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

Lord Davies of Brixton Excerpts

Monday 28th March 2022 Grand Committee

[Baroness Penn (Con)]

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.

[Lord Davies of Brixton (Lab)]

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.

[Baroness McIntosh of Pickering (Con)]

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.