of contributions ignores the contribution of the self-employed to the economy and treats them in a shabby way. Let us get the basics right first before we move on to discuss the wider issues about the self-employed, because the picture that has been painted falls a long way short of the truth.
At present, the self-employed pay class 2 and class 4 contributions. Even allowing for the fact that the self-employed do not currently build up rights in SERPS or the state second pension, they are—there is no way around it—in effect, subsidised by other employees, who pay class 1 national insurance contributions at a rate of 10 per cent. for the employee and 11.9 per cent. for the employer at current rates. That ensures that the self-employed receive broadly the same benefits. The hon. Member for Northavon made that point without prompting.
The principal exceptions are SERPS, the state second pension and contributory jobseeker's allowance. Despite paying much less than national insurance contributions, it is estimated that the
Column Number: 265subsidy amounted to £2.5 billion in 2001–02 alone. In moving the amendment, the hon. Member for Hertsmere was not initiating a general discussion. He made it absolutely clear that the Conservative party had a particular policy. I am not ridiculing him for making that statement, but he made a clear announcement on policy that has significant implications for the public purse, but he has not indicated whether his reform would preserve, extend or remove the subsidy. He gives no idea of how contributions would be made. Even allowing for what he said about a year-on increase and the levels of class 2 and class 4 contributions, the truth is that a huge subsidy would be involved in those contributions to the state. The hon. Gentleman has given no indication of how he would intend to pay for the effects of the amendment.
This is an example of a Conservative Member currying favour and saying that he is doing something for the self-employed. If that is what the Conservatives want to do, why did they not do it during all their reforms of employment law and national insurance? They had nearly 20 years to do something about it.
Some 2 million people pay only class 2 self-employed contributions. Some 50 per cent. of self-employed aged over 20 contribute to some form of non-state pension, but that masks the fact that the proportion of full-time employees who contribute to forms of non-state pension is 69 per cent. With part-time employees, the figure is 38 per cent., so the figure for the self-employed is higher than that for part-time employees, but significantly lower than the contribution for full-time employees.
The hon. Member for South-West Bedfordshire said that 1.4 million people were left out, but they are people who have made deficient basic state pension contributions. However, they qualify for the minimum income guarantee. They are not excluded in the purist sense intended by the hon. Gentleman, but he makes a fair point, because we need to develop a strategy for the years to come.
During last week's debate, I referred to monitoring. It is inconceivable that we would not want to monitor and publish information on the impact of pension credit on recipients. I have offered to discuss with the Committee the reporting arrangements that we shall put in place, but I cannot provide the required information for the new clause. We shall be able to publish information about the number of people receiving different elements of pension credit but, as with MIG, it will not be possible to determine how many have been self-employed at some time during their working life.
Pension provision for the self-employed has been the subject of a complex debate for some time, and the hon. Member for Hertsmere emphasised some of the comments and policy attitudes of a range of organisations and individuals. Some have said that people who have been self-employed will be disadvantaged in relation to pension credit entitlement, especially in comparison with those who were employed all their lives, because SERPS and the
Column Number: 266state second pension will count for the purpose of the savings credit. It has been suggested that the self-employed should be included in the state second pension.
The Government attach importance to pensioners having a decent secure income on retirement. The state second pension and pension credit are crucial steps towards achieving that end. Indeed, the state second pension will for the first time cover 40 million low-paid workers, 2 million carers who do not build up contributions and 2 million people with disabilities who have intermittent work records. They are the types of employees left out of the original compromise on SERPS. All pension programmes are a compromise, and the SERPS compromise left out a large number of people of low earning and low capacity for earning. Although it was a wonderful scheme for those who could earn, it exacerbated the problem at the bottom. The purpose of redesigning the state second pension is to design out that flaw in SERPS, so it is important that the state second pension is a success.
Of course, large numbers of self-employed save for their retirement with personal pensions, often by investing in their own businesses. The hon. Gentleman is right in saying that the traditional image of the self-employed person has changed dramatically. The changes started in the late '70s and continued through the '80s and '90s. The change in the structure of labour market relationships has led to a change in the type of person who is self-employed. It is no longer just a question of a family working in a corner shop, or a small business such as a garage. The group is far more complex and diverse. The lower end of the income range of the group is also very diverse.
There is no such thing as a typical self-employed person. The category contains people who are semi-skilled, skilled, who have intermittent work records, who work with an employer, in the construction industry, at term time or on a seasonal basis. There are huge variations in the degree of access to the employment market for people who are generally called self-employed. It is not easy to create a contributory system that all self-employed people can or would wish to enter into.
Mr. Brazier: By explaining how things are getting more and more complicated, the Minister is making a strong case for the new clause, which is basically about providing fixed information. To take him back to his original point, he challenged us to produce a policy on the measure. However, he is merely illustrating one more area in which the Bill is failing a whole section of society in encouraging people to save, and so on. Self-employed people will, as he has observed, enjoy MIG, but they will not become part of the new self-help culture that the Minister claims that the Bill espouses.
Mr. McCartney: I did not challenge the hon. Gentleman to produce a policy. I believe that I congratulated him on his policy announcement. I wanted him to tell the Committee what would happen to the £2.5 billion subsidy. Would he continue it, extend it or remove it—where is the financial framework to meet the requirements of this newly announced policy? There is silence on that, of course.
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I have been trying to establish that there is some common ground here on the nature of the self-employed—the complex issues that I was talking about before the intervention of the hon. Member for Canterbury. The subsets of the main group of self-employed people have not been properly catered for in terms of pension policy. However, they are notoriously difficult to identify, target and engage in Government initiatives. Some want to participate and some do not. That is particularly true in terms of any financial implication in relation to themselves.
Some people in academia and politics say every self-employed person must be advised to enter the state second pension. When one asks how one goes about that, what the cost to the individual and to the state would be and how it would impact on all the other people making a contribution, there is a strange silence. There is silence for two reasons. It is a question not just of the complexity but of the politics of the matter. None of them wants to tell the truth—that there may be a financial implication for the self-employed as well. If there are no policy changes in this area there may be a financial implication for the funding structure. Nobody has yet got a policy to deal with that.
We held consultations on the possibility of including self-employed people in the second state pension in the 1998 Green Paper ''Partnerships in Pensions''. No clear way emerged from those consultations, but as with all new benefits, we are prepared to review the scheme and the question of whether to include the self-employed. Self-employed people who have no second pension can still gain from the guarantee credit. They will have less income taken into account in the income assessment.
We are committed to monitoring and evaluating the situation. We are committed to considering, at a later date, the issues around the self-employed. However, when it finally comes to making them those decisions will be hard. We shall then see whether or not the hon. Member for Hertsmere and his colleagues are still with the Government, or whether it is a bit of an airy-fairy thing for them, a nod and a wink to the self-employed, saying, ''We want to do something for you,'' but when it comes to the mechanics and they add up the costs, they will not be prepared to tell them what their contribution is likely to be. That is why, although he supported the hon. Gentleman, the hon. Member for Northavon made clear that there was a cost to it. He did not offer his unconditional support; he fudged around it because he wants us to offer him a free lunch on the new clause. I am not prepared to give him a free lunch.
Let us debate what we need to do for the self-employed. The Government are committed to the self-employed, and we need to look at how we can enhance pension provision for them. However, our decisions will have to be made in the context of what I said in my opening remarks.
I know that I am not going to convince the hon. Member for Hertsmere. I shall wait to see whether he withdraws new clause 4 or puts it to a vote, but the
Column Number: 268Committee can rest assured that the Government are committed to the self-employed and we want to do what we can in relation to those policies. In saying that, I am being absolutely honest with Opposition Members about where we are in the debate. I have no doubt that the hon. Gentleman will want to return to the matter on the Floor of the House.
|©Parliamentary copyright 2002||Prepared 25 April 2002|