National Insurance Contributions (Rate Ceilings) Bill

Stewart Hosie Excerpts

Tuesday 3rd November 2015 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

If the European Union Bill was undersubscribed, this is even more so. Is it such an important Bill, or will we discover that it is not really necessary at all?

The Bill is designed to prevent any increase in the current rates of class 1, class 1A and class 1B national insurance contributions paid by employees and employers for the duration of this Parliament. The Minister said that it would also provide that each of the annual upper earnings limits could not exceed the higher rate threshold—the sum of the personal allowance and the income tax basic rate limit.

As I said on Second Reading—I am happy to put it on the record again today—there is absolutely nothing wrong with any Government providing certainty in the tax code for the duration of their term in office, but let us be clear that we do not need legislation to do that. Legislation is simply a gimmick.

I also said on Second Reading that these proposals should not have come as a surprise because, as the Minister has just said, they were included in the Conservative election manifesto. In many ways, this small three clause Bill is utterly pointless. The real failing with it is that it represents a wasted opportunity.

In July, the Financial Secretary to the Treasury commissioned the Office for Tax Simplification to review the interplay between income tax and NICs. He said:

“I would like the Office of Tax Simplification to look at what the impacts, costs and benefits of closer alignment would be and to set out what the necessary steps would be to achieve closer alignment.”

But this Bill does nothing to help deliver the perceived benefits of closer alignment, and does not offer any real progress towards tax simplification overall.

John Whiting, tax director of the OTS, gave evidence to the Committee. He argued that, although the maintenance of rate levels represented a simplification of the system as it removed some uncertainty, it could represent a complication of the tax system overall if the Government were to make changes to other taxes to compensate for the tax lock. The measure also introduces an inherent inflexibility.

Jonathan Portes of the National Institute of Economic and Social Research has been quoted before, in particular his comment that the pledge not to increase the main taxes

“considerably reduces our flexibility if things turn out different from expected. This is why I have absolutely no doubt that Treasury and Bank of England officials were tearing their hair out at this.”

Yet I am not aware—and I have asked the question before—of what discussions, if any, the Minister or the Chancellor have had with the central bank about these proposals.

I also explained on Second Reading the complexity of the NICs regime. I will not go through that all again, but there is a complex series of employee, employer and self- employed NICs. There are class 1, class 2, and class 4 profit-related contributions, with primary and secondary thresholds, small profits thresholds and lower and upper profits limits. In all of those, the limits and thresholds are different and the rates paid above and below the various thresholds are different. Surely this Bill should have been the opportunity to iron out those inconsistencies in the NICs system. It is yet another wasted opportunity to make the whole system more straightforward.

I also said on Second Reading that individuals may be entitled to make voluntary class 3 contributions to avoid or fill gaps in their national insurance record to ensure that they qualify for basic retirement pension and bereavement benefits. But as yet there appears to be no answer to the question of whether more or fewer people will make additional voluntary contributions as a result of this so-called tax lock.

It is also the case—and this point was alluded to by the hon. Member for Salford and Eccles (Rebecca Long Bailey)—that most NICs receipts are paid into the national insurance fund, which is separate from all of the other revenue raised by taxation. The fund is used exclusively to pay for contributory benefits. If the revenue yield from NICs does not rise in the heroic way planned, can we expect to see cuts directed at the contributory benefits for which people have already paid? That is an important question given that the Minister was quizzed in Committee on the impact of the freeze on the national insurance fund.

It is doubly important given that the Centre for Policy Studies reported in 2014 that the surplus in the national insurance fund had fallen from £53 billion in 2009 to £29.1 billion in 2013. It warned that, as a result of persistent negative real earnings growth, fund exhaustion could transpire as early as 2016. That was echoed by the Treasury’s own figures, which have shown that the fund was able to cover 71% of liabilities in 2009 but that that fell to 25% in 2014. Perhaps the Minister can confirm whether, as is being speculated, the fund might fall below 16.7% of its liabilities this year, which is the minimum recommended by the Government Actuary’s Department. The measure might actually be storing up problems for the future and we still do not know for certain what behavioural change, if any, might be likely following these measures. We have also not yet heard any confirmation of the consequences for spending and other taxes that flow from this measure.

We know the level of discretionary consolidation tax rises and cuts being planned by the Minister and how they are meant to be paid for, but the entire spending plan is predicated on NICs bringing in £115 billion this year and £126 billion next year, rising to £152 billion in 2020-21. That is a forecast rise in revenue yield of 9.6%, 4.3% and 4.7% the year after that, so, even at this late stage, there is one question that the Minister must answer. Given the arbitrary freeze on NICs and other taxes, should the forecast yield be significantly less than expected, will other taxes rise, and if so, which ones, or will the Chancellor take the axe to yet further spending, perhaps pensions? Or will borrowing rise and will the deficit reduction forecast simply be abandoned, delivering the same failure as we saw in the previous Parliament?

We will not oppose the Bill, even though it is rather pointless, but finally, and most importantly, I said a moment ago that the majority of NICs receipts are paid into the national insurance fund, which is used exclusively to pay for contributory benefits, so may we have a cast-iron guarantee that this Bill is not the start of an attack on the contributory principle that applies to NICs in the UK?

[John Redwood]

(Wokingham) (Con): I welcomed the manifesto pledge and am very pleased that we know that for five years there will be no increases in the major tax rates. I listened carefully to the Labour response, and one of the worries expressed was what would happen if there were a cyclical downturn or if the economy hit a bad time because of a world recession or something similar. As I am sure the hon. Member for Salford and Eccles (Rebecca Long Bailey) knows, it is common policy between the major parties in this House that if that happens we will normally borrow more. If revenues fall because people have lost their jobs and are not earning so much, and if costs have gone up because more people are out of work, which we do not foresee and do not wish, it is quite sensible to borrow a bit more to help the economy through the difficulties. Fortunately, the official and external forecasts say that we can look forward to several years of continuing progress and growth, as we have had since 2009, so, we trust, the problem will not arise. I think that that answers her point.

[Stewart Hosie]

The right hon. Gentleman would be right in normal circumstances, but we now have the fiscal charter. Given that it has a rolling four-quarter on four-quarter comparison, if forecasts begin to fall the automatic stabilisers might not necessarily kick in in the way that he has described, which was traditionally the case.

[John Redwood]

I think that we would make a judgment at the time, but fortunately we do not have to make that judgment now. If we should get into that awful position, I am sure that there will be a lot of debate in this House. The hon. Gentleman and I might even share the same view, or we might have a difference of view. We would have to judge it on the figures and on the merits of the case.

On this side of the House, we regard having more people in jobs as a very good thing and want to promote better pay, particularly for those whose pay is very low and needs topping up with benefits. I buy into the Government’s vision that we want more people in work and more people in better-paid work, with less benefit top-up needing to be paid. They should be better off as a result of these changes.

In the course of proceedings this afternoon on this Bill and on the European Union (Approvals) Bill, we have been told that not enough time has been allocated to debate tax credits. I recall that we have had three major debates on that subject quite recently, and three votes, and the House has come to the same view on each occasion. This is another such opportunity. I note that Opposition Members have not come to the Chamber, but it seems to me to fall quite within the remit of the Bill, which is about how to tax work and what people keep as a result of work, to discuss tax credits as another part of the equation. I see the Bill as an important part of the Government’s strategy of making work pay.

We regard work as a good thing, as I trust all parties do, and we do not really want to be taxing good things. Unfortunately, however, we live in a world where we need a lot of revenue, so we end up taxing good things as well as bad things. However, where we have the chance to shift the balance, surely it makes sense to tax the good things less, such as work and earnings, so that people can have more opportunity of finding a job and of keeping more from a better-paid job. We can then find less desirable things that we are more prepared to tax, as well as running sensible value-for-money government so that the overall demands are not too great.

The danger, if one went down the route of opposing the Bill, is that it might become all too easy to put an extra 1% or 2% on national insurance. One might say that people would not notice it, but it would have two immediate adverse effects. First, there would be fewer jobs as it is a direct tax on jobs and, secondly, employees would be worse off because of the effect on their contribution and we would have to find more money under our scheme for tax credits or other top-ups.

In conclusion, it is excellent that my party intends to keep its clear promises to keep these tax rates down, which I fully supported and campaigned on. We must see it as part of the wider debate, and today is another opportunity to debate national insurance in the context of tax credits. If we keep taxes down or reduce them more, there is more scope to deal with the tax credit problem.

--- Later in debate ---

[Mr Gauke]

The proposition of the independence movement was much more optimistic about receipts than the OBR at the time of the referendum. Most important of all, the United Kingdom is more easily able to absorb a volatile oil price than an independent Scotland would be—a point that I would have thought anyone looking at this fairly had to accept.

[Stewart Hosie]

I will not be tempted by the Minister, however generally he put it, other than to say that he is wrong and that the UK Government’s barrel price for gas was higher than that used in Scotland. That is not the point. I completely understand the technical answer that the Minister has just given, but will he please answer the specific question: does this pose a threat to the contributory principle which applies to many of the benefits that people in the UK receive?

[Mr Gauke]

Let us be clear that the OBR’s projections for oil prices—those are the ones that the Government use—were much, much more cautious than those of the independence movement. The black hole that would be the finances of an independent Scotland, had the SNP succeeded in obtaining independence, would have been very considerable, and it is about time that those who campaigned for independence were straightforward with the British people and the Scottish people about what has happened.

The Bill makes no change to the structure of national insurance contributions that would undermine the contributory principle. I am happy to make that explicit to the hon. Gentleman. I hope that is helpful to the House, and I hope the House will support the Bill before us.

Question put and agreed to.

Bill accordingly read the Third time and passed.