National Insurance Contributions Increase

Clive Betts Excerpts

Tuesday 8th March 2022 Commons Chamber

[Rachel Reeves]

The hon. Gentleman speaks powerfully on behalf of his constituents, who are struggling with the double whammy of prices increasing, particularly gas and electricity bills, at the same time as this Government are piling on pressure after pressure with higher taxes on the same people who are paying those higher bills. He is absolutely right that people can only take so much, and the national insurance contribution tax hike is, as he says, potentially the straw that breaks the camel’s back.

Politics is about priorities, and it is about choices. So who has the Chancellor chosen to protect—not to tax more? Those who earn huge incomes from a large portfolio of buy-to-let properties or those making large sums from selling stocks and shares will not pay a penny more tax on that income. The super-rich will not be paying more. Roman Abramovich and billionaire oligarchs are not being made to pay more tax. In fact, some of those trying to relinquish their assets now appear to be using offshore vehicles to avoid paying tax. Lubov Chernukhin, wife of Putin’s former finance Minister, and mega-donor to the Tory party, has reportedly lobbied Ministers against higher taxes for the wealthy. As luck would have it, she will not be paying any more tax, unlike people across Britain who work for a living and keep our economy going.

[Mr Clive Betts (Sheffield South East) (Lab)]

My hon. Friend has mentioned not taxing buy-to-let landlords who have a number of properties. I do not think she is aware that the permanent secretary for the Department for Levelling Up, Housing and Communities came to the Select Committee yesterday and confirmed that, where properties are let with council tax and rents being paid in the same bill, the council tax rebate of £150 will go not to the tenant, but the landlord. If the landlord owns multiple properties, as long as they are not owned by a corporate entity, they will get multiple amounts of £150. Some of the landlords are going to be extremely well off, and tenants will have to go and apply to the discretionary fund to get any help at all.

[Rachel Reeves]

I thank my hon. Friend for bringing that to the House’s attention. It is exactly why Labour said that the warm home discount should be expanded to ensure that the money goes to the people who need it, not the landlords.

At the same time as the Government are asking hard-working British people to pay more in tax, they are writing off billions of pounds in fraud. Ordinary people are paying for this Government’s waste. The Chancellor repeatedly ignored warnings about the holes in his covid business support schemes, resulting in £4.3 billion of public money being written off. That does not even include the amounts lost to bounce back loan fraud, including taxpayer cash handed out to drug dealers and organised criminals. That fraud currently stands at £4.7 billion, so that is £9 billion and counting handed to fraudsters. Then there is the colossal Government waste during the pandemic, with £8.7 billion lost on unusable personal protective equipment, all paid for by the taxpayer. Billions has been spent on crony contracts that have not delivered, and every single cheque has been signed by the Chancellor.

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[Dr Caroline Johnson]

Will the Minister give way?

[Mr Betts]

Will the Minister give way?

[Mr Clarke]

I will take one more intervention and then I will make some progress.

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[Mr Clarke]

I heard a lot of warm and fairly vague phrases, but I did not hear a concerted plan, and that of course goes to the heart of this question. The hon. Member for Leeds West said in her speech that the voters are smart and savvy, and I agree with her, but they know an Opposition playing politics when they see it.

The £12 billion average annual investment, which is of course a recurring investment—that is the crucial point—to meet a recurring need, will tackle the elective NHS backlog, while ensuring that the health service has the resources it needs over the coming years. It will strengthen our adult social care system, allowing us to invest at least £500 million to give our army of extraordinary social care workers new skills, and it will enable the Government to roll out the long-awaited reforms to funding for families through a cap on adult social care costs.

This is a transformative policy that will tackle serious and long-standing issues, but to fund such a significant increase in permanent spending we have had to make the tough but responsible choice to increase taxes. Only a broad-based tax such as income tax, VAT or national insurance can raise the sums needed for such significant investment. Using NICs as the base has several advantages. First, it means the levy will be paid for by employers, employees and the self-employed, including, from April next year, by workers over state pension age.

Secondly, this is a progressive way to raise funds because those who earn more will pay more: the top 15% of taxpayers will pay half the revenue. A basic rate taxpayer will pay about £3.49 per week, while 6.2 million—6.2 million—of the lowest earners will be exempt entirely from the levy and most small businesses will not be affected at all.

[Mr Betts]

Will the Minister give way now?

[Mr Clarke]

I will give way.

[Mr Betts]

The Minister talks about health and social care, but will he confirm that there is not a single penny in this extra funding to enable local authorities to cover their social care costs in their budget, which they are struggling with, or to improve the level of the social care they are offering? This crisis has now been going on for years and years, and the Government have promised to fix it. Given that this is a permanent increase in funding, will he also confirm that we are not going to see a tax cut in the next couple of years, just before the election—up today, down tomorrow?

[Mr Clarke]

On the hon. Gentleman’s point about our support for local authorities, we are giving £1.6 billion extra in each year of the spending review we announced in October to support local authorities with the challenges they face. Of course, the levy will fund £5.4 billion of investment in social care over the next three years, so it is a serious response to a serious challenge.

To return to the advantages of the way we have structured the levy, the third design advantage that stands out is that we have also announced an equivalent increase in dividend tax rates. There is therefore fairness across the spectrum in how this is being paid for.

I know there are some who ask why we need to raise tax at all, and instead say that we should borrow to fund permanent increases in spending. Throughout this speech I have outlined all that the Government have done to protect people’s finances as we recover from the pandemic and deal with the rising cost of living, and those actions mean our economy has made a strong recovery from covid-19. Our GDP has rebounded, and over the past months job vacancies have hit record highs, while the unemployment rate has fallen sharply. However, it is easy to forget that all those steps come at a huge cost. Covid casts a long shadow across our economy. Indeed, our debt is at its highest since the early 1960s. As I have reminded the House on many occasions, that high level of borrowing leaves us susceptible to shocks, including changes in interest rates and inflation.

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[Jerome Mayhew (Broadland) (Con)]

When we discuss whether we should have the national insurance contribution rise, we ought to look at what we intend to use the money for, because, after all, as my hon. Friend the Member for Gloucester (Richard Graham) mentioned, it is a hypothecated tax. The Government are looking to address two crucial elements to improve to our society, which are the covid backlog—currently more than 6 million people are waiting for treatment, of whom 310,000 are waiting for more than a year—and adult social care, where there is a desire widely held by constituents of hon. Members across the House to cap care costs. Such reforms would assist 150,000 people with their care costs at their time of greatest need. There is a degree of consensus that they are good proposals and must happen—we need to spend the money—so the real question is not whether we spend the money but how we pay for them.

[Mr Betts]

The hon. Member mentioned the 150,000 people who will benefit from the cap on care costs, and they are disproportionately people in more expensive homes. Where in that funding is the help for the 1.5 million people that Age Concern has assessed should be entitled to social care but have now been excluded from the provisions?

[Jerome Mayhew]

The hon. Member made a number of interventions on the Minister, and I refer him to the full responses that were given.

The question that I take from that is: how we will pay for the proposals? It seems to me that there can be only three answers. We can take money from other priorities in Government, we can borrow, or we can increase taxation. So far, I have heard no suggestions of other areas of Government spending that should be reduced. The Opposition typically move to defence spending as a simple way of extracting money for other commitments, but that is unlikely to be an area of future reductions in today’s environment; in fact, I submit that it will be the opposite.

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[Mr Clive Betts (Sheffield South East) (Lab)]

The idea of trying to raise a specific allocated funding source for social care came from a report in 2018 jointly done by then Housing, Communities and Local Government Committee—it has changed his name so many times, I have to think what it was called at the time—and the Health and Social Care Committee. We raised the idea of a national insurance increase but we were very specific about the caveats. We said that no one under 40 should pay it, because young people have been disproportionately hit by the impact of the banking crisis, the austerity measures and then covid. That is exactly the same way the Japanese raise their funding for social care. We said that the threshold at which people start paying national insurance should be higher, which this proposal does not do, and that the ceiling should be raised, which I think the Government now accept should be done. We also said that people on a high private pension should pay, but there is no proposal from the Government for that.

The Government are saying that when the levy comes in formally next year, people of pensionable age who are working will pay, but for this next year, 2022-23, those of pensionable age will not pay anything at all for the national insurance rise, which seems particularly strange as the money that will be spent will disproportionately help older people. We also said that people who are getting unearned income should pay. The self-employed pay national insurance based on their profits but not on a whole range of self-employed income, which would be a very different tax—a very different premium indeed. The changes to the cap will disproportionately benefit people in the most expensive homes, who will pay less of their asset when they die than people with lower value homes. We said that, rather than deal with this convoluted arrangement with the cap, everyone above a certain threshold of home value should pay a percentage of that asset towards the social care premium on their death. That again would be a much fairer way to raise money.

What we have here is a regressive form of taxation. I accept that people at the lower end—the people at the very bottom—on a £10,000 income will not pay, but beyond that, the hit to family incomes is going to be much greater for a family earning £30,000 than for a family earning £130,000. And at the end of the day, this does not deliver more money for social care. It should not be called a social care premium. It delivers the money through the disproportionate raising of the cap, which I have explained. It does not give any extra money for councils to fund the gap in social care funding, which has grown wider over the last 10 years. As social care funding has gone up and council budgets have shrunk, the amount for other services has shrunk with cuts of up to 50%—the National Audit Office has done an excellent report on this—whether it be planning services, environmental services, bus services, libraries or road repairs. We are looking for a funding stream that will stop that happening. There is no more money for local authorities to provide social care to the 1.5 million people that Age UK believes would have been entitled to social care 15 years ago and do not get it now.

At the same time, we will see a disproportionate rise in national insurance premiums hitting some of the poorest families hardest. What else will the Government do to fund local councils? They will make sure that councils have to put up council tax by around 3%. Council tax is a disproportionately unfair tax for poorer families. Look at the relationship between the value of homes and the amount of council tax people pay. The Resolution Foundation did a very interesting analysis five years ago showing that the level of council tax paid by those at the top end was 3.3 times higher than those at the bottom end, but the value of homes was, on average, 6.8 times higher at the top end, and that gap has grown larger as the value of houses has grown over the years and there has not been a council tax revaluation since 1991.

We have a double whammy. On top of the increases in food and fuel prices, which are disproportionately hitting poorer families, we have a disproportionate national insurance rise and disproportionate council tax increases, too. The Government should stand back and consider how we fund social care properly and fairly on a long-term basis, while at the same time addressing the problems of unfairness in council tax through revaluation and reconsidering the bands so that people in lower-value homes do not pay a disproportionate amount of council tax compared with people in higher-value properties. That would be fair. Let us see some fairness from the Government in addressing our future funding needs. They should not continue with the national insurance rise and the council tax increase this year, as they disproportionately hit the poorest families hardest.