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Session 2007 - 08 Publications on the internet General Committee Debates National Insurance Contributions Bill |
National Insurance Contributions Bill |
The Committee consisted of the following Members:Chris
Shaw, Committee Clerk
†
attended the Committee
Public Bill CommitteeTuesday 15 January 2008(Afternoon)[Mr. Christopher Chope in the Chair]National Insurance Contributions Bill4.30
pm
Clause 1Amount
to be specified as upper earnings limit: Great
Britain
Mr.
David Gauke (South-West Hertfordshire) (Con): I beg to
move amendment No. 1, in
clause 1, page 1, line 2, leave
out from ‘In’ to end of line 5 and insert
‘section 5(3)(b) of the Social
Security Contributions and Benefits Act 1992 (c. 4) (earnings limits
and thresholds for Class 1 contributions), omit the word
“half”.’.
The
Chairman:
With this it will be convenient to discuss
amendment No. 5, in
clause 2, page 1, line 14, leave
out from ‘In’ to end of line 18 and insert
‘section 5(3)(b)
of the Social Security Contributions and Benefits Act (Northern
Ireland) 1992 (c. 7) (earnings limits and thresholds for Class 1
contributions), omit the word
“half”.’.
Mr.
Gauke:
May I say, Mr. Chope, that it is a great
pleasure to serve under your chairmanship—there was no
opportunity to say that formally in the morning’s evidence
session? I also thank the Financial Secretary and her officials for
their assistance this morning. It is the first time that I have
conducted an evidence session of that sort, and I think the same goes
for the Financial Secretary. It was an interesting experience, enjoyed
by some but possibly not by
others.
Before
discussing amendments Nos. 1 and 5 in detail and what precisely we are
trying to do, it might be helpful to touch upon the broader issue that
we discussed this morning. Although we welcome the simplification of
the system and share the Government’s view that the objective of
aligning national insurance with income tax is desirable, one of our
concerns, which we seek to address with amendment No. 1, is that the
way in which the Bill is drafted could lead to a substantial reduction
in Parliament’s ability to scrutinise legislation in those
areas.
As
we discussed this morning and questioned the officials, national
insurance contributions—their rates and thresholds—are
generally amended by secondary legislation within a framework of
restrictions laid out in primary legislation. One of those restrictions
is that the upper earnings limit must be between six and half and seven
and a half times the primary threshold. That restriction is being taken
away. I put it to the Financial Secretary this morning that she was
“dismantling” those restrictions—a word that she
did not disagree with. We are left in a position in which a Government
are capable of increasing the upper earnings limit through a simple
affirmative resolution procedure, which has not previously been
possible. Consequently, personal taxation could be increased by 11 per
cent. for all earnings over £43,000, with very little
parliamentary
scrutiny.
Some
Members might welcome that as a desirable policy. My point is not to
argue the pros and cons of that particular policy but to argue that it
would be wrong to make such an increase without proper parliamentary
scrutiny. It is worth stressing that there is a strong body of opinion
within the governing party that there is an argument for increasing tax
rates. I will not dwell on that, but there is the Fabian Society paper
“Narrowing the Gap”, launched in March 2006 by the
Foreign Secretary and the Secretary of State for Children, Schools and
Families, which called for a 50p top rate tax. Also the Exchequer
Secretary—who spoke on Second Reading—was asked, at a
Fabian society fringe event at the last Labour party conference, if her
party faced a challenge from its opponents regarding the top end of the
tax scale; she replied that it did and that she for one hoped that they
would be doing a bit of talking about it. Here is an easy way of
legislating for just that—one affirmative resolution and we can
have, effectively, a 52 per cent. top rate
band.
Rob
Marris (Wolverhampton, South-West) (Lab): Can the hon.
Gentleman talk us through that a bit more? My understanding is that if
one takes, for example, the lower earnings limit of £100 which,
using the current ratio of seven and a half, would cap the upper
earnings limit at £750 a week, and then one changes that ratio
to eight and a half, the figure would go up from £750 to
£850. For some taxpayers that would, in fact, be a tax cut,
because the point at which they would start to pay 40 per cent. tax
would move from £750 to £850 a week. Is that not contrary
to what the hon. Gentleman
said?
Mr.
Gauke:
I am grateful to the hon. Gentleman. He could
easily bring me on to one of the other amendments. To answer briefly,
there is nothing in the Bill that means that an increase in the upper
earnings limit for national insurance contributions will also mean an
automatic increase of the point at which people will start to pay
higher rate income tax. We will discuss that in greater detail in a few
minutes. Were such a thing to exist, his logic would be absolutely
right. But it does not exist and therefore it would be perfectly
possible to abolish the upper earnings limit on the basis of an
affirmative resolution and consequently have a much higher rate of tax
on personal income. That was, essentially, the policy of the Labour
party in the 1992 general election, which was when the Financial
Secretary and one or two other members of the Committee were first
elected to Parliament. [Interruption.
] Many moons ago the
Financial Secretary says, and I know that that is not her position now.
I think that that policy was abandoned after the 1992 general
election.
I was
interested, looking at Hansard from 16 December 1993, to see
that my hon. Friend the Member for Ribble Valley (Mr. Evans)
took an intervention from the then hon. Member for Liverpool,
Broadgreen—now the Financial Secretary—in which she
said:
“The hon.
Member has spoken about the need to ensure that those contributing to
the fund contribute enough to pay benefits. Why is it that the
Government's proposals retain the ceiling on
national insurance contributions, which throws the greatest burden on
people on lower
earnings?”
My hon. Friend
then asked the then Member for Liverpool, Broadgreen if that was Labour
party policy, and the response
was:
“It is a
question of fairness and the importance of ensuring that people
contribute fairly to the national insurance
fund.”—[Official Report, 16 December 1993; Vol.
234, c. 1327.]
My
argument is not to take on the merits of that case, although I disagree
with it and I think that the Financial Secretary disagrees with it; it
is not stated Government policy. However, it is perfectly possible for
a future Government, if not the current one—but certainly not
one that I would be involved in—to say, “We wish to
raise”—[Interruption.]
I am touched by the
views of the hon. Member for Wolverhampton, South-West on where the
future may lie. The fact is that the Bill will enable such a momentous
policy and a substantial change in the way taxes are calculated to be
carried out by simply abolishing the upper earnings limit. There is
nothing within the proposed structures to prevent that from happening,
and we therefore seek to deal with that objective in some of our
amendments.
Can I also
discuss the issue of the ratio that we discussed a little this morning?
We pursued the matter with officials to try to properly understand what
the requirements are and whether it is necessary to change the current
arrangements. I think that there was some uncertainly in all parties as
to what the exact numbers would be. I have gone away and done some sums
on what the upper earnings limit would be on a weekly basis. The then
Chancellor in his budget speech of 21 March 2007, Official
Report, columns 826-27, stated that the top rate of income tax from
April, 2009 will start at £43,000. I am not quite sure what
methodology the Treasury used to translate that figure into a weekly
amount, but if that is done on the basis of dividing that by 365 and
then multiplying by seven, we end up with a figure of £824.66.
If in those circumstances in 2009-10 the primary threshold is
£110—we do not yet know if it will be that, but we know
it will be £105 the previous year—the ratio of seven and
a half which exists in the current legislation, would actually be
sufficient.
To be
fair, if the sum was done in a slightly different way—by simply
dividing £43,000 by 52—we would end up with a figure of
£826.92. That would be slightly over the limit. So, as the hon.
Member for Taunton pointed out, seven and a half looks to be there or
thereabouts. It might not do quite what is necessary, but it is very,
very close. Is it therefore necessary, in these circumstances, to
completely throw out the structure that we have, and could we not
simply widen the ratio to somewhere between six and eight rather than
six and half to seven and a half? Were we to do that, we would not only
comfortably be able to meet the requirements on the basis of the
numbers we have, but there would be quite some leeway.
Even on the basis of the
primary threshold for 2009-10 remaining at £105—that is
no increase at all from the year before—that would still enable
the upper earnings limit to be raised to £43,800, well in
advance of the £43,000 that we have in mind. If the primary
threshold were to rise by £5 to £110 and we had a ratio
of eight, we could increase the upper earnings limit to
£45,886.
Mr.
Jeremy Browne (Taunton) (LD): One of the attractions of
keeping the seven and a half multiplier as the upper limit is that if
the Government want more leeway at the top of the scale, they would
need to increase the bottom number—the £105 or
£110 figure. That would have the helpful benefit of assisting
some lower earners, who have missed out due to other tax changes in the
Budget.
Mr.
Gauke:
The hon. Gentleman is right, and, of course, this
would be another option available to the Government if they were to
find themselves short by a relatively small amount. That is an argument
for maintaining the current ratio. It is a reasonable argument, and the
criticism that could be made of amendment No.1 is that we are being too
generous to the Government by allowing them to widen the bands in this
way. But that is the intention behind amendment No.1, as well as
amendment No. 2, which applies the same provisions within the
equivalent legislation for Northern
Ireland.
4.45
pm
I should say a
word about how the amendments work. Anyone who has just picked up the
amendments and looked at amendment No. 1 could be forgiven for thinking
that it is somewhat curious, because all it does is omit
“half”. I should explain that in context. Section 5(3) of
the Social Security Contributions and Benefits Act 1992, as amended by
the Welfare Reform and Pensions Act 1999, states that the upper
earnings limit is seven times the primary threshold or that
it
“exceeds or falls
short of 7 times that sum by an amount not exceeding half that
sum”.
I confess
that the first time—indeed, the second, third and fourth
times—I read that, I was somewhat confused. At one point I
thought it meant something different. I will say, reasonably
confidently, what I think it means. The “that sum” is the
primary threshold: so, we are talking about seven times the primary
threshold and about an amount not exceeding half the primary threshold.
The primary threshold is £100 at the moment, so if the upper
earnings limit is not seven times that, which is £700, then as
long as it is within half of £100, or £50, then it
complies with the ratio. I hope that makes it all terribly clear,
Mr.
Chope.
On that basis,
by deleting “half”, I have not done much for the elegance
of an already inelegant clause or section but, essentially, that means
that as long as we are within an amount equivalent to the primary
threshold on either side of seven times the primary threshold, then we
comply with the ratio. That mechanism expands the ratio from between
six and half and seven and a half to between six and
eight.
The purpose
behind the amendment, and subsequent ones, is to attempt to provide
some protection for Parliament. It does not prevent the Government from
making the changes to the tax system that were outlined in the 2007
Budget. We will hear whatever objections will be made, but all of us,
on both sides of the Committee, believe that Parliament has an
important role, particularly in the area of taxation, and should guard
that role carefully. The current proposals give too much freedom to the
Executive and too small a role for Parliament. Politicians from all
parties have spoken about the importance of Parliament. Here is a
practical example of where there is a problem. The amendment is, in some
respects, a small but technical measure, but could prevent the sort of
abuse that I outlined at the beginning of my remarks, where a
Government may come in and make a fairly substantial change to the
taxation system but through a means that involves little parliamentary
scrutiny.
Rob
Marris:
May I take the hon. Gentleman back to omitting
“half”, which I have been pondering? He will correct me
if I misunderstood what he said—that omitting
“half” would change the ratio from between six and a half
and seven and a half to between six and eight. My understanding is that
the “half” is a margin of error figure, so that it is
around 7. So, if one omits “half”, it has to be spot on
7, it does not expand it to between six and
eight.
Mr.
Gauke:
The hon. Gentleman raises a fair point. That is how
I understand it. He is right that section 5(3)(a) says that it has to
be seven times, before then going on to the margin of error. I have not
deleted that in its entirety. What I have deleted is
“half”, where the margin of error is half the primary
threshold. If we take out “half”, we just have the
primary threshold. I hope that that clarifies the position. The margin
of error—it was helpful of the hon. Gentleman to use that
expression—is widened, becoming the value of the primary
threshold both up and down, rather than half the primary
threshold.
This is a
modest amendment, which will not prevent the Government from achieving
what they have set out to do. However, it will permit parliamentary
scrutiny to continue and prevent any large-scale increase, or indeed
abolition, of the upper earnings limit without appropriate
parliamentary scrutiny.
The
Financial Secretary to the Treasury (Jane Kennedy):
Let me
add my words of appreciation to those offered by the hon. Member for
South-West Hertfordshire and say what a pleasure it is to serve under
your chairmanship, Mr. Chope. This morning was an
interesting experience—[
Interruption.
] I
apologise if it was not quite as interesting for some members of the
Committee as it was for others, but I certainly need debriefing about
it to see how valuable it was. As I said, I had not expected a number
of the questions. Sensibly, a lot of questions dealt with the figures,
which was absolutely appropriate, and we had a thorough sitting. I hope
that that means that we will have a fairer wind than we might otherwise
have done this afternoon.
The hon.
Gentleman made an elegant speech and he is always thoughtful when
challenging what the Government are doing. He talked about a momentous
change in the way in which the Government are allowed to set the rate
of national insurance contributions. He said that nothing in the new
structures would prevent a future Government from using the Bill as a
lever significantly to increase tax rates. He was also concerned about
parliamentary procedures and the opportunity to consider proposals
properly.
I do not
want to go too wide and I shall come to the amendments, Mr.
Chope, but let me say at the outset that the Government’s
reforms of the welfare state
since 1997 reflect our aim of eradicating child poverty and supporting
people to balance their work and family lives. The personal tax package
that we discussed at some length this morning represents the next stage
in our programme to reform the tax and benefit system. The Bill is
required to ensure that those changes can be fully implemented and that
the benefits of that package can be fully realised.
The hon.
Gentleman asked why we cannot introduce a new ratio to calculate the
upper national insurance contribution limit. We see no reason to
reintroduce an arbitrary ratio, given our proposal that future changes
to the upper earnings limit will be subject to approval by both Houses
of Parliament. As we have made clear, removing the restriction on the
upper earnings limit will provide for significant simplification and
allow the two main rates of income tax and NICs to apply to the same
bands of income, creating one of the simplest personal tax structures
in any developed country.
Given that
commitment, I see no reason why the 11 per cent. level at which
employees stop paying NICs should be subject to legislative
restrictions, when the point at which they start paying NICs is subject
to none. We could apply a cap of a multiple of the primary threshold in
the way that we have done, but there is no similar restriction on the
level of the primary threshold, and we touched on that this
morning.
Mr.
Gauke:
The Financial Secretary raises a fair point about
the restriction at the bottom end. Ideally, if one is going to have a
restriction at the top end, one should have a restriction at the bottom
so that one could lower it in such a way as to break the ratio. The
Financial Secretary’s criticism is that there is no restriction
at the bottom end, but there is of course a ratio. So, it would not be
possible to reduce the primary threshold to a low figure unless the
Government also reduced the upper earnings limit by a correspondingly
low amount. In that sense, the continuation of the ratio protects both
the top and the
bottom.
Jane
Kennedy:
I do not accept the hon. Gentleman’s
point. As we discussed this morning, the lower earnings threshold is
aligned with the lower income tax threshold. We have been working to
keep those in alignment for a considerable time. We are now seeking to
align the upper level. Our primary goal is the policy objectives I was
talking about earlier. Simplification being one of the major drivers of
those, we will establish that link, and seek to maintain it. To
reintroduce a legislative restriction on it would limit the Government
in its work towards achieving its
objectives.
As I have
said, each year Members of both Houses will have the opportunity to
debate the increase in the upper earnings limit, as the regulations
will be subject to the affirmative resolution procedure. It was made
clear at the introduction of the primary threshold that it was
introduced to ensure that the point at which income tax and mixed
liability begins is the same. The advantages of our approach are clear.
It will reduce the burden on future legislative programmes, while
retaining proper accountability to the House and an opportunity to
debate the issue.
The
hon. Member for South-West Hertfordshire used quotes from one of my
earlier speeches as a rookie in 1993. I have a quote for him, although
it is not one
of his. It is interesting how rapidly hon. Members,
when in Opposition, adopt a certain position. On 18 February 1997, when
the right hon. Member for Richmond, Yorks (Mr. Hague) was
Secretary of State for Wales, during the debate on the Welsh
Development Agency Bill about the removal of the borrowing limit
imposed on the Agency, he said
that:
“The Bill
provides that future increases of the financial limit shall be made by
secondary legislation, using the affirmative resolution procedure. The
advantages are clear.”
We have seized upon those advantages. The
speech
continued:
“It
will reduce the burden on future legislative programmes while retaining
proper accountability to the House and an opportunity to debate the
issue.” —[Official Report, 18 February 1997; Vol.
290, c. 75.]
It is
absolutely fair and proper that the Opposition express concern and seek
to defend the right of the House to proper scrutiny of the
Government’s actions, but secondary legislation is a perfectly
proper, well tried and tested route by which to do that. I do not have
any reason to believe that what we are proposing will undermine the
ability of either this House or the other place to scrutinise
legislation or Government decisions. I know that the hon. Gentleman has
put the amendment forward in a probing manner and I ask that he not
press it to a
vote.
Mr.
Gauke:
I am not entirely satisfied with that response and
I do not think that that will surprise the Financial Secretary. I know
that she says that there is a Government commitment to ensure
that national insurance contributions are linked to higher rate income
tax—indeed, we will turn to an amendment that relates
specifically to that—but no protection will exist in
legislation. It came out in the evidence session this morning that the
purpose of the previous legislation was to prevent an abrupt increase
in the upper earnings limit irrespective of national insurance
contributions.
I
am not persuaded by the Minister’s arguments or her plea to us
not to press this. I think that I will press the amendment to a
Division. We might well be outnumbered, but the principle remains the
same. Parliamentary scrutiny will not be achieved
adequately—
Mr.
Browne:
I assure the hon. Gentleman that he has my support
on this issue. The fact that the Labour party and the Conservatives
have proven to be equally cavalier in their dealings with the House
only strengthens my resolve to back
him.
5
pm
Mr.
Gauke:
We are now up to four. Who knows how many on the
Labour Benches are persuaded? I can see at least one Labour Member who
has a reputation for defending parliamentary sovereignty, but I am not
sure whether he is paying attention. With regard to the example given
by the Minister, I was not quite sure it was a tax
matter.
Mr.
Gauke:
It involved money, but I am not sure that it
involved the raising of revenue, and I think that is an important
point. It is a
principle—
Mr.
Gauke:
A level of borrowing limit is somewhat different
from a tax-raising power. I will press the amendment to a
Division.
Question
put, That the amendment be
made:—
The
Committee divided: Ayes 4, Noes
9.
Division
No.
1
]
AYESNOES
Question
accordingly negatived.
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 3, in
clause 1, page 1, line 12, at
end add—
‘(4) In section
5(6) of the Social Security Contributions and Benefits Act 1992
(earnings limits and thresholds for Class 1 contributions), at end
insert “and may not include any increase in the upper earnings
limit in excess of the retail price index for the month of December in
the preceding tax
year.”’.
No.
4, in
clause 1, page 1, line 12, at
end add—
‘(4) In section
5(3) of the Social Security Contributions and Benefits Act 1992
(earnings limits and thresholds for Class 1 contributions), omit the
words from “which” to the end of the subsection and
insert “does not exceed the level of earnings at which the
higher rate of income tax becomes
payable.”’.
No.
6, in
clause 2, page 1, line 19, leave
out subsection
(2).
No. 7, in
clause 2, page 2, line 5, at
end add—
‘(4) In section
5(6) of the Social Security Contributions and Benefits (Northern
Ireland) Act 1992 (c. 7) (earnings limits and thresholds for Class 1
contributions), at end insert “and may not include any increase
in the upper earnings limit in excess of the retail price index for the
month of December in the preceding tax
year.”’.
No.
8, in
clause 2, page 2, line 5, at
end add—
‘(4) In section
5(3) of the Social Security Contributions and Benefits (Northern
Ireland) Act 1992 (earnings limits and thresholds for Class 1
contributions), omit the words from “which” to the end of
the subsection and insert “does not exceed the level of earnings
at which the higher rate of income tax becomes
payable.”’.
Mr.
Gauke:
The amendments essentially relate to the
same issue. There is no need to repeat the full arguments, but there is
a dismantling of the restrictions that apply to increases in the upper
earnings limit for national insurance contributions and, for that
matter, the primary threshold. We think that that is undesirable and
wish to address it.
Amendment No. 2 would remove
clause 1(2). That in itself—the Minister might have been
inclined to point this out—weakens the position because it would
remove regulations specifying the upper earning limit
from the list of those subject to the affirmative
procedure. However, the amendment must be taken with amendment No. 3,
which would carve out from those matters that can be dealt with by
regulations, whether subject to the affirmative or negative procedure,
any increases in the upper earnings limit in excess of the retail price
index for the previous
year.
We have been
reasonable enough under amendment No. 3 to permit increases in the
upper earnings limit in line with prices. However, if amendments Nos. 2
and 3 were agreed to and the Government wished to increase the upper
earnings limit by a higher rate than the rate of inflation, which
presumably will not be a routine occurrence, they would need to do so
through primary
legislation.
Rob
Marris:
I invite the hon. Gentleman to withdraw amendment
No. 3 because it would not do what he just suggested to the Committee.
It relates to an increase in the retail price index in not the previous
year, but the month of December, which is not what he intended it to
say.
Mr.
Gauke:
My understanding is that the retail price index is
always an annual figure. I think that this wording is used in other
legislation. I can see where the hon. Gentleman is coming from and I
can check that, but I think that the same formula is used elsewhere. If
I am wrong, he makes a very strong argument. I think that the amendment
would do what I say it would, and if it would not, I will withdraw
it.
Mr.
Gauke:
Indeed. While we are finding out—inspiration
comes to us all—I will address amendment No. 4, which is the
most persuasive amendment in the
group
The Financial
Secretary has reiterated today that the Government’s policy
objective is to align the upper earnings limit with the point at which
higher rate income tax starts to be paid. Indeed, that is what the then
Chancellor said in his Budget speech of 21 March 2007. Earlier, the
hon. Member for Wolverhampton, South-West said that if one prevents any
increases in the upper earnings limit, one somehow prevents people from
having a reduction in taxes. There was a reasonable assumption that
this Bill would confirm the policy objective that the Government have
maintained ever since the 2007 Budget: the link between the upper
earnings limit and higher rate income tax. However, there is no link in
the Bill.
The
amendment, subject to any comments, suggestions or criticisms about its
technical quality, would enable the Government to increase or decrease
the upper earnings limit as they thought fit, but, when doing so, the
higher rate income tax band would vary with it. It would formalise the
policy objective that the Government have announced, which we support.
The argument in the Budget was that this will simplify matters and we
will have two rates on personal income. Amendment No. 4 would ensure
that that happened.
We heard today from officials
the view that announcements about the threshold for higher rate income
tax will be made in the autumn statement—or the pre-Budget
report, as it now is—at the same time that announcements are
made for national insurance contribution thresholds. So, from a
practical point of view, it appears that the Government are rightly
going to follow up on their policy announcement. We heard from the
Minister a couple of moments ago how they have maintained the link for
the lower earnings limit. All that we are seeking to do is to formalise
the link so that it is detailed in the Bill. If the Government ever
wished to change their mind and break that link—if they wanted
to abolish the upper earnings limit, to give an extreme
example—they could always do so through further primary
legislation.
Amendment
No. 4 is essentially supportive of the Government’s objectives.
It would merely formalise things and protect the position of
Parliament, once again, by enabling it to scrutinise any departure from
stated
policy.
Mr.
Browne:
Will the hon. Gentleman just clarify whether the
amendment would enable the Conservative shadow Chancellor to introduce
a flat-rate tax, which I understand he was considering, although he
appears to have gone cooler on the idea in recent
months?
The
Chairman:
Order. Before Mr. Gauke is tempted to
answer that question, may I say that doing so would not be in
order?
Mr.
Gauke:
I am grateful for your guidance, Mr.
Chope. I will not respond, other than to say that we favour flatter and
simpler taxes. To the extent that this measure is a simplification, we
welcome it, notwithstanding our concerns that the realignment also
results in an increase in tax. However, essentially we support the
principle.
The group
includes amendments that are equivalent to amendments Nos. 2 to 4 in
respect of the Northern Ireland provisions. I will be particularly
interested to hear the Minister’s views on formalising the link
between the upper earnings limit and higher rate income
tax.
Jane
Kennedy:
I am grateful for the way in which these probing
amendments have been put—she says hopefully! I shall talk about
the group of amendments and perhaps mention amendments Nos. 3, 4, 7 and
8, which are intended to retain some form of restriction in primary
legislation on the level of the upper earnings limit that can be set by
secondary legislation. The rationale appears to be—again, it is
similar to the debate that we have just had—that that provides a
greater level of parliamentary control than is provided in the draft
legislation. We debated that earlier, but I will come back to
it.
Amendments Nos. 3
and 7 would amend clause 1 so that the upper earnings limit may not be
increased by secondary legislation to a figure that is in excess of the
retail prices index for the month of December in the preceding tax
year. As clause 1 only applies to Great Britain, it appears that
amendment No. 7 mirrors this restriction by amending clause 2 which is
applicable to Northern Ireland, which is one of my favourite
places.
There is a particular difficulty
with amendments Nos. 3 and 7 in respect of linking the upper earnings
limit to the retail prices index. These amendments would not allow the
Government to align the upper earnings limit from 2009-10 with the
point at which higher rate income tax becomes payable, which is one of
our objectives, because they would not be able to raise the upper
earnings limit in 2008-09 by £800 plus RPI. That would remove
the main purpose of the Bill and a significant
simplification of the national insurance contributions
system.
We
use the September RPI when calculating pensions and benefits uprating
and the mixed re-rating procedures. That needs to take place before the
beginning of the tax year. Those figures are also used in preparing the
annual Government Actuary’s Department report. It would not be
possible to use the December RPI figure and still have the necessary
legislation and amended guidance in place in time. There would be a
knock-on effect for software developers and employers. The hon.
Gentleman should perhaps take the advice of my hon. Friend the Member
for Wolverhampton, South-West about the amendment. The cost attached to
accepting the amendment would be significant; we anticipate it could be
around £700 million. I have talked about the fact that we
currently use the September retail prices index and that using the
December retail prices index would create real difficulties for
employers and payroll developers in amending their software ahead of
the start of the new tax
year.
Amendment No. 4
is interesting as it also amends clause 1 and appears to be an
alternative to amendment No. 3. However, I understand why amendments
Nos. 4 and 8 are grouped together. Amendment No. 4 aims to restrict the
upper earnings limit so that it cannot be increased by a secondary
legislation above the level of earnings at which the higher rate of
income tax becomes payable.
5.15
pm
I understand
the logic behind amendment No. 4, but both theoretical and practical
difficulties are associated with it. Income tax is an annual charge and
is calculated on a cumulative basis, but national insurance is based on
an earnings period that is normally weekly or monthly. Liability is
calculated each time earnings are paid, which means that, in
legislation, the upper earnings limit is a weekly figure whereas the
level at which the higher rate of income tax becomes payable is an
annual figure. If amendments Nos. 4 and 8 were accepted, the weekly
upper earnings limit could be set at any figure up to £39,825
based on the 2007-08 tax year. [Hon. Members:
“A week?”] Per week. The upper earnings limit for 2007-08
is currently £670 per week. The amendment would allow the upper
earnings limit to be increased by up to 60 times its current level,
which is far in excess of what we want to do. It could allow the
Government of the day to raise millions of pounds of additional
national insurance contributions and I am sure that is not what
Opposition Members
intended.
Another
reason why the amendment is substantially flawed is that the level at
which the higher rate of income tax is to be set does not become law
until after the upper earnings limit for that tax year has been set.
The weekly upper earnings limit is set by regulations that come into
force on 6 April each year, which means
that the regulations must be laid before 6 April. Income tax is subject
to the Finance Bill procedure and the Provisional Collection of Taxes
Act 1968, which allows for changes to apply from the beginning of the
tax year. I am not sure whether Opposition Members intended to bring
the national insurance system into the Finance Bill but, as we
discussed this morning, it would take primary legislation to do that.
It is certainly not the Government’s intention to do
so.
On amendment Nos.
2 and 6, the upper earnings limit can currently be raised by
regulations subject to the negative resolution procedure. Under our
proposals there would have to be a debate in both Houses before it
could be raised. Amendment No. 2 seems to remove the
requirement for the affirmative resolution procedure if either
amendment Nos. 3 or 4 find favour with the Committee.
The change proposed in the Bill
should not give cause for concern in terms of parliamentary scrutiny.
The House always considers the affirmative resolutions that come before
it extremely carefully and I assure the Committee that, as the Minister
who often has to reply to such resolutions, one feels thoroughly
scrutinised as a result of those debates. The amendments taken together
or separately to leave the upper earnings limit to the RPI or to the
higher rate of tax are unworkable for the reasons I have explained. I
understand why the hon. Member for South-West Hertfordshire wanted to
probe the Government’s position on some of those ideas, but I
recommend that the Committee resist the
amendments.
Mr.
Gauke:
I am grateful for the Financial Secretary’s
informative explanation. As I mentioned, amendments Nos. 2 and 6 need
to be taken with amendments Nos. 3 and 7 because, as she rightly says,
in isolation, amendments Nos. 2 and 6 would weaken the
position.
On
amendments Nos. 3 and 7, her remarks that September should be used for
the date as opposed to December make a strong argument. I will read her
remarks carefully, but if the amendments that we tabled had referred to
September rather than December, I am not sure whether there would be an
overwhelmingly strong argument against them, given what we heard this
morning. If the Government are able to align national insurance
contributions and income tax, it ought to be possible to look at the
way in which the upper earnings limit is increased, in such a way as to
provide a restriction on it in the same way as increases in thresholds
for income tax have been since the days of the Rooker-Wise amendment,
somewhat before my time. We will not press amendments Nos. 3 and 7 and
consequently will not press amendments Nos. 2 and
6.
On amendments Nos.
4 and 8, I take the technical point that the Financial Secretary raises
with regard to income tax being done on an annual basis and national
insurance contributions being done on a weekly basis. As a consequence,
technically it would appear that these amendments would give the
Government greater flexibility than we intended and would, to all
intents and purposes, be consistent with the Labour party’s 1992
manifesto. They would effectively enable the
abolition of the upper earnings limit if any
Government wanted to do so.
The amendments
are therefore ineffective, but we will look at this issue again. If the
technical point can be resolved and if there is an opportunity to look
at this matter in a corrected form, we will do so. Given the comments
about the interpretation of amendment No. 4 that presumably come from
the Treasury, we will not press it and I apologise to my hon. Friends
who might have been looking forward to another valiant effort in
defending parliamentary accountability.
[
Interruption.
] I have got troops behind me, but I
not sure that they are of sufficient number. We may well have right on
our side, but we will fight this battle on another
occasion.
Mr.
Mark Field (Cities of London and Westminster) (Con): I am
afraid that the word “another” applies not to myself, but
to my hon. Friend the Member for Ludlow. I think that he had other
duties downstairs, listening to the great joys of the Olympics and the
national lottery. I suspect that if we were to have a Division there,
we might lose by slightly more than we would lose in a Division
here.
Mr.
Gauke:
In light of the comments made by the Financial
Secretary, I will not press any of the amendments. However, we will
look again at the issue raised by amendment No. 4 again. I beg to ask
leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Clause
1 ordered to stand part of the
Bill.
Clause 2
ordered to stand part of the
Bill.
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