Draft Social Security (Contributions) (Re-rating) Order 2009

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Steve Webb: I did not really want to detain the Committee and I apologise for doing so, but the Minister said two things, neither of which I quite understand. He said that 300,000 employees would pay more. I can see that there might be 300,000 people in that band, but presumably everybody else above that band would pay more as well. There have got to be more than 300,000 irate taxpayers, so I do not quite understand that point.
My other point concerns what the Minister said about the overall positive effect. Surely, if NICs are going up by £480, what income tax cut is greater than £480 and leaves a net positive effect? The allowance rises by £120, so how does that become positive overall?
Mr. Timms: I am talking about the number of people in the band who, for that particular band, will be paying at the rate of 11 per cent. rather than the 1 per cent. additional rate that would have been paid on that part of their income. That number is 300,000.
Of course, however, as well as the allowance change that the hon. Gentleman referred to, there is the reduction in the basic rate of tax, which makes a big impact here as well. So, if one looks at the whole package, it is, as I say, a gain for people rather than a loss.
For those who are self-employed, the equivalent number of people paying more national insurance, because of this change in the band that we are talking about, is 20,000. Again, however, the overall impact is positive.
What is the cost of collection for class 2 contributions? We do not have a separate figure for collecting this particular part of the national insurance sums. I can say to the hon. Gentleman that 60 per cent. of those who pay class 2 contributions pay by direct debit. The remainder pay by quarterly bill. At the time of the pre-Budget report, we announced measures to streamline corrections further for those who are not yet paying by direct debit.
The hon. Gentleman asked me what I thought was quite a complicated question about the time that it will take to get to a flat-rate state second pension. I think that it is the upper accruals point that is the limit for state second pension entitlement rather than the upper earnings limit. The upper accruals point is fixed at £770 for 2009-10. So I do not think that there will be the effect that he was concerned about. If he would like to pursue the matter further, he can take the matter up with my right hon. Friend the Secretary of State for Work and Pensions, who I am sure will be able to give him an even more cogent answer than the one that I have just provided.
The hon. Gentleman makes a perfectly fair point about the increase in class 3 contributions. He also supported the change that we have made here and he is right to do so. It was made absolutely clear right from the start that the way we would fund the greater availability of voluntary class 3 contributions was through an increase in the rate. Indeed, my noble Friend Lord McKenzie of Luton said in the other place when this matter was being debated:
“The Government usually announce the national insurance rate at the Pre-Budget Report, and they intend to increase the price of class 3 NICs to ensure that the overall package is cost neutral.”—[Official Report, House of Lords, 29 October 2008; Vol. 704, c. 1589.]
So that was very clear right from the beginning.
HMRC, for which I am responsible, together with DWP, produces advice on class 3 contributions, including on the interaction with pension credit. I hope that those who ring the Pension Service for advice about this in the months ahead will get a rather more helpful response than the one the hon. Gentleman described. HMRC is currently working with DWP on material to advertise the changes in time to ensure people have the information that they need.
The hon. Gentleman also asked whether people can claim money back, if they change their mind. The answer generally is no. The voluntary contributions can only be repaid if the money was taken in error. He is right, therefore, that people do need to make a well considered decision before buying the additional contributions. I am grateful for the Committee’s support and commend these provisions to the Committee.
Question put and agreed to.
That the Committee has considered the draft Social Security (Contributions) (Re-rating) Order 2009.


That the Committee has considered the draft Social Security (Contributions) (Amendment No. 2) Regulations 2009.—(Mr. Timms.)
3.31 pm
Committee rose at twenty-nine minutes to Four o’clock.
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