The
Committee consisted of the following
Members:
Chairman:
Mr.
Christopher
Chope
Blizzard,
Mr. Bob
(Waveney)
(Lab)
Breed,
Mr. Colin
(South-East Cornwall)
(LD)
Browne,
Mr. Jeremy
(Taunton)
(LD)
Challen,
Colin
(Morley and Rothwell)
(Lab)
Evans,
Mr. Nigel
(Ribble Valley)
(Con)
Field,
Mr. Mark
(Cities of London and Westminster)
(Con)
Gauke,
Mr. David
(South-West Hertfordshire)
(Con)
Gray,
Mr. James
(North Wiltshire)
(Con)
Hall,
Mr. Mike
(Weaver Vale)
(Lab)
Hewitt,
Ms Patricia
(Leicester, West)
(Lab)
Kemp,
Mr. Fraser
(Houghton and Washington, East)
(Lab)
Kennedy,
Jane
(Financial Secretary to the
Treasury)
Moffat,
Anne
(East Lothian)
(Lab)
Newmark,
Mr. Brooks
(Braintree)
(Con)
Salter,
Martin
(Reading, West)
(Lab)
Spellar,
Mr. John
(Warley)
(Lab)
Wright,
David
(Telford) (Lab)
Keith
Neary, Committee Clerk
attended the Committee
Eighth
Delegated Legislation
Committee
Wednesday 20
February
2008
[Mr.
Christopher Chope
in the
Chair]
Draft Social Security (Contributions) (Re-rating) Order 2008
2.30
pm
The
Financial Secretary to the Treasury (Jane Kennedy):
I beg
to move,
That the
Committee has considered the draft Social Security (Contributions)
(Re-rating) Order
2008.
It is a pleasure
to be here this afternoon under your chairmanship, Mr.
Chope. I hope that hon. Members will accept that I am assisting them if
I say that I shall speak very briefly on the draft order. I regard it
as a technical measurenot minor, but technical. It raises the
small earnings exception to £4,825, as Members will see from the
papers that they have received. The rate of class 2 contributions will
be raised to £2.30 and the class 4 lower profits limit to
£5,435. The order also raises the weekly class 3 contribution
rate to £8.10. All those increases are broadly in line with
prices. The order also raises the class 4 upper profits limit to
£40,040, in line with the changes to the National Insurance
Contributions Bill that we agreed in the House and which were debated
extensively last month. I commend the order to the Committee and am
happy to answer any questions that
arise.
2.31
pm
Mr.
David Gauke (South-West Hertfordshire) (Con): It is a
pleasure to serve under your chairmanship once again, Mr.
Chope. I cannot help but notice that here were are once
againyou, the Financial Secretary and mein a Committee
Room discussing national insurance, as we did only a few short weeks
ago on the National Insurance Contributions Bill, to which the
Financial Secretary
referred.
As
the Financial Secretary mentioned, the order changes a number of the
thresholds and payments in the national insurance contributions scheme,
particularly in relation to self-employed persons. It is worth
highlighting what those increases are in percentage terms. Class 2
contributions are paid by self-employed people once their profits reach
a certain level, and the order proposes to raise the relevant amount
from £2.20 to £2.30an increase of 4.5 per cent.
Class 3 contributions are paid voluntarily by people who want to fill
in gaps in their contributions, usually towards a retirement pension.
The order increases the prescribed amount from £7.80 to
£8.10a 3.8 per cent.
increase.
For class
4 contributions paid by self-employed earners in
addition to their class 2 contributions levied at 8 per cent. between
the lower and upper profit limits and 1 per cent. above the
upper profits limit, the lower level is to increase from £5,225
to £5,435, which I calculate to be a 4 per cent. increase, and
the upper limit from £34,840 to £40,040an
increase of 14.9 per cent. The
main political issue arising from the order is the changes to class 4
contributions which, as the Financial Secretary said, are a consequence
of the changes to the upper earnings limit or upper profits limit of
national insurance contributions, which were part of the proposals
introduced by the then Chancellor, and now Prime Minister, in the 2007
Budget.
Before
examining that in detail, it is worth pointing out
that the increases in the class 2 contribution of 4.5 per
cent., and in the class 3 contribution of 3.8 per cent., appear from
what the Financial Secretary said to be based on the retail prices
index. There is quite a discrepancyI know that this point has
been made in previous debatesand it is not entirely clear why
the contributions are being raised by different amounts, so I would be
grateful for an explanation. The RPI has been used for this
purposeto be fair, that also applies to benefits from the
national insurance schemebut in a slightly different context,
the Government like to use the consumer prices index, for example, when
looking at public sector pay. The arrangements for the self-employed,
which is what we are debating today, and public sector pay do not
necessarily click together, but the point is worth exploring. How can
the Government justify what is essentially a tax increase on the basis
of RPIwhich tends to be about two percentage points higher than
CPIbut when determining public sector pay, they argue that it
would be inflationary to use that measure? The Financial Secretary
might want to explore that
point.
Recent figures
for the average earnings index show that earnings are increasing at 3.7
per cent., excluding bonuses, or at 3.8 per cent. with bonuses. That is
generally, if not substantially, lower than the rate for both class 2
and class 3 national insurance contributions. With class 4, of course,
we have a much more substantial increasethe rate is more or
less 15 per cent., which is the threshold for the upper
profits limit. When the then Chancellor made his statement to the House
on 21 March 2007 during his Budget speech, he did not flag up the
significance of the changes. He said that
the point at which people start
paying top rate income tax will from April 2009 be an annual income not
of £38,000, but of £43,000; and I will align the income
tax system with the national insurance system, with its ceiling set at
the same threshold of £43,000, thereby creating a tax system for
income that has just two rates and two
thresholds.[Official Report, 21 March 2007; Vol.
458, c. 826.]
What was
not clear in the Chamber, although it became clear as soon as the Red
Book was available, was that we were talking about a substantial
increase in tax. The changes to national insurance contributions and
higher rate income tax will net the Treasury something in the region of
£1.5 billion per year, which is a substantial increase in
tax.
Mr.
James Gray (North Wiltshire) (Con): Given the importance
of the change and the increase that my hon. Friend is discussing, does
he not think it odd that the Financial Secretarys opening
remarks were so brief, as if the order were totally mundane and
something that should go through without further discussion? Surely she
should have made rather more of it and explained precisely the sort of
thing that my hon. Friend is now
explaining.
Mr.
Gauke:
I am sure that the Financial Secretary will deal
with the points that have been raised in sufficient detail and that the
full complexity of the measure will be analysed in a way that no one
could possibly describe as mundane. We look forward to her doing
so.
The measure
implements only part of the changes announced in the
Budget, as it deals with national insurance changes for the
self-employed, but none the less it is worth exploring a point made by
the Institute of Fiscal Studies. In its analysis of the Budget, it
estimated that 5.3 million households would lose out as a consequence
of the changes. Most of those households were in the low-earning
bracket, but there was also a group within the earnings range of
£38,000 to £40,000 per annum who would be directly
affected by the measure. On more than one occasion during the course of
debate on the National Insurance Contributions Bill, I asked whether
the Government had conducted their own analysis of the number of
losers. I do not think that the Government dispute the figure of 5.3
million households. The then Chancellor did so in evidence to the
Treasury Committee immediately after the Budget, but I do not think
that the Government now dispute the 5.3 million figure. It would be
helpful to know if the Government have done any analysis to break that
figure down. Broadly, how many people fall into the £38,000 to
£40,000 per year group, and how many fall within the lower
earnings group, from £10,000 to £20,000 per year?
Specifically, I should like to know how much will be raised from the
self-employed as a consequence of the measure, and how many
self-employed people who pay class 4 contributions will find themselves
paying additional contributions.
A recent report by the Centre
for Policy Studies stated that average families have
seen their annual income after tax and housing costs, including utility
bills, drop by some £1,300 over the past four years. A major
cause is the fact that taxes are rising faster than earnings. Given the
IFS analysis that there is a black hole in the Governments
public finances of some £8 billion, it is quite possible that
that problem will get
worse.
Mr.
Mark Field (Cities of London and Westminster) (Con): Does
my hon. Friend accept that that increase over the past four years would
have been headline news in many national newspapers were it not for the
fact that property prices have increased in recent years? The fact that
we are now going to experience at best a plateau and probably a
reduction in residential property prices, will crystallise in many
peoples minds the problem of an increased tax burden on
everyday household
income.
Mr.
Gauke:
My hon. Friend make a very good point. Disposable
incomes are falling while, at the same time, there is general
uncertainty as to the state of the economy, so we find ourselves in a
worse position than we would otherwise be. I am sure he is aware of the
report by the Centre for Policy Studies and indeed of the distinguished
tax lawyer, Charles Elphicke, who produced it and is my hon.
Friends
brother-in-law.
In
conclusion, this is yet another stealth tax. At a time when businesses
are struggling; when the self-employed face rising taxes and
difficulties such as income shifting; and when regulation continues to
be a
major burden, the measure will impose further difficulties on
businesses. We appreciate the fact that the public finances are in some
difficulty and further tax rises appear inevitable, but none the less
we oppose this stealth tax. We will vote against the measure because,
although it has technical aspects, it also contains an element of the
2007 Budget package which will not equip the UK well. We are
sympathetic to the alignment of national insurance contributions with
higher-rate income tax, as the Financial Secretary knows, because we
have debated the matter at some length in the past, but the measure has
been introduced with the principal objective of raising revenue, and we
will vote against
it.
2.43
pm
Mr.
Jeremy Browne (Taunton) (LD): Thank you, Mr
Chope, for calling me to speak this afternoon. One knows that one is
getting old when someone who was in the year below at university is
described as a distinguished economist. I never remember that person
being that, but we are going back 15
years.
There are two
aspects to our discussion. The first is the classes 2 and 3 section,
and the second is the class 4 section. I will speak to them briefly in
turn.
On the classes 2
and 3 section, this is a routine upgrading of the
type that often happens in such Committees, although I note that the
Minister said that the upgrading was broadly in line with
prices. I only say in passing that such a claim is increasingly
controversialthis was touched on by the Conservative spokesman.
There are many people who feel that the various Government measures of
inflation are increasingly out of step with their own experiences in
day-to-day life, whether that be with regard to fuel, food, or many
other regular items of household expenditure. It seems that when it
suits the Government, broadly in line is sometimes
below, and sometimes above, that measurement. In this case, by most
measurements, it is above any official measurement. Therefore, there
must be a revenue implication, so I share the Conservative
spokesmans desire to hear from the Minister an estimate in cash
terms of what the consequences of the order will be on the
self-employed.
The
bigger political consideration, given that this is not routine,
although it has been discussed many times before, is the class 4
changes. It is worth putting this in context for the Committee. Since
1997, when Labour came to power, taxes in the United Kingdom have
increased in real terms by some 40 per cent., even allowing for
inflation. So, the Government now take £14 in revenue for every
£10 that they took a decade or so
ago.
My party believed
that there was structural underfunding of large sections of our public
services. Indeed, we were the only party at the time of the 1997
election that recognised that extra money needed to be raised through
taxation to spend on education. The Labour party told us that that was
unnecessary and that it was irresponsible to say that that was needed
at all. However, it has now happened, and we welcome that
spending.
None the
less, it is worth recognising that the tax burden in Britain is
considerably higher than it was a decade ago. That is relevant to our
deliberations this
afternoon, because this is a revenue-raising measure. If the Government
were simplifying the system in a revenue-neutral way, Opposition
parties would have greater sympathymy party certainly would. We
would feel that that was a practical and sensible response to a
widespread concern that the tax system has been made excessively
complicated. The fact that the simplification is being made while
raising some £1.5 billion of extra revenue leaves
people feeling that there has been a degree of sleight of
hand.
I am somewhat
concerned that the discipline of having a multiplier of not more than
7.5 per cent. between the top and bottom thresholds, which forces the
Government to work within those parameters, has been jettisoned to
accommodate the extra revenue-raising measure. I make the concession
that it always struck me as strange that the marginal rate of tax paid
by someone earning a salary in the high £30,000s dipped off
quite dramatically, and that a person earning £38,000 or
£39,000 was paying a lower marginal rate of tax than a person
earning half that
amount.
I do not
accept that the differential between national insurance contributions
and income tax is so stark that my observation does not hold true. Most
people simply regard those as two forms of taxation on their income.
What was happening before was regarded by many people as unfair, so I
can see the logic in removing that dip in marginal tax rates, but it
has had a severe impact, especially on middle income earners. That
could have been corrected if the Government were keen to make these
measures revenue-neutral. However, as a result of using them as a way
to raise income for the Treasury, that impact is felt more keenly than
it otherwise would have
been.
For all the
reasons that we have rehearsed in previous Public Bill Committees, I am
minded to vote against the order. However, I await with interest the
Ministers estimate of how much additional revenue will be
raised as a consequence of the
order.
2.49
pm
Mr.
Gray
:
May I say how nice it is to serve under your
chairmanship, Mr. Chope? I assure you that I will not delay
the Committee for longI see a look of disappointment on the
Ministers
face.
Two or three
points that have been raised by both my hon. Friend the Member for
South-West Hertfordshire and the hon. Member for Taunton need
crystallising. I hope that the Minister will respond to them clearly
when she replies to the debate. Too often in this place, such statutory
instruments are nodded through and no one really realises the
implications of the measures. It is only later, when they have an
impact on our constituents, that people say, Why was it that
when you were sitting on that Committee you did not raise some of these
points? I thus hope that the Committee will bear with me if I
raise some points.
The
first point, about which I intervened on my hon. Friend the Member for
South-West Hertfordshire a moment ago, is that I was disappointed by
the brevity of the Ministers introduction to the statutory
instrument. It is important and will have a large effect
on peoples lives. The figures are interesting and I will return
to them in a moment because they need further expansion. The
instruments will have an impact on businesses, in particular, because
we are talking about self-employed people, many of whom run their own
businesses. From their point of view, I am rather puzzled by a line in
the explanatory notes that says that an impact assessment has not been
prepared for this instrument as it has no impact on business. That
seems to me to be an extremely odd thing to say. Surely the very people
who will have their national insurance contributions increased as a
result of the order are themselves running businesses, so surely it
will have an impact on business and surely it would be reasonable for
officials to produce an impact assessment on it? Some of the questions
asked by my hon. Friend the Member for South-West Hertfordshire came
about because there is no impact assessment, and we need the Minister
to answer those questions.
Let me
summarise the points. First, there are anomalies in the figures. The
levels of increases for all the figures are interesting. The Minister
passed this off quite briskly, as the hon. Member for Taunton said, by
saying that the figures were broadly in line with the increase in
prices. That is not what I remember one of her colleagues saying
recently when the police had a mass lobby of Parliament and we were
told that the 1.9 per cent. that they were going to get from
the Government was right, and that 2.6 per cent. would be far too
muchgreatly above price inflationso the police had to
take 1.9 per cent. The same was said to us MPswe had to take
1.9 per cent. We were told that we could not possibly have a
vast inflationary increase of more than 2 per cent. However, we now
hear, on a quiet, sunny afternoon in Committee Room 12, the Government
saying, Oh well. We will increase these things by 4.6 per cent.
That is broadly in line with price inflation, so it is more or less all
right. Why not? The Minister should explain why, rather than
going for the 1.9 per cent. figure for public sector pay to which my
hon. Friend the Member for South-West Hertfordshire referred, she has
chosen to go for these rather larger
figures.
Since there
is no impact assessment, the Minister should tell us how much extra the
Government will raise. We need to know in pounds, shillings and
pencein billions of poundshow much extra money the
Government will get into their greedy mitts. Perhaps she could kindly
let us know precisely how much extra national insurance will be raised.
We need to know how many people will be affected because we do not know
at the moment. It would be rather useful to know how many self-employed
people will suddenly discover that there will be a significant increase
in their national insurance contributions. All these seem to be
difficult, yet important
questions.
Why are the
figures varying, as my hon. Friend pointed out? Why do the percentages
vary from 4.5 per cent under article 2(a)an increase from
£2.20 to £2.30up to 14.9 per cent with regard to
the upper earnings limit? I understand that it has something to do with
the way the then Chancellor of the Exchequer sought to change the
national insurance and tax system, but it is far beyond my limited
understanding. If that is the reason, surely the Minister should be
ready to explain precisely what the situation is.
The Financial Secretary knows
that I have had the highest admiration for her for many years. She is a
great Minister who does a fantastic job. I am sure that she will have
the right answer to give us this afternoon, although given the slight
look of awe and worry on her face, she might not. If this place is to
have any purpose, it is right that we should ask questionsand
make them as difficult as possible. If Ministers cannot answer them,
those questions will have achieved something. With the best possible
will, I look forward to hearing how the Minister avoids answering my
difficult
questions.
2.53
pm
Jane
Kennedy:
I was looking out of the window trying to spot
the sun. Through the mist and fog, I will try to spread some
light.
The hon.
Member for North Wiltshire, whom I regard as a friend, accused me of
playing down the impact of the order. I appreciate that my opening
speech was very brief. Sometimes one can assist by being brief, but
sometimes one just rubs everybody up the wrong way and things last a
little longer. While I did say quite clearly that the order was a
technical measure, I did not say that it was not significant. I hope
that he accepts that. I will try to answer the questions raised with
clarity, but he might not like all my replies.
The hon. Member for
South-West Hertfordshire, as ever, has been very thorough in
scrutinising these matters and rightly putting questions to me and my
colleagues. He and other Members asked why there are discrepancies
between the amounts. He had calculated the percentages and seen that
there were differences. It is right to say the changes are broadly in
line with the RPI, except those regarding the upper earnings limit and
the upper profits limit, because they have been increased deliberately
in the way we discussed in the National Insurance Contributions Bill.
Increasing the others by RPI exactly would add complexity to the
computations, so standard formulae are used each year and the figures
are then subject to rounding. For example, with regard to class 2
national insurance contributions, the weekly contribution, which the
hon. Member for South-West Hertfordshire rightly described as
increasing from £2.20 to £2.30, is indexed by RPI and
then rounded to the nearest
5p.
Mr.
Browne:
I understand the point about rounding, because
after a while, one has all the numbers that are not divisible by five
and 10, so it makes sense to round them. However, if the rounding puts
the limit above inflation this year, will it be rounded down next year
so that there is an under-inflation rounding and, over the two or
three-year period, so that it reflects RPI more accurately than a
one-off figure would?
Jane
Kennedy:
The figures would be considered each year at the
point of the pre-Budget report, because that is when we announce them,
as we discussed earlier, in order to give businesses the opportunity to
get their systems in place ready to make changes when we formally make
the changes by order, which we are doing today. On the hon.
Gentlemans specific question, I think that I am right in saying
that each year will be considered on its own, although as he now
knows, we are constantly working in the context of three-year Budget
programmes, so all those considerations will be taken in that broader
context.
Jane
Kennedy:
I have
clearly not satisfied the hon. Member for Taunton,
and I have prompted the hon. Member for South-West Hertfordshire, too.
The hon. Member for Taunton can go first.
Mr.
Browne:
I can see that going up from £2.20 in
section 2.8 to £2.30 is a sensible rounding, rather than going
up to whatever the inflation figure would have
been£2.27, for example. I can see the merit in that, but
if inflation stayed the same, it would be sensible to go up to, for
example, £2.35to under-club it and come in under
inflation. However, my suspicion is that next year, it will go up by a
bit more than inflation again, so that the rounding will always err on
the side of going over inflation, which is why there may be some merit
in judging the issue over a number of years, rather than just inching
over inflation every single year.
Jane
Kennedy:
Before I answer that point, I think that the hon.
Member for South-West Hertfordshire wants to intervene on the same
point.
Mr.
Gauke:
I am grateful to the Minister for giving way,
because I want to discuss that point. Last year, the increase on the
same measureclass 2 contributionswas from £2.10
to £2.20, which was an increase of 4.7 per cent., so
there has been an increase of 4.7 per cent. followed by one of 4.5 per
cent. The Minister will correct me if I am wrong, but I think that RPI
was broadly the same last year as it is now. For the past two years,
therefore, such contributions have risen above RPI. Of course, if that
happens every year, the cumulative effect will be even greater. The
hon. Member for Taunton made an interesting point about whether the
issue should be considered over three or four years, in case we run
into difficulties. It could, of course, work the other way, but
certainly for class 2 contributions it appears to work in just one
particular
way.
The
Chairman:
The intervention by the hon. Member for
South-West Hertfordshire was very long, but the Minister can deal with
it.
Jane
Kennedy:
I have two points to respond to, but the hon.
Member for Cities of London and Westminster wants to intervene on the
same point, so I shall hear that first.
Mr.
Field:
Will the Minister write to the Committee
with statisticsI realise that she cannot
provide them nowgoing back over, say, five years in order to
put the discussion in context? The hon. Member for Taunton and my hon.
Friend the Member for South-West
Hertfordshire say that we should have a baseline that
will not, in effect, be revised every year for the purposes of adding
RPI. In other words, if five years ago the figure was £1.80, and
it has gone up by, in effect, 10p each year, clearly something is
wrong. However, if the baseline figure of £1.80 back in 2003 was
the number from which we were working, we might be satisfied that the
rounding-up exercise was not a one-way streeta rounding up as
opposed to a rounding down as well. With that in mind, will the
Minister provide the context for the way in which the exercise has
worked over the past five years? I appreciate that she might not be
able to do that in Committee, but perhaps she could do so subsequently
in
writing.
Jane
Kennedy:
I do not want to encourage Committee members to
get carried away by thinking that they are on to something. They should
bear in mind that, as I have said and as Members have accepted, those
figures are rounded to the nearest 5p, which means that they are
sometimes rounded down. It depends which formula is
applied for the different upratings or changes in ratings. I will
consider the points that have been raised todayI always look at
Hansard after Committee debatesand if there are points
to which I can add or on which I can usefully shed some light, I will
write to the Committee.
The hon. Member for South-West
Hertfordshire asked why we choose one measure for pay and another for
tax rises. You will be relieved to hear, Mr. Chope, that I
shall not be drawn down the route of discussing police pay or other
public sector pay. The RPI is generally used to calculate wage
increases, so it makes sense to raise NICs thresholds by the RPI rather
than the consumer prices index. The benefits that contributions help to
fund are also, generally, raised by the RPI. The NICs primary threshold
is linked to the income tax personal allowance, which is increased each
year in line with RPI unless, of course, Parliament
decides otherwise. However, I assure the Committeethe hon.
Gentleman will be disappointed to hear thisthat we have no
plans to change NICs rates and thresholds using the CPI. He may have
hoped otherwise, but we are not going to do that.
The hon. Member for Taunton
asked how the changes affect the self-employed. I encourage him not to
look at the changes in isolation, but I shall give him some examples of
what the NICs changes mean. A self-employed worker with profits of
about £5,500 will pay £9.30 less in NICs next year than
they would have in the year 2007-08. A self-employed worker with
profits of £25,000 will also pay £9.30 less, but a
self-employed worker with profits of £50,000 will pay
£354.70 more. I hope that Labour Members will thoroughly approve
of that
approach.
Several hon.
Members enticed me to get into a general discussion about taxes, with
particular reference to
The Daily Telegraph article of a few
weeks ago. I have given this figure many times beforeI wrote to
the Committee with it after the National Insurance Contributions
Billand I am happy to give it again. I have tried to be open
about the overall
impact of the personal tax package last year. I have been asked about
the increase from £38,000 to £40,000. As I said in my
letter, it is anticipated that about 300,000 households will lose out
because of the changes to the upper earnings limit.
I remind the Committee,
however, that our changes to the personal tax structure also mean that,
overall, households will be £100 a year better off, on average,
and households with children will be £200 a year better off, on
average. Four out of five households will be better off, or no worse
off, and the average household will gain £100 a year. There are
five or six other examples of groups of people who will keep more of
their income as a result of the changes. A lone parent with one child
will see their annual gain from work rise by up to £355. The
Committee will know that our objective of reducing child poverty will
be enhanced by the changes that we have made to the tax regime. About
200,000 will be lifted out of poverty, as households with children in
the poorest fifth of the population will be £340 a year better
off, on average.
Those figures need to be stated
before we consider the accusations made by The Daily Telegraph
and the general points made by Members in Committee. We have to see the
changes to the tax systemthe fiscal dragin the context
of an economy in which the number of people in work is at record level,
and that is reflected in the tax system. More people are working; more
people are earning more and therefore contributing to public services.
In 1997 only 1.2 million people earned more than £40,000 per
year and now 3.3 million earn more than £40,000 per
year. In the lower pay scales, in 1997 800,000 people earned more than
£50,000, now 1.9 million earn more than £50,000. I
realise that in 10 years there is a degree of inflation but I still
think those figures need to be stated.
Mr.
Field:
It is legitimate for the Minister to state those
figures and I did not want to stop her in mid sentence, but surely the
argument that there are more people at workplaces is an argument
against fiscal drag. There is less need for fiscal drag if there are
more people in the workplace. I appreciate that there has been a
greater level of overall wealth but there is no doubt that fiscal drag
has had a real impact and it has provided the opportunity to bring the
Government far more tax revenue than should legitimately have been the
case given the tax levels they inherited.
Jane
Kennedy:
I will not delay too long on that point as it can
be debated another time. On the hon. Gentlemans point about
fiscal drag, when earnings increase at a rate greater than inflation
more people start paying tax at a higher rate and as their earnings
overtake the annual inflationary increase in tax rates and allowances
that becomes the fiscal drag.
I want to look at the points
Members have made in the general debate on taxes to examine them in
more detail. I have read
The Daily Telegraph article and formed
my own view of what it said. Opposition Members are entitled to make
those points, but we argue that the issues have to be seen in the
context of a strong and generally growing economy. Even in the
difficult times we face in the housing market, the economy remains
fundamentally strong and people can
be content. There will clearly be anxiety with regard to house costs and
house-price deflation but people can generally be content that the
employment market remains strong; the labour market in Britain is
highly competitive and people can have confidence that we are not in
danger of returning to a situation where people are worried about
employment. It is far better to have people in work and paying national
insurance contributions than out of work and being a drain upon the
national insurance fund.
The hon. Members for Taunton
and for North Wiltshire both asked about the overall cost. I have to
confess that I do not have the actual figure to hand, but I will look
into the matter and see if I can supply those figures as quickly as
possible. I will also try to cast more light on the overall picture of
national insurance contributions over the years.
Finally, as I have noted many
times before, I think it was the Institute for Fiscal Studies that
complimented the Government on implementing a major reform of the
personal tax system in a way that caused a relatively small number of
losers in comparison to the overall changes. More than 20 million
people either see no change or see a benefit arising from the personal
tax package that we debated last year, and which perhaps we should not
be debating at such length now.
Mr.
Browne:
The Minister treats the Committee in an extremely
decent manner and I appreciate that. However, it is extraordinary that
the Government have come to a Committee of this sortwith all
the civil servants who advise the Ministerand yet they are not
able to provide a figure on how much additional revenue will be raised
as a result of the measures we are being asked to vote for. There is a
material difference in whether the measures raise tens or hundreds of
millions of pounds. How can anybody on either side of the Committee
Room make an informed decision about whether they want to support the
Government without knowing, in rough terms, how much revenue will be
raised?
Jane
Kennedy:
On the surface, that is something I should have
had before coming to the Committee, and I take full responsibility.
Perhaps I had underestimated the interest in the matter. The Committee
might like to note, however, that rates increased by indexation are not
calculated as costing or raising revenue for the
Exchequer, so I offer that as an excuse. I do not see any point in
flogging the issue; I undertake to provide the information to the
Committee.
Jane
Kennedy:
Does the hon. Gentleman really need to make a
point?
Mr.
Gauke:
Yes, if I may. I am grateful to the Minister and I
take the point about indexation, but of course there is an element that
is more than indexation, and it is on that particular area that the
Committee would be grateful for information. I appreciate the right
hon. Ladys offer to write to the
Committee.
Jane
Kennedy:
I dealt with some of those matters when we
discussed the National Insurance Contributions Bill, but I will
thoroughly examine
Hansard to look at the arguments and points
that have been raised in our debate this afternoon and I will respond
to the Committee in writing as appropriate. I hope that the Committee
will give the legislation a fair wind.
Question
put:
The
Committee divided: Ayes 9, Noes
5.
Division
No.
1
]
Question
accordingly agreed to.
Resolved,
That
the Committee has considered the draft Social Security (Contributions)
(Re-rating) Order
2008.
Committee
rose at thirteen minutes past Three
oclock.