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National Insurance Contributions Bill

My Lords, it has been an interesting debate. I am flattered by the noble Baroness’s concern but I am happy to bring this measure before the House and I am very grateful to the small band of noble Lords who have gathered tonight to comment on it. Before I respond to each of the points raised, let me remind the House of the two purposes of the Bill. First, it allows the Government to deliver the package of personal tax reforms announced at Budget 2007, in particular by allowing the upper earnings limit to be aligned with the point at which higher rate tax starts to be paid. This Bill makes possible a major simplification of the UK’s tax and NIC system. I believe that has a measure of support from the noble Baroness, Lady Noakes, although I acknowledge that there is not an identity between the tax and NIC systems. We are not suggesting that there is. Secondly, the Bill is looking at providing a solid and simpler state pension. I will come back to the issues as to why we have advanced the introduction of the upper accrual point in a moment. I will move on to the individual points raised and start with my noble friend Baroness Hollis. She asked specifically about the lower earnings limit and its link to the basic state pension and expressed a concern that when pensions are increased by earnings, this could drag up the lower earnings limit and therefore exclude people from benefit. It is typical that my noble friend focuses on the lower paid when others have looked at the other end of the scale. This problem was identified and the Pensions Act 2007 makes amendments to break the link between the LEL and the basic state pension from when the basic state pension becomes earnings linked. Breaking that link will avoid the issue that my noble friend has focused on. The noble Baroness, Lady Noakes, and my noble friend referred to the issue of class 3 buy-back contributions. I reject the assertion that the Government have reneged on their commitment. What was set out at the time in the other place by my honourable friend Mike O’Brien and repeated by me here was that we would look to try and make the proposition work but having regard to fairness, affordability and simplicity. A lot of work has been done since our debates with HMT and HMRC and stakeholders have had some informal meetings to try and make the proposition work. Our priority and the priority of my noble friend, as expressed tonight, was to find an option which would particularly target women on low incomes living in this country. The challenge has been to come up with a proposition that fits that description. Poorer pensioners are likely to be better off if they are close to retirement under pension credit and it would therefore not benefit them to pay voluntary contributions. They may find themselves paying voluntary contributions and getting no benefit because there would be a withdrawal of pension credit pound for pound. The cost of six years of class 3 contributions is currently around £2,500 and around three quarters of households in the bottom three income deciles containing women aged 55 to 59 have less than £5,000 in savings.