National Insurance Contributions (Rate Ceilings) Bill

John Redwood Excerpts

Tuesday 3rd November 2015 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read the Third time.

We have now reached the final stage of this House’s deliberations on this Bill, which implements our manifesto commitment not to increase national insurance contributions—NICs—for employers and employees. On Second Reading, hon. Members were reminded of the Government’s strong record of significantly reducing the burden of NICs on employers. At Budget 2011, my right hon. Friend the Chancellor of the Exchequer announced a £21-a-week above-inflation increase to the employer NICs threshold. In 2014, we introduced the employment allowance to support businesses and charities across the UK by reducing their employer NICs bills by up to £2,000 every year, and this has already benefited more than 1 million employers. The Government are now going further; hon. Members will recall that the Chancellor announced at the summer Budget that this would be increased to £3,000 from next April. From April 2015, the vast majority of employers employing under-21s were lifted out of employer NICs. This NICs exemption will be extended to cover apprentices who are under 25, supporting employers to provide young people with valuable workplace skills. The Bill enacts the Government’s commitment to provide certainty on NICs rates for the duration of this Parliament. Hon. Members will be aware that the commitment contained in the manifesto was not to increase the main rates of income tax, VAT or NICs. The Finance Bill contained measures to deliver that commitment for income tax and VAT, and this Bill delivers on that commitment for NICs.

Let me now deal with the detail of the Bill. First, it provides that the rate of class 1 NICs paid by employees and employers must not exceed existing rates. Secondly, it has been the convention that the level of the upper earnings limit for NICs is aligned with the level of the higher rate threshold for income tax. This Bill formally limits increases to the UEL so that its annual equivalent amount cannot exceed the level of the HRT for income tax. Both the restriction on NICs rates rises and changes to the UEL come into force on Royal Assent of this Bill, and apply until the start of the tax year following the date of the first parliamentary general election to take place after Royal Assent.

This Bill provides certainty for employers and employees: that the NICs rates that affect millions of employees and employers across the UK will not rise for the duration of this Parliament; and that the UEL will not exceed the HRT for income tax.

[John Redwood (Wokingham) (Con)]

My hon. Friend will agree with me that more jobs would be a very good thing and that better-paid jobs for people are a very good thing. He is saying that there will not be any increases but he is presumably not ruling out cutting taxes on jobs, because the less we tax, the more jobs we might have.

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

As we have heard, this Bill enacts the Conservatives’ manifesto pledge not to increase NICs in this Parliament. It is part of their wider pledge to cap income tax, VAT and national insurance contributions. The Bill contains only three substantive clauses and, as we have heard, no amendments have been tabled for consideration today. Clause 1 creates a “tax lock” for employee NICs, capping the rates of employee class 1 NICs to 12% and setting the additional percentage to 2% for the duration of this Parliament. Clause 2 freezes the rate of employer NICs by setting the maximum secondary percentage payable by employers at 13.8%. By doing so, it also fixes the class 1A and 1B contributions. Clause 3 links the upper earnings limit to the higher rate income tax threshold by setting out that it shall not exceed the weekly equivalent of the proposed higher rate threshold for that tax year. In practice, that means that employees stop paying class 1 national insurance contributions at the 12% rate when their income reaches the higher rate income tax threshold. Thereafter, the rate of national contribution is 2%.

As the Minister is aware, my Labour colleagues are not opposed to the principle of maintaining the rates of national insurance contributions. Indeed, it was Labour that, on 25 March, first committed to halt any increase, and I am pleased that the Conservatives heeded our wise advice. It is just one of our many pre-election pledges that the Chancellor has chosen to implement.

However, without wishing to repeat what has already been said by my colleagues in previous debates, I question the need to implement legislation that forces the Government to keep their own election pledges—surely they should do that anyway. The Chancellor also seemed to share my sentiments back in 2009 when he stated:

“No other Chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own Budget.”

Indeed, he went on to suggest that only two conclusions could be drawn from such an occurrence:

“Either the Chancellor has lost confidence in himself to stick to his resolution, and is, so to speak, asking the police to help him, or he fears that everyone else has lost confidence in his ability to keep his word”. —[Official Report, 26 November 2009; Vol. 501, c. 708.]

[John Redwood]

I thought that the previous Labour Government enacted legislation to bring down the budget deficit, because they could not trust themselves with the money, and they were perhaps wise about that.

[Rebecca Long Bailey]

The right hon. Gentleman makes an important point, but I am citing what the current Chancellor has stated.

I question which of the scenarios the Government feel is applicable. The Government have argued during the passage of this Bill that legislation is required to ensure that the market has confidence in their keeping their election promises. It leads to the question why the Chancellor thinks that the electorate and businesses will not simply trust his word. In addition, the Government promised before the 2010 election that they would not raise VAT, but then proceeded to do quite the opposite. Indeed, in the previous Parliament, the Chancellor raised taxes 24 times despite waxing lyrical about creating a low-tax, high-pay economy. The director of the Institute for Fiscal Studies said of the most recent Budget:

“The figures are quite clear though—this was a tax-raising Budget.”

Perhaps the Chancellor has lost confidence in himself. That is not surprising given that he has missed all of his deficit reduction targets for the past five years.

I fear that legislating in this manner is only a political gimmick to convince the market and the electorate that the Government are not increasing taxes when, in fact, tax policy measures in the Budget are expected to raise £5.1 billion by 2018, rising to £6.5 billion by 2021.

Putting that issue to one side, I must once again stress my concern that the Government are severely limiting their options should the economy take a turn for the worse. This summer, the Bank for International Settlements stated simply that this is

“a world in which debt levels are too high, productivity growth too weak and financial risks too threatening.”

The feeble recovery that we have seen thus far is built on private debt, which leaves us with a ticking time bomb. The IFS predicts that house prices will rocket across the whole of the UK, most drastically in London, leading to levels of household debt exceeding those of 2008 at the time of the credit crunch.

The warning signs are there and I harbour grave concerns that the Government are simply not paying attention. My sentiments are shared by many commentators, including the director of the IFS, who said that it would be

“extreme to tie your hands for such a long period of time with the main rates of the three largest taxes.”

Particularly worrying is the fact that the Chancellor’s spending plans are predicated on

“a forecasted rise in revenue yield from NICs.”

That fact was highlighted by the hon. Member for Dundee East (Stewart Hosie). However, should the yield be less than forecast, due to an economic downturn, what will the Chancellor do? He cannot, according to his own legislation, raise VAT, income tax or national insurance contributions. Would further cuts be imposed on public expenditure at precisely the time economic stimulus would be needed?

In Committee, the Minister assured us that, in such a circumstance, the measures before us today would not endanger the fund or be an excuse to undermine the NHS. However, he did enter the caveat that such an assurance was predicated on the Government making “difficult choices” on public spending and

“identifying savings in the welfare budget”.––[Official Report, National Insurance Contributions (Rate Ceilings) Bill Public Bill Committee, 27 October 2015; c. 18.]

I fear that what he meant was that far from legislating on their election promises on the Government’s tax credit work penalty, they have ripped them up within months of taking office.

In conclusion, we will not oppose this Bill as before the general election we also committed to capping national insurance contributions. However, it is not an effective use of precious parliamentary time and resources, and I do hope that the Minister will bear that in mind for the future.

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[John Redwood]

(Wokingham) (Con): I welcomed the manifesto pledge and am very pleased that we know that for five years there will be no increases in the major tax rates. I listened carefully to the Labour response, and one of the worries expressed was what would happen if there were a cyclical downturn or if the economy hit a bad time because of a world recession or something similar. As I am sure the hon. Member for Salford and Eccles (Rebecca Long Bailey) knows, it is common policy between the major parties in this House that if that happens we will normally borrow more. If revenues fall because people have lost their jobs and are not earning so much, and if costs have gone up because more people are out of work, which we do not foresee and do not wish, it is quite sensible to borrow a bit more to help the economy through the difficulties. Fortunately, the official and external forecasts say that we can look forward to several years of continuing progress and growth, as we have had since 2009, so, we trust, the problem will not arise. I think that that answers her point.

[Stewart Hosie]

The right hon. Gentleman would be right in normal circumstances, but we now have the fiscal charter. Given that it has a rolling four-quarter on four-quarter comparison, if forecasts begin to fall the automatic stabilisers might not necessarily kick in in the way that he has described, which was traditionally the case.

[John Redwood]

I think that we would make a judgment at the time, but fortunately we do not have to make that judgment now. If we should get into that awful position, I am sure that there will be a lot of debate in this House. The hon. Gentleman and I might even share the same view, or we might have a difference of view. We would have to judge it on the figures and on the merits of the case.

On this side of the House, we regard having more people in jobs as a very good thing and want to promote better pay, particularly for those whose pay is very low and needs topping up with benefits. I buy into the Government’s vision that we want more people in work and more people in better-paid work, with less benefit top-up needing to be paid. They should be better off as a result of these changes.

In the course of proceedings this afternoon on this Bill and on the European Union (Approvals) Bill, we have been told that not enough time has been allocated to debate tax credits. I recall that we have had three major debates on that subject quite recently, and three votes, and the House has come to the same view on each occasion. This is another such opportunity. I note that Opposition Members have not come to the Chamber, but it seems to me to fall quite within the remit of the Bill, which is about how to tax work and what people keep as a result of work, to discuss tax credits as another part of the equation. I see the Bill as an important part of the Government’s strategy of making work pay.

We regard work as a good thing, as I trust all parties do, and we do not really want to be taxing good things. Unfortunately, however, we live in a world where we need a lot of revenue, so we end up taxing good things as well as bad things. However, where we have the chance to shift the balance, surely it makes sense to tax the good things less, such as work and earnings, so that people can have more opportunity of finding a job and of keeping more from a better-paid job. We can then find less desirable things that we are more prepared to tax, as well as running sensible value-for-money government so that the overall demands are not too great.

The danger, if one went down the route of opposing the Bill, is that it might become all too easy to put an extra 1% or 2% on national insurance. One might say that people would not notice it, but it would have two immediate adverse effects. First, there would be fewer jobs as it is a direct tax on jobs and, secondly, employees would be worse off because of the effect on their contribution and we would have to find more money under our scheme for tax credits or other top-ups.

In conclusion, it is excellent that my party intends to keep its clear promises to keep these tax rates down, which I fully supported and campaigned on. We must see it as part of the wider debate, and today is another opportunity to debate national insurance in the context of tax credits. If we keep taxes down or reduce them more, there is more scope to deal with the tax credit problem.