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National Insurance Contributions Bill

Of course, we can trade histories. All that I would say to the right hon. Lady is that the original SERPS was presented as the way forward, and I agree that many people benefited from it, but she must accept, as it is what her Bill is saying, that it has ultimately proved unaffordable, and that promises have consistently been broken to individuals who put their trust in the scheme. I think that Barbara Castle would have had to be dragged kicking and screaming to the House to make the proposal that the Government are now making, because she believed in her scheme and her vision. I did not support it at the time, because I felt that it was unaffordable, but it is right to note that the Bill is an admission by the Government that the Barbara Castle scheme was unaffordable and not the way forward. It is typical of the Government that, having formed a consensus with other parties in the House, they should want to attempt this sleight of hand to trouser the money as I have described, and to put forward a Bill that is about something for the Chancellor and nothing for the contributor. As the Financial Secretary has said, the Chancellor describes the Bill as part of a larger simplification and tax reduction package. Of course, they have to say that; but many will think that the package was designed to take £1.5 billion extra by 2009-10, and that the ““element of conjuring”” was to suggest that the package was a tax-cutting measure at all. What the Prime Minister relied on was the continuing public support for the contributory principle. As the authors of the leading text on the matter, Ogus and Barendt—the fourth edition, for the benefit of the hon. Member for Northavon (Steve Webb) who takes a great interest in the book—said recently:"““People are prepared to subscribe more by way of contributions, which they see as offering returns in the form of personal and family security, than they would be willing to pay by taxation, which might be diverted to a wide variety of uses.””" It is also clear that the public know very little about national insurance and are not very questioning about it. Tolley's tax notes make the point that"““Nearly a century ago, David Lloyd George stood before Parliament and introduced… the novel concept of National Insurance… as a 'temporary expedient'…. It is a curious fact that despite the size and permanence of this levy, very many people know little about it””." Of course, the people who do know about national insurance are Chancellors of the Exchequer. It allows them to talk about a low standard rate of income tax, while conveniently forgetting the very large tranche of money taken in the form of national insurance burdens. That follows the Colbertian maxim—which I thought worth mentioning at this time of year—that plucking as much as you can from a goose without its squawking is the key principle of tax collection. The current Prime Minister has long had his eye on removing some extra money through the national insurance system. In the 1992 Labour manifesto it was suggested that the party should remove the upper earnings limit without allowing contributions above it to confer any additional benefit entitlement. On that occasion the public saw through it completely, which was one of the reasons why Labour lost the election so badly. The public did not want to undermine the contributory principle in that way. Ever since then, however, the Prime Minister has had on his mind taking more money from national insurance contributions. It was very noticeable that at the time of the 2001 general election, when asked to do so, Labour refused to rule out taking more money in national insurance contributions. Simplification of taxes is to be welcomed, but not as an excuse for a stealth tax. My right hon. Friend the Member for Wokingham (Mr. Redwood), who was present earlier, has recently revealed the increased complexity of the tax and benefits system under the current Prime Minister. Simplification is indeed welcome, but it must be acknowledged that in this instance it is being used to mask a tax rise. The original proposal was to introduce the new upper accrual point in 2012 at the same time as the start of the uprating of the basic state pension in line with earnings. I can tell the Financial Secretary that that was the deal. The end result of an early introduction of the upper accrual point in April 2009 is that we pay more national insurance up to the higher earnings limit, but receive none of the benefits that that should entail. As Taxation magazine has remarked,"““I don't know about you, but that looks like a straightforward tax increase to me.””" It is also important to consider the effect on contracted-out occupational pension schemes. It has been estimated that the amount of national insurance rebate being paid into such schemes will be reduced by about £2 billion between 2009 and 2014. The National Association of Pension Funds has observed that that could"““increase the cost to employers offering a Defined Benefit salary-related pension.””" Given that the Government have already undermined occupational pension schemes by carrying out a £5 billion-a-year pension tax raid in ending dividend tax relief, reducing protection for members by twice cutting the minimum funding requirement, and failing to accept our proposals for a pensions lifeboat for those who have lost their pensions until today, thus putting those people through misery, is it really right that they should now be taking further measures that will cut confidence in occupational pensions by increasing the cost to employers? There is a serious question to be asked about whether the Government understand pensions at all. It is widely accepted that as many as 7 million people are not saving enough. Occupational pensions have been the bedrock of good pensioner provision in retirement. Nothing should be done to push employers into closing their schemes, and they should not be offered inducements to do so. The aim must be for more people to save more, and the best way of ensuring that that happens is to encourage employers to operate good work-based pension arrangements and open them to all employees. On another day, we shall have a chance to debate personal accounts. I hope that they will be developed with employer contributions that do not involve employers who already provide a good pension scheme. We do not want workplace schemes with good benefits to be closed, and members to move down the scale into personal accounts. There is a real risk of diversion. Let me end on a seasonal note. At this time of year I think it fair to say that with this Bill—taking tax through the back door and damaging occupational pension schemes—the Prime Minister has moved from being Mr. Bean to being Mr. Scrooge, and all I would say to him is ““Bah, humbug!””