Clause 1
National Insurance Contributions Bill
4:30 pm
David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)
I am grateful to the hon. Gentleman. He could easily bring me on to one of the other amendments. To answer briefly, there is nothing in the Bill that means that an increase in the upper earnings limit for national insurance contributions will also mean an automatic increase of the point at which people will start to pay higher rate income tax. We will discuss that in greater detail in a few minutes. Were such a thing to exist, his logic would be absolutely right. But it does not exist and therefore it would be perfectly possible to abolish the upper earnings limit on the basis of an affirmative resolution and consequently have a much higher rate of tax on personal income. That was, essentially, the policy of the Labour party in the 1992 general election, which was when the Financial Secretary and one or two other members of the Committee were first elected to Parliament. [Interruption. ] Many moons ago the Financial Secretary says, and I know that that is not her position now. I think that that policy was abandoned after the 1992 general election.
I was interested, looking at Hansard from 16 December 1993, to see that my hon. Friend the Member for Ribble Valley (Mr. Evans) took an intervention from the then hon. Member for Liverpool, Broadgreen—now the Financial Secretary—in which she said:
“The hon. Member has spoken about the need to ensure that those contributing to the fund contribute enough to pay benefits. Why is it that the Government's proposals retain the ceiling on national insurance contributions, which throws the greatest burden on people on lower earnings?”
My hon. Friend then asked the then Member for Liverpool, Broadgreen if that was Labour party policy, and the response was:
“It is a question of fairness and the importance of ensuring that people contribute fairly to the national insurance fund.”—[Official Report, 16 December 1993; Vol. 234, c. 1327.]
My argument is not to take on the merits of that case, although I disagree with it and I think that the Financial Secretary disagrees with it; it is not stated Government policy. However, it is perfectly possible for a future Government, if not the current one—but certainly not one that I would be involved in—to say, “We wish to raise”—[Interruption.]I am touched by the views of the hon. Member for Wolverhampton, South-West on where the future may lie. The fact is that the Bill will enable such a momentous policy and a substantial change in the way taxes are calculated to be carried out by simply abolishing the upper earnings limit. There is nothing within the proposed structures to prevent that from happening, and we therefore seek to deal with that objective in some of our amendments.
Can I also discuss the issue of the ratio that we discussed a little this morning? We pursued the matter with officials to try to properly understand what the requirements are and whether it is necessary to change the current arrangements. I think that there was some uncertainly in all parties as to what the exact numbers would be. I have gone away and done some sums on what the upper earnings limit would be on a weekly basis. The then Chancellor in his budget speech of 21 March 2007, Official Report, columns 826-27, stated that the top rate of income tax from April, 2009 will start at £43,000. I am not quite sure what methodology the Treasury used to translate that figure into a weekly amount, but if that is done on the basis of dividing that by 365 and then multiplying by seven, we end up with a figure of £824.66. If in those circumstances in 2009-10 the primary threshold is £110—we do not yet know if it will be that, but we know it will be £105 the previous year—the ratio of seven and a half which exists in the current legislation, would actually be sufficient.
To be fair, if the sum was done in a slightly different way—by simply dividing £43,000 by 52—we would end up with a figure of £826.92. That would be slightly over the limit. So, as the hon. Member for Taunton pointed out, seven and a half looks to be there or thereabouts. It might not do quite what is necessary, but it is very, very close. Is it therefore necessary, in these circumstances, to completely throw out the structure that we have, and could we not simply widen the ratio to somewhere between six and eight rather than six and half to seven and a half? Were we to do that, we would not only comfortably be able to meet the requirements on the basis of the numbers we have, but there would be quite some leeway.
Even on the basis of the primary threshold for 2009-10 remaining at £105—that is no increase at all from the year before—that would still enable the upper earnings limit to be raised to £43,800, well in advance of the £43,000 that we have in mind. If the primary threshold were to rise by £5 to £110 and we had a ratio of eight, we could increase the upper earnings limit to £45,886.