National Insurance Contributions (Reduction in Rates) (No.2) Bill

The reasoned amendment in the name of the Scottish National party leader has been selected.

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

For the second time this year, we are cutting taxes for 29 million working people across the country—something that is particularly remarkable in the aftermath of the worst pandemic in 100 years, the worst war in mainland Europe since 1945, and the highest energy spike since the 1970s. The Government have had to take difficult decisions to restore the public finances, and those decisions are starting to pay off. Our economy is growing, and debt is forecast to reduce. Inflation is down significantly, unemployment is at near-record lows, and wages are rising. As the outlook improves, our priority is to return money to working taxpayers while keeping the public finances on track.

We believe that the tax system should be fair and simple, and should reward hard work, yet the way we tax people’s income is particularly unfair. People who get their income from having a job pay two types of tax: national insurance contributions and income tax. People who get it from other sources pay only one. The result is a complicated system that does not support work as best it could. For that reason, the Bill will build on the changes to national insurance contributions in the autumn statement.

The Bill contains two measures: a reduction in the NICs employee class 1 main rate, and a reduction in the NICs class 4 main rate. Both measures are important. Allowing working families to keep as much of their hard-earned money as possible is a priority for the Government. The Chancellor has always been clear that when we can cut taxes, we will.

My hon. Friend is making a great speech, and I fully support the Government’s efforts to reduce the taxes of working people, alongside the pledge to increase the money going to pensioners through the triple lock. Does he agree that it is disgraceful that, while the Conservatives are working hard to cut taxes and help working people, Labour is increasing the share of council tax for all Londoners, and hitting drivers with charges of up to £12.50 per day thanks to the ultra low emission zone?

My hon. Friend is consistent in holding the administration in London to account. He is right: as we are still not out of the woods when it comes to the cost of living crisis, the Conservative party has made it clear that we disagree with the Mayor of London’s approach of making motorists poorer.

As I said, building on the changes in the autumn statement, we will once again be supporting working families by reducing the main rate of employee class 1 NICs by two percentage points to 8% on earnings between £12,570 and £50,270 from 6 April 2024. That will cut taxes for over 27 million employees. The average worker on £35,400 a year will save £450 a year, and the majority will see the benefit in their payslips at the start of the new tax year. Taken together with the cuts to NICs in the autumn statement, this tax cut is worth some £900 a year to the average worker.

In addition, we are implementing a further reduction in the main rate of class 4 NICs for the self-employed. The Chancellor announced in the autumn statement that the main rate of class 4 will be reduced from 9% to 8% from 6 April. Today, we are cutting the rate by an additional two percentage points from 8% to 6% from April 2024. That is a total cut of three percentage points in just six months. Combined with the abolition of the requirement to pay class 2, which was announced in the autumn statement, that will save an average self-employed person £650 a year, and benefit over 2 million people across the country.

Together with the autumn statement cuts, this is an overall tax cut worth some £20 billion per year—the largest-ever cut to employee and self-employed national insurance. Because of the action that we have taken, the average earner in the UK now has the lowest effective personal tax rate since 1975. The Government are committed to tax cuts that reward and incentivise work and that grow our economy sustainably and boost productivity. The Office for Budget Responsibility has said that the national insurance cuts announced in the spring Budget will increase the total hours worked by the equivalent of almost 100,000 full-time workers by 2028-29. Because of the cuts, just over 30,000 people will move into work. These reductions in tax will drive more people to seek employment. This is our plan for a simpler, fairer tax system that makes work pay.

My hon. Friend is making a powerful Conservative speech about the importance of not just cutting tax but getting more people into work. Has the Department estimated how much more tax revenue will come in as a result of more people working because of these changes, so that we can show that lower taxes actually increase tax revenues for the Exchequer?

My hon. Friend is right to point that out. A fundamental benefit of reducing tax is that it improves growth in our economy, because more people will be in work and working longer hours. That obviously generates more productivity for our economy, and ultimately more tax revenues for the Exchequer. It is a fundamental Conservative principle that we want lower taxes, and we are delivering that today because it is fiscally responsible to do so, and we are able to do so.

I am grateful to my hon. Friend for making such a powerful case for cutting taxes, a fundamental Conservative principle. The Bill will put £960 back into the pocket of the average worker in Southend, who earns £36,400, and will put £1,920 back into the pockets of a family in Southend with two people on the average wage. Does he agree that that is a considerable and welcome tax cut for hard-working people in Southend?

My hon. Friend is right to point that out. I would add to those figures: since 2010, we have lifted millions of people across the country, including in Southend West, out of paying any tax at all by doubling the point at which people start paying tax in our country. People can now earn £1,000 a month without paying any tax, and that is a great achievement of a Conservative Government.

Although I welcome the fact that Labour Members will apparently vote for our tax cuts today, I hope that they will forgive me for sounding slightly sceptical about their sudden conversion to the cause of lower taxes for working people. While they do not oppose the measures, they also did not propose them. In fact, Labour has consistently voted against successive Conservative-led tax cuts between 2010 and 2021, which delivered a doubling of the personal allowance, as I mentioned to my hon. Friend the Member for Southend West (Anna Firth). On the one hand, they bemoan the level of taxation, but cannot tell us a single tax that they propose to cut, or what the level of taxation would be under Labour. On the other hand, the shadow Chief Secretary to the Treasury, the hon. Member for Bristol North West (Darren Jones), described our ambitions to remove unfairness in the tax system as “morally abhorrent”. Labour Members still cannot tell us how they will pay for their many spending commitments. They are completely all over the place. It is only the Conservatives who truly believe in reducing taxes on working people.

The Minister is giving a clear explanation of why the Conservatives want to cut tax, and the economic benefits of cutting taxes for working people. He will know that the origins of national insurance were basically a form of social insurance: having paid national insurance, it would look after us later in life. The Labour party took the insurance out and put the socialism in, which is why we have ended up with a system that is essentially the same as income tax. As we think beyond today’s welcome cuts to what is in the Opposition new clause, has the Minister thought about using any further cuts to go into the compulsory savings of individuals introduced under the coalition Government after 2010—essentially building, in place of a dependency state, a savings state built on Conservative principles?

Yet again my hon. Friend makes a valuable contribution. I commit to taking his idea away to consider, as we look at reducing the unfairness in the tax system in future and reducing national insurance contributions when it is prudent and responsible to do so.

The Labour party is completely all over the place on this. As a Conservative Government, we have delivered a clear message to the British people, and it is based on the delivery of the lowest personal taxation level since 1975. We have almost doubled the personal allowance, bringing the lowest earners out of paying any tax at all, and we have delivered a thriving jobs market, which is ultimately the best way to ensure that people are brought out of poverty.

I hope to speak a bit later on this. I may have a slight difference of opinion with the Minister on tax cutting, but I want to deal with the facts as I see them. He is making a great amount of noise about the tax-cutting vim and vigour that his party has had over the past 10, 20 or 30 years, or even longer than that—it is meant to be something that goes to the heart of the Conservative party—but according to the OECD, for every £1 generated in the UK, the Government collect 35.3p of it as tax. That figure is projected to keep on increasing to 37.7p by 2029, despite this 2% tax cut. Can the Minister explain how, if the Conservatives are the party of tax cuts, actual tax levels will in fact be going up, according to the OECD? How do the Government square that circle?

I am grateful for the opportunity to clarify that, because there has been a lot of noise from the Labour Benches, too. It is true that we have had to make some difficult decisions about overall taxation on the back of the pandemic, but today we are cutting taxes on work, because that is the way to grow our economy. As I said, we now have the lowest personal taxation level since 1975. Some taxes have gone up, absolutely—supported by the Labour party—as we have increased tobacco duty and other items, for example, but we are focused on ensuring that if people are in work and have a job, their tax level will be reduced. Today, that work of reducing tax on work continues. We are cutting taxes for millions of people across this country. That is why I commend the Bill to the House.

Let me start by saying that the official Opposition will support the national insurance reductions before us. We have long said that the tax burden on working people is too high and should come down in a responsible way. In fact, when the now Prime Minster was pushing through a national insurance increase two years ago, we opposed it. Labour has consistently said that we want taxes on working people to be lower. Just as we supported the reductions in national insurance in January, we support the further measures announced in the Budget last week that are before us today.

The truth is, however, that neither the national insurance cuts nor anything else in the Budget changes the fact that people across Britain are worse off under the Conservatives. The Government are giving with one hand, but are taking far more with the other. Figures from the Office for Budget Responsibility show that for every £5 that working people will get back from the Government’s national insurance cuts, they will be losing a total of £10 thanks to the Conservatives’ tax plan. That tax plan will leave the average household £870 worse off and will drag 3.7 million more people into paying tax by 2028-29. Last week’s Budget confirms that, even after the changes we are considering today, the tax burden will continue to rise in each and every year of the forecast period, with the UK still set to have its highest tax burden in 70 years. That is the reality of Britain under the Conservatives, and that is why people across the country are saying it is time for change.

The national insurance reductions in the Bill were mentioned by the Chancellor toward the end of his Budget statement last Wednesday. The cuts had of course already been confirmed in the media by Government sources in the days before, so they came as no surprise. Many of us in the Chamber were wondering whether the Chancellor would follow the time-honoured tradition of ending his Budget by pulling an unexpected, and as yet unannounced, rabbit out of the hat. It turns out he did have a rabbit, but even after all the chaos of the Conservatives over the past few years, many of us could not quite believe what we were hearing: the Chancellor’s big pitch to the British people in the last Budget before the general election was a £46 billion unfunded tax plan.

I have a lot of respect for the hon. Gentleman. He comes from a professional background, and, compared with most people on the Labour Benches, normally knows what he is talking about. However, I want to follow his logic when it comes to what he claims is a reckless potential abolition of national insurance. If abolishing all national insurance is reckless and will lead to the country going to hell in a handcart, as he so wants to portray it, why is Labour not opposing a reduction in national insurance? Surely, if he does not oppose a reduction in national insurance, his argument completely falls down, because that means that national insurance can be got rid of.

I thank the hon. Member for his intervention—I think. He misses the point. The commitment by the Chancellor, the Prime Minister and, I think, the Treasury Ministers, although they seem to oscillate a little in their position, is to get rid of national insurance entirely—to abolish it at a cost of £46 billion—but they are refusing to say how that would be funded. We saw what happened in autumn 2022 when unfunded tax cuts were proposed by the Conservative Government: it crashed the economy and pushed up people’s mortgages and rents. That is the risk of the Conservatives to the British people, that is the risk to the economy, and that is why we need a general election.

If the Conservatives want to move on from this discussion, they should give assurances on the matter when they respond to the debate. If they do not give those assurances and are not able to distance themselves and rule out their plan to abolish national insurance, we will know that they have essentially given up on governing, are incapable of acting responsibly, and are putting their party before the country with their reckless plans.

As I said at the start of my speech, we will support the Bill because, after 14 years of the Conservatives and 25 tax rises in this Parliament alone, the tax burden on working people is too high. Labour wants the tax burden on working people to come down in an economically and fiscally responsible way. However, let us be clear about the context of this Bill and the changes it makes to national insurance. Even with the Bill’s national insurance cuts in place, households across Britain are set to be an average of £870 worse off as a result of the Conservatives’ tax plans, and the tax burden in the UK is still set to rise to its highest in 70 years.

To make people better off and support public services, we need a plan to get the economy growing. We needed last week a Budget with a long-term plan to bring about growth and help to rebuild our public services. That is what the country needs, and that is what Labour is offering with our plan to grow the economy through stability, investment and reform. That is not what we saw last week, however. According to the British Retail Consortium, the Chancellor did