National Insurance Contributions Bill

– in the House of Lords at 3:30 pm on 2nd July 2008.

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Clause 1 [Amount to be specified as upper earnings limit: Great Britain]:

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury

moved Amendment No. 1:

Clause 1, page 1, line 4, leave out from "(1)," to ", and" and insert "for the words from "those limits" in the second place where they appear to the end substitute "the upper earnings limit from 2010—2011, shall be made in accordance with section 5A below""

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury

My Lords, I shall speak also to Amendments Nos. 2 to 4. The first two amendments deal with Great Britain and the second two are identical in substance for Northern Ireland.

The Government introduced the Bill under the guise of simplification of the tax and national insurance thresholds. The document issued on the day of the last Queen's speech said that the Bill,

"would ensure that the Government begins to implement its commitment to provide a solid and simpler state foundation while delivering the Budget 07 personal tax reforms".

In fact, the Bill gives the Government an unlimited power to increase the income on which ordinary national insurance contributions are payable with only the minimal constraint of an affirmative resolution. My amendments are designed to ensure that the Bill sticks to its original stated purpose: the simplification of the thresholds.

Under the Social Security Contributions and Benefits Act 1992, the Government can set the upper earnings threshold—the point at which employees stop paying ordinary national insurance contributions—at an amount between six and a half and seven and a half times the primary threshold, which is the point at which ordinary national insurance contributions begin.

The Government's policy, as set out by the Prime Minister in his last Budget as Chancellor in April 2007, is to continue to align the primary threshold with the personal allowance for tax purposes and to align the upper earnings limit with the point at which higher rate tax is paid. This would create a neat symmetry between income tax and national insurance and should be easier for tax and national insurance payers to understand. We do not object to the policy, even though it means that the Government are able to hike the upper earnings limit way above inflation and, in so doing, raise a large amount—around £1.5 billion a year—from middle-income earners.

Noble Lords will recall that the April 2007 Budget had a package of changes to income tax and national insurance tax, including the abolition of the 10p rate of tax. The further changes, which the Chancellor announced in late April in the face of the Crewe by-election defeat and a Back-Bench revolt in another place, mess about with the convergence of the income tax and national insurance thresholds. The personal allowance is now £600 above the primary threshold, so that national insurance contributions are paid on that amount even through no income tax is paid. The higher-rate threshold has been moved down by £600, although that means that the higher-rate threshold is now closer to the upper earnings limit.

The Chancellor has said that these changes to the income tax thresholds are for this year only. We on these Benches simply do not understand how that can happen, since more than 13 million families would be affected, mostly adversely, by the reversal of this year's changes. However, we are told to wait for this year's Pre-Budget Report to find out how the Government will achieve this.

The Government have been even less clear about what that means for harmonisation with national insurance thresholds, but they have restated their commitment to harmonisation. The amendments allow the Government to achieve harmonisation next year at whatever levels the Chancellor sets in the PBR. That is what they said that they wanted when the Bill was introduced.

The Government said that they needed the Bill to remove the limit on the upper earnings limit by reference to a multiple of the primary threshold, so that they could achieve the harmonisation of the upper earnings limit with the higher rate threshold for tax purposes. Recent history shows that in the face of political difficulties the Government will abandon harmonisation whenever it suits them. There is a legitimate question about whether the Government have the will to achieve harmonisation. The amendments give the Government the benefit of the doubt; but in so doing we do not believe that it is appropriate or reasonable for a constraint at the top end of the national insurance thresholds to be removed for all time, subject only to the affirmative resolution procedure.

That leaves workers open to the ultimate stealth tax of national insurance contributions being raised at 11 per cent on all earned income. I remind the House that this is not fanciful; it was mainstream Labour Party policy until the mid-1990s. Let me put it in context. The noble Baroness, Lady Hollis, received a Written Answer on 21 May to a Question about the revenues that would be generated by the removal of the upper earnings limit. The Answer can be found at col. WA204of Hansard of that day. Noble Lords might like to take a deep breath before hearing that the Bill would allow the Government to raise £8.5 billion in extra class 1 national insurance contributions. That is the equivalent of nearly 3p on the basic rate of tax, or raising all the personal allowances and the basic rate limit by about 15 per cent.

My amendments do not stop the Government dispensing with the 6.5 to 7.5 times formula for next year. They can complete the convergence that they have planned. But from 2010-11, we have taken the Government at their word in wanting to harmonise the thresholds and then keep them in step. The amendments would mean that the upper earnings limit after 2009-10 would keep pace with the higher rate threshold for tax purposes. That threshold is uprated each year by RPI, by what is known as the Rooker-Wise process, named after an amendment moved successfully by the noble Lord, Lord Rooker, when he was in another place. An uprating order in conformity with Amendment No. 2 would do exactly the same thing for the upper earnings limit.

If the Government wanted to raise the amount by even more than RPI, which they may want to do from time to time, for example, because they want to raise the overall limits and thresholds in income tax and wish to harmonise at a higher level, they would have to bring forward a one-clause or two-clause Bill prior to the start of the tax year. As I explained in Committee, there would be plenty of time for that after the Pre-Budget Report, which each autumn announces all the rates and thresholds for the following tax year. However, such a procedure would clearly be the exception rather than the rule, since the higher rate threshold would generally follow the Rooker-Wise uprating path.

I moved a beta version of the amendments in Grand Committee. The Minister pointed out that it would be over-egging the pudding to have had a largely automatic uprating process as well as the affirmative procedure and, as I promised him in Grand Committee, I have removed the latter. The Minister also helpfully pointed out that my Committee amendment would have meant rather too many one-clause Bills because of the mismatch between the weekly basis of national insurance contributions and annual tax allowances. So I have added a step three to the calculation, which is set out in Amendment No. 2.

I have modelled the impact of varying rates of inflation and varying levels of income tax thresholds. If the Treasury wants to set the upper earnings limit at one-52nd of the higher rate threshold, rounded to the nearest pound, the amount that is produced by steps one and two of my amendment would need to be altered at most by an extra £2 up or down. Two pounds will in fact be the exception as there would generally be an adjustment of nothing or plus or minus £1. I also tested out the position if the Treasury wanted to round the one-52nd calculation up by one to the nearest £1, which is perhaps a more natural stance for the Treasury. That produces no requirement to reduce the amount arrived at in step 2 at all and at most a £2 upward increase would be required. Hence step 3 of Amendment No. 2 gives the Secretary of State power to alter the amount arrived at in step 1—which is RPI indexation rounded up to the nearest pound—by up to £2 for the purposes of harmonisation. I believe that this gives the Government all the powers they need to avoid unnecessary legislation while allowing them to fulfil their aims of simplification.

Most importantly, my amendment would protect National Insurance payers from a Government running short of budgetary options and being tempted by the opportunity that this Bill would otherwise present. I beg to move.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury

My Lords, these amendments do not in any way undermine the aims of the Bill for next year and succeeding years in its current form. What the amendments seek to address is an important principle, which is that you should not be able to make a significant change to tax or national insurance without primary legislation. As the noble Baroness has said, if this Bill goes through unamended, it will be possible for the Government to make a tax raid of £8.5 billion without requiring primary legislation to implement it. That seems to us to be an unacceptable basis on which to proceed.

The Government argue that we are being too squeamish and that parliamentary scrutiny is adequate—or would be adequate even in those circumstances—because the Government would have to introduce an affirmative resolution statutory instrument to implement the change. Our contention is that a statutory instrument does not give adequate parliamentary scrutiny for a change of this nature. Those who have participated in statutory instrument debates know that they are of a different type from normal debates on the Floor of the House except in very rare circumstances. The possibility of amending a statutory instrument is nil. The possibility of overturning a statutory instrument is extremely small. Incidentally, if one should attempt to do so, the Government always make the case that it is a constitutional outrage that one should try to do it. Frankly, therefore, we do not believe that the argument that the statutory instrument is a sufficient safeguard in terms of Parliament's rights and powers is adequate.

If one takes that view, how can one constrain the Government? The noble Baroness has come forward with a relatively straightforward approach. In some respects it mirrors the Rooker-Wise amendments and we are extremely sorry that we do not have the benefit of the advice of the noble Lord, Lord Rooker, this afternoon as to whether he thinks this would be an appropriate addition to the Rooker-Wise principle. However, it is a straightforward way of proceeding. Why would the Government object to it?

The principal arguments advanced by the Government are essentially practical. No doubt they have technical issues about the drafting of the amendment, but the practical argument they advance, which has some substance, is that, because national insurance is collected on a weekly rather than an annual basis, and because for that purpose you have to legislate for changes in national insurance before rather than during the year in which the changes come into effect, you run into huge problems because you will not have time to legislate for changes in cases where the threshold is going up by more than the rate of inflation before the end of February, when the national insurance changes have to come in.

This is not an insuperable problem: there are at least two ways round it. First, the Chancellor could announce changes for the following year's Budget, as he did last year. Noble Lords will remember that he did that with the abolition of the 10p rate—he just did it a year early. You could announce that in a Budget in, say, March and the legislation for national insurance for the following tax year could be introduced in, or around the same time as, the Finance Bill for the first year. The second option, as currently happens anyway, would be simply to announce it at the time of the Pre-Budget Report, leaving aside the problem of ridiculously late Queen's Speeches. If we had the Pre-Budget Report after the Queen's Speech, a Bill could be introduced, presumably in another place in November, and it could be carried over from one Session to another. It could be argued that taking a Bill through its normal stages in both Houses takes quite a long time. However, given that the kind of Bill that we are talking about would be relatively rare, that it would have probably no more than one or two clauses and that the likelihood of your Lordships' House seeking significantly to change the threshold rate for what is in effect a tax is small, it would be perfectly possible to concertina parliamentary scrutiny of such a Bill into three months—November, December and January—without too much difficulty. I do not believe that this is an insuperable problem.

When we discussed this in Committee, the Minister said:

"Programming Bills into the system is often not that easy, particularly with the competing priorities that always confront Governments".

It is not necessarily easy but nobody said that life was easy. This would probably be a relatively infrequent occurrence, and I am sure that the Chancellor would be able to persuade the Legislative Programme Committee to include such a Bill. The Minister raised a second objection about parliamentary scrutiny. He said that this,

"would amount to a huge increase in parliamentary oversight".—[Official Report, 9/6/08; col. GC 117.]

That is a good basis on which to proceed. We are therefore happy to support the amendments.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative 3:45 pm, 2nd July 2008

My Lords, I did not have an opportunity to contribute to this debate at an earlier stage but I support my noble friend's amendments. I agree with everything that she said and almost everything that the noble Lord, Lord Newby, said, which is comparatively unusual, wise though he is.

The Government are in a great fiscal hole and the temptation to use the increase in the national insurance threshold is going to be almost irresistible for the Chancellor. I suppose that this measure borders rather closely to protecting the people against further burdens of taxation. I have no concerns about supporting the amendment for that reason.

National insurance contributions are one of the great frauds perpetrated on the people of this country. They are called national insurance contributions but they are in fact a tax by any other name, and their impact is as a tax. It is commendable that the Government have gone down the road of simplification. The reduction in the basic rate of income tax to 20p and the abolition of the 10p band was a great step forward in terms of simplification. It all went wrong, of course, because they did not raise the threshold to the level of the 10p band and as a result the Government are in their current difficulties, including those that arise because of the lack of cash. I would be prepared to wager quite a lot that two things will happen between now and the end of the year: first, we will have a new Chancellor of the Exchequer and, secondly, his successor will increase the national insurance threshold in order to get the cash to achieve that purpose. The Government's declared policy, which they abandoned, was to align the rates of national insurance and income tax; that was a good simplification measure in that it made life easier for employers and those responsible for calculating what used to be called stoppages from people's pay.

It is, however, a bit of a halfway house. The real prize is to integrate national insurance and tax and have a universal taxation system. There are great problems with that because of the impact on pensioners. I can also see that that would present great political difficulties for any Government. However, with the best will in the world, the Government's credentials as committed simplifiers are getting a little worn, not least because the Chancellor's predecessor, the Prime Minister, seemed reluctant to stick to a policy and pursue it with a degree of confidence and predictability which would make life easier for the business community. All the arguments that the Minister made against this at an earlier stage of the Bill, to which my noble friend referred, particularly those about national insurance being paid weekly and so on, are for integration in the long term.

I support my noble friend. These amendments are an important protection. I cannot for the life of me imagine why any Government would wish to resist them unless there is a hidden agenda to raise the burden of taxation, which, at the moment, would be catastrophic for the many families up and down the land who are already struggling to pay their bills.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

My Lords, I thank the noble Baroness for her amendments and congratulate her on the ingenious formulation of an issue which we discussed in Committee. As I will explain, however, we do not believe it does the trick.

I shall start by making a few general comments to pick up on some of the points. The noble Lord, Lord Forsyth, talked about the current UK tax burden, but in every year since 1997 and throughout the forecast period of the previous Budget the tax-to-GDP ratio has been well below the peaks reached in the mid-1980s.

The noble Baroness said that this was represented as being part of a simplification package. Indeed, that is exactly what it is; it was not a tax-raising measure.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative

My Lords, I am grateful to the Minister. With regard to the point about the tax-to-GDP ratio, can the Minister confirm that, had the tax burden remained the same as it was in 1997, the average family would in real terms be £5,170 better off a year?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

My Lords, you have to look at the distribution of the overall tax take. The poorest families in our country have benefited significantly from the tax and benefits policies of this Government.

Just to put it clearly on the record, the proposal to align the national insurance rate was part of a simplification package which, as we know, dealt with the 10p rate of income tax. It reduced the basic rate of income tax from 22p to 20p; it increased the upper earnings limit for national insurance by £75 a week above indexation; it raised the aligned higher-rate threshold and upper earnings limit by £800 a year above indexation; it raised personal allowances for pensioners by £1,180; it raised the threshold of the working tax credit by £1,200; and it increased the threshold of working tax credit to make work pay. The net cost of that to the Exchequer was £2.2 billion, before the additional cost that ensued as a result of the increased personal allowance.

The noble Baroness said that she did not disagree with the policy, and I believe that was echoed by the noble Lord, Lord Forsyth. I welcome those comments, but if you do not disagree with the policy then you achieve it by one of two ways or a combination of them: either you raise the upper earnings limit for national insurance contributions or you reduce the limit of the basic rate of tax. You cannot do it any other way. One way or another, if the noble Baroness supports this policy, I presume that she is saying that she would have done the same sort of thing.

I shall come on to the issue of stealth taxes in a moment but perhaps I may go back to the specifics of the amendment. As has been explained, its objective is to allow the UEL to be aligned with the higher-rate tax threshold for income tax for the 2009-10 tax year announced in the Budget. Perhaps I can confirm that, as I think that the noble Lord, Lord Forsyth, said that we had abandoned that principle. The Government remain committed in principle to aligning more closely the income tax personal allowance with the national insurance primary threshold and the national insurance contributions system to improve fairness and coherence, reduce administrative burdens and make them easier to understand. We await further announcements from the Chancellor at the PBR, but that remains the policy.

The amendment goes on to propose the insertion of new Section 5A into the Social Security Contributions and Benefits Act to apply for 2010-11 and subsequent years. The new Section 5A would allow the upper earnings limit to be increased by RPI and rounded up to the nearest pound. The UEL could then be adjusted by an amount not exceeding £2 for the purposes of aligning the annualised upper earnings limit with the sum of the personal allowance and the basic rate limit under Sections 20 and 35 of the Income Tax Act 2007 for the tax year. This would provide a maximum adjustment of £106 in any tax year. I have not done the same calculations as the noble Baroness has on the range in which that threshold works, but I accept what she says.

I should like, first, to address the main difficulty with the amendment. I think that it was brushed aside by the noble Lord, Lord Newby, but it is real. Under this formula, from 2010-11 the UEL can be raised only by up to an increase related to the RPI and only if the personal allowance and basic rate limit are correspondingly increased by the RPI. A difficulty would arise should the Chancellor decide that it would be appropriate for the personal allowance and/or basic rate limit to be changed by a figure other than the change in the RPI, and other than that automatically allowed under the Rooker-Wise convention—I hesitate to say this in the absence of my noble friend, and I hope that he does not read the record, but I think that that convention should more strictly be called the Rooker-Wise-Lawson convention—and to make the necessary changes through the Finance Bill. If such a decision were taken, the amendment would prevent the Government setting a UEL for NICs, as it would not be possible to achieve the alignment within the tolerance set at step 3 of new Section 5A.

The second major difficulty with the amendment is one of timing. NICs regulations have to be in place for the start of the tax year because contributions are paid on an earnings-period basis. However, if the tax thresholds were increased by more than the RPI through a Finance Bill, they would have not received Royal Assent until after the NICs UEL regulations were needed. In some circumstances, you might change the whole budgetary process and try to do that a year or two in advance, but as a practical, ongoing basis for dealing with fiscal policy I do not think that that is realistic.

Even if the first difficulty could be overcome, a further NICs Bill would be needed to deliver the sought-after alignment. As changes to social security legislation require programme Bills, it is unlikely that a slot for a Bill could be found at such short notice or that it would complete its passage through Parliament in time for the regulations to be in place for the start of the following tax year so as to enable employers to make deductions of NICs at the new level.

In my view, it would not be a sensible use of limited parliamentary time to have a short NICs Bill every time we wanted to change the UEL by less or more than the RPI. As I have explained, the rounding rule in step 3 of proposed new Section 5A could provide insufficient flexibility. I do not believe that it would be a sensible use of limited parliamentary time to have a NICs programme Bill every time we wanted to make that change. If such a restriction had been in existence over the past 20 years, it would have necessitated a further two NICs Bills between 1997 and the 2007 Budget and a further seven NICs Bills in the 10 years preceding 1997 when either the personal allowance or the basic rate limit was increased by either less or more than the RPI.

I am bound to say to the noble Baroness and her colleagues who accuse us of stealth taxes that those were serial freezes of the basic rate limit and the personal allowance. The basic rate limit was frozen in 1991, 1992-93, 1993-94 and 1994-95. It was overindexed in 1996-97, which coincided with an election, but over that 10-year period adopting this formulation would have required seven programme Bills, so there are practical difficulties to be faced.

I will touch on some minor technical flaws, which could readily be put right. The first is that the amendment requires the Secretary of State for the DWP to determine the level of adjustment; it would have to be the Treasury. In addition, the Budget resolution that moves the basic rate limit is in Section 10(5) of the Income Tax Act 2007 and not Section 20. Those flaws could be fixed.

I would also like to return to the rounding formula in step 3. As I mentioned earlier, that allows the UEL to be adjusted by an amount not exceeding £2 for the purposes of aligning the annualised upper earnings limit with the sum of the personal allowance and basic rate limit, meaning an adjustment of £106 at the maximum. As no provision has been made to uprate the £2 amount, it will inevitably lead to a reduction in the flexibility of setting the UEL over time and primary legislation will be needed to amend it. Coupled with proposed new Section 5A, the requirement for affirmative procedures on regulations for setting the upper earnings limit amounts to a huge increase in parliamentary oversight.

If affirmative resolutions are brushed aside as having no significance, why are we as a Government often pressed to change a negative process into an affirmative one when debating Bills? The scare story is that the Delegated Powers Committee spends a lot of time looking at these things yet we brush it aside, and that this is about the potential to raise £8.5 billion without proper parliamentary scrutiny. The noble Lord, Lord Newby, said that these debates were not routine, except in rare circumstances. If the Government were attempting to raise such money in the way that the noble Lord suggested, do you seriously not think that the House would vote down that proposition? Of course it would. There is protection built in.

I do not see that that the change proposed in the Bill should give anyone cause for concern in terms of parliamentary scrutiny. The House always considers extremely carefully affirmative resolutions that come before it. The Delegated Powers Committee has expressed no concerns about the powers in the Bill. That committee is diligent in the way that it goes about its work. We are frequently on the receiving end of its recommendations. It made no adverse comment on the powers.

The Chancellor has said that he will return to the tax and NIC rates and limits for future years in the PBR. The commitment remains to align the UEL with the level at which higher rate tax becomes payable. In the context of the Government's commitment to aligning the UEL with the higher rate tax threshold, the amendments do not work because they could lead to misalignment which would require a further NIC programme Bill. I therefore urge, without any great prospect, the noble Baroness and the noble Lord not to press their amendments.

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury 4:00 pm, 2nd July 2008

My Lords, the Minister is right about one thing. I thank the noble Lord, Lord Newby, for his support for the amendments. What he said put a lie to the practical issues that the Minister raised about how difficult it would be to bring forward legislation on a short-term basis. We do not see that as a huge issue. The PBR is not tied to the Queen's Speech. It often comes early, as it did last year. There is plenty of time for a Bill to get through. The Minister said that the Bill had to be programmed, but who programmes Bills? The Government do, and it is easy for them to do so. The Minister said that historically there would have been a requirement for several Bills. Having indexation on the face of the Bill may provide an incentive for Government not to go through the performance of trying to mess around with the levels each and every year. When the Chancellor wants to realign income tax and national insurance, a special Bill would have to be brought forward. If that alignment were reasonable, I am sure that both Houses would co-operate with Government in seeing that through.

My noble friend Lord Forsyth, whom I thank for his support, pointed out that the real problem with this Bill is the irresistible temptation that it provides the Government to do away with or to increase significantly the upper earnings limit and thereby raise large amounts of what is in fact taxation, but which we have to call income tax. He is quite right to say that it is a form of fraud. This latest increase raises, as I said, £1.5 billion. It will go into the National Insurance Fund, which is already in surplus because national insurance contributions have been raised by an amount greater than needed for the purposes of the fund.

We do not see the affirmative procedure as providing anything like the protection of primary legislation for those who pay national insurance. The amendments are entirely reasonable because they give no limit to what the Government can do next year. The Government can realign as they want next year. I have been entirely reasonable in giving the Government headway to do the alignment and then to let indexation kick in and protect national insurance payers after that.

The Minister anticipated that I would not be convinced by his arguments. I wish to test the opinion of the House.

C

"My noble friend Lord Forsyth, whom I thank for his support, pointed out that the real problem with this Bill is the irresistible temptation that it provides the Government to do away with or to increase significantly the upper earnings limit and thereby raise large amounts of what is in fact taxation, but which we have to call income tax. He is quite right to say that it is a form of fraud. This latest increase raises, as I said, £1.5 billion. It will go into the National Insurance Fund, which is already in surplus because national insurance contributions have been raised by an amount greater than needed for the purposes of the fund. We do not see the affirmative procedure as providing anything like the protection of primary legislation for those who pay national insurance. The amendments are entirely reasonable because they give no limit to what the Government can do next year. The Government can realign as they want next year. I have been entirely reasonable in giving the Government headway to do the alignment and then to let indexation kick in and protect national insurance payers after that." So finally admission that us the taxpaying public have been fraudenlently overcharged on NIC, and the government are trying to put in place bills so they can change it as they feel fit to raise some cash for themselves. As a tax player I think this appalling, I already pay too much tax, I am taxed on earnings, fuel,...

Submitted by Charlotte Rennie Continue reading

On Question, Whether the said amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents, 189; Not-Contents, 134.

Division number 1

See full list of votes (From The Public Whip)

Resolved in the affirmative, and amendment agreed to accordingly.

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury 4:15 pm, 2nd July 2008

moved Amendment No. 2:

Clause 1, page 1, line 5, at end insert—

"( ) After section 5 of that Act insert—

"5A Amount to be specified as upper earnings limit

(1) This section applies for 2010—11 and subsequent tax years if the retail prices index for the September before the start of a tax year is higher than it was for the previous September.

(2) The upper earnings limit may be increased to an amount which does not exceed the amount found as follows—

Step 1

Increase the upper earnings limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.

Step 2

If the result of Step 1 is not a multiple of £1, round it up to the nearest amount which is a multiple of £1.

Step 3

Add to or deduct from the result of Step 2 an amount not exceeding £2 determined by the Secretary of State for the purposes of aligning the upper earnings limit on an annual basis with the sum of the personal allowance and the basic rate limit under sections 20 and 35 of the Income Tax Act 2007 (c. 3) for the tax year.""

On Question, amendment agreed to.

Clause 2 [Amount to be specified as upper earnings limit: Northern Ireland]:

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury

moved Amendments Nos. 3 and 4:

Clause 2, page 1, line 17, leave out from "(1)," to ", and" and insert "for the words from "those limits" in the second place where they appear to the end substitute "the upper earnings limit from 2010—2011, shall be made in accordance with section 5A below""

Clause 2, page 1, line 18, at end insert—

"( ) After section 5 of that Act insert—

"5A Amount to be specified as upper earnings limit

(1) This section applies for 2010—11 and subsequent tax years if the retail prices index for the September before the start of a tax year is higher than it was for the previous September.

(2) The upper earnings limit may be increased to an amount which does not exceed the amount found as follows—

Step 1

Increase the upper earnings limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.

Step 2

If the result of Step 1 is not a multiple of £1, round it up to the nearest amount which is a multiple of £1.

Step 3

Add to or deduct from the result of Step 2 an amount not exceeding £2 determined by the Secretary of State for the purposes of aligning the upper earnings limit on an annual basis with the sum of the personal allowance and the basic rate limit under sections 20 and 35 of the Income Tax Act 2007 (c. 3) for the tax year.""

On Question, amendments agreed to.