Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2022
Draft Tax Credits, Child Benefits and Guardians Allowance Up-rating Regulations 2022
(2 years, 10 months ago)
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The Committee divided: - Ayes: 10 / Noes: 2 - Question accordingly agreed to.
The Chair
Hon. Members should send their speaking notes by email to hansardnotes@parliament.uk—in the unlikely event of Members wishing to speak. Similarly, officials in the Gallery should communicate with Ministers electronically. We are expecting a Division in the Chamber in about 15 minutes’ time, so if we cannot get our business done within that timescale, we will have to suspend and come back 35 minutes later, because I understand that there might be two or three votes. No pressure, team.
The Financial Secretary to the Treasury (Lucy Frazer)
I beg to move,
That the Committee has considered the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2022.
The Chair
With this it will be convenient to consider the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2022.
Lucy Frazer
These regulations set the national insurance contribution limits and thresholds as well as the rates of a number of national insurance contributions for the 2022-23 tax year, and make provision for a Treasury grant to be paid into the national insurance fund if required. As Members are aware, national insurance contributions or NICs are a key element of the nation’s welfare safety net, helping to support workers through ill health, unemployment and old age. They allow people to make contributions when they are in work in order to receive contributory benefits when they are not working. NICs receipts go towards funding contributory benefits as well as the NHS.
As announced at the Budget, the Government are using the September consumer prices index figure of 3.1% as the basis for setting all national insurance limits and thresholds and the rates of class 2 and 3 national insurance contributions for 2022-23. September CPI is the standard measure to increase NICs thresholds and class 2 and 3 rates. I will first outline the specific changes to the class 1 primary threshold and class 4 lower profits limit. The primary threshold and lower profits limit indicate the point at which employees and the self-employed start paying class 1 and class 4 NICs respectively. These thresholds will rise from £9,568 to £9,880 per year. The rates of class 1 and 4 NICs are unchanged by these regulations. The rates of class 1 and 4 NICs have already been increased, to 13.25% and 10.25% respectively, through the Health and Social Care Levy Act 2021. 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, which will increase, in line with CPI, from £6,240 in 2021-22 to £6,396 in 2022-23. I will come shortly to payment of class 2 NICs for the self-employed.
The upper earnings limit, the point at which the main rate of employee NICs drops to 3.25%, is aligned with the higher rate threshold for income tax. It was announced at spring Budget 2021 that the income tax higher rate threshold and the upper earnings limit would remain frozen at £50,270 until 2025-26. Similarly, the upper profits limit is the point at which the main rate for class 4 NICs drops to 3.25%. This will also remain at £50,270 per year.
As well as class 4 NICs, the self-employed pay class 2 NICs. The rate of class 2 NICs will increase from £3.05 in 2021-22 to £3.15 in 2022-23. The small profits threshold is the point above which the self-employed must pay class 2 NICs. This will increase from £6,515 in 2021-22 to £6,725 in 2022-23.
Class 3 NICs allow people to voluntarily top up their national insurance record. The rate for class 3 will increase, in line with inflation, from £15.40 a week in 2021-22 to £15.85 in 2022-23. The secondary threshold is the point at which employers start paying employer NICs on their employees’ salary. That threshold will increase from £8,840 in 2021-22 to £9,100 in 2022-23. The threshold at which employers of people under 21 and apprentices under 25 start to pay employer NICs on those employee salaries will remain frozen at £50,270 per year, to maintain alignment with the UEL.
The regulations also make provision for a Treasury grant of up to 17% of forecast annual benefit expenditure to be paid into the national insurance fund, if needed, during 2022-23. A similar provision will be made in respect of the Northern Ireland national insurance fund. A Government Actuary’s Department report laid alongside the re-rating regulations forecast that a Treasury grant will not be required in 2022-23, but in view of the economic challenges created by the covid pandemic, the Government consider it prudent to make the maximum provision at this stage. I trust that is a useful overview of the changes we are making to adjust contributions to the Exchequer in line with inflation.
On the second statutory instrument, 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. The draft regulations will ensure tax credits, child benefit and guardian’s allowance increase in line with the consumer prices index, which measured inflation at 3.1% in the year to September 2021.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
Some of us have not seen this statutory instrument. I was only given one when I came in. I did not realise there were two statutory instruments.
The Chair
By all means, help yourself, Barry, but do not interrupt the Minister as she is in full flow.
Mr Sheerman
On a point of order, Sir Gary, I want to put the record straight. I was not here when Lloyd George originally introduced the national insurance legislation.
Lucy Frazer
I am grateful for that helpful intervention. In summary, this proposed legislation makes changes to the rates, limits and thresholds for national insurance contributions, makes provision for a Treasury grant and increases the rates of tax credits, child benefit and guardian’s allowance in line with prices. These are important and necessary steps, and I hope colleagues will support them.
James Murray (Ealing North) (Lab/Co-op)
I am grateful for the opportunity to respond on behalf of the Opposition to the two statutory instruments. The first statutory instrument gives effect to the annual re-rating of various national insurance contribution rates, limits, and thresholds for the purposes of calculating liabilities for the coming tax year. The regulations increase the primary threshold above which people start to pay NICs by the rate of CPI in September 2021, while freezing the upper earnings limit in line with the income tax higher rate threshold also being frozen. We support the increase to the primary threshold, as any help for lower paid workers is particularly needed at the moment, given lower wage growth and the highest inflation in decades.
However, while the primary threshold is being increased by the draft regulations, the explanatory notes remind us that the Government are increasing employees’ national insurance contributions by 1.25% for tax year 2022-23, ahead of an equivalent charge being introduced by way of the health and social care levy. I would be grateful if the Minister could tell me the combined effect on the tax liability of someone on average earnings of both the increase to the primary threshold and the increase in employees’ national insurance contributions in 2022-23.
The second SI before us sets the annual rates of working tax credit and child tax credit and the weekly rates of child benefit and guardian’s allowance for the coming financial year. We support those increases as, again, any help for people who are struggling in the face of soaring energy bills and inflation is particularly needed at this time. Although the explanatory notes do not mention it, we know that the working tax credit basic element was cut last year, along with universal credit, by £20 a week. I would be grateful if the Minister could confirm what the level of the working tax credit basic element will be in April 2022 compared with the same time two years previously.
David Linden (Glasgow East) (SNP)
It is a pleasure to serve under your chairmanship, Sir Gary.
I will not detain the Committee for too long given that we are expecting a vote in the House but I want to put on the record that the proposed uplift, particularly that dealt with the second SI, does not reflect the true cost of living that many of our constituents are experiencing now.
When we debated the matter a couple of weeks ago, it was widely accepted by Members across the House that basing the uplifts on September figures will have to be reconsidered by the Government because the change is not working for our constituents. Far too many households in my constituency of Glasgow East and right across Scotland have been left behind and will not benefit from a paltry 3.1% increase from a Government who know that we are heading for a 7% inflation rate by April.
We have obviously had discussions about national insurance and it would be remiss of me not to put on record that the United Kingdom Government’s decision to go ahead with a regressive hike in national insurance will undoubtedly impact on the youngest and lowest earners in society. The Government often talk about supporting people in society, and the Minister uttered warm words about the social security net, but for far too many people who I represent that security net is getting weaker and there are more holes in it than ever before. The SIs before the Committee will not solve that.
Lucy Frazer
In response to the hon. Member for Ealing North, in my opening speech I set out in some detail how the thresholds will increase for those starting to pay NICs. I am happy to combine information on those thresholds with that on the social care levy in writing to the hon. Gentleman.
James Murray
On a point of clarification, I was asking about the increase in the primary threshold and the increase in NICs for 2022-23. As the Minister will know, the health and social care levy is not due to come in for another year.
Lucy Frazer
In my introductory remarks, I set out how each threshold will be increased, but I am happy to set that out in writing to him. He also spoke about the steps we are taking to protect the most vulnerable. He will know that, last September, we put in place a support package of half a billion pounds to support the most vulnerable. He will have heard the Chancellor’s statement only last month about the steps we are taking in response to the energy price increases. He will also be aware of the £400 billion support provided by the Chancellor in the past two years.
The SIs before us are important to ensure that we continue to uprate the thresholds.
Mr Sheerman
I do not want to extend the debate to excession because I know that we are in a hurry on account of Divisions in the House, but a Government Minister—a colleague of the Minister—has just resigned from the Government because of the amount of fraud that has been allowed to happen in our country under the present Chancellor’s guidance. Indeed, it was his legislation. Will the Minister confirm that £3.4 billion was lost? What could we have done with that £3.4 billion to ameliorate the impact of the NIC increase?
The Chair
That is not really within the scope of the SIs, so the Minister does not need to respond to that, but I think another intervention is coming.
Lucy Frazer
I value the hon. Gentleman’s contribution to the debate. He has obviously followed the issue very closely so he will know of the steps the Chancellor has taken to ensure that we combat fraud not only in relation to the coronavirus schemes but more broadly. The hon. Gentleman will have heard the Chancellor talk about the coronavirus fraud taskforce that has been set up—more than 1,000 people are now engaged to tackle fraud and the taskforce has already recovered half a billion pounds and is set to recover a further billion.
James Murray
May I again ask the Minister to respond to my second point about the second SI before the Committee and confirm what the level of the working tax credit basic element will be in April 2022 compared with the same time two years previously?
Margaret Greenwood (Wirral West) (Lab)
Will the Minister also set out for us what the SIs will mean for levels of child poverty, because I am very concerned that more than 4 million children are already living in poverty, and the rate seems to getting worse?
The Chair
Given the interest in the Committee, it would be helpful if the Minister sent a copy of her response to all members of the Committee.
The Chair
Thank you very much.
Question put and agreed.
DRAFT TAX CREDITS, CHILD BENEFIT AND GUARDIAN’S ALLOWANCE UP-RATING REGULATIONS 2022
Motion made, and Question put,
That the Committee has considered the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2022.—(Lucy Frazer.)