National Insurance Contributions (Increase of Thresholds) Bill

(Limited Text - Ministerial Extracts only)

Committee stage
Thursday 24th March 2022 Commons Chamber

As I have made clear, we will support the measures in the Bill because we recognise that the raising of the thresholds has benefits and we welcome any help for people who face the Chancellor’s national insurance tax hike in April. However, I have set out important points of detail—particularly in respect of the timing of the changes we are asked to agree today—that will have a real impact on people’s pockets. I would be grateful if the Minister addressed them directly in her reply.

[Lucy Frazer]

I wish first to address amendment 1, which was tabled by the hon. Member for Bath (Wera Hobhouse) and would bring forward to 6 April the increase to the primary threshold that is introduced in clause 1. Of course the Government want to help people with the cost of living as quickly as possible, which is why the Chancellor introduced a number of measures immediately, including the cutting of fuel duty, which came into force at 6 pm last night. However, it was not possible to deliver the increase to the primary threshold from 6 April, which is in less than two weeks’ time.

The Government are implementing the change as early as possible, from 6 July. It is not possible for the majority of software and payroll providers to deliver the measure for April. Its delivery to an April timeline would see millions of individuals paying the incorrect amount of NICs at the start of the tax year, in just two weeks’ time. There would then be an additional administrative burden on employers, who would have to manually re-run the payroll once the software was ready. As my hon. Friend the Member for Wrexham (Sarah Atherton) said, the earliest that we can deliver the policy and it can be implemented by all software developers is July. That will avoid millions of taxpayers having to make manual claims for refunds.

Overall, the delivery timetable strikes the important balance between ensuring that individuals see the benefits of the increase as early as possible and allowing employers and payroll-software providers sufficient time to update and test their systems so that the change is delivered smoothly and individuals can enjoy the benefits at the same time. I hope the hon. Member for Bath will withdraw her amendment for the reasons I have outlined.

Let me turn to the new clauses in combination, because they address similar matters. On the points that Members made about poverty, if we look back at the past 10 years, we see that around 1.3 million fewer people are living in poverty, half a million fewer children are growing up in workless households and hundreds of thousands fewer children are living in poverty.

[John McDonnell]

I do not want the Minister to miss the point of new clause 1. I understand why she is setting out the statistics as she understands them, but they are contested. Nevertheless, the point I was trying to make with my new clause is that the Government should always publish a full report on their assessment of the implications of their legislation for both low pay and poverty, and that that report should include their assessment of the other options available to them that they could have taken. It is a simple measure that I hope would apply to all Governments of whatever political colour.

[Lucy Frazer]

I was going to come to the distributional analysis of the spring statement. The analysis in the document “Impact on households: distributional analysis to accompany Spring Statement 2022” shows that

“government policy continues to be highly redistributive; in 2024-25, on average, households in the lowest income decile will receive over £4 in public spending for every £1 they pay in tax”.

It also shows that

“in 2024-25, the poorest 60% of households will receive more in public spending than they contribute in tax”

and that

“on average, the combined impact of personal tax and welfare decisions made since SR19 is progressive, placing the largest burden on higher-income households as a proportion of income.”

[John McDonnell]

I do not want to labour the point. I have read the analysis of the impact on households; it is always very helpful, but it does not address the issue of low pay and poverty, or other policy options that could be considered. I make the point for the future. I know it is impossible to address now, but I think such a report should be published automatically. If the Government do not publish it, maybe a report should be published by the OBR or some other body that we establish to enable that to happen.

[Lucy Frazer]

I recognise the point made by the right hon. Member and I will of course consider it for the future. Considering a variety of hypothetical scenarios is time-consuming, which is why that is not traditionally done, but I will take his point away and consider it further.

I reiterate some of the points we discussed on Second Reading only a moment ago about the impact of the measures on those in lower pay and on universal credit. As hon. Members know, there was an autumn Budget not very long ago, followed now by this spring statement. In the autumn Budget, the Chancellor started the journey of helping to support those on lower pay through the tax system. He announced the first tax cut on his journey to cut taxation—the cutting of the taper rate, which will put £1,000 into the pockets of those on universal credit.

Hon. Members will already know about the increase in the national living wage. They will have seen the £1 billion household support fund, which is helping people in all our constituencies, building on other measures that were announced at the autumn Budget. More recently, we have provided £9 billion in energy support. There is the increasing generosity of the local housing allowance for housing benefit and the holiday activities and food programme. The Chancellor’s plan for jobs—the Conservative plan—whether through the kickstart scheme, the restart scheme, work coaches or boot camps, is to ensure that, where people can get into work, they get into work, and they are upskilled so that they earn more for themselves.

On new clause 4, the increase to the primary threshold and the lower profits limit is a tax cut on earned income that will benefit almost 30 million working people.

[Clive Efford]

Will the Minister give way?

[Lucy Frazer]

I will just finish this point; I will come back to the hon. Gentleman. We are introducing a tax cut for a typical employee that is worth more than £330 in the year from July 2022. The impact of the provisions in the Bill have already been published in a tax impact information note published on gov.uk, and the impact of the income tax basic rate cut will be published ahead of implementation in 2024.

The hon. Member for Bath raised a question about landlords. We have taken steps over several years to ensure that landlords pay a fair tax contribution.

In April 2016, we introduced a higher rate of stamp duty land tax for those purchasing additional properties, recognising that, although the private sector plays an important role in our housing market and people should be free to invest in buy-to-let properties, the purchase of additional properties can affect the ability of other people to get on to the property ladder. We also restricted finance cost relief so landlords no longer get relief at their marginal rate if they are a higher or additional rate taxpayer. Finally, we maintained the 8% higher rate of capital gains tax for landlords compared with the rate for other taxable gains.

[Wera Hobhouse]

Will the Minister give way?

[Lucy Frazer]

I am going to give way to the hon. Member for Eltham (Clive Efford) first. He is probably going to ask about the previous point.

[Clive Efford]

I am wondering whether the Minister missed new clause 2, because she did not address the problem. Yes, increases were introduced in the autumn Budget last year, but this year, people are getting less than they were anticipating due to the increase in the threshold of national insurance. People were being told yesterday that they should get an extra £330, but they will actually get less than half of that. What is the Government going to do about that? The Treasury is clawing back several hundred million pounds from some of the poorest workers in the country.

[Lucy Frazer]

I do not know whether the hon. Member was in the Chamber when the right hon. Member for East Ham (Stephen Timms) raised this point and I addressed it. He is right to point out that an individual may be affected by the taper, but overall they will be better off as a result of this change. If those people are earning below the work allowance, they will get the full benefit. I reiterate that the changes that we have already made mean that those who are on universal credit will benefit by £1,000 from the cut to the taper rate.

[Wera Hobhouse]

I accept that the Government might have done all sorts of other things to put restrictions on landlords, but would it not be interesting to know the difference between earned and unearned income in relation to the measure introduced by the Chancellor yesterday?

[Lucy Frazer]

As the hon. Member knows, the threshold increase will largely affect those who are working, because it is a tax that relates to working people, and the income tax cut that we have announced will, obviously, affect those who pay income tax.

The hon. Member for Ealing North (James Murray) made a number of points. He asked when the Chancellor decided that he would implement this change to the threshold. In considering a tax policy, it is not decided that something will be implemented on a particular day. A whole process needs to be followed, including ensuring that the relevant documents are put before the House. The hon. Member will be aware that that involves a Bill, an explanatory memorandum and a TIIN. He will know, because he will have heard the Chancellor and other Treasury Front Benchers say so on many occasions in the House, that the Chancellor has been considering for some time how he can help those who might be impacted by the cost of living issues that we currently face. It is appropriate, where measures are taken in relation to tax, that they are broadly taken at fiscal events.

The hon. Member also made a slightly contradictory point. He asked why we had not introduced the measure sooner, in March perhaps, and then suggested that it was being introduced too late because we were delaying it until July. He seemed to be criticising us both for not bringing it in earlier and for not giving him sufficient time to consider it, but I have mentioned all the things we need to do before introducing it in July.

The reason that the measures will be brought in through regulations is that we need to consult, including those who will be doing the payroll. The need to consult was one of the points made by the Low Incomes Tax Reform Group.

We have come to the end of what has been a useful Committee sitting that examined the detailed provisions of the Bill. The Bill seeks to align the threshold at which employees and the self-employed start paying NICs with the personal allowance for income tax. As well as simplifying the tax and NICs system, the measure ensures that hard-working families keep more of what they earn.

I thank hon. Members for their constructive contributions. I will, of course, look carefully at the record of the Committee debate and take forward any outstanding points.

[Wera Hobhouse]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 6 ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Bill read the Third time and passed.