National Insurance Contributions (Increase of Thresholds) Bill

Clive Efford Excerpts

Committee stage
Thursday 24th March 2022 Commons Chamber

Lastly, let us not forget that the Welsh Labour Government will benefit from this levy through the Barnett formula. The Government are fiscally responsible, and committed to spending where needed. For my constituents in Wrexham, this is the deed to match the words “levelling up”.

[Clive Efford (Eltham) (Lab)]

I want to speak to new clause 2. Yesterday, I was shocked by the Chancellor’s response to people’s entreaties of him to do something more for those on low incomes. As I pointed out to him in an intervention, there is an anomaly—I hope it is one—that the Government will want to put right: when those on universal credit who pay national insurance have their threshold raised to £12,500, the £330 that they gain as a consequence will be subject to the 55% taper. That means that they will not get the full saving. Money is being clawed back by the Government from some of the poorest workers in the country. That cannot be right.

Last year, the Chancellor of the Exchequer announced the reduction in the taper, which was very welcome. He announced a number of measures that increased the incomes of the poor, although we should remember that he took away the £20 a week uprating of universal credit. Those people are still going to be better off as a result of the changes yesterday, but the ones on universal credit who I have just referred to will be less well off than they were anticipating ahead of yesterday’s statement. How can that be? The poorest workers in the country number 2.3 million; I suspect that what the Government claw back from them will mean hundreds of millions going back to the Treasury. That cannot be fair and it cannot be right. By my calculation—I will stand corrected if I am wrong—such people will gain £330, of which they will lose £171, so the actual gain will be in the region of £159. That cannot be right.

My new clause 2 would require the Government to confirm in a report whether my fears and estimates are right that people on universal credit who pay national insurance will lose roughly half the money that they gain. Subsection (2) aims to find out how much the Government will gain from some of the poorest workers in the country because of the changes. If we highlight how much that is, I hope that they will attempt to do something about it and compensate such people for their loss. As we have heard all too often in this Chamber, people on low incomes in this country—families, in particular—have to make choices between feeding their children, clothing their children and switching on the heating, and about what food they buy. When people are living on the margins of, or in, extreme poverty, sums of money that may sound small are extremely significant. How did we manage to have a statement yesterday that clawed money back from such people?

Subsection (3) calls on the Chancellor to deliver that report to Parliament in 30 days. It cannot be right that such people are missing out in this way. It must be an oversight by the Government. It would be an extremely callous move if they actually knew that, as a consequence of the national insurance threshold being lifted, people would miss out in this way. I would be interested to hear from the Government, without delay, exactly who misses out, if they do at all, and how much the Government will benefit from it, if they do.

[John McDonnell]

I tabled new clause 1 because, from now on, I do not think that the House should discuss any legislation that has financial consequences without it understanding or at least having information about the effect on poverty and low pay. I would have liked that information for this Bill, although I can understand why we do not have it today. However, in future, the Government should lay a report before the House that explains the expected impact on low pay and poverty of any piece of legislation and assesses the effectiveness of its provisions.

The nature of this debate so far has demonstrated a lack of appreciation or understanding—and certainly a lack of agreement—about the objective realities of what is happening. Many have quoted the comments of the Institute for Fiscal Studies and the Resolution Foundation, but some of this is about hard facts, so let me put on record again the situation that we face. At the moment, 4.3 million children and 2 million pensioners in the UK live in poverty. Overall, 14 million people live in poverty, and that was before the cost of living crisis hit us. A report from a UN rapporteur described people living not just in severe poverty, but in “destitution”. According to analysis today from the Resolution Foundation, 1.3 million more people will be living in poverty.

One reason I am asking for such a report is so that we can ask simple questions of the Treasury. What forecast have Her Majesty’s Treasury and the Department for Work and Pensions, or the OBR, made of how many children, pensioners and people in the UK will be in poverty by the end of 2022-23?

Yesterday the shadow Chancellor asked the Chancellor how many pensioners and children would be pushed into poverty by the failure to uprate benefits and pensions in line with inflation, and the Chancellor failed to give any answer. It would be useful to have an answer today. Child poverty is already up by more than 500,000 since 2010, and it is interesting to note that most of those children—more than 60%—live in households in which one adult works. That, too, calls into question the levels of pay in this country.

The Joseph Rowntree Foundation estimates that the uprating of just 3.1% will drag more than 400,000 more people into poverty, and as we have pointed out time and again during the debate, inflation is forecast to rise over the year to between 7% and 10%. Has the Treasury analysis come up with the same figure as the foundation, or a different one? If the figure is different, we would like to know why, and on what basis.

The other issue raised in the new clause is low pay. A total of 4.8 million workers earn less than the UK real living wage of £9.90 an hour, or £11.05 in London. The rise in the minimum wage this year—a 6% rise to £9.50 —still falls short of the Living Wage Foundation’s real living wage, and, given that forecast of an inflation rate between 7% and 10%, it is a real-terms pay cut. According to the Office for Budget Responsibility:

“Real incomes have been stagnant since the start of 2019 and this is now expected to continue over the next few years”.

The OBR went on to say that we were about to see the largest fall in incomes on record:

“With inflation outpacing growth in nominal earnings and net taxes due to rise in April, real livings standards are set to fall by 2.2 per cent in 2022-23—their largest financial year fall on record”.

A presentation of analysis by the Institute for Fiscal Studies took place this morning. According to the IFS, public sector pay has fallen by 3% in real terms in the last year, and is 2% lower in real terms than it was 12 years ago. The Department for Education’s average pay offer to teachers is 4%, and the fact that inflation is so much higher has obviously hit their wage levels. There is a group among the workforce who are being hit particularly hard by the Government’s changed arrangements relating to loans for tuition fees that they incurred while they were studying, and who will again be impacted severely by what is almost, in effect, an additional income tax.

Paul Johnson of the Institute for Fiscal Studies expressed incredulity—as have many of us—that the Government had done nothing for those on benefits or for pensioners. He pointed out that, according to the OBR, we are seeing the biggest fall in incomes since 1956, and that the inflation rate experienced by poorer households is even higher than the average. He said that it was “hard to understand” the Government’s “lack of action” on benefits. That lack of understanding of the Government’s approach is the reason for my new clause. I think that in future when we are debating issues such as this—Government measures involving public finances, benefits and wage levels—we will at least need to have a detailed report before us which explains the consequences of measures relating to low pay and poverty.

In the new clause, I have also asked the Government to assess alternative measures that they could take, and to provide an analysis of why those measures were not taken or why they might be brought to bear in the future if not immediately. All I am pleading for is a rational debate based on the widest possible information being provided to this House when we consider measures like this, so that we know whether the decisions we are taking will improve or undermine the standing of our constituents when it comes to low pay and poverty.

--- Later in debate ---

[Lucy Frazer]

I recognise the point made by the right hon. Member and I will of course consider it for the future. Considering a variety of hypothetical scenarios is time-consuming, which is why that is not traditionally done, but I will take his point away and consider it further.

I reiterate some of the points we discussed on Second Reading only a moment ago about the impact of the measures on those in lower pay and on universal credit. As hon. Members know, there was an autumn Budget not very long ago, followed now by this spring statement. In the autumn Budget, the Chancellor started the journey of helping to support those on lower pay through the tax system. He announced the first tax cut on his journey to cut taxation—the cutting of the taper rate, which will put £1,000 into the pockets of those on universal credit.

Hon. Members will already know about the increase in the national living wage. They will have seen the £1 billion household support fund, which is helping people in all our constituencies, building on other measures that were announced at the autumn Budget. More recently, we have provided £9 billion in energy support. There is the increasing generosity of the local housing allowance for housing benefit and the holiday activities and food programme. The Chancellor’s plan for jobs—the Conservative plan—whether through the kickstart scheme, the restart scheme, work coaches or boot camps, is to ensure that, where people can get into work, they get into work, and they are upskilled so that they earn more for themselves.

On new clause 4, the increase to the primary threshold and the lower profits limit is a tax cut on earned income that will benefit almost 30 million working people.

[Clive Efford]

Will the Minister give way?

[Lucy Frazer]

I will just finish this point; I will come back to the hon. Gentleman. We are introducing a tax cut for a typical employee that is worth more than £330 in the year from July 2022. The impact of the provisions in the Bill have already been published in a tax impact information note published on gov.uk, and the impact of the income tax basic rate cut will be published ahead of implementation in 2024.

The hon. Member for Bath raised a question about landlords. We have taken steps over several years to ensure that landlords pay a fair tax contribution.

In April 2016, we introduced a higher rate of stamp duty land tax for those purchasing additional properties, recognising that, although the private sector plays an important role in our housing market and people should be free to invest in buy-to-let properties, the purchase of additional properties can affect the ability of other people to get on to the property ladder. We also restricted finance cost relief so landlords no longer get relief at their marginal rate if they are a higher or additional rate taxpayer. Finally, we maintained the 8% higher rate of capital gains tax for landlords compared with the rate for other taxable gains.

[Lucy Frazer]

I am going to give way to the hon. Member for Eltham (Clive Efford) first. He is probably going to ask about the previous point.

[Clive Efford]

I am wondering whether the Minister missed new clause 2, because she did not address the problem. Yes, increases were introduced in the autumn Budget last year, but this year, people are getting less than they were anticipating due to the increase in the threshold of national insurance. People were being told yesterday that they should get an extra £330, but they will actually get less than half of that. What is the Government going to do about that? The Treasury is clawing back several hundred million pounds from some of the poorest workers in the country.

[Lucy Frazer]

I do not know whether the hon. Member was in the Chamber when the right hon. Member for East Ham (Stephen Timms) raised this point and I addressed it. He is right to point out that an individual may be affected by the taper, but overall they will be better off as a result of this change. If those people are earning below the work allowance, they will get the full benefit. I reiterate that the changes that we have already made mean that those who are on universal credit will benefit by £1,000 from the cut to the taper rate.