National Insurance Contributions (Reduction in Rates) (No.2) Bill

(Limited Text - Ministerial Extracts only)

2nd reading
Wednesday 13th March 2024 Commons Chamber

[The Exchequer Secretary to the Treasury (Gareth Davies)]

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

For the second time this year, we are cutting taxes for 29 million working people across the country—something that is particularly remarkable in the aftermath of the worst pandemic in 100 years, the worst war in mainland Europe since 1945, and the highest energy spike since the 1970s. The Government have had to take difficult decisions to restore the public finances, and those decisions are starting to pay off. Our economy is growing, and debt is forecast to reduce. Inflation is down significantly, unemployment is at near-record lows, and wages are rising. As the outlook improves, our priority is to return money to working taxpayers while keeping the public finances on track.

We believe that the tax system should be fair and simple, and should reward hard work, yet the way we tax people’s income is particularly unfair. People who get their income from having a job pay two types of tax: national insurance contributions and income tax. People who get it from other sources pay only one. The result is a complicated system that does not support work as best it could. For that reason, the Bill will build on the changes to national insurance contributions in the autumn statement.

The Bill contains two measures: a reduction in the NICs employee class 1 main rate, and a reduction in the NICs class 4 main rate. Both measures are important. Allowing working families to keep as much of their hard-earned money as possible is a priority for the Government. The Chancellor has always been clear that when we can cut taxes, we will.

[Mr Louie French (Old Bexley and Sidcup) (Con)]

My hon. Friend is making a great speech, and I fully support the Government’s efforts to reduce the taxes of working people, alongside the pledge to increase the money going to pensioners through the triple lock. Does he agree that it is disgraceful that, while the Conservatives are working hard to cut taxes and help working people, Labour is increasing the share of council tax for all Londoners, and hitting drivers with charges of up to £12.50 per day thanks to the ultra low emission zone?

[Gareth Davies]

My hon. Friend is consistent in holding the administration in London to account. He is right: as we are still not out of the woods when it comes to the cost of living crisis, the Conservative party has made it clear that we disagree with the Mayor of London’s approach of making motorists poorer.

As I said, building on the changes in the autumn statement, we will once again be supporting working families by reducing the main rate of employee class 1 NICs by two percentage points to 8% on earnings between £12,570 and £50,270 from 6 April 2024. That will cut taxes for over 27 million employees. The average worker on £35,400 a year will save £450 a year, and the majority will see the benefit in their payslips at the start of the new tax year. Taken together with the cuts to NICs in the autumn statement, this tax cut is worth some £900 a year to the average worker.

In addition, we are implementing a further reduction in the main rate of class 4 NICs for the self-employed. The Chancellor announced in the autumn statement that the main rate of class 4 will be reduced from 9% to 8% from 6 April. Today, we are cutting the rate by an additional two percentage points from 8% to 6% from April 2024. That is a total cut of three percentage points in just six months. Combined with the abolition of the requirement to pay class 2, which was announced in the autumn statement, that will save an average self-employed person £650 a year, and benefit over 2 million people across the country.

Together with the autumn statement cuts, this is an overall tax cut worth some £20 billion per year—the largest-ever cut to employee and self-employed national insurance. Because of the action that we have taken, the average earner in the UK now has the lowest effective personal tax rate since 1975. The Government are committed to tax cuts that reward and incentivise work and that grow our economy sustainably and boost productivity. The Office for Budget Responsibility has said that the national insurance cuts announced in the spring Budget will increase the total hours worked by the equivalent of almost 100,000 full-time workers by 2028-29. Because of the cuts, just over 30,000 people will move into work. These reductions in tax will drive more people to seek employment. This is our plan for a simpler, fairer tax system that makes work pay.

[Alexander Stafford (Rother Valley) (Con)]

My hon. Friend is making a powerful Conservative speech about the importance of not just cutting tax but getting more people into work. Has the Department estimated how much more tax revenue will come in as a result of more people working because of these changes, so that we can show that lower taxes actually increase tax revenues for the Exchequer?

[Gareth Davies]

My hon. Friend is right to point that out. A fundamental benefit of reducing tax is that it improves growth in our economy, because more people will be in work and working longer hours. That obviously generates more productivity for our economy, and ultimately more tax revenues for the Exchequer. It is a fundamental Conservative principle that we want lower taxes, and we are delivering that today because it is fiscally responsible to do so, and we are able to do so.

[Anna Firth (Southend West) (Con)]

I am grateful to my hon. Friend for making such a powerful case for cutting taxes, a fundamental Conservative principle. The Bill will put £960 back into the pocket of the average worker in Southend, who earns £36,400, and will put £1,920 back into the pockets of a family in Southend with two people on the average wage. Does he agree that that is a considerable and welcome tax cut for hard-working people in Southend?

[Gareth Davies]

My hon. Friend is right to point that out. I would add to those figures: since 2010, we have lifted millions of people across the country, including in Southend West, out of paying any tax at all by doubling the point at which people start paying tax in our country. People can now earn £1,000 a month without paying any tax, and that is a great achievement of a Conservative Government.

Although I welcome the fact that Labour Members will apparently vote for our tax cuts today, I hope that they will forgive me for sounding slightly sceptical about their sudden conversion to the cause of lower taxes for working people. While they do not oppose the measures, they also did not propose them. In fact, Labour has consistently voted against successive Conservative-led tax cuts between 2010 and 2021, which delivered a doubling of the personal allowance, as I mentioned to my hon. Friend the Member for Southend West (Anna Firth). On the one hand, they bemoan the level of taxation, but cannot tell us a single tax that they propose to cut, or what the level of taxation would be under Labour. On the other hand, the shadow Chief Secretary to the Treasury, the hon. Member for Bristol North West (Darren Jones), described our ambitions to remove unfairness in the tax system as “morally abhorrent”. Labour Members still cannot tell us how they will pay for their many spending commitments. They are completely all over the place. It is only the Conservatives who truly believe in reducing taxes on working people.

[Richard Fuller (North East Bedfordshire) (Con)]

The Minister is giving a clear explanation of why the Conservatives want to cut tax, and the economic benefits of cutting taxes for working people. He will know that the origins of national insurance were basically a form of social insurance: having paid national insurance, it would look after us later in life. The Labour party took the insurance out and put the socialism in, which is why we have ended up with a system that is essentially the same as income tax. As we think beyond today’s welcome cuts to what is in the Opposition new clause, has the Minister thought about using any further cuts to go into the compulsory savings of individuals introduced under the coalition Government after 2010—essentially building, in place of a dependency state, a savings state built on Conservative principles?

[Gareth Davies]

Yet again my hon. Friend makes a valuable contribution. I commit to taking his idea away to consider, as we look at reducing the unfairness in the tax system in future and reducing national insurance contributions when it is prudent and responsible to do so.

The Labour party is completely all over the place on this. As a Conservative Government, we have delivered a clear message to the British people, and it is based on the delivery of the lowest personal taxation level since 1975. We have almost doubled the personal allowance, bringing the lowest earners out of paying any tax at all, and we have delivered a thriving jobs market, which is ultimately the best way to ensure that people are brought out of poverty.

[Clive Lewis (Norwich South) (Lab)]

I hope to speak a bit later on this. I may have a slight difference of opinion with the Minister on tax cutting, but I want to deal with the facts as I see them. He is making a great amount of noise about the tax-cutting vim and vigour that his party has had over the past 10, 20 or 30 years, or even longer than that—it is meant to be something that goes to the heart of the Conservative party—but according to the OECD, for every £1 generated in the UK, the Government collect 35.3p of it as tax. That figure is projected to keep on increasing to 37.7p by 2029, despite this 2% tax cut. Can the Minister explain how, if the Conservatives are the party of tax cuts, actual tax levels will in fact be going up, according to the OECD? How do the Government square that circle?

[Gareth Davies]

I am grateful for the opportunity to clarify that, because there has been a lot of noise from the Labour Benches, too. It is true that we have had to make some difficult decisions about overall taxation on the back of the pandemic, but today we are cutting taxes on work, because that is the way to grow our economy. As I said, we now have the lowest personal taxation level since 1975. Some taxes have gone up, absolutely—supported by the Labour party—as we have increased tobacco duty and other items, for example, but we are focused on ensuring that if people are in work and have a job, their tax level will be reduced. Today, that work of reducing tax on work continues. We are cutting taxes for millions of people across this country. That is why I commend the Bill to the House.

--- Later in debate ---

[The Financial Secretary to the Treasury (Nigel Huddleston)]

I thank all right hon. and hon. Members for their contributions. I think it would be fair to say that a range of perspectives have been presented, but most of us—certainly on the Government Benches—agree that this is an important piece of legislation. It will deliver tax cuts that make the tax system fairer, while rewarding and incentivising work, and growing the economy in a sustainable way. The national insurance cuts are an important part of that, and they are policy.

I want to respond to the confusion of the hon. Member for Hampstead and Kilburn (Tulip Siddiq), which is understandable given that we have heard promises, policies, aspirations and ambitions from the Labour party in relation to the £28 billion. Let me be clear: it is my party’s ambition to eliminate national insurance. I know that Labour Members do not understand what the word “ambition” means and that it is difficult, but it is an ambition. That is the difference.

I will briefly reiterate the Bill’s main measures and what they seek to achieve. First, the Bill builds on the cuts to national insurance announced in the autumn statement by reducing the main rate of class 1 employee NICs from 10% to 8%. That change will come into effect from 6 April 2024, with employees benefiting from April onwards as employers make the changes to their payroll systems. Secondly, the Bill reduces the self-employed class 4 main rate of NICs from 8% to 6% from 6 April. That follows on from the one percentage point reduction to the main rate of class 4 NICs from 9% to 8% announced in the autumn statement 2023.

Now that inflation is falling and the economy is improving, as we saw in this morning’s figures, which I am sure the Opposition welcome, we can responsibly return some money to taxpayers, but it is important to do so in a way that supports work and grows a sustainable economy for the future. A UK employee can already earn more money before paying income tax and social security contributions than an employee in any other G7 country, and thanks to the NICs cuts in the autumn statement and the spring Budget and above-inflation increases to thresholds since 2010, an average worker on £35,400 in 2024-25 will pay over £1,500 less in personal taxes than they would have done if the thresholds had just increased in line with inflation. As my hon. Friend the Member for St Austell and Newquay (Steve Double) pointed out very well, in contrast to the comments of the hon. Member for Hampstead and Kilburn, we have reduced the amount of tax paid by increasing the threshold from £6,500 to more than £12,500 over the period in which we have been in office. Labour opposed many of those threshold increases.

My hon. Friend the Member for St Austell and Newquay also made the important point that the measures we have taken in recent fiscal events have been focused on helping 29 million workers. Some 27 million employees will benefit from an average £900 saving in national insurance, but of course, we also care deeply about pensioners. Those on the full basic pension will receive an extra £700 in April and those on the full new state pension will receive an extra £900, so 12 million pensioners will also benefit from the significant increases that we will provide through the triple lock. Of course, it is perfectly fair that workers also get some advantage—they will be receiving the benefits I have outlined. The Government are cutting taxes in a responsible way, and have taken difficult but responsible decisions to restore the public finances in the wake of global crises.

[Drew Hendry]

The Minister has used the word “responsible” a number of times. As has been pointed out by many organisations, not least the Institute for Fiscal Studies and the OBR, there will be substantial cuts to public services. With many English councils already in special measures—effective bankruptcy—where does the Minister see those cuts falling? How will they filter through to the public, and what will be the effect on public sector jobs?

[Nigel Huddleston]

As the hon. Member will be aware and as the Chancellor outlined, based on current spending assumptions, total departmental spending will still be £86 billion higher in real terms by 2028-29 than at the start of this Parliament. If he was listening to the debates earlier this week, he will be aware that we will increase spending in real terms by 1% during the forecast period.

The hon. Member and others have raised points about fairness and making sure that we look after the most vulnerable in society, which is of course something we are committed to. Distributional analysis published alongside the spring Budget shows that the typical household at any income decile will see a net benefit in 2024-25 as a result of Government decisions made in the autumn statement—and, indeed, from the autumn statement 2022 onwards—and that low-income households will see the largest benefit as a percentage of income.

We have mentioned many times our commitment to the national living wage. It will soon increase by 9.8% to £11.44, which is expected to benefit around 2.7 million workers. It is important to stress that from April, a full-time national living wage worker’s take-home pay will be 35% greater in real terms than it was in 2010, due to successive increases in the national living wage and changes to personal tax rates and thresholds.

To respond to a few other comments made by right hon. and hon. Members, my right hon. Friends the Members for Witham (Priti Patel) and for Wokingham (John Redwood) both gave excellent speeches, in which they not only championed workers—including the self-employed—but highlighted the fact that we have to operate in a particular context. As has been mentioned many times today, we are in a difficult financial situation because of a global pandemic that hit the global economy, which was followed by the invasion of Ukraine and the significant impact it had on inflation around the world.

The question, as my right hon. Friend the Member for Wokingham pointed out, is how much higher taxes would be if Labour had been in charge. Throughout the pandemic, the Government received a lot of support from Members on both sides of the Chamber. That was completely right, but many Members were calling for even greater intervention and even longer lockdowns, which would potentially have done immense damage to the economy.

Some hon. Members raised the contributory principle. In our ambition for further reductions in national insurance, we will make sure that the future tax system has the right mechanism for establishing entitlement to contributory benefits, including the state pension. My right hon. Friend also mentioned the rise in the VAT threshold, which is really important. It will go from £85,000 to £90,000, which means that 28,000 fewer small businesses will be registered for VAT. My hon. Friend the Member for Ruislip, Northwood and Pinner (David Simmonds) highlighted this Government’s record on jobs in creating 800 jobs a day and in significantly reducing youth unemployment, of which we can all be proud.

My hon. Friend the Member for Aberconwy (Robin Millar), who raised many important points in his speech, pointed out the rather irresponsible scaremongering we have heard today from those on the Labour Front Bench relating to spending on pensions and the NHS. The Opposition should be well aware, especially if they wish to form a Government, that the money raised by NICs does not determine the amount going to the NHS and state pensions. We have announced increasing funding to the NHS and we are uprating state pensions by 8.5% this year, as I have mentioned. We on these Benches can tolerate a decent debate—we are fairly robust— but we will not tolerate irresponsible scaremongering, especially when targeted at the most vulnerable in society, purely to try to take political advantage from making up policies that do not exist. I hope that at some point the Opposition will either get some economic competence or apologise for that.

This really important Bill delivers tax cuts for over 29 million working people. A yearly saving of over £450 for the average worker will result from this Bill alone. Taken together with the cuts to NICs at the autumn statement, it will be worth over £900 per year for the average worker. This will benefit households throughout the United Kingdom and in every single constituency represented in this place. However, here we are again, and in nearly three hours of debate, we have heard nothing but doom and gloom from the Opposition. How disappointed they must have been this morning to hear that the economy has grown. While I am not pretending for one minute that everything is perfect—as I have said, our constituents and the country have been through a very challenging time—it is important to recognise, welcome and applaud success, especially if a party wants to lead a country, champion trade abroad and attract investment. What a terrible advert for the UK we have heard from the Opposition today, who are completely lacking in confidence and ambition for our economy and our workers.

The national insurance cuts we are debating reward work and will provide a further boost to the economy. We are turning a corner, and the plan is working. While we want to put more money back into people’s pockets, the Opposition want to take more out, and while we take every opportunity to talk the country up, they take every opportunity to talk Britain down. The choice is very clear: a plan for growth and a brighter future with the Conservatives, or no hope, no clue and no plan with the Opposition. I commend the Bill to the House.

[Mr Deputy Speaker (Mr Nigel Evans)]

Should there be a vote on the amendment, 10 minutes will be allowed, and if there is then a vote on Second Reading, eight minutes will be allowed.

Question put, That the amendment be made.

--- Later in debate ---

16:33

Division 90

Ayes: 44

Noes: 300

Question put forthwith (Standing Order No. 62(2)), That the Bill be now read a Second time.

--- Later in debate ---

16:47

Division 91

Ayes: 304

Noes: 43

Bill read a Second time; to stand committed to a Committee of the whole House (Order, this day).