Clause 3
National Insurance Contributions Bill
5:15 pm
Justine Greening (Shadow Minister, Treasury; Putney, Conservative)
The amendments relate to the discussion that we had, not so much in the evidence session today, but on Second Reading before Christmas. One of the major points that was discussed was that the Bill is part of an overall package of pension reform. It is a key component of a pension reform that achieved cross-party consensus. We raised our concern that in the Budget and pre-Budget report, which signalled the Government’s desire to bring forward the beginning of flat-rating of the state second pension, there seemed to be movement from the original pension reform package that we had agreed. That package came out of the Turner commission report and out of a desire, as the Government said, to try to simplify the national insurance and income tax system. We supported the pension reform package. At the time, although we had concerns about taking away the link between the extra additional earnings contributions people paid and what they then got back in the state second pension, we recognised that the pension package was a question of give and take and of what we wanted to achieve overall. Our concerns related to the fact that this was the “take” part of that package, and there was a big question mark over the “give” part, which was the re-establishment of the earnings link.
These clauses try to tease out from the Government whether we can make progress on getting some certainty about re-establishing that link. On Second Reading, Members raised concerns about the lack of certainty as to when that will happen. We discussed the fact that the impact assessment provided by Her Majesty’s Revenue and Customs identified 2.1 million people, who would have been paying income tax above the upper earnings limit and who would have been contracted out of the state second pension. Those individuals
“would either see a reduction in their take-home pay as they will get a lower rebate on their national insurance contributions than would otherwise have been the case or a reduction of the money that goes into their pension scheme”
There are clearly many people—2.1 million, to be precise—who are assessed as losing from these changes. We must know that the gains are going to happen, and when. The timing of that link was critical, and I am concerned that we have not had much certainty from the Government about whether they view re-establishing the earnings links as being affordable, or when that will happen.
Based on the evidence session today, my greater concern is that, at the time that the alignment of the upper earnings limit and the upper accruals point took place in the Budget 2007, there was not at all a clear understanding as to what impact this would have on people. Not only were options still being discussed as to how to deliver on this 2030 time frame for achieving the flat-rate state second pension, there was apparently no costing of the options because they clearly had not been worked up at the time. It seems the Treasury waded into this national insurance change without a good enough understanding of the breadth and nature of the impact it would have, particularly given that many of the people affected will be the very same people whom the Institute for Fiscal Studies has identified as losers from the Budget 2007.
These amendments are therefore all the more important in trying to bring some certainty to the process of delivering the pension reform package. Before I talk about the amendments themselves, can I ask the Minister to talk about the 2030 time frame when she responds, and why that particular date is so important? One of the other ways of achieving flat-rating would have been to make the changes that were made at the Budget, but then to allow the flat-rating to continue as planned, aligned with the re-establishment of the earnings link, and then have that flat-rating achieved at a slightly later date than 2030-31. Many Conservative Members would like to understand a little better why that 2030 time frame is so important that we have to create even more losers than we would have done if the Government had taken no action.
On Second Reading we were only given limited assurances by the Minister about when the earnings link for the basic state pension would be re-established. During my time serving on the Select Committee on Work and Pensions, the Secretary of State gave us, in the evidence session, what was I think his annual departmental review. I pressed him on when he would be able to re-establish the earnings link and he used a phrase that has been much talked about, that essentially the earnings link would be re-established at 2012, or at any event by the end of that Parliament, subject to affordability. I spent what felt like a long 15 minutes trying to get the Secretary of State to say whether he felt that the affordability aspect of re-establishing the earnings link took precedence over the 2012 time frame that was clearly the aspiration—if I can call it that—of the Government. I also asked him whether, if re-establishing the earnings link in 2012 was viewed as unaffordable given the length of economic cycles, he thought that perhaps by 2015 the economic cycle and economic situation would have turned around so much that re-establishing the link would suddenly become affordable in a long-term sense.
I did not make any progress—if anything, the message I got was that affordability was critical. That is why it is of particular concern now, given that the Government are obviously concerned about inflationary effects to the extent that police officers and prison officers have had their review board pay rises turned down or not accepted. Perversely, the Secretary of State for Children, Schools and Families has today accepted the pay review board outcome for teachers. Conversely, only last week in Parliament the Secretary of State for Justice said that he had not accepted the report of the prison officers’ pay review body because of the “exceptional economic circumstances”.
It is very important therefore for the Minister to talk about what her assessment is, from a Treasury perspective, of the affordability test that the Government have set themselves for re-establishing the earnings link. Because of that uncertainty, the amendments are trying to provide some certainty. If the earnings link is not re-established and we continue with the debate, we should not allow the Bill to mean that all that is being delivered for people in this country is giving—paying more national insurance contributions but not getting anything in return.
There are two alternatives. Amendment No. 9 essentially leads to an annual reassessment of the Bill, to give the House a chance to understand whether the re-establishment of the earnings link is on the Government’s agenda and will happen, or whether there is simply continued rhetoric with no delivery. That would mean that in the time frame in which the Government has said that it will look to re-establish the earnings link—mooted as 2012 to around 2015—we would annually have to reaffirm the impact of that part of the Bill. In terms of delivering the overall pension reform package, that would provide a safeguard for those people who are paying more—that they would not be paying more to get nothing in return.
Amendment No. 10 is harsher in many respects. It says that there is a time frame of 2012. Unless at that point resolutions have been put before the House, clearly guaranteeing when the earnings link will be re-established, the Bill would, by definition, have to lapse. The consensus would have been broken and the decoupling of the changes to national insurance and to the basic state pension would have been done to such an extent that the pension reform that we all agreed would not have been delivered. I hope that the Financial Secretary can use the opportunity to give us more assurances about the Government’s thinking on when they see the earnings link being restored. The amendments are designed to tease out how confident the Government are that they can deliver on the words that we have listened to in the House about re-establishing that earnings link.