Social Security (Contributions) (Amendment No. 2) Regulations 2011

My Lords, I thank the noble Lord, Lord Davies of Oldham, for his characteristically short, to-the-point and putting-me-on-the-spot remarks. Without getting into unnecessary detail, he extracted one or two big points, which it was very reasonable to raise. I thank also my noble friend Lord German, who succinctly pointed to the significance of the changes that the coalition Government have made to the plans that they received from the previous Government. I have not seen any specific numbers that might answer his very interesting question, but I shall go away and see whether a comparison has been made between the effect of a rise in VAT and the effect of a rise in national insurance. However, he made absolutely the right point, supported by all the economists’ evidence, that a rise in national insurance is a direct tax on jobs. Regrettable though the rise in VAT was, it was necessitated by the dire predicament that the Government inherited and in line with all the economic evidence that a rise in national insurance contributions as proposed by the previous Government would have been much more damaging. The VAT increase raises about £13 billion. That would have required a huge rise of almost 3 per cent in the employer NI rate. Without taking it any further, one can see how just how burdensome that would have been on employers. I should address the points raised by the noble Lord, Lord Davies. He asked, first, whether we had met the expectations set out in the coalition agreement. I certainly believe that we have delivered on what could reasonably be expected of the Government. Compared with what would have happened under the plans of the previous Government, employers will be more than £3 billion better off next year, rising in future years. Indeed, although £3 billion is correct in the round, the figure is slightly more. It is exactly what employers would have expected, as it matches not only the Conservative manifesto but the coalition agreement. Yes, as a result of the coalition agreement, some of the benefit is switched from national insurance contributions to income tax. It is a point that has been made and answered before. Indeed, there will be a net rise in national insurance contribution payments, compensated by a larger fall in income tax payments. Just to underline the point, employers will be better off in respect of employees earning up to £20,000, while employers who have among the highest-earning staff will pay more national insurance contributions. We believe that that is the right and appropriate way to do it. On the question of women, as a general point I would note that, in terms of the effects based on gender or whether someone is disabled, as well as in terms of those in other groups, the coalition Government took their responsibilities in the overall spending package last year more seriously than has ever been done before. We are certainly not in any way trying to dodge our important responsibilities to consider the effects of all our measures on different groups in society, including, of course, women. Married women who paid national insurance contributions at the reduced rate are a unique group. They elected to pay reduced rate contributions in return for reduced benefit entitlement; these women can revoke their reduced rate election and pay contributions at the standard rate at any time they choose. It is not the case that women who opted to pay reduced rate contributions have received nothing in the way of benefits, in case there is any suggestion of that. Before 1975, such women who were employed were eligible for a full range of industrial injury benefits and, later, they became eligible for statutory sick pay and maternity pay. They can also receive a pension of up to 60 per cent of basic state pension based on their husband’s contributions when he reaches pension age. There have also been three major publicity campaigns about the married women’s option—the first in the late 1970s, the second in the late 1980s and the third in October 2000—to advise them of changes that may affect them. They also benefit from the increase in the primary threshold that is now coming in. There are around 5,000 to 10,000 married women who still have in place a reduced rate election; the numbers are falling because only women married or widowed before 1977 are entitled to pay at the reduced rate. I hope that I shall not be accused again by the noble Lord of piling Pelion on Ossa, but I thought it worth going through the position as it is and confirming that in the generality the Government take their responsibilities very seriously. Without rehearsing again any of the important points in the regulations and the order, I am grateful for the focused and brief debate. I reiterate as a last point that more than £3 billion a year is being returned to employers through the employer threshold rise and even more to individuals through the increase in the primary threshold. I commend the regulations and the order to the Committee. Motion agreed.