Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020

Baroness Kramer Excerpts

Tuesday 3rd March 2020 Lords Chamber

[Baroness Lister of Burtersett (Lab)]

My Lords, I wish to say a few words about child benefit. I will not repeat the general arguments about the four-year benefit freeze that I made in Grand Committee but simply want to underline the implications of that freeze for child benefit, particularly because the freeze about to end must be seen in the context of the treatment of child benefit since 2010.

Child benefit had already been frozen between 2010-11 and 2013-14 and was then increased by only 1% for two years before being subjected to the freeze in working-age benefits. This means that, with the exception of two years when inflation was really low, its value has been reduced every year since 2010. The result is that not only has its real value been reduced by around 6% because of the four-year freeze but, according to the House of Commons Library briefing, it is now worth 17% less for the first child and 16.5% less for subsequent children than it would have been had it been uprated in line with the CPI since 2010. That means a loss of nearly £370 this year for a two-child family.

The Resolution Foundation calculates that for second and subsequent children the benefit is now worth less than when it was fully introduced in 1979, is less than half as generous as it used to be compared to average earnings and, shockingly, is less generous than the post-war family allowance. For first children, it is close to an historic low. The Resolution Foundation concludes that

“it is fair to say that child benefit is at its stingiest in forty years.”

Thus, while we are of course all pleased that the freeze has come to an end, as required by law, simply uprating benefits in line with inflation is not good enough. The Minister said that an extra £800 million was going to be spent on this and tax credits. Is that £800 million simply due to inflation-proofing? If so, it is not extra at all but simply keeping things as they are. If austerity is genuinely coming to an end, the Government should make good at least some of the loss that child benefit has suffered during the past decade, as it is unfair that families with children should bear the brunt of austerity. Raising child benefit by more than inflation would be much more effective in helping low-income working families than a further rise in personal tax allowances.

It is not just the benefit that has been frozen but the thresholds for the high-income charge introduced in 2013, which are still frozen. I will spare noble Lords the principled and practical arguments against the introduction of the charge, but, having introduced it, is there not a responsibility on the Government to ensure that the thresholds keep pace with median earnings? Both the Resolution Foundation and the IFS have analysed the effects. According to the IFS, in the last financial year around 270,000 more families lost some or all of their child benefit than would have been the case had the threshold been price-indexed. The difference would be bigger still had it been earnings-indexed, which is arguably what it should be unless the Government want to hit families lower down the income distribution than originally intended.

Unless there is a change of policy, the IFS warns that by 2022 as many as a fifth of families will be affected. Moreover, if the higher-rate tax threshold continues to be indexed in line with inflation while the child benefit threshold remains frozen, it points out that

“for the first time significant numbers of families without a higher-rate taxpayer will lose some Child Benefit”,

possibly as many as 120,000 by 2022-23. Is this really what the Government want? Extrapolating further into the future, the Resolution Foundation points out that, because the income charge is applied to an individual’s income and universal credit is based on family income, there could come a point when some people are simultaneously receiving universal credit and being subjected to the high-income child benefit charge. As it observes:

“This would be somewhat absurd, as well as creating marginal tax rates of near 100 per cent.”


As the IFS points out, cutting benefits “by stealth” in this way

“can do nothing for trust in government.”

Can the Minister explain the justification for freezing the thresholds? As a matter of urgency, could he take a message back to the Treasury asking the Chancellor to stop the rot in the next Budget and increase the thresholds, preferably in line with earnings but at the very least in line with prices, and restore them to their position when introduced?

There was a time when the Conservative Party strongly supported child benefit, which of course replaced child tax allowances as well as family allowances. It acknowledged the important role it plays in recognising that children reduce taxable capacity at every income level, in strengthening work incentives, in providing families, particularly mothers, with a degree of financial security and in supporting the next generation regardless of the family they are born into. It hailed it as “simple and well understood”, although it is rather less simple now because of the high-income charge.

Some 75 years ago, during the final stage of the then Family Allowances Bill, Eleanor Rathbone told MPs:

“In early days I used to describe meetings of employers and employed, landowners and rentiers sitting round a table competing for their share in the national income with a woman coming from behind and holding out her hand, saying, ‘I am the mother, the future citizens and workers depend on me; where is my share?’ This Bill gives the mother through her children her share, although it is only a very little share so far.”—[Official Report, Commons, 11/6/1945; cols. 1419-20.]


Can the Minister assure us that the Government are committed to ensuring that children now receive their fair share through the child benefit scheme that replaced family allowances, or are we witnessing the gradual destruction of Eleanor Rathbone’s dream?

[Baroness Kramer (LD)]

My Lords, we are indebted to the noble Baroness, Lady Lister, for illuminating the underlying policy issues that underpin these statutory instruments. There is a real fear in my party—and I know in hers—that the changes that are taking place today embed, in effect, austerity for those on benefits and those on the lowest incomes. However, because we are looking at statutory instruments, I am going to make my comments extremely narrow. I recognise that for the annual rerating of NIC contributions and various other benefits, we are simply implementing a mechanism that has been through a normal parliamentary process. Frequently, this has been part of a Budget; it would certainly have been debated in both Houses, and MPs would have had an opportunity to express an opinion in the Commons if they wished to make changes. However, I am somewhat at a loss—and perhaps the Minister will help me—as to how any of that applies to the changes in PT and LPL.

It is not that I have a particular objection to the changes, but it appears that their basis lies in the Conservative manifesto, not in actions taken in the other place either in the form of a Budget—because the Budget is not due for another week—or in a finance Bill, which is where I would expect fundamental changes such as this, which affect most working people, to be embedded. It is hard to accept that changes are being made to national insurance contributions, which have a major impact on the Budget, but not within the context of the Budget. I am rather concerned that the Government might be returning to a pattern that we have seen in the past, when major policy change was introduced by statutory instrument rather than through primary legislation or being put into the Budget framework, where full debate and challenge could take place. It happened with universal credit, as I think everybody who is present in the House today will remember, and I am now concerned to see this appearing here within two of these statutory instruments. So that is where I would like the Minister to focus: to explain why a change which, as far as I can see, perfectly belongs to next week’s Budget and a finance Bill, is appearing in a statutory instrument, where, by definition, the debate is extremely limited and challenge is, frankly, near impossible.

[Lord Tunnicliffe (Lab)]

My Lords, I will take a similar self-denying ordinance to that of the noble Baroness, Lady Kramer, and speak relatively briefly. I would like simply to put on record my support for the excellent speech by my noble friend Lady Lister. I join with the noble Baroness, Lady Kramer, in failing to understand why this is not part of the Budget. Because it is not part of the Budget, it is lacking in process. In some senses, virtually all the changes that the Minister described are designed to introduce the CPI increases of 1.7%. Insomuch as that has previously been announced in budget processes, I cannot object, except on the wider basis that my noble friend Lady Lister outlined.

There is one particular increase, however—the increase in PT, which I am told is the “primary threshold”—which is not in line with inflation. Its excuse for being introduced is that it is in the Conservative manifesto. I have a copy of that manifesto and I have to admit that I could not find it. Fortunately, a member of the Treasury was able to advise me that it was on page 15—which was conveniently not numbered, but never mind. It says:

“We not only want to freeze taxes, but to cut them too. We will raise the National Insurance threshold to £9,500 next year—representing a tax cut for 31 million workers.”


I thought that a basic rule of introducing a change of policy would be that it would be properly costed. Just to make sure that this was not trivial, I did a few sums. The effect, as the Minister said, is to increase the threshold by £868; it would have increased a little anyway because of the 1.7%, but the policy impact is something like a real £720 increase. If you multiply that by the 12% rate and the 31 million people involved, you get a figure of, say, £2.7 billion. My concern is that such a sizable sum ought to have been properly set out and illustrated.

The Explanatory Memorandum says:

“A Tax Information and Impact Note has not been prepared for this instrument as it gives effect to previously announced policy and it relates to routine changes to rates, limits and thresholds.”


Well, it does not. This one is clearly a policy change, and clearly the cost is a few billion pounds. Will the Minister tell us how much it will cost? Why was it not set out in the Explanatory Memorandum? Surely it is improper to introduce a national insurance change that is a reduction in taxation without calculating its cost and putting that in the public domain.

--- Later in debate ---

[Lord Agnew of Oulton]

With the greatest respect to the noble Baroness, the policy of our Government, progressively over the past 10 years, has been to get people into work. We are now seeing some of the highest levels of employment since the war, and in the last year we saw earnings start to outstrip inflation. That has taken a long time, but that is what we have done. We strongly believe that, if we are to help the most vulnerable people in society, the best way is through the dignity of employment and earnings, which is why we have focused on that area.

The noble Lord, Lord Tunnicliffe, asked about the primary threshold and lower profits limits. Again, this comes back to what I said to the noble Baroness, Lady Kramer, which is that, yes, this is a manifesto promise. We said on page 15, as the noble Lord quite rightly said, that we were going to do this; this is what this statutory instrument achieves today; it will be a tax cut for around 31 million people; and it is £104 a year, which, for people at the bottom end, is a meaningful improvement in their lives.

[Baroness Kramer]

Could the Minister explain why it is appropriate to do that through a statutory instrument, and to what extent that undermines the ability of Parliament to hold the Government accountable? I am sure that he has great respect for his Members in the other place, but they may well have had opinions on this issue. They may have had the opportunity to express them in the sense that the SI has gone through the other place, but I very much doubt that they have had the opportunity for any kind of detailed debate or challenge. In addition, they cannot possibly know what the consequences are, because it has to be in the context of a Budget, where, presumably, the loss of revenue is made up for in some other way or by borrowing, and those are major consequences. As the noble Lord, Lord Tunnicliffe, pointed out, the numbers are not de minimis but incredibly significant.

[Lord Agnew of Oulton]

I respectfully repeat what I said to the noble Baroness: we are trying to focus support at the bottom end of the income scale. To deal with the noble Baroness, Lady Kramer, since 2010 we have seen over 700,000 fewer children living in workless households and over 1 million fewer workless households overall. We believe that that is how you deal with poverty and improve dignity.

The NIC regulations set the rates, limits and thresholds for the 2020-21 tax year. They allow for the collection of £120 billion of NICs to fund the state pension and contribute to NHS funding, and deliver on the Government’s promise to deliver a tax cut for 31 million working people. I commend the draft regulations to the House.