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Lord Goodhart: My Lords, the noble Lord, Lord Higgins, was severely critical of the method by which the Government introduced the extremely important changes to national insurance contributions. Those changes were introduced at Report stage in this
House after the Bill had completed all its stages in the other place. We on these Benches entirely agree with those criticisms. It is not right that matters of such importance should be introduced at Report stage in this House on a Commons Bill, especially when that Bill relates to the raising of money.At Report and Third Reading I made that view clear on behalf of my party. Therefore, I take the view that the amendment put down by the noble Lord, Lord Higgins, was a useful peg on which to hang a debate at Third Reading. However, I take the view that it was quite wrong to press it to a vote. As the Minister pointed out extremely powerfully in her speech at Third Reading, it will cut Government revenue by £1.5 billion, which is not an appropriate action for this House to take. Even more importantly, the amendment as it stands would deprive those with incomes between £64 and £81 a week of the right to contributory benefits.
The alleged justification for this amendment was the Chancellor of the Exchequer's undertaking in the Budget to raise the threshold for employee contributions, but that is not really sufficient to justify it. I have re-read the Budget speech and press releases which accompanied it. It certainly seems to me that the Chancellor of the Exchequer was ambiguous as to whether those changes were to be introduced in 1999. It is justifiable to criticise the Chancellor on that ground. What he said confused people, if only for a short period of time. But it certainly does not go beyond ambiguity to anything in the nature of an undertaking. It is clear that the Chancellor of the Exchequer never said that he would raise the lower earnings limit for the single person's allowance in 1999.
The amendment of the noble Lord, Lord Higgins, gave rise to a very lengthy debate in the other place: it took some three and a half hours. I have skimmed through it and I must say that I am left with a feeling of some pleasure at not having had to listen to it. The noble Lord's amendment has served its purpose by leading to a full and intelligent debate in this House and to what can only be described as an interminable one in the other place. I believe that it is now time that that amendment is put to sleep and that the Government's amendment be accepted by this House, with the amendments proposed by the Government.
Baroness Hollis of Heigham: My Lords, I thank the noble Lord, Lord Goodhart, for his contribution. Perhaps I may comment very briefly on some of the points made by the noble Lord, Lord Higgins, before inviting the House to accept the amendments made by the other place.
The noble Lord, Lord Higgins, made the point that the amendment served its purpose by giving the Commons the opportunity to debate at some considerable length issues associated with national insurance and LEL which would otherwise be denied to us had this amendment not been passed by this House. That is not true. A range of national insurance amendments went from this House to the other place, but whether they should have gone to that place first is a different issue. There was plenty of opportunity for the other place to discuss national insurance at as great a length and with such degree of
detail or tedium as it chose to bring to bear. The notion that somehow this House was obliged to offer that hook to the other place was not true at the time and it was not true in the event. It is still a spurious argument for the noble Lord to advance.Nor is it true that the media thought that, arising from the Chancellor's Budget Statement, the lower earnings limit was going to be introduced in just 11 months' time. The Chancellor never said that at the time. He said that from April 1999 the 2 per cent. entry fee contributions paid by employees on the portion of their earnings up to LEL would be abolished which would lead to the figure of £1.28. The Times the next day said that Gordon Brown had told MPs that his reform of national insurance would put an extra £66 in the pocket of all employees or £1.28 a week, as did the Daily Telegraph. In other words, the Chancellor's own words and those reported by two national newspapers made it very clear that they understood that the Chancellor was addressing the issue of the 2 per cent. entry fee and not the wider issue of the lower earnings limit, knowing perfectly well that that required a whole set of other changes which were not explored in that Budget. There should not have been any of the misunderstanding that the noble Lord, Lord Higgins, appears to have suffered.
Equally, it was clear that the Chancellor was not giving a date when the raising of the lower earnings limit would be introduced. He never intended it to be April 1999. It has not yet been determined when it will be introduced, but only when we believe that the situation is right. It is therefore obvious that there will not be an indication in the Red Book as to the financial consequences flowing from the change because the timing of that has still to be determined.
For the noble Lord to criticise the Chancellor for making a commitment that he did not make and for then not having it in the Red Book, presuming that the commitment had been made, is to criticise him in a back to front way. The Chancellor has a settled intention to raise the lower earnings limit when he believes that the arrangements for contributory benefits are fully in place and that the £1.5 billion implication for the national insurance fund will be met. When he has done that and he is sure that the circumstances are correct, he will introduce that change and not before. Surely, that is the prudent way to behave. As a result, I believe this amendment was irresponsible--
Lord Higgins: My Lords, as regards the amendment, the question was whether the other place had an opportunity to vote on these issues. In a general sense they could have debated it a little but not voted. As regards the Red Book situation, that covers the next four years. If it is going to happen in that time, clearly this measure should be included in the calculations, otherwise no one has any idea what the forecast means. Looking at the Red Book now, the only inference is that it is not going to happen in the next few years.
Baroness Hollis of Heigham: My Lords, I suggest that the noble Lord is wrong on both counts. As regards the first, a number of amendments went from this House on national insurance. The other place can debate any issue that it wishes to raise which is relevant to national insurance and by amending our amendments had they chosen to do so. It is not true that it required the noble Lord's amendment in order to discuss this issue. It was not true in this House and nor was it true for the other place. It is not true now that the matter has come back to us again. On three occasions it has not been true so it is unlikely to be true now.
The second point that the noble Lord made was that it was not in the Red Book and therefore there is some assumption that it will not happen in the next four to five years. The noble Lord does not need me to tell him, because he has much greater expertise on this than I would profess to have, that the Red Book outlines a rolling programme. Each and every year there is a new Red Book.
Were the Chancellor to have indicated a date when the financial consequences would have to be addressed he would have already made up his mind about when the changes were to be introduced. If he had not made up his mind he could not possibly indicate in the Red Book the date at which the financial consequences would be experienced by the public finances. When he determines that they will be introduced, that will be reflected in the Red Book for that year, with its rolling programme for the next four years. That is standard procedure and the noble Lord knows it perfectly well. You cannot include in the Red Book the fact that X will happen if you have not decided when X will happen. If you have not decided when X will happen, you cannot put it into the Red Book as a proposal on which all relevant government departments must operate. The noble Lord knows that perfectly well. He is yet again producing a red herring for the House that I would hope the House is not misguided enough to follow.
He finally made a point of asking when the pensions review would take place. We expect to see a pensions Green Paper later this year. At that point, some of these issues will be discussed, although not necessarily the lower earnings limit.
I hope that with that assurance on pensions, the House will be minded to accept the amendments put forward by the other place. I commend the amendment to the House.
On Question, Motion agreed to.
3.30 p.m.
Baroness Hollis of Heigham: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 64B to Lords Amendment No. 64.
Moved, That the House do agree with the Commons in their Amendment No. 64B to Lords Amendment No. 64.--(Baroness Hollis of Heigham.)
On Question, Motion agreed to.
LORDS AMENDMENT
Schedule 6, page 80, line 8, at end insert--
Line 2, leave out from beginning to ("(reduced") in line 3 and insert--
166
(" . For subsections (1) and (1A) of section 41 of the Pension Schemes Act 1993 (reduced rates of Class 1 contributions) there shall be substituted the following subsections--
"(1) Subsections (1A) to (1C) apply where--
(a) the earnings paid to or for the benefit of an earner in any tax week are in respect of an employment which is contracted-out employment at the time of the payment, and
(b) the earner's service in the employment is service which qualifies him for a pension provided by a salary related contracted-out scheme;
and in subsections (1A) and (1B) "the relevant part", in relation to those earnings, means so much of those earnings as exceeds the current lower earnings limit but not the current upper earnings limit for that week (or the prescribed equivalents if the earner is paid otherwise than weekly).
(1A) The amount of the primary Class 1 contribution in respect of the relevant part of those earnings ("amount A") shall be reduced by an amount equal to 1.6 per cent of that part.
(1B) The amount of any secondary Class 1 contribution in respect of the earnings ("amount B") shall be reduced by an amount equal to 3 per cent of the relevant part of those earnings ("amount C").
(1C) Where amount C exceeds amount B, the excess shall be set off against the amount which the secondary contributor is liable to pay (under paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992) in respect of amount A."
. For subsections (1) and (2) of section 42A of that Act (reduced rates of Class 1 contributions, and rebates) there shall be substituted the following subsections--
"(1) Subsections (2) to (3) apply where--
(a) the earnings paid to or for the benefit of an earner in any tax week are in respect of an employment which is contracted-out employment at the time of the payment, and
(b) the earner's service in the employment is service which qualifies him for a pension provided by a money purchase contracted-out scheme;
and in subsections (2) and (2A) "the relevant part", in relation to those earnings, means so much of those earnings as exceeds the current lower earnings limit but not the current upper earnings limit for that week (or the prescribed equivalents if the earner is paid otherwise than weekly).
(2) The amount of the primary Class 1 contribution in respect of the relevant part of those earnings ("amount A") shall be reduced by an amount equal to the appropriate flat-rate percentage of that part.
(2A) The amount of any secondary Class 1 contribution in respect of the earnings ("amount B") shall be reduced by an amount equal to the appropriate flat-rate percentage of the relevant part of those earnings ("amount C").
(2B) Where amount C exceeds amount B, the excess shall be set off against the amount which the secondary contributor is liable to pay (under paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992) in respect of amount A."").
The Commons agreed to this amendment with the following amendment--
166A
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