Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024

Debate between Baroness Lister of Burtersett and Baroness Vere of Norbiton

Tuesday 27th February 2024 Grand Committee

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, these two sets of regulations are made each year to set the national insurance contributions—NICs—rates, limits and thresholds and to update tax credits, child benefit and the guardian’s allowance. First, the Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024, which I will refer to, if I need to, as the social security SI, sets the NICs rates, limits and thresholds of a number of NICs classes for the 2024-25 tax year with all limits and thresholds remaining fixed at their existing level. The regulations also make provision for a Treasury grant to be paid into the National Insurance Fund, if required for the same tax year, which is a transfer of wider government funds to the National Insurance Fund, and for the veterans employer NICs relief to be extended for a year until April 2025. The scope of the regulations under discussion today is limited to the 2024-25 tax year.

NICs are social security contributions. They allow people to make contributions when they are in work and to receive contributory benefits when they are not working—for example, after they have retired or if they become unemployed. NICs receipts fund these contributory benefits, as well as supporting funding the NHS.

I will begin with NICs for employed and self-employed people. The primary threshold and lower profits limit are the points at which employees and the self-employed start paying employee class 1 and self-employed class 4 NICs respectively. At Autumn Statement 2022, the Government announced their intention to maintain the primary threshold’s alignment with the income tax personal allowance, with both rates being fixed at £12,570 until 2028.

Fixing the primary threshold at £12,570 does not affect an individual’s ability to build up entitlement towards contributory benefits, such as the state pension. For employees, this is determined by the lower earnings limit, which will remain at £6,396 per annum or £123 per week in 2024-25, and for self-employed people by the small profits threshold, which will remain at £6,725 in 2024-25. Fixing these thresholds will mean that more low-earning working people will gain entitlement to contributory benefits and build up qualifying years for their state pensions.

The upper earnings limit, the point at which the main rate of employee NICs drops to 2%, and the upper profits limit, the point at which the main rate of self-employed NICs drops to 2%, are aligned with the higher rate threshold for income tax at £50,270 per annum. It was announced previously that these thresholds would be fixed until April 2028 as part of the Government’s commitment to supporting the public finances.

These decisions are starting to pay off, with inflation falling, growth more resilient than expected this year and debt forecast to reduce. This makes it possible to return some money to working taxpayers, while keeping the public finances on track. As part of the Government’s long-term plan to grow the economy and reform the tax system, we are cutting taxes for 29 million working people. From 6 January 2024 onwards, the main employee rate of national insurance contributions was cut from 12% to 10% and, from 2024, the main rate of class 4 NICs for the self-employed will be reduced from 9% to 8%. These cuts have already been legislated for.

At Autumn Statement 2023, the Government also announced that, from 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay class 2 but will continue to accrue and receive access to contributory benefits, including the state pension. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the state pension, through a national insurance credit, without paying NICs as they currently do. Those with profits under £6,725 who choose to pay class 2 NICs voluntarily to get access to contributory benefits, including the state pension, will be able to continue to do so.

Turning to employer NICs, the secondary threshold is the point at which employers start paying employer NICs on their employees’ salaries. At Autumn Statement 2022, the Chancellor announced that this threshold will remain at £9,100 in 2023-24 and will be fixed at this level until 2028. This supports the public finances while ensuring that the largest businesses pay the most. The employment allowance, which the Government raised from £4,000 to £5,000 in April 2022, means that the smallest 40% of businesses with an employer NICs liability pay no employer NICs at all. The employment allowance supports our smallest businesses to grow by helping them with employment costs. The thresholds for employers of employees eligible for NICs relief—the relief for employers of under-21s, under-25 apprentices, veterans and new employees in freeports and investment zones—have also been fixed in these regulations at their 2023-24 levels.

The majority of national insurance contributions are paid into the National Insurance Fund, which is used to pay state pensions and other contributory benefits. The Treasury has the ability to transfer funds from wider government reserves into the National Insurance Fund. The regulations also therefore make provision for a transfer of this kind, known as a Treasury grant, of up to 5% of forecasted annual benefit expenditure to be paid into the National Insurance Fund, if needed, during 2024-25. A similar provision will be made in respect of the Northern Ireland National Insurance Fund. The Government Actuary’s Department report, which was laid alongside these regulations, states that the Treasury grant is not forecast to be required in 2024-25, so it is being legislated for as a precautionary measure, because the Government consider it prudent to make provision at this stage. This is consistent with previous years.

The regulations also make provision for the NICs relief for employers of veterans to be extended for a year until April 2025. This measure means that businesses pay no employer NICs on salaries up to the veterans’ upper secondary threshold of £50,270 for the first year of a qualifying veteran’s employment in a civilian role. This relief is part of the Government’s commitment to make the UK the best place in the world to be a veteran and it is intended to further incentivise employers to take advantage of the wide range of skills and experience that ex-military personnel offer.

I will refer to the second statutory instrument, the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024, as the “tax credits SI”. The Government are committed to delivering a welfare system that is fair for claimants and taxpayers, while providing a strong safety net for those who most need it. These regulations will ensure that the benefits for which Treasury Ministers are responsible and that His Majesty’s Revenue and Customs delivers are uprated by inflation, in April 2024. Tax credits, child benefit and guardian’s allowance will increase in line with the consumer prices index, or CPI, which had inflation at 6.7% in the year to September 2023. Uprating by the preceding September’s CPI is the Government’s typical approach.

In summary, the proposed legislation fixes all the limits and thresholds for NICs at their 2023-24 levels for the 2024-25 tax year. It makes provisions for a Treasury grant, extends NICs relief for veterans’ employers and increases the rates of tax credits, child benefit and guardian’s allowance in line with prices. This legislation enacts announcements from the Autumn Statement and previous fiscal events. I beg to move.

[Baroness Lister of Burtersett (Lab)]

My Lords, I will make a couple of brief points about child benefit. While of course I welcome the inflation-proofing after all the speculation there has been about it, it is important to put on record that it still represents a cut in the real value of child benefit since 2010, according to the Child Poverty Action Group, of which I am honorary president. Even allowing for this uprating, child benefit needs to rise by 25% to restore its real value.

I can remember when child benefit was introduced. I was working at the Child Poverty Action Group at the time, and child benefit replaced personal tax allowances as well as the family allowance. The Conservative Party then accepted the argument that child benefit should be thought of as, in effect, a tax allowance for children and treated the same as personal tax allowances. An increase in the real value of child benefit now could represent an effective way to target a tax cut on those below the tax threshold, whose needs are the greatest. Given that there is all this speculation about tax cuts, that would be my recommendation.

I realise that this is not part of the SI that we are debating, but the speculation that the Chancellor is also looking, for the Budget, at the high-income charge on child benefit is relevant. The threshold has not been uprated since the charge was introduced in 2013, so fiscal drag means that a growing number of basic rate taxpayers are now affected, whereas it was originally intended purely for those who are considered better off. Could the Minister give us an update on the numbers who have been pulled into the charge—perhaps not now, because I recognise that she may not have the figures here, but in a letter, because it would be good to know where exactly we are at?

Personally, I would like to see the end of the high-income charge on child benefit, because it compromises important principles of universality in child benefit and of independent taxation, as the Women’s Budget Group pointed out. At the very least, the threshold should be restored to its original value. I hope the Minister will convey that message to the Treasury.

HS2: Wales

Debate between Baroness Lister of Burtersett and Baroness Vere of Norbiton

Tuesday 8th November 2022 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I understand the noble Lord’s concern, and the Government are looking very carefully at train timetables at the moment. Noble Lords will have heard me discuss in the House before the challenges at Avanti. We are working very closely with Avanti to make sure that it can offer as full a service as possible. The next upgrade is on 11 December.

[Baroness Lister of Burtersett (Lab)]

My Lords, my noble friend Lord Berkeley asked some specific questions about costs and delays which I do not think the Minister answered. Could she do so now, please?

[Baroness Vere of Norbiton (Con)]

I think the noble Lord, Lord Berkeley, asked me about the cost of Old Oak Common station. I do not have that figure to hand, but I will be happy to write.