National Insurance Contributions (Increase of Thresholds) Bill

Lucy Frazer Excerpts

2nd reading
Thursday 24th March 2022 Commons Chamber

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a privilege to close this debate on behalf of the Government. We have heard many excellent speeches from both sides of the House today and I thank all hon. Members for their contributions. Before I address their points, I will remind the House of the Bill’s purpose.

The Bill does three things: it cuts taxes to ensure that people have immediate help with the cost of living; it creates better conditions to enable businesses to invest and grow; and it ensures that people keep more of what they earn for years to come. The Bill makes changes to the national insurance contributions system, which will make it easier for households to manage their finances at this difficult time by putting billions of pounds back into their pockets.

As we have heard, the Bill has two main measures. First, it will increase the NICs primary threshold and the NICs lower profits limit to £12,750 from July. As my hon. Friend the Member for South Leicestershire (Alberto Costa) said, it is the largest single personal tax cut in a decade. It represents a £6 billion personal tax cut for 30 million people across the UK. In addition, almost 2 million people will be taken out of paying class 1 NICs, class 4 NICs, and the health and social care levy entirely.

Some hon. Members might be asking why we cannot introduce these measures sooner. The simple answer is that we feel that the July implementation date strikes the right balance and allows employers and payroll software firms to adapt to significant changes. My hon. Friend the Member for West Bromwich West (Shaun Bailey) highlighted the importance of updating HMRC’s guidance.

Secondly, the Bill seeks to alleviate some of the pressures caused by the rising cost of living on those who earn low amounts and who work for themselves. This measure will benefit half a million self-employed people by saving them up to £165 a year. As the Chief Secretary to the Treasury has already outlined, removing class 2 NICs from this group of low-earning self-employed workers will not prevent them from building their eligibility to the state pension and other contributory benefits.

I will now turn to some of the points raised during the debate by right hon. and hon. Members. The hon. Member for Ealing North (James Murray) made a few points and highlighted the tax burden. It is important to remember, however, the context in which the legislation is being brought forward and the context in which previous choices were made. He will remember that the Chancellor saved many livelihoods with the £400 billion of support that he provided during the covid pandemic. He also asked how we compare with other countries and what other countries are doing at this time. I inform him that the new tax to GDP ratio will still mean that we are in the middle of the pack internationally and lower than Germany, France and Italy.

The hon. Gentleman and the hon. Member for Warwick and Leamington (Matt Western) asked why we have not brought in a windfall tax on oil and gas companies. Many Conservative Members pointed out the answers to that. First, it is a short-term measure and we are bringing in long-term measures that will withstand the future. Secondly, we need those companies to invest in the future to ensure that we have energy security and that we transition to more renewable energy sources. They also pay more taxes already—40p in the pound not 19p in the pound as other companies do—and they have already invested, by way of taxation, £375 billion in production taxes.

[Matt Western]

I understand the point, and none of us really wants to see short-term measures, but in difficult times such as those we are in they are sometimes needed. The windfall tax is short term, of course, but is not the 5p fuel duty cut also short term?

--- Later in debate ---

[Lucy Frazer]

As we know, there is energy price volatility in that the price of oil and gas will be going up and down, which is why the Chancellor has put in the measure for a 12-month period, but I should point out that that builds on the 12th consecutive year of fuel duty freezes.

[Gareth Davies]

Will the Minister give way?

[Lucy Frazer]

I am going to carry on, because there are a lot of points to which I would like to respond and I have limited time.

My hon. Friend the Member for South Dorset (Richard Drax) made a very powerful speech about freedom, recognising the impact of global challenges. He mentioned the armed forces, and I would like to reassure him that last year’s integrated review was accompanied by the largest cash increase in the defence budget since the cold war, with an additional £24 billion.

The hon. Member for Gordon (Richard Thomson) asked why the Chancellor is not using his £30 billion headroom. I would like to point out that the OBR has said that there is “unusually high uncertainty” in relation to the outlook, and the OBR has also said that the headroom the Chancellor has kept is the same as, or indeed less, than that of previous Chancellors. That is important because, if there is a 1.3% increase in interest rates, that will totally wipe out the headroom the Chancellor has given himself. We are already looking at £83 billion being paid in interest next year. Those of us on the Government Benches think we need to be fiscally responsible in the way we deal with our taxpayers’ money.

The hon. Member also said that to increase the national insurance contributions threshold as we are doing was not the right way to go. I would like to point out that Martin Lewis has said on Twitter:

“This is the big one. Increasing the National Insurance threshold so it now matches Income tax from July.”

He said various other things, and then he said, “Good call”.

My hon. Friend the Member for Redcar (Jacob Young) recognised that there are no easy choices. He reminded us of Labour’s record on the economy, which reminded me that the shadow Chancellor had put forward a total of £170 billion of uncosted spending proposals just by September last year, and she has refused to rule out hiking up income taxes.

[Stephen Timms]

The Minister mentioned Martin Lewis, and I wonder if she could provide the information that the Chief Secretary said she might be able to give in winding up this debate about the effect of this national insurance measure on people claiming universal credit. Martin Lewis has made the point that they will lose 55% of the £330 a year benefit. Will she confirm if that is correct?

[Lucy Frazer]

I was going to come back to that point, but I am very happy to deal with it now. My right hon. Friend the Chief Secretary is right that an individual may be affected by the taper, but will be better off overall as a result of the change. If they are earning below the work allowance, they will get the full benefit. It is important to point out the changes we have already made for those on universal credit. As a result of those changes, 1.7 million households will benefit from the taper rate change, which is £1,000 of additional income for them.

The hon. Member for St Helens South and Whiston (Ms Rimmer) talked about the energy crisis. She will know the measures we have already put in, including the £9 billion of further support, with the £350 that people will get over the course of this year. She mentioned businesses in her constituency, and I hope they will welcome the increase to the employment allowance that we have announced.

I am very pleased to hear how my hon. Friend the Member for Peterborough (Paul Bristow), my almost constituency neighbour, is engaging with his constituents, and that the Oxcart pub welcomes our business rate cuts.

The hon. Member for North East Fife (Wendy Chamberlain) talked about poverty. I am very proud that, if we look at the past 10 years of this Government, there have been about 1.3 million fewer people in poverty. She also talked about pensioners, and this the Conservative Government have consistently supported pensioners. Through the triple lock, we have seen an increase in state pension of 25%—that would be £2,050—since 2011.

My hon. Friend the Member for Rother Valley (Alexander Stafford) made a very passionate speech, rightly recognising the global macroeconomic position. He is absolutely right to talk about the importance of getting people into work, a point that was also made by other hon. Members. I am very pleased that he has held his first Rother Valley jobs fair, and we are getting people into work through the plan for jobs that the Chancellor has set out—whether through restart and kickstart or with the benefit of work coaches.

The hon. Member for Luton South (Rachel Hopkins) talked about low growth and low pay, but I wonder if she is aware that ours was the fastest growing economy in the G7 last year, according to the IMF. I wonder whether she heard the Chancellor’s statement in which he set out a tax plan that focuses on growth. It focuses on what we will do to support businesses in the way of capital, people and ideas. He has already highlighted that he is looking forward to cutting tax rates on businesses, so that they can further invest, in his autumn Budget.

A number of Members talked about how the OBR has said that the package only reverses

“around a sixth of the net tax rises”

that the Chancellor has announced overall. I just want to inform them that the tax plan comes on top of the almost £46 billion in tax cuts that the Government have introduced for this year and next. That includes the super deduction worth £25 billion across two years, business rates and VAT support worth £14.5 billion across two years, and fuel and alcohol duty freezes worth £4.5 billion across two years. These important tax cuts were not included in the OBR’s analysis, which just focuses on the final year of the forecast period.

My hon. Friend the Member for Bury North (James Daly) was right to say that this is not the end of the journey for the Chancellor, a point also made by my hon. Friend the Member for West Bromwich West (Shaun Bailey), who mentioned that this is part of a broader package. The Chancellor has a plan to help families with the cost of living, creating the conditions for private sector-led growth and sharing the proceeds of growth fairly.

The right hon. Member for Hayes and Harlington (John McDonnell) talked about the importance of helping those on low incomes. I absolutely agree with him that that is important, but we are doing it—whether through the universal credit taper rate, raising the national living wage, the 70% cut in taxes that we announced yesterday and are legislating for today, the £9 billion of energy support or increasing the generosity of the local housing allowance. All those measures will support people on low incomes. He made an interesting point about public sector pay, which I noted conflicted with a point the shadow Chancellor, the hon. Member for Leeds West (Rachel Reeves), made on the radio this morning when she recognised that negotiations for public sector pay were independent decisions made by pay review boards.

The measures in the Bill will ensure that our national insurance system plays its part in relieving some of the challenges facing families right now as a result of the cost of living crisis. Of course, we have not introduced them lightly. We are conscious that in the next financial year we are forecast to spend £83 billion in debt interest, the highest figure on record. In addition, while the Bill represents an important part of the Chancellor’s tax plan, it is just one element of it.

Yesterday, the Chancellor also announced steps to create the right conditions to enable our businesses to grow, highlighting some potential tax-cutting options for businesses, investment and innovation. He announced action to help to ensure workers see more of their hard-earned cash and a pledge to reduce the basic rate of income from 20p in the pound to 19p in the pound before the end of the Parliament, representing the first such cut in 16 years. Furthermore, the Chancellor announced help for motorists through the biggest cut to fuel duty rates ever, while for the next five years homeowners in Great Britain who have materials such as solar panels, heat pumps or insulation installed will pay zero VAT. He doubled the household support fund, which allows local authorities to distribute financial help to the vulnerable, so it stands at £1 billion.

Help with the cost of living, extra support for the vulnerable, delivering on our pledge to reform the tax system and measures to make sure work really pays all comes on top of the £400 billion of support we provided to individuals and businesses during the pandemic and the £20 billion we have already pledged to help with the cost of living. Let no one say that this Government do not stand by the people of this country. The Bill is yet more clear evidence of how we are making good on our promise to support our citizens through challenging times. That is why I commend it to the House.

National Insurance Contributions (Increase of Thresholds) Bill

Lucy Frazer Excerpts

Committee stage
Thursday 24th March 2022 Commons Chamber

As I have made clear, we will support the measures in the Bill because we recognise that the raising of the thresholds has benefits and we welcome any help for people who face the Chancellor’s national insurance tax hike in April. However, I have set out important points of detail—particularly in respect of the timing of the changes we are asked to agree today—that will have a real impact on people’s pockets. I would be grateful if the Minister addressed them directly in her reply.

[Lucy Frazer]

I wish first to address amendment 1, which was tabled by the hon. Member for Bath (Wera Hobhouse) and would bring forward to 6 April the increase to the primary threshold that is introduced in clause 1. Of course the Government want to help people with the cost of living as quickly as possible, which is why the Chancellor introduced a number of measures immediately, including the cutting of fuel duty, which came into force at 6 pm last night. However, it was not possible to deliver the increase to the primary threshold from 6 April, which is in less than two weeks’ time.

The Government are implementing the change as early as possible, from 6 July. It is not possible for the majority of software and payroll providers to deliver the measure for April. Its delivery to an April timeline would see millions of individuals paying the incorrect amount of NICs at the start of the tax year, in just two weeks’ time. There would then be an additional administrative burden on employers, who would have to manually re-run the payroll once the software was ready. As my hon. Friend the Member for Wrexham (Sarah Atherton) said, the earliest that we can deliver the policy and it can be implemented by all software developers is July. That will avoid millions of taxpayers having to make manual claims for refunds.

Overall, the delivery timetable strikes the important balance between ensuring that individuals see the benefits of the increase as early as possible and allowing employers and payroll-software providers sufficient time to update and test their systems so that the change is delivered smoothly and individuals can enjoy the benefits at the same time. I hope the hon. Member for Bath will withdraw her amendment for the reasons I have outlined.

Let me turn to the new clauses in combination, because they address similar matters. On the points that Members made about poverty, if we look back at the past 10 years, we see that around 1.3 million fewer people are living in poverty, half a million fewer children are growing up in workless households and hundreds of thousands fewer children are living in poverty.

[John McDonnell]

I do not want the Minister to miss the point of new clause 1. I understand why she is setting out the statistics as she understands them, but they are contested. Nevertheless, the point I was trying to make with my new clause is that the Government should always publish a full report on their assessment of the implications of their legislation for both low pay and poverty, and that that report should include their assessment of the other options available to them that they could have taken. It is a simple measure that I hope would apply to all Governments of whatever political colour.

[Lucy Frazer]

I was going to come to the distributional analysis of the spring statement. The analysis in the document “Impact on households: distributional analysis to accompany Spring Statement 2022” shows that

“government policy continues to be highly redistributive; in 2024-25, on average, households in the lowest income decile will receive over £4 in public spending for every £1 they pay in tax”.

It also shows that

“in 2024-25, the poorest 60% of households will receive more in public spending than they contribute in tax”

and that

“on average, the combined impact of personal tax and welfare decisions made since SR19 is progressive, placing the largest burden on higher-income households as a proportion of income.”

[John McDonnell]

I do not want to labour the point. I have read the analysis of the impact on households; it is always very helpful, but it does not address the issue of low pay and poverty, or other policy options that could be considered. I make the point for the future. I know it is impossible to address now, but I think such a report should be published automatically. If the Government do not publish it, maybe a report should be published by the OBR or some other body that we establish to enable that to happen.

[Lucy Frazer]

I recognise the point made by the right hon. Member and I will of course consider it for the future. Considering a variety of hypothetical scenarios is time-consuming, which is why that is not traditionally done, but I will take his point away and consider it further.

I reiterate some of the points we discussed on Second Reading only a moment ago about the impact of the measures on those in lower pay and on universal credit. As hon. Members know, there was an autumn Budget not very long ago, followed now by this spring statement. In the autumn Budget, the Chancellor started the journey of helping to support those on lower pay through the tax system. He announced the first tax cut on his journey to cut taxation—the cutting of the taper rate, which will put £1,000 into the pockets of those on universal credit.

Hon. Members will already know about the increase in the national living wage. They will have seen the £1 billion household support fund, which is helping people in all our constituencies, building on other measures that were announced at the autumn Budget. More recently, we have provided £9 billion in energy support. There is the increasing generosity of the local housing allowance for housing benefit and the holiday activities and food programme. The Chancellor’s plan for jobs—the Conservative plan—whether through the kickstart scheme, the restart scheme, work coaches or boot camps, is to ensure that, where people can get into work, they get into work, and they are upskilled so that they earn more for themselves.

On new clause 4, the increase to the primary threshold and the lower profits limit is a tax cut on earned income that will benefit almost 30 million working people.

[Clive Efford]

Will the Minister give way?

[Lucy Frazer]

I will just finish this point; I will come back to the hon. Gentleman. We are introducing a tax cut for a typical employee that is worth more than £330 in the year from July 2022. The impact of the provisions in the Bill have already been published in a tax impact information note published on gov.uk, and the impact of the income tax basic rate cut will be published ahead of implementation in 2024.

The hon. Member for Bath raised a question about landlords. We have taken steps over several years to ensure that landlords pay a fair tax contribution.

In April 2016, we introduced a higher rate of stamp duty land tax for those purchasing additional properties, recognising that, although the private sector plays an important role in our housing market and people should be free to invest in buy-to-let properties, the purchase of additional properties can affect the ability of other people to get on to the property ladder. We also restricted finance cost relief so landlords no longer get relief at their marginal rate if they are a higher or additional rate taxpayer. Finally, we maintained the 8% higher rate of capital gains tax for landlords compared with the rate for other taxable gains.

[Wera Hobhouse]

Will the Minister give way?

[Lucy Frazer]

I am going to give way to the hon. Member for Eltham (Clive Efford) first. He is probably going to ask about the previous point.

[Clive Efford]

I am wondering whether the Minister missed new clause 2, because she did not address the problem. Yes, increases were introduced in the autumn Budget last year, but this year, people are getting less than they were anticipating due to the increase in the threshold of national insurance. People were being told yesterday that they should get an extra £330, but they will actually get less than half of that. What is the Government going to do about that? The Treasury is clawing back several hundred million pounds from some of the poorest workers in the country.

[Lucy Frazer]

I do not know whether the hon. Member was in the Chamber when the right hon. Member for East Ham (Stephen Timms) raised this point and I addressed it. He is right to point out that an individual may be affected by the taper, but overall they will be better off as a result of this change. If those people are earning below the work allowance, they will get the full benefit. I reiterate that the changes that we have already made mean that those who are on universal credit will benefit by £1,000 from the cut to the taper rate.

[Wera Hobhouse]

I accept that the Government might have done all sorts of other things to put restrictions on landlords, but would it not be interesting to know the difference between earned and unearned income in relation to the measure introduced by the Chancellor yesterday?

[Lucy Frazer]

As the hon. Member knows, the threshold increase will largely affect those who are working, because it is a tax that relates to working people, and the income tax cut that we have announced will, obviously, affect those who pay income tax.

The hon. Member for Ealing North (James Murray) made a number of points. He asked when the Chancellor decided that he would implement this change to the threshold. In considering a tax policy, it is not decided that something will be implemented on a particular day. A whole process needs to be followed, including ensuring that the relevant documents are put before the House. The hon. Member will be aware that that involves a Bill, an explanatory memorandum and a TIIN. He will know, because he will have heard the Chancellor and other Treasury Front Benchers say so on many occasions in the House, that the Chancellor has been considering for some time how he can help those who might be impacted by the cost of living issues that we currently face. It is appropriate, where measures are taken in relation to tax, that they are broadly taken at fiscal events.

The hon. Member also made a slightly contradictory point. He asked why we had not introduced the measure sooner, in March perhaps, and then suggested that it was being introduced too late because we were delaying it until July. He seemed to be criticising us both for not bringing it in earlier and for not giving him sufficient time to consider it, but I have mentioned all the things we need to do before introducing it in July.

The reason that the measures will be brought in through regulations is that we need to consult, including those who will be doing the payroll. The need to consult was one of the points made by the Low Incomes Tax Reform Group.

We have come to the end of what has been a useful Committee sitting that examined the detailed provisions of the Bill. The Bill seeks to align the threshold at which employees and the self-employed start paying NICs with the personal allowance for income tax. As well as simplifying the tax and NICs system, the measure ensures that hard-working families keep more of what they earn.

I thank hon. Members for their constructive contributions. I will, of course, look carefully at the record of the Committee debate and take forward any outstanding points.

[Wera Hobhouse]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 6 ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Bill read the Third time and passed.