National Insurance Contributions (Increase of Thresholds) Bill

Lord Davies of Brixton Excerpts

2nd reading
Wednesday 30th March 2022 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, this Government are collectively incapable of shame. I hope that, even if she cannot admit it, the Minister understands the shame that is inherent in the overall package coming from the Spring Statement. We will discuss the package in general tomorrow; I hope to intervene in that debate.

Coupled with the changes in personal taxation in the Spring Statement, this Bill is a deceit on the National Insurance Fund. I am a strong supporter of a fair and effective national insurance scheme with adequate benefits in retirement as well as in sickness and unemployment, funded by national insurance contributions paid while at work, coupled with a necessary Treasury supplement. This concept still has widespread support, even if we have strayed some way from its achievement in practice. The fact that we still use the term “national insurance” after more than 70 years is testimony to the strength of the idea. The Government’s proposals here and in the Statement ride roughshod over this concept and treat the idea of national insurance with contempt, making changes to national insurance contributions as a short-term political fix.

The impact of the Bill’s proposals on personal taxation must be judged in the context of the overall package. As such, they constitute a total travesty by being a paradigm of incoherent and unfair taxation policy. In effect, we have a promise of a cut in the standard rate of income tax some time in the future that is effectively being funded by an increase in national insurance contributions. In other words, a cut in progressive taxation is being funded by an increase in a more regressive form of tax.

National insurance contributions are regressive because of the upper threshold, above which the contribution rate is much lower. Such a ceiling originally made some sense in the context of flat-rate benefits and flat-rate contributions, but we have moved on from that era and there is no justification for relieving higher earners of their share of the contribution towards paying for our national insurance benefits.

National insurance is also regressive in the sense that it applies only to earned income, whereas in the past it applied to what was then referred to as unearned income, leaving massive opportunities for taxation arbitrage. This is something indulged in by people with higher incomes: they pretend that their earned income is what used to be termed unearned income, as I said. You can go to fancy accountants and they will sort it for you so that you end up receiving income that it is not subject to national insurance. Regrettably, it is a regressive tax. Those issues need to be addressed, but the Government have used regressive taxation to fund a cut in progressive taxation. This is nonsense and they should be ashamed of it.

It would appear that the Bill is necessary only because the Government suddenly realised that the increase in the levy would impact on people with lower incomes, so by increasing the lower threshold they relieved the pressure on a band of lower-income recipients, but it does absolutely nothing for those below the lower earnings limit. There is no benefit for them at all, and they are the people in the greatest need. It is all very well for the Minister to claim that this is helping people on lower pay, but it is not helping those on the lowest levels of pay. That is, if not a crime, a deceit on the public.

Let us discuss the Spring Statement in full tomorrow, but we have to see the Bill for what it is. It is a deceit on the National Insurance Fund, using the resources available to national insurance to achieve a short-term political fix because the Government stumbled into a situation where they were worried about the impact on the lower paid.