National Insurance Contributions (Reduction in Rates) (No.2) Bill

Priti Patel Excerpts

2nd reading
Wednesday 13th March 2024 Commons Chamber

[Priti Patel (Witham) (Con)]

There is quite a lot to say after the contributions from both Front Benchers, which I will come to in a minute. I welcome the opportunity to speak in this important debate. I support the reduction in the rate of national insurance. I will use my time to discuss longer-term tax reforms that should be introduced.

Before I speak to the cuts and changes to national insurance that are the basis of this important Bill, I will, if I may, make some observations on the debate thus far having heard both Front Benchers. This is a very serious issue; we are speaking about fiscal matters that affect all our constituents across the United Kingdom, at a time when we should be really honest with the British people. We should level with them: taxes have gone up. I do not think that they want to hear trivial arguments from this House about who is outscoring whom. A degree of maturity is needed right now, because these have been difficult times, post-pandemic and off the back of Russia-Ukraine and everything that has followed. We need to look at what is being proposed in a constructive way. The irony of today’s debate—I will touch on wider public spending—is that tomorrow we will be here talking about estimates. Given the book and the numbers that I have gone through this morning, a lot more can be done to ensure that Government spending is much more efficient, but we will save discussion that for tomorrow.

This is an important Bill. It follows clearly the decisions that previous Conservative Chancellors have taken to reduce the taxes taken from national insurance. Members who review the details of successive Budgets since May 2010 will note that the Government have progressively reduced the national insurance tax burden in recent years—Members may recall that the employee threshold level was £5,725 back in 2010, so that has been the trend. Two years ago, the increase in the primary threshold jumped from £9,568 to align with the tax-free threshold—with which I like to think we in this House are all familiar—of £12,570 in 2022-23. That 2022 change alone has already put around £330 per person back into the pockets of hard-working families. The changes at the autumn statement—which, if I remember rightly, were well debated on the Conservative side of the House, while the Opposition were a little absent—meant that average earners would be around £900 better off.

Alongside that, I also welcome the reduction in NICs for those who are self-employed. As an Essex MP, the majority of my constituents are self-employed. Over 80% of my constituents work in self-employed small and medium-sized firms. Those who are self-employed and pay class 4 contributions, including many of my constituents, make a huge contribution to our economy. We should reflect on that. More always needs to be done—that is fact—to grow the economy, on supply-side reforms, and to stimulate employment, but the measure is huge for those people because it gives them security in employment, and that is a fundamental principle that we should all work to. It is a big difference and tax cut.

The impact of raising the income tax-free threshold from the £6,475 in 2010 to £12,570 today was significant because it was worth over £1,000, or 20% of the £6,095 increase. The £900 average from the cuts to national insurance in the last two fiscal events is significant. We should all recognise what that means not just for the economy but for the money in people’s pockets. Those measures will have helped taxpayers to keep around £2,400 more of the money they earn. Let me be frank: that is not just good; it is valued and welcome. As colleagues have already touched on, those are timeless Conservative values that fulfil our mission to deliver economic freedoms and lower taxes, notwithstanding the tax backdrop of recent years.

I listened to the Labour Front Bencher, the hon. Member for Ealing North (James Murray), and I always welcome his contributions and enjoy our debates. Our approach to national insurance and easing the burden contrasts with what we saw under the previous Labour Governments, when we saw increases. We need to work collectively to be on the side of hard-pressed families right now. That is absolutely crucial. I could go back to the Budgets of Gordon Brown and list some of the calamities that took place, but what is the point? We have to speak about the fiscal—[Interruption.] No, we have to speak about the fiscal footprint that we have now, about the Budget resolutions that we voted on last night, and about this Bill in particular. It is really important that we stand by our record, our commitment to lowering taxes on income, and our ambition to go further.

This will be a debate—I have no doubt about that. I have stood in this Chamber before saying that we should go further on tax reforms, and I believe that. I have even suggested previously that we look at merging NI and income tax, and previous Conservative Governments have looked at that as well. As all Members know, including Opposition Front Benchers, it is not straightforward; it is complicated, and some of the points that have been raised today indicate why. However, I believe that we have to continue on this pathway. Without recapping the Budget debate that we have had in recent days, it contains important fiscal measures that mean that the public will be better off, including the fuel freeze, but the direction of travel is also important. Treasury Front Benchers hear a lot from me and other Members about this issue, and I know they would like to go further in reducing the tax burden. They know my personal views on public spending, which I believe is far too high right now and needs addressing, but we also need to think about long-term reform.

If I may, I will touch on the ambition expressed by the Chancellor to end the double taxation on jobs, and the suggestion that national insurance is either phased out or subject to reform. I have been a long-standing campaigner for lower and simplified taxes, and I am on the record as having even looked in the past at a merger. George Osborne looked at that during his chancellorship, as did the Office of Tax Simplification—that is well documented and on the record. Although those plans were not taken forward because of the complexities I have touched on, it is important that those debates continue, because we need to simplify our tax system in this country. As Conservatives, we must always look to do that; we must always stand up for not just lower taxes, but simplifying the tax system. I say that as the new tax year is due to begin, with people still getting letters from His Majesty’s Revenue and Customs. For businesses in particular, the burdens that they face and the complexities involved in tax returns are mind-blowing.

Both national insurance and income tax are taxes on income, and the thresholds at which they are both paid are now aligned at £12,500 per year. That is something that we need to look at—I have made that point before. My hon. Friend the Member for North East Bedfordshire (Richard Fuller) touched on the contributory principle of national insurance as set out in the National Insurance Act 1911 and further measures following the second world war. Those measures were brought in to support health and medical benefits and unemployment benefits, and the receipts raised are paid into the national insurance fund investment account. That distinction in the way that national insurance is raised and dealt with, compared with other taxes—which end up in the consolidated fund—has stood the test of time. I think all Treasury Ministers, those on the Front Bench today and others, recognise that. That distinction is ingrained in the fabric of our tax system and the thoughts of many of our constituents.

We are now starting the debate about lower taxes and how we can simplify the tax system, and I genuinely believe that this is an important Bill. It is a very important signal in terms of supporting the self-employed and hard-pressed families around the country, and the Government’s direction of travel is very welcome. Through this debate, we are starting to provide a clear, distinct Conservative way forward and Conservative approach. We have had debates over the past week about high-tax, high-spending policies; those debates and discussions are not going to go away. Public spending is over £1.2 trillion. We have to be mature in the debates we have in this House, and about how as a Government we prioritise public investment but spend taxpayers’ money wisely. I am pleased that this Bill has been brought forward, and I hope it will start a positive direction of travel when it comes to reducing the overall tax burden on hard-pressed families.

[Madam Deputy Speaker (Dame Eleanor Laing)]

I call the SNP spokesman.

--- Later in debate ---

[John Redwood (Wokingham) (Con)]

I have declared my business interests in the Register of Members’ Financial Interests.

I welcome the reduction in the tax on jobs. The level of overall taxation in our country is too high. The reason it is so high is primarily the huge expenditure the country, by general agreement, incurred to tackle the covid lockdown. This is why I find the Opposition’s criticism of this Government’s tax record so difficult to grasp. After all, they wanted us to lock down tougher and they wanted us to lock down for longer. While a lot of money was rightly offered by this Government to individuals and companies to replace their lost incomes —colossal expenditure on a scale we have never seen before—Labour wanted to spend more on those causes, as well as wanting the lockdown to go on for so much longer.

What we demonstrated was that if we lock down a country for a year or more, stop a very large number of people earning their livings or livelihoods at all, and close down a large number of companies for the duration and maybe for longer, it is an extremely costly process. Of course, we needed to offset that to prevent a complete collapse in the economy and to sustain some lifestyles for those who otherwise would have no income. So we as a nation have this burden of extra expenditure, which we are now having to tackle by tax levels that are higher than we like.

We are at this very important point where the higher taxes are all in place—some of them are doing their job, and some of them will disappoint because higher tax rates do not always deliver the extra revenue that Treasury and OBR planners seem to think they will—and the Government are rightly saying, from the autumn statement through this Budget and on to future fiscal events, as they are now called, that we want to get back to getting the level of taxation and the burden of the rates down. It does not mean that we want to reduce the amount of taxation—indeed, the Government, understandably, want to collect a lot more taxation, as do the Opposition—but the fundamental policy debate is about how best to do that, and it is surely right that we are going to have a more prosperous economy and more public expenditure can be afforded if we have tax levels that promote growth, particularly if we reduce the taxation that is otherwise a big burden on work, on enterprise and innovation, and on small companies and the self-employed.

I am delighted that the self-employed have been included in the national insurance cuts in both the autumn statement and this Budget, but I still think the Government need to reform or push back the changes they made to IR35. We have lost 800,000 self-employed over the covid period. Some of that is because of the damage the covid lockdown has done, but some of it is deliberate tax policy in telling people that they cannot be self-employed, or so undermining the credibility of their status as self-employed in the eyes of others that they do not get the contracts they used to get from businesses that are nervous about the tax issue.

I urge my hon. Friends on the Front Bench to find time to look again at the second part of the self-employment package. I welcome the national insurance part, but I think we need to look at IR35, because we need that extra capacity. It would be good to get back some or all of those 800,000, and to add many new ones—younger ones—to that crucial army, because I am sure all Members in the House, being honest, would agree that the self-employed make such a valuable contribution in our constituencies.

[Priti Patel]

Does my right hon. Friend share my view that over the decades we have seen such a fall or drop-off in individuals starting their own business, younger people in particular, because of these concerns about the tax burden, how regulated it is and how difficult it is? By dealing with the whole long-standing issue of IR35, we could open up a new marketplace and encourage a new generation of entrepreneurs and small business leaders to come in and really help to grow the economy.

[John Redwood]

I largely agree with my right hon. Friend, but if we look at the numbers, I think the fall-off was from 2020 to 2024. Prior to that, with good Conservative policies and lower taxes, we were growing the self-employed army very noticeably, and it was making a very important contribution to general growth and the way all our local communities are serviced. It is so often self-employed people who allow us to make personal contact in a way that large companies do not seem to want any more. They are the people who turn up in the evening or at the weekend, if necessary, to get work done, and they are the people who wrestle with the increasingly impossible streets created by Labour and Liberal Democrat councils, which make it more difficult for them to get their vans around.