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“I don't know about you, but that looks like a straightforward tax increase to me.”
It is also important to consider the effect on contracted-out occupational pension schemes. It has been estimated that the amount of national insurance rebate being paid into such schemes will be reduced by about £2 billion between 2009 and 2014. The National Association of Pension Funds has observed that that could
“increase the cost to employers offering a Defined Benefit salary-related pension.”
Given that the Government have already undermined occupational pension schemes by carrying out a £5 billion-a-year pension tax raid in ending dividend tax relief, reducing protection for members by twice cutting the minimum funding requirement, and failing—until today—to accept our proposals for a pensions lifeboat for those who have lost their pensions, thus putting those people through misery, is it really right that they
should now be taking further measures that will cut confidence in occupational pensions by increasing the cost to employers? There is a serious question to be asked about whether the Government understand pensions at all.
It is widely accepted that as many as 7 million people are not saving enough. Occupational pensions have been the bedrock of good pensioner provision in retirement. Nothing should be done to push employers into closing their schemes, and they should not be offered inducements to do so. The aim must be for more people to save more, and the best way of ensuring that that happens is to encourage employers to operate good work-based pension arrangements and open them to all employees.
On another day, we shall have a chance to debate personal accounts. I hope that they will be developed with employer contributions that do not involve employers who already provide a good pension scheme. We do not want workplace schemes with good benefits to be closed, and members to move down the scale into personal accounts. There is a real risk of diversion.
Let me end on a seasonal note. At this time of year I think it fair to say that with this Bill—taking tax through the back door and damaging occupational pension schemes—the Prime Minister has moved from being Mr. Bean to being Mr. Scrooge, and all I would say to him is, “Bah, humbug!”
6.55 pm
Mr. Charles Walker (Broxbourne) (Con): It is a delight to be called with another three hours ahead of us. So often in the Chamber I fear that I shall be given only the last five minutes at the end of the debate before the start of the winding-up speeches, but my Whip has told me that I can have up to two hours. I will not take two hours, however, because I am well aware that a number of my colleagues want to get back to their families and homes to embark on their Christmas constituency engagements. A lot of nonsense is talked about our going off on holiday tomorrow, but actually we are not doing that. We will all be in our constituencies for the next week, bringing great joy and warmth to those whom we represent.
I am a very simple chap. I do not claim to be a great brain, or to have a great understanding of financial or Treasury matters. But I smell a rat here: I believe that this is a tax rise. I smell that rat because the Treasury has sent its two nicest and most charming Ministers to sell it to the House. We are talking about considerable sums. Various figures have been mentioned, but one of the higher ones is £1.5 billion, which is almost the equivalent of a penny on income tax. My constituents are entitled to suspect that they will be paying rather a lot of the additional £1.5 billion in national insurance contributions, because that is what has been happening for the last 10 years. They seem to have paid more and more tax, while being told by the Government that they are jolly lucky to have the privilege of paying more and more.
I am slightly concerned about this national insurance increase, because I believe that it will fall most heavily on such people as junior doctors, police inspectors, deputy heads of primary schools, taxi drivers—of whom there many in my constituency—and skilled artisans such as electricians and plumbers. Over the
past decade, particularly in Hertfordshire, those people have seen the tax contribution that they are expected to make increase dramatically, and they will be nervous about the possibility that once again they will be asked to pay more and receive less, or nothing, in return.
We have, of course, seen national insurance increases before. I think that there was one of about £8 billion that was meant to fund the national health service. That may have been a very good thing, but the money has certainly not gone towards funding the national health service in Hertfordshire. On Wednesday this week, we will discover that another of our hospitals is scheduled for closure. Chase Farm hospital in Enfield, north London, was earmarked for a significant scaling down last week. Again, my constituents are right to be concerned about the possibility of a national insurance increase, because one thing is almost certain: that money will not be spent in Broxbourne, although it may be spent in other parts of the country. It may be spent in Scotland, for example, where expenditure per head is 40 per cent. more than it is in Hertfordshire.
Kelvin Hopkins: My constituency and the hon. Gentleman’s are not too far apart. I believe that in Hertfordshire health spending is above the fair funding target, but in my constituency it is below that target. Does the hon. Gentleman accept that some of the extra cash might help my constituents in Luton?
Mr. Walker: I should be delighted if it went towards helping the hon. Gentleman’s constituents. I am referring to all the additional national insurance money that we are discussing in relation to the Bill—I wish to remain within the bounds of the debate, Mr. Deputy Speaker. However, I should also be delighted if my constituents, too, could partake of the additional bounty, and we could keep one of their hospitals open.
Mr. Mike Weir (Angus) (SNP): The hon. Gentleman has touched on the subject of spending in Scotland, which of course gives more to the Treasury than it gets back, as figures have shown; in fact, the south-east of England gets more than Scotland and many other areas of England. However, Scots also pay national insurance, and if the hon. Gentleman is so concerned about it, will he support our drive for independence, which would solve the problem?
Mr. Walker: The hon. Gentleman—
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. Before the hon. Gentleman is tempted to go down that road, I should say that the Christmas spirit may be overflowing and so might time, but we must keep within the boundaries of the Bill.
Mr. Walker: I shall crack on, Mr. Deputy Speaker. I am not quite aware of the hon. Gentleman’s figures. In my constituency, spending per head is £5,800, whereas in Scotland it is £8,200. I would be happy to have that debate with him at a later date.
The Financial Secretary said that pensioners are so much better off under this Government. If so, why are they so cheesed off in Broxbourne? Very few pensioners to whom I talk have anything good to say about the Government. Many have seen their standard of living
decrease because council tax has gone up because of underfunding from the Treasury, and the cost of fuel has gone up. The Government are being a little disingenuous when they say that pensioners are better off than they have ever been. I am not sure that that is the case. Do not take my word for it; go and ask the pensioners.
With that, I wish you all a very merry Christmas, and I shall see your smiling faces in January.
7.1 pm
Justine Greening (Putney) (Con): It is a pleasure to be able to wind up the debate on behalf of the Opposition. It seems that it is another week, another emergency statement from the Treasury, but this afternoon’s debate has been more about what Labour in government does best: imposing stealth taxes and hitting hard-working people across the country. In the midst of the incompetence that we see almost daily across government and truly embedded in the Treasury, there is one thing that the Government do with aplomb and vigour—tax people who do not even realise it and then, in customary Government style, dress it up as somehow doing those people a favour.
As my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) pointed out, this measure was part of a Budget that was represented as some sort of tax cut but eventually emerged in its true form as a tax con. The Bill represents a stealth tax on savers and on those who are trying to provide for themselves in retirement. It is a stealth tax because, on the one hand, it ratchets up significantly the national insurance contribution from middle and higher earners—by £1.5 billion, a not insubstantial amount, in 2009-10 alone—by aligning the national insurance upper earnings level with the higher rate taxation level. On the other hand, the Bill goes further and makes sure that people paying extra NI contributions will see little, if any, of them in terms of their additional state second pension rights accrued.
Combined with the backdrop of a weak Chancellor buffeted by events, today’s date was apparently destined to be a lively one. In reality it proved less so because, unfortunately and disappointingly, not one Labour Back Bencher took the time to contribute to this debate—
Justine Greening: Other than by intervention, and I think I can see another one coming.
Kelvin Hopkins: I thank the hon. Lady for giving way. She has been fairly critical of the Government’s inching in what I think is the right direction. Presumably she has some comprehensive alternatives that will make a tremendous difference to pensioners’ incomes. I should certainly like to hear them.
Justine Greening: As the hon. Gentleman knows, our party supported the broad pension reforms brought forward by the Government, but our concern is that the Bill undermines that consensus and decouples the restoration of the earnings link from the bringing forward of the flat-rating of the state second pension.
The contributions today have been limited in number but helpful. As I said, we did not have one from a
Labour Back Bencher. The Liberal Democrat spokesman, the hon. Member for Rochdale (Paul Rowen), said that he accepted the Government’s alignment of the upper earnings limit and the higher rate tax threshold for paying national insurance, but had issues with the upper accruals point and concerns about pensioner poverty. He talked about introducing a citizen’s pension but failed to say at what level that pension would be introduced. He also did not say whether there would be any limits on who would receive the pension—
Paul Rowen: Will the hon. Lady tell us what the Conservative proposals are? We have been very clear about our proposals.
Justine Greening: This is not really a debate about pensions, but it is interesting that the hon. Gentleman did not answer my question or mention any details of a residency test for his citizen’s pension. As and when the Government ever get around to calling an election and going to the people to find who they want running the country, we will debate our pension proposals.
Kelvin Hopkins: I thank the hon. Lady for giving way once more. She suggested that the Liberal Democrats were not saying the level at which their citizen’s pension should be set. However, Liberal Democrat Members nodded vigorously in agreement when I suggested that we ought to aim for the basic state pension to be at least 25 per cent. of average earnings, the level it was at when the Conservative party broke the link with earnings. Would 25 per cent. be a good figure?
Justine Greening: The hon. Gentleman obviously thinks it is. It is interesting to see the collegiate working between the Liberal Democrats and the Labour party on this matter. Perhaps it is symptomatic of what we will see when the Liberal Democrats get their new leader.
My hon. Friend the Member for North-East Hertfordshire (Mr. Heald) talked about broken promises and today we are seeing another, although it may be more of a moving of the goalposts, which is concerning Opposition Members. He talked about the “conjuring” that we have seen in the Bill—a very apt word. We all accept that simplification is to be welcomed, but we are concerned about the way in which the Bill delivers it. We are also concerned about the fact that although we have made progress in discussing pensions and pensions reform, that consensus has been tested today.
My hon. Friend the Member for Broxbourne (Mr. Walker), in a customarily witty and wide-ranging speech, said that he smelled a rat, but did not link that with any specific Member, which was reasonable of him. He also linked the Bill with health care in his constituency, which was some achievement.
There is no doubt that the Bill increases the national insurance contributions that higher rate and some basic rate taxpayers will make, particularly those who are on about £40,000 to £43,000 a year. As my right hon. Friend the Member for Wokingham (Mr. Redwood) mentioned, there are particular income levels at which people will be paying more national insurance as a result of the Bill—
Angela Eagle: It is a small number.
Justine Greening: The Minister says it is small, but Mike Warburton of Grant Thornton has said that some people may see their national insurance contributions increasing by £946 per annum on the previous tax year. Grant Thornton calculates that people on £41,000 are going to pay nearly £500 a year more than in the current tax year, a 15 per cent. increase. It does matter.
In discussing the alignment of the upper earnings limit with the higher rate tax threshold in the 2007 Budget, the same Mike Warburton said that this was a stealth tax and that
“everyone has to remember this is a finance-raising measure.”
David Heaton, of the accountants Baker Tilly, said:
“It is quite clear that the Government is now treating national insurance as an extra bit of income tax.”
My hon. Friend the Member for North-East Hertfordshire referred to that, too. This is no minor stealth tax; it will raise £1.5 billion in additional national insurance revenue just in 2009-10. As my hon. Friend the Member for South-West Hertfordshire mentioned, the secondary legislation protection that we now have, for the move to have an upper earnings limit that is not set through primary legislation causes some concern to those on the Opposition Front Bench, and we will want to get assurances on that in Committee.
Angela Eagle: I am listening to the hon. Lady citing august bodies. Will she also recognise the comment of the Pensions Policy Institute, an industry-funded research body, which described the proposal she is currently talking about as
“a technical change introduced to restore the flat-rating of”
“back towards the path originally envisaged in the Pensions Act 2007”?
In other words, it restores the cross-party consensus to put into effect the pension reforms.
Justine Greening: The hon. Lady is right to highlight the fact that the PPI spotted that this course restores the original plan to flat-rate the state second pension back towards the original Pensions Act 2007 path, but in fact the PPI also identified that this was a problem back in April 2007. The question is why the Treasury did not apparently identify that—which is why it is having to bring this in the context of the pre-Budget report, rather than mentioning it in the original Budget.
Mr. Philip Dunne (Ludlow) (Con): Did I hear my hon. Friend correctly? Did she indicate that one of the clauses in the Bill will allow future increases in the upper earnings limit to be made by means of secondary legislation, which presumably means that unlike other aspects of tax change, which are normally dealt with in the Finance Bill each year, in future upper earnings limits can be raised at the whim of the Government without being properly debated?
Justine Greening:
That is a correct understanding. Obviously, the national insurance changes are not taken through the Finance Bill because they relate to a different aspect of Government finance, but it is correct that
the Government have had to take this out of primary legislation in order to go above the pre-existing ratio of the upper earnings limit in relation to the primary threshold. Previously, that had been between 6.5 and 7.5 times the primary threshold.
Steve Webb: Earlier the hon. Lady raised an important issue of principle, saying she objected to the raising of additional national insurance above the current upper earnings limit with no consequent increase in benefits, essentially treating it as a tax. So does she think that when the Thatcher Government did the identical thing by creating a national insurance surcharge, that was immoral as well?
Justine Greening: Members always know they are on to a winner in this House when other Members start going back in time, and when that is the only critical point they can make.
Although Conservative Members broadly supported the pension reform and we all recognised that achieving some political consensus was important, what we are worried about is that after that consensus has been reached the goalposts are being moved. That does not give us the confidence we had at the time of the Pensions Act 2007. That point is not dissimilar to the serious point the hon. Gentleman’s Front-Bench colleague raised earlier. This is a serious point, which is why it is right to challenge the Government on it.
Kelvin Hopkins: I thank the hon. Lady for giving way—and I apologise for intervening so much, but she is making points that provoke me. She asks why we should go back into history. I think history is quite important, particularly as the Conservatives broke the link with earnings, at which point the basic state pension was 25 per cent. of average earnings. A woman who just became 60 on the full pension at that time would now be 87, and she would have lost a vast amount of income during that time simply because the hon. Lady’s party broke the link with earnings.
Justine Greening: Listening to the hon. Gentleman’s remarks, one would not think that the current Government had been in power for 10 years and still had not restored that link. I wish later to probe and press the Ministers here today to try to discover their latest plans in respect of re-establishing the link, and whether they are able to confirm that it will be re-established. However, all we know from this Bill is that one half of this pension package—the flattening of the state second pension—is being brought forward. We have no additional comfort from the Government on the other half of it, which is crucial in providing an overall package that we would be happy with: the re-establishment of the link between the state pension and earnings. My party proposed that at the last election, before the Government accepted it. That is the key part of this jigsaw, and we are concerned that Ministers are not giving us the assurances we seek about it. Frankly, the Prime Minister is the main roadblock to our being able to get assurances on when that earnings link will be re-established; perhaps now that he is in his elevated position as leader of this Government, we will be able to get some more assurances, but I will wait to find out about that later in the debate.
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