New clause 4 - Self-employed
State Pension Credit Bill [Lords]
2:30 pm
Professor Steve Webb (Northavon, Liberal Democrat)
It is to the Government's credit to set up a group if they are prepared to listen to its conclusions. If they entirely ignore its conclusions, I am not sure that that is to their credit; in fact one could argue that the money should not have been spent on it.
I should like to expand on a point made by the hon. Member for Hertsmere about the two kinds of self-employment. Traditionally, the assumption has been that pension provision is less of an issue for the self-employed person with a business that will provide their pension—although that might not turn out well—or who can make their own private provision. However, the new self-employed might not have a business with assets; if they move between employment and self-employment, treating them as a group distinct from employees is a less tenable position than ever. As the hon. Gentleman suggests, crediting them into the state second pension, thereby encouraging them to save, would be a good thing to do.
I differ from the hon. Member for Hertsmere in what that should imply for the national insurance contributions made by the self-employed. When we compare them with the employed, we tend to forget the national insurance contributions of employers; the combined contribution represents a 20 per cent. rate per worker, whereas a self-employed person currently only pays 7 per cent. plus the class 2 contribution. The Treasury has estimated that the gap between the benefits received by the self-employed in retirement pension and the contributions that they make is substantial; possibly as much as £2 billion.
This might sound odd, and not very pro-business, but in some ways the self-employed have historically under-paid national insurance relative to the benefits that they get from the system. Although they receive less than employees, they do not receive much less—essentially sickness benefits—but they pay less than half the amount of national insurance; so they actually get a substantial subsidy. If they were to be brought into the state second pension, there would be a case for looking at whether there should be a compensating rise in national insurance.