Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2021

Baroness Bowles of Berkhamsted Excerpts

Monday 8th February 2021 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, as other noble Lords have said, there is little to comment on concerning the routine uprating of amounts following the CPI indexation, but that does not mean that there is nothing to say more generally about national insurance or tax credits. I identify with the comments made by the noble Lord, Lord Blunkett, and endorsed by my noble friend Lord German about the £20 top-up for working tax credit and universal credit, which I hope the Government will see the need for.

The Explanatory Memorandum on the SI relating to NI contributions brings two things to light. The first is that the higher-rate tax threshold and upper band of NI have previously been aligned and stay in step, but the bad news about that, as the noble Lord, Lord Blunkett, pointed out, is that one goes up and the other goes down, so the marginal increase is not what people think it is. The second point is that there is a calculator that can be used by small businesses to help with the complexity of determining what national insurance should be paid. That complexity is evident from looking at the list of different parts to upgrade. Many have wrestled with how to modernise national insurance, and I am sure that it is one of those things where “I wouldn’t start from here” applies—I will return to that.

From the employers’ side, NI has often been called a tax on employment, and that has led to changes being made to stimulate employment among those aged under 21 and for some apprentices aged under 25. Both of those had good reasons. Given the effect that Covid is having on younger workers, the obvious question is whether anything more can be done on both a long-term and short-term basis, although I accept that is more of a Budget question.

The issue of self-employed national insurance contributions was also brought into the spotlight by the Chancellor when he indicated that providing Covid help to the self-employed should carry with it some presumption that, in due course, more social security contributions should be paid by that sector. A similar connection between benefits and NI payments was also picked up in the Finance Bill Sub-Committee report, where it was suggested—I paraphrase, but as I was a member of the committee, I well remember the discussions—that changes in national insurance payments need to be accompanied by commensurate changes in, or access to, benefits. Concerns were highlighted around IR35 and the fact that contractors would be asked to pay for benefits that they did not get, such as sick leave and paid holidays—and, of course, many of them did not get much out of the various Covid provisions.

That leads me on to the fact that work is much more complicated and variable than it used to be. That point was made by the Office of Tax Simplification in November 2016 in its follow-up report on NI simplification, which states that

“we live in a changing business environment, with diverse ways of working, and there are a growing number of people who combine self-employment, multi jobs and freelancing”,

and that

“the current system was built for yesterday … let alone for tomorrow.”

Nearly five years on, that is even more true. Once we emerge from Covid, the change to work patterns that it is already bringing will, I suspect, accelerate further.

The Office of Tax Simplification also said that,

“from a policy perspective any change will be challenging for government.”

This has not changed. I am tempted to look a little on the bright side and suggest that adjusting to post-Covid work patterns and needs may create an opportunity to bring about more simplification. I ask the Minister whether that is under consideration.

Various measures have been proposed, and one that seems reasonable to explore first is to make employees’ national insurance contributions work in the same way that PAYE does for income tax, so that it is related to annual income. That was favoured by the OTS, and although it reckoned it would impact 40% of the working population, gainers would generally be part-time employees, women and those aged under 35, and there would be loss mitigation from the social security system where there were losses in lower income households. There would also be positive benefits in better qualification for state pension entitlements. Overall, it would mainly eradicate unfairness that has been going on for a long time. It is also clear that such a change would benefit seasonal workers, such as those in the tourist industry, and young people—again, helping many of those most hit by Covid. As a next steps simplification, does that have any attraction for the Government? It would also seem to fit better with Making Tax Digital.

On the draft tax credits regulations, again, I have no dispute with the computation of upratings, but there are underlying issues relating to child poverty that I cannot let pass by. As has already been mentioned, the temporary working tax credit uplift, which is due to expire in April, has not been extended. In a recent debate in the Commons, the Government claimed that they could not see what the landscape would look like in April. I hope that means that it will be extended in due course, because to me it is clear that matters are already worse in terms of job losses. As the “weaning off” furlough happens, it will be worsened further.

My final point is, I regret to say, a perpetual one: as with other benefits, the Government have restricted tax claims to two children regarding any children born after April 2017. As we know, this is part of the Government’s deliberate impoverishment strategy for those on benefits with more than two children. I repeat: this is the Government’s deliberate and despicable policy for child hunger. That speaks for itself, and I have no more to say.