National Insurance Contributions Increase

Rebecca Long Bailey Excerpts

Tuesday 8th March 2022 Commons Chamber

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

The Institute for Fiscal Studies and the Resolution Foundation have both said that the NI rise is disproportionately loaded on to younger and lower-paid workers compared with a rise in income tax. In addition, inflation is expected to hit at least 7.25% in April, council tax is going up in most places and energy prices are expected to rise by a whopping 50%. Of course the Government will say that they have offered support in the form of a £200 energy “discount” that consumers must pay back over the next five years, but that is, in essence, loading even more debt onto cash-strapped households. Labour’s analysis shows that, combined with the £444 increase in energy bills expected next financial year for a household that gets the Chancellor’s loan and council tax scheme, most households will still be more than £1,000 worse off in 2022-23. I must impress on the Minister that it is not just households who will be devastated by this NICs rise; businesses are also warning of the effects it will have on them and on the overall economy. For example, Make UK says:

“The cost burden on business is continuing to escalate and, while some of these increases are due to global events, Government must avoid shooting business in the foot with an entirely self-imposed decision.”

The Federation of Small Businesses says that the Government must reverse this decision and go further, removing all employer contributions for apprentices, which it says will result in more workplace opportunities for young people.

So today’s motion is right: the Government must cancel their planned NICs rise, because it is clear that these reforms are illogical and unfair. On unfairness, for those paid a wage above the NICs threshold, which is due to be £9,880 from April, the Government will ask for an extra 2.5% of wages towards the costs of social care, because the 1.25 percentage point increase to both employee and employer NICs will each come out of workers’ take-home pay in the end. Those who are self-employed and paid in dividends have been asked to contribute an extra 1.25 percentage points from their wages, but if a person’s income is derived from interest payments, rents, capital gains or pension annuity, they will not see any increase at all. Happy days for them.

It is clear that our social care system needs urgent reform and investment, but raising national insurance contributions at just the time when our communities and businesses need to be shielded from the cost of living crisis they face is not the answer. At the very least, the Government must cut the rate of VAT for household energy bills as soon as possible and must levy a long-overdue windfall tax on oil and gas companies to generate an income stream. They must expand and increase the warm home discount, prevent the cost of supplier failure from going on to bills and significantly increase universal credit to offset soaring inflation. They must also increase public sector pay and the living wage.

The Government must address the long-term structural failures that the privatisation of our energy market has caused by recognising that public ownership is central to addressing the costs and energy security crisis that our energy system faces and would also create a revenue stream, just like the revenue streams created by countries such as France with their own publicly owned energy companies.

We are long overdue a frank discussion and examination of fairness in the tax and social security system. We must look at taxing income from wealth—such as interest, rent and capital gains—on a basis comparable with that for earnings from work. As the New Economics Foundation has suggested, the Government should examine the idea of a living income, which would link social security payments to a decent minimum income guarantee.

This is the time for the Government to wrap their arms around households and businesses, not to hit them with an illogical tax hike. Only when households and businesses are supported will they be able to emerge from this cost of living crisis stronger and more buoyant than they were before.