National Insurance Contributions Bill

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Clause 3

Additional pension: upper accrual point to replace upper earnings limit from 2009-10
Justine Greening (Putney) (Con): I beg to move amendment No. 9, in clause 3, page 2, line 29, at end add—
‘(5) Subject to subsection (6) below, this section shall not have effect between the dates 1st April 2012 and 31st March 2015.
(6) The Secretary of State may, before 1st April 2012 and in each subsequent year until 31st March 2014, apply the provisions of this section for a period not exceeding one year, by order made by statutory instrument.
(7) No order may be made by the Secretary of State under subsection (6) unless a draft of it has been laid before Parliament and approved by a resolution of each House.’.
The Chairman: With this it will be convenient to discuss amendment No. 10, in clause 3, page 2, line 29, at end add—
‘(5) This section shall cease to have effect on 1st April 2012 unless, before that date, both Houses of Parliament have by resolution approved an order laid before them by the Secretary of State under section 150A of the Social Security Contributions and Benefits Act 1992 (annual up-rating of basic pension etc. and standard minimum guarantee).’.
These amendments try to tease out from the Government whether we can make progress on getting some certainty about re-establishing that link. On Second Reading, Members raised concerns about the lack of certainty as to when that will happen. We discussed the fact that the impact assessment provided by Her Majesty’s Revenue and Customs identified 2.1 million people, who would have been paying income tax above the upper earnings limit and who would have been contracted out of the state second pension. Those individuals
“would either see a reduction in their take-home pay as they will get a lower rebate on their national insurance contributions than would otherwise have been the case or a reduction of the money that goes into their pension scheme”
There are clearly many people—2.1 million, to be precise—who are assessed as losing from these changes. We must know that the gains are going to happen, and when. The timing of that link was critical, and I am concerned that we have not had much certainty from the Government about whether they view re-establishing the earnings links as being affordable, or when that will happen.
Based on the evidence session today, my greater concern is that, at the time that the alignment of the upper earnings limit and the upper accruals point took place in the Budget 2007, there was not at all a clear understanding as to what impact this would have on people. Not only were options still being discussed as to how to deliver on this 2030 time frame for achieving the flat-rate state second pension, there was apparently no costing of the options because they clearly had not been worked up at the time. It seems the Treasury waded into this national insurance change without a good enough understanding of the breadth and nature of the impact it would have, particularly given that many of the people affected will be the very same people whom the Institute for Fiscal Studies has identified as losers from the Budget 2007.
5.30 pm
On Second Reading we were only given limited assurances by the Minister about when the earnings link for the basic state pension would be re-established. During my time serving on the Select Committee on Work and Pensions, the Secretary of State gave us, in the evidence session, what was I think his annual departmental review. I pressed him on when he would be able to re-establish the earnings link and he used a phrase that has been much talked about, that essentially the earnings link would be re-established at 2012, or at any event by the end of that Parliament, subject to affordability. I spent what felt like a long 15 minutes trying to get the Secretary of State to say whether he felt that the affordability aspect of re-establishing the earnings link took precedence over the 2012 time frame that was clearly the aspiration—if I can call it that—of the Government. I also asked him whether, if re-establishing the earnings link in 2012 was viewed as unaffordable given the length of economic cycles, he thought that perhaps by 2015 the economic cycle and economic situation would have turned around so much that re-establishing the link would suddenly become affordable in a long-term sense.
I did not make any progress—if anything, the message I got was that affordability was critical. That is why it is of particular concern now, given that the Government are obviously concerned about inflationary effects to the extent that police officers and prison officers have had their review board pay rises turned down or not accepted. Perversely, the Secretary of State for Children, Schools and Families has today accepted the pay review board outcome for teachers. Conversely, only last week in Parliament the Secretary of State for Justice said that he had not accepted the report of the prison officers’ pay review body because of the “exceptional economic circumstances”.
It is very important therefore for the Minister to talk about what her assessment is, from a Treasury perspective, of the affordability test that the Government have set themselves for re-establishing the earnings link. Because of that uncertainty, the amendments are trying to provide some certainty. If the earnings link is not re-established and we continue with the debate, we should not allow the Bill to mean that all that is being delivered for people in this country is giving—paying more national insurance contributions but not getting anything in return.
Amendment No. 10 is harsher in many respects. It says that there is a time frame of 2012. Unless at that point resolutions have been put before the House, clearly guaranteeing when the earnings link will be re-established, the Bill would, by definition, have to lapse. The consensus would have been broken and the decoupling of the changes to national insurance and to the basic state pension would have been done to such an extent that the pension reform that we all agreed would not have been delivered. I hope that the Financial Secretary can use the opportunity to give us more assurances about the Government’s thinking on when they see the earnings link being restored. The amendments are designed to tease out how confident the Government are that they can deliver on the words that we have listened to in the House about re-establishing that earnings link.
Rob Marris: I welcome you, Mr. Chope, to the Chair. This is my first speech to the Committee and I do not know if I have to declare an interest as an earning member of the public who will be affected by the changes proposed by the Bill—earning only as an MP and not moonlighting like many Conservative MPs.
Mr. Field: By 2012, moonlighting will be all that the hon. Gentleman will be doing.
Rob Marris: Though perhaps not as financially successful as the hon. Gentleman, like him, I was earning more before I came than I am now, but I do not seek to boost my reduced earnings by moonlighting. On the more substantive point, I thank the hon. Member for Putney for making something exceedingly clear to me. Hon. Members on this side of the House have long thought that affordability for the state bears no relationship whatsoever to Conservative spending plans and does not enter the equation. It does with this Government and we are absolutely right to bear it in mind with whatever measures we propose to improve our society even further than we have in the past eleven and a half years.
Mr. Philip Dunne (Ludlow) (Con): I rise to support the amendments, because I felt that the evidence given by the Financial Secretary and her officials at the interesting pre-legislative session did not cast any further light on the Government’s willingness to commit themselves to any form of timetable for restoring the earnings link. The amendments are designed to tease that out, and I hope that the Financial Secretary will address herself to that point in her remarks. My near neighbour, the hon. Member for Wolverhampton, South-West, is being a little harsh on the Opposition in his assault on our willingness to accept fiscal rectitude and spending diligence. It is correct that we have been calling for the Government to restore the earnings link and to come up with a definitive timetable for doing so. That is, frankly, all we are trying to do in this debate in relation to these amendments. I look forward to what the Minister has to say.
Jane Kennedy: I wonder which party disconnected the link in the first place.
This has been a useful debate and I will address my remarks to the amendments. I am conscious that we may be interrupted, but I will try and deal with the amendments as succinctly as I can. The hon. Member for Putney made her case in a well argued and reasonable way. She asked why withdrawing the earnings-related state second pension by 2030 is so crucial—why that date? It is quite straight forward. The date 2030 was recommended by the Pensions Commission in order to give defined benefit schemes time to adjust to the withdrawal of contracted-out rebates. It is part of a costed package of measures. If we extended past 2030, we would need to revisit the cost. It is also needed to provide certainty to savers about what their pension position would be.
Justine Greening: I am grateful to the Financial Secretary for letting me intervene so early. She is cherry-picking a little; that same Pensions Commission actually suggested re-establishing the earnings link in 2009-10 and by 2012 at the latest.
Jane Kennedy: I will come to that point shortly when I talk about the earnings link. I shall deal first with amendment No. 9, which is concerned only with 2012 and beyond. I am a little confused: it is bit strange that hon. Members seem to be agreeing with me about the early introduction of the upper accrual point from 2009, which will allow us to keep to the timetable for state second pension flat-rating, but they now seem to be opposing the consensus achieved during the passage of the Pensions Bill last year by scuppering that same timetable when we get to 2012. I am not going to make a big issue about the consensus as I appreciate that, in the context of this Bill, we are actually debating the matter in a very good humoured way. I am not going to make big accusations about where people stand on the consensus. However, the amendment requires the upper accrual point of £770, as set out in the Bill, to cease to have effect between April 2012 and March 2015. What it does not do is to give any hint whatever about what is to happen after that date. Importantly, the amendment introduces uncertainty for many employers, who need to know in advance what the upper accruals point will be and who cannot wait for the matter to be settled by long and unnecessary debates—if you will forgive me, Mr. Chope—as I believe would be in this case, in the House.
However, the amendment as drafted is also fundamentally flawed. The effect of preventing clause 3 from operating in this way would mean reverting to the position as set out in the Pensions Act 2007. The Committee will recall that that Act gave us the power to set the upper accrual point from the flat-rating introduction year at the rate of the previous years’ upper earnings limit, or any other amount so determined.
Before I turn to amendment No. 10, I want to deal with the point made by the hon. Lady about creating more losers. We touched upon that this morning, but I want to get it into the record at this point of the discussion. It is important to remember that the impact assessment to which she referred looked only at the national insurance changes in the Budget 2007. Most employees earning at the upper earnings limit, or above, will be better off using the 2008-09 tax year, and I gave a detailed example of that this morning.
I turn to amendment No. 10, dealing with the earnings link. An unintended consequence of removing the cap on state second pension accruals would be that all earnings above the lower earnings limit would count for state second pension purposes. That would also have a knock-on effect on contracted-out rebates, which are paid on the same band of earnings as that on which state second pension accrues: that is, the rebate will be paid on all earnings over the lower earnings limit. The purpose of amendment No. 10, and in part amendment No. 9, as we have accepted, is to bring about a discussion on the timing of the up-rating of the basic state pension with earnings. I am delighted to cross swords with the Opposition on that. During the next Parliament, we will link the up-rating of the basic state pension with average earnings over the long term. Our objective is to do that in 2012, but in any event, we are required by the Pensions Act 2007 to do it by the end of that Parliament at the latest.
Justine Greening: I have a sense of d(c)j vu because I remember asking this question to the Secretary of State for Work and Pensions. What the Minister is saying is that if there is an assessment in 2012 that re-establishing the earnings link is unaffordable, and that assessment persists to the end of that Parliament, a possibly outgoing Administration would re-establish the earnings link, knowing full well that it was unaffordable for the country, and that that commitment to re-establish at any event takes precedence to affordability. Which is the most important driver: is it affordability, or is it this commitment at any event by the end of the Parliament to re-establish the earnings link?
Jane Kennedy: We made clear that our commitment is subject to affordability and the fiscal position. However, we in this party are in a better position to look forward and say that, given the way that we have had success in managing the economy to date, we believe that we can introduce the earnings link in the next Parliament. Our proposals give people a legislative guarantee that that will happen and they have been costed on that basis. We do not make spending commitments such as this, certainly not Treasury Ministers—
Mr. Field: The Minister is talking to the lot behind her in regard to that, rather than to those on this side of the Committee. Does she not accept that she has used the word “guarantee”? This is anything but a guarantee. There is uncertainty in the system, not least because we do not have fixed-term Parliaments and have no idea whether 2012 will be at the end of a Parliament or at the start of one that might lead all the way through to 1217, at which point the affordability trigger comes into place. She used the word guarantee, but this is anything but a guarantee. There is a great deal of uncertainty, and the amendments tabled by my hon. Friend the Member for Putney tried to add a level of certainty to that uncertain picture.
5.45 pm
Jane Kennedy: We have already committed to make an announcement at the beginning of the next Parliament, specifying well in advance of 2012 the date for introducing the earnings link for the basic state pension. We basically have a straightforward disagreement here. We believe that we will clearly be in a position to take forward the re-establishment of that link.
Mr. Browne: The Minister keeps talking about the next Parliament, but we do not know whether there will be a general election this year, followed by a subsequent election in 2012. It might be that 2012 is arrived at not in the next Parliament, but in the one after that.
Jane Kennedy: I remember an enjoyable by-election campaign in Eddisbury in Cheshire, which the current hon. Member for Eddisbury of course won. Our campaign, however, was based on a creative slogan, “Vote Labour or the fox gets it.” I distinctly remember the debate, which was a flagging up of our commitment to a totally separate issue, which I do not intend to debate today. I mentioned it because, given the degree of concern that the Opposition clearly have about whether their policies would allow them the affordable environment within which to re-establish the link, we could well approach the next general election with a clear campaign.
We are committed to doing that and have demonstrated our ability to deliver an economic environment within which it would be possible to do it. As far as the Conservative party is concerned, all we have is the fact that it was that party that decoupled it in the first place. I would be keen to let the British people make their choice about that issue, based upon the history.
As the Committee knows, our first priority has always been to tackle pensioner poverty. As a result, more than 2 million pensioners have been lifted out of absolute poverty and more than 1 million have been lifted out of relative poverty. Over the past 10 years, we have increased the amount of money received by pensioners faster than earnings have increased year on year.
The Chairman: Order. I hesitate to interrupt, but does that strictly relate to the terms of the amendment?
Jane Kennedy: You are absolutely right, and thank you for that guidance, Mr. Chope. With regard to the amendment, we have already put into legislation, as I have said repeatedly, the commitment to up-rate the pension credits standard minimum guarantee in line with earnings. Earnings up-rating is part of a package of complementary reforms that balance affordability with fairness, and that includes the abolition of contracting out on a defined, contribution basis and simplifying the state second pension. Trying to unpick the timing of this element with those reforms fundamentally changes that package.
We are bringing forward the introduction of the upper approval point only to keep us within the pension reform timetable. I accept that we have had a rousing debate on our commitment to restoring the link, but other issues have been in there as well. I hope that this has been helpful and that my hon. Member for Putney will not press the amendment to a vote.
Justine Greening: I am grateful to the Minister for running through her arguments, particularly those relating to the 2030 time frame, which I found especially helpful. I feel that, in picking out that date, she has cherry-picked from the Turner commission’s proposals with regard to time frames for when particular things should happen. As I said in my intervention, the Turner commission proposed re-establishing the earnings link much sooner than will possibly happen.
I feel that we have not made any progress on understanding the certainty with which we know the earning link will be re-established and am disappointed by that. I clearly understand the Minister’s argument. The phrase about re-establishing the earnings link by the beginning of 2012, but in any event before the end of the next Parliament, subject to affordability, is intellectually inconsistent, for the reasons that I have laid out. Something that is not affordable in 2012 may well not be affordable in 2015, so putting that in place may be irresponsible for a Government that may be calling an election shortly.
Jane Kennedy: To deal with the issue now—it is about the delay to implementation, which is what the hon. Lady is talking about. The Pensions Commission’s judgment was that a short delay beyond 2010 would not seriously undermine the overall direction of the proposed reform, although a five-year delay probably would. Should her amendment not be considered in that light?
Justine Greening: I take the Minister’s point, but a five-year delay for Turner would take us up to 2015, which is one of the dates when the earnings link could possibly be re-established. I remember that at the time the delay was flagged up by many people, inside and outside this place, as one of the possible problems with the pensions reform—that it was not happening fast enough. I am still not clear on the affordability test and how important that is vis- -vis the term used of a “guarantee” for the earnings link.
I am not going to press the amendments to a vote, because I am sure that the debate about re-establishing the earnings link and when it will take place will continue in this place and in the other place. My objective with the amendments was to see if we could get any more certainty. We have not managed that, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Rob Marris: We have all grasped the broad direction of the Bill. If the changes proposed were not made, some people, because of the accumulating effect, would get higher rebates as the thresholds went up. That would benefit the wealthy in society, who would be getting those higher rebates from opting out of the state second pension. Alternatively, if not opted out, they could be getting a state second pension based on a greater amount of earnings than intended.
My question to my right hon. Friend bears in mind not only her current position but her previous one as a Minister for Northern Ireland. Another distinguished Member, my right hon. Friend the Member for Streatham, was also a Minister for Northern Ireland and is with us today. My understanding is that clause 3 and the schedules consequent upon it do not apply to Northern Ireland. That is in contradistinction to Scotland, where national insurance contributions are reserved matters—similarly in Wales. In Northern Ireland, under the Northern Ireland Act 1998, they are in a different category. Therefore, such issues fall to be dealt with by the Department for Social Development in Northern Ireland—I stand to be corrected, but I think that the Minister is Margaret Ritchie. What discussions have my right hon. Friend or her officials had with the people in Northern Ireland, including the Minister for Social Development, as to whether they propose, within that jurisdiction under the devolved powers, to bring in an upper accrual point similar to the one that will certainly be introduced for England under the Bill?
If they do not do so—they have power not to, as I understand it—we could have in the United Kingdom individuals who are higher rate taxpayers getting more rebates in Northern Ireland for opting out of the state second pension and/or a higher state second pension in due course. In Northern Ireland we could have no flat rating, as we call it, until 2035, rather than 2031, which would be the import of the Bill in England were the changes to go through. I foresee, perhaps wrongly, that we might have all kinds of complications for people who work in England and then get a job in Northern Ireland and start paying or opting out or whatever at different levels and so on, or somebody who works in England for a lot of their life and then retires to Northern Ireland, perhaps because of family connections, with a different state second pension regime. I would like to know from my right hon. Friend what kind of liaison there has been with Northern Ireland because we could get into a situation where, perhaps without having thought a great deal about it, we would have two-tier provision within the UK. That seems to me, with regard to pensions, a somewhat surprising position to be in, with the full jurisdiction that we have within our country.
Jane Kennedy: I do not intend to go into too much detail on the clause, but the question that my hon. Friend asked is a useful one. He is right that the upper accrual point relates to the state second pension, which is a transferred matter under the Northern Ireland Act 1998. It is therefore a matter on which the Northern Ireland Assembly can legislate. Although Northern Ireland has a separate body of social security law, it operates in parity with the rest of the UK. It is anticipated that provision to introduce an upper accrual point for Northern Ireland will be made by the Northern Ireland Assembly.
My hon. Friend asked me specifically what liaison there has been with the authorities in Northern Ireland. Obviously, officials in HMRC and the Department for Social Development in Northern Ireland have discussed the matter in detail, including in the autumn, but I am hoping to pay a visit to Northern Ireland to discuss one or two issues relating to HMRC. I have not had an opportunity to discuss the matter with Members in Northern Ireland, but it may be that if I can arrange a date for that visit, I will do so as a result of his prompting today, for which I am grateful.
Question put and agreed to.
Clause 3 ordered to stand part of the Bill.
Clauses 4 to 7 ordered to stand part of the Bill.
Schedules 1 and 2 agreed to.
Question proposed, That the Chairman do report the Bill to the House.
Jane Kennedy: May I quickly say thank you for chairing this short Bill, Mr. Chope? I thank all hon. Members and right hon. Members who participated for their scrutiny and the humorous way in which the debate has been held.
Mr. Ian Davidson (Glasgow, South-West)(Lab/Co-op): Before the Minister stops, will she tell us what actually happened to the fox?
Jane Kennedy: I am afraid that the other party won.
Mr. Gauke: I think that that was the second by-election that my party had won in about 15 years, so perhaps it was not the best slogan. I thank you, Mr. Chope, and the Clerks for your guidance today. I thank the Minister for her openness and co-operation. The Committee has been conducted with good humour and we have been able to draw out one or two interesting points. I hope that it will be informative for those who study these issues closely.
The Chairman: I am sure that those kind remarks will be much appreciated. I thank members of the Committee for their co-operation and the Hansard writers, who had quite a difficult problem this morning. I also thank the police, the messengers and everybody else who was involved in ensuring that this Bill, the first that I have chaired from start to finish, made progress.
Question put and agreed to.
Bill to be reported, without amendment.
Committee rose at one minute to Six o’clock.
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