National Insurance Contributions (Increase of Thresholds) Bill

James Murray Excerpts

Committee stage
Thursday 24th March 2022 Commons Chamber

[Richard Thomson]

The SNP is generally supportive of all the amendments that have been tabled, and I echo the comments of the right hon. Member for Hayes and Harlington (John McDonnell), who made a number of points about the importance of understanding the intended purpose and impact of legislation before it takes effect. I made that point ad nauseam during the passage of two Finance Bills, but I keep returning to it because it is important that we understand what we are doing and that we avoid, as far as possible, the law of unintended consequences.

Quite apart from the evidence base they would provide for legislative scrutiny, the amendments might provide a corrective to the poor policy choices that Ministers have made in recent times.

[James Murray]

As I said on Second Reading, we will support the Bill, but I thank my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and my hon. Friends the Members for Reading East (Matt Rodda) and for Eltham (Clive Efford) for their important points about the impact the Bill will have. We recognise that raising the thresholds for national insurance contributions has benefits, and we welcome any help for people facing the Chancellor’s national insurance hike in April.

The explanatory notes explain that the increase to the primary thresholds for class 1 national insurance contributions and the lower profits limit for class 4 contributions will require changes to the systems of employers and HMRC, including those designed to facilitate pay-as-you-earn. The explanatory notes also explain that the Bill is being fast-tracked to give employers and HMRC as much time as possible to implement the changes, helping to make sure people are not overtaxed, and they confirm that the speed with which the Bill is going through Parliament means, unsurprisingly, there has been no consultation.

Although it is, of course, right to give employers and HMRC as much time as possible, the explanatory notes underline that the changes are being made very late in the day. Indeed, as we will come to later, the decision to implement this change from 6 July rather than 6 April reflects the last-minute nature of the Chancellor’s proposals. This approach to legislation does not inspire confidence that he is in control and has a well thought-through package to help people who are struggling to make ends meet. Indeed, it gives the impression of a Chancellor who has made the wrong choices and is now scrabbling at the eleventh hour to limit the damage.

Of course, according to the Chancellor, he only started work yesterday. He seemed proud to claim ahead of the spring statement that “the work starts today,” but the truth is that his choices have been hitting working people for far longer, and the Conservatives’ choices have been hitting our country for 12 years.

Clause 1 amends the Social Security (Contributions) Regulations 2001 to align the primary threshold for class 1 national insurance contributions with the income tax personal allowance. As I said, we support this measure as we recognise that raising the thresholds for national insurance contributions has benefits, and we welcome any help for people facing the Chancellor’s national insurance hike in April. However, this clause draws attention to the fact that the change to the primary threshold will not come into force until 6 July 2022. Indeed, subsection (4) explicitly states that the changes made to the primary threshold

“do not affect any liability to primary Class 1 contributions for any tax week commencing before that date”.

There will therefore be three months during which the Chancellor’s hike in national insurance will be in place, and hitting people’s pockets, and the changes to the primary threshold will not yet have taken effect. As I said a few moments ago, people looking at this will conclude that we have a Chancellor who knows he has made the wrong choices and is now scrambling around at the eleventh hour to limit the damage. So I wish to press the Minister on a few points about how and when the decision was taken to implement the threshold increase from July.

First, I have a simple question: when was a decision taken by the Chancellor to raise the threshold? Did he wake up on 23 March, the day he says was his first day of work, and make the decision then? Or had a policy decision been taken by the Treasury earlier, meaning that it could have been implemented earlier too? I realise the Minister may respond by trying to claim that announcements about changes to tax levels are made only at fiscal events, but that is not the case; the national insurance increase coming in April was announced by way of an unscheduled statement by the Prime Minister in September last year, and the arising legislation was pushed through Parliament in a day one week later.

If the Chancellor had decided to raise thresholds earlier this month, or even earlier this year, could his decision not have been announced and legislated for sooner? If that had been the case, these new thresholds could be in place from April, or at some point sooner than July, providing at least some extra help for people in the critical three months ahead when NI is being hiked and energy bills are set to soar. There are only two explanations possible for what has happened: either the Chancellor made the decision about thresholds only on the morning of 23 March, or he made it earlier, yet sat on it, when he could have acted to help people sooner. I would like the Minister to tell me which account is true. Given that the Bill introduces the threshold increase from 6 July, I would also be grateful if the Minister explained what consideration was given to backdating the increase to April. Is that an option that the Chancellor considered? If so, why was it discounted, and if it was not considered, why not?

Clause 2 raises the lower profits limit for class 4 contributions and ultimately aligns it with the income tax personal allowance. As before, we support this measure as we recognise that raising the thresholds for national insurance contributions has benefits, and we welcome any help for people facing the Chancellor’s NI tax hike in April. I note that the changes to the threshold for self-employed people’s class 4 contributions take effect in two stages. First, the lower profits limit is raised from £9,880 to £11,908 from April 2022, and then it is raised again to £12,570 in April 2023. The figure of £11,908 represents, as far as I can tell, a blended average for 2022-23 of the lower profits limit continuing at the level previously intended until July, and then being raised to £12,570 for the remaining months of the year. As with class 1 contributions, we will therefore have three months during which the Chancellor’s NI hike will be in place and hitting people’s pockets, yet the changes to the threshold will not yet have taken effect. I therefore ask the Minister again: are people missing out because the Chancellor made the decision about thresholds only on the morning of 23 March, or did he make that decision earlier, yet sat on it, when he could have acted to help people sooner?

Clause 3 gives the Treasury the power to make regulations to align the threshold for paying class 2 NICs with the lower profits limit. This clause also enables the Treasury to make sure that self-employed people with profits between the small profit threshold and the lower profits limit will continue to be able to build up NI credits but will not pay any class 2 national insurance contributions. As with the other changes in this Bill, we support this measure as we recognise the benefits of raising the thresholds. I would like, however, to press the Minister on two technical points that arise from clause 3. First, why are the changes to class 2 contributions to be made by way of regulations, rather than being implemented through this Bill? I note that clause 5(3) seems to make it clear that regulations arising from clause 3 will, as they would amend Acts of Parliament, have to be laid before and approved by a resolution of each House. Will the Minister explain why the detail on clause 3 will therefore be decided a later stage, and not with the class 1 and class 4 changes today? Secondly, clause 3(2)(b) makes it clear that the changes to class 2 contributions may be made to have retrospective provision from 6 April 2022. So why is it possible to backdate changes to class 2 contributions to April 2022, yet changes to class 1 and class 4 contributions can take effect only from July?

The remaining clauses include clause 4, which makes transitional and consequential provisions that are reasonable in the context of the Bill; clause 5, on which I have touched, relating to the making of regulations; and clause 6, on the short title. Before I close my speech, I should point out that nothing in those clauses addresses the secondary threshold for employers. We have warned since the national insurance hike was introduced that it would be a tax on working people and their jobs, yet none of the Bill’s clauses address the level at which employers will have to pay the raised rate of national insurance. We know from the Office of Budget Responsibility that this is not just an issue for employers who want to create jobs; the rise in employers’ national insurance contributions will also hit workers through a double whammy, as the increase is passed on by way of lower wages and higher prices.