The
Committee consisted of the following
Members:
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 benefitslaid by the Secretary of State
for Work and Pensionson 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 MinisterRPI was negative
in September 2009we are not uprating most of those thresholds.
He touched on what would have happened if the usual
practicethat thresholds reflect changes in RPIhad 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 yearI
think this is done on the assumption that there will be positive RPI
this September, which looks likelythere 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 concernsparticularly 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 benefitssuch as qualifying years for the basic
state pensionwhat 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 incomesthese abstruse figures of £95 and
£97 have a massive impactand 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 weeks 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. Member for South-West Hertfordshire asked what would have happened
if we had applied the RPI.
In September, RPI was minus 1.4 per cent. Applying it would
have reduced the primary threshold to £108 rather than
£110, the upper earnings limit to £832 instead of
£844, the secondary threshold to £108 instead of
£110, the class 2 contribution rate to £2.35 instead of
£2.40, and so on. Regarding the impact on the Exchequer, we will
be collecting about £240 million less by not reducing the
primary threshold. I have comparable figures for some of the other
changes, as well, which I am happy to let the hon. Gentleman have if he
wants to know what they are.
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. Gentlemans 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. Gentlemans 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.