National Insurance Contributions

Luke Evans Excerpts

Tuesday 4th February 2025 Commons Chamber

[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.

[Dr Luke Evans (Hinckley and Bosworth) (Con)]

The Minister talked about the Treasury grant being up to 5%. As a matter of curiosity, what figure had Treasury planned to put in?

[James Murray]

The regulations contain a provision for us, in case it is needed. The expectation is that it will not be. As I mentioned, a Government Actuary’s Department report laid alongside the regulations has forecast that the Treasury grant will not be required in 2025-26. The provision in the regulations is a precautionary measure, and is in line with what has happened in previous years. The Government consider it prudent to continue the practice of previous years, and to make provision for the grant in these regulations. I hope that answers the hon. Gentleman’s question.

The regulations enable an increase in child benefit and the guardian’s allowance in line with prices. Without these regulations, HMRC would be unable to collect national insurance contributions receipts, and child benefit and guardian’s allowance would be frozen at the 2024-25 levels. I hope that colleagues will join me in supporting the regulations.

--- Later in debate ---

[Gareth Davies (Grantham and Bourne) (Con)]

I welcome the opportunity to contribute on behalf of His Majesty’s Opposition. As the Minister said, the first statutory instrument sets rates, limits and thresholds for national insurance contributions for the 2025-26 tax year. It covers the rate of class 2 NICs, the small profits threshold, the rate of voluntary class 3 NICs, the zero-rate relief on secondary class 1 NICs for qualifying armed forces veterans—a Conservative Government legacy that we are very proud of—and the various upper secondary thresholds and the upper limits and thresholds that determine class 1 NICs.

These regulations also allow for payments of a Treasury grant not exceeding 5% of the estimated benefit expenditure for the 2025-26 tax year. This is to be made into the national insurance fund, with a corresponding provision for Northern Ireland. We welcome the uprating with CPI of the class 1 lower earnings limit and the class 2 small profits threshold, but the overall picture in these regulations is one of continuity, not of change.

The secondary threshold, however, is the exception. Although the regulations leave it unchanged, that will not last for very long. They will be overridden by the National Insurance Contributions (Secondary Class 1 Contributions) Bill, which is under consideration in the other place. It will cut the secondary threshold from a weekly level of £176 to £96 in the coming tax year, on top of raising the secondary class 1 NICs rate to 15%.

The disastrous, job-destroying consequences of Labour’s £25 billion tax on working people are well known by now, and have been debated in this place many times. They are also widely acknowledged, from the independent Office for Budget Responsibility to the left-wing Resolution Foundation. This time last year, when in opposition, the Minister put on record his concern over the distributional impact of the freezes on allowances, limits and thresholds, which his Government are in large part continuing. We accept that these are difficult decisions, but we took them to return the public finances to a sustainable footing in the aftermath of the double crisis of the pandemic and the energy price shock driven by the disgraceful invasion of Ukraine.

If the Minister was concerned about the distributional impact back then, and in particular about

“the post-tax income for low and middle earners”—[Official Report, Sixth Delegated Legislation Committee, 7 February 2024; c. 6.],

I wonder just how concerned he is now, in the context of his own party’s Budget. The Institute for Fiscal Studies has shown that the largest percentage increases in labour costs will be inflicted on lower-wage workers; meanwhile, as much as 76% of the additional tax burden will be passed on to those same workers in the form of lower real wages, according to the independent OBR. Does the Minister agree with the OBR and the IFS on the distributional impact of the NICs tax hike?

[Dr Luke Evans]

My hon. Friend has talked about context, which is really important. This is a finance SI, but the wider context is that another Bill is being brought forward—the Employment Rights Bill—that is estimated to cost £5 billion on top of existing tax measures in the Budget. Does he think that that will have a direct impact on people who are trying to find work? There is a chance, surely, that more people will be let go and made unemployed because of this potential cost and impact.

[Gareth Davies]

I completely agree with the point that my hon. Friend is making, which has also been made to me by several local businesses in my constituency. This is a double whammy. We have a tax increase that will increase the cost of doing business and affect the profitability of businesses and, in some cases, their survival; in addition, they are being hit with additional regulation, which businesses themselves, including the CBI, have made clear will add to the burden of regulation and make it less easy to hire people and, in some cases, to keep them. This double whammy, I am afraid, will result in job freezes at best, and, in some tragic cases, to job losses. I think we should all be very concerned about that.

To be fair to the Minister, he has in the past expressed great concern about the lower-paid in our society across all constituencies. Has he therefore undertaken his own distributional analysis of changes to national insurance rates, limits and thresholds in the round? If he has, does that analysis show anything different from what the OBR and the IFS have shown?

I would like to highlight the fact that the impact note for this specific statutory instrument predates the October Budget. I hope there is an updated impact analysis to consider the new context—surely there is. I would be grateful if the Minister could confirm that and show it to us.

Finally, I would be grateful if the Minister could confirm whether the Treasury is considering an extension of the veterans zero-rate relief beyond 2026, or whether that will now act as a final sunset date for the relief. He is absolutely right to say that we all have a part to play in highlighting this relief to businesses. We all want to see veterans hired in our country. My constituency has one of the largest populations of veterans, and I, with others on the Opposition Benches, will certainly join the Minister in doing anything we can to better inform businesses of this benefit. However, it would be good if he could confirm whether there are any plans or intentions to extend the relief beyond the 2026 point set out in the regulations.

As the Minister said, the second statutory instrument uprates child benefit and guardian’s allowance in line with CPI for the 2025-26 tax year. These benefits are an important part of our welfare system, and we welcome the vital support that they provide. However, as the Joseph Rowntree Foundation has pointed out,

“Work is the most important route out of poverty”,

and we agree. Between 2010 and 2024, Conservative Governments helped to create 4 million jobs. The proportion of children living in workless households fell from 16% to 10%. Even as employment increased, the proportion of all jobs considered low paid declined from 20% in 2010 to just 3.4% in 2024, which I hope the whole House welcomes and recognises.

Labour has never left office with unemployment lower than it found it, and within four months of its first Budget unemployment is on the rise, with the number of workers on payrolls dropping by the most we have seen since the peak of the pandemic. Meanwhile, the OBR says that Labour’s jobs tax will weigh on real wages. With inflation also expected to rise in the near term, and many of the Minister’s Back-Bench Labour colleagues no doubt taking the view that child benefit provision is not generous enough, have the Government prepared an assessment of the impact of their Budget measures on levels of child poverty over the next 12 months, and in particular of the impact their jobs tax may have through higher unemployment and lower pay? Finally, is the Minister confident that this uprating will cancel out any adverse consequences of the Budget, such as those I have raised?