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Harriett Baldwin moves Government National Insurance Bill

15th September 2015

Harriett Baldwin moves the Second Reading of the National Insurance Contributions (Rate Ceilings) Bill which will freeze Class 1 National Insurance contributions paid by employees and employers for the duration of the 2015-20 Parliament.

The Economic Secretary to the Treasury (Harriett Baldwin): I beg to move, That the Bill be now read a Second time.

This Bill implements our manifesto commitment not to increase national insurance contributions for employers and employees. It will be interesting to discover whether it will be opposed by Her Majesty’s Opposition now that their new leader favours a 7% increase in national insurance for higher earners.

Hon. Members will be aware of the Government’s strong record of significantly reducing the burden of national insurance. At Budget 2011, my right hon. Friend the Chancellor announced a £21 a week above-inflation increase to the employers’ national insurance threshold. In 2014 we introduced the employment allowance to support businesses and charities across the UK by saving them up to £2,000 every year, and that has already benefited well over 1 million employers. The Government are now going further, and hon. Members will recall that the Chancellor announced in the summer Budget that that saving would be increased to £3,000 from next April. That means that a business will be able to employ four people full time on the national living wage and pay no national insurance at all.

From April 2015, the vast majority of employers employing under-21-year-olds were lifted out of employers’ national insurance as well. The exemption will be extended to cover apprentices under 25, helping young people to stand on their own two feet and fulfil their aspirations.

Lady Hermon (North Down) (Ind): I am sorry to intervene so early in the Minister’s speech, but for the sake of clarity will she explain the long title to the Bill, which appears to apply only to class 1 national insurance contributions? I presume that the other classes will be covered in due course.

Harriett Baldwin: My remarks will be so short that hon. Members will need to intervene quickly with their points of clarification on this five-clause Bill. The hon. Lady will be aware that in the summer Budget the Chancellor announced that we are asking the Office of Tax Simplification to look at class 2 and class 4 contributions. We are expecting that consultation, which opened on 21 July, to inform the Budget next year. She asks a sensible question and I welcome her curiosity.

Debbie Abrahams (Oldham East and Saddleworth) (Lab): Can the Minister clarify what assessment she has made of the number of self-employed people who may apply for an exemption from paying class 2 contributions, especially as at least half of the increase in employment is self-employed people and, on average, self-employment incomes have fallen to less than £10,000?

Harriett Baldwin: We are very pleased that we are backing those who want to take a chance, start their own business and become self-employed. In fact, we have taken measures in previous Budgets to simplify the process so that self-employed people can consider making those contributions alongside their self-assessment.

Mr Jim Cunningham (Coventry South) (Lab): Has the Minister done an impact assessment on public services—for example, the impact that the Bill will have on the national health service and benefits?

Harriett Baldwin: I am delighted to hear the first bid from the Opposition not to freeze national insurance for employers and employees. As the hon. Gentleman will know, national insurance contributes a substantial sum to the Exchequer and we have committed as a Government to continue to increase the amount of money that goes into the NHS.

Mr Cunningham: The Minister should not twist my words. I asked her about the impact of the Bill.

Harriett Baldwin: Of course, the impact of freezing national insurance for employers and employees is that throughout the life of this Parliament they can have the confidence that their national insurance rates will not change—a confidence they would not have if the hon. Gentleman had any say in it.

Barbara Keeley (Worsley and Eccles South) (Lab): The Minister’s team might helpfully do something about the fact that if one searches online for the impact of this Bill, one gets a 404 error message. It would be useful to have some view on the Bill’s impact.

Harriett Baldwin: I thank the hon. Lady for her sensible suggestion. I know that those who put together the impact assessment online will have taken her wise words to heart and will make a change. Clearly, when one brings in legislation to freeze national insurance rates, the impact is that there is no change in national insurance and therefore no impact to report.

Rehman Chishti (Gillingham and Rainham) (Con): I have businesses in my constituency that work hard and do the right thing. They do not want to be clobbered with more taxes. The impact of the Bill is that if people do the right thing and work hard, the Government will support them to succeed in life.

Harriett Baldwin: I thank my hon. Friend for making that excellent point. The Government want to back small businesses, entrepreneurs and those who want the certainty over the next five years that if they employ five people on the new national living wage, they will not have to pay any national insurance because of the employment allowance.

Debbie Abrahams: May I press the Minister on the point I made in my earlier intervention, which she did not actually answer? What assessment has she made of the number of self-employed people who earn so little that they could apply for an exemption from class 2 national insurance contributions?

Harriett Baldwin: When one starts out in business, it is often the case that one earns a small amount, but it is those fantastic people who start businesses, often at their kitchen table, whom the Government are trying to back with the measures in the Bill, which will give them a certainty that they would not have if Labour were in charge.

Andrew Stephenson (Pendle) (Con): Freezing NI is important for my constituents, many of whom are low wage earners and have benefited tremendously over the last few years from the dramatic rise we have seen in the personal allowance. Does my hon. Friend agree that hard-working people already pay enough in tax?

Harriett Baldwin: I certainly agree that the Government are keen to take steps to back an economy that continues to grow and to create jobs so that everyone can have the dignity of taking home a pay cheque or starting their own business. We have taken other steps in the Finance Bill to raise the amount that people can make before having to pay income tax, and that is what this Government stand for.

Andrew Gwynne (Denton and Reddish) (Lab): Surely the Minister has not forgotten that in the lifetime of the previous Parliament—from 2010 to 2015—no fewer than 24 tax increases were put on working people by her Government. The latest Budget also includes the tax increase on insurance premiums.

Harriett Baldwin: That is an extraordinary line of attack. The Government have nearly doubled the personal allowance—the amount that people can make before they pay income tax—from the £6,475 that the hon. Gentleman thought was appropriate at the end of the 2010 Parliament. That is what this Government stand for.

Mark Spencer (Sherwood) (Con): Will the Minister comment on how successful the previous Government were in getting people into work? This policy is in addition to that record and will increase the number of people in employment, taking home a wage packet and providing for themselves.

Harriett Baldwin: That gives me a welcome opportunity to state that every Labour Government in history has left office with more people out of work than when they came into office. This is the party of working people and we created many jobs during the last Parliament, which no one expected, and we continue to back businesses and their growth through this Bill.

Simon Hoare (North Dorset) (Con): My hon. Friend may be ruing her invitation to Members to intervene. In a constituency such as mine, where the main focus of economic activity is on micro and small businesses, one of the first questions that a potential employer asks is how much it will cost to take on an additional person. That is the engine that will grow the economy, and the Bill is extremely welcome.

Harriett Baldwin: My hon. Friend’s point is well made, because in North Dorset and around the country it is the small and micro businesses that are the engines of job creation. That is why the employment allowance is so important—it will mean that a small business taking on its first employee will not have to pay employers’ national insurance at all under this Government. Indeed, if every small business took on just one extra employee, we would have full employment. That is why the Government back small businesses.

Kevin Foster (Torbay) (Con): One of the problems with national insurance contributions for employers is that they are a direct tax on employment, making it more expensive to employ someone in both the private and the public sector. It may be worth while Opposition Members noting that putting up national insurance contributions for employers would hit local councils severely, giving them an extra bill to pay. The Bill backs business, but it will also help public services by keeping their bills low.

Harriett Baldwin: My hon. Friend is right. The Bill’s measures strongly back business and other employers, many of whom will benefit from the employment allowance too.

The Bill legislates our commitment to provide certainty on national insurance rates for the duration of the Parliament. Hon. Members will be aware that our other commitments in the manifesto to lock taxes were that we would not increase the main rates of income tax and value added tax, as well as not increasing national insurance. The Finance Bill will deliver those commitments and this Bill delivers the commitment on national insurance.

Rehman Chishti: The Bill is very much welcome and goes hand-in-hand with what the Government are doing in other areas, such as the local growth fund. The Government have set aside £12 billion, £7 billion of which has already been spent on building homes and supporting businesses. The wider picture is that the Government are supporting businesses on the front line, creating homes, jobs and opportunities. That is the right way forward.

Harriett Baldwin: My hon. Friend is absolutely right. This is part of a package of measures the Chancellor announced in the July Budget.

Andrew Rosindell (Romford) (Con): The Office of Tax Simplification has been asked to look at proposals to merge income tax and national insurance. Will the Minister say where we are with that? In particular, what assessment has been made of its possible impact on pensioners?

Harriett Baldwin: My hon. Friend is correct. In the summer Budget, the Chancellor announced a consultation on behalf of the Office of Tax Simplification. It is currently undertaking its work. I expect my right hon. Friend to take its recommendations into account in due course.

Turning to the detail of this five-clause Bill, it provides that the rate of class 1 national insurance contributions paid by employees and employers must not exceed existing rates.

James Cartlidge (South Suffolk) (Con): On a point of clarification—this may be a bit cheeky—I take it that we could reduce national insurance if we wanted to. The Bill would not stop us doing that.

Harriett Baldwin: That is not a cheeky question; that is a very sensible question. It is indeed the case that we will still be able to reduce levels of national insurance. This is only a ceiling, as is noted in the Bill’s title.

It has been the convention that the level of the upper earnings limit for national insurance is aligned with the level of the higher rate threshold for income tax. The Bill formally limits increases to the upper earnings limit, so that its annual equivalent amount cannot exceed the level of the higher rate threshold for income tax. Both the restriction on national insurance rate rises and changes to the upper earnings limit come into force on Royal Assent and apply until the start of the tax year following the date of the first parliamentary general election to take place after Royal Assent.

The Bill provides certainty for employers and for employees that the national insurance rates that affect millions of employees and employers across the UK will not rise for the duration of this Parliament, and that the upper earnings limit will not exceed the higher rate threshold. The Bill demonstrates the Government’s commitment to provide certainty on tax rates for the duration of this Parliament. I commend it to the House.

1.53 pm

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