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I will start with the Social Security (Contributions) (Amendment No. 2) Regulations 2009. After an exchange on one of the other orders earlier this afternoon in which there was a slight mistake leading to delay, I have to confess again that there are two minor typographical errors in the preamble to this instrument. Section 122(1) was inadvertently cited. Section 5(6) should have been cited, and the same is true for the Northern Ireland equivalents. These will of course be corrected when the instruments are made. I crave the indulgence of the Committee for those faults. I am also glad to have noted them at this stage and not to have them pointed out to me by the ever-vigilant noble Lord, Lord Howard.

In the 2007 Budget, the former Chancellor of the Exchequer announced a package of reforms to modernise the tax and benefits system. 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. The upper earnings limit is being increased from £770 to £844 per week to fulfil this commitment. These regulations also increase the class 1 lower earnings limit from £90 to £95 per week. The lower earnings limit is legislatively linked to the level of the basic state pension and is the level of earnings at which entitlement to contributory benefit begins.

Finally, the regulations increase the class 1 primary and secondary thresholds from £105 to £110 per week, which is broadly in line with prices. Earnings between the primary threshold and the upper earnings limit are liable to main rate employee contributions of 11 per cent. Earnings above the primary threshold 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.

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The Social Security (Contributions) (Re-Rating) Order 2009 sets the NIC rates and thresholds for the self-employed and for those paying voluntary contributions. For the self-employed, it raises the small earnings exception below which the self-employed may claim exemption from paying class 2 contributions. That will rise in April from £4,825 to £5,075 a year, an increase broadly in line with prices. Many people choose to pay these contributions to protect their benefit entitlement. The rate of class 2 contributions for 2009-10 will rise from £2.30 to £2.40 a week, which again is an increase broadly in line with prices.

Also for the self-employed, the draft order sets the profits limits between which main rate class 4 contributions are paid. The lower limit, at which class 4 contributions become due, will increase broadly in line with inflation from £5,435 to £5,715 a year. The upper profits limit will increase to £43,875 for the 2009-10 tax year. This ensures that the self-employed pay main rate class 4 contributions on much the same range of earnings as employees who are liable to class 1 contributions, and is an essential element in making the national insurance system fair for everyone.

The draft order also deals with the weekly rate of voluntary class 3 contributions, which help those with insufficient contribution records in any given tax year to make up a qualifying year for benefit purposes. The rate of class 3 will increase from £8.10 a week to £12.05 a week from April. This is an above-inflation increase and is a consequence of changes made in the Pensions Act 2008 to allow contributors who met certain conditions to pay class 3 contributions outside the existing time limits to improve their basic state pensions. It was made clear when the amendment was introduced that this measure was to be overall cost neutral and that the weekly class 3 contribution rate would therefore be increased accordingly.

The review of contribution rates is accompanied by a report from the Government Actuary detailing the effects of the draft order and regulations, and the draft order uprating benefits laid by my right honourable friend the Secretary of State for Work and Pensions on the National Insurance Fund. I am pleased to say that there is no expectation that the fund will need a Treasury grant for the 2009-10 tax year.

Northern Ireland has a separate national insurance scheme from Great Britain, but the two schemes are closely co-ordinated and maintain parity of contribution rates. The draft order and regulations therefore cover Great Britain and Northern Ireland. I commend the draft Social Security (Contributions) (Amendment No. 2) Regulations 2009 to the Committee.

Lord Howard of Rising: Again, I thank the Minister for tabling these statutory instruments. An interesting part of these amendments is the increase in the level of class 3 voluntary NICs as a result of the victory of the noble Baroness, Lady Hollis, during the passage of the Pensions Act 2008. As my noble friend Lord Skelmersdale said then, as welcome as the increased flexibility will no doubt be to those who find it difficult to make up the minimum contributions necessary for a full state pension, contributors will be paying for it. The timing

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of the increase is also unfortunate. At a time when unemployment is rising, the Government are increasing the cost of employment.

In carrying out his work, the Government Actuary, Mr Trevor Llanwarne, used an earnings growth figure of 3.2 per cent for 2009-10. The Treasury has forecast 2.7 per cent growth for the same year. Both forecasts are thought to be wildly optimistic by most commentators. How would more pessimistic assumptions affect the calculations?

Similarly, unemployment levels have also changed since the Pre-Budget Report. These will affect the use of the fund. Will the Minister comment on whether the surpluses in the fund will be sufficient to cope with these dramatic variables? The surplus is currently used to subsidise the National Health Service and other government spending. Would using the surplus to fill the gaps that I have identified have such a significant impact on government revenues that there could be other consequences, such as a tax increase?

Baroness Thomas of Winchester: I seem to have drawn the short straw among my colleagues for participating in this annual ritual to approve these two social security orders. In preparation, I had the pleasure of reading the Government Actuary’s report for the first time. It is an impressive document, if largely incomprehensible to an amateur in the field such as me. As we have heard, the good news is that the balance in the National Insurance Fund is in surplus, is well over the recommended one-sixth of annual benefit expenditure, and will therefore need no Treasury grant this year. However, are the assumptions made about unemployment and benefit payments on track, or does the Minister think that they are far too optimistic?

The Government in general seem to be surprised at the speed at which the country has hurtled into deep recession. I see that the Actuary has used the same assumptions of employment and unemployment levels as the Treasury did in the Pre-Budget Report on 24 November last year, and that worries me. After all, the Chancellor predicted growth in the second half of this year, but this has now been revised downwards. It was also predicted that the economy would contract by between 0.75 per cent and 1.25 per cent, but this was also wildly optimistic; I use the same phrase as the noble Lord, Lord Howard of Rising. What are we to make of the assumptions in the report now? Perhaps the Minister would enlighten us.

The actual upratings are, of course, welcome. But no one should think that the benefit system is generous, as many people are now finding out who may have paid contributions for many years and who may now feel cheated that the jobseeker’s allowance is so low. There are several groups about whom we should be greatly concerned. The first is pensioners who do not take up their entitlement not just to pension credit, but also to housing benefit and council tax benefit. This group has grown in the past 10 years, according to the Rowntree report Monitoring Poverty and Social Exclusion. In fact, pensioners are being hit from all directions at the moment, because those with modest savings are finding that their income has plummeted due to very low interest rates. The Government should redouble

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their efforts to make sure that pensioners who need it at least receive pension credit rather than go hungry and cold, which is almost certainly happening at the moment.

The second group is working-age adults in low-income working families. This group is set to rise, with only low-income jobs available in many areas. The third group concerns the number of children in working families needing tax credits to avoid low income. The Rowntree report states that this increasing need for tax credits is the key to why the Government have missed their child poverty targets.

Another alarming statistic is that the proportion of all low-income households paying full council tax has risen by a third over the past 10 years to 60 per cent; so much for the popular view that the country is full of benefit scroungers. In parenthesis, it is worth noting that the authors of the Rowntree report say that, as far as child poverty is concerned, the much-repeated mantra of work being the best route out of poverty is not necessarily the case. It states:

“Rather, there needs to be an understanding of the problems that work can cause as well as the benefits that it provides”.

Amen to that, I say.

It is perhaps unfair for me to ask the Minister a couple of questions, as he is not the Minister who deals with social security benefits. However, I shall not be deterred. No debate about benefits should fail to ask where the benefit simplification project now stands. There is no doubt that many millions of pounds in benefits are not being claimed because of confusion about entitlements and complex application processes.

Finally, there is worrying evidence that some new benefit claimants, such as lone parents looking for work, are having difficulty in accessing crisis loans from the Social Fund, such is the burden on Jobcentre Plus offices at the moment. Is the Minister confident that enough trained staff are in place at these vital offices who understand the system that they are trying to administer?

Lord Davies of Oldham: I am grateful to both noble Lords who have spoken. As the noble Baroness, Lady Thomas, was kind enough to indicate, I do not normally respond for the Government on these complex and challenging issues. It will become evident to the Committee that I have an obviously limited ability to deal with some of the very detailed issues. I want to deal with the more general issues first, if I may, if only to respond to the broad challenges.

The noble Lord, Lord Howard, predictably identified that the current economic crisis is having a deleterious effect on public finances, on the estimates of growth in the economy and on the consequences for government expenditure. I think that the Committee is well aware of the attendant difficulties, and the noble Lord is right that the assumptions about growth that were made in the Government Actuary’s report were based on all the information and experience at the time, which were linked to the PBR in 2008.

The GAD report recognised that assumptions are not necessarily borne out in practice. Indeed, section 8 of the report allows for divergences from the assumptions

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that have been made. The noble Lord, Lord Howard, is well aware that divergences will inevitably occur. He does not have too long to wait before the next Budget from my right honourable friend the Chancellor, when the figures for growth will take account of the changed circumstances. It might help the noble Lord to know that, if earnings decrease by 1 per cent over 2008-09, there will be a reduction in receipts of £2.48 billion—an illustrative figure of the difficulties that attend the seriousness of the situation that we all face.

I therefore cannot make assumptions at this point about my right honourable friend’s Budget by telling the noble Lord, Lord Howard, what the effects on health and education will be if the surplus is eroded by the loss of resources that are needed to sustain it at its predicted level. He will have to bide his time. After all, he is a patient man, and he has to wait only a matter of weeks for the Budget, when all will be revealed. He will be able to develop his perspective on what is good for the nation at that time. I have no doubt that a very high percentage of what is good for the nation will be criticism of the Government rather than an effective alternative, but we will wait and see. I will not prejudge the noble Lord on that, and I look forward to the debates that we will have at that time.

I am concerned about the issues which the noble Baroness, Lady Thomas, has introduced to the debate. She may well have been in the House this afternoon when the Government were being berated for the amount of money that was being spent by government quangos on communication. She identifies absolutely clearly that new people are becoming unemployed or dependent on benefits for the first time. They need information, which someone must provide. That is a cost on a communication budget. Inevitably, therefore, I am a little loath to take criticism of government expenditure. I fully appreciate her point about effective communication on entitlement, which is very important. Only the other day, the Government emphasised the extent to which we were directing ourselves to ensuring that families and individuals who are entitled to benefits should have effective communication on those matters. I accept the point that the noble Baroness, Lady Thomas, made in detail about low-income families. She mentioned costs, and she will know that certain costs are decreasing.

I have to take the jibes of the noble Lord, Lord Howard, about the return on investments. That is, of course, an issue for many people on fixed incomes. By the same token, however, inflation is plummeting in certain crucial areas, some of them absolutely critical to the very categories of people that we are addressing. Certain aspects of the cost of living are dropping rather than rising, against our expectations in the Pre-Budget Report before Christmas.

I bear in mind the point of the noble Baroness, Lady Thomas of Winchester, which is borne out by the Government’s response. She will know that we took steps to ensure that cold weather payments for pensioners should increase, against a background of the severity of this winter and recognition of their difficult circumstances. I understand her anxieties on these points. We will have to return to them. They are part of the general issues of necessary expenditure

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currently confronting the Government, against a very difficult economic situation that we share with the vast majority of countries, particularly those that seek to sustain a requisite level of support for those in need.

I have not dealt with these issues with quite the accuracy that my noble friend Lord McKenzie, the Minister for Work and Pensions, would have. Although he will not forgive me for my weaknesses, I hope that the Committee will.

Motion agreed.

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

Copy of the Order
6th Report from JCSI

Considered in Grand Committee

5.01 pm

Moved By Lord Davies of Oldham

Motion agreed.

Contracting Out (Highway Functions) Order 2009

Copy of the Order
4th Report from JCSI

Considered in Grand Committee

5.02 pm

Moved By Lord Tunnicliffe

Lord Tunnicliffe: The Government consider that service delivery should achieve best value for taxpayers. In some cases, that means the service being provided by a third party. The three existing contracting-out orders covering highways functions allow authorities to delegate the listed statutory functions to a third-party operator. We now propose to build on this by including more functions, mainly related to street works, in this new order. At the same time, we are consolidating all the highway functions that can be contracted out into this new order.

It is important that authorities manage any contracts placed effectively so that they achieve best value and deliver an effective service. The order will enable an efficient service and maintain local flexibility without any reduction of accountability in the delivery of public services.

Earl Attlee: We have no difficulty with this order.

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Lord Bradshaw: I will use a little of the Committee’s time to explore this further. The utility companies have been vociferous in their lobbying of the House of Lords and the Government to achieve advantage for themselves over other users of the highway. I am concerned to know that the arrangements here have been properly discussed with other users of the highway, such as bus users, whose journeys to work are considerably lengthened by the roadworks undertaken under the highway functions. How much consultation have the Government done with other road users? Have they listened entirely to the views of the contracting industry? What pressure has been brought on the utility companies to work on the parts of the road that they are using? For example, I was in Hereford last weekend, and on Friday, a large part of the ring road was cordoned off for some highway purpose. It was causing enormous traffic congestion, but at 11 o’clock in the morning, there was no sign of any activity within the cordoned-off area. How much urgency do the Government attach to getting work done and to making sure that the statutory undertakers have assembled all the equipment needed to carry out the works before the highway is disturbed, and that they work long hours to make the highway good again for the benefit of road users?

Contracting out these responsibilities to contractors who may be digging up roads seems to be asking the poacher to be the gamekeeper. I would like to know that the utmost vigour is exercised by local authorities, which have highway management powers, to ensure that works are carried out in the most expeditious fashion. I took the trouble to speak to some bus companies, and I can assure the Minister that certain works are carried out in a most inefficient way, involving lots of sets of traffic lights, huge traffic congestion and complete disruption of public services. I will be grateful for his reply.

Lord Skelmersdale:Successful contracting out depends on monitoring. What confidence can we have that local authorities have the correct mechanisms to monitor these contracts?

Lord Tunnicliffe: Amazingly enough, I can give very few answers to the noble Lord, Lord Bradshaw, but his concerns are much repeated, and we have consistently agreed with the importance of managing the roads effectively.

This is a modest consolidating order. It takes vast chunks of activity that are already contracted out and puts them together. The number of additional powers it introduces is quite small. The essence of the order is our view about the relationship between government and local government. Ultimately, we give powers to local government, whose responsibility it is to discharge them effectively. The order does not require local government to contract out these services. But it is a permissive order: if in the interest of value for money local authorities wish to contract out these services, they may. They are accountable to the electorate to discharge these services in an appropriate way. I cannot believe that they would get into the poacher/gamekeeper situation. Indeed, if there were any area of squeal in this order, it would come from utilities concerned

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about overvigorous interpretation of the responsibilities by local authorities using this contracting-out capability. Local authorities have a burden politically and in terms of their duties to get a fair proportionality, and I hope the Committee will support the order.

Lord Bradshaw: Will the Minister give an assurance that local authorities are in possession of all the powers relating to traffic signs, conduct of traffic and requiring utility companies to work for the length of time necessary to get the work carried out in the most expeditious way? Will he tell us whether any redress is available, either to bus companies or to residents, other than complaint to their local authority? It seems to me that a local authority strapped for cash is probably likely to let everybody suffer. We know the utilities are often irresponsible in declaring an emergency to gain access to the highway. I am sure that these emergencies are not always what they are declared to be.

Lord Tunnicliffe: I do not mean this in an impolite way, but the language of the assurance which the noble Lord asks me to give would be such an all-embracing piece of government policy, benign as it may be, that I shall demur from agreeing with him without reservation. What the noble Lord says is generally what we try to do, but I shall ask officials to look at his question to see if we can usefully add anything to that general observation.

Motion agreed.

Road Safety (Financial Penalty Deposit) (Appropriate Amount) Order 2009

Copy of the Order
5th Report from JCSI

Considered in Grand Committee

5.11 pm

Moved By Lord Tunnicliffe

Lord Tunnicliffe: This order is a crucial part of a package of statutory instruments that are currently being made to strengthen the existing system for dealing with road traffic offenders under the Road Safety Act 2006.

The purpose of this order is to prescribe the amount of financial deposit that can be requested from an alleged offender by the police or by an examiner from the Department for Transport’s Vehicle and Operator Services Agency in respect of a fixed penalty offence or an intended court prosecution.

To be clear, the legislation provides for such deposits to be requested only from alleged offenders who are unable to provide a satisfactory UK address. Deposits

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would not, and could not, be requested from alleged offenders who have a satisfactory UK address. For brevity, I shall call this group of alleged offenders “non-UK-resident offenders”, although the scheme will apply to those who are resident in the UK but who do not have a satisfactory address, such as those offenders who do not have a fixed address.

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