Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023
(Limited Text - Ministerial Extracts only)
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Baroness Penn
That the Grand Committee do consider the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, I shall speak first to the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2023. These regulations set the national insurance contributions limits and thresholds, as well as the rates of a number of national insurance contributions classes, for the 2023-24 tax year and make provision for a Treasury grant to be paid into the National Insurance Fund if required. While the scope of the regulations under discussion today is limited to the 2023-24 tax year, I will also note where the Chancellor has committed to maintain certain thresholds at their current levels in future years.
National insurance contributions, or NICs, are social security contributions. They allow people to make contributions when they are in work in order to receive contributory benefits when they are not working, for example, when they are retired or if they become unemployed. NICs receipts go towards funding these contributory benefits, as well as the NHS.
I begin with NICs for employed and self-employed people. 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. In the Spring Statement 2022, the Government raised the primary threshold and lower profits limit from £9,880 to £12,570 to align with the income tax personal allowance, fulfilling the Government’s ambition of ensuring that the first £12,500 earned by individuals is tax free. These changes were implemented in July 2022. In the Autumn Statement 2022, to ensure that the tax system supports strong public finances and that those who are able to pay more do so, the Chancellor announced that these thresholds would be fixed until 2028.
At the same time, the Government are fixing the lower earnings limit, which will remain at £6,396 per annum, or £123 per week, in 2023-24; and the small profits threshold, which will remain at £6,725 in 2023-24. Fixing these thresholds will mean that more low-earning working people will still gain entitlement to contributory benefits and build up qualifying years towards their state pensions without paying NICs.
In the Spring Statement 2022, the Government also announced that self-employed individuals with profits between the small profits threshold and the lower profits limit will continue to build up national insurance credits without paying any class 2 NICs. Class 2 NICs will now be paid above the newly introduced lower profits threshold, which is also set at £12,570 to align with the NICs lower profits limit for class 4 NICs—again delivering the pledge that the first £12,500 earned is tax free.
The upper earnings limit, which is the point at which the main rate of employee NICs drops to 2%, and the upper profits limit, which is the point at which the main rate of self-employed individuals’ NICs drops to 2%, are aligned with the higher rate threshold for income tax. That threshold will also be fixed at £50,270 until April 2028.
The flat cash rate of class 2 NICs will increase from £3.15 in 2022-23 to £3.45 in 2023-24, in line with inflation. Self-employed people earning below £6,725 may pay class 2 NICs voluntarily to protect their entitlement to certain contributory benefits.
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 £15.85 a week in 2022-23 to £17.45 a week in 2023-24.
Lord Tunnicliffe (Lab)
My Lords, I too thank the Minister for setting out these two instruments. I also thank my noble friend Lady Lister for her attention to the detail of these matters and to the ease with which an apparently rational change can compound itself through the complexity of the rules into extremely unhelpful marginal tax rates. I hope the Minister will give her some comfort that there will be some review in the foreseeable future of the very high marginal tax rates emanating from these complex rules.
The Minister outlined an increase in tax credits, child benefit and guardian’s allowance of 10.1%—that is, CPI inflation between September 2021 and September 2022. While acknowledging that further instruments are to come on other social security benefits, I will make some general points about the current economic context and the Government’s approach.
Families across the country have faced an incredibly difficult time of late, with household bills climbing significantly. Although there has been energy support for low-income households, there has not been equivalent help as they face soaring food, phone and broadband bills. Food inflation has been running at far higher than 10% for many months, leading many households to cut back and to a worrying number of parents skipping meals to provide for their children.
The Government’s reluctance to commit to the usual uprating process when asked has caused a significant amount of anxiety for social security claimants across the country. For months, successive Prime Ministers and Chancellors—we have had many of each—ducked the question and even floated alternatives such as lower percentage increases or lump-sum payments. We are glad that the current Chancellor finally did the right thing, but I hope the Minister will acknowledge that months of indecision were not helpful for household planning or people’s mental health.
The second instrument gives effect to the annual re-rating of national insurance contribution rates, limits and thresholds. Although the Autumn Statement fixed many of those rates limits and thresholds at the 2022-23 level, some of them—class 2 and class 3 contributions—were increased by 10.1%. This will bring tens of thousands of individuals into national insurance by the 2027-28 tax year. However, the Government have not been prepared to specify what the practical impact will be. The statutory instrument’s Explanatory Memorandum refers to a small tax increase in cash terms but, with household budgets as stretched as they are, any increase is likely to cause concern. This was the subject of a debate in another place, but Minister Atkins was unable to provide a figure. Can the Minister do so today?
We do not oppose these measures, so I will not detain the Committee any longer. However, once again, I hope that the Minister will acknowledge that the Government could have provided certainty sooner. Let us hope that they do better later this year.
Baroness Penn (Con)
My Lords, I thank both noble Lords for their contributions to today’s debate.
I am glad that the noble Baroness, Lady Lister, recognised the significant uprating of child benefit brought forward in these regulations. I note her point about the overall value of child benefit if you look at it over a longer time period. Child benefit is one of many ways in which the Government support families with children. Over the same period, we have introduced other significant measures, such as free school meals for infants and 30 hours of free childcare.
On the figures and analysis that the noble Baroness brought forward on the child benefit high-income charge, I am afraid that I cannot confirm them as they go beyond the scope of the regulations we are discussing, but I will take her comments back to the Treasury and ensure that they are considered properly.
Baroness Lister of Burtersett (Lab)
I am grateful to the Minister for that. However, can I also point out that there may be other forms of support but, in terms of financial support for children, it is not just child benefit that has been cut in real terms? All financial support for children has been cut in real terms: tax credits, universal credit, whatever. The fact is that families with children have been disproportionately hit by austerity.
Baroness Penn (Con)
In some ways, that takes me on to the comments from the noble Lord, Lord Tunnicliffe, about the broader decision to uprate benefits by 10.1%, which has been welcomed across both Houses, at a time when families face significant pressures. That process followed the normal course for the uprating of benefits.
It is important to recognise that other significant support has been put in place at the same time to help those families to which the noble Lord referred. This includes not just energy support through the £400 energy bills support scheme and the £150 council tax rebate scheme for most households living in a property in council tax bands A to D; it also includes the targeting of support for millions of the most vulnerable households through cost of living payments, which were targeted specifically at those on means-tested benefits, pensioners and those who receive disability benefits, who are less able to meet those cost of living pressures. That has been at the forefront of the Government’s mind. Benefits uprating has been an important part of addressing that, but we took action in advance of the uprating; that support continues into next year.