Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2018

Baroness Primarolo Excerpts

Tuesday 6th March 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, these draft regulations, which have passed in the other place, make no changes to the structures of the national insurance and benefits systems, and are a routine annual exercise to account for the rise in prices. As noble Lords know, this Government are committed to a welfare system that is fair to the taxpayer while also protecting Britain’s most vulnerable.

To put the regulations in context, the Welfare Reform and Work Act 2016 legislated to freeze the majority of working-age benefits, including child tax credit and working tax credit, for four years—in other words, up to 2020. The Act helped to put our welfare system on a sustainable long-term path. Exempt from the freeze are the disability elements of the child tax credit and working tax credit. The guardian’s allowance is also exempt. As in previous years, we are now legislating to ensure that the guardian’s allowance and the disability elements of child tax credit and working tax credit increase in line with the consumer price index, which had inflation at 3% in the year to September 2017. Alongside our commitment to fiscal discipline, the Government, through the draft regulations, are exercising their demonstrable commitment to protecting those who need protection the most.

What the regulations mean in practice is that we will maintain the level of support for families with disabled children in receipt of child tax credit and for disabled workers in receipt of working tax credit. The regulations also sustain the level of support for children whose parents are absent or deceased. To add further context to these regulations, universal credit is replacing a number of means-tested working-age benefits, including tax credits. Once all tax credit claimants have migrated on to universal credit, the uprating of tax credit elements will no longer be necessary.

The social security regulations make changes to the rates, limits and thresholds for national insurance contributions and make provision for a Treasury grant to be paid into the National Insurance Fund if required. These changes will take effect from 6 April 2018. Re-rating increases these figures by inflation to protect taxpayers from rising prices and increases to the costs of living.

These regulations will result in around £130 billion of national insurance contributions to the Exchequer, working directly to support the NHS, pensioners and the bereaved. On class 1 national insurance contributions, the lower earnings limit is the level of earnings at which employees start to gain access to contributory benefits. These include the state pension, contributory employment and support allowance and contribution-based jobseeker’s allowance. The lower earnings limit will rise in line with inflation from £113 to £116 a week, or £6,032 on an annual basis.

Employees have to pay class 1 NICs at 12%. The primary threshold is a level of earnings—£8,424 on an annual basis—above which class 1 NICs have to be paid. The threshold will rise with inflation to £162 a week. The upper earnings limit is the level at which employees start to pay class 1 NICs at 2% instead of 12%. The Government have committed to align this threshold limit with the UK’s higher income tax threshold of £46,350 on an annual basis.

Employers have to pay national insurance at a rate of 13.8% from an earnings level called a “secondary threshold”. This threshold will also rise with inflation to £162 a week, as it has been aligned with the primary threshold for employees since April 2017. The Government are also committed to reducing the cost to businesses of employing young apprentices and young people. The level at which employers of people under 21 and of apprentices under 25 start to pay employer’s contributions will therefore rise from £866 to £892 a week.

Class 2 NICs provide access to contributory benefits for the self-employed—in other words, the state pension. The weekly rate of class 2 NICs that has to be paid will rise in line with inflation to £2.95—a flat rate for all the self-employed. The small profits threshold is the level of profits above which the self-employed have to pay class 2 NICs. This threshold will rise with inflation to £6,205 a year.

The self-employed also have to pay class 4 NICs, at a rate of 9% on profits above £8,164 a year. That limit will now rise with inflation to £8,424. The self-employed then pay 2% instead of 9% above what is termed an upper profits limit. That limit will rise from £45,000 to £46,350 a year. Finally, class 3 contributions allow people to voluntarily top up their national insurance record. This allows access to the state pension. The rate for class 3 will increase in line with inflation from £14.25 to £14.65 a week.

The regulations also make provision for a Treasury grant of up to 5% of forecasted annual benefit expenditure to be paid into the National Insurance Fund, if needed, during 2018-19. This would be a routine transfer with no wider fiscal impact. A similar provision will be made in respect of the Northern Ireland national insurance fund.

I trust that this has been a useful overview for noble Lords of the changes that we are making, and I commend the draft regulations to the House. I beg to move.

[Baroness Primarolo (Lab)]

My Lords, I do not wish to detain the House for long today but I want to ask the Minister some questions specifically about the tax credits and guardian’s allowance regulations. I should say that I asked a Minister similar questions in a debate last week on social security. I had asked her some questions about the freeze on tax credits, child benefits and child tax credits, and she responded by saying:

“I respond by simply saying that the Treasury is responsible for these benefits and it announced the 2018-19 rates”,—[Official Report, 27/2/18; col. GC 13.]


and so on. I decided that as a former Treasury Minister it was a good idea to come today to ask a former Treasury Minister, and a current Treasury Minister in this place, some questions about child benefit.

I am grateful for the noble Lord’s introduction of the orders, but I want to focus on the question of rising inequality and poverty among children in our country. According to the Resolution Foundation, inequality is projected to rise to record highs by 2022-23, and it says that this is a sad,

“story of the poorest working-age households being left behind”.

The driver of this is the freeze in most working-age benefits. According to the Resolution Foundation, by 2020, child benefit beyond the first child will be worth less than 32 years ago and child benefit for the first child will be at its lowest level in real terms in the past 20 years.

Child poverty is on the increase, and absolute child poverty, in particular, is rising. Yet we see the shocking prospect, in a country which has the sixth-largest economy in the world, of more and more children’s and families’ lives being blighted by poverty. The Child Poverty Action Group says that as a result of the cumulative cuts to social security, we are pushing more children into poverty. Its analysis is that 1 million more will be in poverty, two-thirds of them in working households.

Does the Minister accept those figures as correct? Does he accept that as a result of the freeze, 10.5 million households will see their average yearly income cut against a backdrop of rising food prices, now standing at 4.1%, at exactly the same time as the Treasury is saving £4.7 billion, more than originally estimated, by the freeze in those benefits?

I am sure that the Minister will say, and I would not disagree, that the best way out of poverty is work, but he knows as well as I do that families face precarious work situations, zero-hours contracts and rising inflation. It is a heady cocktail that they cannot fight by themselves, and the Government need to step in.

The Explanatory Memorandum which accompanies the orders makes it clear that the Treasury was not required to review the impact of the freeze on child benefit, as the decision had been taken before. I ask the Minister three simple questions. How will the Government stop the rise in child poverty? Will he agree to publish an assessment of the benefit freeze and its impact on child poverty? Finally, will he go back to the Treasury to persuade it that it needs to reconsider the decision to freeze child benefit, bearing in mind the vast amount of money that it has saved, to share some of it with mothers by giving it to them as an increase in their child benefit so that they can spend it on their children in times of desperate challenge for families?

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Primarolo, who has a lot of experience, having been a Treasury Minister. I agree largely with her plea for a better context in which to consider these orders. Like her, I was in the Grand Committee last week when we looked at the social security uprating order, which is a sister order. In the normal annual review that we have had in the past, they are normally considered, pari passu, together, in a way that enables a more joined-up debate to take place. I absolutely agree with what has just been said about the importance of the context of what we are considering.

The Minister, in his usual efficient way, explained exactly what these orders are doing, and he is right. I am perfectly prepared to believe that the orders are legal and accurate and what is required by law. But if we are talking about £130 billion of contributions through the national insurance fund, £24 billion of which is allocated now to the National Health Service, I think we deserve a better context in which to discuss these things.

This is a procedural point rather than anything else, but I am getting more and more worried about how the deregulation provisions that we passed in the Act some years aback are now being used more and more to deflect some of the routine things that Parliament needs to be consulted about. It is called “ambulatory provision”, for those who are students of these things. I am getting frightened that the consideration of these important orders, including the social security uprating orders that we considered last week, is being pushed further and further into the long grass. I do not need to tell the Minister, because he was there at the time but, in the old days, when we were all in the House of Commons, these were big debates. It was understood that it was a significant sum of money. The biggest spending department in the Government by a mile was under examination and scrutiny in Parliament. We now do that through these restricted orders, which, stricto sensu, as the noble Baroness, Lady Primarolo, said, is technically out of order. I agree with her—and in a moment I shall indulge in the same kind of latitude that she took.

My point is that the Minister is a very experienced hand in this. Will he go away and reflect how we can, particularly at the beginning of a Parliament—and this is a new Parliament, with its first Budget—think about sustainability and affordability and about the adequacy of benefits, child benefit being principal among them, as well as about the social change that surrounds that? The world of work has changed quite dramatically in a number of respects, particularly in relation to self-employment. I want to talk about class 2 and class 4 contributions in a moment.

The Minister understands these things perfectly well. There should be some occasion, maybe a day in government time, to which these uprating orders are appended, when we can have a proper discussion on the context in which these contributions are being raised and the benefit spend is being agreed. That would give some of us more confidence, at least once at the beginning of every Parliament, that the Government were willing to open themselves and be transparent about their longer term aims and ambitions. Basically, I guess that they would say that they were doing their best with universal credit and doing their best to try to understand the challenges when disability costs are increasing. But we should have a grown-up discussion about that—it is not for now, but I hope that he will go away and reflect on that carefully.