National Insurance Contributions (Rate Ceilings) Bill

(Limited Text - Ministerial Extracts only)

Tuesday 3rd November 2015 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read the Third time.

We have now reached the final stage of this House’s deliberations on this Bill, which implements our manifesto commitment not to increase national insurance contributions—NICs—for employers and employees. On Second Reading, hon. Members were reminded of the Government’s strong record of significantly reducing the burden of NICs on employers. At Budget 2011, my right hon. Friend the Chancellor of the Exchequer announced a £21-a-week above-inflation increase to the employer NICs threshold. In 2014, we introduced the employment allowance to support businesses and charities across the UK by reducing their employer NICs bills by up to £2,000 every year, and this has already benefited more than 1 million employers. The Government are now going further; hon. Members will recall that the Chancellor announced at the summer Budget that this would be increased to £3,000 from next April. From April 2015, the vast majority of employers employing under-21s were lifted out of employer NICs. This NICs exemption will be extended to cover apprentices who are under 25, supporting employers to provide young people with valuable workplace skills. The Bill enacts the Government’s commitment to provide certainty on NICs rates for the duration of this Parliament. Hon. Members will be aware that the commitment contained in the manifesto was not to increase the main rates of income tax, VAT or NICs. The Finance Bill contained measures to deliver that commitment for income tax and VAT, and this Bill delivers on that commitment for NICs.

Let me now deal with the detail of the Bill. First, it provides that the rate of class 1 NICs paid by employees and employers must not exceed existing rates. Secondly, it has been the convention that the level of the upper earnings limit for NICs is aligned with the level of the higher rate threshold for income tax. This Bill formally limits increases to the UEL so that its annual equivalent amount cannot exceed the level of the HRT for income tax. Both the restriction on NICs rates rises and changes to the UEL come into force on Royal Assent of this Bill, and apply until the start of the tax year following the date of the first parliamentary general election to take place after Royal Assent.

This Bill provides certainty for employers and employees: that the NICs rates that affect millions of employees and employers across the UK will not rise for the duration of this Parliament; and that the UEL will not exceed the HRT for income tax.

[John Redwood (Wokingham) (Con)]

My hon. Friend will agree with me that more jobs would be a very good thing and that better-paid jobs for people are a very good thing. He is saying that there will not be any increases but he is presumably not ruling out cutting taxes on jobs, because the less we tax, the more jobs we might have.

--- Later in debate ---

[Mr Gauke]

To be very clear, this is a cap, not a freeze. I am grateful to my right hon. Friend for allowing me to make that point.

I thank the hon. Members who have participated in our debates on this Bill, both on the Floor of the House on Second Reading and in Committee. The Bill has not detained the House for any great length of time, but I am grateful for those contributions. The Bill demonstrates the Government’s commitment to provide certainty on tax rates for the duration of this Parliament, and I commend it to the House.

--- Later in debate ---

[Mr Gauke]

With the leave of the House, Madam Deputy Speaker, I want to respond to the points raised by right hon. and hon. Members in this short debate. Before I do so, may I reiterate the main purpose of the Bill? It introduces the final aspect of the five-year tax lock, which is further proof of the Government’s commitment to provide certainty on tax rates for the duration of this Parliament and the commitment to low levels of taxation made in the Conservative manifesto for the general election in May, which resulted in a Conservative majority in that election. The commitment was that the rates of income tax, VAT and NICs would not increase. The Finance Bill introduced legislation to deliver that commitment for income tax and VAT, whereas this Bill delivers on the commitment for NICs. The benefits are that it provides certainty for employers and employees that for the duration of the Parliament NICs will not rise and the upper earnings limit will not exceed the higher rate threshold for income tax.

We have heard the argument that it is not necessary to legislate in this regard, but I remind the House that it was a Conservative manifesto commitment to legislate and we are fulfilling that commitment. Concerns were also raised that the measure might restrict flexibility for future Governments, and the comment made by my right hon. Friend the Member for Wokingham (John Redwood) about the circumstances that might apply in such cases was very good. I do not think that anybody would advocate in the teeth of a recession that we should put these rates up. Fiscal credibility is very important, of course, and our determination in that regard will be demonstrated at the spending review on 25 November. It is important that we bring borrowing down, but we do not believe we should do that by putting up national insurance contribution rates, which is what the Bill prevents us from doing.

Future funding for contributory benefits, should NIC receipts prove insufficient, is a matter for the Chancellor and a decision to be made at the relevant fiscal event based on the latest projections available at the time and taking into account the NIC rate ceilings that we are introducing. The Government Actuary recommends a working balance of one sixth of benefit expenditure for the national insurance fund and there is provision to top up the national insurance fund from the Consolidated Fund to maintain the balance at that level. For the 2015-16 tax year a top-up of £9.6 billion has been provided for in legislation.

Let me point out, though, first, that this Government are committed to meeting our commitments in terms of the state pension and spending on the NHS. Secondly, the hon. Member for Dundee East (Stewart Hosie) raises concerns that the projections might not be accurate. These projections in relation to national insurance contribution rates are made by the Office for Budget Responsibility, an independent body. I can understand why the hon. Gentleman might have concerns in general about projections for tax revenues, given that he fought a referendum not that long ago assuming that the tax revenues from North sea oil would be very much more substantial than they have turned out to be. In those circumstances, I can understand his sensitivity to the fact that receipts might not be what had been anticipated. However, this is based upon an independent assessment and, in the round, is nothing like the fiscal risk that the Scottish National party was offering the Scottish people just over a year ago.

[George Kerevan (East Lothian) (SNP)]

Has the Treasury Minister forgotten that the North sea oil revenues go to HM Treasury and that the recent fall in income from the North sea proves the point to the Treasury that its forecasts can be wrong?

[Mr Gauke]

The proposition of the independence movement was much more optimistic about receipts than the OBR at the time of the referendum. Most important of all, the United Kingdom is more easily able to absorb a volatile oil price than an independent Scotland would be—a point that I would have thought anyone looking at this fairly had to accept.

[Stewart Hosie]

I will not be tempted by the Minister, however generally he put it, other than to say that he is wrong and that the UK Government’s barrel price for gas was higher than that used in Scotland. That is not the point. I completely understand the technical answer that the Minister has just given, but will he please answer the specific question: does this pose a threat to the contributory principle which applies to many of the benefits that people in the UK receive?

[Mr Gauke]

Let us be clear that the OBR’s projections for oil prices—those are the ones that the Government use—were much, much more cautious than those of the independence movement. The black hole that would be the finances of an independent Scotland, had the SNP succeeded in obtaining independence, would have been very considerable, and it is about time that those who campaigned for independence were straightforward with the British people and the Scottish people about what has happened.

The Bill makes no change to the structure of national insurance contributions that would undermine the contributory principle. I am happy to make that explicit to the hon. Gentleman. I hope that is helpful to the House, and I hope the House will support the Bill before us.

Question put and agreed to.

Bill accordingly read the Third time and passed.