National Insurance Contributions (Rate Ceilings) Bill

Rebecca Long Bailey Excerpts

Tuesday 3rd November 2015 Commons Chamber

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

As we have heard, this Bill enacts the Conservatives’ manifesto pledge not to increase NICs in this Parliament. It is part of their wider pledge to cap income tax, VAT and national insurance contributions. The Bill contains only three substantive clauses and, as we have heard, no amendments have been tabled for consideration today. Clause 1 creates a “tax lock” for employee NICs, capping the rates of employee class 1 NICs to 12% and setting the additional percentage to 2% for the duration of this Parliament. Clause 2 freezes the rate of employer NICs by setting the maximum secondary percentage payable by employers at 13.8%. By doing so, it also fixes the class 1A and 1B contributions. Clause 3 links the upper earnings limit to the higher rate income tax threshold by setting out that it shall not exceed the weekly equivalent of the proposed higher rate threshold for that tax year. In practice, that means that employees stop paying class 1 national insurance contributions at the 12% rate when their income reaches the higher rate income tax threshold. Thereafter, the rate of national contribution is 2%.

As the Minister is aware, my Labour colleagues are not opposed to the principle of maintaining the rates of national insurance contributions. Indeed, it was Labour that, on 25 March, first committed to halt any increase, and I am pleased that the Conservatives heeded our wise advice. It is just one of our many pre-election pledges that the Chancellor has chosen to implement.

However, without wishing to repeat what has already been said by my colleagues in previous debates, I question the need to implement legislation that forces the Government to keep their own election pledges—surely they should do that anyway. The Chancellor also seemed to share my sentiments back in 2009 when he stated:

“No other Chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own Budget.”

Indeed, he went on to suggest that only two conclusions could be drawn from such an occurrence:

“Either the Chancellor has lost confidence in himself to stick to his resolution, and is, so to speak, asking the police to help him, or he fears that everyone else has lost confidence in his ability to keep his word”. —[Official Report, 26 November 2009; Vol. 501, c. 708.]

[John Redwood]

I thought that the previous Labour Government enacted legislation to bring down the budget deficit, because they could not trust themselves with the money, and they were perhaps wise about that.

[Rebecca Long Bailey]

The right hon. Gentleman makes an important point, but I am citing what the current Chancellor has stated.

I question which of the scenarios the Government feel is applicable. The Government have argued during the passage of this Bill that legislation is required to ensure that the market has confidence in their keeping their election promises. It leads to the question why the Chancellor thinks that the electorate and businesses will not simply trust his word. In addition, the Government promised before the 2010 election that they would not raise VAT, but then proceeded to do quite the opposite. Indeed, in the previous Parliament, the Chancellor raised taxes 24 times despite waxing lyrical about creating a low-tax, high-pay economy. The director of the Institute for Fiscal Studies said of the most recent Budget:

“The figures are quite clear though—this was a tax-raising Budget.”

Perhaps the Chancellor has lost confidence in himself. That is not surprising given that he has missed all of his deficit reduction targets for the past five years.

I fear that legislating in this manner is only a political gimmick to convince the market and the electorate that the Government are not increasing taxes when, in fact, tax policy measures in the Budget are expected to raise £5.1 billion by 2018, rising to £6.5 billion by 2021.

Putting that issue to one side, I must once again stress my concern that the Government are severely limiting their options should the economy take a turn for the worse. This summer, the Bank for International Settlements stated simply that this is

“a world in which debt levels are too high, productivity growth too weak and financial risks too threatening.”

The feeble recovery that we have seen thus far is built on private debt, which leaves us with a ticking time bomb. The IFS predicts that house prices will rocket across the whole of the UK, most drastically in London, leading to levels of household debt exceeding those of 2008 at the time of the credit crunch.

The warning signs are there and I harbour grave concerns that the Government are simply not paying attention. My sentiments are shared by many commentators, including the director of the IFS, who said that it would be

“extreme to tie your hands for such a long period of time with the main rates of the three largest taxes.”

Particularly worrying is the fact that the Chancellor’s spending plans are predicated on

“a forecasted rise in revenue yield from NICs.”

That fact was highlighted by the hon. Member for Dundee East (Stewart Hosie). However, should the yield be less than forecast, due to an economic downturn, what will the Chancellor do? He cannot, according to his own legislation, raise VAT, income tax or national insurance contributions. Would further cuts be imposed on public expenditure at precisely the time economic stimulus would be needed?

In Committee, the Minister assured us that, in such a circumstance, the measures before us today would not endanger the fund or be an excuse to undermine the NHS. However, he did enter the caveat that such an assurance was predicated on the Government making “difficult choices” on public spending and

“identifying savings in the welfare budget”.––[Official Report, National Insurance Contributions (Rate Ceilings) Bill Public Bill Committee, 27 October 2015; c. 18.]

I fear that what he meant was that far from legislating on their election promises on the Government’s tax credit work penalty, they have ripped them up within months of taking office.

In conclusion, we will not oppose this Bill as before the general election we also committed to capping national insurance contributions. However, it is not an effective use of precious parliamentary time and resources, and I do hope that the Minister will bear that in mind for the future.