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Ruth Kelly: There will be a full data protection audit across both the Department for Transport and its agenciesas there will be across Government, in the light of the Cabinet Secretarys review. As I have already made clear, there is only one circumstance of which I am aware in which data are held in bulk outside the United Kingdom. It is important to have proper safeguards in those instances too. The Driving Standards Agency is bringing forward plans for a full data protection audit of the facility in the United States to make sure that people can be appropriately assured.
Paul Flynn (Newport, West) (Lab): For more than 50 years I have been turning up at post offices with a handful of documents and undertaking the tedious chore of getting a new tax disc for the car. For the first time this year I registered online. It was all over in about two or three minutes. Although this lapse is lamentable, should we not thank the authorities and congratulate them on providing a splendid high-tech service for acquiring tax discs?
Ruth Kelly: I thank my hon. Friend for his comments. He is right to bring to the attention of the House the importance of being able to access services online and in the most convenient form for the user of that information. If that means that instead of going to a tax office it is possible to get ones tax handled online, that will lead to a huge improvement in customer satisfaction. My Department and its agencies have been at the forefront of these developments and have won various awards for the way in which they deal with customers, making it much easier to access services as a result.
Bob Spink (Castle Point) (Con): On a point of order, Madam Deputy Speaker. Have you had a chance to see the written statementNo. 22 on todays Order Paperby the Secretary of State for Transport on the Dartford crossing charging schemes accounts? Given that the Bill that set up the crossing scheme stated that the charges would be entirely removed when the scheme had paid for itself, which has now happened, would it not have been better to have had an oral statement in the House so that hon. Members could have questioned the continuing, improper and hard-to-afford charges that our constituents have to pay?
Madam Deputy Speaker (Sylvia Heal): Whether Ministers decide to make a written or oral statement is not a matter for the occupant of the Chair. I think that the hon. Gentleman will have opportunities to follow up that point, not least, perhaps, during tomorrows debate on the Christmas Adjournment.
Paul Flynn (Newport, West) (Lab): On a point of order, Madam Deputy Speaker. A written statement has been made today on the Governments decision to give justice to the 140,000 pensioners who were robbed of their pensions. Was it not a shame that we did not have an oral statement so that we could congratulate the Government on achieving that very just outcome, which has brought great satisfaction, and a wonderful Christmas present, to 140,000 robbed pensioners?
Madam Deputy Speaker: I can only repeat what I said earlier: it is entirely up to Ministers to decide whether to make a written or oral statement. No doubt they will be pleased to read the remarks that have been made in the Chamber.
Secretary David Miliband, supported by the Prime Minister, Mr. Chancellor of the Exchequer, Mr. Secretary Straw, Secretary Jacqui Smith, Secretary Des Browne, Secretary Alan Johnson, Mr. Secretary Alexander, Mr. Secretary Hutton and Mr. Jim Murphy, presented a Bill to make provision in connection with the Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community, signed at Lisbon on 13th December 2007: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed. Explanatory notes to be printed [Bill 48].
Julia Goldsworthy, supported by Mr. Douglas Carswell and Mr. David Chaytor, presented a Bill to establish a Citizens Convention to facilitate the involvement of people from all sections of society in considering the way in which the United Kingdom is governed; to make provision relating to the implementation of recommendations made by the Convention; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 25 April, and to be printed [Bill 49].
This short Bill has two purposes. First, it allows us to deliver the package of personal tax reforms announced in this years Budget. By allowing the upper earnings limit to be aligned with the point at which higher rate tax starts to be paid, the Bill makes it possible to simplify the UKs tax and national insurance system significantly. From April 2009, there will be just two main rates of income tax. They will apply to the same bands of income as the two rates of national insurance contributions, thus creating one of the simplest personal tax structures of any developed country. Income tax will be just 20 per cent. for those earning less than £43,155 a year.
Secondly, the proposals in the Bill are central to the Governments commitment to provide a solid and simpler state pension. By bringing forward the introduction of the upper accruals point, the Bill returns the timetable for the removal of the earnings-related state second pension to that recommended by the Pensions Commission. That will mean that by about 2030, the very complex earnings-related structure of the state second pension will be withdrawn, leaving behind a flat rate scheme that will be simple to administer and simple to understand by both contributors and pensioners. I should like to explain each of those purposes in a little more detail, starting with the changes to the upper earnings limit.
As the House will know, the changes are part of a package of reforms to the personal tax system announced in this years Budget by my right hon. Friend the Prime Minister. That package is not for debate today, as the majority of the changes will be legislated for in next years Finance Bill, to which I look forward, albeit with some trepidation. The reforms will take 600,000 pensioners out of income tax altogether, and will help to lift 200,000 children out of poverty. A central part of the package is the alignment of the national insurance upper earnings limitthat is, the point at which national insurance contributions become payable at 1 per cent., rather than 11 per cent.with the level at which higher rate income tax becomes payable. The same will happen to the upper profits limit, which is the equivalent point for the self-employedthe point at which national insurance contributions become payable at 1 per cent., rather than 8 per cent.
Moving both those limits will be a two-stage process. In the 2008-09 tax year, the upper earnings limit will be increased to £770 a week. In 2009-10, it will increase again, to align with the level at which higher rate income tax becomes payable. The second stage of that increase requires a change to primary legislation, and that change will be made by the Bill. At present, the maximum upper earnings limit is restricted to seven and a half times the primary thresholdthe point at which national insurance contributions start to be paid. To align the two systems from 2009-10, that restriction needs to be removed, and the Bill makes that
possible. It means that by 2009, the two main rates of income tax will apply to the same bands of income as the two rates of national insurance contributions, creating one of the simplest personal tax structures of any developed country.
The House will want to know that there will be effective parliamentary scrutiny of the upper earnings limit once the restriction on it being more than seven and a half times the primary threshold is removed. I am pleased to be able to tell the House that the annual regulations setting the upper earnings limit will be subject to the affirmative procedure, so Members of both Houses will have the chance to debate any increase.
I should like to deal straight away with the claims that the increase to the upper earnings limit represents a stealth tax rise. As we have made clear, the measure should not be seen in isolation, but as part of a package of reforms that will leave four out of five households better or no worse off, and that will take 600,000 pensioners out of income tax and 200,000 children out of poverty.
Jane Kennedy: There will be some losers as a result of the personal tax package, but the overall net effect of the changes to the Exchequer will be a cost of about £2.2 billion, so the idea that there will be a greater tax take overall simply does not stand up to real, detailed scrutiny. However, I may not have the answers to technical questions such as that asked by the right hon. Gentleman at my fingertips. I give way to the hon. Member for North-East Hertfordshire (Mr. Heald).
Mr. Oliver Heald (North-East Hertfordshire) (Con): I am grateful to the right hon. Lady for giving way. Is she seriously saying that £1.5 billion does not ring a bell? That is the amount that the measures will bring in to the Treasury in 2009-10an extra £1.5 billion. It is laughable to suggest that we can consider the measure in 2007 prices, and then say that it will cost the Treasury £2.2 billion.
Jane Kennedy: The hon. Gentleman is right: increasing the upper earnings limit for national insurance by £75 a week above indexation from April 2008 raises £1.5 billion, when one adds in the fact that, from April 2009, it will be fully aligned with the higher rate threshold. My point is that taken overall, the simplification package is a serious, significant step forward. In particular, it allows us to target our assistance on people on the lowest incomes, and on households in the greatest need of support.
The Minister said at the beginning that the Bill simplifies the system, and clearly it does. We have aligned rates and thresholds, but national insurance for employees and income tax are still very different taxes. One is annual, one is weekly, they have different tax bases, and employers often say that they do not see why they have to levy two taxes on their employees. They would prefer to levy one. Do the Government have any plans to consider whether the two taxes should be merged in the name of simplification?
Jane Kennedy: We do not have any plans to make that change, but we can of course debate the point. Income tax and national insurance contributions serve two separate purposes. We base our assessment of an individuals entitlement to benefits on national insurance contributions. If we were to merge the two, we would have to reinvent systems for making that assessment, and I would have to be persuaded that it would be a benefit all round, and that it would not create further complexity of the sort that we are trying to remove.
I return to matter of the state second pension and the Bills second purpose. At the time of the pre-Budget report in October, my right hon. Friend the Chancellor announced that the introduction of the upper accruals point would be brought forward to 6 April 2009. The upper accruals point is a new threshold for the calculation of both state second pension and contracted-out rebates. It replaces the upper earnings limit in both the state second pension and rebate calculations, and it was planned for introduction from 6 April 2012 at the earliest. That was legislated for in the Pensions Act 2007.
However, the upper accruals point needs to be introduced earlier in order to ensure that the state second pension reforms can be introduced as intended, with a flat rate state second pension from around 2030. This is the result of the above-inflation increases in the upper earnings limit that we have just been discussing, which would otherwise have a knock-on effect and would have delayed the timetable for delivery of a flat rate state second pension, because the upper accruals point would have been at a higher point in 2012 than was originally expected.
The above-inflation increase in the upper earnings limit would also have meant higher earners potentially making anomalous gains in their pensions, over and above the White Paper pension reforms, because the state second pension accrues on the portion of earnings between the lower and upper earnings limita band that will become wider.
Mr. Heald: When the right hon. Lady talks about an anomalous benefit, does she not mean that when people paid their national insurance contributions, they would get something in return, whereas under the arrangement that she is putting in place, between the accruals point and the upper earnings limit, they will get nothing for their money?
Jane Kennedy: There was a high degree of consensus about the pensions reforms that were introduced as a result of the pensions White Paper last year. Part of that was a consensus about a flat rate state second pension. The change that we are making today is to get us back on track to achieve that by 2030.
Mr. Heald: My point is that by bringing the accruals point forward three years to 2009, the Chancellor is taking the opportunity to trouser some moneyabout £2 billion. That is the truth of it, is it not?
Jane Kennedy: No. The truth is that we had a projection of how the reforms would work out, and in order to keep to that projection, we are making the changes that we propose today. I do not accept the hon. Gentlemans description of the situation.
Paul Rowen (Rochdale) (LD): That statement would be acceptable if the Government were using the extra £2 billion that will be raised over the next few years to introduce the earnings-related pension link much sooner. Why are they not doing that, rather than trousering the extra £2 billion?
Jane Kennedy: It is true that we are bringing forward the state second pension upper accruals point, which raises £0.3 billion from higher rate taxpayer contracted-out rebates. However, by raising the personal allowances for pensioners by £1,180, we are taking the allowances by 2011 to around £9,770 for anyone over 65, and with a further increase, to £10,000 for anyone over 75. That costs the Exchequer £0.9 billion. That is why I say that I do not recognise the description offered by either hon. Gentleman.
The increases which I have described as the anomalous gains in their pensions that higher earners might have made were not the intention of the personal tax package that was debated at length in this place and the other place earlier this year, and they would have been counter to our objectives of concentrating resources on providing a more generous flat rate state pension for all.
A further effect would have been a larger than expected increase in the band of earnings on which contracted-out rebates are paid. This is because the rebate reflects the state second pension forgone, and is again paid on earnings between the lower and upper earnings limits. Again, this was never intended to be the effect of the personal tax package.
By introducing the upper accruals point in 2009 rather than 2012, the Bill prevents most of those anomalous gains, as I tried to explain in our exchanges, as well as returning the timetable for the removal of the earnings-related state second pension to that recommended by the Pensions Commission. The new pointthe upper accruals pointwill be introduced at the level of the upper earnings limit in 2008-09, which is expected, as I said, to be about £770 per week.
From that date, the upper accruals point will replace the upper earnings limit as the threshold for the calculation of both state second pension and contracted-out rebates. It is proposed that it will be frozen in cash terms at its introductory level, so that the band of earnings on which the current earnings-related state second pension and contracted-out rebates are based will reduce year on year.
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