National Insurance Contributions (Rate Ceilings) Bill (First sitting)

Wendy Morton Excerpts

Tuesday 27th October 2015 Public Bill Committees

[John Mc Nally (Falkirk) (SNP)]

Q 3 You will know that there has been a lot of speculation in the past two days regarding the possibility of changing the national insurance contribution because of the tax credit cuts. Have you any comment to make on that as a possibility?

John Whiting: Again, Mr Mc Nally, I have to say that the actual rates of national insurance are something that we at the Office of Tax Simplification steer clear of, other than to consider whether they add complexity or simplification. To give an example away from national insurance, we drew attention to having two rates of corporation tax. Obviously, that was a complexity, as they have now been harmonised on one rate. That is an obvious simplification and easier for business. That is about as far as we tend to go with rates, but in terms of absolute rate setting, I cannot comment, other than to say that, whenever you make a change to the tax system, it adds a measure of complexity and confusion.

[Wendy Morton (Aldridge-Brownhills) (Con)]

Q 4 The balance of the national insurance fund has continued to fall sharply in spite of the modest economic recovery. Is not legislating to prevent even small rises in national insurance contributions throughout the Parliament irresponsible under those circumstances?

John Whiting: The national insurance fund is obviously something that I am aware of, and how it operates is an interesting question. It is certainly something that we, with our current review, want to look at. What I can say is that we want to examine how much people really understand about how the fund operates and whether they really appreciate, in effect, what national insurance pays for and where it goes. For me to come up with an opinion about where the fund sits at the moment is a little premature. However, I can say that just how it operates is something we want to examine, and, as I say, there is the fairly crucial question of how much people really understand about national insurance and how it operates.

[Rebecca Long Bailey]

Q 5 This is linked to the previous question. In the light of the response that you just provided, how would you say the fund would cope if there were an unforeseen crisis, given the restrictions that are placed upon it?

John Whiting: I know that the mechanics of the fund are such that the balance on the fund is assessed every year by the Government Actuary’s Department, and of course, if it looks as if the fund is too low, or if there is not sufficient coverage for its likely liabilities, as happened earlier this year, the Treasury will make a grant to the fund to keep it at the level that the Government Actuary’s Department feels is appropriate. I suspect that in terms of a sudden crisis—given that the fund’s main function is pensions and similar outgoings, hopefully there will not be a sudden crisis; it is a demographic trend that we can see or not—or a problem with the funding, it is over to the Treasury to make a grant and I have no doubt that Committees such as yours would have a view on such matters.

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[John Mc Nally]

Q 18 What I am trying to get at, Minister, is that there will have to be some sort of transition period for working-class people. We in this Committee are trying to find out whether that will be a possibility. During the transition period, it looks as if national insurance contribution thresholds will be moved.

Mr Gauke: Just to clarify the point I made a moment ago, there is an area relating to thresholds, in terms of the link with the upper earnings limit in the Bill. As for the vote in the House of Lords yesterday, the Chancellor will set out his response to that in the autumn statement.

[Wendy Morton]

Q 19 The balance of the national insurance fund has continued to fall sharply in spite of the modest economic recovery. Is not legislating to prevent even small rises in national insurance contributions throughout this Parliament irresponsible in such circumstances?

Mr Gauke: No. Our commitments as a Government—our additional expenditure on the NHS, for example, and the triple lock guarantee for the state pension—are clear statements that we will fulfil. If it is necessary to top up the national insurance fund, we will do that to fulfil our objectives of increasing spending on the NHS and meeting our obligations on the state pension. Ultimately, meeting those objectives depends on the state of the economy and the public finances, not on the position of the national insurance fund.

[Wendy Morton]

Q 20 How can the fund cope if there is an unforeseen crisis?

Mr Gauke: First, as Mr Whiting pointed out, the fund is unlikely to face an unforeseen crisis due to expenditure. There is flexibility within the regime for top-ups from the Consolidated Fund from the Treasury to ensure that the national insurance fund can fulfil its obligations. In terms of our commitments, this requires us to have a strong economy and sound public finances and to control public spending in other areas, so that we are in a position to see the increase in departmental spending in the NHS that I am sure we would all like.

[Rob Marris (Wolverhampton South West) (Lab)]

Q 21 In terms of the national insurance fund, the trend is not looking good. In 2008-09, the fund was sufficient to cover 71% of its liabilities. By last year, that had dropped to 25%. Some commentators are suggesting that this year it will fall below the Government Actuary’s recommended one sixth, which is 16.7%. I understand that the Government Actuary has indicated that a top-up will be required this year from the Consolidated Fund, I imagine as you just indicated. I understand what you said about flexibility. Can you give an indication of how big that top-up from the Consolidated Fund for the national insurance fund is likely to be for this financial year and for the remaining years of this Parliament?

Mr Gauke: I can say that, for the 2015-16 tax year, a top-up of £9.6 billion has been provided for in legislation. That is the potential number; it is not to say that that will be necessary. I am not sure that I can give a number for future years as such. It will depend upon various factors, but there is provision for top-up from the Consolidated Fund if necessary.

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[Rebecca Long Bailey]

Q 24 What steps have the Government put in place to review this legislation in terms of reports or otherwise? Are there any triggers that will lead to its suspension?

Mr Gauke: There are no formal processes for reports or triggers for suspension. All legislation is of course kept under review. I remind the Committee of the purpose here. It is to emphasise and underline our commitment not to increase national insurance contribution rates in the course of this Parliament. That is what my party set out at the general election, and this legislation is to support that.

[Wendy Morton]

Q 25 The Government have said that the Bill has no financial implications. If a grant is needed from the Treasury to maintain the mandated threshold of 16.7% of expenditure, is it your view that this constitutes a financial implication?

Mr Gauke: We have various commitments in terms of Government spending and we also have various commitments in terms of taxation, one of which is not to increase the employers’ or employees’ rates of national insurance contributions. As a Government, we will abide by those commitments. This legislation emphasises and underlines that commitment by passing a law to support it. The point I would make is that if there is a shortfall in the national insurance fund, our response is not to increase the national insurance contribution rates.

[Rebecca Long Bailey]

Q 26 There is real concern that, given the fall in the balance of the national insurance fund, there will be implications for NHS funding. Can you confirm that there are no anticipated funding cuts on the horizon in terms of the NHS?

Mr Gauke: Yes, I can confirm that. I come back to what I was saying earlier: if the Government are committed to funding the NHS properly, as we are, we will find the resources. The fact that the national insurance fund, for argument’s sake, goes in one direction does not mean that spending cannot go in a different direction. It is ultimately a spending decision to decide how much we spend on the NHS. Of course, Government need to fund it, but that funding could come from the national insurance fund or the Consolidated Fund, or there could be a transfer from the Consolidated Fund to the national insurance fund.