That the draft regulations laid before the House on 27 January be approved.

Relevant document: 8th Report from the Joint Committee on Statutory Instruments.

My Lords, I can confirm that in my view the provisions in the regulations are compatible with the European Convention on Human Rights.

The national insurance contributions rates and thresholds for the 2010-11 tax year were announced at the time of the Pre-Budget Report on 9 December 2009. These regulations are necessary in order to set the class 1 national insurance contributions lower earnings limit, primary and secondary thresholds and the upper earnings limit from 6 April 2010.

The class 1 lower earnings limit is increased from £95 to £97 per week from 6 April 2010. The lower earnings limit is legislatively linked to the level of the basic state pension and is the level of earnings at which entitlement to contributory benefit begins.

The class 1 primary and secondary thresholds for the 2010-11 tax year will be £110 per week, the same as in 2009-10. The primary and secondary thresholds are the point at which employers and employees start to pay class 1 national insurance contributions. The primary and secondary thresholds have in past years been increased broadly in line with prices. However, as the September 2009 retail prices index was negative, we have frozen the primary and secondary thresholds at the 2009-10 levels. Had we reduced the primary and secondary thresholds to reflect the reduction in the retail prices index in September 2009, low-paid employees in particular would have had to pay more national insurance contributions, as would their employers.

In the 2007 Budget the former Chancellor of the Exchequer announced a package of reforms to modernise the tax and benefits system. Part of the package included changes to national insurance contributions to align the upper earnings limit with the level at which the higher rate income tax becomes payable from 6 April 2009. I confirm that we will maintain that alignment for the 2010-11 tax year.

The upper earnings limit will be £844 per week for the 2010-11 tax year. This is the same as for the 2009-10 tax year. Earnings between the primary threshold and the upper earnings limit are liable to main rate employee contributions of 11 per cent. Earnings above the upper earnings limit are subject to the additional employee rate of 1 per cent. Employers pay contributions at 12.8 per cent on all earnings above the secondary threshold.

The Government Actuary published a report detailing the effects of both the national insurance contribution rates and thresholds announced for 2010-11 and the draft order uprating benefits laid by my right honourable friend the Secretary of State for Work and Pensions on the National Insurance Fund. The Government Actuary has confirmed that there is no expectation that the fund will need additional funding in the form of a Treasury grant for the 2010-11 tax year.

Northern Ireland has a separate national insurance scheme from Great Britain, but the two schemes are closely co-ordinated and maintain parity of contribution rates. The draft regulations cover both Great Britain and Northern Ireland. I commend the regulations to the House.

My Lords, I thank the Minister for introducing these regulations, which are also one of the highlights of the Treasury year. Social security contributions, otherwise known as national insurance, are a tax in all but name. They go into a rather arcane National Insurance Fund, but this is notional. The money is not held in a fund and the excess of receipts over payments each year funds the Government’s expenditure. The effect of this order is that there will be an estimated surplus of receipts over expenditure of £1.4 billion. That is not a large sum in the context of borrowing £185 billion, but I imagine that every little bit helps.

It should be noted that one of the side effects of these regulations is that the Government will benefit from a £32 million decrease in payments for contracted-out rebates. This, too, is not a large sum, but its impact is on employers with defined benefit schemes and it is yet another small nail in the coffin for those schemes. I have lost count of how many adverse changes, starting with the ACT raid in 1997, the Government have introduced to pension schemes. The latest changes to the tax effect of contributions for the higher paid will simply deprive defined benefit schemes of their last corporate supporters. It has seemed like a 13-year war on pensions in which the casualties are private sector employees, few of whom now have access to a defined benefit scheme when they change jobs or enter the workforce. Increasing numbers of defined benefit schemes are also now being closed to future accrual. When the history of this Government is written, high on the list of their dubious achievements will be the decimation of defined benefit pensions for employees in the private sector, while protecting at taxpayers’ expense public sector pensions.

These regulations for 2010-11 are a side show compared with next year’s. Whether or not the thresholds and limits are tinkered with, if this Government are in power this time next year they will increase the employer and employee rates by 1 per cent. This was announced in two stages of 0.5 per cent in each of the 2008 and 2009 Pre-Budget Reports. This will be nothing more than a tax on jobs, as all employer groups have protested. It will also be seen as a tax hike by employees. If we are elected to form the next Government, we have made it clear that we will try our hardest to manage the public finances so that at least the second 0.5 per cent can be avoided. We believe that economic recovery must be built on job creation in the private sector. The Government seem not to understand that. We do not object to these regulations but we have the very greatest objections to the future direction of national insurance on which the Government plan to embark.

My Lords, we do not object to these regulations either. I am sure the House will be relieved to know that I have made all the party political points that I want to this afternoon. Can I ask the Minister one simple question? Why on earth do we persist in the fiction of a separate National Insurance Fund?

My Lords, I thank the noble Baroness, Lady Noakes, and the noble Lord, Lord Oakeshott, for their contributions to this short debate and for their support—albeit, in the case of the noble Baroness, qualified support. A small number of issues were raised. In answer to the question of the noble Lord, Lord Oakeshott, I am sure that there is a good reason for maintaining the National Insurance Fund.

Name it.

The fact that I said I was sure there was one does not mean that I necessarily know what it is. I suspect that it might be one of those situations where dismantling the process may be more consuming of parliamentary time and taxpayer resource than maintaining the current approach. If there is an even more cunning answer to the noble Lord’s question, I will write to him and send a copy to the noble Baroness.

We do not regard the proposed increase in NIC as a tax on jobs—far from it. Our approach to jobs has been commendably strong and effective, as evidenced by unemployment being so much lower than would have been anticipated—and, indeed, than we anticipated—given the way that the economy has gone through recession over the last couple of years. We have made many efforts and taken many steps to strengthen employment prospects through various allowances and schemes specifically targeted on benefiting small and medium-sized enterprises, which are the absolute rock of the UK economy.

The noble Baroness referred to pension schemes. The decline in defined benefit provision in the private sector is a global phenomenon which is not limited to the United Kingdom. Put simply, the world came to understand that the defined benefit promise was a more expensive one than it had anticipated—something which it came to realise in part because of changes in accounting treatment. Throughout the developed world, where the defined benefit scheme was offered by private sector employers, it is increasingly being limited to existing members and not extended to new joiners. They go into a defined contribution scheme where the employer and employee jointly share the investment risk and there is ample provision for employees to increase their contributions if they wish.

The noble Baroness referred to a 13-year war on defined benefit pension schemes. I believe that she has in mind the steps that the Chancellor of the Exchequer took to withdraw the tax credit benefit which was being received for no good reason by pension funds. It is worth reminding the House that that was the continuation of a policy step first taken by the noble Lord, Lord Lamont of Lerwick. The Conservative Party tends to wash over that fact when addressing this subject. I am delighted that these proposals have received the support of the Tory and Liberal Benches. I commend the regulations to the House for approval.