Committee stage in the Lords
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The Deputy Chairman of Committees (Baroness Fookes)Conservative- Quote
- I remind the Grand Committee that if there is a Division in the House, the Committee must be adjourned immediately and will resume after 10 minutes. Clause 1 [Amount to be specified as upper earnings limit: Great Britain]:
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Baroness NoakesConservative- Quote
- moved Amendment No. 1:
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Lord NewbyLiberal Democrat- Quote
- There are a number of anomalies and ironies about this issue and the fact that we are discussing it. It is anomalous that this House spends time scrutinising national insurance as though it were not a tax, and it is ironic that the purpose of the amendments is to increase the power of the Commons and your Lordships' House against the Government on a matter of taxation. Your Lordships' House has not played any substantive role in taxation for the best part of a century, and it is a delight to be able to do so in relation to these amendments. The changes which have brought forward both the Bill and the amendments have two clear advantages from the Government’s point of view. First, they simplify the tax system. It is a minor advantage in practice, given that national insurance and income tax are to all intents and purposes collected separately, but for individuals and companies attempting to understand the system it effects a measure of simplification, and to that extent it is to be welcomed. As the noble Baroness said, it also brings in significant additional revenue. In present circumstances, that is clearly a major advantage to the Government and, on any objective test, is a far more significant benefit than any theoretical or actual benefit of simplification. From these Benches we have no objection either to the simplification or to the Government getting additional revenue in this way, but we have considerable sympathy with the arguments about the extent to which this Bill will give unacceptable freedom to government to change the threshold without adequate parliamentary scrutiny.
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton)Labour- Quote
- I thank noble Lords who have spoken to this amendment, which gives us a chance to catch up on where we are on this issue. I also am grateful to both noble Lords because they clearly do not want to spend lots of time going back over the arguments about simplification and a tax-raising opportunity. However, I would place on the record, as I did at Second Reading, that it is absolutely unfair to pick out this component of a compendium of measures and say that it is all about raising tax, when the package of measures had a cost to the Exchequer of the order of £2.5 billion. We can spend a lot of time going over all that.
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- Baroness NoakesConservative
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- The Minister tempts me. We could prolong the argument, so perhaps I may suggest that we move on.
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- Lord McKenzie of LutonLabour
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- I am happy to do that. I was simply placing our position on the record, as other noble Lords have stated their position. Nor do I propose extensively to open up the debate about the nature of national insurance and how close it is to a tax. Perhaps that is for another day. Before I deal with the specifics of the amendment, I should put something else on the record about the 13 May announcement. As noble Lords are aware, the Chancellor announced on that date that the personal allowance for all basic-rate taxpayers under 65 would be raised by £600 in the current tax year, 2008-09. That means that around 22 million basic-rate taxpayers will benefit from the change and the number of households that lose from the Budget 2007 reforms will be reduced from 5.3 million to 1.1 million. The remaining losses will be at least halved. Making this announcement now means that people will see the money in their take-home pay from September. As those paying tax at 40 per cent are unaffected by the Budget 2007 reforms, the point at which people pay higher-rate tax will be reduced, leaving taxpayers who pay at the 40 per cent marginal rate unaffected by the increase in the personal allowance. The thresholds and rates of national insurance for 2008-09 were not affected by the Chancellor’s announcement. The Government will set out plans for future years in the 2008 Pre-Budget Report in the autumn. Our aim is to continue the same level of support for those on lower incomes. We have looked at the case for the alignment of tax and national insurance on an annual basis and found that the savings for employers, individuals and the Government were smaller than would have been expected, with large one-off transitional costs and significant numbers of low-income losers. On that basis the Government have concluded that, on balance, the benefits of this annual alignment do not outweigh the costs. However, we remain committed in principle to bringing the income tax and the national insurance contribution systems closer together to improve fairness and coherence, reduce administrative burdens and make them easier to understand. I appreciate the support, particularly of the noble Lord, Lord Newby, for that endeavour. There has already been progress in aligning tax and NICs in a simplified structure of employers’ NICs that replaces multiple rates with a single rate and abolishes the entry fee. With just two main rates of income tax and two rates of national insurance in this tax year, the UK’s personal tax system is already one of the simplest personal tax structures of any developed country. However, the Government are continuing to look at the scope for further alignment of tax and national insurance contributions, taking into account the changes made on 13 May, in future Pre-Budget and Budget Reports. The Bill removes the restriction that exists on changing the level of the upper earnings limit in order to implement the future alignment of the UEL with the higher rate threshold for income tax. This restriction, as we have heard, currently limits the maximum amount to which the UEL can be raised for any tax year to 7.5 times the primary threshold. These changes still provide the flexibility to align the UEL with the level at which higher rate tax becomes payable in future years, without the need for further primary legislation. As indicated, the amendments are prompted by a concern that the Bill would remove parliamentary control on the setting of the upper earnings limit by abolishing the current restriction that limits the raising of this limit to 7.5 times the primary threshold. The amendment inserts proposed new Section 5A into the Social Security Contributions and Benefits Act 1992. The objective appears to be to introduce a restriction on rises in the UEL to RPI, but only with effect from 2010-11. The amendments also provide for a new rounding rule, which may have unforeseen consequences. The proposed new section, as I have said, is intended to be effective for 2010-11. This risks misalignment due to the rounding rules it contains. The UEL is a weekly limit, and the personal allowance and basic rate limits from which it would be derived if it were to align—which would be calculated by dividing the aggregate of the two by 52 and rounding to the nearest pound—are annual. This could lead to misalignment on occasions as rounding up of the weekly figure could result in a different figure from one resulting from rounding an annual figure divided by 52, and would therefore require further primary legislation to correct. If you assume that it could be out by as much as an extra pound each week, that would cost something like £15 million to £20 million a year. As the noble Baroness explained, the intention and the structure of these amendments were to replicate for NICs the Rooker-Wise system that exists for income tax. There is a particular difficulty with this in respect of the NIC system. For income tax there exists the vehicle of the annual Finance Bill in cases where the Chancellor decides to make changes to the personal allowance, for example, either below or above RPI. No such facility for primary legislation exists for national insurance. I do not accept the point that it is simple for the Government to bring forward a one-line Bill on a routine basis just as we do with a Finance Bill. It does not work that way. Programming Bills into the system is often not that easy, particularly with the competing priorities that always confront Governments. I therefore urge the noble Baroness to consider whether that would be a good use of valuable parliamentary time. I think not, but perhaps the noble Baroness has something else in mind when it comes to dealing with the inevitable requirement for annual primary legislation for NICs and whether to bring NICs into the annual Finance Bill cycle. The Government remain committed to continuing to simplify tax and NICs processes where practical and beneficial to do so for future years, including aligning the upper earnings limit with the level at which higher rate tax becomes payable. The changes in this Bill will still allow the alignment announced in Budget 2007 to be delivered in the future. I hope that the noble Baroness will accept the practical difficulties associated with this amendment. Amendment No. 3 would add proposed new Section 5A to the lists of limits and thresholds to be set by affirmative procedures. We have substantial reservations about that, not least because the Bill as drafted already proposes that regulations setting the level of the upper earnings limit should be subject to the affirmative procedure. If one were to read Amendments Nos. 2 and 3 together, the intended effect appears to be that the UEL would be limited to increases by RPI, and the regulations setting the UEL calculated by reference to RPI would be subject to affirmative procedure. That would be a completely new requirement. Why have that second mechanism if you have the first one? We believe that it is a wholly unnecessary restriction and would amount to a huge increase in parliamentary oversight. I am not convinced that there is any need for that, particularly as Amendment No. 2 would be likely to result in annual primary legislation for NICs because of the misalignment through the proposed mechanisms. I note what the noble Baroness said about not extending this amendment to Northern Ireland. To try to summarise things, I return to the difficulty of aligning what is effectively a weekly system with an annual system. Unless you generate that alignment by looking at the annual allowances first, you get real difficulty. You cannot build it up from the bottom in the way that this amendment suggests. In the past, the personal allowance was aligned with the primary threshold. The Rooker-Wise amendment requires the personal allowance to be rated by inflation and rounded to the nearest £10. The basic rate limit is RPI-plus rounded to the nearest £100. If you took that approach, dividing the figure by 52, and then rounding-up, as the mechanism into alignment, as has happened with the primary threshold and as suggested by the noble Baroness, you would inevitably get a misalignment and there would inevitably be a requirement for an annual programme Bill to deal with national insurance contributions. To add to that point about an annual programme Bill to deal with national insurance contributions, if, once there is alignment, the Government wanted to increase the personal allowance or the basic rate limit by more than the rate of inflation, that would also generate a programme Bill. Restricting it in this way as a practical matter is deeply unwise. Considering where we are, I am sure that the noble Baroness will withdraw the amendment, but I hope that she will reflect on the difficulties of having a weekly system on the one hand and an annual system on the other.
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- Baroness NoakesConservative
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- I thank the noble Lord, Lord Newby, for his support. Like him, I rejoice that this is not a tax for the purposes of today's debate. Although deciding whether national insurance is a tax is an interesting topic that we can debate from time to time, for the purposes of the proceedings of your Lordships' House, we are happy that it is not a tax, because it allows us to debate the issue and use our skills on the topic. I heard what the noble Lord, Lord Newby, said about not ruling out the upper earnings limit by increasing it by a particular amount at any point. I conceded that. However, if it is to be realigned, that is a subject for Parliament, just as in the Finance Bill so is the realignment of personal allowances at a rate other than that produced by Rooker-Wise.
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- Lord McKenzie of LutonLabour
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- The noble Baroness is right: I did not specifically deal with that point and I should have done. The Bill does put something in its place—the affirmative resolution procedure. It is clear that we cannot do it in an arbitrary fashion. I should also have said that the same issues would apply with alignment and rounding up adjustments to the primary threshold as to the upper earnings limit.
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- Baroness NoakesConservative
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- I accept that they would arise wherever we did the roundings. But the affirmative resolution procedure is not an answer to that. It is already done in that way and changes to the limit are usually nodded through on a Thursday afternoon. There is nothing in the Bill that gives anything back in return for the Government grabbing huge amounts of tax-raising powers. I am not impressed by the arguments that the structure of the two systems is out of line. I concede that there could be circumstances when the amount would need to be raised by a higher or completely different amount that was not catered for by the indexation if the Government of the day chose to restructure the tax and national insurance systems. That is when I envisage a need for primary legislation and, for all the Minister’s talk about programming, I cannot see that a one-clause Bill would be difficult in that context. The Minister said that I had overegged the pudding by making it affirmative as well as in line with RPI. I completely accept that and give up Amendment No. 3. The Minister will not see Amendment No. 3 again. While I will read carefully what the Minister said about rounding, I have heard nothing this afternoon that suggests to me that, in broad terms, what I have proposed in the amendments is not workable and he has said nothing to make me believe that they are not necessary. While I will withdraw the amendments today—we are, of course, in Grand Committee and the Minister has not accepted them—I have to put him on notice that this is not the end of the matter. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. [Amendments Nos. 2 and 3 not moved.] [Amendment No. 4 had been withdrawn from the Marshalled List.] Clause 1 agreed to.
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- Baroness NoakesConservative
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- moved Amendment No. 5:
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- Lord NewbyLiberal Democrat
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- I have some sympathy with what the noble Baroness is seeking to achieve. Although in many ways the amendment is a counsel of perfection, she underestimates the ability of the Treasury and Treasury Ministers to produce a piece of paper which might technically satisfy the requirements of the amendment, but would not necessarily shed any great light on it. The first of the two areas for which explanation is required relates to why the paths have diverged. I have noticed that Ministers, particularly in another place, have started using the word “right” to justify any change that they wish to implement. The phrase, “We are doing this because it is right”, is now the day-to-day lexicon of justification in another place. “Right” is a completely subjective description and gets you absolutely nowhere, but has the advantage that it can be used with great conviction. It is used by Ministers, but it is just a covering for what Ministers wish to do. As far as setting out the expected future paths of the two limits is concerned, one could imagine that there would be a broad statement of principle around which so many caveats about why it might not in reality come to pass would be hung that, again, it might not necessarily be worth the paper it was written on. While there is a lot to be recommended in the general principle that the Treasury should come forward to Parliament to explain in simple and credible language what it was doing, as this is far from the practice in so many other areas, any attempt to achieve the aims of that principle in this narrow area would almost certainly be doomed to failure.
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- Lord McKenzie of LutonLabour
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- I say to the noble Lord, Lord Newby, that I am astounded at his cynicism about how the Treasury might approach these matters. To conceive that the Treasury would obfuscate in any way a full report, if that were what it were required to produce at the end of the day, is so outrageous that I cannot say more. I shall deal next with the specific challenge that came from the noble Baroness, Lady Noakes, about the Government’s commitment on alignment. I want to make it clear that the Government remain committed in principle to aligning the income tax personal allowance with the national insurance primary threshold, bringing our income tax and national insurance systems closer together to improve fairness and coherence, reduce administrative burdens and make them easier to understand. I reiterate that the Chancellor said on 13 May that he would set out plans for future years in the 2008 Pre-Budget Report in the autumn. Similarly, the Government remain committed to aligning the UEL with the level at which higher rate tax becomes payable in future years. That commitment is not in any way diminished.
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- Baroness NoakesConservative
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- Before I respond, can the Minister explain his comments about the Delegated Powers Committee? The amendment does not have any orders related to it but he said that the Delegated Powers Committee would have referred to it.
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- Lord McKenzie of LutonLabour
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- I was referring to the affirmative procedure proposed in the Bill. The committee has not commented in any adverse way on the use of that process.
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- Baroness NoakesConservative
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- I thank the Minister for that reply and the noble Lord, Lord Newby, for his comments. I agree that this is a relatively weak amendment because it allows the Treasury to table the kind of meaningless content that we see from time to time—for example, in relation to Written Answers—and which has become an art form in certain departments. Indeed, it would give the Treasury another opportunity to assert that it was right, although I suspect it could not assert that it is a long-term decision because such decisions rarely are. The noble Lord, Lord Newby, made me realise that this is not the right amendment; the earlier amendments are the right ones because they put the proper parliamentary process in place regarding changes. The amendment does not deal with the issue of the Government separately pushing the personal allowance out of alignment. The Minister said that it would be in the Pre-Budget Report and in the Budget and there would be lots of opportunity to discuss it. However, what happened in the week before Crewe was in neither the Pre-Budget Report nor the Budget; it was conjured up at the last minute to buy the Government out of the huge trouble they were in and foresaw for the following week.
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- Lord McKenzie of LutonLabour
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- Is the noble Baroness saying that there was no opportunity to debate that in the other place?
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- Baroness NoakesConservative
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- There still is not because the Government have not yet tabled amendments in the other place to effect the change. It is unclear whether the Government intend to bring those amendments forward at the Committee stage of the Finance Bill or to magic them in at the very last minute of the Report stage.
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- Lord McKenzie of LutonLabour
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- But, whatever process is adopted, it will be before the other House before the legislation is determined.
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- Baroness NoakesConservative
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- That is correct. But the Minister will recognise that it is a quite extraordinary departure from the ordinary course of events for the Government, having stated one policy to bring everything together—which was affirmed in the Budget, followed by Pre-Budget Report, followed by Budget—to state a few weeks later, “Oh dear, the politics look at little difficult so we will make an entirely political decision, which we will then assert is right and probably in the long-term interests of the country, and then produce it without necessarily any changes”. I fully accept that my amendment merely gives the Treasury the aggravation of a process to deal with and, therefore, does not give any substantive control; the only control exists in the Finance Bill in another place. Even if we get in place proper control on the amount of the upper earnings limit, the Bill will allow the Government to smash harmonisation and alignment at will, which is what they have done. The point of the amendment is that the Government should be put to the extra trouble of bringing forward a paper. I will come back on the technical points raised by the Minister, unless he wants to intervene now.
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- Lord McKenzie of LutonLabour
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- I am grateful to the noble Baroness. I want to make clear that the amendments we referred to earlier in regard to adjustments resulting from the 10p rate abolition are to be tabled on Report, as the Chancellor indicated to the Treasury Select Committee. I want to get that clear and on the record.
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- Baroness NoakesConservative
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- That is very helpful. I will make sure that my colleagues in another place realise that. This morning they had not done so, but perhaps they had not caught up with the small print of the Chancellor’s evidence to the Treasury Select Committee in another place last week. The Minister has pointed out the issue of weekly versus annual, which I accept. Getting around it is not insuperable in drafting terms. I also accept the no de minimis limit; that is much the same point and is also easy to get around, as is Northern Ireland. The technical objections to the amendment can easily be got right between now and Report if we choose. The Minister is basically saying that the Government want to do what they want to do at any time with as little interference as possible, and in the mean time they wish to create as much power as possible under the Bill. We think the Bill goes too far, and we have to consider between now and Report how far we allow them to go with it. The Minister should not think that he has convinced me one jot with his arguments. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 2 agreed to. Clause 3 [Additional pension: upper accrual point to replace upper earnings limit from 2009-10]: On Question, Whether Clause 3 shall stand part of the Bill?
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- Baroness NoakesConservative
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- I shall speak on Clause 3 stand part because it is an entirely disreputable clause. I entered the Government’s world of harmonisation and simplification for the last two groups of amendments, but when we come to Clause 3 there is no amendment that can mitigate it or ameliorate its status as a smash-and-grab raid on pensions, and the Treasury’s only reasons for doing so are financial. It is simply a tax-raising measure. The Treasury has had to dig pretty deep to raise this particular bit of revenue. I shall remind the Committee of some of the history. In 2006 the Pensions Commission of the noble Lord, Lord Turner, produced its weighty final report, which set out a package of changes to pensions that the commission wanted implemented by 2010. Since then the Government have set about implementing the report by cherry-picking the things they liked and deferring or changing the things they did not like much. The Government like to talk about “consensus” on this package of changes. To a degree there is a broad consensus about the changes that are being introduced, but the Minister will be aware from Second Reading of the Pensions Bill last week that the consensus is not complete and absolute. It does not extend to much of the detail because so much is still inchoate. We have warned that consensus may not survive the detail, or indeed the lack of it, around the Bill. Consensus is vital to a project like long-term pension reform. If the whole package is not robust now—and it is not particularly robust—it is unlikely to inspire the sort of confidence that is needed for successful implementation. The kind of cherry-picking that the Bill indulges in simply goes in the balance against consensus. The Government are playing a dangerous game with these reforms. The first thing that the Government did was virtually abandon the Pensions Commission’s 2010 timing of the reforms. The national pensions savings scheme, now called personal accounts, will not be ready until 2012 at the earliest. The uprating of pensions in line with earnings will not be introduced until 2012 at the earliest, and possibly as late as 2015. The Treasury has inserted its own deadly caveat of “affordability” around the introduction of the earnings linkage. Since the Pensions Commission’s report and the Government’s White Paper, economic circumstances have, by common consent, deteriorated. It is a fair bet that affordability in 2012 will be even harder to establish than it was when the Government issued their White Paper. In the context of the Pensions Bill, the Liberal Democrats have signalled that they wish to see the earnings link established in 2010, which was the original proposal from the Pensions Commission. I am not sure where the money is going to come from, in the context of the current fiscal position. From our perspective, we need some certainty about timing. We will be pressing that in relation to the Pensions Bill and, depending on what the Minister says today, possibly in relation to this Bill too. The Bill picks one bit of the Pensions Commission’s recommendations about the flat-rating of the state second pension. That flat-rating is not entirely to our taste because it means that those who pay more into the National Insurance Fund get nothing back for it. However, we accepted it as part of the total package of reforms. The Pensions Commission said that S2P should be flat-rated by 2030 but that was predicated on starting flat-rating in 2010.
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- Lord McKenzie of LutonLabour
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- The characterisation of Clause 3 as a stealth tax and as cherry-picking is completely wrong. I can understand from a political point of view why the noble Baroness would wish to project it in that way, but it bears no relation to the facts. On the point that she pressed about restoring the link between pensions and earnings, there is a clear legal certainty around that. We made it clear in the legislation last year that our intention is that the uprating of the basic state pension will be relinked to average earnings from 2012, or, in any event, at the latest by the end of the Parliament, subject to affordability and the fiscal position. That is a clear commitment that it will happen by the end of the next Parliament if not from 2012. This is probably not the occasion to go over again all the issues around pensioner poverty and the support that this Government have provided to pensioners, but we are spending something like £12 billion more each year than we would have done had we simply brought forward the policies of the noble Baroness’s previous Government. When pressed on matters of relinking the basic state pension to earnings, we might just remind ourselves who broke that link in the first place. Dealing more specifically with the substance of the amendment, Clause 3 brings forward the introduction of the upper accrual point as the cap on earnings factors in the state second pension from 6 April 2009. This means that the upper accrual point will become the new upper threshold for the calculation of both state second pension and contracted-out rebates. It has been introduced early to ensure that the Government’s personal tax package announced in the Budget 2007, and the reforms to the state pension introduced in that, can be delivered as planned. We are making sure that we end up where we expected to be. I am sure that the Committee would agree that the state second pension is poorly understood and that of those who are aware of it, few have any idea of how their entitlement builds up. In the current tax year, everyone who pays into the state second pension or is credited into the system is assumed to earn at least £13,500 whether they do or not, in effect providing a flat rate amount of benefit. In addition, earnings over £13,500 and up to £40,040 attract an earnings-related component. The Pensions Commission, as we have heard, recommended that the Government should focus resources on providing a more generous flat rate state pension and that the earnings-related component of state second pension should be withdrawn to make way for personal accounts. As the noble Baroness said, we had common cause on this at the end of our deliberations last year on the Pensions Act. Following the views of respondents to the White Paper on pension reform and to the Work and Pensions Select Committee, we also set about the task of radically simplifying the state second pension, and there is more to come in the Bill that we will consider shortly. The Pensions Act 2007 provides the mechanisms for both the withdrawal of earnings relation and simplifying the system. For a typical contributor earning above the lower earnings limit, earnings up to £13,500 a year and state second pension credits will attract the new flat rate amount of £1.60 a week for each qualifying year. The current earnings-related element built up on earnings over £13,500 will be gradually withdrawn, so that, by 2030, only the flat rate element will be left. Different rules apply where a person is in contracted-out employment. As I said, these measures were welcomed during the passage of the Pensions Act last year and will simplify a greatly complex benefit. The savings from the gradual erosion of earnings relation will be reinvested over time in the earnings uprating of the basic state pension. In the 2007 Pre-Budget Report, the Chancellor announced that to ensure that reforms necessary to simplify the state second pension take place as originally intended following the alignment of the upper earnings limit with the higher rate income tax threshold, the start date for flat-rating state second pension would be brought forward to April 2009. The original intention was that measures to simplify and standardise accruals of state second pension would be introduced from April 2012 at the earliest through the introduction of the upper accrual point, among other measures. However, the above inflation increases in the upper earnings limit announced in the Budget have a knock-on effect on the timetable for delivery of a flat rate state second pension as originally envisaged in the Pensions Act 2007. This is because the state second pension accrues on the proportion of earnings between the lower earnings limit and the upper earnings limit. Increasing the upper earnings limit by more than inflation means that high earners would potentially gain. A further effect of the Budget 2007 changes is a slight increase in the overall cost of the contracted-out rebate, because it is payable on the same band of earnings on which the state second pension accrues. It was never our intention for the personal tax package to have these effects on the state second pension. To cancel those unintended consequences and get us back on track with the abolition of earnings relation for the state second pension, we have decided to bring forward to 6 April 2009 the introduction of the upper accrual point, which was the rational thing to do. The Pensions Policy Institute has reacted by stating: “While this may sound like a significant policy change, widely reported to save the Exchequer £2 billion, it in fact refers to a technical change introduced to restore the flat-rating of S2P back towards the path originally envisaged in the Pensions Act 2007”. As I mentioned earlier, the Pensions Commission’s proposals and the consequent measures put forward in the Pensions Act 2007 reinvest earnings-related state second pension in basic state pension. As a result of the total package of reform measures, people will be better off in the new system than in the current system. For instance, under the current arrangements, high earners will receive total state pension of around £110 a week in 2050; under the reformed system, they will receive around £160 a week of state pension in 2053, taking account of increases in state pension age. Higher earners will also receive a slightly higher state second pension benefit or contracted-out rebate than in the outcomes above, as they are still likely to receive a small gain as a result of the increase to the upper earnings limit in state second pension in 2008 for the contracted-out rebate between 2008 and 2012. I hope that the noble Baroness will accept that this is a technical adjustment to make sure that we are back on our intended track and that the package of measures that we discussed in the Pensions Bill last year was finely balanced and affordable. The changes in Budget 2007 upset that package so far as higher earners in S2P are concerned and this measure simply puts us back to where we should be. I was asked whether 2030 was just an estimate rather than a target. It was always intended that S2P would eventually become flat-rated. The Pensions Commission in its second report set out as one option earnings-related accrual within S2P ceasing in around 2030. That is the best way forward as it accelerates progress of the state system towards a focus on flat-rate provision but maintains some element of earnings-related inflation in the system until personal accounts are well established and proven. Under provisions in the Pensions Act 2007, entitlement to S2P was built on a completely flat rate basis by around 2030. I hope that I have dealt with each of the points that were raised. I am sure that the noble Baroness will come back to me if I have not done so.
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- Baroness NoakesConservative
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- I thank the Minister for that wholly predictable response. It brings home to me that what the Treasury regards as rational is another man’s tax-raising, because we have to remember that that is what the Bill does. The Minister said that if the Government did not introduce this measure people earning more would gain. They do not gain: they are paying more national insurance as a result of the upper earnings limit going up. The Treasury lives in a funny world where it can see people paying more but gaining because something happening beyond 2030 might provide them with a little more pension.
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- Lord McKenzie of LutonLabour
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- If the noble Baroness will forgive me, it depends on how you do your allocations. I can see that she would like to make the juxtaposition that she just has but, as we discussed earlier, changes to national insurance contributions were part of a broader package of measures relating to changes to the basic rate of tax and the withdrawal of the 10p rate. If you look at that for higher earners, both originally under the 2007 Budget proposals and still, they are gainers from that compendium of measures. It was not intended that a further gain should accrue to them as a result of the interrelation with S2P.
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- Baroness NoakesConservative
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- I think we could just say that it was not intended by the Treasury that they should not gain, as that is what all this is about. The other thing that the Minister said was that flat-lining the state second pension would help to pay for the earnings linking. Well, fine—let us introduce it at the same time. But we are not doing that; we are raising money from flat-lining it now, possibly six years before the earnings linkage is restored. That is the dishonesty at the heart of this particular measure. The Minister said that the Pensions Commission had one version ending in 2030, which the Government then grabbed. But the Pensions Commission were going to start in 2010, not 2009. The Government said that it would do 2030 but that anything else that happened still had to end in 2030 and would start whenever the Treasury wanted. This is really about consensus on the Pensions Bill; it is not so much about this Bill. The Government are cherry-picking to raise taxes. We understand that they have to do that, because the fiscal position is so weak; but in doing so, by taking little bits here and there and not introducing them all together and still giving no indication of when the earnings linkage will be restored, I have to say to the Minister that the Government, through him, are endangering the consensus on the Pensions Bill. That is the burden of my remarks.
- Time
- 16:45
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- Speaker
- Lord McKenzie of LutonLabour
- Quote
- I reject absolutely challenges of dishonesty around this matter. The Government have been very clear and open about how this package was put together and the consequences of changes made in the 2007 Budget. As for continual quotation of the Turner commission and looking at 2010 as a start date for the earnings link, the Pensions Commission judgment was that a short delay in introducing the earnings link beyond 2010 would not seriously undermine the overall direction of the proposed reform—although, if it were much later, then it might. A lot of work has gone into building a consensus. The Government are not trying to disturb this consensus; if anyone is trying to do that, it is the noble Baroness for the Opposition.
- Time
- 16:45
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- View in Hansard ↗
- Speaker
- Baroness NoakesConservative
- Quote
- The Minister has reminded me of another matter—that the Treasury kept very quiet about the impact when the original package of changes was introduced in the 2007 Budget. In fact, it released that particular impact only when this Bill eventually came forward. So while I withdraw the remark about dishonesty, which may be too strong a word, I would use a word very close to that in not giving Parliament the full information about what the Treasury’s intentions were when they first came across this point. This is a stand-part debate in Grand Committee, so we go nowhere with it. The point that I want to leave on the record is that this is part of the Government not dealing properly with the issue of consensus. For us, this is an important issue. Clause 3 agreed to. Clauses 4 to 7 agreed to. Schedules 1 and 2 agreed to. Bill reported without amendment. The Committee adjourned at 4.49 pm.
- Time
- 16:45
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- View in Hansard ↗