I beg to move, That the Bill be now read a Second time.
This Bill implements our manifesto commitment not to increase national insurance contributions for employers and employees. It will be interesting to discover whether it will be opposed by Her Majesty’s Opposition now that their new leader favours a 7% increase in national insurance for higher earners.
Hon. Members will be aware of the Government’s strong record of significantly reducing the burden of national insurance. At Budget 2011, my right hon. Friend the Chancellor announced a £21 a week above-inflation increase to the employers national insurance threshold. In 2014 we introduced the employment allowance to support businesses and charities across the UK by saving them up to £2,000 every year, and that has already benefited well over 1 million employers. The Government are now going further, and hon. Members will recall that the Chancellor announced in the summer Budget that that saving would be increased to £3,000 from next April. That means that a business will be able to employ four people full time on the national living wage and pay no national insurance at all.
From April 2015, the vast majority of employers employing under-21-year-olds were lifted out of employers national insurance as well. The exemption will be extended to cover apprentices under 25, helping young people to stand on their own two feet and fulfil their aspirations.
I am sorry to intervene so early in the Minister’s speech, but for the sake of clarity will she explain the long title to the Bill, which appears to apply only to class 1 national insurance contributions? I presume that the other classes will be covered in due course.
My remarks will be so short that hon. Members will need to intervene quickly with their points of clarification on this five-clause Bill. The hon. Lady will be aware that in the summer Budget the Chancellor announced that we are asking the Office of Tax Simplification to look at class 2 and class 4 contributions. We are expecting that consultation, which opened on 21 July, to inform the Budget next year. She asks a sensible question and I welcome her curiosity.
Can the Minister clarify what assessment she has made of the number of self-employed people who may apply for an exemption from paying class 2 contributions, especially as at least half of the increase in employment is self-employed people and, on average, self-employment incomes have fallen to less than £10,000?
We are very pleased that we are backing those who want to take a chance, start their own business and become self-employed. In fact, we have taken measures in previous Budgets to simplify the process so that self-employed people can consider making those contributions alongside their self-assessment.
Has the Minister done an impact assessment on public services—for example, the impact that the Bill will have on the national health service and benefits?
I am delighted to hear the first bid from the Opposition not to freeze national insurance for employers and employees. As the hon. Gentleman will know, national insurance contributes a substantial sum to the Exchequer and we have committed as a Government to continue to increase the amount of money that goes into the NHS.
The Minister should not twist my words. I asked her about the impact of the Bill.
Of course, the impact of freezing national insurance for employers and employees is that throughout the life of this Parliament they can have the confidence that their national insurance rates will not change—a confidence they would not have if the hon. Gentleman had any say in it.
The Minister’s team might helpfully do something about the fact that if one searches online for the impact of this Bill, one gets a 404 error message. It would be useful to have some view on the Bill’s impact.
I thank the hon. Lady for her sensible suggestion. I know that those who put together the impact assessment online will have taken her wise words to heart and will make a change. Clearly, when one brings in legislation to freeze national insurance rates, the impact is that there is no change in national insurance and therefore no impact to report.
I have businesses in my constituency that work hard and do the right thing. They do not want to be clobbered with more taxes. The impact of the Bill is that if people do the right thing and work hard, the Government will support them to succeed in life.
I thank my hon. Friend for making that excellent point. The Government want to back small businesses, entrepreneurs and those who want the certainty over the next five years that if they employ four people on the new national living wage, they will not have to pay any national insurance because of the employment allowance.
May I press the Minister on the point I made in my earlier intervention, which she did not actually answer? What assessment has she made of the number of self-employed people who earn so little that they could apply for an exemption from class 2 national insurance contributions?
When one starts out in business, it is often the case that one earns a small amount, but it is those fantastic people who start businesses, often at their kitchen table, whom the Government are trying to back with the measures in the Bill, which will give them a certainty that they would not have if Labour were in charge.
Freezing NI is important for my constituents, many of whom are low wage earners and have benefited tremendously over the last few years from the dramatic rise we have seen in the personal allowance. Does my hon. Friend agree that hard-working people already pay enough in tax?
I certainly agree that the Government are keen to take steps to back an economy that continues to grow and to create jobs so that everyone can have the dignity of taking home a pay cheque or starting their own business. We have taken other steps in the Finance Bill to raise the amount that people can make before having to pay income tax, and that is what this Government stand for.
Surely the Minister has not forgotten that in the lifetime of the previous Parliament—from 2010 to 2015—no fewer than 24 tax increases were put on working people by her Government. The latest Budget also includes the tax increase on insurance premiums.
That is an extraordinary line of attack. The Government have nearly doubled the personal allowance—the amount that people can make before they pay income tax—from the £6,475 that the hon. Gentleman thought was appropriate at the end of the 2010 Parliament. That is what this Government stand for.
Will the Minister comment on how successful the previous Government were in getting people into work? This policy is in addition to that record and will increase the number of people in employment, taking home a wage packet and providing for themselves.
That gives me a welcome opportunity to state that every Labour Government in history has left office with more people out of work than when they came into office. This is the party of working people and we created many jobs during the last Parliament, which no one expected, and we continue to back businesses and their growth through this Bill.
My hon. Friend may be ruing her invitation to Members to intervene. In a constituency such as mine, where the main focus of economic activity is on micro and small businesses, one of the first questions that a potential employer asks is how much it will cost to take on an additional person. That is the engine that will grow the economy, and the Bill is extremely welcome.
My hon. Friend’s point is well made, because in North Dorset and around the country it is the small and micro businesses that are the engines of job creation. That is why the employment allowance is so important—it will mean that a small business taking on its first employee will not have to pay employers national insurance at all under this Government. Indeed, if every small business took on just one extra employee, we would have full employment. That is why the Government back small businesses.
One of the problems with national insurance contributions for employers is that they are a direct tax on employment, making it more expensive to employ someone in both the private and the public sector. It may be worthwhile Opposition Members noting that putting up national insurance contributions for employers would hit local councils severely, giving them an extra bill to pay. The Bill backs business, but it will also help public services by keeping their bills low.
My hon. Friend is right. The Bill’s measures strongly back business and other employers, many of whom will benefit from the employment allowance too.
The Bill legislates our commitment to provide certainty on national insurance rates for the duration of the Parliament. Hon. Members will be aware that our other commitments in the manifesto to lock taxes were that we would not increase the main rates of income tax and value added tax, as well as not increasing national insurance. The Finance Bill will deliver those commitments and this Bill delivers the commitment on national insurance.
The Bill is very much welcome and goes hand-in-hand with what the Government are doing in other areas, such as the local growth fund. The Government have set aside £12 billion, £7 billion of which has already been spent on building homes and supporting businesses. The wider picture is that the Government are supporting businesses on the front line, creating homes, jobs and opportunities. That is the right way forward.
My hon. Friend is absolutely right. This is part of a package of measures the Chancellor announced in the July Budget.
The Office of Tax Simplification has been asked to look at proposals to merge income tax and national insurance. Will the Minister say where we are with that? In particular, what assessment has been made of its possible impact on pensioners?
My hon. Friend is correct. In the summer Budget, the Chancellor announced a consultation on behalf of the Office of Tax Simplification. It is currently undertaking its work. I expect my right hon. Friend to take its recommendations into account in due course.
Turning to the detail of this five-clause Bill, it provides that the rate of class 1 national insurance contributions paid by employees and employers must not exceed existing rates.
On a point of clarification—this may be a bit cheeky—I take it that we could reduce national insurance if we wanted to. The Bill would not stop us doing that.
That is not a cheeky question; that is a very sensible question. It is indeed the case that we will still be able to reduce levels of national insurance. This is only a ceiling, as is noted in the Bill’s title.
It has been the convention that the level of the upper earnings limit for national insurance is aligned with the level of the higher rate threshold for income tax. The Bill formally limits increases to the upper earnings limit, so that its annual equivalent amount cannot exceed the level of the higher rate threshold for income tax. Both the restriction on national insurance rate rises and changes to the upper earnings limit come into force on Royal Assent and apply until the start of the tax year following the date of the first parliamentary general election to take place after Royal Assent.
The Bill provides certainty for employers and for employees that the national insurance rates that affect millions of employees and employers across the UK will not rise for the duration of this Parliament, and that the upper earnings limit will not exceed the higher rate threshold. The Bill demonstrates the Government’s commitment to provide certainty on tax rates for the duration of this Parliament. I commend it to the House.
As the Minister described, the Bill provides for the Government’s commitment, as set out in their manifesto, to a tax lock: a commitment not to increase the rates of VAT, income tax or national insurance in the next Parliament. The Bill provides for the national insurance element of that pledge. Such a measure has to remain separate from the Finance Bill currently going through Parliament, because statutory provisions regarding national insurance contributions cannot be included in the annual Finance Bill.
As we have heard, the Bill prevents any increase in the current rates of class 1 national insurance contributions paid by employees and employers for the duration of the 2015-20 Parliament. It also provides that the upper earnings limit cannot exceed the higher rate threshold, which is to say that the upper earnings limit cannot exceed the sum of the personal allowance and the basic rate limit.
Responding to the tax lock announcement during the election campaign, many people wondered why such a commitment etched into the statute book would even be necessary. If Ministers—indeed, the Prime Minister—commit to not raising income tax, national insurance contributions or VAT in the run-up to an election, surely such a commitment should be taken at face value. Apparently not in the case of Conservatives, who perhaps felt that the low levels of trust in their pledges were such that they would have to go much further. No wonder, when we consider that the Prime Minister made a similar commitment in 2010 not to raise VAT, only then to raise it to 20% after entering Downing Street.
Will the hon. Lady confirm that in her party’s manifesto, on which she just stood, there was a similar commitment not to increase national insurance rates, yet the new leader of her party has stated publicly that he would like to increase them by 7% for higher earners?
I will come on to my party’s manifesto commitments in a very short while. I do not think it is helpful, and I am not going to respond, to any interventions or points made by Government Members that refer to things the current Leader of the Opposition said before he was Leader of the Opposition. [Interruption.] That is a different situation. What I have just said is that when the Prime Minister was elected in 2010, he raised VAT when he had said that he would not do so.
Beyond the broken pledge on VAT, which is a serious matter—[Interruption.] Government Members can sit giggling, but these are very serious matters that hit the country hard. It is worth remembering that the Prime Minister appeared to rule out cuts to tax credits when appearing in front of a special “Question Time” audience during the recent election campaign. Yet, we are due to vote later today on that measure, and the Government’s cuts to tax credits will leave some 8 million families on average over £1,000 a year worse off. That is a shocking broken pledge.
I can assure the hon. Gentleman that Opposition Members do. It read:
“No one can see into the future. So a responsible chancellor ought to be duty-bound to keep options open, to be able to respond to events and adapt to unexpected changes in the economy, not close them off. Instead, the Conservatives are now committed to tying their hands behind their back, placing the taxes that provide roughly two-thirds of all government income – income tax, national insurance and VAT – wholly off-limits, come what may, for five years. This is madness.”
So it is not a gimmick then, but welcome certainty for families and business.
The hon. Lady is not listening.
The Financial Times leader, to which I referred earlier, said:
“It is unwise for the Conservatives to bind their hands, legally or otherwise, against using tax rises to close the deficit. Much of public expenditure is unavoidable or politically protected”—
that is the important thing; these days certain budgets are politically protected—
“so that ever more savings need to be found from the shrinking funds for welfare, social care, justice and defence. It makes sense to leave oneself the option to turn to tax in times of adversity to smooth the path of consolidation.”
Nothing better reflects the gimmickry of this measure than the fact that the recent summer Budget included some significant revenue-raising measures that amounted to significant tax rises for millions of people. As the Office for Budget Responsibility set out, the tax-raising measures announced in the summer Budget amounted to nearly £16 billion of tax rises by 2020-21—we touched on this point last week—£3 billion of which will come from changes to vehicle taxation, as well as increases in the insurance premium tax, which will raise £8 billion by 2020-21.
Last week, we debated the increase in insurance premium tax, and as I pointed out then, some of the UK’s biggest insurers, including Aviva and RSA, have confirmed that they plan to pass on the cost of that tax increase to customers. Experts say that many people will now see their household insurance bills rise by between £50 and £100 a year, if they have more than one car and they insure their buildings and contents. I highlighted the fact, and still think it a serious point, that young drivers would be hardest hit, and many might wrongly take the risk of driving uninsured. In the last week, therefore, we have seen a £50 to £100 tax bombshell for millions of families, and this tax-lock Bill does nothing to guard against that.
What is more, the Government are yet to offer any assurances that they will not raise insurance premium tax further in subsequent Budgets. Given that a Conservative peer, Lord Northbrook, has called insurance premium tax an “easy target”, I invite the two Treasury Ministers present to say whether they will be increasing insurance premium tax any further. Would either like to say what their intentions are?
Madam Deputy Speaker, may I seek your guidance about whether we ought to be discussing something that Parliament settled last week or the Second Reading of this Bill?
The hon. Lady is experienced enough to know that if she wishes to raise a point of order, she can do so by way of a point of order. However, the point she raises is a matter for discussion, so I invite the shadow Minister to respond, if she wishes.
Indeed. I agree with my hon. Friend and I thank him for raising that point. I think that Ministers have got to think about what they are doing to public trust if they have to introduce gimmicks such as this Bill—it is a gimmick, and was seen as a gimmick by a host of commentators outside this place.
No, I have nearly finished.
As I have argued, the Bill provides no protection for millions of hard-working families, and if the statutory instrument on tax credits is voted through by Conservative Members, those families will be £1,000 a year worse off on average. That will be a direct result of the Chancellor’s fiscal decisions, and I believe many Conservative Members will come to regret it. Ministers should not be wasting their time on legislative gimmicks such as this so-called tax lock.
As I have said, I would not have made a commitment on the upper earnings limit. That is just not my view. Fortunately, in the House of Commons we are free to speak as we find things. We are having this debate and I am making my contribution. I am telling the House that that is not a terribly sensible commitment to make.
The hon. Member for North West Hampshire made some good points about the certainty that small and micro-businesses need, but I ask hon. Members to consider for themselves how many small and micro-businesses are employing people on £150,000 a year. I suggest that not many are doing so. I know that Hampshire is better off than County Durham, but it is not so much better off that every farmer and small shopkeeper is paying themselves and their staff £150,000 a year.
May I seek some clarity? The hon. Lady said that she would not make a commitment on the upper earnings limit. Is she therefore suggesting that the 12% rate of national insurance contributions should also apply to higher rate income tax payers?
I am saying that it would be perfectly reasonable to consider that, rather than pre-committing in the way that the Bill is doing. That seems to be common sense.
It is surprising that the Treasury thinks that it can simply continue to switch off policy levers and that that is an intelligent way of carrying on. As my hon. Friend the Member for Worsley and Eccles South has said, commentators including the Financial Times and PricewaterhouseCoopers have pointed out that this measure will force the Government into a more difficult and tricky situation. The position will become more constrained, and it will be more difficult to take sensible decisions on raising money. The Bill will put more pressure on the Government to cut public spending.
It is a great pleasure to respond to a lively debate. I thank all those who have contributed, not least the hon. Member for Worsley and Eccles South (Barbara Keeley), who contributed twice. She carries a heavy burden on behalf of her party and I hope that it is noted by the powers that be. I welcome the shadow Chancellor to the Chamber. No doubt he will have noticed the effort that she has put in.
I thank Government Back Benchers for their contributions. My hon. Friend the Member for North West Hampshire (Kit Malthouse) began his speech with the sensible point that, ultimately, it is not companies that pay tax. It is always families and individuals who bear the tax bill, regardless of who writes the cheque. Like a number of hon. Friends, he went on to speak about the importance of providing stability and certainty in the tax system both for individuals and for companies. The tax lock will provide much greater certainty and stability.
That point was also well made by my hon. and learned Friend the Member for South East Cambridgeshire (Lucy Frazer), who highlighted the importance of low taxes to businesses in her constituency and to employees. She made the point that a number of those businesses compete with businesses in silicon valley, and that they need the certainty that the Bill and the Government’s other policies provide.
My hon. Friend the Member for Bexhill and Battle (Huw Merriman) made a similar point about the need for economic policy to support business. It is through the success of our businesses that we will see the economy grow and tax receipts come in, which will enable us to pay for high-quality public services. We must not forget the importance of an enterprising economy. It may well be that that point becomes more important in the debate in this country over the next few years, as the consensus appears to be breaking down.
My hon. Friend the Member for Spelthorne (Kwasi Kwarteng) rightly criticised the characterisation of the Bill as a gimmick. I will turn to that in a moment, but he was right to say that this is an important measure.
My hon. Friend the Member for Milton Keynes South (Iain Stewart) highlighted the fact that in 2001, a Labour Government were elected with a promise that they would not put up income tax, but shortly afterwards they put up national insurance contributions. We must not forget that national insurance contributions are paid by people in much the same way as a tax. It should not be open to Governments to use national insurance contributions as a stealth tax. That is why, as well as introducing legislation to provide a tax lock for income tax, it is important to have legislation on national insurance contributions. Given that national insurance contributions cannot be dealt with in a Finance Bill, such a measure is contained in this Bill.
I am astonished that the Minister can talk about things that happened in the past and not reflect on the more recent pledge made and broken by his Government not to raise VAT. How can he stand there and talk about any issue when that is in recent memory? How hard did that hit many millions of families in this country? I think he would be better leaving that topic alone.
For those of us who were debating such matters at the time, the state of the public finances, and the deterioration identified by the Office for Budget Responsibility in the summer Budget of 2010, revealed that we needed to take steps to put the public finances back on track. We took those measures, and I remind the hon. Lady that the Labour party abstained on the increase in VAT. Labour Members did not oppose it at the time, presumably because they recognised that it was necessary. That was, I suppose, a time when the Labour party was flirting with fiscal responsibility. I am sure it would never repeat that now.
My points are about the way the public feel about broken pledges. This gimmick of a tax lock means nothing if, whatever the circumstances, the Government are prepared to change their mind on things. I read the Minister a long list of pledges that his Prime Minister and Government have broken, and every time such things happen, the public get sick of it.
We are underlining our commitment not to increase the rate of class 1 NICs by introducing this Bill. The hon. Lady asks why we are legislating rather than making a pledge. She could apply exactly the same argument to the legislative commitment to spend 0.7% of gross national income on overseas aid, yet that was actively supported by the Labour party. If she feels that this Bill is a meaningless gimmick, why does she not oppose it today?
Let me finish thanking my hon. Friends. My hon. Friend the Member for Northampton North (Michael Ellis) described this as a short but important Bill, and may I say that he delivered a short but important speech? My hon. Friend the Member for Tamworth (Christopher Pincher) highlighted the need for greater certainty in the tax system and welcomed the Bill, as did my hon. Friend the Member for North Dorset (Simon Hoare), who also highlighted the importance of stability in the tax system. My hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard) supported that argument and suggested that the Bill would provide greater confidence to businesses in his constituency.
The hon. Member for Dundee East (Stewart Hosie) raised a number of questions and asked about the potential for integration between income tax and national insurance contributions, and the work being undertaken by the Office of Tax Simplification. As he said, it was announced in the summer Budget that the OTS will undertake a review of the closer alignment of income tax and national insurance. The overall aim of the project is to build on earlier work undertaken in that area, and to understand the steps needed to achieve closer alignment of the taxes, as well as the costs, benefits and impact of each step. The terms of reference were published on 21 July, and the OTS will publish a final report ahead of the 2016 Budget.
On the one hand we heard from the hon. Member for Worsley and Eccles South that this measure is a gimmick and unnecessary. On the other hand, I was also struck by the contribution from the hon. Member for Bishop Auckland (Helen Goodman), who made the argument that we—I do not know whether she was talking about the Government or the Labour party—should consider abolishing the upper earnings limit. In other words, the 12% rate of national insurance contributions should apply also to higher rate taxpayers. That policy was supported by the hon. Member for Luton North (Kelvin Hopkins).
Let us be clear about what is being proposed. It would mean an increase in the tax rate for higher rate taxpayers of 10%, from a combined rate of 42% to a combined rate of 52%. That is not the policy of the Opposition, as the hon. Member for Worsley and Eccles South made clear, but three days into the leadership of the right hon. Member for Islington North (Jeremy Corbyn) the Labour Front Bench appears to be being attacked from the left, something that I had not anticipated. I do not know whether the hon. Members for Bishop Auckland and for Luton North are making a late bid for inclusion in the shadow Cabinet, although I was surprised that neither was there in the first place. I am sure that the shadow Chancellor, who is in his place, will have listened carefully to that proposal, which would clobber a large chunk of middle earners.
The hon. Member for Worsley and Eccles South upbraided hon. Members for quoting remarks made by the right hon. Member for Islington North before he became leader of the party and said that she would not respond. That is a novel approach, although I have some sympathy with her and really cannot blame her.
The Minister seems to forget that I read out to him a list of various pledges on policy that the Prime Minister made before he became Prime Minister. Will he now defend every one of those? Will he defend what the Prime Minister said about Sure Start, EMA and other things that have been changed or abolished? It appears that the Minister thinks it is all right for the Prime Minister to say what he said when he was Leader of the Opposition. The Minister cannot have his cake and eat it, but that is what he appears to be trying to do.
I understand why the shadow Minister does not want to defend the position of the current leader of the Labour party, but let me make this point clear. The Prime Minister came into office in 2010 with a mission to turn around the UK economy. He succeeded and was re-elected with a majority in 2015.
The hon. Member for Luton North always makes entertaining and thoughtful speeches. I noted that he praised the tax system of Denmark, but I would point out that its VAT rate is 25% and it does not have any lower rates. I can assure him that we will not follow Denmark’s example and put VAT up to 25%.
I would be happy if the Danes lowered their VAT rate, but can the Minister tell us what Danish income tax rates are?
I do not have all the numbers in front of me, but I take it from the hon. Gentleman’s remarks that he would like to put income tax rates up, not down—[Interruption.] Well, I know he is very close to the Labour leadership and I suspect that he may prove to be an influential figure in deciding policy.
I am delighted that we do not appear to be divided on this measure, even though we heard some doubts about it from Labour Back Benchers. I am grateful to hon. Members for their contributions. This is an important part of the Government’s long-term economic plan, providing certainty and stability to the taxpayers of this country. I am pleased that we are making progress on providing that certainty and stability, as well as protecting the British people from tax increases, at least for the course of this Parliament and—we hope—future years as well.
Question put and agreed to.
Bill accordingly read a Second time.
NATIONAL INSURANCE CONTRIBUTIONS (RATE CEILINGS) BILL (PROGRAMME)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the National Insurance Contributions (Rate Ceilings) Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 27 October 2015.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Charlie Elphicke.)
Question agreed to.