National Insurance Contributions (Reduction in Rates) (No.2) Bill

David Simmonds Excerpts

2nd reading
Wednesday 13th March 2024 Commons Chamber

[David Simmonds (Ruislip, Northwood and Pinner) (Con)]

I welcome this Bill, as I did the previous one that reduced national insurance contributions. As a starting point, we must recognise that a lot of the lobbying about our economy tends to come from the biggest organisations with the deepest pockets. Around 70% of people employed in this country work in an enterprise with fewer than five staff. Those businesses do not necessarily have a big public affairs department or a collective sector or trade body to represent them, but they will benefit enormously and directly in their pockets from the decisions that we take this afternoon.

It concerns me a little to hear those on the Opposition Benches who scorn the value of the money that the Bill puts back into people’s pockets, because £8 a week might not seem like a huge amount—in the context of an MP’s salary, perhaps it is not—but particularly for lower income households, that £8 a week accumulated over the period of a year is a valuable contribution towards a better standard of living. It is more money to spend on the rising costs that households face—car insurance and other bills—or to put towards a family holiday, a better Christmas or more treats for the children. We should recognise that all of that contributes to a higher standard of living for people in this country. A lot of today’s debate has been party political in tone, perhaps regrettably, given how empty the Opposition Benches are.

I was elected to public office for the first time in 1998—a year after the last Labour Government took office. Many of us will recall that that Government were elected on a pledge that they would stick to the spending plans put in place by the outgoing Conservative Government in 1997 for their first three years in office. Thereafter, they spent, in broad terms, 10% more taxpayers’ money every single year than they raised in taxation revenue. When the country faced a significant financial crash in the late 2000s, there was already a huge national debt as a result of the Labour party’s failure ever to meet their committed expenditure through tax rises, productivity growth or any other method.

For me as a local authority councillor, that meant a Labour Government who said, “We are introducing entitlements to higher standards of care and an expectation that you will fund it through introducing charges for the most vulnerable people.” That Labour Government required every single local authority to make massive efficiency savings every year in every other part of public services to balance the budget. Given some of the pledges that Labour made in the Budget debate, whether on the environment, VAT on school fees or windfall taxes, if there is to be a change of Government, we will see yet another period of a Labour Chancellor saying, “We failed to raise this money in tax, we have not generated the income, so we are going to borrow, borrow and borrow, and the national debt will continue to rise.”

The taxable capacity of our economy and the economies of every country in the western world is an important consideration for us. Every major economy has been affected by covid and Russia’s illegal war in Ukraine. We must be careful about how we allocate taxpayers’ money to ensure that we are contributing to growth and focusing on the things that make the biggest difference to our constituents’ standard of living.

The Treasury team has been lobbied a great deal on issues from inheritance tax to stamp duty, higher rate tax and additional rate tax. I was pleased to see in the Budget that measures have been taken or work has begun on things like reducing the cliff edges that affect people, such as in child benefit. However, we need to recognise that around 11% of taxpayers in the UK currently pay higher rate tax, whereas the national insurance cut benefits, as my hon. Friend the Minister said at the Dispatch box, around 29 million working people—the vast majority of people in this country.

According to the Barclays insights report for my constituency, which I received recently, as I think did every other right hon. and hon. Member, the biggest increase in discretionary expenditure has been on lower-income working households. That suggests that the measures taken by the Government to date are beginning to feed through.

Let me turn briefly to a number of points that have been raised about the use of national insurance contributions. We heard the Leader of the Opposition, the right hon. and learned Member for Holborn and St Pancras (Keir Starmer), asserting very clearly at the Dispatch Box in Prime Minister’s questions earlier that a reduction of national insurance meant a cut in the budget for the NHS. It is worth reflecting on the Government Actuary’s quinquennial review, which sets out in a lot of detail how national insurance contributions are used, some of their history and how they came to be that way.

When national insurance was introduced in 1911, it was intended to represent—in a physical sense, with an actual stamp on a card—a direct contribution towards someone’s benefits and pension. It evolved, in particular with the 1948 reforms, into the shape we see today. But there is no direct hypothecation between the vast majority of national insurance contributions and any part of public services. In fact, around 94% of the national insurance fund is spent directly on funding retirement pensions. It is a subset of other categories of national insurance contributions that represent the biggest single transfer from NICs paid by our constituents into the national health service.

As I learned in my time engaging with a whole variety of different bits of government, such as the teachers’ pension scheme, people pay in, it goes into a pool of Government funding and decisions are then made by the Treasury on how to distribute that. In the case of the national insurance fund, we know that one of the issues the Budget begins to deal with really effectively is the recognition of a 17% statutory maximum on any Treasury contribution to cover shortfalls in that expenditure. Yet by the middle of this century, as a result of our changing demographics, we know that those shortfalls will become quite significant.

The steps made through such measures as the removal of a lifetime limit on pension saving and the uprating of auto-enrolment are examples of a Government not just thinking a couple of years ahead with an election in mind, but thinking 30 years and 40 years ahead to ensure that we have a sound financial basis for the biggest single item of Government expenditure in the middle of this century, when all those bills will be coming home to roost. That is evidence of a responsible and Conservative approach: looking at how we can make decisions within our taxable capacity that reflect a proper understanding of what the data tell us about the long-term position. That supports things like an increased savings rate—again, all the data we are getting demonstrates that our constituents are beginning to take that seriously—with a view to ensuring long-term stability.

On that note, I conclude by saying that the Treasury and the Government have taken exactly the right decision. They recognise that the benefits provided to pensioner households in particular over the past 14 years mean that they are now much, much wealthier, relatively speaking, than they used to be, supported by the triple lock. They now need to acknowledge that working people, who have borne a significant burden because of covid and the war in Ukraine, need extra money in their pockets. We must set that against the backdrop of an economy where, on average, 800 jobs have been created for every single day that the Conservatives have in office since 2010, where the youth unemployment rate has halved since the last Labour Government, and where foreign investment is supporting the creation of jobs and investment in productivity, which gives us cause to be optimistic and positive that this is genuinely a Budget for a better future.

--- Later in debate ---

[Robin Millar (Aberconwy) (Con)]

I must confess that I have not spoken in many Budget-related debates in the House, partly because I am well aware of the expertise of many other Members. It is a matter of some interest and pleasure for me to listen to the likes of my right hon. Friends the Members for Witham (Priti Patel) and for Wokingham (John Redwood) as they explain the consequences of, and the reasoning behind, measures such as this, and for that I am grateful. I am also grateful to the hon. Member for Norwich South (Clive Lewis), who is not in the Chamber at the moment, for showing up. As my right hon. Friend for Witham said, it is good to have a debate about these issues and it is important that we do so, but that is difficult when the Labour Benches stand empty before us.

In the words of my office manager, Barbara—who will enjoy the reference—I am a bear of little brain, and I therefore think of Budgets in simple terms. There is money coming in and there is money that must go out, and hopefully there is a surplus between the two sums. My right hon. Friends the Members for Witham and for Wokingham have already covered issues such as growth and productivity so well that I will not deal with them now, but the points that they made bring me to my own first point, which is that Budgets are about choices. Much as Opposition Members want to make out that this is a single-issue debate that is all about spending, there are choices involved in how a Government must spend any money that they have, or must borrow in order to spend.

The first of those choices is “Do we spend on public services?”, and the Chancellor has said, very clearly, “We do.” An extra £150 billion is being spent on public services, and that is in the context of a health budget of about £176 billion a year and a pensions budget of £124 billion. It is not an insignificant amount. It is not an afterthought. It is not a rounding-up error that slipped past the accountants’ eyes in the preparation of the Budget. It is a serious commitment to public services.

At this point, I must refer to my own constituency and the Chancellor’s inclusion of cultural projects of national significance, with £10 million for Venue Cymru in Aberconwy. We are exceedingly grateful for that, and I know that the council was delighted and surprised, but I did work hard to make the case for it with the Chancellor. As he pointed out, culture is an investment with a real economic return, and that is something that the students at Ysgol John Bright in my constituency understood. Just last week I was talking to the cast of its production of “Chicago”, and Lily, Arron, Isobel and others said how much they appreciated the chance to take part in productions not just in the school hall but in the local theatre. They saw the value of an investment in that theatre enabling future generations to have the same experience.

That brings me to my second point about how we choose to spend our money. We can invest it, as the Chancellor has demonstrated—for example, in his reference to a productivity programme. I think he set aside £140 million or £150 million for productivity within the NHS. No one can describe this as a short-termist Budget, or one that is only thinking about some event that may happen later this year—I cannot imagine what. This is a really forward-looking Budget.

The third thing that a Chancellor can do with a Budget is repay debt, which I feel very strongly about. The argument was made by the hon. Member for Norwich South that we can pay more and more into public services. Usually, the argument is that we can pay a penny here or a penny there, which never sounds like much, but the debt that builds up when we have to borrow to make payments is considerable. Let us not forget that the narrative of “just a penny more” or “just give us more money and we’ll get it done” was tested to destruction in 2010. By the time we got to 2010, what was the legacy? A note saying, “There’s no money left.” I did not write the note; it was a Member now on the Opposition Benches—then a Minister, no less. We have to address the idea that we should simply throw more money into public services. We have a duty to members of the public to change the narrative of, “This party is bad because it doesn’t spend; that party is good because it does spend.” It is not the answer, which is why we have a moral duty—never mind an economic and financial one—to properly make the case for reform. Again, I refer back to the Chancellor’s decision to put £140 million or £150 million into a productivity boost for the NHS.

Debt levels are increasing—that is for sure. Health and pensions will receive £176.2 billion and £124.3 billion respectively this year. The third biggest public sector spend this year will not be on policing, defence—that is a subject for another debate—education or universal credit, but on the interest on debt repayments. I am sorry to pick on the hon. Member for Norwich South, and even sorrier that he is not in his place to hear this, but to keep reducing everything to the number of nurses we might be able to recruit, or to the number of hospitals we might be able to build, is an irresponsible way of looking at public services. The repayment that we make on debt is forecast to be £94 billion this year. In simple maths, that is the equivalent of building two new primary schools every single hour of every single day this year. If we want to reduce stuff to such a level, let us have that conversation, because our debt repayments are costing us two new primary schools, at £5 million each, every hour—24 hours a day, 365 days a year. Maybe I have got the price slightly wrong, but we can work out the numbers

We know that debt levels increased under the last Labour Government. I will not be drawn into that discussion—much as I would like to—because this debate is about national insurance, but I will make the point that debt has increased. How have the Conservative Government done that over the last 14 years? They have spent money on the things that this country has needed. Apart from empty coffers, we inherited a global financial crisis. We introduced a programme of austerity, and we had to work that through with three programmes of quantitative easing, worth about £350 billion. We were then unexpectedly hit by a pandemic, for which our expenditure was about £410 billion—equivalent to about £6,000 per head of population. That costs money to service, and we are now paying it back.

None of us knew that the pandemic was coming. None of us knew that a war was coming in the east of Europe. None of us knew that an energy crisis was coming. None of us knew that there was going to be inflation across the economy. None of us knew these things, but this Government responded and we wrote the cheques. When the energy crisis came up, the Government spent £67 billion on supporting businesses and members of the public. During the covid crisis, £140 billion of that £410 billion went on shielding business so that when we came out, the economy bounced straight back to where it had been. This is an understanding of how the economy works and of how public finance works. It is distinctively Conservative that this is so, and we have shown this.

There is a fourth thing we can do with that spend. If we are not spending it on public services, investing it or drawing down debt, we can choose to cut taxes, and that is where we have come to. It was on the streets of Llandudno that I encountered the first person to ask me, “Who is going to pay for all of this?” It was during the covid pandemic, on the King’s Drive in Llandudno, where a resident and I were having a chat across his garden wall—suitably spaced at the time, of course. The area has it challenges, and it might be expected that people there would be looking for help from the Government, and indeed they did, but that gentleman, who had lived on that street for six decades, was the first person to look me in the eye and say, “Someone is going to have to pay for all this.”

That is an important point. We talk about being honest, and I was sorry to hear some of the comments from the hon. Member for Richmond Park (Sarah Olney) about being honest and not pulling the wool over people’s eyes. Let us start by saying, “This costs, and someone has to pay for it. Someone has to be responsible for looking at how this is paid for.” The choices we make to spend are matched by the choices we make on how we spend and where the money goes.

This Government have chosen to make a cut in national insurance, and I fully support that. I would say that 2% is a distinctively conservative amount, in a distinctively Conservative approach to tax cutting. It matters; it is making a difference. We hear that for someone on the UK average salary of £34,500, that will be worth about £900, taking the two cuts of 2% together. A 4% cut will be worth about £900. In my constituency the average salary is considerably less; it is about £28,000. Iusb know that some who are listening to this will doubt that, but that is the figure. To somebody on £28,000, that 4% cut will be worth about £600, and that makes a difference. That £50 a month will make a difference.

That brings me to my first comment about the national insurance cut, which is that it is targeted. This is deliberately intended to make a difference. This is not gesture politics. This is not unfunded. This is not careless. This is not something that is done casually or without thought or regard. It is targeted, and 27 million people are better off. There has been talk of why pensioners have not been included, but pensioners have benefited from the triple lock. There has also been talk that the better-off receive more of a cut. The nature of tax is the more you receive, the more you pay. That was exactly the argument made by the hon. Member for Norwich South, and I might characterise it as “soak the rich”, yet that somehow seems to be an argument against providing a tax cut. That is nonsense and it demonstrates a misunderstanding of finance that exists on the Opposition Benches.

This measure is targeted because it is aimed at those who are in work. It is distinctively Conservative to encourage and reward those in work and to say to them, “At the end of this month you will have more left over in your pay cheque than you did before. Why? Because the Government have made that decision to impact your pay cheque so that you can take home more.” If we are going to talk about comparisons, we should go back to 2010 and say that over these 14 years the attitude to work and the understanding of the importance of work are reflected in the fact that, on average, 800 new jobs a day have been created under this Conservative Government. It is a distinctively Conservative thing to target finance intelligently and to do it to encourage people into work and encourage them in that work.

My second point is that it is the second cut in a row, and dare I say it—oh, there is no one on the Opposition Benches to listen to this—there is a plan to reduce the tax burden. We have established that there was a need for the Government to make payments to support people and businesses through the pandemic, the energy crisis and inflation, but we are now cutting the rates to encourage work, and it is a plan. It is distinctively Conservative to have a plan, and 4p off the tax on my wages and their wages is a big cut by any estimation.

The hon. Member for Richmond Park talked about the Chancellor taking a bolt cutter to the triple lock, and I remind her that pensions are structured in such a way that people do not pay tax when they pay in, so that the sum builds up and they benefit from the interest it accrues—it grows faster over time. The other side is that they pay some tax when they take their pension. The pension was never intended to be tax free, and there has always been an expectation that there will be some payment to be made. That is not taking a bolt cutter to the triple lock.

It was this Chancellor who committed to the triple lock, and that commitment, depending on the estimate, has cost the Government £10 billion. There are other ways to calculate the pension, such as having a double lock, measuring it against the consumer prices index or measuring it against earnings, but saying that, no, the triple lock stands has cost the Government £10 billion more, which is £10 billion in pensioners’ pockets. Let nobody say that this Government do not care about pensioners or the elderly—and I say that as an MP representing a constituency where 27% of my constituents are over the age of 65. Again, we all have to make a payment, and this is about talking straight.

We may have forgotten the capital reliefs—the full expensing—announced in the last autumn statement. Again, that has a cost, but it is a real benefit to business. That is £50 billion over five year. There might be questions about that estimate, but it is another big commitment, this time not to pensioners but to business. To come back to my point about a plan, we have made a commitment to pensioners—an expensive one, but the right one—and we have made a commitment to business to encourage growth, so it makes sense that in this Budget we have made a commitment to workers. Again, this sounds like a plan; it sounds to me like there is an intentionality that I simply do not see or hear from Opposition Members.

My third point is that I am very happy with the aspiration to reduce further or eliminate national insurance. It is distinctively Conservative to want to reduce tax further, and it is distinctively Conservative to make tax simpler. This is perhaps not the time to debate other tax methods or flat taxes, but I see no problem with suggesting our direction of travel. What I find remarkable is that the Opposition’s immediate reaction is to say, “Oh, that’s unfunded.” At some point in the management of the public finances, we have to balance where the money comes from with where it is going. It is completely reasonable to say that we have an aspiration to reduce taxes. If it is a case of eliminating national insurance, so be it.

I will bring my remarks to a close—[Interruption.] I can hear the chuntering from the small number of Opposition Members present, and I thank the hon. Member for Batley and Spen (Kim Leadbeater) for joining her Front-Bench colleagues. The doctor says that sometimes medicine does not taste so good, and I have a feeling that some of the things I am talking about do not taste good to those on the other side of this House, because this is medicine; I am talking about a responsible approach to public finance, telling the truth, and dealing with people as adults by saying, “Money has been spent and now money is having to be paid back.”

The key point is that we are still managing to bring cuts to the tax paid by workers. As I said, we have a trajectory on that: we have given money to pensioners—those who need it; we have given money to businesses, through capital relief and full expensing; and now we are doing this for workers. This is distinctively Conservative because of the intentionality, the plan and the focus on those who need it, the businesses that create growth and wealth, and the workers we wish to incentivise with it. We understand that the Opposition will vote for these cuts, but they cannot muster any enthusiasm for them—they certainly cannot muster any debate about them. We know that Opposition Members are here somewhere, because, presumably, they will all turn up to vote in a minute, but they are not on the Benches now. The question is: what is the Labour plan for tax?

[David Simmonds]

I am very much enjoying what my hon. Friend has to say to the House about this Budget. He will have heard the saying many times in the local government world that, “Culture eats strategy for breakfast”. One Opposition party has a strategy of trying to pretend it has no funding commitments but it has a deeply ingrained culture of tax and spend, whereas we have a party of government whose culture and strategy is very much about a long-term trajectory of tax cuts and living within our means. Does he agree that it is the culture in the Government of living within our means that will out after this election?

[Robin Millar]

My hon. Friend makes a good point, in that, first, culture does eat strategy. We can strip away all the words about this but his point about cutting our cloth and living within our means describes exactly what we have seen happening. I have tried to set out, albeit perhaps rather clumsily—I ask Members to forgive me if that is so—that there is a 10-year story here of inheriting no money, and running into a pandemic that nobody expected, a war that no one planned, an energy crisis and global inflation. Yet this Government turn up with a Budget that says to the worker, “4p less in the pound is what you are having to pay.”. That is remarkable.

We might argue about the hows, whys and wherefores, but we have to be honest about the fact that the headwinds we have encountered as a nation over the past decade were not expected. Given that we started from a point of having no money—to use the phrase on the note left by the Labour Minister—it is extraordinary that we are here today debating another 2p off tax. It is even more extraordinary to me that the Opposition have not got the bottle to turn up for a debate as important as this.