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Lord Ashley of Stoke: My Lords, I wish to--

Lord Higgins: My Lords, perhaps the noble Lord will allow me to continue for a moment. I am coming to the end of my remarks and I have been much longer than I intended. The noble Baroness asked whether the other House would have an opportunity to discuss the proposals in Part II of the Bill. Yes, of course it will. But the crucial question is whether it will have an opportunity to vote on the specific amendment we are discussing this afternoon. If we do not pass the amendment, clearly it will not. If we do, it may be that the Government will resist it and there can be a specific debate and, if necessary in the Government resisting it, a vote on that matter. Given what the Chancellor said in his Budget, I believe it is right that the other place should have an opportunity to look at the specific issue. That is what this amendment seeks to do.

7 May 1998 : Column 755

4.44 p.m.

On Question, Whether the said amendment (No. 4) shall be agreed to?

Their Lordships divided: Contents, 146; Not-Contents, 115.

Division No. 1


Aberdare, L.
Addison, V.
Ailsa, M.
Aldington, L.
Alexander of Tunis, E.
Alexander of Weedon, L.
Ampthill, L.
Anelay of St. Johns, B.
Annaly, L.
Archer of Weston-Super-Mare, L.
Ashbourne, L.
Attlee, E.
Balfour, E.
Banbury of Southam, L.
Barber, L.
Belhaven and Stenton, L.
Belstead, L.
Berners, B.
Blaker, L.
Blatch, B.
Bowness, L.
Brabazon of Tara, L.
Broadbridge, L.
Brougham and Vaux, L.
Burnham, L. [Teller.]
Butterworth, L.
Byford, B.
Cadman, L.
Campbell of Alloway, L.
Campbell of Croy, L.
Carnock, L.
Chelmsford, V.
Chesham, L.
Clanwilliam, E.
Coleridge, L.
Cope of Berkeley, L.
Courtown, E.
Cranborne, V.
Crathorne, L.
Crickhowell, L.
Cross, V.
Cuckney, L.
Cumberlege, B.
Davidson, V.
Dean of Harptree, L.
Denham, L.
Dixon-Smith, L.
Downshire, M.
Eden of Winton, L.
Effingham, E.
Ellenborough, L.
Elles, B.
Elliott of Morpeth, L.
Erne, E.
Ferrers, E.
Flather, B.
Fraser of Carmyllie, L.
Gage, V.
Gainford, L.
Garel-Jones, L.
Gisborough, L.
Glentoran, L.
Hamilton of Dalzell, L.
Harding of Petherton, L.
Hemphill, L.
Henley, L.
Higgins, L.
HolmPatrick, L.
Hood, V.
Hooper, B.
Ilchester, E.
James of Holland Park, B.
Jopling, L.
Kenyon, L.
Kimball, L.
Knollys, V.
Lane of Horsell, L.
Lauderdale, E.
Leigh, L.
Lindsey and Abingdon, E.
Long, V.
Lucas of Chilworth, L.
Luke, L.
McColl of Dulwich, L.
Mackay of Ardbrecknish, L.
Mackay of Drumadoon, L.
Macleod of Borve, B.
Marlesford, L.
Mayhew of Twysden, L.
Mersey, V.
Middleton, L.
Miller of Hendon, B.
Milverton, L.
Molyneaux of Killead, L.
Monk Bretton, L.
Monro of Langholm, L.
Mountevans, L.
Mowbray and Stourton, L.
Munster, E.
Murton of Lindisfarne, L.
Naseby, L.
Nelson, E.
Newall, L.
Newton of Braintree, L.
Northesk, E.
O'Cathain, B.
Onslow, E.
Oppenheim-Barnes, B.
Orr-Ewing, L.
Parkinson, L.
Pearson of Rannoch, L.
Pender, L.
Pilkington of Oxenford, L.
Platt of Writtle, B.
Plummer of St. Marylebone, L.
Prior, L.
Rankeillour, L.
Rathcavan, L.
Rennell, L.
Renton of Mount Harry, L.
Renwick, L.
Roberts of Conwy, L.
Rotherwick, L.
Rowallan, L.
Seccombe, B.
Skelmersdale, L.
Skidelsky, L.
Stanley of Alderley, L.
Strathclyde, L. [Teller.]
Strathcona and Mount Royal, L.
Sudeley, L.
Taylor of Warwick, L.
Teynham, L.
Thomas of Gwydir, L.
Trefgarne, L.
Trumpington, B.
Vivian, L.
Waddington, L.
Wade of Chorlton, L.
Weatherill, L.
Westbury, L.
Wilcox, B.
Willoughby de Broke, L.
Wise, L.
Young, B.
Younger of Leckie, V.


Acton, L.
Alderdice, L.
Allenby of Megiddo, V.
Amos, B.
Annan, L.
Archer of Sandwell, L.
Ashley of Stoke, L.
Avebury, L.
Bassam of Brighton, L.
Beaumont of Whitley, L.
Berkeley, L.
Blackstone, B.
Bledisloe, V.
Blyth, L.
Brooke of Alverthorpe, L.
Bruce of Donington, L.
Burlison, L.
Callaghan of Cardiff, L.
Carlisle, E.
Carter, L. [Teller.]
Castle of Blackburn, B.
Charteris of Amisfield, L.
Clancarty, E.
Cledwyn of Penrhos, L.
Clinton-Davis, L.
Cocks of Hartcliffe, L.
Currie of Marylebone, L.
David, B.
Davies of Coity, L.
Davies of Oldham, L.
Desai, L.
Dholakia, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Elis-Thomas, L.
Evans of Parkside, L.
Exeter, Bp.
Ezra, L.
Falconer of Thoroton, L.
Farrington of Ribbleton, B.
Fitt, L.
Freyberg, L.
Gallacher, L.
Gilbert, L.
Gladwin of Clee, L.
Goodhart, L.
Gould of Potternewton, B.
Graham of Edmonton, L.
Hardie, L.
Hardy of Wath, L.
Harris of Greenwich, L.
Haskel, L. [Teller.]
Hayman, B.
Hilton of Eggardon, B.
Hollis of Heigham, B.
Hooson, L.
Howie of Troon, L.
Hoyle, L.
Hughes, L.
Hughes of Woodside, L.
Jay of Paddington, B.
Jenkins of Putney, L.
Judd, L.
Kennedy of The Shaws, B.
Kennet, L.
Kilbracken, L.
Kintore, E.
Kirkhill, L.
Levy, L.
Linklater of Butterstone, B.
Longford, E.
Lovell-Davis, L.
Mackie of Benshie, L.
McNair, L.
Mallalieu, B.
Merlyn-Rees, L.
Milner of Leeds, L.
Mishcon, L.
Monkswell, L.
Montague of Oxford, L.
Morris of Manchester, L.
Nicholson of Winterbourne, B.
Nicol, B.
Orme, L.
Palmer, L.
Peston, L.
Ponsonby of Shulbrede, L.
Prys-Davies, L.
Randall of St. Budeaux, L.
Rendell of Babergh, B.
Richard, L. [Lord Privy Seal.]
Rodgers of Quarry Bank, L.
Russell, E.
St. John of Bletso, L.
Serota, B.
Sewel, L.
Shepherd, L.
Simon, V.
Simon of Highbury, L.
Stallard, L.
Stoddart of Swindon, L.
Strabolgi, L.
Taverne, L.
Thomas of Macclesfield, L.
Tordoff, L.
Turner of Camden, B.
Walker of Doncaster, L.
Watson of Invergowrie, L.
Whitty, L.
Williams of Crosby, B.
Williams of Elvel, L.
Williams of Mostyn, L.
Winston, L.
Young of Old Scone, B.

Resolved in the affirmative, and amendment agreed to accordingly.

7 May 1998 : Column 757

4.54 p.m.

Lord Higgins moved Amendment No. 5:

Page 35, line 44, leave out from beginning to ("specified") and insert--
("(1A) For the tax year 1999-2000, the lower earnings limit (for primary Class 1 contributions) shall be £81.
(1B) For the tax year 2000-2001 and each subsequent tax year, the limits and threshold referred to in subsection (1) above shall be").

On Question, amendment agreed to.

[Amendment No. 6 not moved.]

Lord Goodhart moved Amendment No. 7:

Page 36, line 41, at end insert ("together with the additional percentage of so much of such earnings as exceeds the current upper earnings limit (or the prescribed equivalent)").

The noble Lord said: My Lords, in moving our amendment to Clause 51, I cannot refrain from starting by expressing the view that the Conservative Party in this House has done its cause both in this House and in the country no good by moving and winning the vote on the previous amendment.

The changes to employees' national insurance contributions, which are contained in this Bill following the government amendment, are changes which we undoubtedly welcome because they simplify and make fairer the system of employees' national insurance contributions. The justification for the changes to employers' national insurance contributions is not quite so clear. I suggested on Report that there were possible drawbacks to the changes. It would be simpler to have employers' contributions as a straight payroll tax at a flat rate. That would also avoid--perhaps this is more important--the incentive for an employer to employ two part-time workers instead of one full-time worker. On that issue, however, I recognise that there are arguments for, as well as against, the changes.

We accept the Government's decision in going for the exemption of earnings up to the threshold of £81 per week. We recognise that that provides an incentive to employ more lower paid workers. However, if the Government are going for a progressive system of employers' national insurance contributions, why not make it properly progressive?

The Government propose that in return for the removal of contributions up to the threshold, contributions above the threshold will go up from 10 per cent. to 12.2 per cent.--that being, as I understand it, something which is intended to produce a revenue-neutral result. Doing that will reduce the burden on low-wage businesses and increase the burden on

7 May 1998 : Column 758

high-wage employers. That is fine if one thinks of high-wage employers as stockbrokers and city banks. I should add that it will not affect barristers, who are self-employed. However, the changes will increase the burden on some bodies that are financed by public funds. The universities currently estimate the net cost to them of the changes at £20 million per year. That is not an enormous amount, but it is significant.

The proposals in my amendment are simple. The rate between the threshold and the upper earnings limit will be reduced, as compared with the Government's proposals, from 12.2 per cent. to 12 per cent. The rate above the upper earnings limit will be increased from 12.2 per cent. to 15 per cent. The upper earnings limit is now £485 per week or about £25,300 per year. Under the Government's proposals in Clause 51, the crossover point--that is, the point at which employers will pay more national insurance contributions than now--is about £23,200 for non-contracted-out employees.

My amendment means that the crossover point will be approximately the same as the upper earnings limit--that is, about £2,000 per employee above the present crossover point. Basically, that means that no employee earning less than the upper earnings limit will become more expensive to employ. That reduction will be made up by significantly higher contributions on earnings above the upper earnings limit. I believe that it is right that progressive income tax should be matched by progressive employers' contributions. At present, it is an anomaly that the aggregate national insurance contribution (adding together the employer's and the employee's contributions) falls when the upper earnings limit is reached because the employees stop paying contributions on their further earnings. At present--it will be the same under Clause 51, if enacted in its present form--the aggregate contributions by both sides fall by 10 per cent. when the upper earnings limit is exceeded. Under my amendment the fall will be only 7 per cent.

Furthermore, I believe that this amendment will eliminate the net cost to universities and should increase the advantage to other public sector organisations such as schools and hospitals. I have to say that the amendment is raised essentially for discussion. It is, in nature, a probing amendment and is being raised on Third Reading only because of the Government's introduction of Clause 51 at Report stage. So this is the only occasion on which it is possible to raise such an amendment. In the circumstances I make it clear immediately that it is not my intention to press it to a vote.

There is a great deal to be said for the principle that employers' national insurance contributions should, as against the Government's current proposals, be reduced on earnings up to the upper earnings limit and should be increased on earnings above that limit. I hope that the Government will look favourably on that idea and give themselves the power to impose a higher rate of employers' national insurance contributions on earnings above the upper limit. I beg to move.

7 May 1998 : Column 759

5 p.m.

Lord Haskel: My Lords, the Government cannot support the amendment. This is because the progressive structures suggested by the amendment seek to introduce something which would be far from revenue-neutral when compared to the structure of employers' contributions that the Government propose to bring into operation from April 1999. First, it would be more complex than the Government's proposals and, as my noble friend Lady Hollis explained with some considerable force, the Government's measures will increase the point at which an employer starts to pay contributions from the current level of £64 per week to the level of a single person's tax allowance at £81 this year. However, the Government's measures will abolish the contribution that employers currently pay on earnings below this new higher threshold.

As I explained on Report, these changes make 12.5 million employees earning up to £440 a week cheaper to employ. This is of benefit to two-thirds of workers and their employers. It is clear that the changes will give job creation incentives for employers across the full range of pay rates and not just those under the new earnings threshold. This includes, of course, the universities, which the noble Lord particularly mentioned.

We believe that our clause as drafted has several advantages which the noble Lord's amendment would destroy. Our broadly revenue-neutral package of reforms of employers' contributions will encourage employers to create jobs for people who want to move from welfare to work. It will align the national insurance system more closely with income tax, cutting red tape for business and reducing the cost of administration. The noble Lord's amendment would to a large extent negate these positive effects.

The objectives of the Government's radical restructuring of employers' national insurance contributions are clear and have been broadly welcomed--welcomed in consultation and also by Mr. Martin Taylor's review committee. The reforms cut red tape for business, simplify administration and support the Government's welfare-to-work programme. One has to contrast that with the amendment put forward by the noble Lord, Lord Goodhart, and the noble Earl, Lord Russell. Their proposal would increase administrative complexity for business and would cost employers hundreds of millions of pounds a year. There is no comparison. I urge the noble Lord to withdraw his amendment.

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