National Insurance Contributions Increase

Anthony Browne Excerpts

Tuesday 8th March 2022 Commons Chamber

[Richard Thomson (Gordon) (SNP)]

That we are currently experiencing the gravest cost of living crisis in memory should not be in the least bit a controversial thing to say. It has been caused by inflation from a number of fronts: the shortage of labour caused by Brexit and the ending of free movement; the increased trade frictions as a direct consequence of Brexit; covid-19 and all that has befallen us over the last two years; and, most recently, the rapidly increasing costs of energy. Amidst all this it is absolutely extraordinary that any sentient, competent Government would seek to pile on the agony by increasing national insurance contributions for employers, employees and the self-employed.

[Anthony Browne (South Cambridgeshire) (Con)]

Will the hon. Gentleman give way?

[Richard Thomson]

I will give way shortly but first want to make some progress, because this represents a shattering of the Conservatives’ manifesto promises—and I am sure the hon. Member will want to be fully cognisant of this before he takes to his feet to chide me. On page 2—the inside page—of the Conservative party’s 2019 manifesto, entitled “Get Brexit Done: Unleash Britain’s Potential”, we had an introduction from no lesser a personage than the Prime Minister himself, rather grandiosely titled “My Guarantee”, which said:

“We will not raise the rate of income tax, VAT or national insurance”.

That was signed off with the Prime Minister’s signature, and it was a statement quite literally not worth the paper it was written on.

[Richard Thomson]

I am spoiled for choice; I give way to the hon. Member for South Cambridgeshire (Anthony Browne).

[Anthony Browne]

The hon. Member makes some very valid points about the rise in the cost of living in the UK, which we absolutely accept is a real challenge, but he puts many of the reasons for it down at the feet of the British Government; does he not accept that this is a global phenomenon? Does he not accept that the increase in energy prices is a global phenomenon affecting all countries around the world, that the crunch in the supply chains resulting from the global pandemic is a global phenomenon, and that inflation is higher in America and Germany than in the UK—and in the latest figures UK inflation is below the OECD average?

[Richard Thomson]

For a moment there, I was going to ask the hon. Member if he would give way to me. Yes, I do accept most of those things but, as I also set out very clearly, there are those aspects that are exogenous and global and there are those, such as through Brexit and from the poor response to covid in many respects, that are entirely self-inflicted. I am happy to draw a distinction and I hope that, on reflection, the hon. Member might do so, too.

Let us not be in any doubt about the enormity of the crisis facing us. The National Institute of Economic and Social Research has warned that the number of UK households classed as destitute could rise by nearly a third to more than 1 million this spring after the Government bring in their national insurance increase. Ofgem recently announced that millions of householders will see their energy bills rise by £693 as a result of the increase in the energy cap from April. The Joseph Rowntree Foundation warns that the energy price cap rise will have a harsher impact on the poorest families, who will spend on average 18% of their income after housing costs on energy bills after April. Energy UK recently warned that household energy bills could rise by another £1,000 by October as wholesale gas prices continue to soar, with households facing the prospect of bills between £2,500 and £3,000 this year. Consumer prices, as measured by the consumer prices index, were 5.5% higher in December 2021 than a year before, the highest inflation rate recorded since 1992. And of course we must not forget that the Bank of England increased interest rates from 0.25% to 0.5% and forecasts that real household disposable incomes are set to fall by 2%.

The UK Government’s “Health and Social Care Levy” police paper claims:

“This levy provides a UK-wide approach which enables us to pool and share risks and resources across the UK”.

In accepting that, we should be absolutely clear about whom the risks are being pooled among. We must be in no doubt whatsoever that the upcoming national insurance hike is a tax on jobs as well as on individuals, when people are already suffering. The increase will not touch property income, pensions or income from savings, but will fall squarely on the shoulders of those who are salaried or whose income is drawn from profits.

We have heard about figures showing that the top proportion are paying higher amounts, but we would expect that. What I am interested in is the marginal rate of tax, because that is the true measure of fairness—how much of someone’s income they are having to give over as a result of a taxation measure. Let us look at one group in particular: our students. This national insurance hike will mean that, if student loan repayments are included, graduates earning just over £27,000 will pay a marginal tax rate in excess of 42%. We have heard that government is about choices and it is clear from the choices this Government are making that the combined effect of their policies will hit the lowest earners, the youngest earners and those with the least economic assets the hardest.

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[Richard Thomson]

Again, I refer the hon. Member for Gloucester (Richard Graham) to the concept of the marginal rate of tax and ask him to look at the totality of the impact—if he had been patient I would have happily given way; he had no need to resort to such devices.

On raising additional resources for health and social care, as we are invited to believe this levy is supposed to do, it is surely much fairer as a general principle to spread the burden by increasing income taxes across the board on both earned and unearned income, as well as to look again at areas such as inheritance taxes and capital gains, so that the totality of the wealth of the nation can be taken into consideration in sharing the burden. There is a real danger in my view, particularly as a result of localised property price inflation, that this policy will further widen economic, social, generational and geographical divides, baking that unfairness into the social and economic settlement for decades to come. We have a Government who like to talk the language of levelling up while doing the exact opposite on personal and business taxation. We will be paying the costs of that in reduced growth and lower incomes for many years to come.

That is the problem from a social justice perspective, but it is almost every bit as bad from a policy making perspective. Apart from moneys going to the NHS in England and an unspecified amount eventually trickling through to social care in England, we still have only the sketchiest idea of what this resource will be invested in. There are significant whole-system problems in health and social care in England which predate covid. That is not to say things are great everywhere else, but I get absolutely no sense that the UK Government have started to embrace the systemic issues that cause the blockages and poorer outcomes that are there and that money will only go so far to solve, including the high levels of unmet need, staff shortages and poor workforce pay and conditions, as well as the fragile provider market. In that sense, the Government are doing what they routinely like to criticise others for and focusing on inputs rather than outcomes, and surely outcomes for people in health and social care should be driving the reform that is needed.

It is not in doubt that there was a pre-covid pandemic crisis in health and social care, let alone the post-covid one, but that will not be remediated either by this policy or by the Prime Minister’s utterly bogus repeated claims about building 40 hospitals. Reform requires thought as well as resource, but surely fairness demands that the resource for that reform comes primarily from those with the broadest shoulders and an economy that is able to and is growing sustainably and productively.

I support Scottish independence and want full tax powers for Scotland, and I have no doubt in my mind that an independent Scottish Government would not be using the equivalent of national insurance in such a way for this purpose. Until that changes, we are stuck with and reliant on the Conservatives—out of all character—prioritising the interests of those on lower and middle incomes over the most wealthy.

[Anthony Browne]

rose—

[Richard Thomson]

Go on—give me one last chance.

[Anthony Browne]

The hon. Member stresses the importance of a sustainably growing economy. Would he like to congratulate the Government on their economic response to covid, which means that we had the fastest growing economy in the G7 last year and are predicted to do so this year? Groups from the International Monetary Fund to the OECD have congratulated them on their response.

[Richard Thomson]

I do not think that is true, but, even if it was, those economies that fall the furthest rebound the fastest.

We seem to be reliant on the better nature of the Conservative Government—one that sadly is often lacking—with them somehow going against all their instincts to protect the interests of lower and middle-income earners over those of the highest. I shall not be holding my breath on that front.

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[Jerome Mayhew]

I am grateful to the hon. Member for his intervention. I suggest that a very good use of public money was emergency funding for PPE when we most desperately needed it in a national lockdown. It was inevitable that there would be a trade-off between speed—everyone in the House was cheering the Government on at the time—and maximising the effectiveness of every single contract. I hope that the Government make no apology for the speed with which they dealt with the crisis. They should be commended for that.

It has also been suggested that we should crack down on fraud. The hon. Member for Leeds West (Rachel Reeves) referenced a £4.7 billion headline in covid-related fraud, but she failed to give the Government credit for the actions that they have taken to address that. We have the Taxpayer Protection Taskforce, which has recruited 1,265 staff. We also have the work done on powers for the Insolvency Service and Companies House to link company directors directly to their bounce back loans, which has been used on 61,758 companies, catching loans worth £2.1 billion. The combination of those two factors means that the new estimate, which she did not find time to refer to, is not £4.7 billion but £3.3 billion. Fraud is therefore reduced to an estimated 7.5% of contracts, which is at least within spitting distance of the average for Government programmes of, I am sorry to say, as much as 5%.

[Anthony Browne]

My hon. Friend makes a valid point about the need to increase spending to pay for social care and has raised the different ways of doing that. Does he agree that if we are to increase spending sustainably, we need a sustainable source of money and that a one-off windfall that occurs in just one year cannot fund long-term commitments? Cutting back on fraud in one particular year cannot fund long-term commitments.

[Jerome Mayhew]

My hon. Friend is absolutely right. Even if we recovered all of that £3.3 billion, that would be for a single year only. The great mistake that the Opposition have made is to conflate single events—a windfall tax is another example—with ongoing revenue needs.

The next option is to borrow money. Of course, that is the easy response, and that really is the Opposition’s position, even if they cannot bring themselves to admit it from the Dispatch Box. However, that is not free money, because we have to service the debt and, eventually, we have to repay it. So we are passing the responsibility on to our children and our grandchildren for tax cuts now, which is essentially what the Labour party is arguing for. Our servicing of debt already cost an estimated £64 billion last year, which is £955 for every single member of the population. Because of inflation, which is a global phenomenon, and the likely rise in interest rates, that is forecast to rise to £75 billion for this financial year. The hon. Member for Leeds West says that the Government have a policy of buy now, pay later, but what could be a better description of Labour’s response to this pressing need? We want to improve social care, and we need to have a covid fightback, and we have got to pay for it.

There is the option to borrow, but, as I said, it is our children and grandchildren who will pay that price. I therefore believe that the Government are quite right to balance the increased social spending that we want to achieve with the tax necessary to pay for it. If we look at the total measures that the Government have brought in, we see that they are deeply progressive. Treasury analysis shows that they are net positive for 80% of households, whereas Labour’s plan to remove the national insurance contribution would actually help the top 10% the most—by more than £1,000. Surely that is not Labour’s policy.

No Conservative Government want to raise tax, but it is our duty before cheap popularity to be responsible custodians of national finances. That is a lesson that Labour has never learned.

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[Gerald Jones (Merthyr Tydfil and Rhymney) (Lab)]

I rise to support the motion from my right hon. and hon. Friends. We all remember too well that during the 2019 general election campaign, just over two years ago, the Prime Minister said to voters:

“Read my lips, we will not be raising taxes on income or VAT or national insurance.”

The Chancellor of the Exchequer was also keen to point out that his plan was to cut taxes for the lowest paid through cutting national insurance. It is clear that the Government have blatantly broken their promises to the country on national insurance, as they have on international development and the pension triple lock.

As my hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chancellor, mentioned, things have changed in the six months since the national insurance contributions increase was announced back in September. It is clear to many Opposition Members that the Government need to rethink the planned rise in national insurance contributions. In these extraordinarily difficult times, if the rise goes ahead, it will see people’s incomes squeezed even more. People are finding it more and more difficult just to survive and that is before we see the increase in national insurance contributions and the huge increase in energy bills that will have a heavy impact from April.

In my constituency and across the country, we are all hearing stories of huge sacrifice. Families are facing a real cost of living crisis, with energy bills set to rise again in April—

[Anthony Browne]

Will the hon. Member give way?

[Gerald Jones]

No, I will not. Given that oil and gas producers in the North sea have posted huge profits during the pandemic, why do the Government not halt their unfair tax rise, back a windfall tax to help to fund a cut in VAT on home energy bills and ease the burden on working people?

Government Members have also called on the Government not to go ahead with the rise. They have urged Ministers to make tackling the cost of living their No. 1 priority and noted that this year will be exceptionally hard for families, so why are the Government still not listening?

The Government claim that this situation is down to the pandemic, but in March last year—a year into the pandemic—the Chancellor promised that national insurance would not go up, saying:

“We’re not going to raise the rates of income tax, national insurance, or VAT.”

He added:

“Nobody’s take home pay will be less than it is now”—

another broken promise.

Analysis from the New Economics Foundation shows that 2.5 million working households will be hit by the Tory double whammy of cuts to universal credit and the increase in national insurance, losing out on as much as £1,170 next year. That is all at a time when we know that the price of food, the price of petrol and the cost of rent are going up and families are genuinely fearful about making ends meet.

There are other ways to raise that money, but the Chancellor wants the country to believe that this is the only way to do it. Half of Britons say that they could not afford an additional £50 a month on their cost of living. The Government should halt the national insurance rise so that people see their cost of living concerns ease. Surely the Minister recognises that stopping the rise would provide immediate support and help families at this really difficult time.

We know that citizens advice bureaux have seen a huge increase in debt advice services and that is before we reach April, when there will be the national insurance rise and the increase in energy costs. Labour has long called for the national insurance rise to be halted so that it does not make the cost of living crisis worse.

[Anthony Browne]

Will the hon. Member give way?

[Gerald Jones]

No, I will not. The Federation of Small Businesses warned that

“this increase will stifle recruitment, investment and efforts to upskill and improve productivity in the years ahead.”

The trade unions have joined the FSB in that regard. The FSB stated:

“The Government’s regressive jobs tax hike will put jobs at risk, stifle start-ups and prevent new jobs from being created…It could mean 50,000 more people out of work after it takes effect in April. That means 50,000 livelihoods harmed—50,000 people who would otherwise be at work in our economy.”

The TUC also says that it is wrong to hit young and low-paid workers while “leaving the wealthy untouched”.

Surely the Government must recognise that we are in a totally different situation from when the rise was announced six months ago. The economic outlook for thousands of families across the country is much bleaker, so I urge the Government to change course, support today’s Opposition motion and help to ease the pressure on families in Merthyr Tydfil and Rhymney and right across the country.

[Anthony Browne (South Cambridgeshire) (Con)]

The Opposition are right that the rise in the cost of living is a crisis causing pain for many households across the country, particularly those on low incomes. As I said in an intervention, this is a global issue. The inflation afflicting the UK afflicts almost every country around the world. The energy price rises and the rise in food costs are as a result of global phenomena that are affecting countries such as US and Germany, where inflation is far higher than it is in the UK. In fact, if we look on an international basis, we see that inflation here is pretty middle of the road, although it is very concerning.

I will tell the House what else is very serious, as well as the cost of living crisis: the waiting list crisis that we have after the pandemic, with 6 million people waiting for elective surgery. There is also the social care crisis, which has bedevilled Governments for decades. They have always put it in on the “too difficult to do” pile and not done anything about it. We need to tackle those really serious issues and they require a serious, sustained increase in funding. The question is: how do we do that? How do we get that amount of money?

The national insurance increase will raise about £12 billion a year, when we do all the sums and cut out the costs. We can raise that amount of money only from three sorts of taxes: national insurance, VAT or income tax. If we put this on VAT, there would be an increase in the cost of living. That would go straight through to inflation.

The windfall tax that the Opposition propose would raise £6 billion or so, which is half the amount and would just be for one year. That cannot pay for a sustained increase in social care funding and the waiting list backlog. The question that I was going to ask if I had been allowed to intervene earlier, including on the shadow Chancellor, the hon. Member for Leeds West (Rachel Reeves)—I notice that she has disappeared from her own debate, which is interesting—[Interruption.] It is the Opposition’s debate, not ours. I was going to ask how the Opposition would sustainably raise £12 billion a year to pay for the NHS. As I understand it, the Labour party has no solution to or proposal for that. Labour’s proposal to cut national insurance therefore basically amounts to a tax cut to starve the NHS of much-needed funding. I am astonished that the Labour party, of all parties, which likes to see itself as the party of the NHS, is proposing to do that.

We could ask, “Why choose national insurance rather than income tax?” There are various reasons for that. One of the most powerful is that it would be half paid for by businesses—there would be 1.25% for employees and 1.25% for businesses—whereas income tax is paid directly by earners.

National insurance is also progressive. I find it alarming when Labour Members keep saying that it is not. I wonder what understanding of economics they have. A progressive tax means that those on higher incomes pay more. That is clearly the case with national insurance. The top 14% will pay 50% of the whole tax. It is a tax that Labour increased in 2003 to pay for healthcare.

There are problems with national insurance. It does not normally go on dividends or on pensions, but this increase will, and it addresses a lot of the inequities of normal national insurance. Unlike income tax, national insurance can also be—and indeed, is—ringfenced legally and operationally for the NHS, so that we can be sure that this money is going towards the systemic problem of healthcare and social care that I mentioned earlier.

It is clearly important to tackle the cost of living. I completely understand Opposition Members’ concerns about raising taxes. I see myself as a low-tax Conservative, and I do not vote for tax rises with any joy in my heart, but what the Government have done is give support on household bills directly through the £200 energy bill support scheme—the rebate—and the £150 off council tax for houses in bands A to D. Eighty per cent. of houses will benefit from that, and the total package is about £9 billion a year. That goes directly to people’s pockets from April onwards. They will notice it straight away, and people want immediate support, not long-term aspiration.

I find this whole debate quite beguiling. I have spent my adult life watching the Labour party argue for higher taxes to fund the NHS. Today, in this debate, Labour Members are arguing for lower taxes in order to starve the NHS of money. This whole debate is about not the opportunities for the NHS but political opportunism, and I do not think it brings any credit on the Labour party to be so flagrantly opportunistic and economically illiterate as it is being today.

[Justin Madders (Ellesmere Port and Neston) (Lab)]

I place on record my dismay that the Government have chosen to hit working people and businesses with a national insurance rise at the worst possible time—when one in six working households cannot make ends meet, according to the Institute for Public Policy Research; when the number of jobs that pay below the national minimum wage and the living wage is still more than two and a half times higher than at pre-pandemic levels; when inflation is forecast to reach 7.25% next month, the highest level since August 1991.

We already have the highest level of inflation for three decades, but I am afraid that everything we know about the implications of Ukraine tells us that it will only get higher in the next few months. Everywhere we turn, prices are going up far faster than anyone can keep up with—at the supermarket checkout, at the petrol pump, in gas and electricity bills. Adding in mortgage rises, rent rises and council tax rises, we face a perfect storm of inflationary pressures that we have not seen for an entire generation.

I do not think that anyone has really levelled with the public about what the implications of a protracted war in Ukraine will be for prices. Things are going to get a lot more difficult before the pressure eases off. Just look at how the mere suggestion of a boycott of Russian gas and oil has pushed trading prices sky-high. That resulted from comments from the US Secretary of State, Antony Blinken, that conversations about a boycott were taking place—one can only imagine what would happen if people moved beyond conversations and a boycott actually took place.

It is not clear to what extent the price spikes are being exacerbated by speculators who are seeking to take advantage of the situation. Nor do we know whether a real effort by OPEC countries to increase production would mitigate it, or what impact the conflict will have on food prices over the medium term. The reality is that western Europe, trapped by its reliance on Russian energy, is forced to buy fuel that pays for the war that pushes up the price of energy further still. I fear that until more home truths are spoken about what it will take to break the cycle, we will continue to see prices rise and the war continue.

I recognise that addressing the issue is not solely within the Government’s gift. Grasping the nettle will be a continent-wide effort, but we must look at what the Government can control. There is an opportunity today to act on the national insurance increases. It beggars belief that we are looking at tax rises at the same time as prices are rising and bills are skyrocketing at levels not seen for a generation. This is the wrong tax at the wrong time.

[Anthony Browne]

Will the hon. Member give way?

[Justin Madders]

I am sorry, but the hon. Member has just spoken. If he did not get his point in then, he has missed his opportunity.

The tax rise was wrong back in September when it was first proposed, and even more wrong now. That is not just the view of Opposition Members; the cross-party Treasury Committee has highlighted that the increase in national insurance contributions for employers will lead to higher costs being passed on to consumers. If we speak to anyone in social care, they tell us that that is pushing them into unviability.

Data from the Institute of Directors in January demonstrated that more than a third of businesses would respond to the increase by raising prices and passing on the burden to customers, yet again increasing inflationary pressures. The same report also said that nearly a fifth of businesses would consider employing fewer staff as a result of these rises. Almost three quarters of companies in manufacturing say that they are also very likely to pass on the costs to customers, so it is no surprise that Make UK has said that the proposal is “illogical” and “ill-timed”.

We know that some areas will be worse hit than others. Analysis shows that the north-east and the midlands—areas that rely on wages rather than income from investment and properties—will be hardest hit. That is not levelling up, is it? Trapping the country in a low-growth, high-tax cycle and hitting working people with tax rise after tax rise is the opposite of levelling up.

Within four years, the average household will be paying £3,000 a year more in tax than when the Prime Minister first came to power. There is nothing to give families the security that they would get from the fully funded measures that the Opposition have proposed to keep energy bills down, which would be paid for by a windfall tax on North sea oil and gas producer profits. In my constituency alone, 12,500 families would be £400 better off as a result of the tax, and our plan would mean almost all households making savings on their bills. Nor would an extra £40 charge be hidden away and come out of people’s bills in a few years’ time, regardless of whether they had benefited from the scheme in the first place.

We see the effects of the current crisis playing out every day. One example in my constituency relates to housing affordability. Housing is a basic right, but with affordable and council housing in short supply, reliance upon the private rented sector has increased. However, a recent search of properties available in Ellesmere Port showed that of the 13 properties available—a minuscule number to start with—only two came within a rental liability level that would be covered by the local housing allowance, while the rest ranged from £30 to £225 over the rates. In Neston, the results of a search are even worse: all the properties were well over the LHA. In fact, it is now incredibly rare to see any properties offered at a rental value equivalent to the LHA. How on earth can we expect people to put a roof over their head in that situation, let alone pay for energy bills, food or council tax bills?

This will be an ongoing crisis, and there is no solution from the Government. Everywhere we turn, from housing to heating to eating, prices are going up. People face some really tough times ahead unless something is done now. Let us not add to that impossible burden. Let us scrap this national insurance increase right now.

[Duncan Baker (North Norfolk) (Con)]

I have said many times in this place that I represent the oldest demographic in the entire country. Hon. Members might expect me to say that North Norfolk is beautiful; it is my home and it is where I grew up. People come to live there all their lives, retire there or come back for years and years. If I knock on a door, there are two things that my constituents say they care about. They care about their health, and they recognise that with the dreadful situation we are in, the conflict we are seeing and the shifting of geopolitical plates, we have to have a competent Government looking after the economy. In pretty much any polling across the country, the most important factors that people care about are their health and the economy.

As I said in my intervention on the Chief Secretary, we have spent £450 billion, an eye-watering amount, on safeguarding the jobs and livelihoods of millions and millions of people—working-class, everyday people whose jobs have been saved. As a consequence, we are now in £2.2 trillion or so of debt. I find it staggering that the Opposition think that we can just amble out the other side of a global pandemic and everything will be normal. It simply cannot be, and we must and should be honest about it.

The health and social care levy is needed. We have heard all the statistics that show why: to repair the backlog in elective surgery and repair the social care system that we need in this country. According to reports, as my hon. Friend the Member for South Cambridgeshire (Anthony Browne) said, £12 billion a year is needed—a colossal amount of money. We cannot raise £12 billion a year by making savings or cuts to other services that have been ravaged throughout the pandemic that we have just come through.

Social care is a subject that I have spoken about many times in this Chamber—obviously I would, with the demographic I represent. We should not underestimate the herculean efforts of our carers. It is completely right that we hail our nurses through the pandemic. Imagine the care and patience someone needs to be a dementia nurse or a palliative carer. It is about time we fixed that—it is about time we grabbed the nettle and did it. This is a Government who are finally gutsy enough not to be derailed, no matter how difficult the situation. They will not be pushed off track; they will deal with it.

Before I came to the House I was a finance director, and I remember that when automatic enrolment came in, the situation was very similar. The initial levy was 1%, and what was being said then was what is being said now—people would be desperately worried about the cost, they would not pay for it, and they would opt out. What happened? Ninety per cent. of people stayed in the scheme, because they saw the value of what it was doing in the context of the marginal extra amount that they were paying.

The same will happen in this case. No one wants to see tax rises—we all agree on that—but the proof of the pudding will be in the eating. If we end up funding services properly and taking care of our elderly people properly—and we have the opportunity now to reform the social care sector and fund the NHS in this way—the 1.25% about which Members are so concerned today will dissipate, and for that reason we have to be entirely sensible.

[Anthony Browne]

My hon. Friend is making a powerful case for the need to increase spending on health and social care in the long run. Does he share my concern about the fact that, while proposing a cut in national insurance, Labour Members have no answer to the question of how they would fund ongoing health and social care services, and the fact that cutting national insurance would inevitably lead to their cutting those as well?