National Insurance Contributions (Rate Ceilings) Bill (First sitting)

Rebecca Long Bailey Excerpts

Tuesday 27th October 2015 Public Bill Committees

[The Chair]

Q 1 Ladies and gentlemen, good morning to everyone, including members of the public, officials and the Minister, who have just arrived.

We will now hear oral evidence from the Office of Tax Simplification. Before calling the first Member to ask a question, I should like to remind all Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion that the Committee has agreed. For this session, we have until 10 am. Could the witness please introduce himself for the record?

John Whiting: Thank you. I am John Whiting, tax director of the Office of Tax Simplification. I am also a non-executive director of Her Majesty’s Revenue and Customs and a board member of Revenue Scotland.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

Q 2 The Bill legislates to prevent rises in the current rates of class 1 and secondary class 1 national insurance contributions, but says nothing about the thresholds. In your opinion, are changes to thresholds absolutely ruled out for the duration of the Parliament?

John Whiting: From a simplification point of view, we tend to leave rates and thresholds as a policy matter for Ministers, but naturally, one of the main projects we have on our agenda is looking at closer alignment of income tax and national insurance. As part of that review, we are inevitably considering the impact of thresholds and other factors about the structure of national insurance, and whether bringing them into closer alignment with income tax in some way would bring some simplification. As I read the Bill, it is all about capping rates rather than thresholds, but I stress that how those are treated is really a matter for Ministers.

[John Mc Nally (Falkirk) (SNP)]

Q 3 You will know that there has been a lot of speculation in the past two days regarding the possibility of changing the national insurance contribution because of the tax credit cuts. Have you any comment to make on that as a possibility?

John Whiting: Again, Mr Mc Nally, I have to say that the actual rates of national insurance are something that we at the Office of Tax Simplification steer clear of, other than to consider whether they add complexity or simplification. To give an example away from national insurance, we drew attention to having two rates of corporation tax. Obviously, that was a complexity, as they have now been harmonised on one rate. That is an obvious simplification and easier for business. That is about as far as we tend to go with rates, but in terms of absolute rate setting, I cannot comment, other than to say that, whenever you make a change to the tax system, it adds a measure of complexity and confusion.

[Wendy Morton (Aldridge-Brownhills) (Con)]

Q 4 The balance of the national insurance fund has continued to fall sharply in spite of the modest economic recovery. Is not legislating to prevent even small rises in national insurance contributions throughout the Parliament irresponsible under those circumstances?

John Whiting: The national insurance fund is obviously something that I am aware of, and how it operates is an interesting question. It is certainly something that we, with our current review, want to look at. What I can say is that we want to examine how much people really understand about how the fund operates and whether they really appreciate, in effect, what national insurance pays for and where it goes. For me to come up with an opinion about where the fund sits at the moment is a little premature. However, I can say that just how it operates is something we want to examine, and, as I say, there is the fairly crucial question of how much people really understand about national insurance and how it operates.

[Rebecca Long Bailey]

Q 5 This is linked to the previous question. In the light of the response that you just provided, how would you say the fund would cope if there were an unforeseen crisis, given the restrictions that are placed upon it?

John Whiting: I know that the mechanics of the fund are such that the balance on the fund is assessed every year by the Government Actuary’s Department, and of course, if it looks as if the fund is too low, or if there is not sufficient coverage for its likely liabilities, as happened earlier this year, the Treasury will make a grant to the fund to keep it at the level that the Government Actuary’s Department feels is appropriate. I suspect that in terms of a sudden crisis—given that the fund’s main function is pensions and similar outgoings, hopefully there will not be a sudden crisis; it is a demographic trend that we can see or not—or a problem with the funding, it is over to the Treasury to make a grant and I have no doubt that Committees such as yours would have a view on such matters.

[Huw Merriman (Bexhill and Battle) (Con)]

Q 6 This question is linked to previous questions on the fund. Perhaps using your expertise, would you tell us what steps have been taken to ensure that the fund’s 16.7% threshold is maintained?

John Whiting: It really is down to the Government Actuary looking at how adequate that is and preparing reports for Her Majesty’s Revenue and Customs and Ministers on the balance of the fund. That leads to decisions as to whether the fund is adequate or whether supplementary grants are needed and will, I presume, influence Treasury Ministers’ minds on what level of contributions is appropriate. However, without wishing to duck the question, I have to say that we are getting into matters of rates, which is beyond matters of the OTS.

--- Later in debate ---

[Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)]

Q 9 I was wondering what the process is for determining the 16.7% threshold and when was the last review.

John Whiting: The honest answer to that is I do not know. I am afraid I have to say, again, I am not an actuary. It is the figure that I believe has been set for a while as a prudent level of funding, but it is for the actuaries to determine. As far as I am aware, the Government Actuary looks at the funding of the national insurance fund annually and makes appropriate recommendations.

[Rebecca Long Bailey]

Q 10 Are you aware of what steps the Government have put in place to reverse or amend this legislation in the future, and do you believe that there are any specific triggers that should lead to its suspension?

John Whiting: I have no knowledge of any plans the Government have to reverse this legislation, nor should I. As I read it—and I come back to the job that I have in hand, which is to look at alignment of income tax and national insurance—clearly, the areas that we are looking at could produce recommendations to make some structural changes to national insurance. Those recommendations would go to the Chancellor and Treasury Ministers, and it would then be up to them to consider them and to bring them forward. They would come before Parliament in the normal way and would no doubt lead to a full debate. Could that lead to an amendment to the Bill? I presume that it could, but that is for Parliament to decide. What I would stress is that our recommendations will no doubt be subject to an awful lot of scrutiny and debate. If we come up with recommendations, they will be long-term and it would be highly appropriate to have a full debate on them.

[Mr Alan Mak (Havant) (Con)]

Q 11 The Government have said that the Bill has no financial implications. If a grant is needed from the Treasury to maintain the mandated threshold of 16.7% of expenditure, do you think that this constitutes a financial implication?

John Whiting: I think that, in those terms, the nature of the national insurance fund, certainly as I have seen it over the years, inevitably goes up and down with the economy to a certain extent. The fact that there is a grant perhaps this year is not of itself exceptional. We are back to attempting predictions, which actuaries are very good at in this area, and seeing what the trends are. This is governed by such things as employment, because if more people are employed, earning more, there is more national insurance going into the fund, so potentially less need for a grant. Of itself, if we take the Bill as it stands, the question of a grant or whatever, is subject, as I said earlier, to what the Government Actuary is going to say about the likely outcome and the likely balances on the fund, which will have to take into account economic circumstances and the general position of contributions.

--- Later in debate ---

[Rob Marris]

Q 23 So if the transfer needed to be more than £9.6 billion in this financial year, that would require fresh secondary legislation this year? I am not saying that will be the case, but asking what would happen if it were.

Mr Gauke: I think that is an assessment of what could be necessary this year, but for future years we would require further secondary legislation to provide such a top-up.

[Rebecca Long Bailey]

Q 24 What steps have the Government put in place to review this legislation in terms of reports or otherwise? Are there any triggers that will lead to its suspension?

Mr Gauke: There are no formal processes for reports or triggers for suspension. All legislation is of course kept under review. I remind the Committee of the purpose here. It is to emphasise and underline our commitment not to increase national insurance contribution rates in the course of this Parliament. That is what my party set out at the general election, and this legislation is to support that.

[Wendy Morton]

Q 25 The Government have said that the Bill has no financial implications. If a grant is needed from the Treasury to maintain the mandated threshold of 16.7% of expenditure, is it your view that this constitutes a financial implication?

Mr Gauke: We have various commitments in terms of Government spending and we also have various commitments in terms of taxation, one of which is not to increase the employers’ or employees’ rates of national insurance contributions. As a Government, we will abide by those commitments. This legislation emphasises and underlines that commitment by passing a law to support it. The point I would make is that if there is a shortfall in the national insurance fund, our response is not to increase the national insurance contribution rates.

[Rebecca Long Bailey]

Q 26 There is real concern that, given the fall in the balance of the national insurance fund, there will be implications for NHS funding. Can you confirm that there are no anticipated funding cuts on the horizon in terms of the NHS?

Mr Gauke: Yes, I can confirm that. I come back to what I was saying earlier: if the Government are committed to funding the NHS properly, as we are, we will find the resources. The fact that the national insurance fund, for argument’s sake, goes in one direction does not mean that spending cannot go in a different direction. It is ultimately a spending decision to decide how much we spend on the NHS. Of course, Government need to fund it, but that funding could come from the national insurance fund or the Consolidated Fund, or there could be a transfer from the Consolidated Fund to the national insurance fund.

[Rebecca Long Bailey]

Q 27 What measures will the Government put in place to provide assurances on this? The Government have imposed the Bill to provide assurance about the ceiling rate on national insurance contributions, but will they do the same to protect the NHS funding element?

Mr Gauke: We do not intend to legislate on that funding, but I point to our record in the last Parliament of increasing expenditure on the NHS in real terms. We are committed to doing the same in this Parliament.

[Mark Menzies (Fylde) (Con)]

Q 28 Following up on that point, is there a clear commitment from the Government to put measures in place to ensure that NHS funding is not reduced as a result of the measures in the Bill?

Mr Gauke: The measures in the Bill will not reduce NHS funding. There is not, in truth, a hard and fast link, because expenditure on the NHS is not confined simply to money coming from the national insurance fund. It is a clear commitment from our party at the last general election, and of course, we have a spending review coming up next month that will set out the details. A Government who are determined to focus support on the NHS, who can deliver a strong economy and who are prepared to make difficult decisions on other aspects of Government expenditure are in a position to provide the support to the NHS that we believe is right.