National Insurance Contributions Increase Debate
Full Debate: Read Full DebateBaroness Winterton of Doncaster
Main Page: Baroness Winterton of Doncaster (Labour - Life peer)Department Debates - View all Baroness Winterton of Doncaster's debates with the HM Treasury
(2 years, 5 months ago)
Commons ChamberOrder. I am afraid that I will have to put a time limit on speeches of six minutes; otherwise, it will not be fair on others.
My hon. Friend makes a really valid point. In London, the big issue of the cost of living is being pushed up by the cost of our housing crisis, and this is experienced right across the country. Household costs continue to go through the roof, including for many people in insecure tenancies and people in the private rented sector who are also hit hard.
The rise in national insurance will do nothing to alleviate the suffering felt by my constituents but will simply combine with booming fuel prices to push more and more of them into poverty. The effect of this cannot be overstated. More than 8,000 people in Vauxhall already live in fuel poverty. That means that they cannot afford to keep their home warm without dropping into poverty. How have we got to a state where thousands of people in the centre of one of the richest cities in the world, in one of the richest countries in the world, are having to make the impossible choice between living in poverty or living in a cold home? That is the reality for many of my constituents.
The Government can point as much as they want to extenuating circumstances, but they cannot hide from the failures on their own doorstep that have made the events of the past couple of years unnecessarily hard. Neither can it be said that the solutions they offer are sufficient, or progressive enough, in alleviating the costs of households. While the Government have proclaimed to be living with covid, the reality for many people in Vauxhall is that they are still reeling from insufficient support during the pandemic, and local industries face a long tail of this crisis. These include self-employed people who were unfairly excluded from Government support. Many of the people who have contacted me built up personal debt during the pandemic to stay afloat, only to be hit now with the double whammy of the national insurance and energy cost hikes.
In the lead-up to the 2015 general election, the then leader of the Conservative party talked about fixing the roof when the sun is shining. At the same time, the Conservative and Liberal Democrat coalition took a wrecking ball to the effective schemes introduced by Labour that were fixing a million roofs every year. The result is that, with the heavy rain of the fuel price crisis on the horizon, our housing stock still suffers from inefficiencies that will mean that more and more households face impossible choices in the next couple of months.
On this International Women’s Day, I pay tribute to the women across Vauxhall who are working around the clock behind the scenes to make ends meet: the women who are juggling insecure zero-hours contract jobs to pay their bills; the women who are forced to return to work early because of the crippling costs of childcare; the women who are at the forefront of working with our young people caught up in violence, running to the scene and reassuring the community when there has been a tragic incident; and the women who will continue to go without just to ensure that their extended family members or the people they are caring for are supported. They are the very same women who will be hit by this national insurance crisis.
The tangibility of many households in Vauxhall’s ability to cope is close to a tipping point. While there are things that the Government cannot control, they must use all the levers they have available to ensure that households stay afloat. Refusing to impose a national insurance rise now is one of those levers, and it is one that the Government must use if they have the interests of households up and down the country at heart. I ask Conservative Members to reassess their commitment to supporting working families and cancel this rise.
We will now have a five-minute time limit so I can get everybody in.
I rise to speak in support of the motion calling for the Government to cancel their planned 1.25% rise in national insurance contributions, which will cost families an average of £500 a year from April 2022. Many of my constituents have been telling me that they are struggling with the increase in the cost of living. I spoke to a mother of a disabled child living in Dallow, who was scared about whether she could afford to pay her rising gas bill as she needed to keep the heating on for her disabled child’s condition. Similarly, in Farley, an older couple with serious health conditions who live on a fixed income are struggling with increased food prices and energy bills.
Many of my constituents have also been in touch about petrol price increases and have pointed out that the Tory cost of living crisis is being further exploited by sharp and often inconsistent rises at different petrol stations. People are driving to different areas in desperation to find the cheapest one to save a few pounds so that they can get to work. Will the Minister set out what action the Government are taking to tackle the large increases in petrol prices and any apparent profiteering that is taking place?
The reality is that people are really worried about their future and in just a few weeks, there will still be a devastating set of tax hikes. According to the Resolution Foundation, the average combined impact of the freeze in income tax thresholds and the 1.25% increase in personal national insurance contributions is about £600 per household. Combined with the £444 increase in energy bills expected in the next financial year for a household that gets the Chancellor’s loan and council tax reduction, that means that most households will still be more than £1,000 worse off in 2022-23.
It is clear that the Conservative Government are choosing to increase national insurance on working people and businesses at the worst possible time. The increase is deeply unfair because it will hit 27 million workers directly in their pay packets while leaving other forms of income, such as from buying and selling property, owning multiple buy-to-lets and dealing in stocks and shares, untouched. Many of my constituents do not have such wealth and assets, which is why it is unfair and why Labour has long called for the national insurance rise to be halted, so that it does not make the cost of living crisis worse.
In response to points made by Conservative Members—I am sad that the hon. Member for South Cambridgeshire (Anthony Browne) is no longer in his place—I say that the tax increase is regressive. Figures from the income tax calculator published in The Guardian a few weeks ago show that earners of £100,000 a year could end up paying proportionately less in national insurance than those on middle incomes if the increase goes through. They will pay just 7% of their overall salary, which is the same proportion as someone on £20,000 a year. The Treasury’s claim that this is progressive is not borne out when those earning between £30,000 and £50,000 will be the hardest hit by far. Someone on £50,000 a year will pay national insurance contributions of about 10% of their gross salary after April, and those on £30,000 will pay about 9% of their gross salary. From April, it will be about 13.25% on most earnings up to £50,000, but just 3.25% on any income above that threshold. We in the Labour party know that people need help now, and that is why the Government should act now.
I call the shadow Minister, James Murray, and I do hope that hon. and right hon. Members will listen to the wind-ups. I realise that a lot of people have come in for the next business, but we have had a long debate and we want to hear from the shadow Minister and the Minister.
Today, we have heard from hon. Members representing people across the country about why it is so important that the Government cancel their national insurance hike on working people and their jobs. My hon. Friends the Members for Merthyr Tydfil and Rhymney (Gerald Jones), for Easington (Grahame Morris), for Vauxhall (Florence Eshalomi), for Ellesmere Port and Neston (Justin Madders), for Cynon Valley (Beth Winter), for Birkenhead (Mick Whitley) and for Liverpool, Riverside (Kim Johnson) all spoke powerfully about how so many of their constituents are struggling with the costs of living and how those pressures have been rising rapidly in recent months. My hon. Friends the Members for Sheffield South East (Mr Betts), for Salford and Eccles (Rebecca Long Bailey) and for Luton South (Rachel Hopkins) spoke about the fundamental unfairness of the Government’s approach with their national insurance hike.
In September last year, the Government pushed their national insurance hike through Parliament in a day. From the very start, it was clear that this was a deeply unfair tax hike that would hit working people and their jobs. We urged the Government to think again and reverse course, but they refused do so, and they have kept refusing to reverse course, despite people facing mounting difficulties in making ends meet. Inflation, already at its highest rate in decades, is forecast to hit 8% in April. Energy bills that have been rising rapidly are set to soar next month, and now the crisis in Ukraine will bring even greater pressure on the cost of energy, petrol and food. Yet in four weeks’ time, the Government’s tax rise will kick in, costing the average family £500 a year. It is the worst possible tax rise at the worst possible time.
Back in September when the Government pushed this tax rise through Parliament, we immediately knew how unfair it would be. The Government’s own published assessment of this tax rise made that clear. Their tax information and impact note, which Ministers had to approve, set out what effect this tax rise would have. The note looked at this tax rise from a number of angles, including how it performed against the Government’s so-called family test. As hon. Members may remember, the family test was introduced by David Cameron in 2014. When the then Prime Minister announced this new test, he said he wanted to
“strengthen and support family life in Britain”.
His plan to do so was to make sure that
“every single domestic policy that government comes up with will be examined for its impact on the family.”
That test was applied to the national insurance increase last September, and the outcome of that test was to warn of
“an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.”
That warning alone should have given Conservative MPs reason to stop in their tracks and think again. They should have stopped and listened to the Institute for Fiscal Studies warning of this tax rise involving
“a large, unjustified and problematic bias against employment and labour incomes”.
They should have listened to the TUC general secretary, Frances O’Grady, warning of the hit faced by young and low-paid workers with this tax rise. They could have listened to any of the many voices against their plans, as the impact of this tax rise on people’s ability to make ends meet was clear back in September.
The impact on jobs and businesses was clear then, too. Again, the Government’s own assessment made that clear. It admitted the tax rise would impact on business decisions on wage bills and recruitment. The Federation of Small Businesses described the tax rise as
“devastating for small businesses and the local communities they serve.”
The British Chambers of Commerce described it as a
“hammer blow to jobs growth”.
Despite all those warnings, the Prime Minister and the Chancellor refused to think again. The Conservatives refused to listen to our calls for those with the broadest shoulders to contribute more. Their response to the low-growth, high-tax economic cycle they have created was to make working people foot the bill.
Even if some Conservative Members managed to hold their noses and vote with the Prime Minister and the Chancellor last September, it is astonishing that they still feel able to do so after all that has happened since then. Energy bills have been rising fast and now are set to soar. We know that energy bills will rise by an average of more than £600 this April. Inflation is already—[Interruption.]
Order. I said this a few minutes ago but as I have a larger audience I think it is worth repeating. We have been having a debate, the shadow Minister and the Minister are responding to that debate, and hon. and right hon. Members want to hear what they have to say. I hope those present will do them the courtesy of being quiet, so we can listen to the shadow Minister first and then the Minister.
Thank you, Madam Deputy Speaker. As I said, if Conservative Members managed to hold their noses last September to vote with the Prime Minister and the Chancellor, it is truly astonishing that they still feel able to do so now after all that has happened. Energy bills have been rising fast and are set to rise by more than £600 in April. Inflation is at its highest rate in decades and is set to rocket to 8% next month.
What is more, the Government’s arguments that they need this money for social care have been left in tatters. Not only have they failed to produce a plan to fix social care, but we know that Ministers looked the other way as billions of pounds of public money were handed out to fraudsters and written off. They ignored the warnings on fraud, they were careless with waste and they are now expecting working people to foot the bill for their mistakes.
If that was not bad enough, it is now clear that private sector workers will be asked to pay twice. As our new analysis shows, private sector workers will face a double whammy as almost all the rise in their employers’ contributions is set to be passed on to workers through lower wages.
Ministers, and indeed some of their Back Benchers, often try to pretend that the cost of living crisis is entirely the result of global factors, but that argument simply does not hold true. Most damagingly, it ignores the fact that the Government could, and should, be doing far more to help people to make ends meet. The truth is that decisions by this Government over many years have left us uniquely exposed to rising gas prices. From cutting gas storage, to leaving our homes poorly insulated and failing to invest in renewables and nuclear, this Government’s approach means that rising energy costs hit people in the UK much harder than they should.
The truth is that the Government have failed to step up and offer people the help they need with energy bills now. Labour’s plan is to give everyone £200 and those in greatest need £600 to help to meet energy costs. That would be funded with a one-off windfall tax on North sea oil and gas producers’ profits. The alternative from the Chancellor is to land everyone with a buy now, pay later loan and to announce a council tax rebate that some of those in the greatest need will never even see.
The truth is that, when it comes to the tax rise we are debating today—an unfair tax rise on working people, a tax rise of £500 for the average family, a tax rise on businesses and jobs—the responsibility begins and ends here. Conservative MPs voted six months ago for that tax rise. Last week, the Minister admitted to me that the Government recognise the impact the tax rise will have on working people. Today, they have a chance to change course.
Today, we are asking all Members to join us in asking the Government to think again. When the Government first introduced this tax rise on working people and their jobs, it was blindingly unfair. Far from asking those with the broadest shoulders to contribute more, the Tories showed their true colours and went straight for a tax rise on 27 million working people. Since then, the case against the tax rise has got stronger and stronger. With energy bills rising and about to soar and with inflation set to hit 8%, the struggle for millions of people to make ends meet is getting harder by the day. Now is the time to change course and help people to face the tough months ahead. Now is the time to send a message to the Chancellor ahead of his Budget on 23 March. Now is finally the time to do the right thing and cancel this unfair tax rise.
It is a privilege to close the debate on behalf of the Government and I echo the words of my right hon. Friend the Chief Secretary to the Treasury about the situation in Ukraine. Our thoughts are, of course, with the men, women and children struggling to comprehend and respond to the day-to-day realities of the Russian invasion.
I turn to the specifics of the motion and the health and social care levy. We must—and we will—press ahead. In fact, as the hon. Member for Ealing North (James Murray) recognised, legislation has already been debated and enacted. Introducing the levy was a tough but responsible choice, which is what good government is all about.
My hon. Friend the Member for Broadland (Jerome Mayhew) said that these are good proposals and that we need to spend the money on health and social care. The levy is a means to tackle a number of crucial ends: tackling the backlog in our national health service and aiding its recovery from the challenges of covid, while finally enacting long-term reform of social care, an issue that too many Governments have ducked for too long. As my hon. Friend the Member for South Cambridgeshire (Anthony Browne) said, other Governments have simply put it on the “too difficult to do” pile. As he recognised, it needs serious and sustained funding. A record £13 billion a year on average will now be invested in the NHS and social care by way of a new UK-wide 1.25% ringfenced levy based on national insurance contributions and an equivalent increase in dividend tax rates.
Many Opposition Members, including the hon. Members for Merthyr Tydfil and Rhymney (Gerald Jones), for Ellesmere Port and Neston (Justin Madders)—[Interruption.]
Order. It is getting very noisy again. Please respect the Minister, who is winding up the debate. Let us listen to what she has to say.
Thank you, Madam Deputy Speaker. I was just highlighting the number of Opposition Members, including the hon. Members for Easington (Grahame Morris) and for Liverpool, Riverside (Kim Johnson), who challenged the Government, as others have, on their approach to the cost of living. But the plain truth is that we recognise the pressure that people face. We have done what we can to ease that pressure and will continue to explore other measures.
Frankly, our actions speak for themselves. During the pandemic, we provided more than £400 billion of direct support to the economy, protecting millions of jobs and livelihoods. The hon. Member for Cynon Valley (Beth Winter) said that we should invest more, but we are spending more than £600 billion on gross public sector investment over the course of the Parliament.
The hon. Member for Leeds West (Rachel Reeves) said that we should have acted on the cost of living in September. But we did. The Government are providing support worth more than £20 billion across this financial year and next that will help families with the cost of living. We provided that funding not just in September; we have consistently tried to support those on the lowest incomes. As the hon. Member for Vauxhall (Florence Eshalomi) mentioned, it is important that we support those who need it most and, since 2010, Conservative Governments have kept lower-paid people out of tax. The income tax personal allowance threshold has increased by over 90%, meaning that a typical basic rate taxpayer now pays £1,200 less a year than they would have done without our changes.
A number of Members have discussed whether the system we are introducing is progressive. The hon. Member for Luton South (Rachel Hopkins) and the hon. Member for Cynon Valley challenged that, but it obviously is when 14% of taxpayers are paying 50% of the tax and the highest 2% of taxpayers are paying 20% of the tax. As well as that, the levy will ensure that those on the lowest income get the most support. In our reformed system, total social care spend on the least wealthy 20% of older adults will be £4.24 billion in 2021-22 in a steady state compared with £0.51 billion on the wealthiest 20% of older adults. That shows that the lowest wealth quintile continues to receive the most state support.
The hon. Member for Salford and Eccles (Rebecca Long Bailey) and the hon. Member for Luton South said that we should cancel this tax because it was unfair, and they both quoted the IFS. When we introduced this levy, Paul Johnson, the director of the IFS, said that this was an “overall much needed” reform to social care and that
“unavoidable pressures on the NHS are being funded through a broad based and broadly progressive tax increase”.
I turn to the very important topic of fiscal responsibility. As my hon. Friends the Members for South Cambridgeshire and for Broadland commented, if we do not bring in this tax rise, the alternative is more borrowing. We cannot and should not abdicate our fiscal responsibilities. As my hon. Friend the Member for North Norfolk (Duncan Baker) said, we spent £400 billion during the course of covid. We are in debt and we need to be honest about the situation. Our level of debt means that we are vulnerable to shocks, including changes in interest rates and inflation. The public finances are stronger as a result of our early, bold action to support the economy during the pandemic and because we did not shy away from tough choices.
Our new fiscal rules demonstrate fiscal responsibility and will keep the public finances on track in the years to come. [Interruption.] The hon. Members for Gordon (Richard Thomson) and for Aberdeen North (Kirsty Blackman) talked about young people, but if we do not bring in these taxes—[Interruption.]
Order. I do not think the Minister will speak for that much longer, so please will hon. Members keep the noise down and hear what she has to say?
If we do not bring in this taxation, we will have future generations left paying bills in our stead.
In conclusion, this has been an important and constructive debate concerning issues that matter deeply and on which we as a Government will not compromise. Being in Government is about making the best possible decisions on behalf of the British people. The health and social care levy is emblematic of that responsibility. It is the right policy at the right time for the right reasons.
Question put and agreed to.
Resolved,
That this House calls on the Government to cancel its planned 1.25 percentage point rise in National Insurance Contributions that will cost families an average of £500 per year from April 2022.
I will now suspend the sitting. The Division bells will ring two minutes before we resume informally to hear President Zelensky’s address.