Wednesday 30 January 2008

An Attempt by the Labour Left to Tackle Inequality and Poverty Blocked.

Parliament is debating today the Government's National Insurance Bill, which will set the earnings limits for paying national insurance contributions. Sounds like a dry bureaucratic issue but actually this is a key decision on whether the Government is serious about tackling poverty and inequality in today's Britain.

The National Insurance system which came out of the Beveridge report was a central plank of the Attlee Labour government's welfare state. It established the system whereby national insurance contributions are paid from our individual earnings into the National Insurance fund to pay for retirement pensions, unemployment and sickness and other benefits. It offered us all a basic level of security whatever life threw at us.

In the 1970s to protect the rich an upper limit was placed on the contributions paid by high earners. This was the uppper earnings limit. As a result those on average earnings today pay about 8.6% of their earnings in NI contributions but those earning £100,000 pay only 3.9%.

I wanted to use today's debate in Parliament on the Government's National Insurance Bill to highlight the unfairness of the earnings limit and to gain support for reform of this system. So I tabled a series of amendments to the Bill abolishing the upper earnings limit so that the high earners would pay the same share as everybody else. This would not only be fairer but it would also raise £8.8 billion for the national insurance fund.

This money could be used to increase child benefit by £14 a week, lifting 400,000 children out of poverty. It could be used to make all personal care for the elderly free or increase the basic sate pension or restore the link between pensions and earnings that Labour has been promising for over a decade.

Regrettably the amendments have been rejected for debate so the Government has lost a critical opportunity to address very practically the inequality which disfigures our society.

Last month the Institute for Fiscal Studies reported that in Britain "inequality is at its highest level since the late 1940s." The IFS actually found that "those at the bottom of income distribution and especially the poorest 15% of households saw their income go up at below average rates and in some cases even fall."

Abolishing the NI upper earnings limit which protects the wealthiest in our society could have been a small but significant step in reddressing this inequality. However in Parliament today we will not even get the chance of discussing this proposal. Welcome to Gordon Brown's Britain 2008.