National Insurance Contributions (Reduction in Rates) Bill

Baroness Kramer Excerpts

2nd reading
Tuesday 12th December 2023 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I start by thanking the noble Baroness, Lady Primarolo, because the point she raised is one I think we did not raise in our discussion of the Autumn Statement and perhaps did not have the front of our minds as this Bill went through. The link between national insurance contributions and funding of the NHS is critical. In thinking about it, I am astonished that an impact statement did not discuss those consequences, and I do not remember them being raised by the OBR or in other discussion papers. The issue the noble Baroness has raised is critical, and I thank her very much for asking that we all share in the Minister’s reply. Again, I have sympathy for the Minister: I doubt very much whether she has these numbers at her fingertips.

The Liberal Democrat Benches are obviously not opposing the Bill, but I would like to set a bit of context. I shall refer to the work of the Resolution Foundation, quoted extensively by the noble Lord, Lord Sikka, which last week published the third and final phase of its report Ending Stagnation and provided us with updated numbers that graphically expose the price that UK households are paying for that economic stagnation. If real pay growth had continued to follow the trend from before the 2008 financial crisis, the average British worker would be £10,700 a year better off—a really significant figure. There are almost 9 million younger Brits who have never worked in an economy that has sustained rising wages. As a consequence of that impact on wages, the UK is now Europe’s most unequal large economy. That used not to be true. Our poorer families are now a staggering 27% worse off than their French and German counterparts. That is a measure we rarely look at, but it is critical. Obviously, when ordinary families are trying to cope with stagnant wages and a cost of living crisis, it is particularly unacceptable for a Government to dress up a rise in taxes as tax cutting.

By 2028-29, the freezing of the national income tax thresholds adds £45 billion a year—not over that time, but a year—to taxpayers’ annual tax bills, offset by the rate cuts we are discussing today only to the tune of £10 billion annually. If this Government were a private company, I suspect that trading standards would have a very dim view of an entity that presented an annual increase in charges of £35 billion as a cut. The public will be none too impressed when they find out the hard way, as I said in the Autumn Statement debate, that a typical earner will pay £400 more next year in tax and NICs after these measures, and a middle-income earner will pay £1,200 more. Like the noble Lord, Lord Sikka, I used that debate to point out the inequality of the distribution of the rate cut, with five times as much going to the top fifth of earners, compared with the bottom fifth. That distribution is a choice. Interestingly, the noble Lord, Lord Dobbs—who is not in his place today, perfectly understandably—described himself in that debate as a struggling self-employed person. When the Government decided that they needed to look most closely at and give most support to the top fifth of earners, perhaps they had the noble Lord in mind.

I note that the NIC rate cuts offer some relief to self-employed workers. This is a group that particularly lost out during Covid. The sector is, frankly, also suffering from HMRC’s harsh and shambolic loan charge regime, which is doing little to stop promoters mis-selling tax products, but is continuing to drive to breakdown and even suicide individuals who got caught up in the loan charge because they followed advice in good faith. To date, as the Minister will know, HMRC has referred 10 suicides to the IOPC, and three more are contested.

We have to change the way we deal with the self-employed sector. I very much hope that the Government will—as they often promise but never actually do—follow through on the 2017 Taylor review, which called for and fashioned principles for the update of working relationships, taking them from the past into today’s world of business. In that, there is new opportunity for the self-employed.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, I am enormously grateful to all noble Lords who have taken part in this relatively short debate. As your Lordships might expect, I did not agree with all the points, statistics and bits of data that were shared, and I will obviously have my own, but I will try to stick within my wheelhouse and stay within the realms of national insurance today.

However, I want to comment on the general thrust from the noble Lords, Lord Sikka and Lord Livermore, and the noble Baroness, Lady Kramer. It was just extraordinary. I feel really pleased that everybody has now come round to the Conservatives’ way of thinking that taxes are too high, and we need to think about reducing them and we must do so responsibly. I am grateful for that vindication of the Conservatives’ policy when it comes to personal taxes. We agree that they are too high, but of course many of the tax rises that are forecast to come into place—I absolutely accept that taxes will go up, although this national insurance cut reduces them—are already announced and baked into the figures.

I did not hear many noble Lords recognising the reasons why we needed to put taxes up—

[Baroness Kramer (LD)]

I was very tactful not to point out that the Minister, as with all Conservatives— I think they have probably signed an oath somewhere—did not mention Brexit and the economic damage it has done, which is a fundamental part of all this. In giving the history of the things that have gone wrong, it is best not to lecture the House when the Government are deliberately leaving out one of the key culprits.

[Baroness Vere of Norbiton (Con)]

My Lords, I definitely was not lecturing the House—far be it from me to do so. However, it would obviously not be a debate without a Liberal Democrat mentioning Brexit.

I am going to move on from that general observation that I am pleased that there is this political groundswell now back behind the Conservatives for lower taxes, which is excellent—

[Baroness Vere of Norbiton (Con)]

The Minister is definitely not looking to expand the debate but is trying to make progress. I hear what the noble Lord says, and if he has read the Autumn Statement, which I am sure he has, he will have seen the announcements made in it about tax avoidance.

Moving on to comments made by noble Lords, I think it is probably not worth rehearsing and rehashing the elements around fiscal drag. Again, I want to put some numbers on record, because there is an opportunity to do so. Thanks to the cut in employee national insurance contributions announced at the Autumn Statement and to above-average increases to starting thresholds since 2010, an average worker in 2024-25 will pay more than £1,000 less in personal taxes than they would otherwise have done. That statement has attracted some interest, and I reassure noble Lords that the calculations underlying this statistic are based on public information, including a published estimate of average earnings. They are robust and could be replicated by an external analyst. This goes back to what I was trying to say about data. Lots of people will do calculations on different bases, but at the end of the day, from the Government’s perspective, we want taxes to come down—this is a start—but of course we will do it only in a responsible manner. However, personal taxes for somebody on an average salary of £35,400 have come down since 2010.

The noble Lord, Lord Sikka, asked about distribution analysis, and the national insurance cuts will of course benefit everybody who pays national insurance. That includes 2.4 million people in Scotland, 1.2 million in Wales, 800,000 in Northern Ireland, et cetera. The latest published HMRC data for 2021 shows that the largest proportion of income tax payers reside in the south-east, followed by London. It will be the case when one has a tax cut that those who pay the largest amount, and the numbers of people who pay tax if they are located in certain areas, are therefore going to see the largest reductions.

However, we have also looked at the impact on women—again, an issue raised by the noble Lord, Lord Sikka. NIC charges apply regardless of personal circumstances or protected characteristics. The equalities impact will reflect the composition of the NIC-paying population. Of course, that feeds into whether we would like women to be paid more. Of course we would. That is why rewarding work will see 28,000 people come into jobs—and I very much hope that they will be well- paid jobs and will be taken up by women.

The noble Lord, Lord Sikka, talked about better-off households. Distribution analysis published at the Autumn Statement shows that a typical household at any income level will see a net benefit in 2023-24 and 2024-25, following government decisions made from the Autumn Statement 2022 onwards. Low-income households will see the largest benefit as a percentage of income. Furthermore, looking across all tax, welfare and spending decisions since the 2019 spending round, the impact of government action continues to be progressive, with the poorest households receiving the largest benefit as a percentage of income in 2024-25. I know that the noble Lord feels that we do not focus on those on the lowest incomes, but he is not correct in that regard.

[Baroness Kramer (LD)]

You cannot eat a percentage of income. Going out and buying a loaf of bread costs you just the same whether you are a high earner or a low earner. So, using the percentage of income comparator to understand the cost of living pressures that people are living under and who is getting the most benefit is not the appropriate measure. If you use the cash number, you realise how much purchasing power arrives for people at the bottom end and how much more purchasing power arrives for people at the top end. That is the appropriate benchmark.

[Baroness Vere of Norbiton (Con)]

I absolutely accept that the noble Baroness is right to say that you can look at it in a different fashion but, in terms of whether what the Government are doing is progressive, it is fair to say that people on lower incomes are benefiting, as a proportion, to a greater degree. Of course, the Government have intervened when it comes to cost of living. That has been cash and that is not about percentage of income. It is all around our energy price guarantee, increases to the national living wage and looking at the uprating of benefits, which will rise by much more than inflation is forecast to be next year. So there are lots of different factors to take into account and sometimes one can be quite blunt when dealing with a tax cut that is, frankly, going to benefit 29 million people.

The noble Lord, Lord Sikka, asked why national insurance contributions do not apply on unearned income. National insurance contributions are part of the UK social security system, which is based on a long-standing contributory principle centred on paid employment and self-employment. ‘Twas ever thus. Of course, a future Government may make substantial changes to that which would again increase the tax burden—but this Government are content that we will maintain the contributory principle.

National Insurance Contributions (Reduction in Rates) Bill

Baroness Kramer Excerpts

3rd reading
Tuesday 12th December 2023 Lords Chamber

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

My Lords, I am grateful to all noble Lords who have participated in the passage of the Bill. It delivers on the Government’s long-term plan to grow the economy and reform the tax system. It achieves this by cutting taxes for 29 million workers through three measures: a reduction in the main rate of employee class 1 national insurance contributions, or NICs, from 6 January 2024; a reduction in the main rate of self-employed class 4 NICs, from 6 April 2024; and the removal of the requirement to pay self-employed class 2 NICs, also from April 2024. Those who choose to pay class 2 voluntarily will still be able to do so. This simplifies the system for self-employed taxpayers, so that it is more closely aligned with the treatment of employees. The Government intend to fully abolish class 2 NICs, and further details about this reform will be set out next year.

Although this is a relatively small Bill, it has a big impact. It is an integral part of the Government’s long- term plan to grow the economy and reform the tax system but, most importantly, it is fair and it is right, because it stands by working people.

I would especially like to take the opportunity to thank all the Treasury officials for their enormous hard work in bringing the Bill to your Lordships’ House so quickly, such that it will deliver the benefit to workers from January 2024. I beg to move.

[Baroness Kramer (LD)]

My Lords, it is customary at this point to thank all those who have helped us with the Bill. The arduous task of taking it through has perhaps been one of the lighter moments of our parliamentary lives, but there was still a lot of hard work by the Bill team to prepare it. I would thank my staff, except that none of them worked on it. This is just to say a formal thank you to everyone who contributed to this process. We appreciate it.

Bill passed.