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National Insurance Contributions Bill

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. The Government did not buy into 2010 for starting the package, and in particular the earnings link, but they said in their 2006 White Paper that, "““we will ... reform the State Second Pension so that it becomes a simple, flat-rate weekly top-up to the basic State Pension. Accruals will start gradually to become flat rate at the same time as we start to uprate the basic State Pension by earnings””." Therefore, the flat-rating was going to start in 2012 at the earliest and possibly as late as 2015. Having slipped the start date, the Government nevertheless estimated that flat-rating would be completed by, "““around 2030 or shortly afterwards””." By keeping the 2030 date, the Government inevitably implied that the line for achieving the flat-rating would be steeper than suggested by the Pensions Commission, but it was not a magical date because it was qualified by the words ““or shortly afterwards””. However, the date of 2030 now appears to have achieved a sort of mythical status. The Bill allows the flat-rating to be started on a date even earlier than that posited by the Pensions Commission. It is now to start in 2009, so the curve will be even steeper if it is achieved by 2030. In practice, this means that the Treasury will screw more money out of employers, as contracted-out rebates in the early years will be reduced to the tune of around £450 million each year. The Government have a prepared story for this about increasing the upper earnings limit, which is what the Bill is about, but we are not fooled by that. Just because there will be a higher upper earnings limit so that more people will contribute at higher NI rates, that does not mean that they should have their extra NI contributions confiscated immediately by an S2P flat-lining reduction. For us that is not logical, although I can see that it plays to the redistributive instincts of some in the Labour Party. However, that is not what it is about; it is just a convenient way to grab some money for the Treasury. It is a Treasury stealth tax aimed at squeezing employers and pension funds, which do not vote. Having said that, we have accepted the flat-rating of S2P and, indeed, we would accept the acceleration of the flat-rating, but the Government have to come clean on the rest of the Pensions Commission package and, indeed, on their own White Paper package. The most important thing for pensioners is the question of when the Government are going to use earnings to uprate pensions, but the Government are saying absolutely nothing about that. The Government continue to cherry-pick the things that raise money but will not provide any certainty about when they will start giving some money to pensioners through the enhanced uprating. Therefore, when replying, the Minister need not recite his version of why flat-rating is the right thing to do in 2009—we think that it is a fiction. The important thing is that, as the Government have chosen to accelerate this one bit of the package of pensions reform—the bit that suits them—they are now duty-bound to give undertakings about the rest of the reforms. It is that small but significant point that I wish to raise in this debate on clause stand part. I hope that the Minister can give us a proper indication of when indexation by reference to earnings will resume as some recompense for the tax-raising element of accelerating the state second pension flat-rating. I look forward to his response.