National Insurance Contributions (Increase of Thresholds) Bill

Simon Clarke Excerpts

2nd reading
Thursday 24th March 2022 Commons Chamber

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

I beg to move, That the Bill be now read a Second time.

Yesterday, the Chancellor announced in his spring statement a series of extraordinary measures that will harness the tax system’s power to build a stronger and more secure economy for the United Kingdom. At an incredibly difficult time, when the whole world is reeling from the twin blows of a terrible coronavirus pandemic and Putin’s appalling attack on Ukraine, our three-part plan will help hard-working people with the cost of living by putting billions of pounds back in their pockets, most immediately through the changes to the national insurance contributions system that we will debate today, the detail of which I will set out shortly.

Our plan will create the higher growth that will drive the economy in the coming decades by creating a new culture of enterprise, including tax-cutting options on business investment and innovation. It will also allow workers to keep more of the proceeds of their hard work, by cutting the basic rate of income tax from 20p in the pound to 19p before the end of this Parliament—the first such cut in 16 years. In short, our tax plan is sensible, affordable and well targeted. People and businesses will benefit, the economy will be strengthened and, in turn, our country’s place as a safe haven for freedom, democracy, peace and prosperity will be cemented.

While our tax plan will unleash real and immediate benefits, in drawing it up we have recognised that it must be underpinned by fiscal responsibility. This Government are determined to protect our nation’s finances, so we have ensured that we have maintained space against our fiscal rules, we have continued to be disciplined and we have carefully considered the macroeconomic outlook. Let me remind the House that in the next financial year we will spend £83 billion on debt interest, the highest amount on record and almost four times what we spent last year.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

My right hon. Friend makes an important point. One of the most telling stats revealed yesterday was that £83 billion figure. Can he perhaps help by putting it into context and comparing it with other budgets the Government must meet, such as the schools budget or the Defence budget? We have had two supposedly once-in-a-century events just 12 years apart—the ’08 financial crash with all its deferred implications and the coronavirus pandemic with its implications—and now we have a war in Europe. Does he agree that we are dealing with the most adverse set of circumstances any Chancellor has faced for a considerable period?

[Mr Clarke]

My hon. Friend is absolutely right. The sum of £83 billion dwarfs most Departments: it is the equivalent of adding Education, Transport and Justice together. We need to take this incredibly seriously. It is the context in which all our decisions in this statement had to be considered, and in which our actions in future years will be possible. We should be clear: it is the most vulnerable and the poorest who lose out the most if the Government lose control of the public finances. That is the central message that the Chancellor would want to emphasise.

[Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

The Minister said that the poorest and most vulnerable lose out, but under the Government’s proposals it is precisely the people on benefits who are not being uprated to keep in line with inflation who are going to lose out the most. What has he got to say to that?

[Mr Clarke]

I would say two things. First, there is a raft of measures in place in the package announced yesterday precisely determined to help people on the lowest incomes, including, notably, the doubling of the household support fund to £1 billion, the action that we have already taken in cutting the universal credit taper rate, and the biggest cut that we have ever made to fuel duty. These are all things we have done, on top of the energy price package announced in February, that are designed to help people on the lowest incomes. Secondly, I hold the office of Chief Secretary, and I remember the Labour predecessor who left the note saying that there is no money left. I do not want to be in a position where I hand over a note to any successor of mine saying that there is an equivalent situation.

[Stephen Timms (East Ham) (Lab)]

rose—

[Mr Clarke]

I give way to another predecessor.

[Stephen Timms]

It has been reported overnight that people on universal credit will see only about half of the gain from the measure that the Minister is bringing forward compared with those who are not on universal credit because the portion of people’s income that will not now be subject to 12% national insurance will instead be subject to the universal credit taper at 55%. Is that assessment correct?

[Mr Clarke]

We are determined to help people on universal credit to keep more of what they earn. I have not seen the assessment to which the right hon. Gentleman alludes, but I will look at it. It is certainly our ambition to keep bringing down the taper rate so that people get to keep more of what they earn. In that regard, I will certainly look at the analysis to which he directs me.

[Ruth Edwards (Rushcliffe) (Con)]

Can the Minister confirm what the Institute for Fiscal Studies has said—that, contrary to claims from Opposition Members, the poorest 10% of households have benefited most from this Government’s tax and spend decisions since 2019?

[Mr Clarke]

I thank my hon. Friend for her question. There is no doubt at all that we have targeted the action that we have taken at the people who need it the most. That is why this Bill is so important, as I will explain, but it is also why we have taken the action on fuel duty, universal credit, the household support fund and TV licences—all things that are designed to help people whose incomes are most stretched at what is a difficult time for families up and down the country.

[Jim Shannon (Strangford) (DUP)]

I thank the Minister for the answers that he is giving. While I absolutely welcome the increase in the threshold for national insurance contributions to help those on the periphery, I say to him gently: does he not see that this should equally apply to child benefit and universal credit, and since it makes perfect sense for one, it must make perfect sense for all working families so as to take them away from the absolute poverty I have spoken about in the Chamber before that is so close to so many hard-working families?

[Mr Clarke]

The hon. Gentleman is a fantastic contributor to this place and he takes a keen interest in looking after people, including the most vulnerable people, in his constituency. I absolutely recognise that we want to make sure that families right across the income spectrum are supported. That is why, as I say, we have put in place a package of measures that has at its heart a desire to make sure that we have a strong safety net in place. We have to consider all the decisions we take in the round. To put it in some context, the United Kingdom spends £243 billion a year on our wider welfare spend, including pensions. This is a country where we do a huge amount to make sure that everyone is supported. We have to consider all our decisions in the context of both wider affordability and how the system operates. The welfare system always operates on the basis of an uprating in September for changes in the ensuing April. If there is high inflation during the course of 2022, as is forecast, that will be reflected in the uprating figures for April 2023, and the triple lock will be in place to protect families.

[Mr Clive Betts (Sheffield South East) (Lab)]

The Minister has talked about one side of the budget. The other side of the budget is spending. Local authorities provide incredibly important services that are of particular benefit to the poorest in society. Local authorities have suffered more than any other part of the public sector from the austerity period. The Government claimed that local authorities would get an increase in their spending power this year, but will he now confirm that, with the predicted level of inflation, they face a significant real-terms cut to their spending that will affect all the services that they provide?

[Mr Clarke]

As a former local government Minister, I hope the hon. Gentleman knows that I do value the impact that good local government can have on people’s lives, which is why we apportioned £4.8 billion extra at last autumn’s spending review to support local authorities in delivering vital services. It is of course the case that all the budgets that we announced at the spending review are affected by inflation, but the Chancellor is rightly clear that we cannot keep on simply mechanically adjusting the spending review decisions in the light of inflation, because that option would not be affordable within our headroom and would obviously not be open to family budgets either.

All Departments—national and local—will have to play their full part in managing the impact of inflation. There is much that can be done in this space through improved innovation and driving down costs. That is why a new Cabinet committee has been established in the last week that will squarely address how we can drive efficiency, including, for example, by doubling NHS efficiency targets so that we can deliver better value for money for the taxpayer. These are difficult times, but we have to ensure that we live within our means.

[Ian Mearns (Gateshead) (Lab)]

I am wondering how the Minister would suggest that a local authority such as mine in Gateshead innovates on that conundrum. When I ceased to be the deputy leader of the council in 2010, its net revenue budget was just over £300 million. This year, that budget is just over £200 million. It will take some innovating to balance that conundrum.

[Mr Clarke]

I am grateful to the hon. Gentleman for alluding to his experience in local government. I would simply say that there is a lot that good local authorities can do and have done already to ensure that they focus on value for money, but of course there is more that can be done. We need only look at the enormous potential for digitisation, property disposals and addressing back-office costs and sharing them with other local authorities. There is lots of innovation that can and should be done and there are good local authorities up and down the country that are doing that.

I will resume where I left off by addressing the fact that the Government cannot and must not shy away from difficult decisions, which is why the health and social care levy that we announced last year will remain in place, because it is only right to safeguard a dedicated source of funding for our NHS and for those who need care throughout their lives. As the Chancellor pointed out yesterday, a long-term funding solution for the NHS and social care is not incompatible with reducing the tax burden on working families, which brings me to the specifics of the Bill—an integral part of the Chancellor’s tax plan.

[Alberto Costa (South Leicestershire) (Con)]

We are here to discuss the national insurance contributions increase. The national insurance personal threshold will rise from £9,500 to £12,570 from July. Can my right hon. Friend confirm that that is the largest increase in a starting personal tax threshold in British history? As the largest single personal tax cut in a decade, is that not the evidence that the Opposition need that the Government really want to help workers across the whole United Kingdom?

[Mr Clarke]

I can give my hon. Friend that confirmation. I will expand on that later, because it is a major signal of intent at a time when our fiscal headroom is limited that we are determined that, where it is possible to help people, we will do so as effectively and dramatically as possible. The Bill is certainly a major step on that journey.

The Bill legislates for the two employee and self-employed NIC measures that the Chancellor set out yesterday. I will begin by giving some context behind those changes. It has long been the Government’s ambition to promote tax cuts for working people and to simplify the overarching system, which is why, since 2010, a series of Conservative Governments have taken millions of people out of income tax by raising the personal allowance from £6,500 to its new level of £12,570.

As the Chancellor explained yesterday, however, the equivalent NI threshold remained about £3,000 lower. As a result, at the last general election, the Prime Minister pledged to increase the national insurance threshold, and that is why, in 2020, we took a major step forward by increasing it to £9,500. This is a Conservative Government who are cutting taxes and delivering on our pledges to the British people.

[Ruth Edwards]

Can the Minister confirm that, as a result of the changes we are making today, 70% of workers will have their taxes cut by more than they will pay through the levy?

[Mr Clarke]

My hon. Friend is absolutely right, and we cannot emphasise that enough. We are determined to address the underlying challenges we face not only with the public finances, but crucially with the backlog of care. Let us not forget that 6 million people are on NHS waiting lists as a direct result of the covid pandemic. While we do that, we will always focus on supporting families and, crucially, on making sure that, when we do have to increase taxes, the burden is borne by those with the broadest shoulders. That is what the combination of this measure with the levy will deliver.

The Bill’s first measure will increase the NIC primary threshold and the NIC lower profits limit to £12,570 from 6 July. By way of explanation, these are the thresholds at which the employed and the self-employed, respectively, start to pay NICs. The increases in these thresholds of about £3,000 will equalise the NIC and income tax thresholds, and in so doing create a fairer and simpler tax system, something to which we ought all to aspire. That means that people will be able to earn £12,570 without paying a single penny of income tax or national insurance.

As we heard a moment ago, that is the largest increase in a starting threshold ever, it is the largest single personal tax cut in a decade, and it reduces the tax burden by £6 billion for 30 million people across the United Kingdom. On an individual level, a typical employee will see their tax bill reduced by £330 in the year from July, while the equivalent saving for a self-employed worker will be worth over £250.

[Jacob Young (Redcar) (Con)]

Does my right hon. Friend recognise the calculation by the Institute for Fiscal Studies that it is people who earn £35,000 or less who will benefit from this tax cut, and does that not show that our measures are targeted at those who need our support most?

[Mr Clarke]

Indeed, I absolutely do recognise what my hon. Friend says. The IFS has described raising the NICs threshold as

“the best way to help low and middle earners through the tax system”,

so he is absolutely right in what he says.

[Stephen Timms]

Mike Brewer, who used to be with the Institute for Fiscal Studies, has said this morning about the value of the £330 figure to the average employee:

“If you are getting UC, then you lose 55% of that to a reduced UC award.”

I think that is a major issue for the House in evaluating the measure that the Chief Secretary is bringing forward. Could he please urgently clarify for us whether that is indeed the case?

[Mr Clarke]

As I said in response to the right hon. Gentleman’s earlier remark, I will of course look at what he is saying. I recognise fully that we want to make sure that we allow people to keep as much as possible of what they earn, and it is our ambition to keep reducing the tax burden on the lowest earners, including through action on the taper rate.

[Sir David Evennett (Bexleyheath and Crayford) (Con)]

My right hon. Friend is making a powerful and informative speech. I welcome this Bill, as will my constituents in Bexleyheath and Crayford, because it is helping those on lower incomes. Increasing the national insurance threshold to be the same as the personal allowance is sensible and logical, and it will help the simplification and understanding of the system. I very much hope that he and the Government will in future look at more simplification of the system.

[Mr Clarke]

My right hon. Friend is absolutely right in saying that we want a simpler tax system, and we want to make sure that the burden of tax is lower. In the end, the tax system should be an incentive that rewards work, and that is what our measures today continue to support. On the point raised by my hon. Friend the Member for Rushcliffe (Ruth Edwards), 70% of all workers will have their NICs cut by more than the amount they will pay through the new health and social care levy.

[Sally-Ann Hart (Hastings and Rye) (Con)]

My right hon. Friend will know that my beautiful constituency of Hastings and Rye has residents with some of the worst levels of deprivation in the country, and I obviously welcome this Bill on their behalf. Will he confirm for the residents of Hastings and Rye that this Government’s interventions have helped the poorest households the most through measures such as cutting the universal credit taper rate last year, increasing the national insurance thresholds, permanently increasing the local housing allowance for housing benefit and increasing the national living wage? Can he confirm that this will benefit my residents in Hastings and Rye?

[Mr Clarke]

I thank my hon. Friend for her question. She is a fantastic champion for Hastings and Rye, which I recognise is a part of the south-east that perfectly demonstrates that communities face very significant challenges in all parts of the United Kingdom. Sometimes the levelling up question is seen as the north and the midlands against the south, but her constituency is a very good demonstration of why communities in the south-east also need support. She is absolutely right in what she says. This is a Government with a strong track record of delivering for people who need the most help. It is worth noting in that regard that, as a result of the Bill, over 2 million people will be taken out of paying class 1 and class 4 NICs and the health and social care levy altogether, including, of course, in Hastings and Rye.

[Stephen Timms]

Will the right hon. Gentleman give way?

[Mr Clarke]

I should make some further progress, I think.

The Government recognise that implementing the Bill is a big change for many employers and payroll software providers, so I want to add a few words about the timeline for when we are implementing the changes. We believe that the date in early July strikes the appropriate balance between ensuring—this speaks to the point made by my hon. Friend the Member for Hastings and Rye (Sally-Ann Hart)—that people benefit from the increase as soon as possible, while giving employers and payroll software providers time to update and test their systems so that the change can be delivered safely. That will avoid millions of taxpayers having to make manual claims for refunds at the end of the tax year and employers from having to make major payroll corrections. Clearly, that is a situation we want to avoid.

The Government are also acutely aware of the huge pressures faced by those working for themselves but earning low amounts as a result of the rising cost of living. To support that group, the Bill gives the Treasury a power to lay an affirmative statutory instrument. It will mean that from April those with profits between £6,725 and £11,908 will not pay class 2 NICs. That will rise to £12,570 from April 2023. The measure will benefit half a million self-employed people, saving them up to £165 a year. As I just mentioned, that group will still be able to receive NIC credits, just as they have done in the past.

[Shaun Bailey (West Bromwich West) (Con)]

I am grateful to my right hon. Friend; he is being incredibly generous with his time. May I just make a plea to him on operational delivery? This measure is really welcome news, but will he, through his good offices, work with Her Majesty’s Revenue and Customs in particular to ensure that there is clear guidance? Operational delivery will be key to ensuring that the measures he is announcing are as successful as they should be. I know that if he could provide that reassurance my constituents would appreciate it.

[Mr Clarke]

My hon. Friend is absolutely right to raise this issue. The Financial Secretary to the Treasury will be replying to the later stages of the Bill’s passage and will be able to provide direct confirmation that HMRC is focused on that issue. It is critical that HMRC plays its full role in delivering the measures as seamlessly as possible, and I know that it will.

[Stephen Timms]

Will the Chief Secretary to the Treasury give way?

[Mr Clarke]

I will, I will, I will.

[Stephen Timms]

I am grateful to the right hon. Gentleman and I apologise for intervening once again. He has made it clear that he is not able to answer the question about the effect of this measure on people claiming universal credit. Can he commit the Financial Secretary to the Treasury to giving us an answer on that point before the end of the debate? It is an important issue for the House to take into account when determining its decision on this measure.

[Mr Clarke]

I thank the right hon. Gentleman for that point. My right hon. and learned Friend the Financial Secretary will do her best to provide an answer based on the information that our officials can provide. It is important, obviously, that we answer questions correctly. It is worth noting that the universal credit taper rate has been reduced from 63% to 55% and the universal credit work allowance has been increased by £500 a year to help make work pay. That is a tax cut for the lowest paid in society worth around £1.9 billion in the financial year that is just about to begin. It means that 1.7 million households will on average keep around an extra £1,000. We will do our best to respond to the specific question that the right hon. Gentleman raises.

The effect on an individual’s ability to access contributory benefits and to build up state pension entitlement will be unaffected as a result of the changes to class 2 NICs. Taken together with the increase in the primary threshold and the lower profits limit, we will meet in full our commitment to ensure that the first £12,500 an individual earns is free of tax, clearly illustrating that this is a Government who make good on their promises to the people of this country.

[Matt Rodda (Reading East) (Lab)]

I thank the Chief Secretary to the Treasury for giving way and for his reassurance to people contributing towards the state pension. The Chancellor did not actually mention the word “pensioners” yesterday. Does he recognise the enormous pressure on many pensioners who are struggling to get by on very modest incomes at a time of significant inflation? Is it not time that the Government looked again at their support for pensioners, in particular on heating bills?

[Mr Clarke]

I thank the hon. Gentleman for his question and I recognise the sincere spirit in which he asks it. We are, of course, determined to deliver for our pensioners. That is why the Government have done so much to help to make sure that pensioners’ standard of living was not affected during the very difficult years we have just gone through, including spending £111 billion a year on the state pension, which is more generous that it has ever been. Many of the measures we are undertaking, for example our energy package, will benefit pensioners hugely. People will be getting £150 off their energy bill next month as a rebate on council tax if they live in bands A to D, with councils having a further £144 million available for discretionary payments to people who live in higher council tax bands who need further support. As I set out earlier, if the forecasts of very high inflation for this year do indeed come to pass, that will be captured in the uprating figures that will be delivered this autumn for the 2023 benefit uprating.

I want to draw to a conclusion on some broader points that this issue alerts us to. Every day in my role as an MP representing one of the poorest towns in this country, I hear from families and individuals who are struggling with the rising cost of living. I am fully respectful of the fact that this is a genuinely difficult time for the people of this country. I want to issue the reassurance that just as the Government stood by people during the covid crisis by providing a £400 billion package of support, so we will stand behind the people of this country as they face these new challenges, too. It is important to do so in a spirit of total candour. No Government anywhere in the world directly has the ability to offset the impact of first the pandemic and then a reckless and illegal war on our continent, but we will do our utmost with the tools we have, within our overarching aim of making sure that the public finances are protected.

This financial year and next, we will provide over £20 billion to help people with the cost of living. That includes over £9 billion of direct support with high energy costs for around 28 million households. That is why yesterday we announced our wider package, including this Bill along with a range of other measures, to ease the pressure on hard-working families and secure long-term economic growth.

[James Sunderland (Bracknell) (Con)]

The Minister will know that Bracknell is blessed with one of the lowest rates of unemployment in the country. Does he agree that the increased thresholds will absolutely reward hard work and be of benefit to working families right across the Bracknell constituency and beyond?

[Mr Clarke]

I thank my hon. Friend for his question. It is a fantastic success that Bracknell enjoys very low unemployment. It is actually the case that every region of our country now has lower unemployment than it did before the coronavirus pandemic hit, which is a huge Conservative policy success and a tribute to the hard work and enterprise of the British people.

As the Chancellor said yesterday—I will conclude with this—cutting taxes is not easy. It requires hard work, prioritisation and the willingness to take often unpopular decisions elsewhere, but it is precisely because we have made those tough decisions in the past that we have been able to reduce taxes in a responsible and sustainable way today. Our Government will always act swiftly and decisively to safeguard the best interests of our people. The Bill includes the largest cut to personal tax in a decade. It rewards hard work and supports the lowest earners. Its measures, while sweeping in scope and ambition, will make a real tangible difference to the lives of millions of people. That is why I commend it to the House.