Amount to be specified as upper earnings limit: Great Britain

I beg to move amendment No. 1, in clause 1, page 1, line 2, leave out from ‘In’ to end of line 5 and insert

‘section 5(3)(b) of the Social Security Contributions and Benefits Act 1992 (c. 4) (earnings limits and thresholds for Class 1 contributions), omit the word “half”.’.

With this it will be convenient to discuss amendment No. 5, in clause 2, page 1, line 14, leave out from ‘In’ to end of line 18 and insert

‘section 5(3)(b) of the Social Security Contributions and Benefits Act (Northern Ireland) 1992 (c. 7) (earnings limits and thresholds for Class 1 contributions), omit the word “half”.’.

May I say, Mr. Chope, that it is a great pleasure to serve under your chairmanship—there was no opportunity to say that formally in the morning’s evidence session? I also thank the Financial Secretary and her officials for their assistance this morning. It is the first time that I have conducted an evidence session of that sort, and I think the same goes for the Financial Secretary. It was an interesting experience, enjoyed by some but possibly not by others.

Before discussing amendments Nos. 1 and 5 in detail and what precisely we are trying to do, it might be helpful to touch upon the broader issue that we discussed this morning. Although we welcome the simplification of the system and share the Government’s view that the objective of aligning national insurance with income tax is desirable, one of our concerns, which we seek to address with amendment No. 1, is that the way in which the Bill is drafted could lead to a substantial reduction in Parliament’s ability to scrutinise legislation in those areas.

As we discussed this morning and questioned the officials, national insurance contributions—their rates and thresholds—are generally amended by secondary legislation within a framework of restrictions laid out in primary legislation. One of those restrictions is that the upper earnings limit must be between six and half and seven and a half times the primary threshold. That restriction is being taken away. I put it to the Financial Secretary this morning that she was “dismantling” those restrictions—a word that she did not disagree with. We are left in a position in which a Government are capable of increasing the upper earnings limit through a simple  affirmative resolution procedure, which has not previously been possible. Consequently, personal taxation could be increased by 11 per cent. for all earnings over £43,000, with very little parliamentary scrutiny.

Some Members might welcome that as a desirable policy. My point is not to argue the pros and cons of that particular policy but to argue that it would be wrong to make such an increase without proper parliamentary scrutiny. It is worth stressing that there is a strong body of opinion within the governing party that there is an argument for increasing tax rates. I will not dwell on that, but there is the Fabian Society paper “Narrowing the Gap”, launched in March 2006 by the Foreign Secretary and the Secretary of State for Children, Schools and Families, which called for a 50p top rate tax. Also the Exchequer Secretary—who spoke on Second Reading—was asked, at a Fabian society fringe event at the last Labour party conference, if her party faced a challenge from its opponents regarding the top end of the tax scale; she replied that it did and that she for one hoped that they would be doing a bit of talking about it. Here is an easy way of legislating for just that—one affirmative resolution and we can have, effectively, a 52 per cent. top rate band.

Can the hon. Gentleman talk us through that a bit more? My understanding is that if one takes, for example, the lower earnings limit of £100 which, using the current ratio of seven and a half, would cap the upper earnings limit at £750 a week, and then one changes that ratio to eight and a half, the figure would go up from £750 to £850. For some taxpayers that would, in fact, be a tax cut, because the point at which they would start to pay 40 per cent. tax would move from £750 to £850 a week. Is that not contrary to what the hon. Gentleman said?

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.

One of the attractions of keeping the seven and a half multiplier as the upper limit is that if the Government want more leeway at the top of the scale, they would need to increase the bottom number—the £105 or £110 figure. That would have the helpful benefit of assisting some lower earners, who have missed out due to other tax changes in the Budget.

The hon. Gentleman is right, and, of course, this would be another option available to the Government if they were to find themselves short by a relatively small amount. That is an argument for maintaining the current ratio. It is a reasonable argument, and the criticism that could be made of amendment No.1 is that we are being too generous to the Government by allowing them to widen the bands in this way. But that is the intention behind amendment No.1, as well as amendment No. 2, which applies the same provisions within the equivalent legislation for Northern Ireland.

I should say a word about how the amendments work. Anyone who has just picked up the amendments and looked at amendment No. 1 could be forgiven for thinking that it is somewhat curious, because all it does is omit “half”. I should explain that in context. Section 5(3) of the Social Security Contributions and Benefits Act 1992, as amended by the Welfare Reform and Pensions Act 1999, states that the upper earnings limit is seven times the primary threshold or that it

“exceeds or falls short of 7 times that sum by an amount not exceeding half that sum”.

I confess that the first time—indeed, the second, third and fourth times—I read that, I was somewhat confused. At one point I thought it meant something different. I will say, reasonably confidently, what I think it means. The “that sum” is the primary threshold: so, we are talking about seven times the primary threshold and about an amount not exceeding half the primary threshold. The primary threshold is £100 at the moment, so if the upper earnings limit is not seven times that, which is £700, then as long as it is within half of £100, or £50, then it complies with the ratio. I hope that makes it all terribly clear, Mr. Chope.

On that basis, by deleting “half”, I have not done much for the elegance of an already inelegant clause or section but, essentially, that means that as long as we are within an amount equivalent to the primary threshold on either side of seven times the primary threshold, then we comply with the ratio. That mechanism expands the ratio from between six and half and seven and a half to between six and eight.

The purpose behind the amendment, and subsequent ones, is to attempt to provide some protection for Parliament. It does not prevent the Government from making the changes to the tax system that were outlined in the 2007 Budget. We will hear whatever objections will be made, but all of us, on both sides of the Committee, believe that Parliament has an important role, particularly in the area of taxation, and should guard that role carefully. The current proposals give too much freedom to the Executive and too small a role for Parliament. Politicians from all parties have spoken about the importance of Parliament. Here is a  practical example of where there is a problem. The amendment is, in some respects, a small but technical measure, but could prevent the sort of abuse that I outlined at the beginning of my remarks, where a Government may come in and make a fairly substantial change to the taxation system but through a means that involves little parliamentary scrutiny.

May I take the hon. Gentleman back to omitting “half”, which I have been pondering? He will correct me if I misunderstood what he said—that omitting “half” would change the ratio from between six and a half and seven and a half to between six and eight. My understanding is that the “half” is a margin of error figure, so that it is around 7. So, if one omits “half”, it has to be spot on 7, it does not expand it to between six and eight.

The hon. Gentleman raises a fair point. That is how I understand it. He is right that section 5(3)(a) says that it has to be seven times, before then going on to the margin of error. I have not deleted that in its entirety. What I have deleted is “half”, where the margin of error is half the primary threshold. If we take out “half”, we just have the primary threshold. I hope that that clarifies the position. The margin of error—it was helpful of the hon. Gentleman to use that expression—is widened, becoming the value of the primary threshold both up and down, rather than half the primary threshold.

This is a modest amendment, which will not prevent the Government from achieving what they have set out to do. However, it will permit parliamentary scrutiny to continue and prevent any large-scale increase, or indeed abolition, of the upper earnings limit without appropriate parliamentary scrutiny.

Let me add my words of appreciation to those offered by the hon. Member for South-West Hertfordshire and say what a pleasure it is to serve under your chairmanship, Mr. Chope. This morning was an interesting experience—[ Interruption. ] I apologise if it was not quite as interesting for some members of the Committee as it was for others, but I certainly need debriefing about it to see how valuable it was. As I said, I had not expected a number of the questions. Sensibly, a lot of questions dealt with the figures, which was absolutely appropriate, and we had a thorough sitting. I hope that that means that we will have a fairer wind than we might otherwise have done this afternoon.

The hon. Gentleman made an elegant speech and he is always thoughtful when challenging what the Government are doing. He talked about a momentous change in the way in which the Government are allowed to set the rate of national insurance contributions. He said that nothing in the new structures would prevent a future Government from using the Bill as a lever significantly to increase tax rates. He was also concerned about parliamentary procedures and the opportunity to consider proposals properly.

I do not want to go too wide and I shall come to the amendments, Mr. Chope, but let me say at the outset that the Government’s reforms of the welfare state  since 1997 reflect our aim of eradicating child poverty and supporting people to balance their work and family lives. The personal tax package that we discussed at some length this morning represents the next stage in our programme to reform the tax and benefit system. The Bill is required to ensure that those changes can be fully implemented and that the benefits of that package can be fully realised.

The hon. Gentleman asked why we cannot introduce a new ratio to calculate the upper national insurance contribution limit. We see no reason to reintroduce an arbitrary ratio, given our proposal that future changes to the upper earnings limit will be subject to approval by both Houses of Parliament. As we have made clear, removing the restriction on the upper earnings limit will provide for significant simplification and allow the two main rates of income tax and NICs to apply to the same bands of income, creating one of the simplest personal tax structures in any developed country.

Given that commitment, I see no reason why the 11 per cent. level at which employees stop paying NICs should be subject to legislative restrictions, when the point at which they start paying NICs is subject to none. We could apply a cap of a multiple of the primary threshold in the way that we have done, but there is no similar restriction on the level of the primary threshold, and we touched on that this morning.

The Financial Secretary raises a fair point about the restriction at the bottom end. Ideally, if one is going to have a restriction at the top end, one should have a restriction at the bottom so that one could lower it in such a way as to break the ratio. The Financial Secretary’s criticism is that there is no restriction at the bottom end, but there is of course a ratio. So, it would not be possible to reduce the primary threshold to a low figure unless the Government also reduced the upper earnings limit by a correspondingly low amount. In that sense, the continuation of the ratio protects both the top and the bottom.

I do not accept the hon. Gentleman’s point. As we discussed this morning, the lower earnings threshold is aligned with the lower income tax threshold. We have been working to keep those in alignment for a considerable time. We are now seeking to align the upper level. Our primary goal is the policy objectives I was talking about earlier. Simplification being one of the major drivers of those, we will establish that link, and seek to maintain it. To reintroduce a legislative restriction on it would limit the Government in its work towards achieving its objectives.

As I have said, each year Members of both Houses will have the opportunity to debate the increase in the upper earnings limit, as the regulations will be subject to the affirmative resolution procedure. It was made clear at the introduction of the primary threshold that it was introduced to ensure that the point at which income tax and mixed liability begins is the same. The advantages of our approach are clear. It will reduce the burden on future legislative programmes, while retaining proper accountability to the House and an opportunity to debate the issue.

The hon. Member for South-West Hertfordshire used quotes from one of my earlier speeches as a rookie in 1993. I have a quote for him, although it is not one  of his. It is interesting how rapidly hon. Members, when in Opposition, adopt a certain position. On 18 February 1997, when the right hon. Member for Richmond, Yorks (Mr. Hague) was Secretary of State for Wales, during the debate on the Welsh Development Agency Bill about the removal of the borrowing limit imposed on the Agency, he said that:

“The Bill provides that future increases of the financial limit shall be made by secondary legislation, using the affirmative resolution procedure. The advantages are clear.”

We have seized upon those advantages. The speech continued:

“It will reduce the burden on future legislative programmes while retaining proper accountability to the House and an opportunity to debate the issue.” —[Official Report, 18 February 1997; Vol. 290, c. 75.]

It is absolutely fair and proper that the Opposition express concern and seek to defend the right of the House to proper scrutiny of the Government’s actions, but secondary legislation is a perfectly proper, well tried and tested route by which to do that. I do not have any reason to believe that what we are proposing will undermine the ability of either this House or the other place to scrutinise legislation or Government decisions. I know that the hon. Gentleman has put the amendment forward in a probing manner and I ask that he not press it to a vote.

I am not entirely satisfied with that response and I do not think that that will surprise the Financial Secretary. I know that she says that there is a Government commitment to ensure that national insurance contributions are linked to higher rate income tax—indeed, we will turn to an amendment that relates specifically to that—but no protection will exist in legislation. It came out in the evidence session this morning that the purpose of the previous legislation was to prevent an abrupt increase in the upper earnings limit irrespective of national insurance contributions.

I am not persuaded by the Minister’s arguments or her plea to us not to press this. I think that I will press the amendment to a Division. We might well be outnumbered, but the principle remains the same. Parliamentary scrutiny will not be achieved adequately—

I assure the hon. Gentleman that he has my support on this issue. The fact that the Labour party and the Conservatives have proven to be equally cavalier in their dealings with the House only strengthens my resolve to back him.

We are now up to four. Who knows how many on the Labour Benches are persuaded? I can see at least one Labour Member who has a reputation for defending parliamentary sovereignty, but I am not sure whether he is paying attention. With regard to the example given by the Minister, I was not quite sure it was a tax matter.

It was a financial matter.

It involved money, but I am not sure that it involved the raising of revenue, and I think that is an important point. It is a principle—

Level of borrowing limit.

A level of borrowing limit is somewhat different from a tax-raising power. I will press the amendment to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 4, Noes 9.

Question accordingly negatived.

I beg to move amendment No. 2, in clause 1, page 1, line 6, leave out subsection (2).

With this it will be convenient to discuss the following amendments: No. 3, in clause 1, page 1, line 12, at end add—

‘(4) In section 5(6) of the Social Security Contributions and Benefits Act 1992 (earnings limits and thresholds for Class 1 contributions), at end insert “and may not include any increase in the upper earnings limit in excess of the retail price index for the month of December in the preceding tax year.”’.

No. 4, in clause 1, page 1, line 12, at end add—

‘(4) In section 5(3) of the Social Security Contributions and Benefits Act 1992 (earnings limits and thresholds for Class 1 contributions), omit the words from “which” to the end of the subsection and insert “does not exceed the level of earnings at which the higher rate of income tax becomes payable.”’.

No. 6, in clause 2, page 1, line 19, leave out subsection (2).

No. 7, in clause 2, page 2, line 5, at end add—

‘(4) In section 5(6) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) (earnings limits and thresholds for Class 1 contributions), at end insert “and may not include any increase in the upper earnings limit in excess of the retail price index for the month of December in the preceding tax year.”’.

No. 8, in clause 2, page 2, line 5, at end add—

‘(4) In section 5(3) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (earnings limits and thresholds for Class 1 contributions), omit the words from “which” to the end of the subsection and insert “does not exceed the level of earnings at which the higher rate of income tax becomes payable.”’.

The amendments essentially relate to the same issue. There is no need to repeat the full arguments, but there is a dismantling of the restrictions that apply to increases in the upper earnings limit for national insurance contributions and, for that matter, the primary threshold. We think that that is undesirable and wish to address it.

Amendment No. 2 would remove clause 1(2). That in itself—the Minister might have been inclined to point this out—weakens the position because it would remove regulations specifying the upper earning limit  from the list of those subject to the affirmative procedure. However, the amendment must be taken with amendment No. 3, which would carve out from those matters that can be dealt with by regulations, whether subject to the affirmative or negative procedure, any increases in the upper earnings limit in excess of the retail price index for the previous year.

We have been reasonable enough under amendment No. 3 to permit increases in the upper earnings limit in line with prices. However, if amendments Nos. 2 and 3 were agreed to and the Government wished to increase the upper earnings limit by a higher rate than the rate of inflation, which presumably will not be a routine occurrence, they would need to do so through primary legislation.

I invite the hon. Gentleman to withdraw amendment No. 3 because it would not do what he just suggested to the Committee. It relates to an increase in the retail price index in not the previous year, but the month of December, which is not what he intended it to say.

My understanding is that the retail price index is always an annual figure. I think that this wording is used in other legislation. I can see where the hon. Gentleman is coming from and I can check that, but I think that the same formula is used elsewhere. If I am wrong, he makes a very strong argument. I think that the amendment would do what I say it would, and if it would not, I will withdraw it.

We are about to find out.

Indeed. While we are finding out—inspiration comes to us all—I will address amendment No. 4, which is the most persuasive amendment in the group

The Financial Secretary has reiterated today that the Government’s policy objective is to align the upper earnings limit with the point at which higher rate income tax starts to be paid. Indeed, that is what the then Chancellor said in his Budget speech of 21 March 2007. Earlier, the hon. Member for Wolverhampton, South-West said that if one prevents any increases in the upper earnings limit, one somehow prevents people from having a reduction in taxes. There was a reasonable assumption that this Bill would confirm the policy objective that the Government have maintained ever since the 2007 Budget: the link between the upper earnings limit and higher rate income tax. However, there is no link in the Bill.

The amendment, subject to any comments, suggestions or criticisms about its technical quality, would enable the Government to increase or decrease the upper earnings limit as they thought fit, but, when doing so, the higher rate income tax band would vary with it. It would formalise the policy objective that the Government have announced, which we support. The argument in the Budget was that this will simplify matters and we will have two rates on personal income. Amendment No. 4 would ensure that that happened.

We heard today from officials the view that announcements about the threshold for higher rate income tax will be made in the autumn statement—or the pre-Budget report, as it now is—at the same time that announcements are made for national insurance contribution thresholds. So, from a practical point of view, it appears that the Government are rightly going to follow up on their policy announcement. We heard from the Minister a couple of moments ago how they have maintained the link for the lower earnings limit. All that we are seeking to do is to formalise the link so that it is detailed in the Bill. If the Government ever wished to change their mind and break that link—if they wanted to abolish the upper earnings limit, to give an extreme example—they could always do so through further primary legislation.

Amendment No. 4 is essentially supportive of the Government’s objectives. It would merely formalise things and protect the position of Parliament, once again, by enabling it to scrutinise any departure from stated policy.

Will the hon. Gentleman just clarify whether the amendment would enable the Conservative shadow Chancellor to introduce a flat-rate tax, which I understand he was considering, although he appears to have gone cooler on the idea in recent months?

Order. Before Mr. Gauke is tempted to answer that question, may I say that doing so would not be in order?

I am grateful for your guidance, Mr. Chope. I will not respond, other than to say that we favour flatter and simpler taxes. To the extent that this measure is a simplification, we welcome it, notwithstanding our concerns that the realignment also results in an increase in tax. However, essentially we support the principle.

The group includes amendments that are equivalent to amendments Nos. 2 to 4 in respect of the Northern Ireland provisions. I will be particularly interested to hear the Minister’s views on formalising the link between the upper earnings limit and higher rate income tax.

I am grateful for the way in which these probing amendments have been put—she says hopefully! I shall talk about the group of amendments and perhaps mention amendments Nos. 3, 4, 7 and 8, which are intended to retain some form of restriction in primary legislation on the level of the upper earnings limit that can be set by secondary legislation. The rationale appears to be—again, it is similar to the debate that we have just had—that that provides a greater level of parliamentary control than is provided in the draft legislation. We debated that earlier, but I will come back to it.

Amendments Nos. 3 and 7 would amend clause 1 so that the upper earnings limit may not be increased by secondary legislation to a figure that is in excess of the retail prices index for the month of December in the preceding tax year. As clause 1 only applies to Great Britain, it appears that amendment No. 7 mirrors this restriction by amending clause 2 which is applicable to Northern Ireland, which is one of my favourite places.

There is a particular difficulty with amendments Nos. 3 and 7 in respect of linking the upper earnings limit to the retail prices index. These amendments would not allow the Government to align the upper earnings limit from 2009-10 with the point at which higher rate income tax becomes payable, which is one of our objectives, because they would not be able to raise the upper earnings limit in 2008-09 by £800 plus RPI. That would remove the main purpose of the Bill and a significant simplification of the national insurance contributions system.

We use the September RPI when calculating pensions and benefits uprating and the mixed re-rating procedures. That needs to take place before the beginning of the tax year. Those figures are also used in preparing the annual Government Actuary’s Department report. It would not be possible to use the December RPI figure and still have the necessary legislation and amended guidance in place in time. There would be a knock-on effect for software developers and employers. The hon. Gentleman should perhaps take the advice of my hon. Friend the Member for Wolverhampton, South-West about the amendment. The cost attached to accepting the amendment would be significant; we anticipate it could be around £700 million. I have talked about the fact that we currently use the September retail prices index and that using the December retail prices index would create real difficulties for employers and payroll developers in amending their software ahead of the start of the new tax year.

Amendment No. 4 is interesting as it also amends clause 1 and appears to be an alternative to amendment No. 3. However, I understand why amendments Nos. 4 and 8 are grouped together. Amendment No. 4 aims to restrict the upper earnings limit so that it cannot be increased by a secondary legislation above the level of earnings at which the higher rate of income tax becomes payable.

I understand the logic behind amendment No. 4, but both theoretical and practical difficulties are associated with it. Income tax is an annual charge and is calculated on a cumulative basis, but national insurance is based on an earnings period that is normally weekly or monthly. Liability is calculated each time earnings are paid, which means that, in legislation, the upper earnings limit is a weekly figure whereas the level at which the higher rate of income tax becomes payable is an annual figure. If amendments Nos. 4 and 8 were accepted, the weekly upper earnings limit could be set at any figure up to £39,825 based on the 2007-08 tax year. [Hon. Members: “A week?”] Per week. The upper earnings limit for 2007-08 is currently £670 per week. The amendment would allow the upper earnings limit to be increased by up to 60 times its current level, which is far in excess of what we want to do. It could allow the Government of the day to raise millions of pounds of additional national insurance contributions and I am sure that is not what Opposition Members intended.

Another reason why the amendment is substantially flawed is that the level at which the higher rate of income tax is to be set does not become law until after the upper earnings limit for that tax year has been set. The weekly upper earnings limit is set by regulations that come into force on 6 April each year, which means  that the regulations must be laid before 6 April. Income tax is subject to the Finance Bill procedure and the Provisional Collection of Taxes Act 1968, which allows for changes to apply from the beginning of the tax year. I am not sure whether Opposition Members intended to bring the national insurance system into the Finance Bill but, as we discussed this morning, it would take primary legislation to do that. It is certainly not the Government’s intention to do so.

On amendment Nos. 2 and 6, the upper earnings limit can currently be raised by regulations subject to the negative resolution procedure. Under our proposals there would have to be a debate in both Houses before it could be raised. Amendment No. 2 seems to remove the requirement for the affirmative resolution procedure if either amendment Nos. 3 or 4 find favour with the Committee.

The change proposed in the Bill should not give cause for concern in terms of parliamentary scrutiny. The House always considers the affirmative resolutions that come before it extremely carefully and I assure the Committee that, as the Minister who often has to reply to such resolutions, one feels thoroughly scrutinised as a result of those debates. The amendments taken together or separately to leave the upper earnings limit to the RPI or to the higher rate of tax are unworkable for the reasons I have explained. I understand why the hon. Member for South-West Hertfordshire wanted to probe the Government’s position on some of those ideas, but I recommend that the Committee resist the amendments.

I am grateful for the Financial Secretary’s informative explanation. As I mentioned, amendments Nos. 2 and 6 need to be taken with amendments Nos. 3 and 7 because, as she rightly says, in isolation, amendments Nos. 2 and 6 would weaken the position.

On amendments Nos. 3 and 7, her remarks that September should be used for the date as opposed to December make a strong argument. I will read her remarks carefully, but if the amendments that we tabled had referred to September rather than December, I am not sure whether there would be an overwhelmingly strong argument against them, given what we heard this morning. If the Government are able to align national insurance contributions and income tax, it ought to be possible to look at the way in which the upper earnings limit is increased, in such a way as to provide a restriction on it in the same way as increases in thresholds for income tax have been since the days of the Rooker-Wise amendment, somewhat before my time. We will not press amendments Nos. 3 and 7 and consequently will not press amendments Nos. 2 and 6.

On amendments Nos. 4 and 8, I take the technical point that the Financial Secretary raises with regard to income tax being done on an annual basis and national insurance contributions being done on a weekly basis. As a consequence, technically it would appear that these amendments would give the Government greater flexibility than we intended and would, to all intents and purposes, be consistent with the Labour party’s 1992 manifesto. They would effectively enable the abolition of the upper earnings limit if any Government wanted to do so.

The amendments are therefore ineffective, but we will look at this issue again. If the technical point can be resolved and if there is an opportunity to look at this matter in a corrected form, we will do so. Given the comments about the interpretation of amendment No. 4 that presumably come from the Treasury, we will not press it and I apologise to my hon. Friends who might have been looking forward to another valiant effort in defending parliamentary accountability. [Interruption.] I have got troops behind me, but I not sure that they are of sufficient number. We may well have right on our side, but we will fight this battle on another occasion.

I am afraid that the word “another” applies not to myself, but to my hon. Friend the Member for Ludlow. I think that he had other duties downstairs, listening to the great joys of the Olympics and the national lottery. I suspect that if we were to have a Division there, we might lose by slightly more than we would lose in a Division here.

In light of the comments made by the Financial Secretary, I will not press any of the amendments. However, we will look again at the issue raised by amendment No. 4 again. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.