Employer National Insurance Contributions
(Limited Text - Ministerial Extracts only)
Read Full debate18:57 - The House divided: - Ayes: 165 / Noes: 334 - Question accordingly negatived.
The Chief Secretary to the Treasury (Darren Jones)
The shadow Chancellor made a number of interesting points, and I will give him the courtesy of going through a number of them. He talked about how this Government are risking inflation, when his Government sent it spiralling to the highest level in a generation. He said that Labour Members are talking down the economy, when his Government crashed it. He said that Conservative Members disagreed with the measures in the Budget, specifically in relation to national insurance contributions, but not one alternative option was laid out in his speech.
The public have a right to know what his choices would be: would the Conservatives want to increase income tax on workers or VAT in the shops, or would they like to increase corporation tax again on business? Would they like to cut tens of billions of pounds from public services or borrow more money every single day to pay the bills, or continue to make a black hole in the public finances? He suggested that the Labour party’s transparency with the country about the £22 billion black hole that the Conservatives left was not real, but they know that they created it. The sooner they say sorry to the country, the sooner the public might start listening to them once again.
I will finish with a positive comment. The shadow Chancellor said that his party was a “job-creating machine”. I am very grateful for the number of former Conservative MPs they have released into the labour market, given how many vacancies we have filled.
In her Budget statement on 30 October, the Chancellor set out the difficult decisions that the Government needed to take on welfare, spending and tax. Those decisions were not just difficult but necessary, given the fiscal irresponsibility and economic mismanagement of the Conservative party over the past 14 years. I welcome a debate on the choices, as I hear Members say from a sedentary position, “Choices, choices, choices.” What are yours? You should set that out to this House and you—[Interruption.] The party opposite should set them out to the public.
Madam Deputy Speaker
Order. The Chief Secretary might like to reflect that when he says, “What are yours?”, it means, “What are mine?” They are not my choices. Can he please be careful not to use “you” and “yours”?
Darren Jones
Thank you, Madam Deputy Speaker. To be very clear and to correct the record, the Conservative party should tell the country what its choices are. I am all ears.
The Labour party inherited a mess and we, as a responsible party of government, have needed to take measures to fix the public finances, fund the national health service and other public services, and deliver economic stability. We have been determined to take those decisions while protecting working people, which was our manifesto commitment. That is why the Budget made no changes to income tax, the rate of VAT or the amount of national insurance working people will pay. As a result of our Budget, people will not see a penny more in tax on their payslips. Yet keeping those promises while getting the country back on track meant tough decisions elsewhere in the tax system—choices and decisions that we are willing to take.
Graham Stuart
Perhaps with the assistance of the Exchequer Secretary to the Treasury behind him, the right hon. Gentleman might be able to answer a question that other Treasury Ministers have not been able to: why did the OBR make a correction in table 3.2 in chapter 3? It was originally suggested that £5.5 billion would be provided for compensation
“to public sector employers and adult social care”.
That was then corrected to remove any reference to social care and the number was cut by £800 million. Can the right hon. Gentleman explain what caused the OBR to make that correction and when it was decided that social care was not worth support?
Darren Jones
The right hon. Gentleman might in future give me advance notice of specific references to documents so that I can refer to them. I cannot tell him about table 3.2 in the OBR document because it is not here, but we will of course get an answer to him. He may wish to consider why the OBR said that had the Conservative party been more transparent about its time in government, its forecast would have been materially different. The shadow Chancellor was unable to provide an answer to that in response to interventions from colleagues from around the House.
That inheritance is why, at the Budget, we took the decision to increase national insurance contributions for employers while increasing protections for small businesses and charities. The Government increased the main rate of employer secondary class 1 national insurance contributions from 13.8% to 15%.
Several hon. Members rose—
Darren Jones
I will give way in a second. We have decreased the secondary threshold for employers, which is the threshold above which employers begin to pay employer national insurance contributions on their employees’ salaries, from £9,100 to £5,000. At the same time, we have increased protection for small businesses by more than doubling the employment allowance from £5,000 to £10,500.
Luke Taylor (Sutton and Cheam) (LD)
The national insurance hike will impact on small businesses, which form the backbone of our local economies as fixtures on our high streets across London and across my Sutton and Cheam constituency, including in Worcester Park and North Cheam. Will the right hon. Gentleman join me in recognising that Small Business Saturday is this weekend? Does he agree that the Government might take this opportunity to rethink the national insurance hike and the impact on small businesses, which will be suffering this week and beyond?
Darren Jones
We have factored small businesses into the design of our policy, in terms of both employer national insurance contributions and our commitment to permanent lower rates for business rates than were given under the previous Government, as well as other support for the high street. We are also expanding eligibility to the employment allowance by removing the £100,000 eligibility threshold to simplify and reform employer NICs so that all eligible employers can now benefit.
Changes to the employment allowance mean that around 250,000 employers will see their national insurance contributions liability decrease, and more than 1 million will pay the same or less than they did previously. Overall, that means that more than half of businesses with NICs liabilities will either see no change or will gain overall from the package. That design was put in place specifically to protect the small businesses that the hon. Gentleman raises. That means that 865,000 employers will not pay national insurance at all, enabling them, for example, to employ up to four full-time workers on the national living wage and pay no employer NICs. Employers will also continue to benefit from employer NICs relief, including for hiring workers aged under 21 and apprentices aged under 25. To support veterans, the Government are extending the national insurance contributions relief for employers of qualifying veterans for one year to April 2026, and we have set aside funding to protect the spending power of the public sector, including the national health service, from the direct impacts of the changes.
Even after accounting for the impact of this change, the OBR expects real wages to rise by 3% between now and the end of the forecast period, but we recognise that there will be impacts on employers. While many small businesses and charities will be protected through employment allowance, others will have to contribute more. There will also be impacts beyond business, as the Office for Budget Responsibility has acknowledged.
Mr Perkins
My right hon. Friend and I spent many years in opposition, and have spoken in many Opposition day debates. Does he agree that when the Opposition move a motion like today’s, which says that the Government should not do something without making any alternative suggestion about what they should do, it is a sign that the Opposition have not worked out their answer to the question? At some point, I hope that the Opposition will be able to help the country and the Government by having some policies, but does he agree that, until they do, the Government will just have to crack on as best they can on their own?
Darren Jones
I agree with my hon. Friend, and I encourage Opposition Members to put forward proposals. I am all ears. I am willing to listen to them, but so far all we have is opposition and no policies. Maybe that will change in the future.
The motion claims that the Government have not set out any impact assessment of the policy change, but the Government published a tax information and impact note on 13 November that explained the Government’s assessment of the policy, including its impact on businesses and the economy more widely. This was a difficult choice, and it is not one that we have taken lightly, but it is the right choice given the dire economic inheritance that the Government faced upon taking office, and the need to fix our broken public services. As the Chancellor set out in the Budget, healthy businesses depend on a healthy NHS, and a strong economy depends on strong public finances.
Wendy Morton (Aldridge-Brownhills) (Con)
On the NHS and choices, does the right hon. Gentleman not accept that the Government have chosen to clobber organisations and charities such as air ambulances and the hospice movement—the very organisations whose help the Government will need to improve services for the general public? As we asked yesterday, will he consider an exemption?
Darren Jones
As my right hon. Friend the Health Secretary has made very clear, when the Labour party came into government the NHS was broken. Why? Because of actions taken by the Conservative party over the last 14 years. That is why the Government have to take decisions to get a grip of the public finances and our public services. The changes are necessary in order to draw a line under instability, so that businesses can plan for the future, and to ensure that the NHS will receive an extra £22.6 billion to deliver 40,000 extra elective appointments a week. That vital new funding will create an NHS that is there when we need it, and the Government will achieve that within our tough fiscal rules—rules that will bring an end to borrowing for day-to-day spending, which was completely out of control when the Conservative party was in government.
Madam Deputy Speaker, you might think that, having called for higher NHS spending over the weekend, the Opposition would recognise the need to take tough but necessary decisions on the public finances in order to pay for it, but it seemed from the speech of the shadow Chancellor that that is not the case. Perhaps the Opposition might take the opportunity today to explain how they will raise the £25 billion that the changes provide for, but which they will not support. How else do they intend to pay for the new appointments and better services that the funding offers? What tough decisions would they make to repair the public finances and put our economy on a sustainable footing?
The Opposition’s double standards on this issue only go to show why they are not trusted on the economy: they have given up any pretence of fiscal responsibility. We recognise that the decision to increase employer national insurance will have impacts. Although the changes to employment allowance will help to protect small businesses and charities, other measures mean that larger businesses and organisations will have to make difficult decisions. However, as the Chancellor set out, this was a once-in-a-generation Budget. The difficult decisions we took meant that we were able to wipe the slate clean from the previous Government’s economic and fiscal mismanagement. Public services will now need to live within their means on the budgets we have set for them for the rest of this Parliament.
The Budget delivered economic stability and fiscal responsibility so that we can take the steps necessary to boost investment, fix our public services and grow the economy. That fiscal responsibility is only possible when Governments are willing to take tough decisions. This Government will not shy away from those tough decisions and will do what is right to fix the foundations of our economy, despite the dire inheritance left by the Conservatives. The shadow Chancellor said we were hiding in the past and not facing the future. I say to him: we are running to the future, dealing with the challenges and delivering for the British people.
Several hon. Members rose—
Paul Holmes (Hamble Valley) (Con)
It is a pleasure to follow the hon. Member for Makerfield (Josh Simons). I rise to speak in favour of the motion on the Order Paper in the name of the Leader of the Opposition.
I do not rise to speak in this House because I think the Labour party’s Budget is vindictive, but I do think that the national insurance rise we are debating today is a proposal that runs right through the Labour party’s DNA. Labour drives down growth, when growth should be the No. 1 priority for public services. It taxes the wealth creators and the small businesses, it borrows and makes the economic situation worse, and it is always the Conservative party that has to pick up the pieces after Labour has targeted the poorest people and smallest businesses in our society and made them suffer.
Ultimately, the lack of growth that the Labour party and every Labour Member have signed up to means that public services will suffer, fewer jobs will be created and more businesses will close. I gently say to the Chief Secretary that he challenged us repeatedly to outline what we would do instead of this measure to make sure that we can fund public services, and I will tell him a few things that we would not do. [Interruption.] Well, I will tell him in a minute, and he can intervene and elaborate, and I will get an extra minute. As he asked me what we would do, I will tell him: we would increase growth, as was outlined by the OBR. We would have growth, and higher growth than this Government are proposing. However, what we would not be doing is borrowing as much as him and spending £9 billion on public sector pay rises for his trade union paymasters, funded from borrowing. Those are the things we would not do.
Darren Jones
The hon. Member tells the House that he would go for growth. How did that go when his party tried it last time?
Paul Holmes
I simply say—and the Chief Secretary should know this because he supposedly wrote the Budget that we voted on a couple of weeks ago—that growth forecasts were higher under the last Government than those of the Government for whom he is now leading in the Treasury. I say to the Government that business confidence is at the lowest it has been for years.
The Exchequer Secretary to the Treasury (James Murray)
I thank all right hon. and hon. Members for their contributions during the course of the debate.
This Government were elected with an immediate and critical need to draw a line under the fiscal irresponsibility and economic mismanagement of the Conservatives. Since day one in office, we have been determined to deliver economic stability, and we have done so by fixing the public finances, introducing tough new fiscal rules, and getting the NHS and other public services back on their feet.
It is on those foundations that we will boost investment and drive long-term economic growth to make people better off. This is not an easy task, as the Chancellor has said, but fixing those foundations is what underpins all the difficult but necessary decisions we have taken. It is the goal of fixing the foundations of our public finances and the NHS that has driven our decision to make the changes to employer national insurance contributions that we have been discussing today.
In taking the difficult decisions at the Budget, the Chancellor has been determined to protect working people. That is why our Budget made no changes to income tax, rates of VAT or the amount of national insurance that working people pay. As a result of our Budget, people will not see a penny more on their payslips. However, a £22 billion black hole in the public finances cannot be fixed without taking any difficult decisions at all. The Conservatives in government hid their heads in the sand and ignored the fiscal realities. Now, both they and other Opposition parties are desperate to have it both ways. They say that they support extra money for the NHS, but they refuse to back the measures to fund it.
James Murray
I have been very generous over the past 48 hours in giving way in this Chamber, but I will not. My time is very limited, although I would like to hear more about the plane the hon. Gentleman spoke about earlier.
We have made the tough but necessary choices that this set of circumstances requires, which is why we have decided to raise employer national insurance contributions. The changes broadly return national insurance revenues as a proportion of GDP to the levels they were at before the previous Government’s cuts to employee and self-employed NICs, but they do so in a way that does not result in higher taxes in people’s payslips.
They also do so in a way that increases protection for small businesses and charities, because we have decided to more than double the employment allowance to £10,500 and remove the business size threshold. That means that from April 2025, all eligible organisations will be able to employ up to four people on the national living wage without paying a penny of employer’s national insurance. Over half of all employers will pay the same or less national insurance than they did before, but we acknowledge that the decision will have an impact for other employers. Employers will have a choice about how they respond to the changes, and some of those choices will be hard.
I do not have enough time to respond to all the points raised by hon. Members directly, but I will briefly respond to the right hon. Member for Beverley and Holderness (Graham Stuart)—he has been intervening all afternoon but he is no longer in his place. He asked about table 3.2 in the OBR report. I am sorry to disappoint him, but my answer is nowhere near as interesting as I suspect he thought it might be; the table was simply published in error and has now been corrected. The Government provide support for Departments and other public sector employees with the additional employer national insurance contributions liability, and separately we have provided an additional 3.2% increase to local government spending power, including £600 million of new grant funding for social care.
I thank all the other hon. Members who made contributions: my hon. Friends the Members for Makerfield (Josh Simons), for Stevenage (Kevin Bonavia), for North East Derbyshire (Louise Jones), for Uxbridge and South Ruislip (Danny Beales) and for Rother Valley (Jake Richards), and the hon. Members for Hamble Valley (Paul Holmes), for Hazel Grove (Lisa Smart), for Rutland and Stamford (Alicia Kearns), for Wokingham (Clive Jones) and for Hornchurch and Upminster (Julia Lopez).
I want to briefly respond to the point of order made earlier by the hon. Member for South Shropshire (Stuart Anderson) because I welcome the chance to repeat the fact that the OBR said in October that its March forecast would have been “materially different” had it known what the previous Government did not share with it at the time of the March forecast. I am confident that the Hansard record is correct. It specifically includes “materially different” in quotations and not the rest of my statement.
I am grateful to have had the chance to respond on behalf of the Government to the questions that have been raised today. The decision to make changes to employer national insurance was not taken lightly. It was a tough decision for us to take. I recognise that while half of businesses and organisations will pay the same or less than before, others will face difficult decisions of their own. We have asked employers to make a greater contribution, and while we do not expect those affected to welcome that, I hope the majority will understand why we have done it.
The simple fact of the matter is that our country needed a Government prepared to fix the public finances, get public services back on their feet and restore economic stability. It is only through an ambitious and fiscally responsible approach that we can boost investment in growth, laying the path towards the brighter days ahead. The previous Government had completely lost sight of that.
My office in the Treasury building used to be that of Nigel Lawson. He once said:
“To govern is to choose. To appear to be unable to choose is to appear to be unable to govern.”
That very neatly reflects where the Conservative party has ended up now. Before, as the Government, the Conservatives had given up on effective governing, and since then they have given up on effective opposition. This vote today comes down to a choice: between irresponsibility on the Opposition Benches and a Government prepared to do what is needed to build a better future. It is this Labour party in government that is taking the tough but necessary decisions, with a once-in-a-generation Budget to wipe the slate clean and put our country on a better path. It is this Government that have restored economic stability, fixed the public finances and hardwired fiscal responsibility into the Budget-making process. It is this Government that are putting the NHS back on its feet, raising the national living wage and protecting people’s payslips, and it is this Government that will invest in our country, create wealth in every nation and region and make people across Britain better off. That is the choice today and that is why we reject the Opposition’s motion.
Question put.