Child Benefit
Debate between Lord McKenzie of Luton and Lord Sassoon(11 years, 6 months ago)
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Lord McKenzie of Luton
To ask Her Majesty’s Government whether they have plans further to restrict child benefit.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government are exploring further options for making the welfare system fairer and more affordable. Details will be announced in due course.
Lord McKenzie of Luton
My Lords, I thank the Minister for that reply, but I am not particularly comforted by it. We are, of course, among the shambles that is engulfing the introduction of the current change to child benefit policy for higher rate taxpayers—evidence, if we needed it, that policy should not be made on the hoof. Hundreds of thousands of people have been brought into the self-assessment process at a time when HMRC staff numbers are being savagely reduced. But my question for the Minister on the matter of evidence-based policy-making is to ask how he justifies the proposals aired by the right honourable Iain Duncan Smith, a fellow Minister, that child support for those unemployed should be restricted to just two children because, he asserts:
“Large numbers of families on welfare are having more children because they believe taxpayers will support them”.
Will the Minister give us the evidence for that assertion? Should such a policy ever be introduced, what impact does he think that there would be on child poverty in this country, which is already on the rise under this Government?
Lord Sassoon
My Lords, first, I am sorry that the noble Lord, Lord McKenzie of Luton, was not comforted in his terms by my answer. Does he disagree with the idea that the system should be fairer and more affordable? We know that the previous Government’s system was unaffordable, and we are putting that right. As to his question about some of the ideas that are being floated at the moment, it is simply not fair that it is possible for someone to be better off on benefits than they would be in work. How can we justify a system in which people in work have to make decisions about having a child or having another child based on what they can afford, whereas those out of work know that their benefits will just increase?
Welfare Reform Bill
Debate between Lord McKenzie of Luton and Lord Sassoon(12 years, 6 months ago)
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Lord Sassoon
My Lords, nobody is being misled because the Chancellor of the Exchequer made the position extremely clear in his original Budget Statement. People have had their calculations made on the basis of the Statement by the Chancellor. What we are doing today is part of the process of getting the law into alignment with that to make absolutely sure that people are paid precisely what was announced in the June 2010 Budget.
Lord McKenzie of Luton
My Lords, I was going to start by welcoming the noble Lord, Lord Sassoon, to our Committee deliberations, which I now do a little belatedly. It seems to me that the proposition we are hearing today is that you collect the tax you want and then you align the legislation with it in due course. Does the Minister differentiate in his analysis between those who still have a claim that is continuing and those whose claim might have ceased during the course of the year for one reason or another?
I want to ask one or two further questions. In terms of the increase in the tax credit withdrawal rate, has any assessment been made of the impact of that on work incentives? Can the Minister also say something about the distributional impact of that reduction? It may seem just a small adjustment from 39 per cent to 41 per cent but the Red Book for the period shows that the impact in the first year would be £645 million increasing to more than £700 million throughout the rest of the CSR period. These are not small sums of money we are dealing with here in this rather retrospective manner.
In terms of the impact of those sums, the budget line sits on the same page as an item we are just about to discuss in relation to the disability living allowance. On the same line are the savings the Government are planning to make to a reform of the gateway which is something like double the savings they are making from these changes to the tax credits. Can the Minister perhaps just say something about that juxtaposition and the relative position of the two adjustments?
Lord McKenzie of Luton
Before the Minister responds to that, perhaps I may add to the list of questions. A moment ago he said that these were fair and targeted proposals, but can he expand on that proposition for us? The increase in the taper rate that affects some people runs to the tune of £780 million and the disability living allowance changes to the gateway amount to a withdrawal amounts to £1.4 billion from disabled people. How does he deal with that juxtaposition? How does he evaluate it? What is the basis for saying that those are fair and targeted? The Minister said it is always right to remind us about the inherited deficit. Perhaps I could say that it is always right to remind Members opposite that a financial crisis has hit every economy around the world—certainly all the major economies; when the last Government left office, the economy was growing and unemployment was going down.
Lord Sassoon
Perhaps it is worth saying that in future HM Treasury will be making a prospective provision for subsequent years by making new uprating regulations in time for the tax year 2012-13. So, just to be clear, this subsection will operate from the day it comes into force, but relates to this year; something different will happen next year. We will have the regulations in good time. I do not want to prolong things by discussing accidents that might have happened under the previous Government. I am sure there is a long list of things that went wrong; we know that there are significant things that have gone wrong in the administration of tax over the years. As for the distributional point, the critical thing is that with the entire package of tax decisions we took last year— and again it was repeated in the Budget document this year—we look at the effects of the measures quintile by quintile. The critical test here is that we have made sure that when all the measures and decisions taken by this Government are taken together, those who can afford to pay most pay most. So again—
Lord McKenzie of Luton
Does the Minister reject the IFS analysis that the tax and benefit changes that this Government have introduced will lead to an increase in both absolute poverty and relative poverty—both in children and in adults?
Lord Sassoon
My Lords, I think we are going much further than this individual measure. This measure is part of a much wider construct, which is not the subject of the amendment today. The amendment today is merely to get the position in line with what the IFS, the OBR and all other commentators believe to be the position
Without prolonging the point about the IFS, the IFS absolutely confirms the point I was just making: it is the richest in our society who will be paying the most as a result of the measures that we have taken, both in the budgets and in the spending review.
Lord McKenzie of Luton
I think we have pressed the Minister enough on this. We ought to let him go, but I do wish that he will return for some further deliberations before we finish this Committee stage.
National Insurance Contributions Bill
Debate between Lord McKenzie of Luton and Lord Sassoon(13 years, 2 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, Amendment 1 returns to the allocation of national insurance contributions receipts between the National Insurance Fund and funding of the NHS, which was covered both at Second Reading and in Committee. This amendment, as the noble Lord, Lord McKenzie of Luton, has explained, is aimed at ensuring that the NHS allocation of the additional rate is subject to an adjustment to ensure that the funding of the NHS from national insurance contributions will grow in real terms year on year. The amendment would require comparisons to be made from one year to the next of the NHS allocation and adjustments to ensure that the allocation grows in real terms each year.
As I explained in Committee, the amount that is to be spent on the NHS, whatever the noble Lord says, was confirmed in the spending review in October last year and is unaffected by whether the funds come from national insurance contributions or elsewhere. The noble Lord says that he wants to ensure, through the amendment, that the health service is not short-changed. I can absolutely assure noble Lords that nothing in this Bill goes anywhere near short-changing the National Health Service. The amendment would ensure that the national insurance allocation to the NHS increases year on year, which is a bookkeeping matter, but nothing more.
It may help noble Lords if I put this matter into a bit of context, because I was beginning to lose some of the train of the noble Lord’s argument and I fear that others may have done so as well. Perhaps it would be helpful to the House to go back and explain the numbers very broadly.
I shall take the last full year for which the numbers are certain. In 2009-10, the total sum raised by national insurance contributions was £94 billion. Of that, just over £20 billion was allocated to the NHS and the balance, around £74 billion, was allocated to the National Insurance Fund. Total NHS expenditure in 2009-10 in England alone was exactly £100 billion, so it is important to understand that, whatever allocation of funds out of NICs proceeds to the National Health Service, it makes up only around 20 per cent of NHS expenditure.
I have also been looking at the numbers over the past few years. If we go back to 2004-05, for example, in that year the contribution made by NICs to NHS expenditure on the basis that I have described was 24.3 per cent, but by 2009-10 that contribution had fallen to 20.3 per cent. So I find it quite hard to accept noble Lords opposite casting all sorts of aspersions at the present Government about how they will safeguard expenditure on the NHS when their own record shows that over the last few years they contributed a significantly falling percentage of NICs to NHS expenditure. Nobody challenged them with the thought that they would renege on their commitment to NHS expenditure, so I do not expect noble Lords seriously to challenge the fact that this Government will stick to their commitment to increase National Health Service expenditure in real terms. The point is that NICs will only ever make a small but significant—20 per cent or thereabouts at the moment—contribution to NHS expenditure. The balance—the greater sum out of NICs—will go where it has to go, which is into the National Insurance Fund.
I do not want to belabour the point but, in big-picture terms, the amendment would make absolutely no difference. It would not affect the money that goes into the National Health Service. The negative effect of the amendment would be to create a degree of uncertainty in establishing the NHS allocation, as we would know the receipts from national insurance for sure only after the end of the tax year, because they are dependent on wage levels, economic conditions and the thresholds as they apply in a particular year. We would then have to compare those with the previous year’s allocation and make an adjustment if necessary to ensure a real-terms increase. That would add administrative complexity and create accounting and funding uncertainty, not least for the Government Actuary, who is required to report on the state of the National Insurance Fund each year. It would have, as I have explained at some length, no impact on the overall spending on the NHS, which is a rightful concern of noble Lords.
Government policy is to maintain the level of national insurance contributions allocated to the NHS and to allocate additional revenues from rate rises to the National Insurance Fund. That is what the Bill will achieve. That helps to ensure that plans for payment of pensions and other contributory benefits are sustainable in the long term. In that way, we can protect pensioners with the new triple lock, which guarantees each and every year a rise in the basic state pension in line with earnings, prices or a 2.5 per cent increase, whichever is the greatest.
I repeat that this amendment will not affect overall spending on the NHS because that figure has been set in the October spending review. Given that the figure has been fixed, the amendment would serve only to create a degree of additional bureaucracy and complexity. I have gone to some length to reassure, I hope, the noble Lord, Lord McKenzie of Luton, that the health service will in no way be short-changed because of the Bill. Therefore, I ask the noble Lord to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his response. He said that he did not believe that we could reasonably challenge the assertion that the coalition Government would increase funding for the NHS in real terms, but that is precisely what we are doing. If the noble Lord looks at the Red Book and the projections, the aggregate figure is a 0.4 per cent increase, but when you back out the fact that included in that is £1 billion reallocated for social care, because local authority budgets have been squeezed, you will see the opposite effect—a real-terms cut. That was part of the backdrop to the amendment.
The noble Lord said that the Government’s proposition was to “maintain” the allocation, but that is precisely what they are not doing this year. I raise what Mr Gauke said in the other place. He said on the record that, because earnings were increasing and were projected to increase next year, on the basis of the Government Actuary’s report, he would expect the NHS allocation to increase.
At the end of the day, the Government are clearly under pressure on spending, as any Government would be at the current time. If they are looking for resources outside of the National Insurance Fund to make good any shortfall in meeting their commitments, that will be more difficult if they cannot get a reasonable allocation from the National Insurance Fund—a reasonable allocation being an increase in real terms when earnings are increasing as well. That was exactly the premise of Mr Gauke in another place.
The Minister made much of what this would mean in terms of administration, but I reject that rather bureaucratic proposition of how you could deal with this, because I think that it could be dealt with quite easily on the basis of estimates, with adjustments at the end of the year. There is no great mystery about that. Having said that, our real concern is the fundamental issue of whether proper funding is going to the NHS and whether in real terms the Government are meeting their commitment. We do not believe that they are. This is just one facet of that. However, I think that we have probably got as far as we can on this. I beg leave to withdraw the amendment.
Lord Sassoon
I am very grateful to my noble friend Lord Newby; he has done my job admirably on these amendments. However, I start by returning to fairness. The reason for the Government introducing the holiday is their belief that it is fair that people and regions that have become overdependent on public sector jobs are given additional help as the economy has to rebalance. I therefore agree completely with my noble friend. It is clear that the noble Lord, Lord McKenzie, means to misconstrue the purpose of the Bill.
We in the Government are doing other things to lift the burden of national insurance contributions on businesses right across the country, notably by raising the threshold by £21 per week above indexation from 6 April 2011 and by reducing corporation tax rates. Those very considerable measures are benefiting businesses right across the country, reversing the damaging effect of the Labour Government’s jobs tax. This particular measure is not about fairness across the country in that sense but about fairness to those regions that, under the previous Government, became overdependent on government employment. This is a way of targeting resources to enable new businesses to grow in those regions.
My noble friend Lord Newby went on to ask the noble Lord, Lord McKenzie, about the additional cost of the scheme. The Government estimate that if the scheme were to go national it would increase the projected costs of the scheme by about 70 per cent, so my noble friend is completely right that this could be a significant additional expenditure. He has made the point that I was not going to make, although he is quite right; it is yet another example of Labour’s unfunded spending promises.
As for other issues on the excluded regions, the reason why Greater London, the eastern and the south-eastern regions are excluded is principally because the proportion of the population in public sector employment in those regions is lower than in any other parts of the UK. Also, in addition to my noble friend’s point, noble Lords might wish to be reminded that during the public evidence session on the Bill, representatives from the Federation of Small Businesses and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and that the formation of now businesses would not be harmed significantly if the holiday was not available in these regions. The Government agree with that assessment.
There is then the question of having pockets of deprivation with high claimant count in particular parts of the excluded region. The Government of course acknowledge that areas smaller than regions have particular concentrations of needs. That is reflected in our looking for more efficient mechanisms than this one for addressing those more local needs. For example, my right honourable friend the Chancellor of the Exchequer announced earlier this month that the Budget will introduce new enterprise zones across parts of Britain. Those zones have great potential but need that extra push from the Government and local communities working together. Such enterprise zones would be expected to be far, far smaller than regions. There are other, fairer and more appropriate ways of dealing with the issues which the noble Lord, Lord McKenzie, raises perfectly reasonably. They just do not happen to have anything to do with this holiday, which is about dealing with an unbalanced economy as far as dependence on public sector jobs is concerned.
In conclusion, the holiday is targeted specifically at regions and countries with the highest proportion of public sector dependence. It is there to encourage new businesses to start up and to take on employees in those areas. I will not be drawn into updating now on the take-up—there will be other occasions for that—but one would expect it to increase over time. We will no doubt discuss a little later today the form of reporting that is appropriate. Expanding the holiday to the whole country would undermine the very purpose and rationale of the policy. I ask the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply and the noble Lord, Lord Newby, for his contribution. We do not misconstrue the purposes of the Bill; we support projects that help to rebalance the economy, and we see that focusing in part on where there is high public sector employment in an area is one way of doing it. It is not the only way, but we have acknowledged that the Bill can make a contribution in that respect.
The noble Lord speaks as though there is almost a huge divide between the excluded regions and those that are included. From the ONS public sector employment statistics bulletin for quarter 1 of 2010, let me run through the list of percentage by region of identifiable public sector employment. The point that I reiterate is that the spread between the regions is relatively narrow, and that London misses out on this basis. The north-east is said to have 25.1 per cent, the north-west 22.3 per cent, Yorkshire and Humber 22.6 per cent, the east Midlands 18.5 per cent, the West Midlands 21 per cent, the east 16.6 per cent, London 21.1 per cent, the south-east 16.8 per cent and the south-west 21.3 per cent. To chop off three of those areas, as though they are a completely distinct part of the economy with in no way the same reliance on public sector employment, seems incredibly flawed as an argument. It is not just a question of looking at little pockets within regions, as the overall regional statistics show a close match across the regions.
The noble Lord, Lord Newby, said that we were talking about £1 billion for regional development—fine; no one is looking to take £1 billion away from the project. However, he again referred to “more affluent” regions. I am sure that parts of all regions are affluent, and parts of all regions are deprived and with high unemployment. One accepts that there are special challenges in some of the northern regions, and one would not want to detract the support available to those. Luton is in the east of England. It still has high levels of deprivation, but the spread across the region shows that parts to the east are distinct, with much lower wage economies, higher employment infrastructure deficits and real challenges. They are every bit as deserving of the benefit of schemes such as this as anyone else.
The noble Lord rightly challenged me on the costs. I refer to figures given by the Minister, but the purpose of the probing earlier—I note that the Minister remains coy on the point—was to question whether the allocation made will in any way be spent. I think that the proposition that underwrites the estimate is that this will support something like 800,000 jobs, and those jobs will have to be created outside the excluded regions by start-up businesses over a period that has about two and a half years to run. That is a tall order. If it can be achieved, great, but there is headway in the allocation to extend the scope of the scheme, and we support that.
I have tried to deal with the points raised. We think that the provision is unfair. All regions should have the opportunity to benefit from this. We shall get to an amendment tabled by one of my noble friends shortly, following which there would be scope, through monitoring, to dampen down the scheme if it proved to be overheating. However, there is no sign of that. It is a pity that the Minister was not even able to give us an update; we are almost at the end of the year. Some £50 million is meant to have been spent, which would mean that at the very least 25,000 businesses would have signed up. I suspect that we are nowhere near that on the basis of the figures of 1,500 that were discussed a couple of months ago in the other place. Having said all that, we have had a brief but, I hope, full encounter on the subject, and I wish to test the opinion of the House.
National Insurance Contributions Bill
Debate between Lord McKenzie of Luton and Lord Sassoon(13 years, 2 months ago)
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Lord McKenzie of Luton
My Lords, I shall speak also to Amendment 2. Amendment 1 seeks to probe why 50 per cent, rather than, say, 75 per cent, of the product of the additional primary rate and additional class 4 percentage rate form part of the health service allocation. Amendment 2 poses the same question for a 100 per cent—the existing percentage—allocation.
The main features of the contribution system are helpfully set out in appendix 2 of the Government Actuary’s Department report on the Social Security Benefits Uprating Order 2011. For the NHS allocation it sets out, as partly provided for in the Bill, the rates of 2.05 per cent of earnings between the primary threshold and the upper earnings limit and 1 per cent of earnings above the UEL. From April 2011, the UEL, as we have just heard from the Minister, has reduced and the primary threshold has increased. That would appear to mean that for any given level of earnings, the 2.05 per cent of the allocation will be lower because the band is narrower, and the 1 per cent will be greater because the starting point is lower. However, overall, with constant earnings, this part of the NHS allocation would appear to be reduced. Similarly, the constant 1.9 per cent NHS allocation from employer contributions would appear to be less because it starts from a higher secondary threshold. The same issue arises in respect of class 4 contributions.
Given that GAD assumes the number of jobs to be the same next year as this year, with earnings increasing by just 2.1 per cent, what estimates have been made of the overall NHS allocation? Will the Minister let us know the estimated figure for the current year and how this would change if the percentage of the additional rates applied was variously 75 per cent and 100 per cent? These issues are important in seeking to understand the projected outcome on the National Insurance Fund in the context of the funding that has been allocated to the NHS. On this matter, in responding to the Second Reading debate, the Minister said:
“I hope it is completely clear to noble Lords that nothing in the Bill affects in any way the commitment to increase NHS spending in real terms in each year of this Parliament. We can afford to do this without additional funding from national insurance contributions”.—[Official Report, 2/2/11; col. 1429.]
Anyone who followed the debate in another place, which I will not replicate today because there will be other opportunities, will understand why the Government are effectively failing in this pledge; I refer to the switch in funding to cover social care budget shortfalls, the consequences of the VAT increase on the NHS given the inflation in the costs of treatment, and the costs of the reorganisation.
Perhaps the Minister will tell us, if the Government are to struggle to reach their NHS spending commitment, where the money will come from if the moneys allocated from the National Insurance Fund are not to be used. Will he also let us know how the additional moneys retained in the National Insurance Fund and not allocated to the NHS have contributed to its balance, which is projected now to be £53 billion by 2015-16? Clearly, if the NHS allocations were greater, the balance of the fund would be less and the investment income less—but what would the other ramifications be? We probe with these amendments. I beg to move.
Lord Sassoon
My Lords, I hope that I did not give too much encouragement with my remarks on Clause 1 to indicate that I would be in too accommodating a mode this afternoon. As regards the two amendments, I find this split of the proceeds between different allocated funds rather confusing and arcane. The relevant questions are the big picture ones asked by the noble Lord, Lord McKenzie of Luton, about the impact, if any, on NHS funding.
The point is that although for government accounting purposes—which are important—the moneys need to be allocated, the allocation does not and will not have any impact on NHS funding. It is absolutely not part of government policy to cut NHS funding automatically if, for example, global conditions lead to a reduction in national insurance contribution receipts. The Government would simply make up any shortfall from lower than expected national insurance contributions from other sources.
Even though the noble Lord questions it, the overriding commitment is the one that has been given on National Health Service spending. The amendments do not have any bearing on how much the NHS will have to spend because if the money does not come out of one fund it will come out of other sources of general government expenditure. We are maintaining the level of national insurance contributions allocated to the NHS and taking the additional revenues from rate rises to the National Insurance Fund. That is what is happening here although, as I have said, it will not have any impact on the NHS but merely maintain the previous level of funding. However, putting the additional revenue into the National Insurance Fund will help to ensure that plans for the payment of pensions and other contributory benefits will be sustainable in the long term. Through that funding we can protect pensioners by the new triple lock that guarantees a rise in the basic state pension every year in line with earnings, prices or by 2.5 per cent, whichever is the greater. In ordinary circumstances we would expect contributions to rise broadly in line with earnings, and therefore to rise in real terms.
Under the Government’s proposals, we expect allocations to the NHS to rise in real terms in a typical year. I do not have the breakdown of the split under different percentages. I could get my calculator and work it out but the main point, as I have tried to explain, is that the split itself is not relevant. We are maintaining the allocation and ensuring that the National Insurance Fund continues to grow, and National Health Service expenditure is protected by the commitments that the Government have given in their broader expenditure plans. I hope that I have adequately explained what is going on and that noble Lords will withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply. Of course we will withdraw the amendment; as he knows, that is the practice in the Moses Room. I understand the broad thrust of his point about funding for the NHS, but we shall have to agree to differ on the Government’s performance in that regard. We shall have the opportunity to debate that fully on other occasions.
The Minister said that in the event of a shortfall in contributions, the Government would make up the difference. One point that I was probing concerned the respective levels of the NHS allocation for the current year and for the year we are about to enter. I accept that the Government are preserving the 1 per cent and 2.5 per cent rates. However, the bands on which they are operating are changing; the bands for next year will mean that the UEL is reducing and the primary threshold is increasing. All other things being equal, if there were constant earnings between the two years, you would expect a lower contribution to the NHS allocation than was the case before the changes were introduced. With great respect, I do not think that the Minister has fully responded to that point—but it looks as if he may be about to do so.
Lord Sassoon
I apologise for not responding earlier, but I see that the noble Lord has the Government Actuary’s report, from which the Committee can see that the NHS allocation for 2010-11 will be about £20.5 billion, and pretty much the same for 2011-12. The figures in appendix 6, towards the bottom of page 25 of the GAD report, show that the expectation is £20,608,000,000 for 2010-11 and £20,437,000,000 for 2011-12. That is after the bands change; the amount is very close.
Lord McKenzie of Luton
I had not reached that appendix, so I thank the Minister for those figures. I accept that they are very close. Nevertheless, there is a reduction year on year. Had more than 50 per cent been allocated, the outcome would have been different. It is not just a matter of comparing one year with the next. Dealing with the rates is one thing, but if the bands are changed there will be consequential effects in subsequent years as well.
I will press another point that I raised concerning the impact on the balance of the National Insurance Fund. The actuary’s report shows an increase to some £53 billion over the years to 2014-15. The effect of not allocating more to the NHS is to build up that balance, which will also have implications for the investment in the fund. If more were allocated to the NHS, what would be the effect, other than reducing that balance and changing the investment income?
Lord Sassoon
My Lords, clearly, if there was more in the fund, a greater part of NHS expenditure could come via that route, but I am not clear that there would be any significant consequence in terms of the outcomes we are talking about. NHS expenditure will be determined by the allocation that has been given in the spending review. The noble Lord may quibble about the nature of the numbers and what is covered by them, but they are set out with great clarity in the review. For this purpose we are talking about some relatively simple arithmetic in terms of what would happen if there were to be any shortfall. If there is a surplus, funds that do not go to the NHS go to the National Insurance Fund; that is what has led to the considerable current balance. We are talking about a process where a fund has accumulated over the long term and we need that surplus, although it is predicted to fall, in order to fund future pensions.
In summary, one way of looking at it is that in the short term a high balance will help to tackle a deficit. Indeed, as the noble Lord heard from his officials in the past, and as has been explained to me, that balance is invested with the Commissioners for the Reduction of the National Debt.
Lord McKenzie of Luton
I am grateful to the Minister and beg leave to withdraw the amendment.
Lord Sassoon
My Lords, I am very grateful to my noble friend Lady Kramer for answering the main thrust of the questions put by the noble Lord, Lord McKenzie. This measure does need to be targeted. It cannot be targeted in a way that picks out pockets of deprivation—of which there are a significant number in London and elsewhere. However, the basis on which we came up with the holiday includes a relative regional effect. Of course, if we were to sweep away all the geographic exclusions, the thrust of the holiday, which will be to have a relative regional effect, would disappear. On the other hand, as my noble friend says, unlike other measures, this would not be an appropriate measure to target in a subregional way—that would not be feasible.
We have gone with a broad regional analysis. The simplest way to explain the basis for doing this is through the numbers for public sector employment as a percentage of total employment by region. The latest available data when the policy was formulated showed that against a national UK average of 25.1 per cent public sector employment, the three lowest regions were the south-east with 22 per cent, London with 22.5 per cent and the eastern region with 23.1 per cent. That was the principal basis on which the exclusions were made.
My noble friend made the critical point that I was going to make about cost and targeting the money. If the three excluded regions were included, that would increase the total cost of the holiday by some two-thirds. To put it another way, out of the total holiday cost, two-fifths of the benefit of the holiday would go to those regions that are least dependent on government employment, and only three-fifths would go to those regions that are more dependent—in some cases considerably more—on government public sector employment. At the heart of this measure is the belief that the funds available should go to the regions that most need them on this metric.
Indeed, the evidence in the public evidence session on the Bill supported that. For example, representatives from the Federation of Small Businesses and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and new business formation would not be significantly harmed because the holiday was not available in these regions. It is worth reminding the Committee that all new and existing businesses in the south-east will benefit from the increase in the employer national insurance contribution threshold and in the reduction in corporation tax rates. Therefore, considerable benefits go to the region through our wider package of measures.
There were questions about the different definitions of regions and so on. The LEPs do not have geographic boundaries that equate to the regions and, in theory, could cross the regional boundaries that we are using. In effect, they are groupings by local authority boundary. Yes, there are other ways of doing it. We have taken the regions as defined for the purpose of public sector employment, which we think is the most cost effective way of targeting the benefit.
Lord McKenzie of Luton
I thank the Minister for that response and the noble Baroness, Lady Kramer, for her contribution. I do not think that we will totally see eye to eye on this issue. The noble Baroness referred to better-off regions, but that does not address the point that regions are not homogeneous. For example, there are huge disparities across the eastern region, but because of areas of particular prosperity in aggregate the area is counted out. As a result, those areas where there is deprivation and high unemployment lose out. I agree that it is to be hoped that there are other arrangements which would enable jobs to be created via one mechanism or another, but I believe that the regional focus is producing unfairness in the scheme.
The Minister said that the measure could not operate at a sub-regional level. I am not quite sure why not. Exactly the same rules will apply. There simply will be a different set of boundaries and descriptions. He referred to the fact that all businesses are benefiting from the national insurance changes to the threshold and corporation tax deductions. I guess that they are all equally suffering or all suffering from the impact on consumer demand of the VAT increase. But that is probably a debate for another day. I do not think that we will make progress on this issue. Accordingly, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, Amendment 10 focuses on the inclusion within the term “business” of “property business” and “investment business”. Section 263(6) of the Income Tax (Trading and Other Income) Act 2005 includes a UK property business and an overseas property business within the definition of “property business”. This would seem to open up the possibility that the principal place at which a new business is carried on is overseas with subsidiary business activities in the UK. Obviously, those overseas operations would not be within an excluded area.
Furthermore, even if those subsidiary activities were in the excluded regions, the national insurance holiday would still seem to apply. I ask myself whether this was what was intended. I looked again briefly at Clause 7(3), which the Minister prayed in aid in response to an earlier amendment. If you have a business where the principal place of that business is outside the excluded region, but nevertheless there are employees operating in excluded regions, what in the Bill would stop a holiday applying to them? Having just argued that I do not want any excluded regions, I might seem to be arguing against myself. However, in terms of the integrity of what is proposed here, it may be that I am missing something. Perhaps the Minister would respond to that. Even if the subsidiary activities were in the excluded region, the national insurance holiday would, I suggest, still seem to apply. There seems to be nothing which precludes a new business being carried on in any of the excluded regions or indeed for the national insurance holiday to be available to employees based in the excluded regions so long as the principal place at which the new business is carried on when it started is not in any of the excluded regions. Is that how the Minister reads the legislation?
The principal place at which the business is carried on will often be very clear, as the HMRC’s very helpful note suggests. However, for an investment business or a property business, it might be much less certain. The core of such businesses might be based on the judgment of a few individuals; it would not necessarily be where the portfolios, especially investment portfolios, are located or indeed where the back-office functions are located or where the contracts for the investments or property portfolios are executed. Where the business is primarily carried on could be quite nomadic or easy to place in a favourable location, perhaps where the guiding minds of the business meet periodically to receive investment reports and make decisions about changes to the portfolio. Does the Minister have a view on this? The noble Lord may feel able to say that it has to be determined on a case-by-case basis and I accept that that may be so. Would he accept that this probing amendment highlights a layer of potential complexity which is introduced into the scheme again by having excluded regions? I beg to move.
Lord Sassoon
My Lords, in relation to what we are trying to achieve through the holiday scheme, it is important to create employment. The question of the nature of the activity which is being engaged in is one where again we want to be as permissive as we can be, consistent with the nature of the scheme. Although the noble Lord raised a number of other points going back to the question of boundaries between excluded and non-excluded regions, what we are principally talking about in the amendment is the type of trade or business which the activity is engaged in.
In that context, as well as making the general point that what we are focusing on is maximising employment growth from a broad range of sectors, it might be worth saying a word or two about what property business includes. It covers activities including property rental, land rental and furnished holiday lettings; for example, I believe that the holiday could be particularly valuable in relation to furnished holiday lettings which, of course, would typically operate in rural areas and often provide employment where there are not other significant job opportunities. I would certainly like to think that the noble Lord, in proposing this amendment, was not intending to remove businesses from relief if that could, for example, prevent people or discourage people from providing holiday lettings, furnished cottages, apartments and so on.
Similarly, on investment business, the Government’s view is that making investments and deriving profits from them is no less inherently a business than buying and selling any other tradable item. As the noble Lord says, there will be case-by-case determination by HMRC if there are questions about the validity of the trade or of boundaries.
Lord Sassoon
My Lords, I echo my noble friend Lady Kramer’s view of the importance of job sharing. I, too, could introduce a small reminiscence. I have had job-sharing personal executive assistants working for me, and I know that the arrangement can work extremely well. It gives people who, for example, have children, more opportunities to work. I have seen this in action and I and the Government encourage it.
The difficulty in this Bill is that they will be working in the technical framework of tax and national insurance legislation. One feature of the NICs and tax framework is that there is no distinction in the HMRC construct between full-time and part-time work. Therefore, we decided that the way to accommodate this was through the relatively high limit on the total number of employees. Putting together a construct for this piece of national insurance legislation that distinguished between full-time and part-time staff would be enormously challenging. This was recognised in the public evidence session by the Federation of Small Businesses, which concluded that it would add complexity for the employers who were affected.
There is nothing here that discourages part-time employees, and the 10 employee limit should fully accommodate the likely demand, except in the very marginal case of the few thousand firms—perhaps 2 per cent—that would be restricted by the limit. Again, I ask noble Lords to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I will certainly withdraw the amendment in due course. I am grateful to both noble Lords who have spoken. The noble Baroness, Lady Kramer, spoke with authority and passion about the importance of part-time work and of job sharing. She made a hugely important point about cultural change and recognising that part-time work is not simply temporary work in low-level, low-paid jobs. As she explained, very senior job shares will increasingly form part of the system.
I accept what the noble Lord, Lord Sassoon, said about the difficulty of constructing this within the Bill, and I take the point about NICs and the tax system not making a difference between part-time and full-time employees. We will have some debates tomorrow on the Pensions Bill, and on the attempt to get some aggregation of people in part-time jobs for national insurance purposes so that they get credited at least for pension purposes—but that is a debate for another day.
I recognise that the level of 10 employees gives some headroom to deal with this, although I am disappointed that the Minister could not explicitly cater for part-time workers if for no other reason—it is not really the one that I had thought about—than to push the issue of the cultural change that is needed so that we properly value and encourage, where appropriate, part-time working and job sharing. I beg leave to withdraw the amendment.
Savings Accounts and Health in Pregnancy Grant Bill
Debate between Lord McKenzie of Luton and Lord Sassoon(13 years, 5 months ago)
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Lord Sassoon
I will relay the message back and discuss it with the Financial Secretary. There were also questions on the capacity of local authorities. My noble friend Lady Ritchie of Brompton gave the most considered view from a local authority perspective, as she should. She talked about local authorities being under pressure. Certainly, I did not hear her say that it would be impossible for local authorities to find funding in these areas, but of course they have to make difficult choices—ones which, going forward, will not be constrained by so much ring-fencing in their budgets, as has been recognised.
Lord McKenzie of Luton
If it is the Government’s proposition that local authorities should pick up the obligation to support junior ISAs for looked-after children, given that the Government have signed up to the principle that they would keep local authorities whole for new burdens, will the Minister give a commitment that if that is the way that it goes, the Government will provide that extra funding?
Lord Sassoon
My Lords, I cannot promise today that all looked-after children will have a junior ISA opened for them and I certainly cannot provide any assurance about government funding. I have said that my honourable friend is looking into all this and, if and when there are proposals, the Government will indeed come forward with them.
I turn to some other important points on child trust funds and their effects on savings. A number of points were made by the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie of Luton. Have child trust funds had a positive effect on savings? There is currently no robust evidence about whether the child trust fund has increased savings for children. While some parents are using child trust funds, not all are. I have it that 22 per cent of child trust funds received contributions in 2009-10, marginally down on the 24 per cent in the previous year. In any case, we do not yet know whether any of that saving is additional or would have happened anyway. For lower-income families, only 12 per cent of CTF accounts received contributions. I take my noble friend Lord Newby’s points to heart about the untargeted and, certainly, the unproven nature of the effect of child trust funds.
Several noble Lords, including the noble Baroness, Lady Thornton, and the noble Lord, Lord McKenzie, raised the question of the gap before the introduction of junior ISAs. I must go back to the need for us to move quickly to tackle the budget deficit. I realise that this will leave a gap before the junior ISAs are available. However, we are working hard with the industry and other stakeholders to make sure that the gap is as short as possible. We intend to publish draft secondary legislation, setting out full details of the new accounts, in the spring and for them to be up and running in the second half of 2011. We will ensure that eligibility for the new account is backdated to ensure that no child born after the end of the CTF will miss out on the chance of having one of these accounts.
Concerns were raised by the noble Baroness, Lady Hollis of Heigham, and others about the suitability of junior ISAs for children from families on lower incomes, and whether they would benefit only the rich. I certainly do not believe that this will be the case. These accounts are not just about offering people a tax-free option for children’s savings; they will also offer a clear and simple way of saving for children and of ensuring that the money is locked up until the child reaches adulthood. This will prove attractive to many families on lower incomes. Of course, saving issues are difficult for us all, particularly those on lower incomes, but I remind the noble Baroness and the noble Baroness, Lady Drake, that already more than 12 million people with incomes below £20,000 have an ISA. It is penetrating lower-income groups.
I am grateful to the noble Lord, Lord McKenzie of Luton, for drawing attention to the annual financial health check. That was also welcomed by the noble Baroness, Lady Drake. There are questions about advice turning into action but we should start somewhere. I am grateful to noble Lords for drawing attention to that important initiative.
On the question of the Bill’s equality impacts, an initial assessment of these was published on 15 September, when the Bill was introduced. Although we do not say that there are no impacts, the impact assessment shows that those that have been identified are proportionate, given the need to reduce the UK’s budget deficit.
I should say a little about the health in pregnancy grant, which the noble Lord, Lord Northbourne, raised first. I assure him that we have another scheme, the Healthy Start scheme, which targets and supports pregnant women on lower incomes, providing vouchers for fruit, vegetables and milk from the 10th week of pregnancy. This very much goes to the heart of the point that my noble friend Lady Browning made from an expert perspective. It did not look as though the health in pregnancy grant was achieving its original target of reducing the incidence of low birth weights. The Healthy Start scheme is much better targeted towards that.
Lord Sassoon
My Lords, it comes back to where we need the scarce resources available to be targeted. In answer to the questions that were raised about the underlying purpose of the pregnancy grant—namely, to deal with the problem of underweight children and nutrition—the Healthy Start scheme is far better targeted to that end.
I am conscious of the time. In my final minute I come back to the wider point of the Bill. Without the changes that we are making, we would have had to spend more than £3 billion in the four years of the spending review period on the child trust fund, the saving gateway and the health in pregnancy grant. That would simply have been unaffordable. The Opposition have not come up with any ideas of how we could have made alternative cuts.
Lord McKenzie of Luton
My Lords, if the noble Lord is tempting me, I have a whole string of things that I could raise, but does he think that we might do without the £2 billion to £3 billion that we are spending on an unnecessary, unproven and top-down reorganisation of the NHS?
Lord Sassoon
My Lords, out of this Bill we are saving £3 billion of spending which we believe could be better targeted. We therefore believe that that is actually concentrating our scarce resources on disadvantaged children and child poverty—that is where the resources should go—as well as enhancing growth in our economy through spending on infrastructure, low-carbon investments and science.
I realise that the measures in the Bill are disappointing to some noble Lords. I believe that they are necessary. Notwithstanding the fact that this is a money Bill, we have had a good debate. Some follow-up points in one important area have been made from all sides of the House. I believe that the Bill is necessary and I ask the House to give it a Second Reading.
Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.
Equitable Life (Payments) Bill
Debate between Lord McKenzie of Luton and Lord Sassoon(13 years, 5 months ago)
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Lord Sassoon
My Lords, I am conscious of the time that we have got to. I can only repeat that, while I accept what the noble Lord reads out as factually correct, he omits to point out what I have said: it is nevertheless the fact that those pre-1992 annuitants could not have been affected by maladministration, which is the purpose of this compensation scheme. Although I entirely accept the analysis of what has happened to their income levels in recent years, the judgment is that, on balance, they were paid more in the early years than they should have been, and that exceeds the reduction in more recent years. It is a regrettable situation but not one that it would be proper to bring into the compensation scheme.
Lord McKenzie of Luton
My Lords, the Minister has been very full in his replies. Could he comment on one specific point? I think that he has confirmed that the comparator is on a gross-of-tax basis. Therefore, if WPAs who have been kept whole in addition get a tax exemption, does that not provide for that group more than its actual loss on that basis?
Lord Sassoon
I am conscious that I have not answered the question. Given the time, I will write with a clear analysis of the tax position and what it results in. I have not lost sight of the question and I will sweep up anything else that I have missed.
I reconfirm that the Government take the maladministration of Equitable Life very seriously. We have shown that resolving this issue is a real priority of the Government and have taken the necessary action to reach a fair and swift resolution. I fully sympathise with the plight of policyholders who have waited more than a decade for justice. It is time we brought their suffering to an end. I believe that ours is the appropriate course of action and that the Bill before the House today will help us achieve that.
Taxation: Deficit Reduction
Debate between Lord McKenzie of Luton and Lord Sassoon(13 years, 6 months ago)
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Lord Sassoon
I am grateful to my noble friend for drawing attention to the fact that the Government have made a very significant breakthrough in combining the need to get proper tax receipts for bank accounts held in Switzerland with the Swiss Government's understandable concern about banking secrecy. We will have to wait and see what the final details are, but it is a major breakthrough.
Lord McKenzie of Luton
My Lords, will the Minister update us on the issue of anti-avoidance provisions, and in particular general anti-avoidance provisions? The June Budget book says that the Government will engage informally with interested parties. Does not engaging informally display a certain lack of seriousness? Will the noble Lord share with us who these interested parties might be? Are they the big law firms, the big accountancy firms, the non-dom community or the international banks?
Lord Sassoon
We are consulting widely in the way that is described and we will come forward with proposals in due course. In the mean time, we have allocated an additional £900 million of expenditure to HMRC over the spending review period, which is expected to result in annual revenue increments of £7 billion by the end of that review period. We are taking action very quickly in this area—much more so than did the previous Government.
Child Trust Funds (Amendment No. 3) Regulations 2010
Debate between Lord McKenzie of Luton and Lord Sassoon
Lord Sassoon
My Lords, I am grateful to those who have taken part in today’s debate. A number of noble Lords have spoken eloquently about the advantages of the child trust fund, and I agree with much of what they said, although others have pointed out that, even setting aside the issue of affordability, the child trust fund is not a perfect vehicle. However, as I said earlier, given the unprecedented budget deficit that we face, the question is whether government payments into the fund remain affordable, and I am afraid that the Government believe they simply are not.
I turn to a number of the specific points that were raised. I start with a point made on both sides of the House by a number of your Lordships, including my noble friends Lord Naseby and Lord Hodgson of Astley Abbotts, and the noble Lord, Lord McKenzie of Luton, concerning whether the wrapper or unique number would continue to allow people to save through the child trust fund mechanism. Many other speakers suggested that the wrapper should remain available to parents, even once government contributions had stopped, or that some other, new form of tax-free savings account for children should be put in place. To reiterate what I said earlier, the Government are considering this question carefully and I am sure that it is one of the major issues that will be discussed later this week by my honourable friend the Financial Secretary when he meets representatives of the industry. I thought that the contributions of my noble friends who expressed their understanding of why the CTF had to go were particularly telling.
I shall pick up some of the other points. I suppose that it is good knockabout stuff to try and pick out what people said in manifestos and to compare that with the coalition agreement, and we will live with that game for some time to come. In response to the noble Lords, Lord Davies of Oldham and Lord McKenzie of Luton, I say that it is indeed the case that both the Conservative and Liberal Democrat manifestos set out an intention to reduce spending on the child trust fund, as did the coalition agreement and the programme for government. We have since then looked at the options and the Government believe that it is right to stop the government contributions entirely as that will make the greatest contribution towards deficit reduction.
We then had a number of contributions—including from the noble Lords, Lord Davies of Oldham and Lord McKenzie, and from my noble friends Lord Hodgson of Astley Abbotts and Lord Blackwell—about who had done what on savings over the past few years. I noted that the noble Lord, Lord Davies, talked of this as an onslaught on savings while, on the other hand, my noble friends talked about the hammer blows inflicted on savings by the previous Labour Government. I do not think that this is the time to go into who has done what to whom.
Some of my noble friends have pointed out that what the previous Government did to support ISAs was important, and that if it was affordable, the child trust fund initiative had an important role to play. I think that we would all agree that the recent level of savings has been too low. It is the current Government’s intention to foster a culture of personal responsibility and better financial planning to improve individuals’ independence over their lifetime, particularly in planning for retirement. We will measure the policies on savings against the coalition’s three principles of freedom, fairness and responsibility, while making sure that such measures are affordable and effective. Attention has already been drawn to the fact that the Budget announced a number of measures which will take the first steps—I stress, first steps—in meeting these aims, such as the annual financial health check and an end to the effective requirement to annuitise pension savings at 75. That is an important reform that has not been mentioned this afternoon.
There was then a particular stress—again from the noble Lords, Lord Davies and Lord McKenzie, and from the noble Lord, Lord Morgan—on whether we were hitting low-income families and how this was fair. They did not draw attention to the reforms that we are making to the tax credit system. We are tackling the deficit in a way that is fair and ensuring that tax credits, which are an important part of this construct, are targeted at those who need them most. I remind noble Lords that the Government will freeze child benefit to help fund very significant increases in child tax credit and will invest around £3 billion in the child element over the next two years. Although we are making significant savings to reduce the deficit, we can be sure that this will not lead to a negative measurable increase in child poverty over the next couple of years.
Lord McKenzie of Luton
On the issue of no measurable increase in child poverty over the next few years, can the noble Lord remind us which year is the basis for making that assessment? I think that updated statistics came through between the Budget pronouncements and where we are today. Will he confirm that, so that we can have absolute clarity?
Lord Sassoon
I thank the noble Lord for his question. I think that it will relate to periods looking forward, on a rolling basis. However, I will let him know the base for this particular two-year period. I think that the point here is that the coalition Government will make every effort to protect the poorest in our society, including children, by a combination of measures, of which the cessation of the child trust fund is only one.
Other points were made by the noble Lords, Lord Liddle and Lord Davies of Oldham, about protecting those on the lowest incomes and those with disabilities, and about the distributional effect of the child trust fund. However, as my noble friend Lord Newby pointed out, the evidence to date suggests that the child trust funds of children in better-off families are expected to be worth, on average, considerably more than those of children in lower income families when they reach the age of 18. The distributional impact is therefore not clear, and it may well be that on some of the estimates a child in a better-off family would have a fund amounting to some £4,700 whereas a child in a lower-income family would have one that totals only £3,600.
We recognise the additional needs that face children with disabilities, and the Government will publish a Green Paper in the autumn to look at a wide range of issues for children with special educational needs and disabilities. To reconfirm the point I made earlier, from next year we will recycle the funding that would have been used to make the additional payments within the CTF to disabled children, and use those funds to provide additional respite breaks. I should also note that my noble friend Lord Newby pointed out alternative ways of delivering an increasing savings habit which we all want to see.
The noble Lord, Lord Davies of Oldham, made the particular point that many young people are in debt at 18 and need the CTF. In that context, I again stress that we have announced plans for a free annual financial health check that will give everyone a chance to review their finances and get the help they need to take action to improve them. That will be launched nationally in spring 2011.
The noble Lord, Lord McKenzie of Luton, asked whether the Government would reverse the abolition of the dividend tax credit changes that so dramatically hit pension funds under the previous Government. I regret to say that there are a lot of tax and other measures introduced under the previous Government that it might be highly desirable to reverse but which, regrettably, cannot all be dealt with. The coalition’s programme for government said that we would like to reverse this change, and we will revisit it when the public finances improve.
My noble friend Lord Newby felt that the CTF would benefit the middle classes and not the poor, thereby benefiting the wealthy more. I have already touched on that point, and should now like to confirm the statistics. Only 13 per cent of families on lower incomes are making contributions each year, compared with 30 per cent of other families. Indeed, as one might expect, the contributions are likely to be lower for lower-income families. I can therefore confirm my noble friend’s point.
The noble Lord, Lord McKenzie of Luton, asked a specific question on the financial health check and the social responsibility levy. I confirm that that levy is intended to fund the national financial advice service, which will include the annual financial health check to which I referred. However, we are ready to listen to views from everyone on how the Government should support debt advice.