National Insurance Contributions Increase

Simon Clarke Excerpts

Tuesday 8th March 2022 Commons Chamber

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

The world has been appalled by Russia’s unprovoked, unjustified and illegal invasion of Ukraine. Every one of us has been shocked by the scenes of sheer horror that have unfolded over recent days and moved by the bravery of ordinary men and women defending their country against a merciless enemy. As the Prime Minister wrote at the weekend, the Ukrainians’ valour has helped to unite the international community.

We cannot let down that brave nation in its hour of need, which is why we are calling on the world to join forces and maximise our economic pressure on Putin’s regime. That means going further than the unprecedented sanctions that are already in place, including by working with our allies to further isolate Russia from the international financial system and by expelling more Russian banks from the SWIFT network. The cost of inaction against Putin’s war machine would be too great to contemplate; we have seen the price of appeasement before.

We must brace ourselves, however, for the fact that a robust united global opposition to Russia’s unprovoked aggression will have costs of its own. I am acutely aware that the conflict has economic repercussions that largely stem from a higher global energy price that, over time, may spill over into other commodities including wheat. Those repercussions are being felt across the world, including here at home.

That is why, this financial year and next, we will provide over £20 billion to help the public with the cost of living. That includes over £9 billion of direct support with higher energy costs for about 28 million households, with £200 for every household in Great Britain through the energy bill support scheme and a further £150 for every household in council tax bands A to D in England. In total, that means that about 80% of households will receive £350 of support. That builds on our further support for heating bills including increasing the warm home discount, the winter fuel payment and the cold weather payment, which together provided £2.5 billion to households last winter. The £500 million household support fund has been helping the most vulnerable with the cost of essentials over the past months.

More broadly, we are taking further steps to support people’s finances. We have cut the universal credit taper rate by 8p from 63p to 55p and we have increased the work allowance by £500 a year, which will ensure that nearly 2 million people keep more of what they earn and will put an extra £1,000 a year into their pockets.

[Christine Jardine]

Does the Minister appreciate that, for Opposition Members and our constituents, and possibly for many of his constituents, that now seems too little, too late and inappropriate for the situation in which the country finds itself?

[Mr Clarke]

I do not demur; we are faced with a serious challenge on the cost of living. The Government entirely accept that and are working to address it, but we must address it in a smart and financially sustainable way. A £20 billion package is a major commitment to support families across the UK. Of course, we continue to keep all our options under review to ensure that we can act in a way that is commensurate with the severity of the situation.

From next month, we will increase the national living wage by 6.6% to £9.50 an hour for those aged 23 and over, which will benefit more than 2 million workers across the UK by £1,000 a year. We have also frozen fuel duty for the 12th year in a row. That is on top of the help that we are already providing to those on low incomes with their housing costs and council tax bills.

[Justin Madders (Ellesmere Port and Neston) (Lab)]

On freezing the fuel duty, if the Minister has been to forecourts recently, he will know that the cost of petrol and diesel has gone up tremendously in the last few weeks. What has been the impact on the Treasury’s coffers from VAT receipts as a result?

[Mr Clarke]

We have forgone a tremendous amount of revenue through the freeze on fuel duty. On VAT, we obviously continue to look closely at the revenue situation. It is sometimes a misapprehension about the way that the VAT scheme works to the Treasury’s benefit. There is often a focus on domestic fuel and the impact that it is having on our income. To that point, the more that people spend of their discretionary income on domestic fuel costs, which are VAT chargeable at 5% as opposed to the full rate of 20%, the less that the Treasury recoups. In that regard, we have to be careful about some of the arguments around that.

Now that I have set out some of the context of the Government’s response, I will return to the specifics of the debate—the need for the health and social care levy and the rationale behind its operation. Last month, my right hon. Friend the Secretary of State for Health and Social Care explained to the House that there is now a significant backlog of elective care as a result of the pandemic, which my hon. Friend the Member for Gloucester (Richard Graham) alluded to. More than 6 million people are waiting for elective care in England and more than 300,000 people are waiting longer than a year. The Government have set out a clear plan to tackle the backlog, but we must deal with that most pressing of issues and the levy will allow us to do that.

[Duncan Baker (North Norfolk) (Con)]

Many things have happened in the last few weeks, but we must reflect on the fact that, for the last two years, we have been in the worst global health crisis for years during which the Government spent £450 billion to support people’s livelihoods. Any Government would need to look at themselves and recognise the enormous issues that that has created. It is simply unsustainable to continue to pay for services without looking at how we can gain more revenue for the Treasury. That is a sensible financial decision that any Government would have to make in the circumstances in which we find ourselves.

[Mr Clarke]

I agree with my hon. Friend. The hon. Member for Leeds West (Rachel Reeves) said that when the facts change, we should change our policy, but the point is that the facts have not changed. The covid backlog has not changed and the damage that it has done to our ability to deliver the healthcare that people need has not gone away. Governments have recognised the importance of tackling our social care issues for a long time, but there is no record of action. This time, things are different. We believe that it is only right that in an advanced and wealthy country such as the United Kingdom, people should know that their loved ones will have dignity and financial certainty if they require care. The new levy will allow us to achieve both our health and social care aims.

[Dr Caroline Johnson]

Will the Minister give way?

[Mr Betts]

Will the Minister give way?

[Mr Clarke]

I will take one more intervention and then I will make some progress.

[Dr Caroline Johnson]

The hon. Member for Leeds West (Rachel Reeves) talked about politics meaning choices. I have listened carefully to both Front-Bench speeches and I heard that the Opposition want to remove the health and social care levy but not how they will pay for social care instead. Perhaps the Minister heard something I did not. Could he enlighten me?

[Mr Clarke]

I heard a lot of warm and fairly vague phrases, but I did not hear a concerted plan, and that of course goes to the heart of this question. The hon. Member for Leeds West said in her speech that the voters are smart and savvy, and I agree with her, but they know an Opposition playing politics when they see it.

The £12 billion average annual investment, which is of course a recurring investment—that is the crucial point—to meet a recurring need, will tackle the elective NHS backlog, while ensuring that the health service has the resources it needs over the coming years. It will strengthen our adult social care system, allowing us to invest at least £500 million to give our army of extraordinary social care workers new skills, and it will enable the Government to roll out the long-awaited reforms to funding for families through a cap on adult social care costs.

This is a transformative policy that will tackle serious and long-standing issues, but to fund such a significant increase in permanent spending we have had to make the tough but responsible choice to increase taxes. Only a broad-based tax such as income tax, VAT or national insurance can raise the sums needed for such significant investment. Using NICs as the base has several advantages. First, it means the levy will be paid for by employers, employees and the self-employed, including, from April next year, by workers over state pension age.

Secondly, this is a progressive way to raise funds because those who earn more will pay more: the top 15% of taxpayers will pay half the revenue. A basic rate taxpayer will pay about £3.49 per week, while 6.2 million—6.2 million—of the lowest earners will be exempt entirely from the levy and most small businesses will not be affected at all.

[Mr Betts]

Will the Minister give way now?

[Mr Clarke]

I will give way.

[Mr Betts]

The Minister talks about health and social care, but will he confirm that there is not a single penny in this extra funding to enable local authorities to cover their social care costs in their budget, which they are struggling with, or to improve the level of the social care they are offering? This crisis has now been going on for years and years, and the Government have promised to fix it. Given that this is a permanent increase in funding, will he also confirm that we are not going to see a tax cut in the next couple of years, just before the election—up today, down tomorrow?

[Mr Clarke]

On the hon. Gentleman’s point about our support for local authorities, we are giving £1.6 billion extra in each year of the spending review we announced in October to support local authorities with the challenges they face. Of course, the levy will fund £5.4 billion of investment in social care over the next three years, so it is a serious response to a serious challenge.

To return to the advantages of the way we have structured the levy, the third design advantage that stands out is that we have also announced an equivalent increase in dividend tax rates. There is therefore fairness across the spectrum in how this is being paid for.

I know there are some who ask why we need to raise tax at all, and instead say that we should borrow to fund permanent increases in spending. Throughout this speech I have outlined all that the Government have done to protect people’s finances as we recover from the pandemic and deal with the rising cost of living, and those actions mean our economy has made a strong recovery from covid-19. Our GDP has rebounded, and over the past months job vacancies have hit record highs, while the unemployment rate has fallen sharply. However, it is easy to forget that all those steps come at a huge cost. Covid casts a long shadow across our economy. Indeed, our debt is at its highest since the early 1960s. As I have reminded the House on many occasions, that high level of borrowing leaves us susceptible to shocks, including changes in interest rates and inflation.

[Dr Caroline Johnson]

My right hon. Friend is making some excellent points about the importance of balance in our finances. One thing my constituents will want to know as we spend all this money from the health and social care levy is that it is being well spent and used very efficiently. What can my right hon. Friend tell me about how he will ensure that the money is spent efficiently and with the best possible productivity?

[Mr Clarke]

Making sure that we spend taxpayers’ money wisely is the central duty of any Government. It is something that, as Chief Secretary, I work very hard on with officials and Departments to make sure that we scrutinise spending in the way that delivers best value.

Some fairly spurious points have been raised about our record on issues such as PPE procurement, and we need to remember what I think could best be described as the brass neck of the Opposition in calling us out on this issue, when I think the hon. Member for Leeds West suggested at one point that we should procure our PPE from historical theatre re-enactment companies or fancy dress companies. Procuring PPE at pace brought with it some inevitable challenges, and it is vital that we had the resources to deal with the situation we faced at the time.

[Richard Graham]

The debate this afternoon is fascinating in a number of ways. The first one is that the hon. Member for Leeds West (Rachel Reeves) rightly pointed out that Government is about choice. I remember vividly coming into this place in 2010, when the maximum someone could earn before paying tax was £6,000. It is now £12,500, which means £1,000 more in take-home pay for millions of our constituents. My right hon. Friend has confirmed that more than 6 million taxpayers will not be paying anything at all towards the 1.5% increase in national insurance, which will pay for their families’ and their parents’ hospital care and social care.

[Mr Clarke]

I entirely agree with what my hon. Friend has said, and it is a reflection of the fact that we have taken sensible measured steps against what has been a recurring series of unprecedented challenges—the financial crisis, our exit from the European Union, covid, and now the backdrop of conflict in Ukraine. All these things have had a major impact on the world around us, but our focus has consistently been on supporting people to do the right thing and to protect their finances.

[Sir Oliver Heald]

Will the Minister give way?

[Mr Clarke]

I should make some progress, but I will take one more intervention.

[Sir Oliver Heald]

Does my right hon. Friend agree that the rise in the national living wage should not be ignored and is important in helping people at the bottom of the income spectrum? It is right to take such measures, but the Opposition’s asking for more money the whole time but not being prepared to put in any resource is a ridiculous smoke and mirrors job.

[Mr Clarke]

It is, and my right hon. and learned Friend is precisely right because, in the end, it is poorest who will lose out the most if we lose control either of our public spending or of inflation. To illustrate, a 1 percentage point rise in both inflation and interest rates would increase spending on debt interest by nearly £23 billion a year, and that threat is not a notional one. In January 2021 we spent £1.6 billion on servicing our debt, but in January this year we spent £6.1 billion. We cannot fund increases in spending on our health service and social care by increasing borrowing. Members will surely agree that to leave ourselves vulnerable at this time by further increasing our debt burden would be highly irresponsible. These are not always easy choices, but we will be the ones to reconcile the need to reduce our debt burden with the growing pressures on the state, and that means responsible choices about taxation.

[Kirsty Blackman (Aberdeen North) (SNP)]

Will the Minister give way?

[Mr Clarke]

I have given way many times, and I am afraid that I must make progress.

The Opposition claim that they would instead grow the economy to finance their choices. With all due respect to the hon. Member for Leeds West, that is not a credible solution to an immediate problem. I remind the House that this is the same Opposition who want to place a windfall tax on our vital North sea oil and gas producers—companies that already pay a headline tax rate on their profits of more than double the rate of corporation tax. With investment in the sector hitting an all-time low in 2020-21, such a tax on oil and gas would not be an appropriate solution. It would only create uncertainty, deter investment and displace the investment that we need in clean, renewable technologies.

As the Chancellor has recently set out, we firmly believe in lower taxes. The pounds generated by our country are better spent by individuals and businesses than by Government. However, cutting tax sustainably requires hard work and prioritisation, especially when demands on the state are growing. We must reach our goals in a responsible way that addresses our challenges, too. This levy is the best and most equitable way to raise the funds needed to protect health and social care across the United Kingdom, and I await any credible explanation from the Opposition of how they plan to cover these costs in a responsible way.

I will end by saying that this Government recognise the difficulties that people across this country are facing right now. We know times are hard, and we are working hard to alleviate that pressure, but as a responsible Government we must not shy away from difficult decisions. It is only by meeting such challenges head-on that we will succeed in building a health and social care system that is fit for the future and that truly supports our citizens at every stage in their lives.

[Several hon. Members rose—]