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House of Commons
Session 2009 - 10
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General Committee Debates
Delegated Legislation Committee Debates



The Committee consisted of the following Members:

Chair: Janet Anderson
Cawsey, Mr. Ian (Brigg and Goole) (Lab)
Chaytor, Mr. David (Bury, North) (Lab)
Duddridge, James (Rochford and Southend, East) (Con)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Hemming, John (Birmingham, Yardley) (LD)
Jenkin, Mr. Bernard (North Essex) (Con)
Mates, Mr. Michael (East Hampshire) (Con)
Meale, Mr. Alan (Mansfield) (Lab)
Mudie, Mr. George (Leeds, East) (Lab)
Mullin, Mr. Chris (Sunderland, South) (Lab)
Pound, Stephen (Ealing, North) (Lab)
Simon, Mr. Siôn (Birmingham, Erdington) (Lab)
Simpson, Alan (Nottingham, South) (Lab)
Thurso, John (Caithness, Sutherland and Easter Ross) (LD)
Timms, Mr. Stephen (Financial Secretary to the Treasury)
Tyrie, Mr. Andrew (Chichester) (Con)
Glenn McKee, Committee Clerk
† attended the Committee

First Delegated Legislation Committee

Monday 8 March 2010

[Janet Anderson in the Chair]

Draft Social Security (Contributions) (Amendment) Regulations 2010
4.30 pm
The Chair: In the event of any Divisions in the Chamber, we will adjourn the Committee for 15 minutes and for 10 minutes for subsequent Divisions.
The Financial Secretary to the Treasury (Mr. Stephen Timms): I beg to move,
That the Committee has considered the draft Social Security (Contributions) (Amendment) Regulations 2010.
May I begin, Mrs. Anderson, by bidding you a very warm welcome as Chair of our Committee? It is the first time I have had the privilege of serving under your stewardship, and I am pleased that you are here to look after us this afternoon.
The national insurance contribution rates and thresholds for 2010-11 were announced at the time of the pre-Budget report, on 9 December. The regulations are necessary to set the class 1 national insurance contribution lower earnings limit, primary and secondary thresholds and upper earnings limit from 6 April this year. I can confirm that the provisions in the regulations are compatible with the European convention on human rights.
The class 1 lower earnings limit is increased from £95 to £97 per week from 6 April. That figure is legislatively linked to the level of the basic state pension and is the earnings level at which entitlement to contributory benefit begins. The class 1 primary and secondary thresholds for the 2010-11 tax year will be £110 per week, the same as in the current tax year.
The primary and secondary thresholds are the point at which employers and employees start to pay class 1 national insurance contributions. Those thresholds have in past years increased broadly in line with prices. However, as the September 2009 retail prices index was negative, we have frozen the primary and secondary thresholds at 2009-10 levels. Had we reduced the primary and secondary thresholds to reflect the reduction in the RPI in September, low-paid employees in particular would have had to pay more in national insurance contributions, as would their employers.
In the 2007 Budget, the former Chancellor announced a package of reforms to modernise tax and benefits. Part of the package included changes to national insurance contributions to align the upper earnings limit with the level at which higher rate income tax becomes payable from 6 April 2009. We will maintain that alignment for 2010-11. The upper earnings limit will be £844 per week for the 2010-11 tax year, which is the same as the limit for this year. Earnings between the primary threshold and the upper earnings limit are liable to main rate employee contributions at 11 per cent. Earnings above the upper earnings limit are subject to the additional employee rate of 1 per cent. Employers pay contributions at 12.8 per cent. on all earnings above the secondary threshold.
The Government Actuary published a report detailing the effects of both the national insurance contributions rates and thresholds announced for 2010-11, and the draft order uprating benefits—laid by the Secretary of State for Work and Pensions—on the national insurance fund. The Government Actuary confirmed that there is no expectation the fund will need additional funding in the form of a Treasury grant for 2010-11.
Northern Ireland has a separate national insurance scheme, but the two schemes are closely co-ordinated and maintain parity of contribution rates. The draft regulations cover both Great Britain and Northern Ireland, and I commend them to the Committee.
4.34 pm
Mr. David Gauke (South-West Hertfordshire) (Con): It is a great pleasure to serve under your chairmanship, Mrs. Anderson. Like the Minister, this is the first time I have done so, which is not entirely coincidental given that he and I tend to do a fair number of these statutory instruments together. I am grateful to him for setting out details of the regulations; however, I have a number of questions and would be grateful for his response.
Normally on these occasions, we debate changes to the various thresholds: the primary and secondary thresholds, and the upper and lower earnings limits. For the reason set out by the Minister—RPI was negative in September 2009—we are not uprating most of those thresholds. He touched on what would have happened if the usual practice—that thresholds reflect changes in RPI—had been followed. I ask the following question in the spirit of inquiry. I am not advocating this, but could he say a little bit more about what would have happened had that policy of following RPI been followed precisely in those circumstances? Presumably, we would have seen reductions in the primary and secondary thresholds and in the upper earnings limit. What would have been the revenue implications, had that policy been pursued?
The lower earnings limit has been increased this year, as the Minister said, because of the link with the basic state pension, the increase in which was announced at the time of the pre-Budget report, in December 2009. The situation is not entirely clear to me, and perhaps the Minister can set it out with greater clarity. Is the 2.5 per cent. increase in the basic state pension permanent and locked in the system? There was an increase of 1.5 per cent. in a number of benefits announced at the time of the PBR; however, the intention is that that 1.5 per cent. will be lost from future increases in benefits, so that next year—I think this is done on the assumption that there will be positive RPI this September, which looks likely—there will not be a corresponding increase in benefits. I would be grateful if the Minister explained the position regarding the basic state pension, because that has a knock-on effect on the lower earnings limit, given the strong link that exists.
The Minister reaffirmed the view that the upper earnings limit and the higher rate threshold for income tax should remain aligned. That was part of the reforms announced by the then Chancellor in his final Budget in 2007. We also know from the PBR that the Government intend to freeze the higher rate threshold in 2012-13. Presumably, the logic is that the upper earnings limit will also be frozen in 2012-13, regardless of the level of RPI. I would be grateful if the Minister confirmed that point.
The lower earnings limit is rising in these regulations because of the increase in the basic state pension. Many pensioners anticipated an increase of 2.5 per cent. following the announcement in the PBR, but they have been disappointed, given that the increase does not apply to the state earnings-related pension scheme. This morning, I spoke to a pensioner group in Enfield who made that point forcefully; they feel they have been let down by the Government in this regard. Will the Minister respond to those concerns—particularly that the lower earnings limit is rising in accordance with the basic state pension, but not with the overall increase in pensions that many pensioners will receive? We do of course welcome the uprating, but pensioners deserve a fuller explanation. Perhaps the Government were less clear than they might have been in explaining what has happened.
Given that the purpose of the lower earnings limit is, as the Minister said, to provide the amount of earnings that allow an employee to qualify for certain state benefits—such as qualifying years for the basic state pension—what is the effect of the rise from £95 to £97? How many people who fall within that, admittedly fairly small, range of £95 to £97 a week will fail to have a qualifying year for the basic state pension as a consequence of this increase? How many people will be affected by that and will lose out as a consequence of the regulations we are debating today?
It would help if we had that further information, and I am sure the Minister will, as always, try to be as helpful as possible. Subject to those points, we do not intend to divide the Committee.
4.41 pm
John Hemming (Birmingham, Yardley) (LD): Although the Government have only just got their majority on the Committee, I do not foresee a Division on this statutory instrument. Perhaps matters have been handled in a slightly more complex manner than was necessary. We amend the same SI each year rather than producing a new one with all the figures in it. It would be much easier to follow if we produced an SI with all the figures in it, rather than just picking out the ones we are changing.
What really matters is that relatively small sums of money have a big impact on people on lower incomes—these abstruse figures of £95 and £97 have a massive impact—and I, too, am interested in hearing answers to the questions asked by the hon. Member for South-West Hertfordshire.
With those provisos, I do not intend to divide the Committee. Points have already been made about some aspects of the pension being uprated and others not. That issue was covered in last week’s debate, and a deferred Division does not need to be repeated here. They key to issues such as this is that, as I said, although they are relatively abstruse, for people on low incomes small sums of money make a big difference.
4.43 pm
Mr. Timms: I am grateful to both hon. Gentlemen for their contributions.
The hon. Gentleman raised a fair question about how many relatively low-paid people will lose out on benefit entitlement as a result of the increase in the lower earnings limit. I do not have that figure with me, and it is quite difficult to establish because many of the people we are talking about are not taxpayers, so we do not have very good data on the numbers in that particular narrow band. If he wants me to take that question away and see whether I can come up with a figure, I am happy to do so. I will make sure that anything I can provide is copied to each member of the Committee.
To pursue the hon. Gentleman’s question little further, the combined effect of reducing the upper earnings limit, the upper payment limit and the higher rate tax threshold by RPI rather than freezing them would be a net increase of £710 million in receipts. That would be an increase of £880 million in tax receipts, offset by a reduction of £170 million in national insurance receipts. I repeat that that is a net increase of £710 million in receipts, compared with the package in this statutory instrument. Moreover, there would be 260,000 gainers and 26 million losers.
The hon. Gentleman asked about our intention to keep the upper earnings limit aligned with the higher rate tax threshold. I confirm that Government policy is to keep them aligned in the years ahead.
The hon. Gentleman asked why the state second pension had not been increased along with the basic state pension. He also asked whether we will be taking back the increase in the basic state pension in future years as the level catches up. The answer is no, we will not be doing that. The increase to the basic state pension for the coming year is locked in for future years. There are a number of reasons why we have not also increased the state second pension. An obvious one is the cost of doing so. The fact that we have increased the basic state pension is a positive development for pensioners, but uprating the additional pension is a little more complicated, because a statutory link requires public service pensions to be uprated by the same percentage as additional pensions, so there would be an impact in that respect. A lot of occupational pension schemes uprate pensions by reference to the RPI, so uprating the state second pension in the way suggested by the hon. Gentleman would have an effect on occupational pensions as well as on the Exchequer. I understand, however, why many people would have liked us to have done that.
I hope I have answered the hon. Gentleman’s questions. If I can get information on the number of people affected by the increase in the lower earnings limit, I will drop him a line.
Question put and agreed to.
4.48 pm
Committee rose.
 
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