Clause
6
Preservation
of link with prices in case of other
benefits
11.45
am
Question
proposed, That the clause stand part of the
Bill.
Mr.
Waterson:
I am sure that the Committee will be delighted
to hear that I shall be very brief in discussing this clause. Compared
with its predecessor, clause 6 is a relatively inoffensive clause; it
has certainly not attracted an awful lot of comment from outside
bodies. However, I wanted to raise a couple of issues before we move
on.
Clause 6, along
with its various related consequential amendments, is designed to
ensure that, for some benefits, the preservation of the link with
prices rather than earnings will continue, but some benefits will be
linked with the basic state pension as and when it comes to be linked
with earnings—we do not want to go back over the issue of when
that day will dawn. One example of the second category of benefits is
bereavement benefit.
I
am asking the Minister to address two issues in his comments. First, I
should like him to explain the reasoning behind the distinction between
the two groups of benefits. I assume that the reason for the groupings
is financial. I should be grateful if he would indicate the kind of
saving that is expected by making this distinction between the two
groups of benefits: those that will be clinging to the coat tails of
the basic state pension, in terms of uprating with earnings in due
course; and those that will continue, for ever and ever, to be linked
to the level of prices. That is all I have to
say.
The
Parliamentary Under-Secretary of State for Work and Pensions
(Mr. James Plaskitt):
You will recall,
Mr. Taylor, that in our discussion of clause 5 we provided
for the earnings uprating of the basic state pension, the standard
minimum guarantee in state pension credit and industrial death benefit.
Clause 6 completes the picture. It amends section 150 of the Social
Security Administration Act 1992, which provides for price uprating.
Essentially, clause 6 removes references to the benefits that will now
be uprated in line with earnings, while preserving the existing
position for other benefits. I think that the answer to the second
question by the hon. Member for Eastbourne is that this process is
about maintaining the status quo; it is not about delivering any
savings in expenditure.
The changes that relate to the
basic state pension, industrial death benefit and bereavement benefits
have effect in relation to the designated tax year. The
changes that relate to the standard minimum guarantee have effect in
relation to the year in which the Act was passed. Historically, the rate of
certain bereavement benefits has been linked by legislation to the rate
of the basic state pension, and consequently they have been uprated in
line with that. As I explained before, clause 5 maintains that link in
the case of industrial death benefit, because most people receiving
that benefit are over state pension age—I think that is the
answer to the first question by the hon. Member for
Eastbourne.
However,
other bereavement benefits—widowed mother’s allowance,
widow’s pension, widowed parent’s allowance and
bereavement allowance—are paid to people during their working
lives, when people have needs and responsibilities that are different
from those of pensioners. If we did nothing, those bereavement
benefits, which at the moment are uprated in line with prices, would
instead increase in line with earnings, as a consequence of the
earnings uprating of the basic state pension.
Our policy commitment was to
uprate the basic state pension and the pension credit standard minimum
guarantee by earnings. Working-age benefits will remain linked to
prices, as they are now. So I repeat to the hon. Member for Eastbourne
that the clause maintains the status
quo.
The clause breaks
the link between the rate of the basic state pension and those
working-age bereavement benefits, so that those benefits will continue
to be increased by prices, as they are now, in line with other
working-age benefits.
Sections 39 and 39C of the
Social Security Contributions and Benefits Act 1992 provide the
legislative links between the rate of the basic state pension and
bereavement benefits. Clause 5(5) and (6) amend those sections, the
effect of which would be to remove the links to the rate of the basic
state pension.
Given
that there is, at present, no legislative mechanism to determine the
separate rates of these benefits, the Bill gives the Secretary of State
powers to make regulations that prescribe new rates for these
bereavement benefits before the basic state pension starts to be
uprated by earnings. Clause 5(9) will ensure that the prescribed rate
of bereavement benefits will be the same as the basic state pension
until that is uprated in line with earnings. After that, the new
prescribed rates of bereavement benefit will be uprated by prices via
section 150 of the Social Security Administration Act 1992. For those
reasons, I hope that the Committee will agree to the clause standing
part of the
Bill.
Question put
and agreed
to.
Clause 6
ordered to stand part of the
Bill.
Clause
7
Removal
of link between lower earnings limit and basic
pension
Question
proposed, That the clause stand part of the
Bill.
The
Chairman:
With this it will be convenient to discuss the
following:
Clause 8
stand part.
New clause 18—Lower
earnings limit—
‘(1)
Section 5 (earnings limits) of the SSCBA is amended as
follows.
(2) After subsection
(2) insert—
“(2A)
A person’s gross earnings from all sources shall be aggregated
when determining whether an individual is above the lower earnings
limit.”.’.
Andrew
Selous:
I, too, welcome you to the Chair, Mr.
Taylor.
Clause 7
removes the link between the lower earnings limit and the basic
pension. The lower earnings limit is £84 a week at present,
which equates to an annual qualifying earnings factor, as pension
legislation calls it, of £4,368. The effect of the clause will
be that the lower earnings limit will not automatically increase in
line with earnings in the future. Instead, any future increase in the
lower earnings limit will be at the Treasury’s discretion; that
will happen when the basic state pension is linked to
earnings.
I have huge
sympathy with the intent of new clause 18, which identifies an issue
that was raised on Second Reading by at least three Labour
Members—the hon. Members for Colne Valley (Kali Mountford), for
Amber Valley (Judy Mallaber) and for Northampton, North, and I
understand precisely what it would do. It deals with people who have
several part-time jobs, each of which on its own is below the lower
earnings limit on which national insurance contributions have to be
paid in order to accrue a pension at a later date. However, when those
jobs are taken together, the total gross earnings come above the lower
earnings limit.
To
put some flesh on the bones, typically—though not
exclusively—it tends to be women who are in those circumstances.
The hon. Member for Amber Valley gave the example on Second Reading of
someone who may work as a dinner lady at lunchtime and in a corner shop
in the evening.
A
helpful briefing provided by Help the Aged estimated that about 600,000
women are not accruing pension rights because their earnings are below
the lower earnings limit. About 50,000 of those women have more than
one job, so they could benefit from the proposal.
Although I said that I
understand the purpose behind the new clause, and have much sympathy
with it, I have a question about its practical impact. On Second
Reading, responding to an intervention by the hon. Member for Colne
Valley, the Secretary of State said that it would be
“extremely difficult from an
administrative point of view.”—[Official Report,
16 January 2007; Vol. 455, c. 662.]
My question is how new clause 18 would
work practically with the payrolls run by employers on a computer, or
manually if they are smaller employers. There is also the issue of the
cost to employers if an employee for whom they do not pay
employer’s contributions goes above the primary threshold, which
is £97 a week, at which point the employer has to pay 12.8 per
cent. Employer’s national insurance contributions, and the
employee has to pay 11 per cent. One could imagine a situation in which
some women would be priced out of a job, as employers might choose not
to offer them work because of the cost.
Will the Minister comment on how
class 3 voluntary national insurance contributions could be paid by
employees who are in work and earning below the lower earnings limit,
to enable them to accrue rights towards the basic state pension? Class
3 contributions can be paid by anyone over the age of 16 to enable them
to qualify for the basic state pension. The rate is currently
£7.55 a week. As the employees concerned would not be paying
contributions otherwise, it would not be an additional payment. If that
would be the right way to go, how can the Government bring the option
of paying class 3 contributions to a wider audience?
I am not asking the Department
to spend more on its promotional material, but it could flag up the
option of paying class 3 contributions in the advertising that it
already puts out. In the course of communications between employers and
employees, such as payslips or P60s, it would be possible to alert
everyone who earns below the lower earnings limit to that option. I
should be grateful if the Minister would comment on that suggestion. I
know that he understands the problem that is addressed by proposed new
clause
18.
Mr.
Laws:
We have no fundamental disagreement with clauses 7
or 8. Proposed new clause 18 is in my name and that of my hon. Friend
the Member for Solihull. She was one of the hon. Members to raise this
issue on Second Reading, along with a number of Labour Members, notably
the hon. Member for Colne Valley, who made a detailed speech and feels
passionately about it. The hon. Member for Dumfries and Galloway also
made an intervention during the debate.
The issue
relates to how the Government, within the confines of their own
approach to pensions entitlement, will include some of the groups that
have been left out in the past. The hon. Member for South-West
Bedfordshire set out in a detailed, fair way the nature of the problem
and some potential impediments to possible solutions.
The proposed new clause is
designed to help people with earnings from multiple sources who do not
earn at least the lower earnings limit in any one job and therefore end
up without a full entitlement to the basic state pension. The inclusion
of more individuals in the scope of the basic state pension has been an
important part of the Government’s approach. It is an important
part of the Bill, which we have already discussed to some
extent.
In its second
report, the Pensions Commission drew attention to the fact that many
female pensioners suffer from problems of the type that we are
discussing. The report argued that the need to include those
individuals and the practical difficulties of doing so made a strong
case for replacing the existing contributory system with a universal
pension that would be payable to all who meet a residency test. It
pointed out that within the confines of the existing system, it is
difficult to fix the problem of individuals who have multiple jobs that
are all below the earnings
limit.
12
noon
The magnitude
of this problem is set out in the Department for Work and Pensions 2005
report on
women and pensions. The report describes how at that time approximately
2.2 million women were not accruing an entitlement to a full working
state pension, and of those about 600,000 were earning less than the
lower earnings limit, which was at that time £82 a week. Fifty
thousand of those individuals are people whom the Government believe to
have more than one job and therefore people who would be affected by
this new clause, which has good support not only in this place but from
a number of bodies outside parliament, including Help the Aged, Age
Concern and the Equal Opportunity
Commission.
Andrew
Selous:
I thank the hon. Gentleman for his kind words
about my introductory remarks. He has mentioned outside bodies to which
he has spoken. May I ask him specifically to deal with the issues
regarding employers and the practicalities of how we make this work
within a payroll system? Employers have raised these issues with me.
There is also the issue of cost for employers; before we blithely add
costs, we need to look at that aspect as
well.
Mr.
Laws:
The hon. Gentleman correctly draws attention to the
practicalities of what we are seeking to do and of what was raised on
Second Reading, and also the potential costs that could fall to
employers. We are not unconcerned about those matters at all. Without
going too wide of this particular debate, that is one of the reasons
why we favour a pension system based on residency rather than on
accruals, because it can be difficult and expensive to fix some of
these problems. We know that the Government do not want to go down that
route. They have said that their fundamental objection is not one of
practicality but one of principle. But they believe it is right for
people to receive state pensions in return for making economic or
social contributions during their working lives.
We believe that the
Government’s attempts to ensure that the uptake of the full
basic state pension is increased to include as many groups as possible
implies that they have an end aspiration to ensure that as many people
as possible get the full basic state pension. We would prefer to
enforce the responsibilities on people to seek employment and not
simply rely on the benefits system in other ways. We know that the
Secretary of State has made some proposals on this to date in relation
to lone parents. We accept that there are some responsibilities within
the benefits system. We have not seen any evidence to date, unless the
Minister can contradict me, that the motivation of people of working
age in relation to employment, caring and so on is greatly affected by
the issue of national insurance contributions. Of course, the fact that
the Government have a means-tested level of pension that is set above
the level of the basic state pension, to some extent cuts against their
desire to have a contributory principle telling people that they are
not going to get something for
nothing.
In some ways
my answer to the hon. Member for South-West Bedfordshire is that that
is precisely why we are concerned about the contributory principle that
he and the Government have stuck with and why we would like to see a
residency principle. We believe that the problem is that the Government
will take increasing
steps to try and include as many groups as possible when some sort of
universal residency-based pension would be more sensible. The hon. Gentleman rightly
explains some of the difficulties that may face the Government in
having records that ensure that they can identify these 50,000 people.
He also rightly identifies the problems that employers might experience
if they have to bear the costs. I believe that that was behind the
comments made by the Secretary of State on Second Reading when the hon.
Member for Colne Valley made her speech. I should be interested to hear
how the Government intend to fix these problems. It would be bizarre
for me to suggest that we should have a residency-based pension system
with these difficulties, but then propose a series of detailed and
thought-out amendments to deal with problems of the Government’s
own making.
First of
all today I would like the Government to accept as a real concern that
some hard-working people on low pay are potentially not going to get a
basic state pension. I do not think that any of us would want them to
be left out. Then I would like to hear how the Government might deal
with the potential anomaly in a practical way that would not impose
unsatisfactory burdens on employers. That is what I am hoping to hear
from the Minister. If he encourages us to think that the Government
will bring forward measures to fix this, then there will be no need to
press any of the amendments to a
vote.
Lorely
Burt (Solihull) (LD): I wanted to add a few remarks to
those of my hon. Friend and to remark further on the interesting and
valuable comments by the hon. Member for South-West Bedfordshire. When
I first submitted my amendment, I was thinking that a simple and fair
solution would be to widen the eligibility for pension contributions
where people have more than one job but none on its own qualifies
towards national insurance contributions. The simplicity has been taken
out by the practical implications; I will come to that in a moment.
However, I am sure that no hon. Member would deny that, if possible, in
a spirit of fairness, it is desirable to aggregate those
people’s jobs, so that the poorest, who need their basic state
pension the most in retirement, can hopefully be pushed over the lower
earnings limit and therefore be able to make some sort of national
insurance
contribution.
On
Second Reading, several hon. Members gave practical examples of the
sort of person who would be affected. A disproportionate number of the
people who would benefit from the application of the new clause would
clearly be women. One might be a woman who does several jobs to fit
around a caring role. Perhaps she is a dinner supervisor at lunchtime
and a bar steward in the evening. She is putting caring first. She is
literally working all hours. She deserves that the money she is
earning, the fruits of her labours, should count towards eligibility
for her
pension.
The
hon. Member for South-West Bedfordshire discussed the practical
implications. I completely understand his concerns. I thought that his
suggestion about class 3 voluntary national insurance contributions
might be one way of tackling the matter. If someone has two jobs, would
it be beyond the wit of Her Majesty’s
Revenue and Customs to facilitate pro rata contributions? Could this be
one instance where the computer says yes? If HMRC can work out complex
formulae and contribution costs, implementing some form of pro rata
system would be possible. That is what I would hope. The Government are
committed to widening the circle of people who can earn credits towards
their pensions. I hope that the Minister will look at the new clause
and see whether the gurus in HMRC could find a way for the computer to
say yes on this
occasion.
James
Purnell:
I seek your guidance, Mr. Taylor. Do
you want to take clause stand part as part of the
amendments?
James
Purnell:
I start by putting the amendment in its proper
context. Our previous debate was about how clause 5 provides for the
earnings rate uprating of the basic state pension, and if no other
action were taken a consequence of the basic state pension being
uprated in line with earnings would be that the lower earnings limit
would also automatically increase by the same amount. Clauses 7 and 8
are therefore needed to prevent that from happening automatically. I
take it from the speeches by the Opposition Front-Bench spokesmen that
they agree that that needs to be corrected.
It may be helpful briefly to
explain the lower earnings limit and why we would wish to prevent it
from automatically increasing in line with earnings. The lower earnings
limit, currently £84 a week, is the earnings point at which
employees start to build up entitlement to contributory working-age and
pension benefits. Another way of looking at the lower earnings limit is
to think of it as the benefit entry point.
National insurance
contributions do not become payable until an individual has earnings at
or above the primary threshold, currently £97 a week. People
with earnings at or above the lower earnings limit but below the
primary threshold are treated as though they have paid national
insurance contributions. At the moment, the lower earnings limit
increases in line with prices because it is linked by legislation to
the weekly rate of the basic state pension. If hon. Members are
interested, that is through section 5 of the Social Security
Contributions and Benefits Act 1992.
Ms
Keeble:
Will my hon. Friend repeat the passage where he
said that people who earn below the lower earnings level are treated as
if they have already paid their national insurance contributions,
because I did not get the exact wording? Is that right? Is that what he
said?
James
Purnell:
That is between the lower earnings limit, which
is £84, and the primary threshold, which is currently
£97.
Ms
Keeble:
And they are treated as having
paid?
James
Purnell:
Yes. Once the basic state pension has increased
by earnings, as I have said the lower earnings limit would also rise in
line with earnings. We do not believe that the lower earnings limit
should
automatically increase with earnings simply as a
knock-on effect of the changes to the basic state pension that we are
making. For that reason, clause 7 breaks the legislative link in the
Social Security Contributions and Benefits Act 1992 and that is the
main purpose of the clause. The LEL is prescribed by regulation 10 of
the 2001 contributions regulations and is amended annually by the
Treasury. Regulations made annually by the Treasury through the setting
of the LEL are subject to negative procedures in this House. Clause 8
makes corresponding amendments in the Social Security Contributions and
Benefits (Northern Ireland) Act 1992 as it is just an equivalent change
for Northern Ireland.
I turn to the amendments before
us. I am happy to give the hon. Member for South-West Bedfordshire the
assurance that he wanted, which is that of course people can make
voluntary contributions if they are earning below the LEL. They can
make class 3 contributions. People in that category who are not getting
NI credits in other ways would get deficiency notices from HMRC which
would alert them to the fact that they had a deficient year and the
possibility of paying national insurance contributions. We are always
open to suggestions on how that could be more widely publicised,
although obviously with the caveat that we would not want to increase
burdens on employers in an unjustifiable
way.
Andrew
Selous:
I am grateful to the Minister for that
reassurance, but will he take that point back to the Department? Given
that according to Help the Aged there are at least 50,000 women who
should be paying national insurance if we look at their gross earnings,
we need to be more imaginative and do a bit more, and it would be
possible in terms of existing communications not only from the
Department but also those communications that employers already send
their employees—such as a payslip and a P60. Will he ask his
officials to look further at the matter to see what more could be
done?
James
Purnell:
I would have a worry about a commitment to place
such a burden on employers. We are talking substantially about people
who may have a limited payroll system or personnel department. My
instinct is that the right approach is through the deficiency notices.
I am happy to set out to the hon. Gentleman how that and everything
else is being done and to show him the exact letters, if that would be
helpful.
Andrew
Selous
indicated
assent.
12.15
pm
James
Purnell:
The hon. Gentleman indicates that it would, so I
shall happily do
that.
I am grateful to
the hon. Member for Yeovil for raising this issue because it is
important that we debate it. He is right to say that our overall goal
should be to give people contributing, through work or care
responsibilities, the ability to build up state pension entitlements.
However, there is a difference of principle between our approaches: we
believe that certain contributions should be recognised, but that
others
should not. For example—this is an extreme—we do not think
that people in prison have the same right to build up contributions to
their basic state pension as someone caring for children or making
class 1 NICs. The hon.
Gentleman might have a different point of view. It is worth noting also
that his policy is not for a universal residents pension because that
would imply that anyone in the country over the state pension age would
get the same pension, which would create the illusion that one could
get rid of any kind of means-testing. I think he knows that doing so
would create difficult political problems owing to the sorts of people
who would be getting a full basic state pension. His policy, therefore,
is for a person to build up a year’s contribution for every year
that they are resident in the UK, which would not be
universal.
Mr.
Laws:
Returning to his prison example, will the Minister
clarify whether somebody in prison for a period of their working life
will still be entitled to the Government’s minimum means-tested
level of benefits above the basic
pension?
James
Purnell:
The two are different. One is a poverty
alleviation measure and the other the contributory principle by which
people build up their state pension. So, as always, the hon. Gentleman
has not quite answered my questions about the details of his policy. I
suspect that that is because he does not actually know the answers, or
because they are so unpalatable that he wants to delay setting them out
for as long as possible. However, the Committee has a few more days to
go and we may get more satisfaction before the end of our
deliberations.
The
hon. Gentleman and other speakers today are right to say that this is
an issue mainly about women. The family resources survey estimates that
fewer than 50,000 women have two or more jobs that individually pay
less than the lower earnings limit, but pay more together. As has been
kindly recognised, many of the measures in the Bill are driven by the
desire to recognise caring contributions more effectively than we do at
the moment. In fact, the core measure—the shift to a 30-year
contribution limit to the basic state pension—will largely
address the problem that we are discussing today. A minority of women
might find themselves in that situation for a period of their lives,
but the reduction in the requirement to 30 years should largely deal
with it.
It is worth
saying also that people with earnings below the lower earnings limit do
not necessarily fall through the system. Even though they might not be
contributing through their work, they might qualify for home
responsibilities protection, through child benefit, under our changes
to the weekly credits, or through national insurance credits—for
example, the carer’s allowance. The hon. Member for Solihull
gave the example of women eligible for carer’s credit or
receiving child benefit who, therefore, would be building up an
entitlement. They could also build it up through working tax credits
or, indeed, maternity
pay.
So, as a
consequence of the Bill, we will improve the flexibility of those
credits and reduce the number of years required. Taken together, those
two measures will largely address the problems identified in the
amendments.
Mr.
Laws:
The Minister might be coming to this, but is his
objection to the new clause one of principle or simply
practicalities?
James
Purnell:
I am coming to that. It is indeed the
practicalities. Given the practical difficulties and given that the
other significant measures in the Bill may, in large part, address the
question that the hon. Gentleman is raising through his amendment, the
great practical difficulties of doing this may not be justified by the
benefit that would be achieved.
Indeed, the Pensions Commission
looked at this issue and it said clearly in its second report that
requiring employers to record and pass on details of earnings below the
lower earnings level, so that they could then be aggregated, would
significantly increase costs for employers. In that, as in most of this
Bill, we concur with what the Pensions Commission said. The Government
have also looked carefully at aggregation, but I am afraid that there
is no straightforward mechanism to allow earnings from multiple
employers to be aggregated in a way that would not impose excessive
additional administrative burdens and costs on
business.
One of the
key principles of national insurance for people in employment is that
both the employee and their employer should contribute towards benefit
entitlement. If the employee alone were to contribute then the amount
of payment needed might be prohibitive. The employer contribution helps
fund entitlement benefits in both the shorter and longer terms. And it
is because of this employer’s secondary contribution that the
system is able to work overall. Unfortunately, that would be very
difficult to do if earnings were to be aggregated in this
way.
If earnings were
aggregated, it is not immediately obvious how the employer’s
contribution could be easily calculated. The employer’s
contribution would be variable: it would be a percentage based on an
employee’s earnings in their work compared with their earnings
with another employer. Collecting and calculating it would impose
significant administrative burdens on employers. Indeed, the percentage
required might change from month to month and even week to week. It
might also make the cost of hiring someone uncertain. The employer
would not necessarily know about other jobs that the individual might
have, and therefore whether they would need to pay some
employer’s national insurance contributions.
We cannot have a system to
aggregate earnings for benefit purposes but exempt people from paying
national insurance contributions on those aggregated earnings. That
would clearly be unfair. Let me give the Committee an example. If a
person has two jobs, each for 10 hours a week at the national minimum
wage, the total weekly earnings would be £107. But national
insurance contributions would not be payable, either by the employee or
the employer. Another person working the same hours at the same wages
for one employer would pay national insurance contributions of
£1.10 a week and receive pension entitlement. The employer would
pay £1.28 a week. It would clearly be unfair to have a situation
where the person in the first category was given pension entitlement
but did not pay those contributions if someone who was earning the same
amount through one job did.
Mr.
Laws:
I quite understand the Minister’s point.
Could he recap on those figures? What would be the excess of national
insurance contributions paid by the fully employed individual in a year
versus his example of the individual who was in two jobs, which was a
times 52 multiplication of the figures he used? I should just like to
be clear about how big an injustice we are talking
about.
James
Purnell:
I think we are talking about £58 a week. I
hope that I have avoided my Dan Quayle moment. That may not sound like
a significant amount of money to the hon. Gentleman, but the fact that
one person would pay tax on a level of earnings and receive pension
entitlement and the other person would get the pension entitlement but
not pay the tax would clearly derail this proposal. That is in addition
to all the burdens on
employers.
Lorely
Burt:
I start by apologising for my lack of expertise in
this area. It is not my field. Is the Minister saying that it would not
be possible for the first person in the example, who had the two
part-time jobs, to pay pro rata national insurance contributions, and
that HMRC could not advise the two employers of their requirement to
pay pro rata national insurance contributions? Would that not increase
revenue to the Government, enabling them to pay a basic state pension
in the fair way that they seek to
achieve?
James
Purnell:
I do not think that that would be possible. We
are talking about an end of the labour market at which people might not
have absolute clarity about what they pay; their payments might shift
from week to week due to flexible working patterns. Indeed, their
employers might not have terribly sophisticated pay-as-you-earn
systems. It is worth saying that the effect of burdens on employers at
that end of the market could be disproportionate. Given that we are
talking about people who are not paid significant amounts of money,
even a relatively small burden on employers could have a significant
effect on employment patterns. At that end of the market, the key thing
is to enable people to get back into work so that they can progress to
more hours and higher earnings if
necessary.
Lorely
Burt:
I totally understand; and I agree about the
disproportionate effect on small employers. The Liberal
Democrats’ policy on national insurance and employee-related
payments is that in the case of small businesses the employer should
not bear the burden. How would the Government feel about extending the
measure to lift the burden completely from small
employers?
James
Purnell:
Well, this is a new version of the money
tree—not just increasing spending but reducing the amount of
taxation that is received to pay for it in the first place. I shall be
happy to look at the hon. Lady’s detailed proposal when the
Liberal Democrats have decided exactly how they will fund that.
However, I do not want to tax your patience, Mr. Taylor, by
straying too far beyond the amendment.
There are, of course, people in
that category who choose to work in that way. There might well be
people who, for whatever reason, want jobs that are individually below
the LEL. They might choose to do so or they might
not—
Andrew
Selous:
I am intrigued as to why somebody would want to
stay below the LEL. It is not something that I have thought
about.
James
Purnell:
Without wanting to be too blunt about it: so as
not to have to pay national insurance. It might be that people do not
choose to do that but that they have to, in order to look after
children or somebody who is sick or because it is a temporary part of
their work pattern. That is not a pattern that is common throughout a
person’s working life; it appears to be something temporary. As
I said at the outset, our reforms, particularly the reduction to 30
years for carers’ credits, will benefit many people in that
situation. I see that the hon. Member for Yeovil is still doing long
division. I am starting to worry that he is about to intervene on
me.
We accept that
other, more difficult, circumstances might result in people not getting
a full basic state pension. It is right that we should seek to
understand who will retire without a full basic state pension and what
circumstances have led to that situation. That is the matter on which I
think the hon. Gentleman was asking us to do more research. I am happy
to give him a commitment to do so. We are undertaking research to
establish more about those who do not qualify for the full basic state
pension. We are also going further, and including those who will retire
in 2025 without a full basic state pension. We hope to publish the
results of that research in summer 2007. Perhaps, at the same time, the
hon. Member for Yeovil would like to publish his proposals as to how he
will fund his universal residential citizens pension at the unknown
level—
Mr.
Laws:
I missed the precise detail of what the Minister was
suggesting, for which I apologise. Was it that he is going to do
research on all categories of people not getting the basic state
pension, or does he hold out a small prospect of seeking a solution to
this particular problem? I am looking for him to clarify whether he
thinks that will ever be soluble within the existing
system.
12.30
pm
James
Purnell:
The hon. Gentleman was obviously looking for a
calculator when I was making my key commitment to address his concern.
Our research is to look at people who would not be eligible for a full
state pension, both in 2025 and 2050. It is too early to say whether
this is a key contributor to that, or whether it is addressed through
other means—for example, people’s eligibility through
child benefit or the carer’s credit, or because of the 30-year
rule. The key point is to look at the 5 to 10 per cent of men and women
who might not get a full state pension in 2025, and whether that
reflects the contributory principle appropriately or is an
unintended consequence of our policy. That is the research that we are
committing to publish in summer 2007.
I hope that
that gives the hon. Gentleman the assurance that he wants. I have tried
to set out the thinking here. The Bill intends to widen coverage for
people in this category and its main provisions, which we have debated
elsewhere, are the effective way of doing so. A significant burden, in
both administrative and, potentially, national insurance terms would
outweigh the advantage that would come from this
provision.
Mr.
Laws:
I want to respond briefly to the Minister. I am
grateful for his detailed explanation. It is useful that he has
acknowledged that the Government fundamentally want this group of
people to be included in the basic state pension system, and that the
issue is entirely one of practicality rather than principle. I also
accept his point that the 50,000 figure is likely to reduce over time,
because of other changes by the Government. I do not know how
significantly that 50,000 will reduce, or whether the Department has
made any estimate of that in relation to other changes. I assume that
it might be quite tricky to do so, as a lot of assumptions would have
to be made, but it would be useful if the Minister would let Members of
the Committee know in writing whether there is, perhaps, an order of
magnitude by which the 50,000 problem is to be reduced.
The Minister has, essentially,
set down a challenge to those who are interested in this
issue—including ourselves and others outside this
place—to table a detailed additional amendment, perhaps at
another stage in our proceedings, demonstrating that the aspiration
here might be practical. Clearly, that could be designed to deliver the
inclusion of these individuals within the existing system, by tweaking
the records of national insurance contributions that they are making,
or by seeking to advantage those individuals, who will be on very low
incomes, regarding those contributions that they do or do not have to
pay.
I appreciate
that the Government do not want to create an incentive for people to
give up their full-time jobs and acquire a number of different
part-time jobs. Sometimes, legislation creating such anomalies can
result in people changing their behaviour in an undesirable way.
However, on the face of it I should not have thought that there were
huge numbers of people who are, as in the exchange between the Minister
and the hon. Member for South-West Bedfordshire, structuring their work
arrangements around some desire to avoid the lower earnings limit.
After all, the amount of national insurance contributions that they pay
will be pretty small. It is far more likely that they will acquire
these jobs because only part-time jobs are available or
because—as my hon. Friend the Member for Solihull
indicated—they are trying to fit around other caring
responsibilities.
I
was trying to do some calculations, as the Minister spotted, on his
£52 and 52 weeks, and everything else. I may have got it all
wrong, as I am not always right on such things, but his estimate of the
cost differential of £52 per week between the individual on low
pay in full-time employment versus the individual who splits their job
into two jobs and gets underneath the LEL, sounded to me very large.
Fifty pounds per week—£2,500 per year—sounds like
a large contribution for somebody on a very low
income.
Mr.
Laws:
The Minister suggested when he responded that the
differential would be £50 per week, but he is now saying that it
would be £50 per year. That is not a particularly large sum of
money. It is not a particularly large incentive to structure
one’s behaviour in a different way. That has left some of us
with some ideas—some problems, perhaps—about how to deal
with this particular anomaly. The Minister has invited
us to consider whether there is anything that would
be workable and practical that we could do and, if there is, to bring
it back at other stages in our
proceedings.
With that
in mind, I will not press the new
clause.
Question
put and agreed
to.
Clause 7
ordered to stand part of the
Bill.
Clause 8
ordered to stand part of the
Bill.
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