National Insurance Contributions (Reduction in Rates) Bill

[Dame Rosie Winterton in the Chair]

I remind Members that, in Committee, Members should not address the Chair as Deputy Speaker. Please use our names when addressing the Chair. Madam Chair, Chair, Madam Chairman or Mr Chairman are also acceptable.

Clause 1

Reduction of Class 1 main primary percentage

Question proposed, That the clause stand part of the Bill.

With this it will be convenient to consider the following:

Clauses 2 to 5 stand part.

The schedule.

Thank you, Dame Rosie, for that timely reminder. I shall briefly outline the clauses in the Bill. Clause 1 amends the Social Security Contributions and Benefits Act 1992, which applies to Great Britain, and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 to reduce the main primary percentage of class 1 national insurance contributions paid by employees from 12% to 10%. That is a tax cut worth an average of around £450 per annum for employees. Clause 2 amends the Social Security Contributions and Benefits Act 1992, which applies to Great Britain, and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 to reduce the main class 4 NICs percentage paid by the self-employed from 9% to 8%. That is a tax cut worth an average of around £350 per annum for the self-employed.

Clause 3 amends the 1992 Acts that apply to Great Britain and to Northern Ireland to remove the obligation on persons to pay class 2 obligations when their earnings exceed the lower profit threshold of £12,570 per annum. The small profits threshold is retained, with the result that self-employed persons with profits from a trade, profession or vocation above that level will be treated as having paid class 2 NICs and will continue to gain entitlement to contributory benefits.

Clause 4 introduces the schedule, containing transitional and consequential provisions. The schedule to the Bill includes changes that are consequential on clauses 1 to 3 of the Bill. The principal changes are the introduction of a blended rate of primary class 1 national insurance contributions for directors for the 2022-23 tax year and consequential repeals arising from clause 3 that removes the requirement to pay class 2 NICs. Finally, clause 5 gives the short title as the National Insurance Contributions (Reduction in Rates) Act 2023.

I call the shadow Minister.

As we made it clear on Second Reading, we will be supporting the measures that it includes, I thank the Minister for setting out the details of its clauses. As we heard, clauses 2 to 5 and the schedule to the Bill implement a reduction in the class 4 rate, a removal of the requirement to pay class 2 contributions and various transitional and consequential provisions.

I wish to ask the Minister some questions about how the measures in clause 1 will operate and what their overall impact will be. May I put it on record that, as ever, I am grateful to the Chartered Institute of Taxation for sharing its views with us on the clauses in this Bill?

Clause 1 makes it clear that the Bill’s measures will apply from 6 January 2024. Of course, we want people to benefit from these changes as quickly as possible given the pressures that families across Britain are facing right now. We recognise though that with the Government having left this policy change until late November to announce, there is not much time left for payroll software to get ready for 6 January. I would be grateful if the Minister could confirm whether HMRC accepts that some employers’ payroll software will not be ready in time for 6 January. If so, how many employers does he anticipate being affected? In such cases, employers would have to pass on the benefit of any changes to employees in subsequent months. I would be grateful if the Minister could confirm how many employees he expects will be affected by this delay, and how long he expects them to have to wait to receive the delayed benefits.

Furthermore, we understand that many operators in the retail sector have a moratorium on releasing new software updates in the November to January period, given what a busy time that is for them. I would be grateful if the Minister could confirm whether he is aware of that. If so, what meetings has he already had with retailers to discuss this point and, if so, what has the outcome of those meetings been?

I call the SNP spokesperson.

Before I come to my point, may I add my own condolences and those of my party to the family and friends of the former Chancellor, Alistair Darling? Clearly, we were on very different sides of the fence, particularly on independence, which was heavily contested nine years ago, but he was a towering intellect and a very important figure in Scottish public life. As I say, we pass on our condolences to his family and friends.

My question is also on the operation of clause 1. HMRC has stated to the Treasury Committee that it is unable to cope with inquiries either in writing or by phone at the moment, and that it is under severe pressure. I, too, would like to know how the clause will be given effect by 6 January, and what measures the Government are taking to ensure that that happens.

I thank hon. Members for their questions. I can assure them that HMRC is engaging with industry and providing relevant guidance to support it to deliver the changes on time. We expect the majority of companies to be able to do so, particularly in this era, when many of the changes can be made on various systems. The Government are confident that the majority of software developers will be able to make changes to their payroll software in time for the 6 January deadline.

New Clause 1

Review of effects of Act

“(1) The Treasury must lay before the House of Commons on the day on which this Act is passed a report which sets out forecasts of—

(a) the changes to the amount of national insurance contributions deducted from the annual income of a full-time worker earning the national living wage as a result of the measures in this Act over the period 2023/24 to 2027/28, and

(b) a comparison with the changes to the amount of national insurance contributions deducted from the annual income of a full-time worker earning the national living wage as a result of the thresholds for payment of national insurance remaining frozen over the period 2023/24 to 2027/28, rather than rising in line with CPI.

(2) The report in subsection (1) should also set out the costs to (i) businesses, and (ii) government , of implementing the changes in this Act, and compare them to the costs of—

(a) implementing a 1.25% point increase in national insurance contributions in April 2022, and

I beg to move, That the clause be read a Second time.

Thank you, Dame Rosie, for the chance to address our new clause 1. Before I do so, may I ask whether the Minister would commit to writing to me with detailed responses to the questions that I raised in our debate on the previous group? We did not get them in his response just now, so perhaps he will commit to writing to me with them as soon as possible.

Our new clause would require the Government to be honest about the impact of the changes made by the Bill when considered not just in isolation but in the wider context. Subsection (1) would require the Treasury to explain how the taxpayer or someone earning the national living wage would be impacted by the combined effects of the changes in the Bill and the freezing of national insurance thresholds at their 2022-23 level over the period 2023-24 to 2027-28.

We asked for confirmation of that, because our analysis shows that a full-time worker on the national living wage will pay an estimated £70 more in national insurance next year, even with the cut in the Bill, as a result of the thresholds being frozen. What is more, the full impact of the Government’s freezing of national insurance thresholds will be that by 2027-28—again, even with the cut in the Bill—a full-time worker on the national living wage will pay £160 more a year in tax. Can the Minister confirm whether he accepts our calculation? If he does not, I assume that he will accept our new clause and publish the data; otherwise, people will rightly be left wondering what it is the Government have to hide.

Should the Government choose to accept our new clause, subsection (2) would require them to come clean on some of the implementation costs to businesses and the Government of what the Chartered Institute of Taxation described last week as the “national insurance roller-coaster” in recent years.

I hope that I can give the hon. Member some assurances. A worker on the national living wage will save £165 next year from the national insurance cut, and thanks to above-inflation increases in the NIC starting threshold since 2010, a full-time worker on the national living wage will pay £400 less in national insurance contributions next year than they otherwise would have. That includes the historical increase to the national insurance contributions starting thresholds in July 2022 by this Government—the largest ever increase to a personal tax starting threshold. The national minimum and living wage rates are set on advice from the independent Low Pay Commission. Rates for 2025-26 and beyond will be set in future years.

The cost to HMRC of implementing and reversing the health and social care levy was £5 million. The cost to implement this rate reduction is not yet known as the project to deliver the change is in delivery, though HMRC does not expect it to be significant. In answer to the hon. Gentleman’s previous question, I will be delighted to write to him.

I beg to ask leave to withdraw the motion.

I beg to move, That the Bill be now read the Third time.

This is a short and relatively straightforward Bill, but it is an important one, as it will make a meaningful difference to many households by putting money in the pockets of millions of people in every constituency in this country. I thank the Treasury officials, Clerks and everyone involved in getting the Bill to this point so speedily. I sense the enthusiasm in the House to pass it, and for us to get back to our constituencies and spread the good news. I will therefore end my comments there and commend the Bill to the House.

As the Opposition have made clear throughout today’s proceedings and on many other occasions, we believe that taxes on working people are too high. We have long said that we want taxes on working people to come down when they can be cut in an economically and fiscally responsible way.

While we confirm our support for the Bill, we repeat our call for the Government to be honest with the British people. The Conservatives should be honest about the inescapable truth facing families across the UK: the tax burden in Britain is still on course to reach its highest level since the second world war. As a result of the Conservatives’ decisions on personal taxation in this Parliament, households will be left facing an average tax rise of £1,200. Looking across all taxes, we now know that, by the end of the decade, they will have risen by the equivalent of an astonishing £4,300 for every household in the country.

As we have set out today, a clear pattern runs through the Conservatives’ time in office: whatever they do, they keep making working people worse off. While we support the Bill, it is clear that the Conservatives are incapable of delivering what Britain truly needs: a plan to get the economy growing and make working people better off. That is what Labour is offering. In last week’s debate on the autumn statement, when discussing the general election, the Economic Secretary to the Treasury said that we should “bring it on”. On that point, we whole- heartedly agree.