National Insurance Contributions (Rate Ceilings) Bill (First sitting)

John McNally Excerpts

Tuesday 27th October 2015 Public Bill Committees

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

Q 2 The Bill legislates to prevent rises in the current rates of class 1 and secondary class 1 national insurance contributions, but says nothing about the thresholds. In your opinion, are changes to thresholds absolutely ruled out for the duration of the Parliament?

John Whiting: From a simplification point of view, we tend to leave rates and thresholds as a policy matter for Ministers, but naturally, one of the main projects we have on our agenda is looking at closer alignment of income tax and national insurance. As part of that review, we are inevitably considering the impact of thresholds and other factors about the structure of national insurance, and whether bringing them into closer alignment with income tax in some way would bring some simplification. As I read the Bill, it is all about capping rates rather than thresholds, but I stress that how those are treated is really a matter for Ministers.

[John Mc Nally (Falkirk) (SNP)]

Q 3 You will know that there has been a lot of speculation in the past two days regarding the possibility of changing the national insurance contribution because of the tax credit cuts. Have you any comment to make on that as a possibility?

John Whiting: Again, Mr Mc Nally, I have to say that the actual rates of national insurance are something that we at the Office of Tax Simplification steer clear of, other than to consider whether they add complexity or simplification. To give an example away from national insurance, we drew attention to having two rates of corporation tax. Obviously, that was a complexity, as they have now been harmonised on one rate. That is an obvious simplification and easier for business. That is about as far as we tend to go with rates, but in terms of absolute rate setting, I cannot comment, other than to say that, whenever you make a change to the tax system, it adds a measure of complexity and confusion.

[Wendy Morton (Aldridge-Brownhills) (Con)]

Q 4 The balance of the national insurance fund has continued to fall sharply in spite of the modest economic recovery. Is not legislating to prevent even small rises in national insurance contributions throughout the Parliament irresponsible under those circumstances?

John Whiting: The national insurance fund is obviously something that I am aware of, and how it operates is an interesting question. It is certainly something that we, with our current review, want to look at. What I can say is that we want to examine how much people really understand about how the fund operates and whether they really appreciate, in effect, what national insurance pays for and where it goes. For me to come up with an opinion about where the fund sits at the moment is a little premature. However, I can say that just how it operates is something we want to examine, and, as I say, there is the fairly crucial question of how much people really understand about national insurance and how it operates.

--- Later in debate ---

[The Chair]

Q 15 We will hear oral evidence from the Treasury. We have until 10.45 am. I ask the panellists to introduce themselves.

Mr Gauke: Good morning, Mr Rosindell. I am David Gauke, Financial Secretary to the Treasury, and this is Cerys McDonald, deputy director of personal tax at the Treasury.

[John Mc Nally]

Q 16 I will repeat the question I asked earlier. There has been a lot of speculation in the media and the press about the possible effects on the thresholds of the tax credit cuts. The Bill legislates to prevent rises in the current rates of class 1 and secondary class 1 national insurance contributions, but says nothing about the thresholds. Are changes to thresholds absolutely ruled out for the duration of this Parliament?

Mr Gauke: The thresholds are kept under review, and announcements are made at Budgets and autumn statements from time to time. They automatically increase in line with inflation, but as I said, it is a matter that is always kept under review.

[John Mc Nally]

Q 17 Are you saying that there is a possibility that they will be changed?

Mr Gauke: The Bill relates to rates. That was the policy set out by my party in the general election. It does not specify anything with regard to thresholds.

[John Mc Nally]

Q 18 What I am trying to get at, Minister, is that there will have to be some sort of transition period for working-class people. We in this Committee are trying to find out whether that will be a possibility. During the transition period, it looks as if national insurance contribution thresholds will be moved.

Mr Gauke: Just to clarify the point I made a moment ago, there is an area relating to thresholds, in terms of the link with the upper earnings limit in the Bill. As for the vote in the House of Lords yesterday, the Chancellor will set out his response to that in the autumn statement.

[Wendy Morton]

Q 19 The balance of the national insurance fund has continued to fall sharply in spite of the modest economic recovery. Is not legislating to prevent even small rises in national insurance contributions throughout this Parliament irresponsible in such circumstances?

Mr Gauke: No. Our commitments as a Government—our additional expenditure on the NHS, for example, and the triple lock guarantee for the state pension—are clear statements that we will fulfil. If it is necessary to top up the national insurance fund, we will do that to fulfil our objectives of increasing spending on the NHS and meeting our obligations on the state pension. Ultimately, meeting those objectives depends on the state of the economy and the public finances, not on the position of the national insurance fund.