National Insurance Contributions (Increase of Thresholds) Bill

Wera Hobhouse Excerpts

Committee stage
Thursday 24th March 2022 Commons Chamber

[Wera Hobhouse]

I beg to move amendment 1, page 1, line 8, leave out “July” and insert “April”.

This amendment would bring forward the date of implementation of the increase in thresholds from 6th July 2022 to 6th April 2022.

[The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)]

With this it will be convenient to discuss the following:

Clause stand part.

Clauses 2 to 6 stand part.

New clause 1—Impact of Act on low pay and poverty—

“(1) The provisions of this Act may come into force only if the Government has first laid before the House of Commons and published a report in accordance with this section.

(2) The report must assess the expected impact of the provisions of this Act on—

(a) low pay, and

(b) poverty.

(3) The report must also assess the merits of the provisions of the Act against other ways of reducing low pay and poverty.”

New clause 2—Report on effects on Universal Credit claimants—

“(1) The Treasury must prepare a report on the forecast effects of the provisions of this Act on—

(a) the net incomes of, and

(b) the Universal Credit payments made to

in-work Universal Credit claimants who pay National Insurance.

(2) The report must forecast the estimated change in expenditure on Universal Credit as a result of the provisions of this Act.

(3) The Chancellor of the Exchequer must lay the report before Parliament before the end of the period of 30 days beginning with the day on which this Act is passed.”

This new clause would require the Treasury to publish forecasts of the effects of changes to National Insurance thresholds on Universal Credit recipients and total Universal Credit expenditure.

New clause 3—Report on effects of provisions of Act—

“(1) The Treasury must within six months of Royal Assent lay a report before Parliament on the impact of the provisions of this Act on disposable incomes.

(2) The report made under subsection (1) must also include an assessment of the effect on disposable incomes of the provisions of the Act if combined with a reduction in National Insurance rates of 1.25%.”

This new clause would require the publication of a report within 6 months of the Act receiving Royal Assent assessing the effect on disposable incomes.

New clause 4—Report on effects of provisions of Act (No. 2)—

“(1) The Treasury must within six months of Royal Assent lay a report before Parliament considering the impact of the provisions of this Act on the levels of taxation of—

(a) earned and

(b) unearned income.

(2) The report made under subsection (1) must also include an assessment of the effect on the levels of taxation of—

(a) earned and

(b) unearned income of the provisions of the Act if combined with a reduction in the basic rate of income tax from 20% to 19%.”

This new clause would require the publication of a report within 6 months of the Act receiving Royal Assent assessing the effect on earned and unearned income.

[Wera Hobhouse]

I rise to speak to amendment 1, tabled in my name and that of my hon. Friend the Member for North East Fife (Wendy Chamberlain).

The increase in the national insurance thresholds for employees contained in the Bill will come into effect only in July this year, but the national insurance rise will commence in April—three months when employees will be facing the 1.25% increase in national insurance contribution payments without any protection through a higher tax-free allowance, and three months in which families will feel the full force of the Chancellor’s tax hike without any cushioning from the rising of the national insurance threshold.

[Jacob Young]

Just to correct the hon. Lady slightly, I believe the threshold will still rise by £300 in April, as was the Government’s original plan. The further increase will come in July.

[Wera Hobhouse]

I thank the hon. Gentleman for those comments, but there is still a gap and the amendment seeks to close it.

The three-month delay will cost working families £2.1 billion and add to their distress right in the middle of the biggest cost of living crisis since the 1950s. Let us remember that the rise in national insurance contributions will hit all working families. A nurse or a midwife on an average salary will see their tax bill rise by £310 next year. A care home worker will pay around £140 more and ambulance staff will see a £420 increase.

Households are facing the biggest drop in living standards for 70 years through a combination of soaring energy costs and Conservative Government tax hikes. The typical family will see a hit of £1,100 next year, according to the Resolution Foundation. Absolute poverty is set to rise by 1.3 million people, including 500,000 children. Never before has Britain seen such a rise outside a recession. The cost of living crisis is biting right now and hitting families today. That is why the Chancellor should implement the changes in the Bill not from July, but from April, as that would save working families £2.1 billion in tax payments.

New clause 3 is tabled in my name and that of my hon. Friend the Member for North East Fife. It would require the Government to produce a report to look at the impact of the 1.25% increase in national insurance contributions on disposable incomes. It would give a true picture of what working families are facing. The statement yesterday hid the true facts. The Resolution Foundation has stated:

“Considering all income tax changes to thresholds and rates announced…Of the 31 million people in work, around 27 million (seven in eight workers) will pay more in income tax and NI in 2024-25.”

Instead, the Government could have cut VAT by 2.75%. That is what the Liberal Democrats would do. Such a measure would help everyone and shield our constituents from the worst of the increased costs. It would put money back into their pockets and genuinely shield those on middle and lower incomes the most. With a floundering economy we need people to spend money on our high streets, which would boost our local economies. A cut to VAT would give an immediate boost to every household, and also help us in the long term.

Mr Deputy Speaker, new clause 4 would require the Government to produce a report on taxation on earned income versus unearned income. The income tax change that will come into effect in 2024 does not benefit people equally. Workers will not benefit from that cut, which instead will benefit those with unearned income from investments, such as landlords. If someone is wealthy enough to get their income from savings and properties they will pay less tax, while the least well-off continue to pay more and more. In response to yesterday’s Budget, the Institute for Fiscal Studies stated:

“What is the possible justification for cutting income tax rate while raising NI rate?...Drives further wedge between taxation of unearned income and earned income.”

It benefits

“those living off rents at the expense of workers.”

Let us look at what the Government have announced and at the inequalities that creates. I hope all Members of the House will support my amendments, to see off the worst from the Chancellor’s disappointing statement yesterday.

[The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)]

Before I call Sarah Atherton, while I am sitting here I am acting as Chair of the Committee, rather than as Deputy Speaker. It is only a technicality, but we should get it right.

--- Later in debate ---

[Lucy Frazer]

I will just finish this point; I will come back to the hon. Gentleman. We are introducing a tax cut for a typical employee that is worth more than £330 in the year from July 2022. The impact of the provisions in the Bill have already been published in a tax impact information note published on gov.uk, and the impact of the income tax basic rate cut will be published ahead of implementation in 2024.

The hon. Member for Bath raised a question about landlords. We have taken steps over several years to ensure that landlords pay a fair tax contribution.

In April 2016, we introduced a higher rate of stamp duty land tax for those purchasing additional properties, recognising that, although the private sector plays an important role in our housing market and people should be free to invest in buy-to-let properties, the purchase of additional properties can affect the ability of other people to get on to the property ladder. We also restricted finance cost relief so landlords no longer get relief at their marginal rate if they are a higher or additional rate taxpayer. Finally, we maintained the 8% higher rate of capital gains tax for landlords compared with the rate for other taxable gains.

[Wera Hobhouse]

Will the Minister give way?

[Lucy Frazer]

I am going to give way to the hon. Member for Eltham (Clive Efford) first. He is probably going to ask about the previous point.

[Lucy Frazer]

I do not know whether the hon. Member was in the Chamber when the right hon. Member for East Ham (Stephen Timms) raised this point and I addressed it. He is right to point out that an individual may be affected by the taper, but overall they will be better off as a result of this change. If those people are earning below the work allowance, they will get the full benefit. I reiterate that the changes that we have already made mean that those who are on universal credit will benefit by £1,000 from the cut to the taper rate.

[Wera Hobhouse]

I accept that the Government might have done all sorts of other things to put restrictions on landlords, but would it not be interesting to know the difference between earned and unearned income in relation to the measure introduced by the Chancellor yesterday?

[Lucy Frazer]

As the hon. Member knows, the threshold increase will largely affect those who are working, because it is a tax that relates to working people, and the income tax cut that we have announced will, obviously, affect those who pay income tax.

The hon. Member for Ealing North (James Murray) made a number of points. He asked when the Chancellor decided that he would implement this change to the threshold. In considering a tax policy, it is not decided that something will be implemented on a particular day. A whole process needs to be followed, including ensuring that the relevant documents are put before the House. The hon. Member will be aware that that involves a Bill, an explanatory memorandum and a TIIN. He will know, because he will have heard the Chancellor and other Treasury Front Benchers say so on many occasions in the House, that the Chancellor has been considering for some time how he can help those who might be impacted by the cost of living issues that we currently face. It is appropriate, where measures are taken in relation to tax, that they are broadly taken at fiscal events.

The hon. Member also made a slightly contradictory point. He asked why we had not introduced the measure sooner, in March perhaps, and then suggested that it was being introduced too late because we were delaying it until July. He seemed to be criticising us both for not bringing it in earlier and for not giving him sufficient time to consider it, but I have mentioned all the things we need to do before introducing it in July.

The reason that the measures will be brought in through regulations is that we need to consult, including those who will be doing the payroll. The need to consult was one of the points made by the Low Incomes Tax Reform Group.

We have come to the end of what has been a useful Committee sitting that examined the detailed provisions of the Bill. The Bill seeks to align the threshold at which employees and the self-employed start paying NICs with the personal allowance for income tax. As well as simplifying the tax and NICs system, the measure ensures that hard-working families keep more of what they earn.

I thank hon. Members for their constructive contributions. I will, of course, look carefully at the record of the Committee debate and take forward any outstanding points.

[Wera Hobhouse]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 6 ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Bill read the Third time and passed.