Draft Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024 Draft Tax Credits, Child Benefit and Guardian's Allowance Up-rating Regulations 2024

Debate between Natalie Elphicke and Nigel Huddleston

Wednesday 7th February 2024 General Committees

[Nigel Huddleston]

As always, Sir Charles, it is a pleasure to serve under your chairmanship. The regulations will be of considerable benefit to our constituents who rely on tax credits, child benefit and guardian’s allowance, and to those who pay national insurance contributions. Regulations are made each year to set national insurance contributions thresholds and uprate tax credit, child benefit and guardian’s allowance.

First, the Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024 set the national insurance contributions limits and thresholds of a number of national insurance contribution classes for the 2024-25 tax year, with all limits and thresholds remaining fixed at their existing level. The regulations also make provision for a Treasury grant to be paid, if required, into the national insurance fund for the same year—a transfer of wider Government funds to the national insurance fund—and for the veterans employer national insurance contributions relief to be extended for a year until April 2025. The scope of the regulations is limited to the 2024-25 tax year.

National insurance contributions are social security contributions. They allow people to make contributions when they are in work in order to receive contributory benefits when they are not working, such as after they have retired or if they become unemployed. NICs receipts fund contributory benefits, as well as supporting funding to the NHS.

On the details of the NICs for employed and self-employed people, the primary threshold and lower profit limits are the points at which employees and the self-employed start paying employee class 1 and self-employed class 4 national insurance contributions respectively. At the autumn statement 2022, the Government announced their intention to maintain the primary threshold’s alignment with the income tax personal allowance, with both rates being fixed at £12,570 until 2028.

Fixing the primary threshold at £12,570 does not affect an individual’s ability to build up entitlement towards contributory benefits such as the state pension. For employees, this is determined by the lower earnings limit—which will remain at £6,396 per annum, or £123 per week, in 2024-25—and for self-employed people by the small profits threshold, which will remain at £6,725 in 2024-25. Fixing the thresholds will mean that more lower-earning working people will gain entitlement to contributory benefits and build up qualifying years for their state pensions.

The upper earnings limit, which is the point at which the main rate of employee NICs drops to 2%, and the upper profits limit, which is the point at which the main rate of self-employed NICs drops to 2%, are aligned with the higher rate threshold for income tax, at £50,270 per annum. It was announced previously that those thresholds would be fixed until April 2028, as part of the Government’s commitment to supporting the public finances.

At the autumn statement 2023, the Government also announced that from 6 April 2024 self-employed people with profits above £12,570 will no longer be required to pay class 2 NICs, but will continue to accrue and receive access to contributory benefits, including the state pension. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the state pension, through a national insurance credit, without paying NICs as they do currently. Those with profits under £6,725 who choose to pay class 2 NICs voluntarily to get access to contributory benefits, including the state pension, will continue to be able to do so.

I turn now to employers NICs. The secondary threshold is the point at which employers start paying employer national insurance contributions on their employees’ salaries. At the autumn statement 2022, the Chancellor announced that this threshold will remain at £9,100 in 2023-24 and will be fixed at this level until 2028. That supports the public finances while ensuring that the largest businesses pay the most. The employment allowance, which the Government raised from £4,000 to £5,000 in April 2022, means that the smallest 40% of businesses with employer national insurance contributions liability pay no employer NICs. The regulations also fix the thresholds for employers of employees eligible for NICs reliefs—the reliefs for employers of under-21s, under-25 apprentices, veterans, and new employees in freeports and investment zones—at their 2023-24 levels.

The majority of national insurance contributions are paid into the national insurance fund, 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, so that up to 5% of forecasted annual benefit expenditure can be paid into the national insurance fund, if needed, in 2024-25. A similar provision will be made in respect of the Northern Ireland national insurance fund. The Government Actuary’s Department report laid alongside the regulations forecasts that a Treasury grant will not be required in 2024-25 but the Government consider it prudent, as a precautionary measure, to make a provision for a Treasury grant at this stage, which is consistent with previous years.

The regulations also make provision for the national insurance contributions relief for employers of veterans to be extended for a year until April 2025. This measure means that businesses pay no employer NICs—at a rate of 13.8%—on salaries up to the veterans upper secondary threshold of £50,270 for the first year of a qualifying veteran’s employment in a civilian role. The relief is part of the Government’s commitment to make the UK the best place in the world to be a veteran, and is intended to further incentivise employers to take advantage of the wide range of skills and experience that ex-military personnel offer. It supports those who have already given so much to this country, and helps to unleash the great skills and huge potential of our service leavers.

[Mrs Natalie Elphicke (Dover) (Con)]

The veterans relief that the Minister just mentioned is clearly very welcome, in addition to the other uprating of reliefs. Finding a route back into work for those who are rough sleeping or homeless is a particular issue for veterans. Will the Minister explain why the relief applies only to the first year of employment and whether any consideration has been given to assisting veterans on their return to work following their homelessness journey?

[Nigel Huddleston]

The Minister for Veterans’ Affairs has explained the wide variety of other measures that we have to support veterans. As I said, it is the Government’s ambition to make sure that we treat our veterans with incredible respect and that the UK is the best place in the world to be a veteran, so there are other measures in place. The relief measure was always intended to be temporary. It was announced as such, but we are now extending it. I cannot promise that further extensions will or will not be forthcoming—that would be for other decisions—but I think the whole Committee agrees with my hon. Friend’s wider point about respect for veterans.

I turn now to the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024. The Government are committed to delivering a welfare system that is fair for claimants and taxpayers while providing a strong safety net for those who need it the most. The regulations will ensure that the benefits for which His Majesty’s Treasury Ministers are responsible and that HM Revenue and Customs delivers are uprated by inflation in April 2024. Tax credits, child benefit and guardian’s allowance will increase in line with the consumer prices index, which had inflation at 6.7% in the year to September 2023. Uprating by the preceding September CPI is the Government’s typical approach.

To reject the regulations would mean that HMRC-administered benefits do not rise at all next year, making our constituents worse off. As usual, the Department for Work and Pensions led a separate debate in this place on the regulations for uprating other benefits and the state pension, for which the Secretary of State for Work and Pensions is responsible, on 31 January 2024. The DWP’s working-age benefits will also rise in line with the 6.7% CPI rate this year.

In summary, the proposed legislation fixes all the limits and thresholds for national insurance contributions at their 2023-24 levels for the 2024-25 tax year; makes provision for a Treasury grant; extends the NICs relief for employers of veterans; and increases the rates of tax credits, child benefit and guardian’s allowance in line with prices. The legislation enacts announcements from the autumn statement and previous fiscal events. Without it, HMRC will be unable to collect NICs receipts, and tax credits, child benefit and guardian’s allowance will be frozen at 2023-24 levels. I therefore hope that colleagues will join me in supporting the regulations.