National Insurance Contributions

Jonathan Brash Excerpts

Tuesday 4th February 2025 Commons Chamber

[James Murray]

Regulations are made each year to set various national insurance thresholds, and to uprate child benefit and the guardian’s allowance. In opening the debate, I will give the House details of what the regulations set out to do. First, the Social Security (Contributions) (Rates, Limits and Thresholds Amendments, National Insurance Funds Payments and Extension of Veteran’s Relief) Regulations 2025 set the rates of certain national insurance contribution classes and the level of certain thresholds for the 2025-26 tax year. The lower earnings limit, the small profits threshold and the rates of class 2 and class 3 contributions will all be uprated by the September consumer prices index figure of 1.7%, while the other limits and thresholds covered by the regulations will remain fixed at their existing levels.

The regulations also make provision for a Treasury grant—a transfer of wider Government funds—to be paid into the national insurance fund, if required, for the 2025-26 tax year. The regulations also, importantly, extend the veterans’ employer national insurance contributions relief until April 2026. The scope of the regulations under discussion is limited to the 2025-26 tax year.

As hon. Members will know, national insurance contributions are social security contributions; people make contributions when they are in work to receive contributory benefits when they are not working—for example, after they have retired, or if they become unemployed. National insurance contribution receipts fund those contributory benefits, as well as helping to fund the NHS.

The primary threshold and the lower profits limit are the points at which employees and the self-employed start to pay employee class 1 and self-employed class 4 national insurance contributions respectively. The primary threshold and lower profits limit were frozen by the previous Government at £12,570 until April 2028. However, the level of those thresholds does not affect people’s ability to build up entitlement to contributory benefits such as the state pension. For employees, entitlement is determined by their earnings being above the lower earnings limit, which the regulations will uprate from £123 a week in 2024-25 to £125 a week in 2025-26. That is the equivalent of an uprating from £6,396 to £6,500 a year.

Entitlement for self-employed people is determined by their earnings being above the small profits threshold, which the regulations will uprate from £6,725 in 2024-25 to £6,845 for 2025-26. Uprating the lower earnings limit and the small profits threshold is the usual process, and it maintains the real level of income at which people gain entitlement to contributory benefits. Wage growth is currently higher than inflation, which means that following the uprating by CPI, there will be a reduction in the number of hours that someone who has received a typical wage increase needs to work to gain entitlement compared with last year.

The upper earnings limit, which is the point at which the main rate of employee national insurance contributions drops to 2%, and the upper profits limit, which is the point at which the main rate of self-employed national insurance contributions drops to 2%, are aligned with the higher rate threshold for income tax at £50,270 a year. The previous Government also froze those thresholds until April 2028.

I now turn to the thresholds for employer national insurance contribution reliefs. As hon. Members are aware, the Government have had to make difficult decisions to fix the public finances. One of the toughest decisions that we faced was the decision to increase the rate of employer national insurance contributions and reduce the secondary threshold. Although those changes are the subject of a separate Bill, not these regulations, they are the context for why our decision to maintain other targeted national insurance contributions reliefs is so important. Those employer reliefs include those for under-21-year-olds, under-25 apprentices, veterans, and new employees in freeports and investment zones. The regulations that we are debating set these thresholds in line with other personal tax thresholds.

The regulations also provide for the national insurance contributions relief for employers of veterans to be extended for a year until April 2026. This measure means that next year, businesses will continue to pay no employer national insurance contributions on salaries up to the veterans upper secondary threshold of £50,270 for the first year of a qualifying veteran’s employment in a civilian role.

[Mr Jonathan Brash (Hartlepool) (Lab)]

I welcome the extension of national insurance contributions relief for veterans, but does the Minister agree that we need to do more to ensure that employers across the country know that the relief exists, to incentivise employing veterans?

[James Murray]

My hon. Friend is absolutely right that we want employers to be aware of this important relief, and to encourage them to make use of it to employ veterans. This relief helps to support those who have already given so much to our country, and it also means that the skills and the huge potential of those people who have already given such service to our country can be used to make a further contribution to our country and our economy. We want all employers to know that this relief exists. We can all play a role as local MPs in making sure that all employers in our constituencies are aware of this important relief. I thank my hon. Friend for letting me make that point.

The continuation of the veterans relief is evidence of the Government’s commitment to supporting our veterans. As I explained in response to my hon. Friend’s intervention, it is intended to incentivise employers to take advantage of the wide range of skills and experience that ex-military personnel offer. As I said, it is important that we support those who have given so much to our country by helping to make sure that our country benefits further from the skills and potential of our service leavers.

Let me move on to the national insurance fund, into which the majority of national insurance contributions are paid, and which is used to pay the state pension and other contributory benefits. The Treasury has the ability to transfer funds from wider Government revenues into the national insurance fund. The regulations make provision for a transfer of this kind, known as a Treasury grant, of up to 5% of forecasted annual benefit expenditure to be paid into the national insurance fund, if needed, in 2025-26. A similar provision will be made in respect of the Northern Ireland national insurance fund.

The Government Actuary’s Department report laid alongside these regulations forecasts that a Treasury grant will not be required in 2025-26, but as a precautionary measure, the Government consider it prudent to make provision at this stage for a Treasury grant. That is consistent with what has been done in previous years.

I turn to the draft Child Benefit and Guardian’s Allowance Up-rating Order 2025. As hon. Members will know, the Government are committed to delivering a welfare system that is fair for taxpayers while providing support to those who need it. The order will ensure that the benefits for which Treasury Ministers are responsible, and which His Majesty’s Revenue and Customs delivers, are uprated by inflation in April 2025. Child benefit and the guardian’s allowance will increase in line with the consumer prices index, which had inflation at 1.7% in the year to September 2024. Uprating by the preceding September’s CPI is the Government’s typical approach. Tax credit awards will end on 5 April 2025, so no changes to rates will be required from 2025-26 onwards.

I hope all Members will support the regulations. Rejecting them would mean that HMRC-administered benefits would not rise at all next year, and so would lose value in real terms. The regulations fix most of the rates and thresholds for the national insurance contributions that they cover at the 2024-25 levels for the 2025-26 tax year, except for the lower earnings limit, the small profits threshold, and the rates of class 2 and class 3 contributions, which will all be updated by the September 2024 CPI rate of 1.7%. The regulations also make provision for a Treasury grant. They extend the veterans employer national insurance contributions relief, and increase the rates of child benefit and the guardian’s allowance in line with prices.