National Insurance Contributions (Rate Ceilings) Bill — House of Commons, 2015-11-03
Topic: Macroeconomics
Stewart Hosie (Scottish National Party, Centre-left): 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?