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Social Security (Contributions) (Amendment No. 2) Regulations 2022

Volume 820: debated on Monday 28 March 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Social Security (Contributions) (Amendment No. 2) Regulations 2022.

Relevant document: 34th Report from the Secondary Legislation Scrutiny Committee

My Lords, this measure will deliver a small but important element of the health and social care levy. The health and social care levy will create a long-term, sustainable source of revenue for healthcare. This extra funding will help the health and care system recover from the pandemic and implement reform to social care as soon as possible. The levy will operate as an increase to NICs rates in 2022-23 before becoming a stand-alone tax from 2023-24 onwards.

National insurance is a progressive basis on which to raise revenue. The primary threshold means that the lowest earners do not pay any national insurance contributions. Last week’s announcement that the Government are aligning the annual primary threshold and lower profits limit, the point at which employees and the self-employed respectively start paying national insurance contributions, with the income tax personal allowance at £12,570 from July 2022 will reduce NICs by more than £330 for a typical employee in the year from July and will mean that around 2.2 million working-age people will be taken out of paying class 1 and class 4 NICs altogether, on top of the 6.1 million who already do not pay national insurance.

These small but important regulations will ensure that the 2022-23 NICs increase is also applied to the married women’s reduced rate, as has been made clear in government communications and as is anticipated by stakeholders. The married women’s reduced rate was introduced to allow women to use their husband’s NI contributions to qualify for a state pension. This rate was removed by the Social Security Pensions Act 1975 and the circumstances in which it continues to apply are relatively unusual.

To qualify for this rate now, a woman must have opted into the scheme before May 1977, have been married at the time and not divorced since, currently be under state pension age and not have had a break of two years in her employment. As such, the rate applies to only a very small number of individuals. A 2019 scan showed between 250 and 1,000 such employments still qualify for this rate. Due to the qualifying conditions, we expect that fewer such employments, and fewer individuals, will qualify in 2022. Legislation is already in place so that, from April 2023 onwards, these individuals will be subject to the stand-alone health and social care levy in the same way as other individuals. However, in order for the 2022-23 NICs increase to apply to this group, further legislation is required. This has led to these regulations.

This measure will, for 2022-23, increase the married women’s reduced rate by 1.25 percentage points from its current rate of 5.85% to a temporary rate of 7.1%. This cohort will still benefit from a reduced rate of NICs compared with the main rate of class 1 NICs, which will be 13.25% for the 2022-23 tax year. Noble Lords should note that stakeholders are expecting this rate to increase. The 2022-23 NICs rates have been publicly communicated on GOV.UK. Employers and software and payroll providers have updated their systems to reflect this increased rate. Failing to increase the married women’s reduced rate for the 2022-23 tax year would mean that this group is unfairly advantaged compared with others. This group will, like others subject to the new levy, benefit from increased spending on health and social care. It is only right that they also contribute to its funding.

Exempting this group from the NICs increase would undermine the principle of the health and social care levy, which has been designed to apply consistently and fairly across the population. Although these regulations will apply to only a small number of individuals, the changes they make are therefore critical to ensuring that the health and social care levy operates correctly.

I understand that noble Lords may have concern with the speed at which these regulations have been provided. I recognise that this is not ideal and apologise for the delay in laying these regulations. I very much appreciate noble Lords’ co-operation and efforts to ensure that these regulations are properly scrutinised. The health and social care levy, and the temporary increase to NICs, have been thoroughly scrutinised and debated in recent months. I welcome this further engagement to ensure that the levy can apply as intended. I therefore beg to move.

My Lords, I could not resist coming to this debate. It is akin to social policy archaeology. I very much thank the Minister for her clear, straightforward and unarguable introduction. In fact, she addressed the two points which I was going to raise. She mentioned that this was small—a word she used two or three times—and my first question was, “How small?” She came up with the pretty broad figures of 250 to 1,000. This sounds a bit vague. I have seen another figure elsewhere of 200, so it is certainly of that order. I do not know whether the officials can tell us, but do we simply not know because there are so few that they do not get picked up in the sample survey which is undertaken? As the Minister said, it is relatively unusual.

The second question I had was: why are we getting this too late? It leaves us with the suspicion that someone forgot it and was desperately trying to make it up before the deadline.

My final point is that women who chose the married women’s option probably got a poor deal. I have always been surprised that this has not been pursued. You only need to reflect on the level of attention which was given to the increase in the women’s retirement age issue. In some ways, it could be argued that the women who opted for the married women’s option have had an equally bad deal. If you actually look at their contributions, they have paid as much as someone who is contracted out of the state earnings-related scheme, yet the latter group has been treated very much better. However, we have a Treasury team on this occasion, so maybe this is something I need to take up with the DWP.

With those few remarks, I thank the Minister. I will not be objecting to the regulations.

I am grateful to my noble friend for introducing the regulations before us this afternoon. I spent a year in the other place shadowing the Department for Work and Pensions, with specific responsibility for women’s pensions at the time. However, it was a source of some disappointment. I spent that year trying to look at ways in which women’s pensions could be improved, if ever the opportunity arose for us to come into government—which then happened in 2010—so we would actually do something to improve the lot of women’s pensions. Therefore, it was a huge blow to me when we kept what a previous Labour Government had decided, with WASPI, that women’s eligibility for state pension would rise to the age of 65 and then 66 in subsequent years without, at the time, giving women 10 years to prepare. That was a matter of regret to me. I would have welcomed if, for once, women were unfairly disadvantaged in this case, if we had not passed—or if we were not to pass—the regulations before us this afternoon. However, that is not my intention.

I think it was our noble friend Lady Morrissey, who is very experienced in financial matters, who flagged this up to us after the Spring Statement in a tweet—which I now cannot find, unfortunately—alerting us to the fact that, as my noble friend set out today, the national insurance threshold is going up to £12,570. The point that our noble friend Lady Morrissey made was that we have to be very careful to ensure that working women are not left out of being able to contribute to their pension and of having their employers contribute at that time. I ask my noble friend to assure us that that, as was so astutely flagged up by our noble friend Lady Morrissey, is not going to be the case.

We are told that this is going to raise a sizeable amount of money—£12 billion, I think—and I assume my noble friend will explain that that is the total amount that the increase in national insurance contributions to which the Government are committed through the health and social care levy will deliver. My noble friend said that the regulations have been produced at speed. We recognise the great burden that has been placed on her department, but can she assure us that there are no errors in this albeit small statutory instrument? Just about every statutory instrument I have debated over the past two to three weeks has contained an error of some sort.

Finally, I ask for confirmation that the rate applying to men in the same bracket will be in the same order—the increase of 1.25% in this regard—or were men already paying a higher rate?

It is my understanding that many working women have lost their jobs through the Covid pandemic, particularly those in retail positions, in shops especially, as opposed to online and others. I would like to pause for a moment and acknowledge what a difficult time those women will be having at the moment, given the pressures if there is only one income coming into a family or if they are in the unfortunate position of being a single mother.

With those few questions, I support the regulations before us.

My Lords, I thank the Minister for her cogent exposition and acknowledge the expertise of my noble friend Lord Davies. I will be very brief.

The Explanatory Note refers, in relation to Regulation 2, to

“certain married women and widows”.

What is the estimate of how many married women and widows these regulations impact upon?

My second question is that, since we read in the Explanatory Memorandum that these regulations refer to the United Kingdom, can the numbers of the people affected be broken down to matters concerning England, Scotland, Wales and Northern Ireland?

Finally, the Explanatory Memorandum refers in paragraph 13 to small businesses. Is the Minister able to say what consultation there has been with the business community? For example, was the Federation of Small Businesses involved in the consultation, should it have taken place? If I have asked a question that it is not possible to answer now, the Minister might offer to write.

My Lords, my expertise in the field of pensions is absolutely de minimis, so my questions may sound very basic. I am not going to raise any particular objection to this SI, but can the Minister explain to us what impact the increase in the threshold amount, which will come in later this week, will have on the women who are impacted by this statutory instrument? I am struggling to see how the two pieces interweave, and it might be quite helpful to understand the overall picture—I would appreciate that.

Secondly, with the coming increase in the threshold—which we will speak about later this week—I wonder whether the Minister is at this point able to tell me the consequences for the National Insurance Fund, which will be receiving less money than it anticipated. Is there any knock-on effect to the contribution that the National Insurance Fund then makes initially to the NHS and, presumably, eventually to social care, if that day ever dawns? I am just trying to see how the various pieces of all this fit together, and I wonder whether the Minister can be a little helpful on that point.

Like the noble Baroness, Lady McIntosh, I do not think it would hurt to have been rather more generous to a group that is in a particularly awkward place when it comes to state pensions. We would not have insisted on absolute parallels between every recipient, particularly when we have a group that is fundamentally in a more disadvantaged situation.

This brings me to my final point. One of the endless irritations in trying to deal with these issues is that change comes in various Bills and statutory instruments and, frankly, for anyone other than an extreme specialist, it is nearly always impossible to see how all the various pieces tie together. I honestly do not know how employers manage to deal with all this, and I do not know how individuals manage to keep on top of the various pieces of information. Government websites help, but they also do not pull all the strands together. I have a feeling that is why we have this SI, because somebody missed this bit and suddenly realised it would need a separate piece of legislation.

This is an issue that I have raised over and over again with almost everything that we get from the Treasury. There needs to be some sort of coherent published tracking system. Indeed, it would help officials as well if they had a place to go to where essentially everything was marked up to date and they could see the history and the process of change. I have said before that this was done in the European Union in a far more complicated and complex setting—and done extremely successfully. I know that there is a government feeling that anything that was done well by the European Union needs to be disparaged and that we cannot follow or adopt it, but can we make an exception in this case, which is leaving so many people, frankly, confused?

My Lords, I start by supporting the point that the noble Baroness has just made. The practical access to legislation in this country—somebody may say it happens in every other country—is dreadful. It is almost impossible to follow all the tracking, know what the documents say and understand how they relate to each other. I understand that the National Archives are trying to remedy this situation—I wish them luck; they will certainly have my support.

I am grateful to the Minister for introducing this measure, albeit at the 11th hour. She knows that the Labour Party does not agree with the health and social care levy. Following last week’s Spring Statement, it seems the Chancellor is not entirely on board with it either. We were told that the additional funds would be used to solve the social care crisis. However, we know that most of the money raised will go to the NHS rather than social care.

Addressing the record NHS backlog is a worthy cause, but it should not come at the expense of social care reform. Indeed, the Prime Minister has still not produced his long-promised plan for solving the challenges around social care, despite his promise on the steps of Downing Street in July 2019 to publish a plan within days. When we debated the fast-tracked Health and Social Care Levy Bill, we were told that full parliamentary scrutiny was simply not possible, as HMRC needed the maximum available time to implement the changes.

That Bill was introduced in another place on 8 September 2021, with this House taking all stages on 11 October. It has been the law of the land since 20 October, which is more than five months. Why, then, has it taken until now for somebody to notice that the married women’s reduced rate has not been increased in line with the requirements of that Act? The number of beneficiaries of the reduced rate will be only a small proportion of the overall number who pay national insurance. When she responds, perhaps the Minister could cite the figure; she has done so already, but she might be able to home in on a more precise figure—you never know. Could she cite the figures so that they are on record?

The numbers are not huge, but we understand the need for a consistent approach. On that basis, we do not oppose the passing of these regulations. However, let me say to the noble Baroness that this is not how government is supposed to do business. We should not be fast-tracking legislation for political purposes and using delegated legislation to correct the deficiencies at a later date. Later this week, we will debate another fast-tracked Bill, and we expect also to support that legislation’s passage, but this experience does not instil confidence in the process. Let us hope that the Government do better in the next parliamentary Session.

I thank all noble Lords for their engagement on these regulations, and indulging in what the noble Lord, Lord Davies of Brixton, referred to as a piece of social policy archaeology. It is important that we have been able to bring forward these regulations, and I therefore completely acknowledge the points made by the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and others about the complications in our approach, and the speed with regard to these particular regulations.

Just by way of a bit of a further explanation for this set of regulations, HMRC had previously identified a different legislative vehicle to provide for this measure. However, that legislative vehicle was not a viable option once it had been confirmed that there was no longer sufficient time for scrutiny to take place within the usual timeframe. That was an oversight, and HMRC has moved quickly to prepare this piece of relevant legislation. It is with regret that we had to expedite the consideration for this measure. However, to ensure that the levy is applied fairly, these regulations need to come into force ahead of 6 April. We have written to both the JSCI and the SLSC to explain the reasons for this delay and to ensure appropriate scrutiny.

I heard the point made by my noble friend Lady McIntosh of Pickering, echoed by the noble Baroness, Lady Kramer, about the need to extend this measure to this particular cohort. While that may be debated, when the measure was announced it was included in that cohort, and now payroll and others are expecting it to go ahead. That is why it is important that we have been able to provide for it.

In response to the question from the noble Lord, Lord Jones, about engagement with business, especially small businesses, we have engaged with payroll providers to ensure that the new rates, including the married women’s reduced rate, are updated.

A number of noble Lords asked for further zoning in on the numbers affected. As I said, in 2019 we reviewed the number of eligible women who could apply for this rate and compared this against multiple data sources. We recently conducted a scan of NICs records in the 2020-21 tax year, which looks at around 2% of employees. We found two individuals qualifying for the married women’s reduced rate. Extrapolating from this would suggest that there are currently around 100 cases, but I remind noble Lords that these are not actual figures but estimates. Due to both the fact that this is an estimate and the small numbers involved, it is not possible to break down those affected into England, Wales, Scotland and Northern Ireland, et cetera.

I believe there were two specific questions on numbers. The first was on the number of people who may be affected by this change. Our best estimate from an updated scan indicates around 100 cases, but that is an extrapolation rather than a specific figure. Secondly, the breakdown for the different nations of the United Kingdom is not possible to provide. Even if I were to write, we would not have that figure.

My noble friend asked whether the increase in the thresholds announced at the Spring Statement will impact state pension entitlement. It will not. The lower earnings limit has not changed, so that is not impacted.

I say to the noble Baroness, Lady Kramer, that this cohort will benefit from the increase in the primary threshold limit announced at the Spring Statement and being legislated for later this week. The noble Baroness also asked about the impact on the NIF. For this measure we would not be able to score it; because of the small numbers involved, it would be classed as a negligible impact. I take her point when she also asked more broadly about the impact on the NIF of the increase in the thresholds. We might come back to that on Wednesday.

I think I have covered most of the points raised in this debate. My noble friend mentioned that she shadowed the Department for Work and Pensions when she was in the Commons. That was also one of my first jobs in opposition. My knowledge does not date back to the 1970s but is certainly a little out of date for a debate on pensions today. I hope I have covered all noble Lords’ questions.

Motion agreed.

Committee adjourned at 4.13 pm.