National Insurance Contributions (Rate Ceilings) Bill — House of Lords, 2015-11-10
Topic: Macroeconomics
Denis Tunnicliffe (Labour, Centre-left): My Lords, I thank the Minister for introducing the Bill and I look forward to working with her on what I believe is the first piece of legislation she has taken the lead on since entering your Lordships’ House. As the Minister has just outlined, the Bill will implement the Conservative manifesto commitment to cap the main rates of national insurance contributions at their current levels for the duration of this Parliament This is one-third of the so called triple lock—a promise not to raise VAT, income tax or national insurance contributions which the Conservatives gave during the election campaign. The Bill provides for the NICs element of that pledge. Such a measure has to remain separate from the Finance Bill, on which the VAT and income tax locks will be debated, because statutory provisions regarding NICs cannot be included in the annual Finance Bill Let me start by saying that we wholeheartedly support the principle of not raising taxes for working people, so we are not opposing the Bill. Indeed, Labour was the first to commit to not increasing national insurance contributions. However, we do question the necessity of implementing that commitment in primary legislation, and are concerned that this, when taken as part of the triple lock, could present a significant challenge for the Government if the economic outlook changes Clause 1 will prevent class 1 national insurance contributions payable by employees at the main primary percentage from exceeding 12%, and for earnings above £815 a week, cap the additional primary percentage at 2%. This was a Conservative and Labour commitment at the election. As we progress to Committee, we would appreciate it if the Minister updated the House about the investigation being undertaken by the Office of Tax Simplification into national insurance contributions and their alignment with income tax Clause 2 freezes the rate of employer national insurance contributions by setting the maximum secondary percentage payable by employers at 13.8%. By doing this it also fixes the class 1A and 1B contributions. The Chancellor's spending plans are predicated on a forecast rise in revenue yield from NICs, so he has placed a great deal of confidence in economic forecasting. I am sure that during consideration of the Bill, we will debate what contingencies are in place if these forecasts are wrong and the potential impact that could have on public services. I look forward to the Minister’s responses Clause 3 links the upper earnings limit to the highest rate of income tax threshold by setting out that it should not exceed the weekly equivalent of the proposed higher-rate threshold for that tax year. In practice, this means employees stop paying national insurance contributions at the 12% rate when their income reaches the higher income rate tax threshold for that tax year What is particularly interesting about these three short clauses, beyond their technical detail, is the manner in which they have been introduced, which is so telling of this Government and their approach to policy-making. They argued during the passage of the Bill in the other place that the legislation is required to ensure that the market has confidence in the Government to keep their election promises. Can the Minister tell us why the Chancellor thinks the electorate and business will not simply trust his word? Perhaps it is because the Government promised not to raise VAT before the last election—and then proceeded to do the opposite by raising it to 20%. Indeed, in the last Parliament the Chancellor raised tax 24 times despite his claims to be promoting a low-tax, high-wage economy. Let me reaffirm that we do not want to see taxes raised for working people, so we will not oppose the Bill. However, it is difficult to regard it as little more than a gimmick that could have troubling consequences The response to the decision to legislate on this issue was remarkably consistent. The Financial Times leader of 29 April summed it up well when it said: "Arguably the silliest idea yet came this week when David Cameron proposed an act of parliament that would make it illegal for a future Tory government to raise various taxes to close the deficit: VAT, income tax, and national insurance. Even after five years of tough spending measures, the UK fiscal deficit is still high. Removing the option of tapping revenue streams that in aggregate raise more than £350 bn for the Exchequer would make the challenge needlessly hard" The summer Budget, which included significant revenue-raising measures that will amount to significant tax rises for millions of people, demonstrated decisively that this was nothing more than a political stunt Commenting on the Budget, the director of the Institute for Fiscal Studies said: "The figures are quite clear—this was a tax-raising budget" Tax policy measures in the Budget are expected to raise £5.1 billion by 2017-18, rising to £6.5 billion in 2020-21. So the notion that taxes on working people are being protected is an illusion. The Government are still increasing the amount they get from tax revenues under the guise of the triple tax lock. Crucially, it could also limit the pace at which the Chancellor could act if an unexpected event arose. If the Minister does not believe this, he should listen to his noble friend Lord Lawson, who said: "I don’t think it is a good idea … nobody knows what the economic conditions are going to be like … nobody knows what world conditions are going to be like … this was clearly done for electoral purposes not for good government" National insurance contributions, together with VAT and income tax, are the three largest revenue raisers for any Chancellor, so it is surprising that the Government feel the need to tie their hands in this way. The Chancellor is taking an incredible gamble that seems to be based on nothing other than the hope that no further unexpected events will occur over the course of this Parliament. If the economic outlook does change, the Chancellor will have to do more than be in listening mode—he will have to act. We are concerned that this Bill makes it harder to do that.