National Insurance Contributions (Reduction in Rates) Bill

A vote for these measures is a vote to give 29 million people an average yearly saving of more than £450. These reductions in tax will not only benefit those in work; according to the Office for Budget Responsibility, they will lead to the equivalent of almost 100,000 people entering work, because they will ensure that work pays and will drive more people to seek employment.

There is another point here, and that is about choices. I hope that the Opposition will support these measures today, if only for the reasons I have already set out. The public support them and business supports them. If the Opposition do not support them, it will represent a choice. The shadow Chancellor, the right hon. Member for Leeds West (Rachel Reeves), has often spoken of her fiscal rules that will have debt falling in the final year of the next Parliament. At the autumn statement last week, the OBR confirmed that public sector net debt is set to fall in that final year, with headroom of £30 billion. Implementing the permanent tax relief for business investment, plus the legislation before the House today, represents a choice to use around £20 billion of that £30 billion of headroom on these measures.

There is a path here, if the Opposition want it, to deliver the £28 billion a year. They could use up every penny of headroom, reject full expensing and reject today’s tax cuts, but what they cannot do—what the OBR, the financial markets and every secondary school maths textbook will not let them do—is vote for our policies today, borrow an extra £28 billion a year and still meet their own fiscal rules. The numbers simply do not add up. That is what I mean by choices.

The Opposition have to choose. Do they stick to their plan to borrow an extra £28 billion a year, which the Institute for Fiscal Studies says risks sending inflation, interest rates and mortgage rates up, or do they choose our plan to bring inflation down, taxes down and debt down? They cannot have it both ways. If the shadow Treasury team has no answer today, it will fall to the Leader of the Opposition to grasp the issue. Rather than anonymous briefings to the BBC over the weekend, he will have to make a choice. That is the difference between being the party of opposition and being the party of government: credibility with the public over credibility with their activists.

This Bill represents the choices made on this side of the House. I have spoken at length about why we have made them. I hope that the shadow Financial Secretary to the Treasury, the hon. Member for Ealing North (James Murray), can inform us honestly and straightforwardly on which side of those choices his party will land. If he cannot, we can all conclude, as Lord Mandelson himself said only a few months back, that Labour is not ready to be the party of government. I commend the Bill to the House.

Hon. Members may recall that when the Government published that legislation, their own tax information and impact note on that tax rise confirmed:

“There may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.”

We opposed that legislation, and it was clear to a wide coalition, including the Federation of Small Businesses, the British Chambers of Commerce, the CBI and the TUC, that it was the worst possible tax rise at the worst possible time.

As time went on, the then Chancellor—now the Prime Minister—realised that he had made a mistake. He tried to make a partial U-turn in last year’s spring statement by increasing national insurance thresholds, yet the Institute for Fiscal Studies quickly pointed out that that move would not undo damage already done. Its director, Paul Johnson, confirmed:

“Almost all workers will be paying more tax on their earnings in 2025 than they would have been paying without this parliament’s reforms to income tax and national insurance contributions, despite the tax-cutting measures announced today.”

Later last year, the 1.25 percentage point national insurance rise was finally reversed, yet, as we know only too well, any benefits that many families may have hoped to gain from that U-turn were rapidly eclipsed by the Tory mortgage penalty, following the Conservatives’ catastrophic mishandling of the economy. The impact of that recklessness is still with us today, as mortgage holders across the country face a hit of £220 a month when their current deals end.

The truth is that whatever the Conservatives do, they keep making working people worse off. That has been true over the 13 years that they have been in power, it has been true over the past two years of changes to national insurance, and it will be true after the Bill becomes law.

The Chief Secretary to the Treasury has been trying desperately to paint today’s national insurance cuts as the answer to the cost of living crisis. Last week, she claimed that

“taxes for the average worker have gone down by £1,000”.—[Official Report, 22 November 2023; Vol. 741, c. 360.]

I believe she repeated that claim today, yet analysis by the House of Commons Library makes it clear that national insurance and income tax on the median earner will rise from £6,112 in 2010-11 to £7,364 in 2024-25. Will she confirm—or will the Financial Secretary confirm on her behalf—whether she stands by her earlier remarks and explain exactly how those figures were calculated? The experience of people across Britain is very different from the picture that she is trying to paint.

As we all know, because of that low growth, the Conservatives have had to keep putting up taxes on working people. Low growth and high taxes have made people across Britain worse off. That is the reality of the past 13 years of the Conservatives in power. The Bill’s tax cuts cannot even remotely compensate for the damage they have done to our economy and the living standards of people across Britain.

Although we support today’s tax cut, we know that our country needs economic growth to make working people better off and to get our public services off the floor. That is the plan from Labour. We are the party of fiscal responsibility and of business, with a plan to make working people better off. Come the next election—it cannot come soon enough—people across Britain will look at the Conservatives’ record and the bleak achievements they will claim. In this Parliament, real disposable household incomes will have fallen the furthest, following 20 years of pay stagnation. Real average earnings are not forecast to return to their 2008 peak until 2028. Four million people have been dragged into paying tax, with 3 million more in the higher rate—the biggest hit to income on record. Next year, real-terms income will be 3.5% lower than it was before the pandemic. This the biggest tax-raising Parliament Britain has ever seen.

Whatever the Conservatives say or do, and whichever way they try to twist and turn, reality has caught up with them. We have been here before. We remember the Conservatives promising to cut income tax ahead of the 1997 election. Back then, people decided that it was too little, too late, coming as it did after 22 tax rises in that Parliament. As this Parliament approaches its end, today’s Conservative party is showing itself to be even more divided and desperate than in the late ’90s. As the next election draws nearer and the Conservatives try to cling on to power, the risk grows that they will get more desperate with their promises and more reckless with taxpayers’ money. Britain needs a plan to get the economy growing and make working people better off. That is what Labour is offering and why a general election cannot come soon enough.

I also welcome the simplification of taxes—a concept our Committee is committed to. Far too many things in our tax system act as disincentives to doing an extra hour of work. There are too many complicated withdrawal rates. The steps taken on class 2 and class 4 contributions represent a simplification of the tax system. Interestingly, we were told in our evidence session that the changes to class 2 and class 4 reduce

“the incentive for people to incorporate to gain a tax advantage.”

We should have a tax system that is broadly neutral on those two things.

Professor Miles told us that he thinks that the national insurance cuts are “unambiguously” a more positive incentive to work. The Office for Budget Responsibility does not see the measures as inflationary. He also said that

“some people at the margin who thought it perhaps was not worth working might now be persuaded to actively try to get a job”,

and that the measures will help retain people in the labour force.

To conclude my short remarks on the narrow measures in the Bill, I wanted to focus on the evidence that we have received on the choice that the Chancellor took on national insurance, and how that is very much focused on the structural challenges that the UK economy faces.