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National Insurance Contributions Bill

I thank the hon. Member for South-West Hertfordshire (Mr. Gauke) for tabling the amendments. I also compliment the House business managers, who arranged for this debate to take place after the debate on Holocaust memorial day. That allowed me to come and listen to one of the best debates I have heard for a long time—after this one, of course. The amendments are prompted by concern that the Bill will somehow reduce parliamentary scrutiny of secondary legislation setting the upper earnings limit, by abolishing the restriction. As Opposition Members described, that restriction limits the raising of the upper earnings limit to seven and a half times the primary threshold. The hon. Gentleman advanced his case in a spirit of helpfulness, for which I am grateful, and broadly based his arguments around the premise that Britain should be protected from a Government who might be motivated to use the upper earnings limit as a tax-raising opportunity, if it were not tied in some way to the lower limit. It is perhaps worth noting that there was once an upper earnings limit for employers—Members will know that national insurance contributions are paid by employees and by employers—but in 1985 the Government abolished it. The abolition of that upper limit and the introduction of that principle netted the Government £1 billion at 1985 prices. It is also worth noting that that proposal was not in their manifesto. I make those remarks gently. The point that the hon. Gentleman made and the principle that he put forward are valid for debate, and I am sure that we would be advancing those arguments were I in his post, but we should take a moment to describe what happened. Historically, the lower earnings limit was set at a quarter of average earnings, whereas the upper earnings limit was set at one and a half times average earnings. That ratio was broadly maintained, but greater flexibility was introduced when the lower earnings limit was statutorily linked to the basic category A state pension. Its uprating then followed the switch from the link with earnings to that with prices. Treasury Ministers announce the NICs rates and thresholds for the forthcoming year at or around the pre-Budget report. The Government Actuary's Department then produces a report on the impact on the national insurance fund of the changes announced, particularly whether the balance of the fund will be 17 per cent. of benefit expenditure, because the fund cannot borrow. The report is then laid before Parliament, and a set of regulations and an order, which make the changes to national insurance rates and thresholds, are laid in January, or thereabouts. I think the next measure to be debated will be dealt with in February. The Department for Work and Pensions then lays regulations, which change the contributory benefit rates at the same time. Decisions made in this context are often scrutinised not just publicly but in the House. The timing of the regulations gives employers and payroll providers time to prepare for 6 April. I made that point in Committee, and I note that the hon. Member for South-West Hertfordshire has accepted some of the case that I made then. Like the hon. Member for Cities of London and Westminster (Mr. Field), who is not in the Chamber—no doubt he has been called away—he was keen to ensure that proper scrutiny took place. We are not attempting a sleight of hand or a Macchiavellian move. Our intention is to align the lower earnings limit for national insurance contributions with lower tax rates, and to align the higher limit with higher tax rates. Our purpose is to simplify the tax process, not to use it as a potential for future tax increases. All income tax changes are discussed at length in the Budget and Finance Bill debates. National insurance contributions have always been arranged by means of regulation, and over time that has proved an effective way of allowing parliamentary scrutiny. Although such scrutiny never seems adequate to those in opposition, I assure the hon. Member for South-West Hertfordshire that a Minister feels well scrutinised as a result of statutory instrument debates. If on occasion they do not last as long as they might, that may be because the issues are not as controversial as people fear that they might be if the Government abused the process. A strong case has been made for amendment No. 8, which aims to restrict the rise in the upper earnings limit. I realise that the hon. Member for South-West Hertfordshire has changed the proposed date in response to what I said in Committee, but we have similar problems with this amendment. We would not be able to align the upper earnings limit for 2009-10 with the point at which higher rate income tax becomes payable, which we announced that we would do in the 2007 Budget. The limit could not be raised by £800 plus the retail prices index. That would remove the main purpose of our Bill, and a significant simplification of the tax and national insurance contributions system would be lost. Accepting the amendment would cost about £700 million, which is no mean matter. That would restrict the Government's ability to take further action on, for instance, child poverty and lifting pensioners out of tax, as proposed in the personal tax package announced in the 2007 Budget. The hon. Member for Gosport (Peter Viggers) described this as a mean little Bill—I paraphrase his comments—and spoke of the tax hit on those earning at or above the upper earnings limit. I can reassure him that the large majority of taxpayers will be no worse off, as the reduction in the basic rate of income tax from 22p to 20p—the lowest rate for more than 75 years—will compensate for the increased amount of national insurance that they will pay.