National Insurance Contributions (Increase of Thresholds) Bill

Lord Tunnicliffe Excerpts

2nd reading
Wednesday 30th March 2022 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for presenting this Bill. I also particularly thank noble Lords who have spoken; they all seem to have set up considerable hors d’oeuvres for tomorrow’s debate, which I expect to be rather wide-ranging.

This is the second fast-tracked Bill this Session which makes significant changes to the national insurance system. The first implemented a 1.25% increase to national insurance for 2022-23. In essence, it created the very problem that the Chancellor is attempting to solve with this legislation. When the Health and Social Care Levy Bill was considered by the Commons in a single day, on 14 September, MPs in all political camps expressed concern about the lack of time given for debate and scrutiny. The Prime Minister’s surprise announcement felt more like a distraction or political relaunch than a genuine attempt at tackling the problems faced by the NHS and social care.

The money raised by the levy is unlikely to deliver the results promised by the Government. There is no coherent plan for clearing the NHS backlog or making the care system function more effectively. Both sectors are desperately short of staff and the workforce is exhausted. Capacity, not cost, is the limiting factor. There is no good time to break a manifesto commitment not to raise national insurance. However well-intentioned the decision may have been, September 2021 was a particularly bad time to make it. Inflation was beginning to rise and expectations for the economy were being downgraded. It was already becoming clear that a long, hard winter lay ahead for many.

Your Lordships’ House also considered the Bill in a single day, in October of last year. With costs continuing to rise, concerns were again voiced that the new levy was a tax on jobs, as well as the wrong tonic for the NHS’s problems. In the intervening months, Back-Bench Conservative MPs have grown somewhat restless. With their postbags bulging, they have come to realise that the Labour Party and others had a point: this is the wrong tax increase at the wrong time.

Since the Health and Social Care Levy Bill passed, inflation has climbed rapidly to its highest level for 30 years—or, to put it another way, since the last Tory inflation crisis. According to the OBR’s updated economic forecast, the 2% inflation target will not be met until late 2023 or early 2024. Due to this, it is warning of the biggest drop in living standards since records began in the 1950s. Energy prices are at a record high, the medium to long-term outlook remains uncertain and the price cap will shortly increase by hundreds of pounds, further increasing the pressure on household budgets. Despite the Government’s attempts to paint the cost of living crisis as a consequence of the war in Ukraine, the writing has been on the wall for months. The energy price cap announcement, for example, was trailed for some time. The decision was taken and made public before Vladimir Putin launched his illegal invasion.

In light of events, the Chancellor has been pushed hard to abandon his planned tax increase on workers. Conservative MPs express disquiet both privately and publicly. There have been media reports of heated disagreements among Cabinet colleagues. Even the “Money Saving Expert” begged Mr Sunak for an intervention, warning that the scale of the problem is so great that his tips can no longer make any meaningful difference to people’s day-to-day finances.

Fiscal events rarely capture the public imagination but, with so many feeling the effects of current circumstances, all eyes were on last Wednesday’s Spring Budget—sorry, Spring Statement, but really it was a Budget. The omens were good. As is becoming the norm, newspapers had been briefed in some detail about a substantial package to ease the burden on family finances. More than two years after his appointment, the Chancellor even confirmed on Twitter that his work to provide

“economic security for our people”

would finally begin. Unfortunately, the package announced did not live up to expectations. Despite the Prime Minister doing his best to leave the option open during weeks of media interviews, the Chancellor decided not to perform the much-desired U-turn. Instead, he opted to offset some of the 1.25% national insurance increase by equalising NICs and income tax thresholds.

We therefore come to the second piece of fast-tracked NICs legislation this Session, with, once again, a day’s debate in another place followed by Second Reading in your Lordships’ House. We support any measure to help households through this unprecedented cost of living crisis. We will therefore support the passage of this Bill today. However, while we are passing it in March, as others have observed, its effects will be felt only from July. We understand the reasons why, but that delay could have been avoided had the Chancellor been more proactive in his response to the mounting crisis.

Let us not kid ourselves: despite this Bill, taxes are still going up for most households in one week’s time. Mr Sunak wants to be seen as a tax-cutting Chancellor, but the facts speak for themselves. The overall tax burden will still be higher, irrespective of changes to the NICs thresholds. Once we are past the worst, the freezing of tax thresholds will reverse the Government’s previous good work in removing people from tax. Many low earners will find themselves paying income tax and national insurance once more. Under current plans, the benefit derived from the promised pre-election income tax cut in 2024 will have been offset by other increases across the tax system.

The Spring Statement and, by extension, this Bill, do not represent a particular, fair approach to the challenges faced by so many across the country. When appearing before the Commons Treasury Select Committee on Monday, the Chancellor failed in his attempt to label this plan as progressive. No plan that knowingly and willingly pushes over 1 million people into absolute poverty can be described in that manner. However, we will have other occasions, including the Spring Statement debate tomorrow, to cover some of those broader issues. For now, it is for us to get this fast-tracked legislation through, to ensure that these changes can take effect in July. It may be a sub-optimal solution but, regrettably, it is the only one this Government are willing to offer at the current time.

--- Later in debate ---

[Baroness Penn (Con)]

I will give it one more try and will then write if I have not managed to make myself clear. The amounts raised through the levy will all go to health and social care spending. They are not the only things that determine the overall amount of health and social care spending and therefore responsible bodies’ budgets. It is also my understanding that, in the forecasts produced by the OBR alongside the Spring Statement, even with the increase to the thresholds, the amounts forecast to be raised through the levy are more than previously anticipated when the levy was announced. I will undertake to write to the noble Baroness because I do not think my second or third attempt has satisfied her.

[Lord Tunnicliffe (Lab)]

I confess to being as confused as the noble Baroness, Lady Kramer. Please could the Minister write to all noble Lords who have participated in the debate.

[Baroness Penn (Con)]

I will do so and place a copy in the Library so that all noble Lords can access it. I believe I have addressed most of the points raised in this debate, but if I have not, perhaps I could address any outstanding points in my letter.

I reiterate my thanks to noble Lords for their contributions to this debate and for considering this Bill so quickly. In short, the Bill is a fundamental part of the Government’s plans to use the tax system to support households with the cost of living, boost the economy through support to businesses and help workers enjoy more of the proceeds of growth. I commend it to the House, and I beg to move.