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Lord Pearson of Rannoch: My Lords, there is one minute left on the clock and the Minister is already four minutes over his time. Is he going to answer the question from the right reverend Prelate the Bishop of Hereford on the interpretation of vet ordinaire? Why should a vin ordinaire be a vin ordinaire and why should a vet ordinaire be so extraordinarily expensive? We would like an answer on that. Secondly, apart from all the wonderful procedures that the service is following, does the Minister have any evidence that the incidence of food poisoning has gone down?

Lord Donoughue: My Lords, I had it in mind to answer the many questions that were asked, but I note that the clock is firmly against me. Perhaps we were not given enough time. I was particularly intent on answering the right reverend Prelate on the interpretation of the European directives, because that is at the heart of our problems and differences. There is an apparent inflexibility built into the system. We have been legally advised on that inflexibility, but as we have said before, we have asked the Commission whether the interpretation is correct on derogation, level of charges, low-throughput abattoirs and definitions of vets and veterinarians. We have received a reply and Ministers are currently considering it and the response to our consultation on the impact of charges. We hope to respond on that very soon.

The right reverend Prelate was correct to say that that has been at the centre of the problem for Ministers who want to help small abattoirs. We have been looking for ways to help and we do not want to be so rigidly constrained. We shall make announcements in due course. I am sorry that I do not have time to reply to the other questions, but I shall write to everyone.

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Welfare Reform and Pensions Bill

8.39 p.m.

House again in Committee.

Clause 68 [New threshold for primary Class 1 contributions]:

On Question, whether Clause 68 shall stand part of the Bill?

Lord Higgins: We now turn to a different section of the Bill from the more emotional areas that we were dealing with a moment or two before the Committee broke for the previous proceedings. I understand that we are to have a change of cast for the Government response to this particular clause, which in a sense is rather sad because it has history going back to the Social Security Bill of last year.

It would be convenient for us to debate Clause 69 with Clause 68, which effectively does for Northern Ireland the same, if I understand it correctly, as Clause 68. Related to this is the enormous Schedule 9, which effectively provides that there should be a new threshold for primary Class 1 contributions.

When this matter first arose in the Government's Budget of last year, the Chancellor of the Exchequer was wrong in saying, in the course of his Budget speech, that further changes would be made of the kind that we are now debating. Apparently he intended to say "future changes", and indeed these have now arrived, although strangely the figures for this measure, which he announced in last year's Budget, did not appear in the Red Book last year. A considerable controversy arose as a result and the matter was discussed by your Lordships and an amendment was passed which went to the other place in effect seeking to implement what the Chancellor of the Exchequer had then said.

Effectively, this particular set of clauses brings the structure with regard to national insurance contributions in line with the changes to the situation with regard to employers that the Chancellor announced last year.

One of the crucial points--and this is really what I want to concentrate upon this evening--which arose in the course of the debates last year was not only the one I have just mentioned but also what was to happen in the case of individuals who would no longer be paying national insurance contributions. Indeed, this was referred to, for example, in the debates which took place in your Lordships' House on 18th May (at col. 1285 of Hansard).

Crucially, the Government were not prepared to implement immediately what the Chancellor had proposed because they had not yet thought how to protect the position of those with incomes between £64 and £81 a week. The Chancellor mentioned this particularly in his Budget speech. If I can put it in rather more simple terms, the situation was that particular individuals falling between those two amounts--I will not go into the technicalities of how it actually appears in the drafting--were no longer going to be contributing and, as a result, they would not be entitled to contributory benefits. Therefore, the matter was put on ice for a year.

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We imagined, given that they were delaying these matters, that the Government would come up with some splendid method whereby the position of those individuals would be protected. In the event, that is not at all what has happened or, more accurately, their position has certainly been protected but the Government have achieved this, not by some sophisticated method which might have given rise to considerable thought on their part, but by the simple process of saying that people who are not now contributing should get the contributory benefits and effectively deeming that these people, in the words of the Bill, should get contributory benefits, even though they have not contributed.

This does seem to us a serious development because we debated at great length--the noble Lord, Lord Goodhart, and I particularly--the whole question of the contributory principle. We are all agreed that it is not an insurance principle. Effectively, it is an understanding that you do a deal with the Government and it is only if you have met the contribution conditions that you will actually get the whole series of benefits which are subject to that requirement. The Government now say that the individuals between these groups of income which I have mentioned, although they have not contributed, get the contributory benefit, and that seems to us a serious undermining of the contributory principle.

It also raises two other related issues: one is, what about the people far below the first threshold? Are they not to gain any advantage? More particularly, what is the position going to be of the people who have a deficient contributory record?

I am sure the noble Lord who is in the Chair at the moment will remember long debates on this particular subject, and one knows only too well from one's former constituency experience that many people thought they were going to get, for example, a national insurance pension and then found that they were getting less than the full amount because they had not met the contribution requirements. If we are to go along the road which the Government now suggest and people are to get, for example, if I understand it correctly, a national insurance pension even though they have not contributed to it, or at any rate not contributed the full amount, and be placed in a privileged position compared with those who perhaps have contributed for many years but not sufficient years to give them the full entitlement to the national insurance pension, that is not a satisfactory arrangement. Certainly the Government have failed totally to come up with any solution, as they suggested last year they were going to do, to meet this particular problem. I would appreciate the Minister's comments on that issue.

Lord Goodhart: We are quite unable to go along with the noble Lord, Lord Higgins, on this issue. For a long time our party policy on these Benches has been that the contributory principle is a sham and that it is time that that sham was exposed to public view and it was made clear that national insurance contributions are in reality a tax and not contributions towards the pension right. That has certainly been the case, at the very least,

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since the time when there was de-linking of the amount of the contributions from the amount of the pensions, contributions being earnings linked while the pensions were flat rate. We have no objection to this in so far as it represents a move towards treating national insurance contributions as being a tax. Indeed, it is obviously logical to make the starting point for national insurance contributions the same as that for income tax and also to protect the position of those whose earnings are somewhat less than that threshold in respect of their rights to pension. Certainly the fact that they do not pay contributions or tax is no reason why they should not get a state pension if they have contributed through their work in the economy.

I should also say that it would be wholly illogical not to recognise that, for a very long time now, it has been accepted that contributions can be credited to people who have not actually paid them. For instance, those who are unemployed or those who have caring responsibilities. It certainly seems to us to make no difference whatever in principle that that right to be credited with contributions that you have not in fact paid should be extended to those whose earnings are below the lower earnings limit.

Lord McIntosh of Haringey: I shall not follow the noble Lord, Lord Higgins, in his historical foray; I am not capable of doing so anyway. I think the Committee would prefer me to deal with the situation as it is. I am a little surprised that Clauses 68 and 69, which were grouped with the schedules which actually contain the meat, have been taken out of this group because Clauses 68 and 69 contain nothing in themselves, they are simply paving clauses for the schedules. However, we shall be discussing the amendments to Schedule 9 in due course. It may be as well if, in advance of that, I set out what we are trying to do here.

The measures are the next step in our reforms of national insurance contributions, which were, as the noble Lord said, announced by the Chancellor of the Exchequer in his Budget last year. Changes were introduced last year--welcome changes. For employers, the level at which contributions were first paid was raised from April 1999 to the level of the single person's tax allowance. We did away with the complicated tax structure they faced. There is now a simple single rate. That has saved employers some half a billion pounds. For employees, the unfair entry charge of 2 per cent on all earnings below the lower limit for contributions was removed, so that they pay £69 a year less--a reform that will particularly help the lower paid. I do not see my noble friend Lord Morris of Manchester present to hear that. We promised then that we would seek to raise the level at which employees started to pay their contributions, but without any loss of benefit entitlement.

The measures in the Bill deliver on that commitment. They raise the starting point for employee contributions from the lower earnings limit--currently £66 a week--to a new primary threshold: the primary threshold for primary contributions, which are paid by employees. This will be set by regulations at £76 in 2000/2001 and, in 2001/2002, raised to the level of the single person's

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tax allowance, which is expected to be around £87 a week. That will bring the starting points for employee and employer NICs into line.

More important is that, as a result of this change--a rise of more than 25 per cent in the point for starting to pay NICs--nearly 1 million employees will no longer have to pay contributions. The majority of all earners--16 million people--will pay less, by around £90 a year. Even the minority who pay more will be paying a maximum in 2001/2002 of £3.70 a week. Combined with the introduction of the working families' tax credit, this is a key further step in our policy of making sure that work pays.

But, if this reform were introduced alone, people who earn at low levels would lose their entitlement to benefit. That concern was particularly highlighted by Martin Taylor in his report on the tax and benefit system. Such a move would deprive these vulnerable people of their ability to contribute and would undermine our determination to make work pay. For that reason, the Government made a commitment that we would protect their rights while maintaining the link between work and entitlement to benefit. Schedule 9 therefore introduces a new Section 6A, which provides the protection necessary. That is the section on which Members have focused. Indeed, they are proposing a series of amendments which would virtually take it out, apart from a few words that are spared. New Section 6A ensures that earners who would have paid contributions on their income between the lower earnings limit and the new primary threshold maintain their contributions record and their ability to build up benefit entitlement. It does so by providing that the earnings within this band will be treated as though the employee had actually paid them. As the noble Lord, Lord Goodhart, made clear, that has always been the case. There has always been protection by the award of credits when people are unable to pay contributions due to circumstances beyond their control, such as when they are unemployed or when they are carers. It is right that their contribution record should be kept, even though they no longer actually contribute.

I really do resist the noble Lord's argument that this is a wicked departure from the contributory principle. The important principle which is maintained is the relationship between work and benefits. That is not changed in any way in what is proposed here. Credits are not sufficient by themselves to give total entitlement to social security contributory benefits. It is necessary for some contributions to have been paid during the relevant tax years on which a benefit claim is based. That was the case before and that is the case now. So I find the noble Lord's objections to the policy wholly misconceived.

The noble Lord has not referred to this, but I do want to refer to an important point which arises from the later amendments. If I get it off my chest now, I shall not have to repeat it. We are maintaining the link between the level at which people start to pay contributions and the level at which they stop. The current level of contributions is set each year by regulation at a level that must be between 6½ and 7½ times the retirement

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pension rate. This year it is set at £500 a week, which is slightly less than 7½ times the rate of the basic pension. The retirement pension rate also sets the lower earnings limit. The two limits are therefore held in line with each other. We are now increasing the lower earnings limit to the primary threshold by £10 a week in the first instance and far more than the standard re-rating would have achieved and we are setting the upper limit at 6½ to 7 times the new primary threshold to keep the relationship as it was.

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