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3.35 pm
Ms Rosie Winterton (Doncaster, Central): I am very grateful for the opportunity to speak in today's debate, especially because I know that so many of the changes that we are making--I am thinking of changes to child benefit and pensions and of people who pay class 1 national insurance contributions--will make a real difference to many of my constituents who are low paid, living in poverty or unemployed. Many are living like that because of the previous Tory Government's policies.
I want to make points about class 2 national insurance contributions because I am very concerned about the circumstances of several constituents who have made
representations to me. I can perhaps best illustrate my concerns by referring to the case of Donald Smith, a constituent who lives in Edenthorpe, in Doncaster. Mr. Smith is 36-years-old. About two and a half years ago, he was made redundant from the railway industry in which he had worked for 17 years. He went to work for another company, which insisted that he did so under self-employed status. The company refused to pay his tax and national insurance contributions. Mr. Smith was concerned about that, so he went to the Contributions Agency. Although staff were dubious about whether he should be considered self-employed, he was told that he should pay his contributions, and that he could protect himself by paying class 2 and class 4 contributions, which would entitle him to retirement pension, widow's benefit and incapacity benefit.
Mr. Smith was made redundant once again, but then secured employment in the railway industry--this time on a temporary contract--with a company that paid his national insurance and tax contributions from November 1997 to August 1998. During that time, he paid class 1 national insurance contributions. However, Mr. Smith was made redundant again following a takeover. When he went to the job centre, he was told that, because he had had a period of self-employment during the previous two tax years and his partner, with whom he lives, earns £13,000 a year--even though they are taxed separately--he was not entitled to either non-means-tested or means-tested jobseeker's allowance. Despite the fact that, for the previous 11 months, Mr. Smith and his employer had been paying class 1 national insurance contributions, he was not entitled to any jobseeker's allowance. Therefore his recent period of employment did not really make a difference.
If Mr. Smith had been paying, and had previously paid, class 1 contributions, and if the company that he had worked for had done the best by him and employed him properly, he would have received about £1,300 in jobseeker's allowance had he remained unemployed for a full six months. Instead, he received nothing.
Mr. Smith expressed his opinion to me bluntly. He felt that he would have been better off if he had not taken the job for which he was forced to become self-employed. He took it, but then felt severely penalised by the system and felt that the contributions that he had paid for the past 10 months--and for the 17 years previous to that period of self-employment--provided him with no help when he needed it. My hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) has already spoken about the need for people to feel that they will get something out of the system that they pay into when they need assistance.
I have made inquiries of the Contributions Agency. I was told that, even if Mr. Smith had offered to pay his own national insurance contributions to class 1 level, plus the equivalent of his employer's contributions, he would not have been allowed to do so, because the system does not allow for that. Once a person is self-employed, he is classified as such, and that is that.
I strongly believe that the present system, as it relates to self-employment class 2 contributions, is designed for a time when employment patterns were completely different--when self-employed people were more likely to be business men who might make provision for a business failure or for times of unemployment. A person such as Mr. Smith, who, 30 years ago, might have
expected to continue working in the railway industry--or another traditional industry, such as mining--throughout his life, would not expect to be considered self-employed.
In 1950, there were about 1.5 million self-employed workers in Britain; by 1995, there were 3.5 million. The Government constantly point out that work patterns have changed in the past 50 years, which is true. As my right hon. Friend the Secretary of State said earlier, Government policies are beginning to respond to that change. All the efforts to modernise the welfare and benefits system recognise that people may have one or more, or many, different careers in their life. To maintain a lifetime of work, a person may be employed, then self-employed, then want to return to employed status. The thrust of the Government's strategy is to ensure that the benefits system is designed to allow people to return to work with the maximum incentives, and to preserve their benefit entitlement, where that is reasonable. That is especially obvious in the changes that are being made for people with disabilities, which my hon. Friendthe Member for Blackpool, North and Fleetwood (Mrs. Humble) mentioned.
Even in the recent White Paper on competitiveness, we said that we should not encourage failure, but should encourage enterprise. However, for people such as Mr. Smith, the current system works against that objective. Because of the effect of the class 2 contributions, the system creates a built-in disincentive for the unemployed or those unemployed who have been self-employed, who may ask themselves, "Shall I become self-employed if a job comes up?"
Might Ministers consider the possibility of designing a system in which a self-employed person could pay a third level of contributions instead of, or in addition to, class 4 and class 2 contributions? Those who paid that third level could secure themselves against future unemployment and know that, by doing so--by topping up what they were paying--they could be assured that they could benefit from jobseeker's allowance if their self-employment happened to cease.
I know that many people are affected by the problem that Mr. Smith experienced--especially when employers refuse to take on people unless they agree to work on a self-employed basis. Recently, the Inland Revenue issued guidelines to ensure that employers treat workers as employees when, to all intents and purposes, they are obviously employed. The guidelines were aimed especially at the construction industry, but the Amalgamated Engineering and Electrical Union is worried that the Revenue does not always pursue as vigorously as possible complaints that are made about companies that do not adhere to the guidelines, and which effectively make employees stick with class 2 contributions. That means that they have no security if they are made unemployed.
The AEEU has estimated that the cost to the Exchequer of companies avoiding paying national insurance contributions is about £1.2 billion a year. Would the Minister tell me, either today or in writing, whether the new guidelines have succeeded in placing employees on a proper footing regarding national insurance cover? How many companies have had action taken against them by the Inland Revenue when they were found to be in breach of guidelines? How many complaints have been made about companies in that regard?
Mr. Archy Kirkwood (Roxburgh and Berwickshire):
I am pleased to follow the hon. Member for Doncaster, Central (Ms Winterton). I listened to her speech with interest. She is right to point out some of the difficulties in the fine print of the class 2 and class 4 contribution systems for the self-employed. In the future we need to focus on the self-employed as a class to make sure that the inequities do not continue. Injustices do exist, and people have a poor understanding of what they are entitled to in return for the money that they are contributing.
Perhaps I can engage the hon. Lady's interest in trying to help me to stimulate a full-scale debate on the future of the contributory principle. The argument that she advanced so concisely and cogently is part of that wider strategic debate. I look forward to reading her speech as evidence to that end.
This is a valuable debate. I point out to the business managers that for other aspects of public policy--for example, defence estimates--there are allocated days on which the House considers overall expenditure in that area. We are lucky that the Chair allows us a fair degree of latitude. Earlier participants in the debate have taken full advantage of that to discuss the totality of social security spending. In the past, Opposition parties have been rather creative in selecting statutory instruments to tag on to the uprating order, so that the debate could be broadened.
The uprating of benefits is an important occasion in the parliamentary calendar for consideration of social security in the round, but it would be helpful if we could spend an afternoon or a day examining the implications for all benefits, contributory and non-contributory. That is what I tried to suggest earlier in my intervention to the Secretary of State's speech. We need to understand what direction the entire system is taking. Perhaps we can pursue that through the usual channels, possibly as part of the modernisation process.
I am worried about the future of the contributory principle. The Minister was kind enough to drop me a note last week adverting to the written answer dealing with the industrial injuries scheme on 20 January at column 474. The Secretary of State said that he was looking into alternative replacements for no-fault compensation arrangements that would meet the objectives of the current scheme.
That is an example of an individual initiative that is fine as far as it goes, but if industrial injuries compensation arrangements suddenly become an on-cost for employers
as an attempt to modernise an intrinsic part of the contributory benefit system, that will be another example of the salami-slice approach to the basis of the contributory principle. We must be careful about that.
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