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Lord Newby: My Lords, I hope that the noble Lord, Lord Mackay, will not object too much if I agree with him on one point at least; namely, that the argument the Government advanced both in another place and here that the interests of the regions of Scotland and Wales would be met by members of the court will not hold up. As far as I can recall, it was not an argument that was advanced during the debates in this place when the Bill was first considered. One read about it for the first time in the other place and we have heard it again here today. I do not believe that the argument for having a regional voice on the Monetary Policy Committee is adequately dealt with by reference to membership of the court.

Noble Lords who sat through earlier debates on this Bill will remember that we had a number of discussions about how we would get beyond what I have called the "charmed circle" in terms of members of the Monetary Policy Committee, which the noble Lord, Lord Mackay, called the "home team" and the "away team". In our view the Bill clearly does not do that because it sets no constraints in terms of regional representation on the Monetary Policy Committee. At Committee and subsequent stages we discussed how best to make sure that the nations and regions of the country should be represented on that committee. We grappled with that issue here, and my colleagues in another place attempted

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to do so by tabling an amendment when your Lordships' amendment was debated there. That amendment would have attempted to address the matter. However, as noble Lords may be aware, that amendment was not called. There was frustration because the Liberal Democrats were unable to put forward their own amendment and the Government were not prepared to give any commitment whatever to regional or national participation on the Monetary Policy Committee. Therefore, for reasons which I perfectly well understand, the Liberal Democrats decided to vote in favour of this amendment.

One factor which has been extremely enjoyable for those of us who have been advocating a large measure of devolution for Scotland, Wales and the English regions as this Bill has progressed has been the extraordinary enthusiasm with which the noble Lord, Lord Mackay, has advanced these causes. It is an enthusiasm which I did not have the advantage of hearing before the last election. It may be that that was because I was not a Member of this House and therefore was unable to hear the passionate speeches by the noble Lord about the role the Scots should play by having their own parliament and a great degree of devolved authority. Perhaps the noble Lord has been able to spend more time in Scotland since ceasing to be a Minister and therefore has a greater understanding of the views of the Scots on these matters. It is interesting and gratifying that the noble Lord is now such a firm and resolute advocate of the Scottish interest.

For a long time we have been seeking ways to give the Scottish, Welsh and English regions far greater control of their own decision-making on economic and social issues. We continue to argue that case on this Bill. We have grappled to find the best solution. I am not sure whether the noble Lord, Lord Mackay, intends to divide the House on this matter but, if he were to do so, we on these Benches would vote as we voted previously. I hope that that answers the noble Lord's question--

Lord Mackay of Ardbrecknish: Where?

Lord Newby: In this House!

4 p.m.

Lord Haskel: My Lords, far be it from me to enter into an argument between the parties opposite on their voting records. I am afraid that I do not have the courage for that this afternoon.

The noble Lord, Lord Mackay, quoted Clause 2(1), which delegates to the Monetary Policy Committee its precise responsibility for judging the effect of monetary policy on inflation. However, a little further into the Bill, we find Clause 16(1), from which I quoted, which states:


    "The court of directors of the Bank shall keep the procedures followed by the Monetary Policy Committee under review".
It follows that if the Monetary Policy Committee does not follow the procedure of taking into consideration regional and sectoral interests, the court can do something about it. I do not agree with the noble Lord that the wording of the Bill negates my argument. I believe that in those two clauses it strengthens my argument.

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The noble Lord, Lord Mackay, said also that he would prefer to choose the members of the Monetary Policy Committee on the basis of where they live rather than on their ability. I should prefer to see appointments being made according to ability to control inflation. The members of the Monetary Policy Committee are appointed for their expertise, knowledge and ability to reach decisions about the appropriate level of interest rates for the whole of the United Kingdom. I can only repeat that Clause 16 will place a statutory duty on the court of the Bank of England to keep under review the way in which the Monetary Policy Committee reaches its decisions--

Noble Lords: No!

Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Lord for giving way, but I cannot let him off on that point. The provisions state that the court has a duty to make sure that the committee,


    "has collected the regional, sectoral and other information necessary".
There is a huge difference between collecting information and making decisions based upon it. I am concerned about the decisions, not about whether the committee collects the paper. I am sure that it will have more than enough paper.

Lord Haskel: My Lords, but the Bill also places on the court the statutory duty to review the way in which the committee reaches its decisions. Therefore, I urge the House not to insist on their Amendment No. 5.

On Question, Motion agreed to.

Social Security Bill

4.4 p.m.

The Parliamentary Under-Secretary of State (Department of Social Security) (Baroness Hollis of Heigham): My Lords, I beg to move that the Bill be now further considered on Report.

Moved, That the Bill be further considered on Report.--(Baroness Hollis of Heigham.)

On Question, Motion agreed to.

Lord Haskel moved Amendment No. 39:


After Clause 50, insert the following new clause--

Class 1 contributions

(".--(1) For subsection (1) of section 5 of the Contributions and Benefits Act (earnings limits for Class 1 contributions) there shall be substituted the following subsection--
"(1) For the purposes of this Act there shall for every tax year be--
(a) a lower earnings limit (for primary Class 1 contributions);
(b) an upper earnings limit (for primary Class 1 contributions); and
(c) an earnings threshold (for secondary Class 1 contributions);
and those limits and that threshold shall be the amounts specified for that year by regulations which, in the case of those

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limits, shall be made in accordance with subsections (2) and (3) below."
(2) For subsection (1) of section 6 of that Act (liability for Class 1 contributions) there shall be substituted the following subsection--
"(1) Where in any tax week earnings are paid to or for the benefit of an earner over the age of 16 in respect of any one employment of his which is employed earner's employment--
(a) a primary Class 1 contribution shall be payable in accordance with this section and section 8 below if the amount paid exceeds the current lower earnings limit (or the prescribed equivalent in the case of earners paid otherwise than weekly); and
(b) a secondary Class 1 contribution shall be payable in accordance with this section and section 9 below if the amount paid exceeds the current earnings threshold (or the prescribed equivalent in the case of earners paid otherwise than weekly)."
(3) For subsections (1) and (2) of section 8 of that Act (calculation of primary Class 1 contributions) there shall be substituted the following subsections--
"(1) Where a primary Class 1 contribution is payable, the amount of that contribution shall be the primary percentage of so much of the earner's earnings paid in the tax week, in respect of the employment in question, as--
(a) exceeds the current lower earnings limit (or the prescribed equivalent); and
(b) does not exceed the current upper earnings limit (or the prescribed equivalent);
but this subsection is subject to regulations under section 6(5) above and sections 116 to 120 below and to section 41 of the Pensions Act (reduced rates of Class 1 contributions for earners in contracted-out employment).
(2) For the purposes of this Act the primary percentage shall be 10 per cent; but the percentage is subject to alteration under sections 143 and 145 of the Administration Act."
(4) For section 9 of that Act there shall be substituted the following section--
"Calculation of secondary Class 1 contributions.
9.--(1) Where a secondary Class 1 contribution is payable, the amount of that contribution shall be the secondary percentage of so much of the earnings paid in the tax week, in respect of the employment in question, as exceeds the current earnings threshold (or the prescribed equivalent).
(2) For the purposes of subsection (1) above, the secondary percentage shall be 12.2 per cent; but the percentage is subject to alteration under sections 143 and 145 of the Administration Act.
(3) Subsection (1) above is subject to regulations under section 6(5) above and sections 116 to 120 below and to section 41 of the Pensions Act."").

The noble Lord said: My Lords, in moving Amendment No. 39, I should like to speak also to Amendments Nos. 40, 51, 75, 89 to 102, and 105 to 107. This large group of amendments puts into effect changes to the structure of national insurance contributions for employees and their employers from April next year. As noble Lords will know, the Chancellor of the Exchequer announced in the Budget a radical reform of the national insurance system. These amendments are a crucial part of that strategy.

I readily acknowledge that the amendments are complex and technical. That is why we have placed in the Library a note which explains what each of them does, together with a compliance cost assessment of their effects on business. We sent copies of the explanatory note to the noble Lord, Lord Higgins, and

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to the noble Earl, Lord Russell, on 20th April. I hope that they will find the documents helpful, although I am afraid that they did not receive them very quickly.

If the amendments themselves are complex and technical, their objectives are straightforward. The amendments modernise the structure of national insurance and are in line with the recommendations made by Martin Taylor, the head of the Government's tax-benefit review, following his wide consultation with business. They improve incentives to work by increasing take-home pay; they simplify the structure of employers' contributions, making the system easier for employers to administer; and they make it more attractive for employers to employ people moving from welfare to work.

The major part of the changes is dealt with in the new clause which is Amendment No. 39. First, it provides that employees will pay national insurance only on the portion of earnings which exceeds the lower earnings limit. Under the current system, no national insurance contributions are payable by employers and employees when total earnings are below the lower earnings limit, which is currently £64 a week. However, when earnings reach the lower earnings limit, employees have to pay 2 per cent. contributions on all their earnings up to that point. That "entry fee" amounts to £1.28 a week for all employees paying contributions. It means that in some cases employees earning above the lower earnings limit can be worse off in terms of take-home pay than those earning below it. That cannot be right.

The amendment abolishes the 2 per cent. entry fee for all employees. It means that employees will pay contributions only on that part of their earnings that exceeds the lower earnings limit.

Secondly, the starting point at which employers begin to pay national insurance will be raised from the lower earnings limit to the level of the single person's tax allowance (set at the equivalent of £81 a week in 1998-99). The actual level of the new earnings threshold for employers will be set each year in regulations.

The employer entry fee will also be abolished so that employers will not be liable to pay national insurance at all on any earnings below the level of the single person's allowance.

The new clause also simplifies the structure of employer national insurance contributions, bringing in a single rate of 12.2 per cent. in place of the four separate rates that apply now. That package of changes to employer national insurance will be revenue neutral for employers as a whole. These changes do not affect people's rights to contributory benefits, their ability to build up such rights or the speed at which they build up those rights.

Amendments Nos. 40 and 51 ensure that the proposed single rate of employer contribution will apply to the new Class 1B contribution.


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