National Insurance Contributions (Reduction in Rates) Bill
Thursday 30th November 2023
(11 months, 3 weeks ago)
Commons ChamberRead Full debate National Insurance Contributions (Reduction in Rates) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 30 November 2023 - (30 Nov 2023)
The Chief Secretary to the Treasury (Laura Trott)
I beg to move, That the Bill be now read a Second time.
This is a landmark moment: the economy has turned a corner. Having rightly supported people through covid with £400 billion of spend and then £100 billion over the winter to support people with energy costs, we on the Government side of the House know that we have to pay back what we have borrowed. The Labour party opposed every single measure to do that, and every difficult decision, but because of those difficult decisions, we are in the position we are in today. Because of those difficult decisions, the Chancellor can put forward an autumn statement that focuses on growing our economy, supporting businesses and, crucially, cutting taxes, and that is what we are here to talk about today.
Harriett Baldwin (West Worcestershire) (Con)
Will the Chief Secretary to the Treasury tell the House, for the record, how many Labour Back Benchers are here for this milestone debate?
Laura Trott
I think by my count none, which is unfortunate and I think speaks to their lack of the commitment to cutting tax that we have on this side of the House. The Bill will cut taxes for 29 million working people. It has three measures: the reduction in national insurance contributions in class 1 primary main rate; the reduction of the NICs class 4 main rate; and the removal of the requirement to pay class 2 NICs. We are prioritising national insurance for two key reasons. First, we want to put more money in the pockets of working families, and NICs are the most targeted way to do that. Secondly, better reward for work makes working more appealing, and the more people work, the more there is a boost in growth.
Let me take the House briefly through the measures in the Bill. The first is the reduction in the employee class 1 NICs main rate, which the Chancellor announced in the autumn statement. By reducing the main rate by two percentage points, from 12% to 10%, on earnings between £12,570 and £50,270, we will cut taxes for more than 27 million employees. That will save the average worker more than £450 a year, and they will see the benefit in their payslips right at the start of the new year, as this legislation will come into effect on 6 January.
Jim Shannon (Strangford) (DUP)
I thank the Minister, and the Government, for what they are bringing forward. The cut in national insurance in the autumn statement is a welcome step, and my constituents tell me that. Unfortunately, many are also saying that the average working-class family, including many in my constituency, will still be facing the highest taxation levels. I am not being churlish, not for one second—I want to make that clear—but can the Minister encourage me and my constituents that there is more to offer from the autumn statement and that those people have more to gain?
Laura Trott
I thank the hon. Gentleman for the opportunity to talk about this, because it is important. Taxes for the average worker will have gone down by £1,000 since 2010. We have not hidden from the fact that we had to make some very difficult decisions to pay back our covid debts, and those have fallen on the highest paid, because that is the value that we espouse as a party. Because of those difficult decisions, which were opposed every step of the way by the Opposition, we are able to cut taxes for everybody—that is what the values of Conservative Members are all about.
We will cut and reform national insurance contributions for the self-employed by cutting the class 4 rate by one percentage point from 9% to 8% from April 2024. Finally, we will remove the requirement for self-employed people with annual profits above the national income tax personal allowance of £12,570 to pay class 2 NICs, also from April 2024. Those who pay voluntarily will still be able to do so, and I assure hon. Members that low-paid self-employed people who make voluntary class 2 contributions will not pay more.
The Bill simplifies the system for self-employed taxpayers, bringing it closer to the system for employees, and not only putting more money in their pockets but reducing the administrative burden. As a result of changes in the Bill, a self-employed person who is currently required to pay class 2 NICs every week will save at least £192 per year. Taken together with the cut to class 4 NICs, an average self-employed person on £28,200 will see a total saving of £350 in 2024-25. That will benefit around 2 million people. Importantly, those with profits under the small profits threshold of £6,725 and who pay class 2 NICs voluntarily to get access to contributory benefits, including the state pension, will continue to be able to do so.
The Government are committed to tax cuts that reward and incentivise work, and that grow the economy in a sustainable way. These measures do just that. The Office for Budget Responsibility states that the autumn statement package will reduce inflation next year, and measures in the Bill will be worth more than £9 billion a year, the largest ever cut to employee and self-employed national insurance.
A vote for these measures is a vote to give 29 million people an average yearly saving of more than £450. These reductions in tax will not only benefit those in work; according to the Office for Budget Responsibility, they will lead to the equivalent of almost 100,000 people entering work, because they will ensure that work pays and will drive more people to seek employment.
There is another point here, and that is about choices. I hope that the Opposition will support these measures today, if only for the reasons I have already set out. The public support them and business supports them. If the Opposition do not support them, it will represent a choice. The shadow Chancellor, the right hon. Member for Leeds West (Rachel Reeves), has often spoken of her fiscal rules that will have debt falling in the final year of the next Parliament. At the autumn statement last week, the OBR confirmed that public sector net debt is set to fall in that final year, with headroom of £30 billion. Implementing the permanent tax relief for business investment, plus the legislation before the House today, represents a choice to use around £20 billion of that £30 billion of headroom on these measures.
There is a path here, if the Opposition want it, to deliver the £28 billion a year. They could use up every penny of headroom, reject full expensing and reject today’s tax cuts, but what they cannot do—what the OBR, the financial markets and every secondary school maths textbook will not let them do—is vote for our policies today, borrow an extra £28 billion a year and still meet their own fiscal rules. The numbers simply do not add up. That is what I mean by choices.
The Opposition have to choose. Do they stick to their plan to borrow an extra £28 billion a year, which the Institute for Fiscal Studies says risks sending inflation, interest rates and mortgage rates up, or do they choose our plan to bring inflation down, taxes down and debt down? They cannot have it both ways. If the shadow Treasury team has no answer today, it will fall to the Leader of the Opposition to grasp the issue. Rather than anonymous briefings to the BBC over the weekend, he will have to make a choice. That is the difference between being the party of opposition and being the party of government: credibility with the public over credibility with their activists.
This Bill represents the choices made on this side of the House. I have spoken at length about why we have made them. I hope that the shadow Financial Secretary to the Treasury, the hon. Member for Ealing North (James Murray), can inform us honestly and straightforwardly on which side of those choices his party will land. If he cannot, we can all conclude, as Lord Mandelson himself said only a few months back, that Labour is not ready to be the party of government. I commend the Bill to the House.
James Murray (Ealing North) (Lab/Co-op)
Whatever the Chancellor said last week and whatever the Chief Secretary to the Treasury said today, the truth is that the Conservatives cannot hide from the facts when it comes to the level of taxation in Britain today. The inescapable truth facing families across the UK, and the truth that the Government cannot hide from, is that under the Conservatives, the tax burden in Britain is on course to reach its highest level since the second world war. As the Resolution Foundation made clear in its blunt analysis of measures in the autumn statement, personal taxes are going up, not down.
Any cuts to personal taxation announced last week are more than eclipsed by hikes in tax that this Government had announced before; the freezing of national insurance and income tax thresholds for six years is now expected to cost taxpayers £45 billion. They are not just giving with one hand and taking with the other; it is worse than that. As I said last week, it is as if the Conservatives have nicked someone’s car but then expect them to be grateful when they pay for the bus fare home.
Alun Cairns (Vale of Glamorgan) (Con)
Does the hon. Gentleman recognise the context in which the autumn statement was made? Was he not a cheerleader for the furlough scheme and the financial support provided during covid and the energy price shock? Does he recognise that that needed to be recovered but, because of the difficult decisions we have taken, we are now in a position to reduce taxes?
James Murray
The context in which the autumn statement was made was 13 years of Conservative economic failure. There have been 25 tax rises in this Parliament alone and the tax burden is set to rise to its highest since the second world war. That is the context that the British people are facing, and that is the context in which the autumn statement was made.
The impact on people across Britain is brutal. As a result of the Conservatives’ decisions on personal taxation, households will be left facing an average tax rise of £1,200 from the Government. Looking across all taxes, we know that, by the end of the decade, taxes in the UK will have risen by the astonishing equivalent of £4,300 for every household in the country. That is the context in which we are debating the Bill’s Second Reading.
Let me make it clear for the benefit of the Chief Secretary to the Treasury that Labour welcomes the cut in national insurance that the Bill includes. We believe that taxes on working people are too high, and we have long said that we want to see them come down when they can be cut in an economically and fiscally responsible way. We will support the Bill, but we believe that the Government need to be honest with people. The Conservatives need to be honest and admit that they are responsible for the biggest hit to living standards on record, and that this has been the biggest tax-raising Parliament that our country has ever seen.
This is not the first time we have debated national insurance rates in this Parliament. Just over two years ago, I stood here, opposite the Financial Secretary’s predecessor —more accurately, his predecessor’s predecessor’s predecessor’s predecessor—to debate Second Reading of the Health and Social Care Levy Bill. That Bill introduced, in 2022-23, a 1.25 percentage point increase in national insurance contributions for employees and employers—an increase that we rightly described at the time as
“a new tax on working people and their jobs.”—[Official Report, 14 September 2021; Vol. 700, c. 845.]
Hon. Members may recall that when the Government published that legislation, their own tax information and impact note on that tax rise confirmed:
“There may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.”
We opposed that legislation, and it was clear to a wide coalition, including the Federation of Small Businesses, the British Chambers of Commerce, the CBI and the TUC, that it was the worst possible tax rise at the worst possible time.
As time went on, the then Chancellor—now the Prime Minister—realised that he had made a mistake. He tried to make a partial U-turn in last year’s spring statement by increasing national insurance thresholds, yet the Institute for Fiscal Studies quickly pointed out that that move would not undo damage already done. Its director, Paul Johnson, confirmed:
“Almost all workers will be paying more tax on their earnings in 2025 than they would have been paying without this parliament’s reforms to income tax and national insurance contributions, despite the tax-cutting measures announced today.”
Later last year, the 1.25 percentage point national insurance rise was finally reversed, yet, as we know only too well, any benefits that many families may have hoped to gain from that U-turn were rapidly eclipsed by the Tory mortgage penalty, following the Conservatives’ catastrophic mishandling of the economy. The impact of that recklessness is still with us today, as mortgage holders across the country face a hit of £220 a month when their current deals end.
The truth is that whatever the Conservatives do, they keep making working people worse off. That has been true over the 13 years that they have been in power, it has been true over the past two years of changes to national insurance, and it will be true after the Bill becomes law.
The Chief Secretary to the Treasury has been trying desperately to paint today’s national insurance cuts as the answer to the cost of living crisis. Last week, she claimed that
“taxes for the average worker have gone down by £1,000”.—[Official Report, 22 November 2023; Vol. 741, c. 360.]
I believe she repeated that claim today, yet analysis by the House of Commons Library makes it clear that national insurance and income tax on the median earner will rise from £6,112 in 2010-11 to £7,364 in 2024-25. Will she confirm—or will the Financial Secretary confirm on her behalf—whether she stands by her earlier remarks and explain exactly how those figures were calculated? The experience of people across Britain is very different from the picture that she is trying to paint.
Richard Graham (Gloucester) (Con)
Perhaps the answer to the question of the shadow Chief Secretary to the Treasury is that the income tax starting point has doubled from around £6,000 to more than £12,000. That provides the extra £1,000 take-home pay every year that he is puzzled about.
James Murray
The hon. Gentleman promoted me inadvertently, as I am the shadow Financial Secretary to the Treasury, but I thank him for his vote of confidence. Our point is that today’s tax cut, which we support, must be seen in the context of 13 years of the Conservatives in power: 13 years of economic failure, with 25 tax rises in this Parliament alone and the tax burden on course to be the highest since the second world war. Whatever the Chief Secretary to the Treasury might say, people across Britain are experiencing life very differently from how she paints it.
However welcome the measures in the Bill may be, they come after 25 tax rises in this Parliament alone. The British people will not be fooled. No matter what statistics the Government contrive or the gloss they try to put on their record, people across Britain need ask themselves just one question: do they and their families feel better off now than they did 13 years ago? The answer is a resounding no. At last week’s autumn statement, we learned not only that the tax burden is still on track to be the highest since the war and that inflation has been revised upward across the entire forecast period, but that growth rates have been cut for next year, the year after, and the year after that.
It took some gall for the Chancellor to say that he was delivering an “autumn statement for growth”—comments repeated today by the Chief Secretary to the Treasury—since the Office for Budget Responsibility reports that next year’s growth rate has been cut by more than half. Low growth has dogged our country for the past 13 years. The autumn statement makes it clear that the Conservatives still have no plan to get our economy growing as it should. Since 2010, under the Conservatives, GDP growth has been stuck at an average of 1.5% a year, down from 2% in the Labour years before. If the economy had continued to grow for the past 13 years at the rate it grew under Labour, it would be £150 billion larger—the equivalent of £5,000 per household every year.
As we all know, because of that low growth, the Conservatives have had to keep putting up taxes on working people. Low growth and high taxes have made people across Britain worse off. That is the reality of the past 13 years of the Conservatives in power. The Bill’s tax cuts cannot even remotely compensate for the damage they have done to our economy and the living standards of people across Britain.
Although we support today’s tax cut, we know that our country needs economic growth to make working people better off and to get our public services off the floor. That is the plan from Labour. We are the party of fiscal responsibility and of business, with a plan to make working people better off. Come the next election—it cannot come soon enough—people across Britain will look at the Conservatives’ record and the bleak achievements they will claim. In this Parliament, real disposable household incomes will have fallen the furthest, following 20 years of pay stagnation. Real average earnings are not forecast to return to their 2008 peak until 2028. Four million people have been dragged into paying tax, with 3 million more in the higher rate—the biggest hit to income on record. Next year, real-terms income will be 3.5% lower than it was before the pandemic. This the biggest tax-raising Parliament Britain has ever seen.
Whatever the Conservatives say or do, and whichever way they try to twist and turn, reality has caught up with them. We have been here before. We remember the Conservatives promising to cut income tax ahead of the 1997 election. Back then, people decided that it was too little, too late, coming as it did after 22 tax rises in that Parliament. As this Parliament approaches its end, today’s Conservative party is showing itself to be even more divided and desperate than in the late ’90s. As the next election draws nearer and the Conservatives try to cling on to power, the risk grows that they will get more desperate with their promises and more reckless with taxpayers’ money. Britain needs a plan to get the economy growing and make working people better off. That is what Labour is offering and why a general election cannot come soon enough.
Madam Deputy Speaker (Dame Rosie Winterton)
I call the Chair of the Treasury Committee.
Harriett Baldwin (West Worcestershire) (Con)
I am not sure that I have ever heard a more grudging shadow Front Bench speech on measures that the Opposition support. They support them so wholeheartedly today that none of their Back Benchers has shown up to speak to them.
I endorse the measures in the legislation. The Chief Secretary is right to point to the turning point that the UK economy has reached this year, thanks to the steps taken a year ago to ensure that fiscal policy did not cut across the central bank’s aim to reduce inflation to its target. Thanks to that, inflation, which might have been as high as 13% last year, has fallen to 4.6%. That means that today, the earnings of the average UK worker are rising faster than the rate of inflation. We are seeing real earnings growth. That is the turning point that I am talking about.
The shadow Minister and the Chief Secretary both talked about the choices that the Chancellor could make on this occasion. In the evidence that the Treasury Committee took this week on the autumn statement, we saw the clear impact of the Chancellor’s choices on two long-standing challenges for the UK economy: slow productivity growth and the fact that not everyone has returned to work since the pandemic. When we get to the Finance Bill, I will expatiate further on the supply-side measures on the labour market and permanent full expensing, but today I will focus on the national insurance contributions element, which the Office for Budget Responsibility also considered to be a supply-side measure.
In the evidence that we took, we heard from the member of the Office for Budget Responsibility, Professor David Miles, that the choice to go for the national insurance contribution reduction in the autumn statement created a “definite positive” as an incentive to work. The OBR forecast that it will bring close to 100,000 full-time equivalent extra workers back into the workforce. That is so important. Paul Johnson from the Institute for Fiscal Studies noted in his evidence that, compared with a similar cut in income tax rates, a cut to national insurance is more progressive. It benefits people in work, but only on their earnings up to £50,000. That is important context for the choice that the Chancellor took.
I also welcome the simplification of taxes—a concept our Committee is committed to. Far too many things in our tax system act as disincentives to doing an extra hour of work. There are too many complicated withdrawal rates. The steps taken on class 2 and class 4 contributions represent a simplification of the tax system. Interestingly, we were told in our evidence session that the changes to class 2 and class 4 reduce
“the incentive for people to incorporate to gain a tax advantage.”
We should have a tax system that is broadly neutral on those two things.
Professor Miles told us that he thinks that the national insurance cuts are “unambiguously” a more positive incentive to work. The Office for Budget Responsibility does not see the measures as inflationary. He also said that
“some people at the margin who thought it perhaps was not worth working might now be persuaded to actively try to get a job”,
and that the measures will help retain people in the labour force.
To conclude my short remarks on the narrow measures in the Bill, I wanted to focus on the evidence that we have received on the choice that the Chancellor took on national insurance, and how that is very much focused on the structural challenges that the UK economy faces.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
We have heard an awful lot about choices at the start of this debate. What is abundantly clear for families in Scotland and across the nations of the UK is that the Government have chosen to ignore the burning cost of living crisis that they put in place for families.
Let me be unequivocally clear from the outset that the Chancellor’s attempt to masquerade the Bill as meaningful support for people is nothing short of a farce. I said to him at the statement that it would not bear scrutiny and it has not borne scrutiny. Families in Scotland already grappling with the harsh realities of the soaring cost of living are acutely aware of the UK Government’s role in their deteriorating financial situation. No amount of Tory spin can disguise the stark truth of their policies, or the fact that those families are faced with a future of perma-austerity under Westminster.
The autumn statement was a critical opportunity for meaningful intervention. It was, to say the least, a profound disappointment. It offered scant relief to households across Scotland—households already beleaguered by the catastrophic decisions of this UK Government. The audacity of the Chancellor in trying to package the reduction in national insurance rates as a major tax cut is an insult to the intelligence of the Scottish people. We are witnessing funding for public services pushed to breaking point due to years of real-terms cuts to the Scottish budget. The Scottish Government have sought to protect workers and services, and are having to do that with diminishing resources, yet the UK Government have shamefully neglected to prioritise investment in the NHS and other public services, which will, according to the OBR, see a cut of £19 billion in the coming years.
The Bill, in legislating for the changes to national insurance outlined in the autumn statement, is a glaring example of the Government’s disconnect from the realities on the ground. The changes announced by the Chancellor, some to take effect from January onwards, are a mere drop in the ocean of what is urgently needed now by families struggling with rampant food price increases, punishing increases in rents and mortgages, and the dreaded prospect of another winter with soaring energy bills. The Government could have listened to our pleas to provide a £400 energy bill rebate, to reduce the price cap and more. Instead, they will preside over a 5% increase in the energy price cap to land on 1 January—hardly a happy new year for those who cannot afford now to switch on the heating.
Let us dissect the facts. The main rate of NICs for employees is to be cut from 12% to 10%, a change affecting those earning between £12,571 and £50,271. For the self-employed, the rate drops from 9% to 8%, with the flat-rate NIC charge also being scrapped for some. On paper, those changes might appear beneficial, but in reality they are superficial. The Resolution Foundation’s Torsten Bell aptly noted that
“taxes are up not down”.
This is no generous gift to the public; it is a thinly veiled attempt at distraction. The Institute for Fiscal Studies highlighted a concerning trend: despite these nominal cuts, we are facing the most significant rise in taxes in recent memory. The tax threshold freezes since 2021 will largely, if not entirely, counteract any benefits of the Chancellor’s 2p cut to NICs next year. For someone with average full-time earnings, that means a saving of £449 in NI contributions, but an increase of £413 due to the unchanged tax thresholds. The Chancellor’s so-called giveaway then amounts to a paltry £36 for the average earner—a far cry from the over £450 boasted about today.
From the detrimental effects of austerity to the chaos of Brexit and now the mismanagement of the cost of living crisis, it is abundantly clear that the Westminster Government are a liability for the working people of Scotland. They are left to shoulder the burden of Westminster’s disastrous decisions. Our public services, the very foundation of our society, are under threat. The Chancellor’s spending plans, particularly his silence on them post March 2025, signal a disturbing turbo-boost of austerity. The OBR’s report rings alarm bells. The UK Government’s fiscal strategies are shrouded in uncertainty and wishful thinking.
The Scottish Government are handed a real-terms reduction in the block grant, yet are expected, miraculously, to maintain public services with, for example, a health budget increase of less than 0.01% for 2024-25. Inflation sits, even today, at 4.7%, so that NHS money equates to only £10.8 million blown away by inflation before it arrives, leaving only the cold sting of a sharp cut in reality.
The autumn statement and the Bill will serve as stark reminders that Westminster Governments are fundamentally misaligned with the values and needs of the people of Scotland. Our aspirations for a fair, just and prosperous society cannot be realised under such governance. Independence remains the only viable path to ensuring the wellbeing and prosperity of the Scottish people.
In conclusion, it is imperative that the Government acknowledge their failings, even at this late stage, and take decisive steps to truly support households and public services across the nations and in Scotland. Until such time, we in the SNP will remain unwavering in calling for real help for people struggling with rising rents and mortgages, struggling to pay for their shopping, and terrified of the cost of their energy bills this winter. Our values are to champion the interests of the Scottish people to safeguard our communities and the families who live in them. We will continue to call for the real power of independence to deliver on them.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
It is a pleasure to speak, very briefly, in this debate.
My starting point is the concern I felt, when I listened to my right hon. Friend the Chancellor of the Exchequer making his autumn statement and highlighting this aspect of the measures he was taking, to hear cries of “not much” and “big deal” from some on the Opposition Benches. It is important to reflect that even if we were looking solely at the class 2 national insurance contributions element, the amount that adds to a household income equates to more than the cost of a child’s school uniform for a year. It is a quarter of what the average household in the UK spends on Christmas. These are significant amounts of money for a good many of our constituents. Indeed, for one of my constituents who is affected by the ultra low emission zone policy, it would even pay their ULEZ charge for a fortnight. Taken in concert with the rest of the measures, it will make a significant difference to many household budgets and ensure that people have more money in their pocket in the new year.
I represent a constituency that, according to the ONS, is very much a constituency of workers. We enjoy a very high level of employment and self-employment, a very low level of unemployment and, I am very pleased to say, higher household income on average than the rest of the UK. But within that, there are many, many workers—those who are beginning their careers, or who have faced unstable employment—for whom this will make a real and practical difference. For that reason alone, I enormously welcome the measures we will be voting on today.
I would like to offer the Chief Secretary and the Treasury team an issue for consideration, which arises out of something I see in my constituency. It has been the subject of a lot of debate in this House in the last week or so. In 2019, the Conservatives stood on a manifesto that set a target of an additional 600,000 foreign students coming into the UK. That manifesto commitment has been achieved. We know that it earns us, in foreign currency income, around £35 billion a year. It is a bigger earner for the United Kingdom than our oil and gas industry, so it is incredibly important to our economy. Part of the thinking behind it was that many of those workers would become longer-term residents of the UK, especially in areas of great need: our national health service, caring professions and the technology industry. I hear from a good many constituents about the challenges they still face recruiting those workers to ensure that my constituents who need an operation can get it on time and that businesses can grow.
Home Office figures show that a very large proportion of those people leave the United Kingdom at the conclusion of their studies, but that some stay. Concern has been expressed about whether those who transition into work after being foreign students or those who are here for a brief period on a working visa and subsequently move abroad pay a sufficient amount into the UK economy to cover the costs of the benefits they may well receive. Right hon. and hon. Members have highlighted those who come to the UK under care worker visas, but who bring with them dependants who have significant health and educational costs. Would the Treasury team, in due course, give consideration to setting a differential rate of national insurance contributions for those who come to the UK on those types of visa, in line with the measures already taken of charging those applying for those visas a significantly higher fee and the national health surcharge? It would then become absolutely clear to everyone in this country that people who are here for a short period will pay a contribution that reflects the potential benefits available to them, whereas those who are lifelong citizens, for whom those costs will be spread out across their entire working life, will enjoy the benefit of a lower rate?
Every country in the developed world has faced a similar set of challenges around interest rates and costs of living. We all know what the reasons are: the impact of covid and the impact of rising US interest rates, which set basic interest rates and mortgage rates across the whole of the developed world. However, as my hon. Friend the Member for West Worcestershire (Harriett Baldwin) said, the turning point has clearly been reached. Most of us can see and feel in our constituencies the signs of a return to growth and a sense of prosperity. The fact that wages are now rising ahead of inflation is hugely significant to the living standards of all people, but especially to those on lower incomes the measures I am here to support today are incredibly important. I commend the Treasury team for bringing them forward.
Richard Graham (Gloucester) (Con)
It is a pleasure to join this debate, albeit one attended by literally zero Back Benchers of His Majesty’s loyal Opposition.
This debate and the changes to national insurance raise narrow issues of the amount of tax being paid by our constituents, wider issues relating to the question posed by the shadow Minister, the hon. Member for Ealing North (James Murray)—“Are you better off today than you were in 2010?”—and broader still questions about the value and purpose of life and what matters most to our constituents. I shall touch on all three in turn.
On the narrow issue, the national insurance payments mooted in the Bill, there is widespread agreement that they are good news for our constituents, because they mean lower tax. It is recognised that there is social justice in the measures, because they are not applicable to those earning more than £50,000 a year. We already know that no party in this House will oppose them. On the narrow issue, therefore, the Chancellor, the Treasury and those involved in creating the Bill have clearly got it right.
As my hon. Friend the Member for West Worcestershire (Harriett Baldwin) pointed out, this can easily be seen to be one of the measures by which we judge a turning point in the wider economy. After all, only a few months ago there were widespread expectations that the economy would be in recession, unemployment would be rising, taxes would be increasing, and there was very little wiggle room for the public finances to be seen to improve. All those things have been turned around. None of us can say with certainty that we are in full summer, but the green shoots are evident and things are changing.
On the broader issue of what we measure to answer the question, “Are our constituents better off today than in 2010?” there are different aspects. I suspect the shadow Minister had most clearly in mind a simple calculation of whether salaries net of inflation were higher or lower, and if we take that on its own, it will be a challenge for many Government Members to demonstrate that the answer is yes. For my constituents in Gloucester, average take-home pay has risen from £25,000 to £31,000, but their salaries have not kept up with increases in inflation. That is only part of the equation though; we need to take into account all the different forms of taxation, which include council tax. It is a cliché but true that council tax rises faster and is higher in Labour-run councils, whereas the Conservative-run council in Gloucester has done a good job of keeping it as low as possible over the last 14 years. Then, there is the question of take-home pay. As I pointed out to the shadow Minister, because income tax now applies only at £12,500, rather than at just over £6,000, the take-home pay element has increased by £1,000.
Other than that relatively straightforward financial calculation, there are many measures on which I hope all of us would want to answer “Yes” to the question, “Are you better off today than you were in 2010? I shall pick out a few of these crucial indicators, because they are relevant to the wider context of the Bill.
The Centre for Cities report is an excellent source of data for those who live in cities, so let me highlight a few elements of what its latest report said about Gloucester. We are one of the 10 lowest cities for economic inactivity. In effect, we have low unemployment and high employment —in fact, ours is the third highest employment rate, having risen last year from 76% to 84%, a 7.5% increase. The regional average is 79%, so we are way ahead of the south-west’s average. That means that many more people have purpose in their lives—they have occupations they can thrive in; they are bread-earners at home and useful role models for their children—and the city as a whole has a strong sense of purpose.
It is often forgotten, but many people remember vividly that their jobs were kept by the £400 billion spent during by the pandemic. The furlough scheme ensured that during the pandemic people could shelter at home, confident that their job would still be there, and those who had their own business know that the vast majority of those businesses would undoubtedly have gone bankrupt during the pandemic. The small businessmen and women, the self-employed, the entrepreneurs, all came through that period intact, whereas under a different scheme that would have cost taxpayers’ less, they would have struggled. The question, “Are you better off today than in 2010?” needs to encapsulate other questions: “Was your business able to survive? Was your job kept? Were you still able to be self-employed during a period when so many people around the world were struggling horribly?”
We in Gloucester are extraordinary in that our city has one of the very lowest percentages of population with no formal qualifications. In fact, extraordinarily, Gloucester has fewer people with no formal qualifications than Cambridge, and we are only 1% behind Oxford. The skills of my constituents are different from many of those in Oxford or Cambridge. A large number of our people are highly skilled with higher apprenticeships working in industries like aerospace, nuclear and high-level engineering. Those occupations, apprenticeships and higher apprenticeships have increased hugely over the last 13 or 14 years and are seriously threatened by the prospect—any prospect—of a Labour Government.
Let me illustrate that statistically. Since 2010, there have been almost 15,000 new apprenticeship starts in Gloucester—15,000 in a population of about 100,000. The run rate of apprenticeships nationally—5.5 million new apprenticeships since 2010—would have been almost halved under the Labour run rate between 2005 and 2010. Were Labour’s current proposals on apprenticeship spending to go through, it has been suggested that 140,000 apprenticeships would no longer exist. Therefore, the skills that my constituents have, which are being valuably used in leading sectors that are being supported by the Treasury and this Government, would be at serious risk under a new Government who did not value apprenticeships so highly.
The question, “Are you better off today than you were in 2010?” could also be rephrased, “What will happen to your skills, your purpose, your job and your future earnings under the changes proposed by the Labour party, which is so sadly absent here today?”
There are different issues that we need to consider in answering the question, “Are you better off today?” Education is vital for all of us, and everyone in the country needs to be more aware that our PISA rankings have risen from 25th to fourth in reading and from 27th to 16th in mathematics. I might be one off on both, but it is a significant leap forward. Those skills are vital to all our young constituents getting the opportunities they deserve.
Within infrastructure, there is the whole question of public transport. Gloucester has additional train services to Bristol, Worcester and down to London. There is a wider range of services, sports, culture and leisure, and cultural regeneration and the role of heritage are incredibly important to any city. Gloucester’s more than 40 wins from the National Lottery Heritage Fund have brought alive our old buildings and rebuilt pride in the city. These things are all part of answering, “Are you better off today than you were in 2010? Is where you live a better place today than it was in 2010?”
National insurance contributions are coming down sharply, which will mean an average saving of around £350 to each of my constituents and £450 for those on salaries over £35,000. All of that will be appreciated, but it is about the wider context in which it happens: the gradual recovery and the sense of green shoots coming through after a difficult year. That is important, and then there is the wider context of what has been achieved over the last 13 to 14 years. We must all take that into careful consideration.
Priti Patel (Witham) (Con)
I congratulate my hon. Friend the Member for Gloucester (Richard Graham) on his remarks. He provided a lot of sensible context for this debate and I will address some of his helpful points shortly.
It is very unusual to talk about fiscal matters, or fiscal legislation, to an almost empty Chamber. It is unheard of during my time in Parliament. As my hon. Friend will know, back in 2010, after the financial crisis, when we had to consider the long-term economic plan to build back our economy and to restore fiscal competence, there were many long, heated debates, and rightly so, in which proper scrutiny was given not just to Bills and legislation but to an exposition on the state we were in and how we needed to get ourselves back on to an even keel by growing the economy through Conservative policies.
That brings me to today’s theme. Conservative policies have, over the last decade, helped to restructure the economy, rebuild our country and create jobs and economic growth. They have made us stand tall in the world once again. I remember, in 2010, 2011 and 2012, looking at our financial ratings with a degree of despair. Thank goodness we are no longer in that state, which I think we all welcome.
I welcome this Bill and thank the Treasury and, in particular, my right hon. Friend the Chancellor for bringing it forward. Any measure that brings down the tax burden should be welcomed, because it represents a positive and constructive step in the right direction for our constituents. Our constituents are taxpayers and, ultimately, they want to keep more of the money they earn, and they want to know that the Government are spending their money responsibly.
Reducing the class 1 primary rate from 12% to 10% will put money into people’s pockets from 6 January—the sooner, the better. I commend the Government for bringing forward this vital fiscal measure. I am disappointed that there are not more colleagues here to debate it, but that is just how Parliament is right now.
The £450 benefit to a worker on the average salary will make an important difference to households. My hon. Friend the Member for Ruislip, Northwood and Pinner (David Simmonds) put it succinctly when he spoke about what it means for households at this time of year and for domestic budgets and spending.
I am particularly pleased to see the elimination of the class 2 rate and the reduction of the class 4 rate, which will help the self-employed from the start of the new financial year. I never tire of coming to this Chamber to say that I represent a constituency and a county of entrepreneurs. We are self-starters. We are self-made people. We are very proud of the contribution that the people of Essex make to our country. They are net contributors to His Majesty’s Treasury, which is all the more reason why they should get a tax cut.
As a Government who believe in enterprise, economic growth and letting people stand on their own two feet, we should do everything possible to support the self-employed and sole traders. It is hard work being a sole trader and being self-employed. We know about the regulatory burdens and pressure that HMRC puts on sole traders and the self-employed in particular, but they are the backbone and the engine of our economy; they are the lifeblood that creates jobs.
Some 80% of my constituents are employed by small and medium-sized enterprises—that is 20 percentage points higher than the national average—and we want them to continue to thrive and grow, as is right and proper. They are the embodiment of the entrepreneurial spirit that our country needs to create growth. I sometimes feel that we do not always give them the voice they need. It is easy for the big companies that can lobby central Government Departments to get their voices and representations heard. We are here for our constituents as their MPs. Even at business questions this morning, Members spoke about three family-run businesses. That is who we should be supporting.
We have seen a reduction in the number of self-employed people from around 5 million just before the pandemic to just over 4 million this year. That is why I believe we must back them, support them and encourage their growth. We should hold out that ladder of opportunity. Where they need help and support, we should back them as a Government and as a country.
I always come to this House to give a shameless plug for family-run and self-employed businesses in my constituency. It is also important that we buy British and support local firms in our country and in our constituencies. It is important to remember that the self-employed contribute an estimated £278 billion to the economy, and the fiscal and supply measures will make it easier for them to trade.
The ability to do business, to trade and to set up a business are so important. Lower taxes will mean that more people want to give it a go and set up a business. They are the ones taking a risk, so they are the people we should back and support. If we want to be healthy, competitive and drive growth, these are the very people who innovate and invest in new technology and do things that are edgy and somewhat different, while providing vital services to so many of our constituents and being pioneers in certain sectors. That is why keeping taxes down should be at the core of our mission in government.
As we have already aligned the class 1 and class 4 thresholds, to match the tax-free threshold on income tax, we all welcome that the burden of national insurance contributions has been reduced for the self-employed. That is why I am disappointed that there are not more Opposition Members present.
Dominic Raab (Esher and Walton) (Con)
My right hon. Friend is making a brilliant speech. I totally agree with her on the NICs paid by employees and the self-employed. In Esher and Walton, the average employee will receive a tax cut of £589 a year, benefiting 50,000 people. She is right that we are here to give a voice to the ambitions and aspirations of local people in our constituencies. Aside from the Labour Benches being totally empty, there is not a single Liberal Democrat Member here. Is it not churlish that, at this particular time, they are not doing more to support people on low and middle incomes?
Priti Patel
My right hon. Friend is right about that; his observation is spot-on. He will recall that, as I said in my opening remarks, when we have been in this Chamber to discuss important fiscal and economic measures, it has more often than not been to a full House. It is appalling that when the Government are backing working people and doing the right thing for them by putting more money in their pockets, the Opposition are all hiding. They are failing to recognise something that their constituents will benefit from. The Opposition should be giving a positive voice and supporting it, because it means more jobs and growth in every constituency across the country. As parliamentarians, we should all welcome that.
Madam Deputy Speaker (Dame Rosie Winterton)
Order. The hon. Gentleman was quite late in and did not hear the beginning of the right hon. Lady’s speech.
Priti Patel
Thank you, Madam Deputy Speaker.
As has been mentioned, the alignment with the tax-free threshold should also help with the future plans to simplify the tax system. We had a bit of a discussion on this last week, but it is important in today’s debate again to raise the prospect of simplifying the tax system—more should be done in that area—by merging income tax and national insurance together. That is why I am disappointed that more Opposition Members are not here to discuss it. Last week, we had a semi-healthy discussion about it. It is out of the scope of this Bill to table an amendment to bring those two taxes together, but I urge those on the Treasury Bench—I would also be happy to work with other colleagues on this—to consider taking that up in advance of the spring Budget. Much more can be done here. Such a move would simplify taxes for the entrepreneurs and self-employed even further. As we know, when we come to the end of the tax year they are constantly having to do all sorts of things to satisfy His Majesty’s Revenue and Customs.
In 2012, I asked the Treasury a written question on integrating those taxes, and the then Exchequer Secretary replied by stating:
“Since Budget 2011, the Government have engaged extensively with stakeholders to develop options for operational integration of Income Tax and National Insurance Contributions. As many stakeholders have recognised, this is a complex issue with potentially significant implications for employers’ payroll operations. The Government will provide an update on this work later in the autumn. As we have already made clear, this is a long-term reform on which the Government will proceed carefully.”
That was a long time ago—it was 11 years ago. Although this is a complex issue, I maintain that such a move would help to simplify the tax system. I know that the Treasury Committee has looked at this area, and my hon. Friend the Member for West Worcestershire (Harriett Baldwin) touched on it today. Such a move would help to make payroll much easier for businesses, and allow them to co-ordinate income and revenue in a much more straightforward way.
Although this next issue may not be directly within the Bill’s scope, it does relate to NICs. I would therefore like to take the opportunity to restate for Treasury Ministers the position on fiscal drag. The OBR forecasts show that a freezing of the NICs thresholds and the income tax thresholds will, relative to consumer prices index inflation, and after taking into account the tax cuts here, bring in an estimated £27 billion in the next fiscal year, 2024-25, with this rising to nearly £45 billion more for the Exchequer in 2028-29. The OBR is clear on that. Ministers know my views: as we go into spring next year, and as the economy grows and more revenues come in, I urge them to look at this area all over again.
This Bill is welcome. It is a positive step in the right direction, along with the entire autumn statement. I commend my colleagues for the work they have done on it. The speed at which the Government are acting to bring forward the benefits of the NI changes and get them into pay packets as early as possible is right; it is commendable and should be supported, as I hope it will be by all colleagues in the House. The Government must continue to look at further steps. We want more economic growth. We are pioneers when it comes to innovation and small business. We need to find other ways to lower taxes so that people can keep more of their earnings and, importantly, we ensure that our economy is match-fit for the future so that it continues to grow.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
Before I start, I want to say that we have heard during the debate that former Labour Chancellor Alistair Darling has died at the age of 70. I am sure Members will agree, no matter which side of the House they sit on, that he was a man who cared deeply about people across the country, and that our thoughts are with him and his family today.
The Government may want our constituents to believe that they are easing the burden on their pay packets, but the reality is that households have not given the state this much of their earnings since the 1940s. Despite the warm words that we have heard today on tax cuts, households are now paying £4,000 more a year than they did under the previous Labour Government. This is a crippling tax burden for those struggling to make ends meet through the cost of living crisis. Despite today’s commitment to reduce NI, as a result of the Tories’ decisions on personal taxation, working people are left facing an average rise of £1,200 since 2010. So although Labour supports the measures put forward today to lighten the load that NICs are placing on our constituents, we should see this announcement for what it is: a cynical attempt to draw voters’ attention away from the fact that, under this Government, their living standards are going down and taxes are going up, while their wages continue to stagnate.
As the British people already knew, the promises made today cannot compensate for the damage that has been done. The measures announced today are equivalent to handing back £1 for every £8 of the Conservatives’ tax rises since 2019. The freeze in the personal allowance threshold means that a couple on an average wage will still be a staggering £350 worse off per year, regardless of cuts to personal taxation. The wider freezing of current thresholds has confirmed that an additional 4 million of the poorest in society will now pay income tax by 2029.
The scorecards for last week’s autumn statement are now in, and our leading independent economists do not seem that impressed. The OBR has confirmed, following the Chancellor’s announcement, that real household disposable incomes will drop by 7% next year. As my hon. Friend the Member for Ealing North (James Murray) noted, the head of the Institute for Fiscal Studies has also given a damning verdict, stating that the NICs reductions that we have been debating today “pale into insignificance” compared with the threshold freezes announced by the Chancellor. According to the latest International Monetary Fund forecast, the UK will have the slowest growth in the G7 next year. The Bank of England has confirmed that there will likely be zero growth in the economy until 2025. Those are not figures that the Government should be proud of.
If that economic backdrop were not bad enough, our constituents are also left worrying about how to pay for their mortgage and avoid having to sell the family home due to the reckless actions of this Government. Working families will see an average increase of £220 a month in mortgage costs because of the Tory mortgage bombshell, and 1.5 million households are also set to suffer as they desperately try to re-fix their mortgage deals next year. The Chancellor and other Conservative Members may want us to believe that the economy has turned a corner and that the cost of living crisis is over, but millions of people are still struggling to make ends meet. So of course we welcome the tax cut being debated today, but it is a drop in the ocean for working families who are still bearing the brunt of this Government’s economic decisions.
Despite the desperate smoke and mirrors we have seen from the Chancellor, it is now clear that this Government do not know how to find the solutions to address the fundamental challenges facing this country right now—all the challenges that our constituents are facing day in, day out. After 13 years of failure, it is time that the Government got out of the way and let Labour deliver its plan for the economy and how to grow it again, get wages rising again and get Britain its future back. For all the warm words that we have heard today, if the Conservatives sincerely believe in their policies, they should ask the general public and call a general election as soon as possible.
The Financial Secretary to the Treasury (Nigel Huddleston)
On behalf of the Government, I join the hon. Member for Hampstead and Kilburn (Tulip Siddiq) and the whole House in expressing our deepest sympathies to the family and friends of Alistair Darling. I know he had many personal friends in the House who knew him very well indeed. I never had the pleasure of interacting with him here, but what an incredibly calm and dignified gentleman he was. Perhaps that is something we can all reflect on.
Although the debate was somewhat one-sided, as most contributions came from the Government Benches, I thank all hon. Members for their contributions. This important Bill delivers tax cuts and rewards and incentivises work, while growing the economy in a sustainable way. I will respond to many of the points raised.
The hon. Member for Strangford (Jim Shannon) rightly pointed out the importance of looking after the lowest paid and having a fair tax system, which we are delivering on. Over the last 13 years, we have lifted hundreds of thousands of families out of poverty, and we have a progressive tax system where the top 1% of taxpayers pay 28% of all income tax.
My right hon. Friend the Member for Vale of Glamorgan (Alun Cairns) and my hon. Friend the Member for Gloucester (Richard Graham) highlighted the context in which the autumn statement was delivered and recognised the fact that we have faced not one but two global crises: the pandemic and the cost of living challenges. Those challenges are not unique to the United Kingdom and, despite the myths peddled by the Opposition, whoever was in Government would have faced those challenges. We do not remember the Opposition arguing against any of the intervention or support measures at the time—it is as if they have completely forgotten about that. Not recognising the context and the global circumstances speaks volumes about their inability to run the economy. We operate not in a vacuum but in a global system.
My hon. Friend the Member for Gloucester went on to highlight the remarkable progress made over the last 13 years, particularly in areas such as tax thresholds. Under Labour, the income tax threshold was £6,475, whereas it is now £12,570, and the NICs threshold was £5,715, whereas it is now £12,570. That is incredible progress. Together with the increases in the national living wage, that means people on the national living wage working full time are 30% better off in real terms than they would have been under Labour. That is a remarkable achievement and shows, despite the myths the Opposition peddle, that we look after the lowest paid in society. That will always be a priority of this Government.
My hon. Friend showed, yet again, his incredible insight, knowledge and commitment to his constituency by setting out a range of areas in which his constituents have benefited over the last 13 years, including by highlighting the importance of skills and apprenticeships. I could not agree with him more.
Rehman Chishti
The Minister is talking about apprenticeships, opportunities and skills, and in Gillingham and Rainham, we have seen over 8,000 apprenticeships. Does he agree that the concept of the Bill and the autumn statement is that if people work hard and do the right thing, they keep more of the money they earn? If they work hard and then retire, they get dignity through the pension triple lock—I know my residents from Darland, who are in the Gallery, very much appreciate that. If it were left to the Labour party, there would be more borrowing, spending and debt. We saw what happened before and we do not want to go back to that.
Nigel Huddleston
I could not agree with my hon. Friend more. He has given me the opportunity to leap swathes of my speech, because he has put those important points incredibly well.
My hon. Friend the Member for West Worcestershire (Harriett Baldwin), who is my constituency neighbour and the Chair of the Treasury Committee, highlighted the importance of the autumn statement as a turning point, as articulated by the Chancellor, and the all-important supply-side measures in it that will help spur on business, create employment and generate incremental economic activity. As a result of the spring Budget and the autumn statement, the OBR has said that the economy is likely to be 0.5% larger. When we are talking about an economy of over £2 trillion, that is a huge incremental value to the UK economy.
Unfortunately, the spokesperson for the SNP, the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), failed to recognise that we have addressed the cost of living to the tune of £100 billion in support. He also forgot that in the autumn statement we had an increase not only in the living wage but in benefits, aligned with inflation; in pensions; and in the local housing allowance rate, to the 30th percentile. That means 1.6 million families will be better off, gaining an average of £800 in support. It is not true to say that there were no cost of living support measures in the autumn statement.
My hon. Friend the Member for Ruislip, Northwood and Pinner (David Simmonds) recognised the considerable impact of those measures and the fact that they make a meaningful difference to his constituents. He raised issues about visas and students, which I am happy to discuss with him further.
As always, my right hon. Friend the Member for Witham (Priti Patel) articulated core Conservative values incredibly well. The autumn statement recognised the importance of spending every penny of taxpayers’ money incredibly carefully and responsibly, as well as ensuring that we are there to support people through the tax system wherever we can. She is right to be passionate about small businesses and entrepreneurs. Small Business Saturday takes place this weekend and I am sure many of us will be out supporting small businesses, not only on Saturday but in the run-up to Christmas and beyond.
The Opposition spokespeople peddled so many myths and untruths, I do not know where to start. [Interruption.] We addressed many of them in previous debates, so I will not hear from them. The way they react speaks volumes.
Madam Deputy Speaker (Dame Rosie Winterton)
Order. The Minister did not mean to say “untruths”, did he?
Nigel Huddleston
I take back that comment, Madam Deputy Speaker. There were some presumed facts that require challenge, as we saw earlier in the week. At one point, the shadow Chancellor claimed that the forecasts were going to be £40 billion smaller. The shadow spokes- people know full well, because it is stated by the OBR, that economic growth by the end of the forecast period is higher than it was in the spring forecast. [Interruption.] I am sorry if I have to explain that to Opposition Members—if a number is bigger than the previous one, then that means growth and not decline. We could possibly forgive that mistake if it were not made by the people trying to become the Chancellor of the Exchequer. It is extraordinary incompetence—a £55 billion difference is not something we can easily ignore.
As my hon. Friend the Chief Secretary to the Treasury pointed out earlier, we are pleased that the Opposition are supporting the national insurance cuts, but to combine that with their commitments on spending, to the tune of £28 billion, and then claim that there will not be an increase in debt is farcical. It is not true; we know that will happen, and we are seeing the same old Labour. As Margaret Thatcher said:
“The problem with socialism is that you eventually run out of other people's money.”
That was true then, and it is true now.
I thank hon. Members for their contributions. The Bill delivers a tax cut for 29 million working people, and I am pleased that it will be getting support from across the House.
Madam Deputy Speaker (Dame Rosie Winterton)
I join the two Front Benchers in saying how deeply sad it is to hear the news that Alistair Darling has died. He was an incredibly well-respected, thoughtful and kind man who was devoted to public service. I know all Members will want us to send their condolences to his family.
Question put and agreed to.
Bill accordingly read a Second time; to stand committed to a Committee of the whole House (Order, this day).
Further proceedings on the Bill stood postponed (Order, this day).
National Insurance Contributions (Reduction in Rates) Bill: Money
King’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the National Insurance Contributions (Reduction in Rates) Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase in the sums payable under any other Act out of money so provided that is attributable to:
(a) reducing the main primary percentage for Class 1 primary national insurance contributions to 10% (and reducing the percentage specified in regulation 131 of the Social Security Contributions Regulations 2001 to 3.85%),
(b) reducing the main Class 4 percentage for Class 4 national insurance contributions to 8% from tax year 2024-25, and
(c) removing the requirement to pay Class 2 national insurance contributions from that tax year.—(Mark Jenkinson.)
Question agreed to.
National Insurance Contributions (Reduction in Rates) Bill
Thursday 30th November 2023
(11 months, 3 weeks ago)
Commons ChamberRead Full debate National Insurance Contributions (Reduction in Rates) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 30 November 2023 - (30 Nov 2023)
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
I remind Members that, in Committee, Members should not address the Chair as Deputy Speaker. Please use our names when addressing the Chair. Madam Chair, Chair, Madam Chairman or Mr Chairman are also acceptable.
Clause 1
Reduction of Class 1 main primary percentage
Question proposed, That the clause stand part of the Bill.
The First Deputy Chairman
With this it will be convenient to consider the following:
Clauses 2 to 5 stand part.
The schedule.
The Financial Secretary to the Treasury (Nigel Huddleston)
Thank you, Dame Rosie, for that timely reminder. I shall briefly outline the clauses in the Bill. Clause 1 amends the Social Security Contributions and Benefits Act 1992, which applies to Great Britain, and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 to reduce the main primary percentage of class 1 national insurance contributions paid by employees from 12% to 10%. That is a tax cut worth an average of around £450 per annum for employees. Clause 2 amends the Social Security Contributions and Benefits Act 1992, which applies to Great Britain, and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 to reduce the main class 4 NICs percentage paid by the self-employed from 9% to 8%. That is a tax cut worth an average of around £350 per annum for the self-employed.
Clause 3 amends the 1992 Acts that apply to Great Britain and to Northern Ireland to remove the obligation on persons to pay class 2 obligations when their earnings exceed the lower profit threshold of £12,570 per annum. The small profits threshold is retained, with the result that self-employed persons with profits from a trade, profession or vocation above that level will be treated as having paid class 2 NICs and will continue to gain entitlement to contributory benefits.
Clause 4 introduces the schedule, containing transitional and consequential provisions. The schedule to the Bill includes changes that are consequential on clauses 1 to 3 of the Bill. The principal changes are the introduction of a blended rate of primary class 1 national insurance contributions for directors for the 2022-23 tax year and consequential repeals arising from clause 3 that removes the requirement to pay class 2 NICs. Finally, clause 5 gives the short title as the National Insurance Contributions (Reduction in Rates) Act 2023.
James Murray (Ealing North) (Lab/Co-op)
As we made it clear on Second Reading, we will be supporting the measures that it includes, I thank the Minister for setting out the details of its clauses. As we heard, clauses 2 to 5 and the schedule to the Bill implement a reduction in the class 4 rate, a removal of the requirement to pay class 2 contributions and various transitional and consequential provisions.
I wish to ask the Minister some questions about how the measures in clause 1 will operate and what their overall impact will be. May I put it on record that, as ever, I am grateful to the Chartered Institute of Taxation for sharing its views with us on the clauses in this Bill?
Clause 1 makes it clear that the Bill’s measures will apply from 6 January 2024. Of course, we want people to benefit from these changes as quickly as possible given the pressures that families across Britain are facing right now. We recognise though that with the Government having left this policy change until late November to announce, there is not much time left for payroll software to get ready for 6 January. I would be grateful if the Minister could confirm whether HMRC accepts that some employers’ payroll software will not be ready in time for 6 January. If so, how many employers does he anticipate being affected? In such cases, employers would have to pass on the benefit of any changes to employees in subsequent months. I would be grateful if the Minister could confirm how many employees he expects will be affected by this delay, and how long he expects them to have to wait to receive the delayed benefits.
Furthermore, we understand that many operators in the retail sector have a moratorium on releasing new software updates in the November to January period, given what a busy time that is for them. I would be grateful if the Minister could confirm whether he is aware of that. If so, what meetings has he already had with retailers to discuss this point and, if so, what has the outcome of those meetings been?
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
Before I come to my point, may I add my own condolences and those of my party to the family and friends of the former Chancellor, Alistair Darling? Clearly, we were on very different sides of the fence, particularly on independence, which was heavily contested nine years ago, but he was a towering intellect and a very important figure in Scottish public life. As I say, we pass on our condolences to his family and friends.
My question is also on the operation of clause 1. HMRC has stated to the Treasury Committee that it is unable to cope with inquiries either in writing or by phone at the moment, and that it is under severe pressure. I, too, would like to know how the clause will be given effect by 6 January, and what measures the Government are taking to ensure that that happens.
Nigel Huddleston
I thank hon. Members for their questions. I can assure them that HMRC is engaging with industry and providing relevant guidance to support it to deliver the changes on time. We expect the majority of companies to be able to do so, particularly in this era, when many of the changes can be made on various systems. The Government are confident that the majority of software developers will be able to make changes to their payroll software in time for the 6 January deadline.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 5 ordered to stand part of the Bill.
New Clause 1
Review of effects of Act
“(1) The Treasury must lay before the House of Commons on the day on which this Act is passed a report which sets out forecasts of—
(a) the changes to the amount of national insurance contributions deducted from the annual income of a full-time worker earning the national living wage as a result of the measures in this Act over the period 2023/24 to 2027/28, and
(b) a comparison with the changes to the amount of national insurance contributions deducted from the annual income of a full-time worker earning the national living wage as a result of the thresholds for payment of national insurance remaining frozen over the period 2023/24 to 2027/28, rather than rising in line with CPI.
(2) The report in subsection (1) should also set out the costs to (i) businesses, and (ii) government , of implementing the changes in this Act, and compare them to the costs of—
(a) implementing a 1.25% point increase in national insurance contributions in April 2022, and
(b) implementing the reversal of the increase in paragraph(a) in November 2022.”—(James Murray.)
This new clause would require a review of the effects of the Bill if enacted over the period 2023/24 to 2027/28, on someone earning the national living wage, compared with the effect of national insurance thresholds being frozen, and a comparison of the expected implementation costs of this Bill with those of implementing and repealing the Health and Social Care Levy Act 2021.
Brought up, and read the First time.
James Murray
I beg to move, That the clause be read a Second time.
Thank you, Dame Rosie, for the chance to address our new clause 1. Before I do so, may I ask whether the Minister would commit to writing to me with detailed responses to the questions that I raised in our debate on the previous group? We did not get them in his response just now, so perhaps he will commit to writing to me with them as soon as possible.
Our new clause would require the Government to be honest about the impact of the changes made by the Bill when considered not just in isolation but in the wider context. Subsection (1) would require the Treasury to explain how the taxpayer or someone earning the national living wage would be impacted by the combined effects of the changes in the Bill and the freezing of national insurance thresholds at their 2022-23 level over the period 2023-24 to 2027-28.
We asked for confirmation of that, because our analysis shows that a full-time worker on the national living wage will pay an estimated £70 more in national insurance next year, even with the cut in the Bill, as a result of the thresholds being frozen. What is more, the full impact of the Government’s freezing of national insurance thresholds will be that by 2027-28—again, even with the cut in the Bill—a full-time worker on the national living wage will pay £160 more a year in tax. Can the Minister confirm whether he accepts our calculation? If he does not, I assume that he will accept our new clause and publish the data; otherwise, people will rightly be left wondering what it is the Government have to hide.
Should the Government choose to accept our new clause, subsection (2) would require them to come clean on some of the implementation costs to businesses and the Government of what the Chartered Institute of Taxation described last week as the “national insurance roller-coaster” in recent years.
If the Government are not prepared to accept our new clause, perhaps the Minister will again commit to writing to me with details of the implementation costs of the changes made by the Bill, of the 1.25 percentage point increase in national insurance contributions in April 2022, and of the reversal of that increase in November 2022. If he will not, I would be grateful if he could explain why not, again to prevent people from wondering what it is the Government have to hide.
Nigel Huddleston
I hope that I can give the hon. Member some assurances. A worker on the national living wage will save £165 next year from the national insurance cut, and thanks to above-inflation increases in the NIC starting threshold since 2010, a full-time worker on the national living wage will pay £400 less in national insurance contributions next year than they otherwise would have. That includes the historical increase to the national insurance contributions starting thresholds in July 2022 by this Government—the largest ever increase to a personal tax starting threshold. The national minimum and living wage rates are set on advice from the independent Low Pay Commission. Rates for 2025-26 and beyond will be set in future years.
The cost to HMRC of implementing and reversing the health and social care levy was £5 million. The cost to implement this rate reduction is not yet known as the project to deliver the change is in delivery, though HMRC does not expect it to be significant. In answer to the hon. Gentleman’s previous question, I will be delighted to write to him.
James Murray
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Schedule agreed to.
The Deputy Speaker resumed the Chair.
Bill reported, without amendment.
Third Reading
Nigel Huddleston
I beg to move, That the Bill be now read the Third time.
This is a short and relatively straightforward Bill, but it is an important one, as it will make a meaningful difference to many households by putting money in the pockets of millions of people in every constituency in this country. I thank the Treasury officials, Clerks and everyone involved in getting the Bill to this point so speedily. I sense the enthusiasm in the House to pass it, and for us to get back to our constituencies and spread the good news. I will therefore end my comments there and commend the Bill to the House.
James Murray
As the Opposition have made clear throughout today’s proceedings and on many other occasions, we believe that taxes on working people are too high. We have long said that we want taxes on working people to come down when they can be cut in an economically and fiscally responsible way.
While we confirm our support for the Bill, we repeat our call for the Government to be honest with the British people. The Conservatives should be honest about the inescapable truth facing families across the UK: the tax burden in Britain is still on course to reach its highest level since the second world war. As a result of the Conservatives’ decisions on personal taxation in this Parliament, households will be left facing an average tax rise of £1,200. Looking across all taxes, we now know that, by the end of the decade, they will have risen by the equivalent of an astonishing £4,300 for every household in the country.
As we have set out today, a clear pattern runs through the Conservatives’ time in office: whatever they do, they keep making working people worse off. While we support the Bill, it is clear that the Conservatives are incapable of delivering what Britain truly needs: a plan to get the economy growing and make working people better off. That is what Labour is offering. In last week’s debate on the autumn statement, when discussing the general election, the Economic Secretary to the Treasury said that we should “bring it on”. On that point, we whole- heartedly agree.
Drew Hendry
As we have pointed out, the Bill does not go nearly far enough to help people facing a bitter cost of living crisis. We urge the Government, after introducing this tiny measure, to go back and consider those people who are suffering from high food costs, seeing their mortgages and rents increase, and—most tellingly, as temperatures plummet—facing a winter with higher energy bills than last year. This is a hard time for families across the nations of the UK, and in Scotland they deserve better. They should get that through the powers of independence being returned to Scotland.
Question put and agreed to.
Bill accordingly read the Third time and passed.
National Insurance Contributions (Reduction in Rates) Bill
Monday 4th December 2023
(11 months, 3 weeks ago)
Lords ChamberRead Full debate National Insurance Contributions (Reduction in Rates) Act 2023 Read Hansard Text Amendment Paper: Committee of the whole House Amendments as at 30 November 2023 - (30 Nov 2023)
National Insurance Contributions (Reduction in Rates) Bill
Tuesday 12th December 2023
(11 months, 2 weeks ago)
Lords ChamberRead Full debate National Insurance Contributions (Reduction in Rates) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 30 November 2023 - (30 Nov 2023)
Baroness Vere of Norbiton
That the Bill be now read a second time.
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, the past few years have been a somewhat unhappy lesson in living through history, be that the impact of a once-in-a-generation pandemic or the shock waves of the largest conflict in Europe since World War II. Covid and Putin’s illegal invasion of Ukraine have forced this Government to take tough decisions to protect the public purse. Thankfully, the choices we have made are paying off: inflation is falling, this year’s growth is more resilient than expected and debt is forecast to reduce. This makes it possible to pay back working people while ensuring that public money remains sound.
Thanks to this Government’s long-term plan, this Bill will slash taxes for 29 million working people. It has three measures: the reduction of the national insurance contributions—or NICs—class 1 primary main rate; the reduction of the NICs class 4 main rate; and the removal of the requirement to pay class 2 NICs. The measures all fundamentally deliver on a core priority for this Government: allowing working people to hold on to their hard-earned cash. I shall explain each of the measures in more detail.
First, the Government’s changes to the employee class 1 NICs main rate will reduce it by two percentage points to 10% on earnings between £12,570 and £50,270, from 6 January 2024. This is a change that puts working people first. For example, the average worker on £35,400 will see and feel an annual improvement of £450 to their payslip at the start of the new year. An average full-time nurse will see an annual gain of over £520. Families with two earners on the average income will be £900 better off, because this Government believe that hard work should be rewarded.
Our remaining two measures focus on NICs for the self-employed. The Chancellor highlighted the importance of the self-employed in his Autumn Statement speech, commenting that:
“These are the people who literally kept our country running during the pandemic: the plumbers who fixed our boilers in lockdowns, the delivery drivers who brought us our shopping and the farmers who kept food on our plates”.—[Official Report, Commons, 22/11/23; col. 333.]
This fantastic workforce also deserves to be recognised. Of course, to be self-employed you need to be organised, efficient and responsible, and the Government should not get in the way of that. The self-employed want to stand on their own two feet, and the Chancellor stands ready to support this with two tailored interventions. The first is a cut in the class 4 rate by one percentage point, from 9% to 8%. The second removes the requirement for the self-employed with annual profits above the income tax personal allowance to pay class 2 NICs. Those who wish to pay voluntarily will still be able to do so. Both measures will be in force from 6 April 2024.
These changes simplify the system for self-employed taxpayers, bringing it closer to the system for employees. These measures mean that a typical self-employed plumber will gain £410 a year. The Government intend to fully abolish class 2 NICs, reducing needless complexity and freeing up valuable time. Further detail about this reform will be set out next year. As a result of changes in the Bill, a self-employed person who is currently required to pay class 2 NICs every week will save at least £192 per year. Taken together with the cut to class 4 NICs, this will benefit around 2 million people. Importantly, those with profits under the small profits threshold of £6,725, and others who pay class 2 voluntarily to get access to contributory benefits, including the state pension, will continue to be able to do so. No low-income, self-employed people who pay voluntary NICs will be asked to pay more.
The Government are committed to tax cuts that reward and incentivise work, and which grow the economy in a sustainable way. The tax cuts in this Bill will be worth over £9 billion a year—the largest ever cut to employee and self-employed national insurance. These measures will give 29 million working people an average yearly saving of over £450. That is fair and that is right. Nor will these measures benefit only those already in work. According to the Office for Budget Responsibility, these reductions in tax will lead to an additional 28,000 people entering work, because ensuring that work pays will encourage more people to seek employment. Be in no doubt that we are doing the right thing by standing with the hard-working people of this country and ensuring that their contributions are recognised and fairly rewarded.
Lord Sikka (Lab)
My Lords, in the era of never-ending real wage cuts, high inflation, high taxes, high interest rates and the cost of living crisis, any help for hard-pressed households is welcome, but that cannot hide the Government’s sleight of hand. Let us remember that last year the Government were prepared to increase the national insurance contribution rate for employees from 12% to 13.25%. They did not really feel that there was any need to help the poorest then. Now that they are doing incredibly badly in the opinion polls, some bribes are obviously coming out and this 2p cut is just one example.
Of course, people will not be fooled by the bribes; they will remember what the Government have done to them. Since March 2021, the income tax personal allowance and thresholds have been frozen and will remain frozen until 2027-28 or maybe even beyond. In 2022, the UK had a tax-to-GDP ratio of 35.3% compared to the OECD average of 34%, and it is going to get worse because of fiscal drag: millions more people are going to be paying income tax and national insurance contributions because of that.
Since March 2022, the threshold for national insurance contributions has also been frozen. Due to the impact of inflation on VAT, higher duties, income tax and national insurance, the additional tax yield is expected to be around £57 billion in 2027-28. This shows that the Government’s claim that they are handing things back to the people is really a work of fiction. The cut in the main rate of national insurance for employees from 12% to 10% and changes in rates for the self-employed will hand back, according to the OBR, £2.2 billion in 2023-24 and £9.4 billion in 2024-25, rising to £10 billion in £2028-29. That is a total of nearly £50 billion.
What are the Government going to collect through national insurance contributions for the same period? According to the OBR, despite the cut in the rate, they will collect £62 billion—£12 billion more than the cut they are handing back. That is all because of fiscal drag. Can the Minister explain why the cut in the national insurance contribution rate does not fully wipe out the increase in revenues from the contributions? Whichever way anyone looks at it, this cut is part of an impression management exercise. It is a small part of the additional taxes that the Government have already collected and will continue to collect.
In line with their usual practice, the Government are handing a lower amount of the national insurance cut to the less well-off and more to the rich. The annual median wage for an employee is £29,669, so a median-wage earner will get a cut of just £341 a year. Those earning more will collect far more. The median earners will still pay a higher proportion of their income in national insurance contributions than wealthier individuals: the Resolution Foundation concluded that the Budget favoured the richest 20% of earners. It will be interesting to see whether the Minister wants to deny that.
As people in London and the south-east of England tend to have higher wages, they will collect a bigger national insurance cut compared to the rest of the country. Due to the Government’s failure to address regional disparities, inequalities will now be widened. In the last tax year, 21 million adults had a taxable income of less than £12,570 and, as a result, were not liable to pay any national insurance contributions. Due to fiscal drag, that number is now around 19 million. The national insurance cut delivers zero benefit to 19 million adults, the majority of whom are women. This includes families who have been robbed of nearly £3,000 a year by the Government’s two-child benefit cap. As usual, the poorest are invisible to the Government. Can the Minister please explain the impact of the national insurance cut on regional and gender inequalities?
The national insurance cut provides little comfort to most families. Savings for median earners are immediately wiped out by the higher price of food, energy, transport, interest rates, mortgage payments, rents and council tax—there is no benefit. The Resolution Foundation estimates that, due to sluggish economic growth, persistent inflation and higher taxes, the average household will be £1,900 a year poorer by January 2025, compared to December 2019—that is a real legacy of the Government. There is no redistribution or levelling up; nothing in the Bill matches that.
The Government could have helped the 19 million adults receiving zero benefit from the national insurance cut by abolishing VAT on domestic fuel, or by cutting the standard rate of VAT, but they chose not to do that. The cost could have been met by clawing back the benefit of the 2% national insurance cut from the richest individuals—for example, by making the national insurance contribution rate more progressive for individuals on higher incomes. Patriotic Millionaires have urged the Government to tax them more, but the Government do not even want to do what the rich are urging them to—possibly because those rich people are not in the Conservative Party.
In case the Minister is tempted to say that the Government have helped the poor by increasing benefits, I remind her that the real value of benefits has fallen since 2010. The Government could have addressed the anomalies in the national insurance contribution laws. For example, there is no economic or moral reason for exempting capital gains, dividends and investment income from national insurance payments. The individuals enjoying exemptions use the National Health Service and social care system, but do not pay anything towards them. If a rich person with capital gains has an accident, a taxpayer-funded ambulance and the NHS would come to the rescue, so why do they not pay national insurance contributions? What is the moral and economic justification? The Government could have raised billions of pounds by eliminating that anomaly.
The Government could also have hit the tax avoidance industry. I know many accountants who are busy converting incomes to capital gains so that certain individuals not only pay tax at a lower rate but dodge national insurance contributions. The Government have done absolutely nothing to deal with that. Of course, getting rid of the tax avoidance industry helps with economic efficiency as well, but again the Government are oblivious to that. Can the Minister explain why investment income in the hands of comparatively few people continues to be exempt from national insurance payments? What is the justification for this? If she wishes, I would be delighted to participate in any debate that she might wish to call on this.
Baroness Primarolo (Lab)
My Lords, I will make a short intervention in this debate to ask the Minister a few questions about the allocation from the National Insurance Fund to the NHS following the introductions of the measures in the Bill.
The Institute for Fiscal Studies estimates that 19% of the National Insurance Fund is paid directly to the NHS. My first question to the Minister is, will she confirm that that percentage is correct? When Governments quote figures going to the NHS, they always talk in cash terms, but when we see a reduction in funding for the National Insurance Fund, it is good to know exactly what we are talking about. Will the Minister confirm the percentage allocated to the National Health Service from the National Insurance Fund?
Secondly, will the Minister assure your Lordships’ House that the cash value currently paid in funding to the NHS from the National Insurance Fund will not be reduced as a result of these measures? Would she be good enough, after this debate, to provide the forecast figures for both the percentage and the cash terms of the money paid from the National Insurance Fund to the NHS? Should there be any shortfall, will she give an undertaking on behalf of the Government that that reduction—that loss of funding—will be made good by the Government from general taxation: that it will be earmarked not as extra funding but as replacement funding, should there be any reduction as a result of the measures in the Bill?
I absolutely appreciate that national insurance Bills are incredibly complicated, having dealt with them in the past in another place, so if the Minister does not have that information at her fingertips, which I would entirely understand, I would be more than happy for her to write to me and the relevant spokespersons in the House with those figures. While reducing national insurance has the implications that the Minister has rightly identified, it also has a potential downside, and we need to know what that is. Will the funding of the National Health Service be protected?
Baroness Kramer (LD)
My Lords, I start by thanking the noble Baroness, Lady Primarolo, because the point she raised is one I think we did not raise in our discussion of the Autumn Statement and perhaps did not have the front of our minds as this Bill went through. The link between national insurance contributions and funding of the NHS is critical. In thinking about it, I am astonished that an impact statement did not discuss those consequences, and I do not remember them being raised by the OBR or in other discussion papers. The issue the noble Baroness has raised is critical, and I thank her very much for asking that we all share in the Minister’s reply. Again, I have sympathy for the Minister: I doubt very much whether she has these numbers at her fingertips.
The Liberal Democrat Benches are obviously not opposing the Bill, but I would like to set a bit of context. I shall refer to the work of the Resolution Foundation, quoted extensively by the noble Lord, Lord Sikka, which last week published the third and final phase of its report Ending Stagnation and provided us with updated numbers that graphically expose the price that UK households are paying for that economic stagnation. If real pay growth had continued to follow the trend from before the 2008 financial crisis, the average British worker would be £10,700 a year better off—a really significant figure. There are almost 9 million younger Brits who have never worked in an economy that has sustained rising wages. As a consequence of that impact on wages, the UK is now Europe’s most unequal large economy. That used not to be true. Our poorer families are now a staggering 27% worse off than their French and German counterparts. That is a measure we rarely look at, but it is critical. Obviously, when ordinary families are trying to cope with stagnant wages and a cost of living crisis, it is particularly unacceptable for a Government to dress up a rise in taxes as tax cutting.
By 2028-29, the freezing of the national income tax thresholds adds £45 billion a year—not over that time, but a year—to taxpayers’ annual tax bills, offset by the rate cuts we are discussing today only to the tune of £10 billion annually. If this Government were a private company, I suspect that trading standards would have a very dim view of an entity that presented an annual increase in charges of £35 billion as a cut. The public will be none too impressed when they find out the hard way, as I said in the Autumn Statement debate, that a typical earner will pay £400 more next year in tax and NICs after these measures, and a middle-income earner will pay £1,200 more. Like the noble Lord, Lord Sikka, I used that debate to point out the inequality of the distribution of the rate cut, with five times as much going to the top fifth of earners, compared with the bottom fifth. That distribution is a choice. Interestingly, the noble Lord, Lord Dobbs—who is not in his place today, perfectly understandably—described himself in that debate as a struggling self-employed person. When the Government decided that they needed to look most closely at and give most support to the top fifth of earners, perhaps they had the noble Lord in mind.
I note that the NIC rate cuts offer some relief to self-employed workers. This is a group that particularly lost out during Covid. The sector is, frankly, also suffering from HMRC’s harsh and shambolic loan charge regime, which is doing little to stop promoters mis-selling tax products, but is continuing to drive to breakdown and even suicide individuals who got caught up in the loan charge because they followed advice in good faith. To date, as the Minister will know, HMRC has referred 10 suicides to the IOPC, and three more are contested.
We have to change the way we deal with the self-employed sector. I very much hope that the Government will—as they often promise but never actually do—follow through on the 2017 Taylor review, which called for and fashioned principles for the update of working relationships, taking them from the past into today’s world of business. In that, there is new opportunity for the self-employed.
Lord Livermore (Lab)
My Lords, the Labour Party supports this Bill, and we welcome the cuts in national insurance that it contains. We have long argued that taxes on working people are too high, and that we want them to be lower.
We have been consistent in this view. We opposed the manifesto-breaking increase in national insurance that the Prime Minister tried to implement last year, when he was Chancellor. When he introduced his 1.25% increase in national insurance contributions for employees and employers—his so-called health and social care levy—we described it at the time as
“a new tax on working people and their jobs”.—[Official Report, Commons, 14/9/21; col 845.]
When it became clear to him that the Labour Party was correct to say that this was the worst possible tax rise at the worst possible time, he attempted a partial U-turn, and then, eventually, the increase in national insurance was rightly reversed.
Unfortunately for working people, this reprieve to their living standards was short-lived, as it was quickly followed by the Government’s disastrous mini-Budget, which crashed the economy and sent interest rates and mortgage rates soaring. Interest rates have now risen 14 times to a 15-year high of 5.25%, while the average two-year fixed-rate mortgage at one point rose from 2.6% to over 6%. As a result, families re-mortgaging since July have seen their mortgage payments rise by an average of £220 per month. Some 1.6 million families have seen their mortgage deals end this year. Next year, a further 1.5 million families will face a similar fate.
According to the Resolution Foundation, this Parliament is now on course to be the first ever in which real household incomes fall. We are now seeing the biggest ever fall in living standards since records began. The cut in national insurance that the Bill contains is not the full story on tax, nor does it represent the reality that many British people now face.
Despite what the Government would like us to believe, and in contrast to the claim the Minister made in her opening speech that the Government are paying back working people, the reality—as the Institute for Fiscal Studies, the Resolution Foundation and the House of Commons Library have all made clear—is that taxes are going up, not down. As the noble Baroness, Lady Kramer, implied, it is important that we are all honest about that point. The truth is that the tax burden will now rise every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever. Indeed, new data published just this week by the OECD showed that the UK’s tax burden has now increased to its highest rate ever on record.
Prior to the Autumn Statement that announced the cut in national insurance we are debating today, the Government had already put in place 25 tax rises amounting to £90 billion and the equivalent of a 10p increase in national insurance. This 2p cut does not remotely compensate for the tax increases already announced. As my noble friend Lord Sikka pointed out, the Resolution Foundation has calculated that, even after this cut to national insurance, households will still be £1,900 worse off.
These cuts to personal taxation are more than eclipsed by increases in taxes that the Government have previously announced. For example, the freezing of national insurance and income tax thresholds for six years is now expected to cost taxpayers £45 billion. This fiscal drag means that nearly 4 million more people will pay income tax and 3 million more people will pay the higher rate. The combined effect is an average tax rise of £1,200 per household.
According to Paul Johnson from the Institute for Fiscal Studies, the cut in national insurance rates
“pales into … insignificance alongside the … increase in personal taxes created by the six year freeze in allowances and thresholds”.
The IFS has calculated that, extraordinarily, almost every single person in the UK liable for income tax or national insurance will now be paying higher taxes overall. As a result, the tax burden will now reach 37.7% of GDP by the end of the forecast period, an increase equivalent to an astonishing £4,300 of additional tax for every household in the country. This is a tax- raising Government.
The actual lived experience of the British people is not that their taxes are going down; it is that their taxes are going up. The reality that working people face is not that they will be better off; it is that they will be worse off. We should all be honest about that fact. We should be honest, too, about the reasons why: taxes are so high in this country because growth is so low. The UK’s growth record over the past 13 years has been poor by international standards. We have languished in the bottom third of OECD countries, with 27 OECD economies growing faster than us since 2010. Over the next two years, no fewer than 177 countries are forecast by the IMF to grow faster than the UK. For this year and next, we will be 35th out of 38 OECD countries for growth.
The latest outturn figures for GDP show that there was no growth at all in the third quarter of this year. In the Autumn Statement, the Office for Budget Responsibility downgraded its forecast for growth in each of the next three years, so that growth in 2024 is now forecast to be just 0.7%—more than half the 1.8% predicted as recently as the Budget in March. The Bank of England’s view is that even that is too optimistic; its latest forecast shows no growth at all in any of the next three years—no growth this year, next year or in 2025.
That is the economic reality faced by the British people—the reality of 13 years of failure. Growth and living standards are down; mortgage rates and taxes are up. The tax burden will now rise every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever, with an average tax rise of £1,200 per household. While the cut to national insurance is welcome, the British people will conclude that it is simply too little, too late.
Baroness Vere of Norbiton (Con)
My Lords, I am enormously grateful to all noble Lords who have taken part in this relatively short debate. As your Lordships might expect, I did not agree with all the points, statistics and bits of data that were shared, and I will obviously have my own, but I will try to stick within my wheelhouse and stay within the realms of national insurance today.
However, I want to comment on the general thrust from the noble Lords, Lord Sikka and Lord Livermore, and the noble Baroness, Lady Kramer. It was just extraordinary. I feel really pleased that everybody has now come round to the Conservatives’ way of thinking that taxes are too high, and we need to think about reducing them and we must do so responsibly. I am grateful for that vindication of the Conservatives’ policy when it comes to personal taxes. We agree that they are too high, but of course many of the tax rises that are forecast to come into place—I absolutely accept that taxes will go up, although this national insurance cut reduces them—are already announced and baked into the figures.
I did not hear many noble Lords recognising the reasons why we needed to put taxes up—
Baroness Kramer (LD)
I was very tactful not to point out that the Minister, as with all Conservatives— I think they have probably signed an oath somewhere—did not mention Brexit and the economic damage it has done, which is a fundamental part of all this. In giving the history of the things that have gone wrong, it is best not to lecture the House when the Government are deliberately leaving out one of the key culprits.
Baroness Vere of Norbiton (Con)
My Lords, I definitely was not lecturing the House—far be it from me to do so. However, it would obviously not be a debate without a Liberal Democrat mentioning Brexit.
I am going to move on from that general observation that I am pleased that there is this political groundswell now back behind the Conservatives for lower taxes, which is excellent—
Lord Sikka (Lab)
My Lords, I apologise for intervening, but just to back up the Liberal Democrats, it is not just Brexit. As the Minister will know, since 2010, between £450 billion and £1,500 billion of taxes have not been collected due to avoidance, evasion, fraud and error. If only a fraction of that had been collected, the Minister can imagine how the whole country would have been transformed. If the Minister is looking to expand the debate, here is a point to talk about.
Baroness Vere of Norbiton (Con)
The Minister is definitely not looking to expand the debate but is trying to make progress. I hear what the noble Lord says, and if he has read the Autumn Statement, which I am sure he has, he will have seen the announcements made in it about tax avoidance.
Moving on to comments made by noble Lords, I think it is probably not worth rehearsing and rehashing the elements around fiscal drag. Again, I want to put some numbers on record, because there is an opportunity to do so. Thanks to the cut in employee national insurance contributions announced at the Autumn Statement and to above-average increases to starting thresholds since 2010, an average worker in 2024-25 will pay more than £1,000 less in personal taxes than they would otherwise have done. That statement has attracted some interest, and I reassure noble Lords that the calculations underlying this statistic are based on public information, including a published estimate of average earnings. They are robust and could be replicated by an external analyst. This goes back to what I was trying to say about data. Lots of people will do calculations on different bases, but at the end of the day, from the Government’s perspective, we want taxes to come down—this is a start—but of course we will do it only in a responsible manner. However, personal taxes for somebody on an average salary of £35,400 have come down since 2010.
The noble Lord, Lord Sikka, asked about distribution analysis, and the national insurance cuts will of course benefit everybody who pays national insurance. That includes 2.4 million people in Scotland, 1.2 million in Wales, 800,000 in Northern Ireland, et cetera. The latest published HMRC data for 2021 shows that the largest proportion of income tax payers reside in the south-east, followed by London. It will be the case when one has a tax cut that those who pay the largest amount, and the numbers of people who pay tax if they are located in certain areas, are therefore going to see the largest reductions.
However, we have also looked at the impact on women—again, an issue raised by the noble Lord, Lord Sikka. NIC charges apply regardless of personal circumstances or protected characteristics. The equalities impact will reflect the composition of the NIC-paying population. Of course, that feeds into whether we would like women to be paid more. Of course we would. That is why rewarding work will see 28,000 people come into jobs—and I very much hope that they will be well- paid jobs and will be taken up by women.
The noble Lord, Lord Sikka, talked about better-off households. Distribution analysis published at the Autumn Statement shows that a typical household at any income level will see a net benefit in 2023-24 and 2024-25, following government decisions made from the Autumn Statement 2022 onwards. Low-income households will see the largest benefit as a percentage of income. Furthermore, looking across all tax, welfare and spending decisions since the 2019 spending round, the impact of government action continues to be progressive, with the poorest households receiving the largest benefit as a percentage of income in 2024-25. I know that the noble Lord feels that we do not focus on those on the lowest incomes, but he is not correct in that regard.
Baroness Kramer (LD)
You cannot eat a percentage of income. Going out and buying a loaf of bread costs you just the same whether you are a high earner or a low earner. So, using the percentage of income comparator to understand the cost of living pressures that people are living under and who is getting the most benefit is not the appropriate measure. If you use the cash number, you realise how much purchasing power arrives for people at the bottom end and how much more purchasing power arrives for people at the top end. That is the appropriate benchmark.
Baroness Vere of Norbiton (Con)
I absolutely accept that the noble Baroness is right to say that you can look at it in a different fashion but, in terms of whether what the Government are doing is progressive, it is fair to say that people on lower incomes are benefiting, as a proportion, to a greater degree. Of course, the Government have intervened when it comes to cost of living. That has been cash and that is not about percentage of income. It is all around our energy price guarantee, increases to the national living wage and looking at the uprating of benefits, which will rise by much more than inflation is forecast to be next year. So there are lots of different factors to take into account and sometimes one can be quite blunt when dealing with a tax cut that is, frankly, going to benefit 29 million people.
The noble Lord, Lord Sikka, asked why national insurance contributions do not apply on unearned income. National insurance contributions are part of the UK social security system, which is based on a long-standing contributory principle centred on paid employment and self-employment. ‘Twas ever thus. Of course, a future Government may make substantial changes to that which would again increase the tax burden—but this Government are content that we will maintain the contributory principle.
Lord Sikka (Lab)
I thank the Minister for giving way. I hear what she says, but people who have what the Minister calls unearned income—some people may call it “rentier income”, which is perhaps a clearer expression—can still use the National Health Service. If there was an accident, an ambulance would arrive, even though they had not paid any national insurance. If the need arises, they can still get social care. So why are they not required to pay? They simply are free riders. If they paid, the Government could have made an even bigger cut in national insurance.
Baroness Vere of Norbiton (Con)
This potentially leads on to the next question from the noble Baroness, Lady Primarolo, about the percentage of mixed receipts that goes to the NHS. It is about 20%; 80% comes from elsewhere. Those people who pay taxes on their unearned income will, of course, pay into the general fund.
Lord Sikka (Lab)
As the Minister knows, the taxes levied on dividends and capital gains are lower than the taxes on wages. If she wants her point to stand, can she explain why capital gains and dividends are taxed at a lower rate than wages? What is the justification for that?
Baroness Vere of Norbiton (Con)
I suspect that we are now moving into an area of debate where is not appropriate to go today, because there is business still to come in the House; I know that my noble friend is desperately waiting to get up.
I go back to the point made by the noble Baroness, Lady Primarolo. Obviously, the balance of the national insurance fund is monitored closely. The most recent report from the Government Actuary’s Department—GAD—forecast that the fund will be able to self-finance for at least the next five years. But, of course, the Treasury has the ability to top up the NIF from the consolidated fund when needed. Indeed, this has been done in the past—it was routinely done in the 1990s—so it is not right to say that the cut in NICs puts any pressure at all on any payment to the NHS or otherwise; that is set independently from the national insurance fund.
Baroness Primarolo (Lab)
I do not wish to detain the House but, frankly, that is not the question I was asking. I was asking the Minister about something that she has confirmed: 20% of the 100% that the NHS gets comes from the national insurance fund and it is equated to a cash value. If there is less in the national insurance fund, less cash goes to the NHS. The simple question I asked was not about whether the NHS will still get the 100%; it was about whether the 80% will become 81% or 82%. It is quite a techy point and I do not want to delay the House, but it makes quite a difference to the cash that the NHS receives. I was just asking the Minister to confirm and clarify that; I am not seeking to score any points off her.
Baroness Vere of Norbiton (Con)
I am grateful to be able to clarify that it is not set on a percentage basis at all. The amount of money that goes to the NHS is set in actual terms; for example, it is £160 billion in 2023-24 and will be £162.5 billion in 2024-25. It has nothing to do with the percentage of anything.
I will write to the noble Baroness, Lady Kramer, on the Taylor review and everything that she raised. That would probably be the most appropriate thing to do.
For the time being, I am grateful to all noble Lords who have taken part in the debate and I beg to move.
Lord Evans of Rainow (Con)
My Lords, now that we have concluded Second Reading, Members have a further hour to table amendments to this Bill. Members wishing to table amendments should contact the Public Bill Office. We will resume proceedings on the Bill at the point shown on the annunciator after the Statement and the debate on the overseas electors regulations.
National Insurance Contributions (Reduction in Rates) Bill
Tuesday 12th December 2023
(11 months, 2 weeks ago)
Lords ChamberRead Full debate National Insurance Contributions (Reduction in Rates) Act 2023 Read Hansard Text Amendment Paper: Committee of the whole House Amendments as at 30 November 2023 - (30 Nov 2023)
The Deputy Chairman of Committees (Baroness Pitkeathley) (Lab)
My Lords, I understand that no amendments have been set down to the Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. With the agreement of the Committee, I will now report the Bill to the House without amendment. That concludes the Committee’s proceedings; the House will now resume.
National Insurance Contributions (Reduction in Rates) Bill
Tuesday 12th December 2023
(11 months, 2 weeks ago)
Lords ChamberRead Full debate National Insurance Contributions (Reduction in Rates) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 30 November 2023 - (30 Nov 2023)
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, I am grateful to all noble Lords who have participated in the passage of the Bill. It delivers on the Government’s long-term plan to grow the economy and reform the tax system. It achieves this by cutting taxes for 29 million workers through three measures: a reduction in the main rate of employee class 1 national insurance contributions, or NICs, from 6 January 2024; a reduction in the main rate of self-employed class 4 NICs, from 6 April 2024; and the removal of the requirement to pay self-employed class 2 NICs, also from April 2024. Those who choose to pay class 2 voluntarily will still be able to do so. This simplifies the system for self-employed taxpayers, so that it is more closely aligned with the treatment of employees. The Government intend to fully abolish class 2 NICs, and further details about this reform will be set out next year.
Although this is a relatively small Bill, it has a big impact. It is an integral part of the Government’s long- term plan to grow the economy and reform the tax system but, most importantly, it is fair and it is right, because it stands by working people.
I would especially like to take the opportunity to thank all the Treasury officials for their enormous hard work in bringing the Bill to your Lordships’ House so quickly, such that it will deliver the benefit to workers from January 2024. I beg to move.
Baroness Kramer (LD)
My Lords, it is customary at this point to thank all those who have helped us with the Bill. The arduous task of taking it through has perhaps been one of the lighter moments of our parliamentary lives, but there was still a lot of hard work by the Bill team to prepare it. I would thank my staff, except that none of them worked on it. This is just to say a formal thank you to everyone who contributed to this process. We appreciate it.
Royal Assent
Monday 18th December 2023
(11 months, 1 week ago)
Lords ChamberRead Full debate National Insurance Contributions (Reduction in Rates) Act 2023 Read Hansard Text Amendment Paper: Committee of the whole House Amendments as at 30 November 2023 - (30 Nov 2023)