Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020

Jesse Norman Excerpts

Monday 9th March 2020 General Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

I beg to move,

That the Committee has considered the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020.

It is an honour to see you in the Chair, Mr Hosie. The regulations set the national insurance contributions rates, limits and thresholds for the 2020-21 tax year. They will allow the Government to deliver their manifesto commitment to cut national insurance contributions for 31 million people across the United Kingdom.

National insurance contributions are social security contributions. Payment of NICs determines eligibility for the state pension and other contributory benefits. NICs receipts go towards funding the NHS and those same contributory benefits.

I will first outline the changes to the class 1 primary threshold and class 4 lower profits limit. The primary threshold and lower profits limit indicate the points at which employees and the self-employed start to pay class 1 and class 4 NICs, respectively. These thresholds will rise from £8,632 to £9,500 a year. These changes, promised in the Conservative’s 2019 manifesto, underline the Government’s commitment to ensure that work pays, putting more money into the pockets of hard-working people. They will benefit about 31 million taxpayers, with a typical employee £104 better off compared with 2019-20. Legislating now ensures that taxpayers will benefit from April 2020.

Increases to the primary threshold and lower profits limit do not affect eligibility for a state pension. That is determined by the lower earnings limit for employees and payment of class 2 NICs for the self-employed. The lower earnings limit will rise in line with inflation, from £6,136 to £6,240 a year. The upper earnings limit, where employees start to pay 2% NICs, is aligned with the higher rate threshold. As announced at the 2018 Budget, it will be frozen and remain at £50,000 per year.

The self-employed pay both class 2 and class 4 NICs. The rate of class 2 NICs will rise in line with inflation, from £3 to £3.05 a week. The small profits threshold is the point above which the self-employed must pay class 2 NICs. This will rise with inflation, from £6,365 to £6,475 a year. For class 4 NICs, as already outlined, the lower profits limit will rise to £9,500. The upper profits limits is where the self-employed start to pay 2% NICs. This is also aligned with the higher rate threshold and will remain at £50,000 a year.

For employers, the secondary threshold determines where they start to pay employer NICs. This will rise with inflation, from £8,632 to £8,788 a year. The level at which employers of people under 21 and of apprentices under 25 start to pay employer NICs will remain frozen at £50,000 a year.

Finally, class 3 contributions allow people to top up their national insurance record voluntarily. The rate for class 3 NICs will increase in line with inflation, from £15 to £15.30 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 2020-21. A similar provision will be made in respect of the Northern Ireland national insurance fund.

I trust that that is a useful overview of the changes that we are making to bring rates of support and contributions to the Exchequer in line with inflation, and I commend the draft regulations to the Committee.

--- Later in debate ---

[Jesse Norman]

I thank the shadow Minister for her remarks. She raised a range of issues, and touched first on what she described as lack of targeting. Of course it is the nature of the legislation that it is universal in its applicability. It is not designed to be a targeted benefit, and that is not its function. Its job is to improve the national insurance situation of 31 million people, which it does. The question of targeting is better addressed to many other aspects; it is not actually relevant to national insurance contributions, which for years have been legislated for on a universal basis.

I do not think that the hon. Lady is correct that this change is regressive in the way that it will operate. It is certainly not a tax cut for higher earners. All employees earning above £9,500 will benefit by the same amount, and some 1.1 million people will no longer pay NICs as a result. Those are important properties.

[Anneliese Dodds]

I am grateful to the Minister for his generosity in giving way. I do not believe that I used the word “regressive”. I made clear that the impact on those at the higher level of the income distribution will be larger, in terms of the absolute amount that they will not pay, compared with those at the bottom of the income distribution. Surely he is not contesting that.

[Jesse Norman]

If we look in full at the 31 million people affected, we will see that those in employment and earning above £9,500 will receive the same amount. The hon. Lady rightly mentions universal credit, and she understands that its effect is to smooth, via tapering, various cliff edges. That is a helpful and good property—I am sure she does not regret it—and it interacts with this measure. The broad picture, however, is the one I describe.

As the hon. Lady has acknowledged, the measure has elements of a contributory scheme, so it will have effects on people who do not have a full contributions record. On the Government’s future ambitions, she will understand that a statutory instrument debate is not the place to unveil such a strategy, and certainly not in the lee of a Budget two days away. It is the Government’s ambition to increase the threshold to £12,500, and decisions will be taken at future fiscal events. Increasing the NICs threshold to £9,500 this year is a first step towards that ambition. The hon. Lady also mentioned additional measures and statutory sick pay. It would be foolish in the extreme for me to comment on that matter two days before a fiscal event, and I therefore think we should leave it for a future discussion in the House.

Question put and agreed to.