National Insurance Contributions (Rate Ceilings) Bill

Lucy Frazer Excerpts

Tuesday 15th September 2015 Commons Chamber

[Barbara Keeley]

In a minute, I will record how other commentators also think it is a gimmick. I have said we are not going to oppose the Bill because we do not want working people to pay more, but we have just seen in this Parliament a tax-raising Budget. I will talk more about that in a moment.

One of the main concerns about this policy gimmick is the serious constraints it will place on the Treasury and the Government’s ability to raise taxes or maintain the flexibility to raise revenue in response to economic events. As Alex Henderson, tax partner at PricewaterhouseCoopers, said:

“Arguably the lock means the Government has less flexibility on where tax revenues could come from, with the burden more thinly spread.”

He also pointed out that it would not constrain Ministers’ ability to raise revenue from the same taxes in other ways—for example, by delaying the uprating of thresholds and removing reliefs. So it is not true that people are not going to pay more; there are other ways. We know the Chancellor used such measures, otherwise known as fiscal drag, to great effect in the last Parliament, because, according to the Institute for Fiscal Studies, they have raised taxes of roughly £64 billion a year by doing so. The headlines people read do not indicate tax rises, but the measures used do.

Simon Walker, director general of the Institute of Directors, said:

“While IoD members are opposed to increases in the rates of VAT, Income Tax and National Insurance, we consider it imperative that the Government’s commitments do not prevent bold tax reforms to both simplify taxation and reduce the burden upon businesses and individuals.”

As Paul Johnson, director of the Institute for Fiscal Studies, pointed out, the tax lock could rule out sensible tax reforms, such as the treatment of national insurance contributions for the self-employed, which has already been referred to.

[Lucy Frazer (South East Cambridgeshire) (Con)]

I am a little confused. The hon. Lady has said that she supports the policy but is now quoting a load of people who do not support it. Surely, she supports it because it gives hard-working people the chance to keep more of their income and gives businesses certainty about the number of people they can employ.

[Barbara Keeley]

The hon. Lady confuses our not opposing a pledge that we made first on 25 March—it is our pledge, if you like—with a Bill that I am denouncing as a gimmick. It is not just me who is denouncing it as such; a range of commentators have done so as well.

--- Later in debate ---

[Lucy Frazer (South East Cambridgeshire) (Con)]

The Bill is about low taxation. Low taxation is critical to encouraging our businesses and our economy to grow. Low taxation encourages entrepreneurship, and it means that work pays. The commitment not to increase national insurance contributions is a key part of the Government’s triple lock to ensure that we have low taxation for our working nation. As it is paid by both employer and employee on wages, it is an important part of our jobs tax.

Many sectors rely on their people knowledge. I have many such sectors in my constituency. Only a few weeks ago, I visited Cambridge Online, which deals in computer software. Its chief executive officer said to me, “We are nothing, Lucy, other than our people.”

Last week, I was at Marshall, which employs 3,000 people and is one of the biggest employers in my constituency. It spends a huge amount investing in apprenticeships and in training up the next generation who will be its workforce. Also in my constituency is the science park, which is a key place for biotech industries. Innovation and enterprise are fundamental, and individual experience and individual knowledge of people are key. Cambridge University is on our border, and the academics and their great research are fundamental to our economy. At the source of all that is people. Keeping national insurance contributions at the same level is critical to encourage employers to employ, to encourage the growth of businesses and productivity, and to ensure that businesses can recruit and expand. However, this Bill is about not just low tax, but certainty. As businesses expand, it is good for them to have foresight in respect of their expenditure, and that is what we are providing. We are providing them with certainty. As has been mentioned, that is particularly important for foreign investment. My constituency has biotech industries. We are competing not with Birmingham or Leeds, but with silicon valley. What we need is certainty that foreign investors will invest in our community and our businesses.

It has been said that this measure is a gimmick. It is not. It may be that the Bill is not required, but that does not mean that it is not welcome. It provides the certainty that we need. This Bill is about low taxation, certainty and transparency, as it tells people what this Government are doing, and it will help with jobs, and therefore our economy, in the future.

--- Later in debate ---

[Helen Goodman]

My hon. Friend makes an astute point. That is one of the things that is going on here.

The Chancellor is also shifting more and more from direct taxation on income to indirect taxation on spending. In doing so, he is pushing the burden of tax from those on middle incomes to those on lower incomes. They are the true target of this Government, as we shall see in the debate on tax credits later this afternoon.

The hon. and learned Member for South East Cambridgeshire (Lucy Frazer) claimed that this measure was about low tax, but I would ask her to reconsider that. For whom is it about low tax? For all the reasons given by the hon. Member for North West Hampshire, including the fact that not raising the basic rate of national insurance is a good thing to do, it is clear that this is a tax on labour. At a time when we want more people to have more good jobs, that seems rather perverse.

The most perverse thing about national insurance is the upper earnings limit, and including that in the legislation is a highly political act. We shall have a debate on tax credits in a little while. Let us look at the marginal rate that the Chancellor is giving to people, taking account of the tax and benefits system. After the Budget, the effective marginal tax rate faced by second earners in couples on very low incomes with two children will be 75%. However, for those earning more than £150,000 a year, the normal marginal tax rate of less than 50% will apply. Even when universal credit is introduced, the marginal rate for people earning around £10,000 a year will be 65%, but the withdrawal rate for people earning more than £150,000 will be 48p in the pound. That is not about low tax or certainty. It is clearly about protecting the Tory party’s rich friends and rich donors.

[Lucy Frazer]

I heard the shadow Minister say that this was Labour party policy. What does the hon. Member for Bishop Auckland (Helen Goodman) say to that?

[Helen Goodman]

As I have said, I would not have made a commitment on the upper earnings limit. That is just not my view. Fortunately, in the House of Commons we are free to speak as we find things. We are having this debate and I am making my contribution. I am telling the House that that is not a terribly sensible commitment to make.

The hon. Member for North West Hampshire made some good points about the certainty that small and micro-businesses need, but I ask hon. Members to consider for themselves how many small and micro-businesses are employing people on £150,000 a year. I suggest that not many are doing so. I know that Hampshire is better off than County Durham, but it is not so much better off that every farmer and small shopkeeper is paying themselves and their staff £150,000 a year.