Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020

(Limited Text - Ministerial Extracts only)

Tuesday 3rd March 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the draft Regulations laid before the House on 30 January be approved.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, I shall also speak to the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2020.

The Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations set the national insurance contributions rates, limits and thresholds for the 2020-21 tax year. They will allow the Government to deliver on their manifesto commitment to cut national insurance contributions for 31 million hard-working people across the United Kingdom. National insurance contributions, or NICs, are social security contributions. Payment of NICs determines eligibility for the state pension and other contributory benefits. NIC receipts go towards funding the NHS and these same contributory benefits.

I will first outline the changes to the class 1 primary threshold and class 4 lower profits limit. The primary threshold and lower profits limit indicate the points at which employees and the self-employed start paying class 1 and class 4 NICs, respectively. These thresholds will rise from £8,632 to £9,500 per year. These changes, promised in our manifesto, underline the Government’s commitment to ensure that work pays, putting more money into the pockets of hard-working people. They will benefit around 31 million taxpayers, with a typical employee £104 a year better off compared to 2019-20. Increases to the primary threshold and lower profits limit do not impact on state pension eligibility. This is determined by the lower earnings limit for employees and payment of class 2 NICs for the self-employed.

The lower earnings limit will rise in line with inflation from £6,136 to £6,240 per year. The upper earnings limit, where employees start paying 2% NICs, is aligned with the higher-rate threshold. As announced at the 2018 Budget, it will be frozen and remain at £50,000 per year.

The self-employed pay both class 2 and class 4 NICs. The rate of class 2 NICs will rise in line with inflation from £3 a week to £3.05 a week. The small profits threshold is the point above which the self-employed must pay class 2 NICs. This will rise with inflation from £6,365 to £6,475 per year. For class 4 NICs, as already outlined, the lower profits limit will rise to £9,500. The upper profits limit is where the self-employed start paying 2% NICs. This is also aligned with the higher-rate threshold and will remain at £50,000 per year.

For employers, the secondary threshold determines where they start paying employer NICs. This will rise with inflation from £8,632 to £8,788 per year. The level at which employers of people aged under 21 and apprentices aged under 25 start to pay employer NICs will remain frozen at £50,000 per year.

Finally, class 3 contributions allow people voluntarily to top up their national insurance record. The rate for class 3 will increase in line with inflation from £15 to £15.30 per week.

The regulations also make provision for a Treasury grant of up to 5% of forecasted annual benefit expenditure to be paid into the National Insurance Fund, if needed, during 2020-21. A similar provision will be made in respect of the Northern Ireland National Insurance Fund. I hope that this is a useful overview of the changes we are making to bring rates of support and contributions to the Exchequer in line with inflation. I commend to the House the draft regulations.

Moving on to the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations, the Government are committed to delivering a welfare system that is fair for claimants and taxpayers while providing a strong safety net for those who need it most. These regulations will ensure that tax credits, child benefit and guardian’s allowance increase in line with the consumer prices index, which had inflation at 1.7% in the year to September 2019.

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[Lord Tunnicliffe (Lab)]

My Lords, I will take a similar self-denying ordinance to that of the noble Baroness, Lady Kramer, and speak relatively briefly. I would like simply to put on record my support for the excellent speech by my noble friend Lady Lister. I join with the noble Baroness, Lady Kramer, in failing to understand why this is not part of the Budget. Because it is not part of the Budget, it is lacking in process. In some senses, virtually all the changes that the Minister described are designed to introduce the CPI increases of 1.7%. Insomuch as that has previously been announced in budget processes, I cannot object, except on the wider basis that my noble friend Lady Lister outlined.

There is one particular increase, however—the increase in PT, which I am told is the “primary threshold”—which is not in line with inflation. Its excuse for being introduced is that it is in the Conservative manifesto. I have a copy of that manifesto and I have to admit that I could not find it. Fortunately, a member of the Treasury was able to advise me that it was on page 15—which was conveniently not numbered, but never mind. It says:

“We not only want to freeze taxes, but to cut them too. We will raise the National Insurance threshold to £9,500 next year—representing a tax cut for 31 million workers.”


I thought that a basic rule of introducing a change of policy would be that it would be properly costed. Just to make sure that this was not trivial, I did a few sums. The effect, as the Minister said, is to increase the threshold by £868; it would have increased a little anyway because of the 1.7%, but the policy impact is something like a real £720 increase. If you multiply that by the 12% rate and the 31 million people involved, you get a figure of, say, £2.7 billion. My concern is that such a sizable sum ought to have been properly set out and illustrated.

The Explanatory Memorandum says:

“A Tax Information and Impact Note has not been prepared for this instrument as it gives effect to previously announced policy and it relates to routine changes to rates, limits and thresholds.”


Well, it does not. This one is clearly a policy change, and clearly the cost is a few billion pounds. Will the Minister tell us how much it will cost? Why was it not set out in the Explanatory Memorandum? Surely it is improper to introduce a national insurance change that is a reduction in taxation without calculating its cost and putting that in the public domain.

[Lord Agnew of Oulton]

My Lords, I will try to deal with the queries raised by the noble Baronesses and the noble Lord. I will start with the question asked by the noble Baroness, Lady Lister, on the impact of the historic benefit freeze. We have to put all these events into some context. When the freeze was originally announced in 2010, we were putting the public finances back on track. For example, before 2010, welfare spending was rising at an unsustainable rate. Between 1997-98 and 2010-11, welfare spending rose by £84 billion in real terms—a 65% increase. The Government are committed to building a welfare system that ensures that work pays, that there is a strong safety net for people who need it, and that the system is fair for claimants and taxpayers. As I mentioned in my earlier comments, this is a substantial payment back into the system to support some of our most needy and vulnerable people. However, the Government are not able to provide a blank cheque for an unlimited uprating from the years of austerity that we have had to come through.

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[Baroness Lister of Burtersett]

I asked some specific questions, which I do not believe the noble Lord has answered. I will not get into a long debate about sustainability and so forth, although I addressed that in Grand Committee—there is no evidence at all that it was unsustainable. First, I asked about the extra £800 million to which the noble Lord referred. What is that? Is it simply raising in line with inflation? If so, that is not new money. I asked him what the justification was for continuing to freeze the high-income charge threshold, and whether the Government were still committed to child benefit.

[Lord Agnew of Oulton]

The answer to the first part of the noble Baroness’s question is that this is what it will cost; the figure I mentioned earlier in my comments, which I think was £800 million, is the cost. The second question was: what about the people at the top end? Again, I am proud to represent a Government who are focusing our attention on those at the very bottom end of income, so this is where we are at the moment. I cannot speak for the Budget—

[Lord Tunnicliffe]

Can I just check the Minister? The area that I was concerned about, which is the increase in the PT, affects virtually every taxpayer and is not in any way concentrated at the bottom end of employment.

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[Lord Agnew of Oulton]

I was dealing with questions asked by the noble Baroness, Lady Lister; if I understand correctly, she was concerned—

[Baroness Lister of Burtersett]

I point out that if the Government were really concerned about those at the bottom end, they would put more money into child benefit rather than personal tax allowances. Personal tax allowances are no good at all to families at the bottom end, whereas child benefit is extremely helpful to them. If they were really concerned about people at the bottom end, as I argued in Grand Committee, they would be raising basic benefits by more than inflation this year to start making up for the freeze, which was much bigger than expected because inflation was higher than anticipated. I therefore ask the Minister not to say that the Government care most about people at the bottom end.

[Lord Agnew of Oulton]

With the greatest respect to the noble Baroness, the policy of our Government, progressively over the past 10 years, has been to get people into work. We are now seeing some of the highest levels of employment since the war, and in the last year we saw earnings start to outstrip inflation. That has taken a long time, but that is what we have done. We strongly believe that, if we are to help the most vulnerable people in society, the best way is through the dignity of employment and earnings, which is why we have focused on that area.

The noble Lord, Lord Tunnicliffe, asked about the primary threshold and lower profits limits. Again, this comes back to what I said to the noble Baroness, Lady Kramer, which is that, yes, this is a manifesto promise. We said on page 15, as the noble Lord quite rightly said, that we were going to do this; this is what this statutory instrument achieves today; it will be a tax cut for around 31 million people; and it is £104 a year, which, for people at the bottom end, is a meaningful improvement in their lives.

[Baroness Kramer]

Could the Minister explain why it is appropriate to do that through a statutory instrument, and to what extent that undermines the ability of Parliament to hold the Government accountable? I am sure that he has great respect for his Members in the other place, but they may well have had opinions on this issue. They may have had the opportunity to express them in the sense that the SI has gone through the other place, but I very much doubt that they have had the opportunity for any kind of detailed debate or challenge. In addition, they cannot possibly know what the consequences are, because it has to be in the context of a Budget, where, presumably, the loss of revenue is made up for in some other way or by borrowing, and those are major consequences. As the noble Lord, Lord Tunnicliffe, pointed out, the numbers are not de minimis but incredibly significant.

[Lord Agnew of Oulton]

I respectfully repeat what I said to the noble Baroness: we are trying to focus support at the bottom end of the income scale. To deal with the noble Baroness, Lady Kramer, since 2010 we have seen over 700,000 fewer children living in workless households and over 1 million fewer workless households overall. We believe that that is how you deal with poverty and improve dignity.

The NIC regulations set the rates, limits and thresholds for the 2020-21 tax year. They allow for the collection of £120 billion of NICs to fund the state pension and contribute to NHS funding, and deliver on the Government’s promise to deliver a tax cut for 31 million working people. I commend the draft regulations to the House.

[Baroness Lister of Burtersett]

I have another question. I asked specifically: are the Government still committed to child benefit? The Conservative Party used to be committed to it; are the Government still committed to it? The Minister gave me no answer, which implies that he is not.

[Lord Agnew of Oulton]

My Lords, I have absolutely no indication that we are not committed to child benefit.

Motion agreed.