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Session 2002 - 03
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Delegated Legislation Committee Debates

Draft Social Security (Contributions) (Re-Rating and National Insurance Funds Payment) Order 2003 and (Amendment No. 2) Regulations 2003

First Standing Committee on Delegated Legislation

Thursday 6 March 2003

[Mr. David Chidgey in the Chair]

Draft Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2003

8.55 am

The Paymaster General (Dawn Primarolo): I beg to move,

    That the Committee has considered the draft Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2003.

The Chairman: With this it will be convenient to consider the draft Social Security (Contributions) (Amendment No. 2) Regulations 2003.

Dawn Primarolo: The two instruments represent the final changes needed to implement the increase in national insurance contributions announced in last year's Budget, and they make the minor changes to rates and thresholds announced in the pre-Budget report. The Government's plan to use national insurance to raise money towards the cost of a major programme of improvements to the national health service was widely welcomed.

The draft order deals with various contribution rates and thresholds. The regulations make changes to the married women's national insurance reduced rate contributions and other minor, consequential changes to the principal regulations on national insurance contributions. All the provisions are compatible with the European convention on human rights.

The annual small earnings exemption from payment of class 2 contributions which a self-employed person may claim will rise broadly in line with prices from £4,025 to £4,095 per year. The rate of class 2 contributions for 2003–04 will remain £2 a week, which is a reduction in real terms, and many low-earning self-employed people may choose to pay the contribution to protect their benefit entitlement.

The order deals with the weekly rate of voluntary class 3 contributions, which allow those with an insufficient contribution record in any tax year to make up a qualifying year for benefit purposes. The rate of class 3 contributions will rise in April by 10p to £6.95 a week, which is a standard re-rating in line with prices.

The review of contribution rates is accompanied by a report from the Government Actuary detailing the effects of this order, as well as those of the draft order to uprate benefits which was laid by the Secretary of State for Work and Pensions on the national insurance fund. It is not expected that the fund will need a Treasury grant, but we are making a prudent minimal provision of 2 per cent. of all benefit expenditure. That is set out in article 4.

As in the last two years, there is a single draft order for Great Britain and Northern Ireland. Northern

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Ireland has a separate national insurance scheme, but the two schemes are closely co-ordinated and maintain parity of contribution rates. Following the transfer of national insurance to the Inland Revenue in 1999, Northern Ireland's social security legislation was amended to enable re-rating orders to include corresponding measures for the Province.

I turn now to the draft regulations which, like the order, require the approval of both Houses of Parliament. After minor consequential changes to allow for the Budget changes to contributions, the main substantive change in regulation 6 is that married women who elected to pay national insurance contributions at the reduced rate before 1977 and are still paying at only 3.85 per cent. will also pay the proposed extra 1 per cent. national insurance contribution from April. Around 80,000 married women pay the reduced rate and it is only fair to other contributors that they should contribute to the cost of improving the NHS.

Mr. Steve Webb (Northavon): Will the Paymaster General clarify, as she may have been about to, why that 1 per cent. increase was not included in the National Insurance Contributions Act 2002? Why are we dealing with it through a statutory instrument?

Dawn Primarolo: I understand that the correct procedure for dealing with the matter is through regulations, because it involves a flat percentage rate and a reduced rate. I will check on that for the hon. Gentleman, but I have been advised that this is the way in which Parliament deals with such matters. I made it absolutely clear in all last year's numerous debates on the 1 per cent. rise in national insurance contributions that the rise would apply to the reduced rates that married women have been able to pay since 1977, and that we would introduce statutory instruments to provide for that. The regulations will raise the rate to 4.85 per cent. Married women paying the reduced rate will also pay 1 per cent. on their earnings above the upper limit. It is, of course, possible to pay the reduced rate but still be a higher-rate taxpayer.

The regulations also make a minor drafting change, arising from the 2002 Act, to regulations concerning mariners. Regulation 4 ensures that the calculation of a mariner's earnings period when on a voyage reflects the introduction of the main primary percentage and the additional primary percentage.

We have taken the opportunity, in regulations 10 and 11, to correct an oversight in regulation 156 of the principal regulations which was not picked up at the time. The original drafting omitted to mention that the married women's reduced rate provisions would apply in Northern Ireland, and we need to correct that.

On that basis, I commend the draft order and regulations to the Committee. I shall be happy to respond to hon. Members' questions.

9.1 am

Mr. Stephen O'Brien (Eddisbury): I welcome you to the Chair, Mr. Chidgey. This is the first time that I have had the privilege of serving under your chairmanship.

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I thought that the Treasury would be the last Department to support the hypothecation of taxes. However, I note that the Paymaster General has been unable to resist seeking—somewhat deftly, I admit—to put the order and regulations in context by continuing to try to justify this tax on jobs and pay, which is due to take effect in just 25 days, on the sole basis that it is for extra funding for the health service. Hypothecation is clearly now official policy in the Treasury, and it is the context in which we are considering the order and regulations. The Treasury has a track record of increasing and then spending tax, but it has failed to reform public services prior to using that investment—a dissembling word, which in this case means spending taxpayers' money for no identifiable return.

It is quite clear that it would be futile, and a mere gesture, for the official Opposition to seek to resist the Government on this matter, given their ability, through their majority in the House, to impose this extra tax on the jobs and pay of the citizens of this country. However, in examining the order and regulations, it is important to understand the background to the rates and proposals concerned. The opening recital of the order says that it is the result of the Treasury's

    ''carrying out in the tax year 2002–03 a review of the general level of earnings in Great Britain''.

We must therefore look at that review, in Command Paper 5746, which was presented to Parliament by the Secretary of State for Work and Pensions and the Paymaster General this February. I have examined the paper not only to try to understand in which periods the various rates were last increased, but to set that knowledge against the review of the general level of earnings in Great Britain.

It is interesting to note—with the simple use of a calculator—that if the various rates that have been increased are translated into percentages, there seems to be no internal consistency or logic. That is the central point that needs to be addressed by the Paymaster General. For instance, page 4 of the Command Paper shows that the increase in the retail prices index—not earnings—in the year to September 2002 was 1.7 per cent. Article 2 of the order, which deals with the small earnings exception from class 2 contributions, replaces the figure £4,025 with £4,095, which represents a 1.74 per cent. increase. In the case of a class 3 contribution, £6.85 is replaced by £6.95, which is an increase of 1.46 per cent. There is no consistency. The prescribed percentage of estimated benefit expenditure is set at 2 per cent.

It is not rocket science seriously to consider the percentage effect when one is dealing with taxation issues. After all, that is how taxation is generally presented. There is no consistency in those percentage rises, even though the order is based on Command Paper 5746 and the general level of earnings review, as presented to Parliament. Of course, the rates do not relate to the pronounced public rate of 1 per cent., but I understand that.

The last sentence of the explanatory note, which is part of the printed material, although it clearly states that it is not part of the order, states:

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    ''This Order does not impose any new costs on business.''

That is an amazing statement. If the new national insurance tax hike, which the Government are shoving through, is not a tax on jobs, pay, employees and employers, what is? Clearly, including that sentence in the explanatory note is, to say the very least, stretching the imagination of all of us, who, as politicians, are meant to have some ability to understand its intended meaning.

There is another surprising aspect to the instruments that the Paymaster General has brought before the House under the affirmative resolution procedure. The regulations have a regulatory impact assessment attached. The explanatory memorandum states:

    ''These Regulations do not in themselves impose any new costs on business.''

Again, that is an extraordinary phrase in the context of the overall measure.

The memorandum continues:

    ''A regulatory impact assessment in respect of the 2002 Act has been prepared and placed in the Library''.

I have studied that; it clearly refers to the contents of the 2002 Act. The Paymaster General explained why we are dealing with this matter in regulations, as opposed to using the Act. There is no specific reference to these measures having a regulatory impact assessment. Given that the explanatory note to the order makes no reference whatever to any attempt to carry out a regulatory impact assessment—I have had to turn to the regulations—I question whether the process is right. It has been said that such assessments will attach to all orders that come before the House for consideration and approval.

The final matter that I want to put on the record relates to the regulations, which, the Paymaster General attempted to suggest, deal with regularisation of provisions for married women. They, too, will be subjected to a new tax on jobs and pay, and there are only 25 days to go before it is imposed on them. The instrument also deals with regularisation for mariners.

The second page of the explanatory memorandum states:

    ''Due to a misunderstanding, the modifications for Northern Ireland mistakenly omitted Case D in Part 9 (married women) from the provisions applying there, and this oversight was not picked up at the time.''

All human beings make mistakes from time to time, and I do not suggest that that is not an honest admission of a mistake that went unnoticed at the time. Saying that the Inland Revenue has operated on the basis that case D applied in Northern Ireland, so no married woman who had made an election to pay reduced-rate contributions was thereby disadvantaged—I take that statement at face value—raises a question that needs to be answered on the record by the Paymaster General. Is the Department suggesting, in that statement, that payments have been made ultra vires, and is that admitted by the provision? If that is the case, further measures will be needed to ensure that people have not been truly disadvantaged. If it is not the case, I invite the

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Paymaster General to put that on the record, so that there can be no doubt in future should anyone come to examine the position.

I should like to wait until the Paymaster General has had an opportunity to respond to those questions, particularly in relation to all the extraordinarily inconsistent percentages, before I decide whether the Opposition want to press the matter further.

9.11 am


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