Ben Gummer (Ipswich) (Con)
I beg to move,
That leave be given to bring in a Bill to make provision for National Insurance to be known as Earnings Tax; and for connected purposes.
About 102 years ago, in this Chamber’s predecessor, David Lloyd George rose to introduce national insurance. Starting just before four o’clock in the afternoon, he began one of the most detailed and complicated of speeches given from the Treasury Bench: one that would, I imagine, have tested even the stamina of those excellent Minsters— my brother from Ipswich, the Exchequer Secretary to the Treasury, my hon. Friend the Member for South West Hertfordshire (Mr Gauke), and my brother from Suffolk, the Minister for Skills and Enterprise, my hon. Friend the Member for West Suffolk (Matthew Hancock)—who are sitting there now.
Lloyd George explained the need: the harsh conditions experienced by working people around the country, and the dangers that they faced if they fell sick or could not find work. He described the insurance systems that were provided by insurance companies, employers, friendly societies and trade unions. He measured their efficacy and worth, identifying where coverage was greatest and where it was most sparse. He then set out the solution: a national insurance fund into which workers, employers and the state would pay, to provide for medical aid for sick workers, maternity cover for workmen, their wives and women workers, benefits for limited periods of unemployment, and payments in time of sickness. The provisions would be managed through the existing private institutions, except for unemployment payments, which would be provided by the labour exchanges.
All that took the Chancellor more than two hours to describe. It was after 6 pm when he concluded:
“something like 15,000,000 of people will be insured, at any rate against the acute distress which now darkens the homes of the workmen wherever there is sickness and unemployment. I do not pretend that this is a complete remedy. Before you get a complete remedy for these social evils you will have to cut in deeper. But I think it is partly a remedy. I think it does more. It lays bare a good many of those social evils, and forces the State, as a State, to pay attention to them. It does more than that. Meantime, till the advent of a complete remedy, this scheme does alleviate an immense mass of human suffering”.—[Official Report, 4 May 1911; Vol. 25, c. 644.]
Thus was made the first substantial plantation of the welfare state.
I am giving this account because I think it important to explain why national insurance was called national insurance. There was indeed a fund, one that was intended to be in surplus within 15 years of its creation, at which point Lloyd George anticipated that additional benefits would be made available, most likely to the families and dependants of workers. Well, the fund did not work out quite like that, but the scope of the scheme was expanded as he had predicted, with a major reform by the post-war Attlee Government. Further changes in the 1970s and 1980s continued the mutation of this great piece of legislation, expanding its scope, scrapping the “stamp” and complicating the rates at which insurance was paid.
At every turn, the link between contributions and benefit, which from the beginning was not entirely true, was eroded, to the point where it now barely exists. That link will become nugatory with the introduction of universal credit and the single state pension, both considerable reforms of this coalition Government. What remains of national insurance is not really a contributions-based system, but a system of entitlement whereby a certain number of years of payment entitles the recipient to additional benefits.
Let us be straight. National insurance is now a tax. It has all the features of a tax. Money paid in this financial year in national insurance contributions is used to pay this year’s costs of pensions, health care and much else besides. The surplus in the national insurance fund is transferred to other Government spending. The more robust commentators have explained that it is not an insurance system but a giant Ponzi scheme.
That is not, however, how national insurance is universally perceived. The reaction of members of the public to news of this ten-minute rule Bill illustrates well the confusion. One person e-mailed me saying:
“we have earned our pension. It is by its very own definition entitlement paid for by a total lifetime of our contributions, not a benefit paid for by someone else’s income tax.”
But that is precisely what it is. However, the fiction of contributions persists. Someone commenting on a report in the Daily Mail said:
“I’ve paid a full stamp for 44 years and never taken out of the system now they say the insurance I’ve paid all my working life is no longer valid. If this was a business they’d be sued.”
That’s as may be and therein lies the reason why so many of Lloyd George’s successors have been reluctant to come clean about what national insurance really is. As one person on Twitter said:
“Nobody likes a ‘tax’ and to call a tax ‘insurance’ is a spin coup in itself.”
Were national insurance a much smaller tax, we would call it a stealth tax. That was certainly how the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) used it, when he increased NI contributions having promised not to increase income tax. That is the principal reason why I wish to see reform. We know the struggle we have, in this place, to improve the conversation our voters have with the people sent here to represent them. I firmly believe that, if we are clearer about the amount of money we take from people in tax—if that figure were more simply presented—and if we explain equally clearly how it is spent on their behalf, we will have done something important to reconnect voters with their democracy.
A small but important part of that is coming clean about national insurance. I propose we call it earnings tax, because it is a tax on earnings, but we could equally call it additional income tax, or employment tax. Such a change would have no impact on people’s current entitlement or on the rates at which NI is currently charged. It would, however, be an important first step in the merging of income and earnings taxes, as proposed most recently by the TaxPayers Alliance, the Institute of Directors and the Chartered Institute for Payroll and Pensions Professionals. I believe that such a merger would have far wider benefits; it would not just benefit the people those organisations represent. But that discussion is for another time. All I propose at this stage is a twofold reform: first, a simple change of name, which would cost next to nothing; and secondly, the merger of the national insurance fund into general Government funds, which would save administration costs that would far more profitably be spent elsewhere. The result would be that we would have made an important move in being clearer, simpler and more transparent about how our constituents are taxed, on what and where it is spent.
I must admit to feeling some trepidation and regret at treading on ground laid so splendidly by the Welsh wizard. His presentation had the desired effect. It made less controversial a scheme that might otherwise have been opposed, as indeed it was in any case—not least by some of the trade unions. Most importantly, it did, as he thought it would, lay
“bare a good many…social evils”
and force
“the State, as a State, to pay attention to them.”—[Official Report, 4 May 1911; Vol. 25, c. 644.]
Over a century, the state has paid attention to them. The provisions were not by any means remedies, as he had hoped, but life for the millions and generations of the least privileged and the less unfortunate is much better as a result. That is a giant achievement, but we must not let romance get in the way of honesty. National insurance is no longer what it was designed to be. We now pay for the welfare state of Lloyd George’s creation out of general taxation. We should therefore get rid of the fiction of national insurance contributions and call it what it is: an earnings tax.
Question put and agreed to.
Ordered,
That Ben Gummer, Steve Baker, Mr Graham Brady, Mr Robert Buckland, George Freeman, Nicholas Soames, Mr Brooks Newmark, Priti Patel, Mr Dominic Raab, Jacob Rees-Mogg, Justin Tomlinson and Mr Andrew Turner present the Bill.
Ben Gummer accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 20 June; and to be printed (Bill 175).