National Insurance Contributions (Rate Ceilings) Bill

Andrew Stephenson Excerpts

Tuesday 15th September 2015 Commons Chamber

[Andrew Stephenson (Pendle) (Con)]

Freezing NI is important for my constituents, many of whom are low wage earners and have benefited tremendously over the last few years from the dramatic rise we have seen in the personal allowance. Does my hon. Friend agree that hard-working people already pay enough in tax?

[Harriett Baldwin]

I certainly agree that the Government are keen to take steps to back an economy that continues to grow and to create jobs so that everyone can have the dignity of taking home a pay cheque or starting their own business. We have taken other steps in the Finance Bill to raise the amount that people can make before having to pay income tax, and that is what this Government stand for.

--- Later in debate ---

[Barbara Keeley]

Thank you, Madam Deputy Speaker, that is really helpful. It is sometimes easy to forget.

I have made the point and I am prepared to come back to it again and again. In five years, there have been two serious broken pledges that have cost the British public dearly.

Let us get back to the Bill. [Hon. Members: “Hear, hear.”] I did not make the diversion. Let me be clear, Labour in opposition wholeheartedly supports the principle of not raising taxes for working people. The Minister has just questioned me on this. During the election campaign, it was the Labour party that first pledged not to increase national insurance contributions. In fact, we did it before the election campaign, because the pledge was made on 25 March. As such, we will not be opposing the Bill today. Regardless of that, however, there is no doubt that this tax lock has become the height of gimmickry. It was said to be such during the election campaign and it remains so today.

Let me give you, Madam Deputy Speaker, and hon. Members present, some quotes relating to the tax lock. On 29 April, the Financial Times, lamenting what it saw as the level of gimmickry coming all too often from the Conservative campaign, put in its leader:

“What is more of a shock is the stream of gimmicks and poor policies coming from the Conservatives…arguably the silliest idea yet came this week when David Cameron proposed an act of parliament that would make it illegal for a future Tory government to raise various taxes to close the deficit: VAT, income tax, and national insurance…the UK fiscal deficit is still high. Removing the option of tapping revenue streams that in aggregate raise more than £350bn for the exchequer would make the challenge needlessly harder.”

[Andrew Stephenson]

I hear what the hon. Lady is saying—she believes the Bill is purely a gimmick—but would she not agree that this so-called gimmick will save money for millions of hard-working families? It is not a gimmick to the hard-working people we represent.

[Barbara Keeley]

In a minute, I will record how other commentators also think it is a gimmick. I have said we are not going to oppose the Bill because we do not want working people to pay more, but we have just seen in this Parliament a tax-raising Budget. I will talk more about that in a moment.

One of the main concerns about this policy gimmick is the serious constraints it will place on the Treasury and the Government’s ability to raise taxes or maintain the flexibility to raise revenue in response to economic events. As Alex Henderson, tax partner at PricewaterhouseCoopers, said:

“Arguably the lock means the Government has less flexibility on where tax revenues could come from, with the burden more thinly spread.”

He also pointed out that it would not constrain Ministers’ ability to raise revenue from the same taxes in other ways—for example, by delaying the uprating of thresholds and removing reliefs. So it is not true that people are not going to pay more; there are other ways. We know the Chancellor used such measures, otherwise known as fiscal drag, to great effect in the last Parliament, because, according to the Institute for Fiscal Studies, they have raised taxes of roughly £64 billion a year by doing so. The headlines people read do not indicate tax rises, but the measures used do.

Simon Walker, director general of the Institute of Directors, said:

“While IoD members are opposed to increases in the rates of VAT, Income Tax and National Insurance, we consider it imperative that the Government’s commitments do not prevent bold tax reforms to both simplify taxation and reduce the burden upon businesses and individuals.”

As Paul Johnson, director of the Institute for Fiscal Studies, pointed out, the tax lock could rule out sensible tax reforms, such as the treatment of national insurance contributions for the self-employed, which has already been referred to.

--- Later in debate ---

[Kit Malthouse]

My hon. Friend is absolutely right. It must be said that the Brown years injected an enormous sense of uncertainty into business. Although, for some of that period, we were benefiting from what could be described as a global boom, businesses existed in an environment, and on a battlefield, that was for ever changing. Anything that calms down such situations, and makes decision making much more predictable, is key.

That is particularly important when it comes to foreign direct investment. When businesses want to locate large manufacturing plants that are both capital and labour-intensive, employment taxation and employment law are the two biggest drivers of whether they decide to come to the UK. The Bill will make employment taxation much more predictable, and seen to be predictable, for the next five years, and not just on the say of a “here today, gone tomorrow politician”—was it John Nott who objected to being so described? The facts will be there on paper, in black and white, and the fact that they can be relied on will make a big difference to foreign direct investment decisions.

[Andrew Stephenson]

I applaud what my hon. Friend has said about stability and certainty in the business community, especially in relation to foreign direct investment. During Business questions this morning, I mentioned the aerospace growth partnership. The aerospace sector has longer product cycles than other sectors. It is important for us to support such sectors, and for firms investing in aerospace to have a long period of certainty. The UK’s aerospace sector is the second largest sector in the world, and we are keen to support it.

[Kit Malthouse]

My hon. Friend has made a powerful point. Some of the sectors that are the most critical to the UK’s future success—aerospace, technology and life science, in which I have a particular interest—are international businesses that make huge bets on countries on a regular but long-term basis. Some predictability is therefore absolutely key.

My final point is about inflation. We are living in a financial atmosphere in which inflation will be of concern over the next five to 10 years, and we need to be careful to ensure that it does not get out of hand. We have been extremely successful in doing that so far. As I have said, national insurance forms a large part of prices. The Government—any Government—must bear in mind that if taxes rise, so do prices, over time. By injecting an element of freeze into the national insurance bill, we are also doing our bit to relieve whatever inflationary pressures may be generated in the economy.