Clause 7

Pensions Bill – in a Public Bill Committee at 11:45 am on 30th January 2007.

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Removal of link between lower earnings limit and basic pension

Question proposed, That the clause stand part of the Bill.

Photo of David Taylor David Taylor Labour, North West Leicestershire

With this it will be convenient to discuss the following:

Clause 8 stand part.

New clause 18—Lower earnings limit—

‘(1) Section 5 (earnings limits) of the SSCBA is amended as follows.

(2) After subsection (2) insert—

“(2A) A person’s gross earnings from all sources shall be aggregated when determining whether an individual is above the lower earnings limit.”.’.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I, too, welcome you to the Chair, Mr. Taylor.

Clause 7 removes the link between the lower earnings limit and the basic pension. The lower earnings limit is £84 a week at present, which equates to an annual qualifying earnings factor, as pension legislation calls it, of £4,368. The effect of the clause will be that the lower earnings limit will not automatically increase in line with earnings in the future. Instead, any future increase in the lower earnings limit will be at the Treasury’s discretion; that will happen when the basic state pension is linked to earnings.

I have huge sympathy with the intent of new clause 18, which identifies an issue that was raised on Second Reading by at least three Labour Members—the hon. Members for Colne Valley (Kali Mountford), for Amber Valley (Judy Mallaber) and for Northampton, North, and I understand precisely what it would do. It deals with people who have several part-time jobs, each of which on its own is below the lower earnings limit on which national insurance contributions have to be paid in order to accrue a pension at a later date. However, when those jobs are taken together, the total gross earnings come above the lower earnings limit.

To put some flesh on the bones, typically—though not exclusively—it tends to be women who are in those circumstances. The hon. Member for Amber Valley gave the example on Second Reading of someone who may work as a dinner lady at lunchtime and in a corner shop in the evening.

A helpful briefing provided by Help the Aged estimated that about 600,000 women are not accruing pension rights because their earnings are below the lower earnings limit. About 50,000 of those women have more than one job, so they could benefit from the proposal.

Although I said that I understand the purpose behind the new clause, and have much sympathy with it, I have a question about its practical impact. On Second Reading, responding to an intervention by the hon. Member for Colne Valley, the Secretary of State said that it would be

“extremely difficult from an administrative point of view.”—[Official Report, 16 January 2007; Vol. 455, c. 662.]

My question is how new clause 18 would work practically with the payrolls run by employers on a computer, or manually if they are smaller employers. There is also the issue of the cost to employers if an employee for whom they do not pay employer’s contributions goes above the primary threshold, which is £97 a week, at which point the employer has to pay 12.8 per cent. Employer’s national insurance contributions, and the employee has to pay 11 per cent. One could imagine a situation in which some women would be priced out of a job, as employers might choose not to offer them work because of the cost.

Will the Minister comment on how class 3 voluntary national insurance contributions could be paid by employees who are in work and earning below the lower earnings limit, to enable them to accrue rights towards the basic state pension? Class 3 contributions can be paid by anyone over the age of 16 to enable them to qualify for the basic state pension. The rate is currently £7.55 a week. As the employees concerned would not be paying contributions otherwise, it would not be an additional payment. If that would be the right way to go, how can the Government bring the option of paying class 3 contributions to a wider audience?

I am not asking the Department to spend more on its promotional material, but it could flag up the option of paying class 3 contributions in the advertising that it already puts out. In the course of communications between employers and employees, such as payslips or P60s, it would be possible to alert everyone who earns below the lower earnings limit to that option. I should be grateful if the Minister would comment on that suggestion. I know that he understands the problem that is addressed by proposed new clause 18.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

We have no fundamental disagreement with clauses 7 or 8. Proposed new clause 18 is in my name and that of my hon. Friend the Member for Solihull. She was one of the hon. Members to raise this issue on Second Reading, along with a number of Labour Members, notably the hon. Member for Colne Valley, who made a detailed speech and feels passionately about it. The hon. Member for Dumfries and Galloway also made an intervention during the debate.

The issue relates to how the Government, within the confines of their own approach to pensions entitlement, will include some of the groups that have been left out in the past. The hon. Member for South-West Bedfordshire set out in a detailed, fair way the nature of the problem and some potential impediments to possible solutions.

The proposed new clause is designed to help people with earnings from multiple sources who do not earn at least the lower earnings limit in any one job and therefore end up without a full entitlement to the basic state pension. The inclusion of more individuals in the scope of the basic state pension has been an important part of the Government’s approach. It is an important part of the Bill, which we have already discussed to some extent.

In its second report, the Pensions Commission drew attention to the fact that many female pensioners suffer from problems of the type that we are discussing. The report argued that the need to include those individuals and the practical difficulties of doing so made a strong case for replacing the existing contributory system with a universal pension that would be payable to all who meet a residency test. It pointed out that within the confines of the existing system, it is difficult to fix the problem of individuals who have multiple jobs that are all below the earnings limit.

The magnitude of this problem is set out in the Department for Work and Pensions 2005 report on  women and pensions. The report describes how at that time approximately 2.2 million women were not accruing an entitlement to a full working state pension, and of those about 600,000 were earning less than the lower earnings limit, which was at that time £82 a week. Fifty thousand of those individuals are people whom the Government believe to have more than one job and therefore people who would be affected by this new clause, which has good support not only in this place but from a number of bodies outside parliament, including Help the Aged, Age Concern and the Equal Opportunity Commission.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions) 12:00 pm, 30th January 2007

I thank the hon. Gentleman for his kind words about my introductory remarks. He has mentioned outside bodies to which he has spoken. May I ask him specifically to deal with the issues regarding employers and the practicalities of how we make this work within a payroll system? Employers have raised these issues with me. There is also the issue of cost for employers; before we blithely add costs, we need to look at that aspect as well.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

The hon. Gentleman correctly draws attention to the practicalities of what we are seeking to do and of what was raised on Second Reading, and also the potential costs that could fall to employers. We are not unconcerned about those matters at all. Without going too wide of this particular debate, that is one of the reasons why we favour a pension system based on residency rather than on accruals, because it can be difficult and expensive to fix some of these problems. We know that the Government do not want to go down that route. They have said that their fundamental objection is not one of practicality but one of principle. But they believe it is right for people to receive state pensions in return for making economic or social contributions during their working lives.

We believe that the Government’s attempts to ensure that the uptake of the full basic state pension is increased to include as many groups as possible implies that they have an end aspiration to ensure that as many people as possible get the full basic state pension. We would prefer to enforce the responsibilities on people to seek employment and not simply rely on the benefits system in other ways. We know that the Secretary of State has made some proposals on this to date in relation to lone parents. We accept that there are some responsibilities within the benefits system. We have not seen any evidence to date, unless the Minister can contradict me, that the motivation of people of working age in relation to employment, caring and so on is greatly affected by the issue of national insurance contributions. Of course, the fact that the Government have a means-tested level of pension that is set above the level of the basic state pension, to some extent cuts against their desire to have a contributory principle telling people that they are not going to get something for nothing.

In some ways my answer to the hon. Member for South-West Bedfordshire is that that is precisely why we are concerned about the contributory principle that he and the Government have stuck with and why we would like to see a residency principle. We believe that the problem is that the Government will take increasing  steps to try and include as many groups as possible when some sort of universal residency-based pension would be more sensible.

The hon. Gentleman rightly explains some of the difficulties that may face the Government in having records that ensure that they can identify these 50,000 people. He also rightly identifies the problems that employers might experience if they have to bear the costs. I believe that that was behind the comments made by the Secretary of State on Second Reading when the hon. Member for Colne Valley made her speech. I should be interested to hear how the Government intend to fix these problems. It would be bizarre for me to suggest that we should have a residency-based pension system with these difficulties, but then propose a series of detailed and thought-out amendments to deal with problems of the Government’s own making.

First of all today I would like the Government to accept as a real concern that some hard-working people on low pay are potentially not going to get a basic state pension. I do not think that any of us would want them to be left out. Then I would like to hear how the Government might deal with the potential anomaly in a practical way that would not impose unsatisfactory burdens on employers. That is what I am hoping to hear from the Minister. If he encourages us to think that the Government will bring forward measures to fix this, then there will be no need to press any of the amendments to a vote.

Photo of Lorely Burt Lorely Burt Shadow Minister (Business, Innovation and Skills), Shadow Spokesperson (Business, Enterprise and Regulatory Reform)

I wanted to add a few remarks to those of my hon. Friend and to remark further on the interesting and valuable comments by the hon. Member for South-West Bedfordshire. When I first submitted my amendment, I was thinking that a simple and fair solution would be to widen the eligibility for pension contributions where people have more than one job but none on its own qualifies towards national insurance contributions. The simplicity has been taken out by the practical implications; I will come to that in a moment. However, I am sure that no hon. Member would deny that, if possible, in a spirit of fairness, it is desirable to aggregate those people’s jobs, so that the poorest, who need their basic state pension the most in retirement, can hopefully be pushed over the lower earnings limit and therefore be able to make some sort of national insurance contribution.

On Second Reading, several hon. Members gave practical examples of the sort of person who would be affected. A disproportionate number of the people who would benefit from the application of the new clause would clearly be women. One might be a woman who does several jobs to fit around a caring role. Perhaps she is a dinner supervisor at lunchtime and a bar steward in the evening. She is putting caring first. She is literally working all hours. She deserves that the money she is earning, the fruits of her labours, should count towards eligibility for her pension.

The hon. Member for South-West Bedfordshire discussed the practical implications. I completely understand his concerns. I thought that his suggestion about class 3 voluntary national insurance contributions might be one way of tackling the matter. If someone has two jobs, would it be beyond the wit of Her Majesty’s  Revenue and Customs to facilitate pro rata contributions? Could this be one instance where the computer says yes? If HMRC can work out complex formulae and contribution costs, implementing some form of pro rata system would be possible. That is what I would hope. The Government are committed to widening the circle of people who can earn credits towards their pensions. I hope that the Minister will look at the new clause and see whether the gurus in HMRC could find a way for the computer to say yes on this occasion.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

I seek your guidance, Mr. Taylor. Do you want to take clause stand part as part of the amendments?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

I start by putting the amendment in its proper context. Our previous debate was about how clause 5 provides for the earnings rate uprating of the basic state pension, and if no other action were taken a consequence of the basic state pension being uprated in line with earnings would be that the lower earnings limit would also automatically increase by the same amount. Clauses 7 and 8 are therefore needed to prevent that from happening automatically. I take it from the speeches by the Opposition Front-Bench spokesmen that they agree that that needs to be corrected.

It may be helpful briefly to explain the lower earnings limit and why we would wish to prevent it from automatically increasing in line with earnings. The lower earnings limit, currently £84 a week, is the earnings point at which employees start to build up entitlement to contributory working-age and pension benefits. Another way of looking at the lower earnings limit is to think of it as the benefit entry point.

National insurance contributions do not become payable until an individual has earnings at or above the primary threshold, currently £97 a week. People with earnings at or above the lower earnings limit but below the primary threshold are treated as though they have paid national insurance contributions. At the moment, the lower earnings limit increases in line with prices because it is linked by legislation to the weekly rate of the basic state pension. If hon. Members are interested, that is through section 5 of the Social Security Contributions and Benefits Act 1992.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

Will my hon. Friend repeat the passage where he said that people who earn below the lower earnings level are treated as if they have already paid their national insurance contributions, because I did not get the exact wording? Is that right? Is that what he said?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

That is between the lower earnings limit, which is £84, and the primary threshold, which is currently £97.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

And they are treated as having paid?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

Yes. Once the basic state pension has increased by earnings, as I have said the lower earnings limit would also rise in line with earnings. We do not believe that the lower earnings limit should   automatically increase with earnings simply as a knock-on effect of the changes to the basic state pension that we are making. For that reason, clause 7 breaks the legislative link in the Social Security Contributions and Benefits Act 1992 and that is the main purpose of the clause. The LEL is prescribed by regulation 10 of the 2001 contributions regulations and is amended annually by the Treasury. Regulations made annually by the Treasury through the setting of the LEL are subject to negative procedures in this House. Clause 8 makes corresponding amendments in the Social Security Contributions and Benefits (Northern Ireland) Act 1992 as it is just an equivalent change for Northern Ireland.

I turn to the amendments before us. I am happy to give the hon. Member for South-West Bedfordshire the assurance that he wanted, which is that of course people can make voluntary contributions if they are earning below the LEL. They can make class 3 contributions. People in that category who are not getting NI credits in other ways would get deficiency notices from HMRC which would alert them to the fact that they had a deficient year and the possibility of paying national insurance contributions. We are always open to suggestions on how that could be more widely publicised, although obviously with the caveat that we would not want to increase burdens on employers in an unjustifiable way.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I am grateful to the Minister for that reassurance, but will he take that point back to the Department? Given that according to Help the Aged there are at least 50,000 women who should be paying national insurance if we look at their gross earnings, we need to be more imaginative and do a bit more, and it would be possible in terms of existing communications not only from the Department but also those communications that employers already send their employees—such as a payslip and a P60. Will he ask his officials to look further at the matter to see what more could be done?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

I would have a worry about a commitment to place such a burden on employers. We are talking substantially about people who may have a limited payroll system or personnel department. My instinct is that the right approach is through the deficiency notices. I am happy to set out to the hon. Gentleman how that and everything else is being done and to show him the exact letters, if that would be helpful.

Andrew Selous indicated assent.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions 12:15 pm, 30th January 2007

The hon. Gentleman indicates that it would, so I shall happily do that.

I am grateful to the hon. Member for Yeovil for raising this issue because it is important that we debate it. He is right to say that our overall goal should be to give people contributing, through work or care responsibilities, the ability to build up state pension entitlements. However, there is a difference of principle between our approaches: we believe that certain contributions should be recognised, but that others  should not. For example—this is an extreme—we do not think that people in prison have the same right to build up contributions to their basic state pension as someone caring for children or making class 1 NICs.

The hon. Gentleman might have a different point of view. It is worth noting also that his policy is not for a universal residents pension because that would imply that anyone in the country over the state pension age would get the same pension, which would create the illusion that one could get rid of any kind of means-testing. I think he knows that doing so would create difficult political problems owing to the sorts of people who would be getting a full basic state pension. His policy, therefore, is for a person to build up a year’s contribution for every year that they are resident in the UK, which would not be universal.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

Returning to his prison example, will the Minister clarify whether somebody in prison for a period of their working life will still be entitled to the Government’s minimum means-tested level of benefits above the basic pension?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

The two are different. One is a poverty alleviation measure and the other the contributory principle by which people build up their state pension. So, as always, the hon. Gentleman has not quite answered my questions about the details of his policy. I suspect that that is because he does not actually know the answers, or because they are so unpalatable that he wants to delay setting them out for as long as possible. However, the Committee has a few more days to go and we may get more satisfaction before the end of our deliberations.

The hon. Gentleman and other speakers today are right to say that this is an issue mainly about women. The family resources survey estimates that fewer than 50,000 women have two or more jobs that individually pay less than the lower earnings limit, but pay more together. As has been kindly recognised, many of the measures in the Bill are driven by the desire to recognise caring contributions more effectively than we do at the moment. In fact, the core measure—the shift to a 30-year contribution limit to the basic state pension—will largely address the problem that we are discussing today. A minority of women might find themselves in that situation for a period of their lives, but the reduction in the requirement to 30 years should largely deal with it.

It is worth saying also that people with earnings below the lower earnings limit do not necessarily fall through the system. Even though they might not be contributing through their work, they might qualify for home responsibilities protection, through child benefit, under our changes to the weekly credits, or through national insurance credits—for example, the carer’s allowance. The hon. Member for Solihull gave the example of women eligible for carer’s credit or receiving child benefit who, therefore, would be building up an entitlement. They could also build it up through working tax credits or, indeed, maternity pay.

So, as a consequence of the Bill, we will improve the flexibility of those credits and reduce the number of years required. Taken together, those two measures will largely address the problems identified in the amendments.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

The Minister might be coming to this, but is his objection to the new clause one of principle or simply practicalities?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

I am coming to that. It is indeed the practicalities. Given the practical difficulties and given that the other significant measures in the Bill may, in large part, address the question that the hon. Gentleman is raising through his amendment, the great practical difficulties of doing this may not be justified by the benefit that would be achieved.

Indeed, the Pensions Commission looked at this issue and it said clearly in its second report that requiring employers to record and pass on details of earnings below the lower earnings level, so that they could then be aggregated, would significantly increase costs for employers. In that, as in most of this Bill, we concur with what the Pensions Commission said. The Government have also looked carefully at aggregation, but I am afraid that there is no straightforward mechanism to allow earnings from multiple employers to be aggregated in a way that would not impose excessive additional administrative burdens and costs on business.

One of the key principles of national insurance for people in employment is that both the employee and their employer should contribute towards benefit entitlement. If the employee alone were to contribute then the amount of payment needed might be prohibitive. The employer contribution helps fund entitlement benefits in both the shorter and longer terms. And it is because of this employer’s secondary contribution that the system is able to work overall. Unfortunately, that would be very difficult to do if earnings were to be aggregated in this way.

If earnings were aggregated, it is not immediately obvious how the employer’s contribution could be easily calculated. The employer’s contribution would be variable: it would be a percentage based on an employee’s earnings in their work compared with their earnings with another employer. Collecting and calculating it would impose significant administrative burdens on employers. Indeed, the percentage required might change from month to month and even week to week. It might also make the cost of hiring someone uncertain. The employer would not necessarily know about other jobs that the individual might have, and therefore whether they would need to pay some employer’s national insurance contributions.

We cannot have a system to aggregate earnings for benefit purposes but exempt people from paying national insurance contributions on those aggregated earnings. That would clearly be unfair. Let me give the Committee an example. If a person has two jobs, each for 10 hours a week at the national minimum wage, the total weekly earnings would be £107. But national insurance contributions would not be payable, either by the employee or the employer. Another person working the same hours at the same wages for one employer would pay national insurance contributions of £1.10 a week and receive pension entitlement. The employer would pay £1.28 a week. It would clearly be unfair to have a situation where the person in the first category was given pension entitlement but did not pay those contributions if someone who was earning the same amount through one job did.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

I quite understand the Minister’s point. Could he recap on those figures? What would be the excess of national insurance contributions paid by the fully employed individual in a year versus his example of the individual who was in two jobs, which was a times 52 multiplication of the figures he used? I should just like to be clear about how big an injustice we are talking about.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

I think we are talking about £58 a week. I hope that I have avoided my Dan Quayle moment. That may not sound like a significant amount of money to the hon. Gentleman, but the fact that one person would pay tax on a level of earnings and receive pension entitlement and the other person would get the pension entitlement but not pay the tax would clearly derail this proposal. That is in addition to all the burdens on employers.

Photo of Lorely Burt Lorely Burt Shadow Minister (Business, Innovation and Skills), Shadow Spokesperson (Business, Enterprise and Regulatory Reform)

I start by apologising for my lack of expertise in this area. It is not my field. Is the Minister saying that it would not be possible for the first person in the example, who had the two part-time jobs, to pay pro rata national insurance contributions, and that HMRC could not advise the two employers of their requirement to pay pro rata national insurance contributions? Would that not increase revenue to the Government, enabling them to pay a basic state pension in the fair way that they seek to achieve?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

I do not think that that would be possible. We are talking about an end of the labour market at which people might not have absolute clarity about what they pay; their payments might shift from week to week due to flexible working patterns. Indeed, their employers might not have terribly sophisticated pay-as-you-earn systems. It is worth saying that the effect of burdens on employers at that end of the market could be disproportionate. Given that we are talking about people who are not paid significant amounts of money, even a relatively small burden on employers could have a significant effect on employment patterns. At that end of the market, the key thing is to enable people to get back into work so that they can progress to more hours and higher earnings if necessary.

Photo of Lorely Burt Lorely Burt Shadow Minister (Business, Innovation and Skills), Shadow Spokesperson (Business, Enterprise and Regulatory Reform)

I totally understand; and I agree about the disproportionate effect on small employers. The Liberal Democrats’ policy on national insurance and employee-related payments is that in the case of small businesses the employer should not bear the burden. How would the Government feel about extending the measure to lift the burden completely from small employers?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

Well, this is a new version of the money tree—not just increasing spending but reducing the amount of taxation that is received to pay for it in the first place. I shall be happy to look at the hon. Lady’s detailed proposal when the Liberal Democrats have decided exactly how they will fund that. However, I do not want to tax your patience, Mr. Taylor, by straying too far beyond the amendment.

There are, of course, people in that category who choose to work in that way. There might well be people who, for whatever reason, want jobs that are individually below the LEL. They might choose to do so or they might not—

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I am intrigued as to why somebody would want to stay below the LEL. It is not something that I have thought about.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

Without wanting to be too blunt about it: so as not to have to pay national insurance. It might be that people do not choose to do that but that they have to, in order to look after children or somebody who is sick or because it is a temporary part of their work pattern. That is not a pattern that is common throughout a person’s working life; it appears to be something temporary. As I said at the outset, our reforms, particularly the reduction to 30 years for carers’ credits, will benefit many people in that situation. I see that the hon. Member for Yeovil is still doing long division. I am starting to worry that he is about to intervene on me.

We accept that other, more difficult, circumstances might result in people not getting a full basic state pension. It is right that we should seek to understand who will retire without a full basic state pension and what circumstances have led to that situation. That is the matter on which I think the hon. Gentleman was asking us to do more research. I am happy to give him a commitment to do so. We are undertaking research to establish more about those who do not qualify for the full basic state pension. We are also going further, and including those who will retire in 2025 without a full basic state pension. We hope to publish the results of that research in summer 2007. Perhaps, at the same time, the hon. Member for Yeovil would like to publish his proposals as to how he will fund his universal residential citizens pension at the unknown level—

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

I missed the precise detail of what the Minister was suggesting, for which I apologise. Was it that he is going to do research on all categories of people not getting the basic state pension, or does he hold out a small prospect of seeking a solution to this particular problem? I am looking for him to clarify whether he thinks that will ever be soluble within the existing system.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions 12:30 pm, 30th January 2007

The hon. Gentleman was obviously looking for a calculator when I was making my key commitment to address his concern. Our research is to look at people who would not be eligible for a full state pension, both in 2025 and 2050. It is too early to say whether this is a key contributor to that, or whether it is addressed through other means—for example, people’s eligibility through child benefit or the carer’s credit, or because of the 30-year rule. The key point is to look at the 5 to 10 per cent of men and women who might not get a full state pension in 2025, and whether that reflects the contributory principle appropriately or is an unintended consequence of our policy. That is the research that we are committing to publish in summer 2007.

I hope that that gives the hon. Gentleman the assurance that he wants. I have tried to set out the thinking here. The Bill intends to widen coverage for people in this category and its main provisions, which we have debated elsewhere, are the effective way of doing so. A significant burden, in both administrative and, potentially, national insurance terms would outweigh the advantage that would come from this provision.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

I want to respond briefly to the Minister. I am grateful for his detailed explanation. It is useful that he has acknowledged that the Government fundamentally want this group of people to be included in the basic state pension system, and that the issue is entirely one of practicality rather than principle. I also accept his point that the 50,000 figure is likely to reduce over time, because of other changes by the Government. I do not know how significantly that 50,000 will reduce, or whether the Department has made any estimate of that in relation to other changes. I assume that it might be quite tricky to do so, as a lot of assumptions would have to be made, but it would be useful if the Minister would let Members of the Committee know in writing whether there is, perhaps, an order of magnitude by which the 50,000 problem is to be reduced.

The Minister has, essentially, set down a challenge to those who are interested in this issue—including ourselves and others outside this place—to table a detailed additional amendment, perhaps at another stage in our proceedings, demonstrating that the aspiration here might be practical. Clearly, that could be designed to deliver the inclusion of these individuals within the existing system, by tweaking the records of national insurance contributions that they are making, or by seeking to advantage those individuals, who will be on very low incomes, regarding those contributions that they do or do not have to pay.

I appreciate that the Government do not want to create an incentive for people to give up their full-time jobs and acquire a number of different part-time jobs. Sometimes, legislation creating such anomalies can result in people changing their behaviour in an undesirable way. However, on the face of it I should not have thought that there were huge numbers of people who are, as in the exchange between the Minister and the hon. Member for South-West Bedfordshire, structuring their work arrangements around some desire to avoid the lower earnings limit. After all, the amount of national insurance contributions that they pay will be pretty small. It is far more likely that they will acquire these jobs because only part-time jobs are available or because—as my hon. Friend the Member for Solihull indicated—they are trying to fit around other caring responsibilities.

I was trying to do some calculations, as the Minister spotted, on his £52 and 52 weeks, and everything else. I may have got it all wrong, as I am not always right on such things, but his estimate of the cost differential of £52 per week between the individual on low pay in full-time employment versus the individual who splits their job into two jobs and gets underneath the LEL, sounded to me very large. Fifty pounds per week—£2,500 per year—sounds like a large contribution for somebody on a very low income.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

The Minister suggested when he responded that the differential would be £50 per week, but he is now saying that it would be £50 per year. That is not a particularly large sum of money. It is not a particularly large incentive to structure one’s behaviour in a different way. That has left some of us with some ideas—some problems, perhaps—about how to deal with this particular anomaly. The Minister has invited   us to consider whether there is anything that would be workable and practical that we could do and, if there is, to bring it back at other stages in our proceedings.

With that in mind, I will not press the new clause.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8 ordered to stand part of the Bill.