National Insurance Contributions (Increase of Thresholds) Bill
Published date : 24 March, 2022
May I say what a pleasure it is to follow the hon. Member for South Dorset (Richard Drax), whose speech I very much enjoyed? I hear the paeans to the Conservatives being the party of freedom and low taxes, so it will no doubt come as a shock to him that the Office for Budget Responsibility wrote yesterday that taxes will rise to their highest level as a share of national income
“since the late 1940s under Clement Attlee’s post-war Government.”
I know that the Conservatives love to compare themselves with previous Labour Governments, but I was not aware that they intended to compare themselves with that one. The big difference is that under Clement Attlee’s post-war Government, nobody could be in any doubt about the intention to raise living standards for all and to share the burden equitably. [Interruption.]
I hear the comment, “The big difference was a pandemic”, but there was a big difference because of world war two as well, hence the “post-war” bit. However, I will gladly take an intervention once I have made a bit of progress.
The Scottish National party welcomes the Bill insofar as it goes. We are clearly in the midst of the worst cost of living crisis in living memory. Inflation is spiralling and is set to hit 8.7% later this year. Some of that is common to industrialised economies around the world, but let us be perfectly frank that other elements of it are entirely self-inflicted because of the Government’s choices. That resonates through people’s pocket books, with the OBR forecasting the sharpest fall in real earnings since the 1970s and the biggest hit to real household disposable income since records began in the 1950s. That is certainly not a record to be proud of.
The Chancellor had a golden opportunity yesterday to do something to ease the pressure on hard-working individuals and families, to help those on benefits and to give much-needed respite to businesses trying to trade their way back to health and prosperity. The circumstances were as auspicious as they ever could be. The Chancellor had headroom of approximately £30 billion that he could have worked within, as a consequence of increased tax revenues through fiscal drag and because of borrowing undershooting the forecast levels. There was the potential to make a significant difference for those who were feeling the pinch the greatest.
And what did we get? In the face of a 30p-a-litre rise in costs at the petrol and diesel pumps, there was a 5p cut in fuel duty, which barely takes the cost at the forecourts back to where the prices were last week. That offers no respite to the motorist or consumer or, indeed, to all of us, given that we are all affected by the price of goods that are transported on lorries or vans to the shops. Despite an admission that research and development funding was not having the effect that it ought to in driving growth, we had a promise just to spread that ever more thinly rather than focusing on where it could have the greatest effect.
On energy costs, we had a VAT cut on energy efficiency products, although, frankly, the mind boggles at how someone who is struggling to pay their existing utility bills will somehow find the money—VAT or not—to install solar panels, heat pumps or anything else that might be covered. We had the frankly paltry increase in the household support fund from £500 million to £1 billion. That is just one fifth of the impact of the 5p cut in fuel duty.
The blunt reality is that anyone who woke up yesterday morning worrying about how they would pay their energy bills will have woken up this morning confronted by exactly the same set of worries.
I presume that the hon. Member is a supporter of the present constitutional set-up. I know that he sought election in Scotland before finding his present constituency, and in view of that he ought to be aware that only some powers are devolved, and the Scottish Government have limited fiscal powers. Those powers that they do have, however, they have used effectively. They have reduced taxes for about 54% of workers, and have also introduced benefits such as the Scottish child payment, which is doubling. They have used the limited powers at their disposal judiciously. If the hon. Member is patient, I may accept a further intervention from him when I come to other aspects of the deficiencies in that fiscal settlement.
As I have said, 54% of Scots are paying lower rates of tax than they would be paying if they lived elsewhere in the UK. Overall, the tax system has been reshaped to make it more progressive and, I would argue, more equitable. According to the Resolution Foundation, about 1.3 million people across the UK will be pushed into absolute poverty as a result of tax decisions made by this Government. I have to say that it is a bit rich to argue, as some Conservative Members wish to do, that the Scottish Government, on a budget that is determined in great part by political decisions taken in this place, should be dipping into the revenues that it has earmarked for essential public services in order to mitigate the impacts of poor choices made here.
The Scottish National party has been sharply critical of the national insurance rise since it was first announced, for straightforward reasons. We believed that it was a regressive tax. It hit the lowest earners the hardest. It was a tax on jobs, and therefore a tax on growth. It was rebranded as a “health and social care levy”, although the Government had no clear idea of how the money was to be spent within the NHS, and could not clarify the question of how any of it would be passported through to social care services in England. Moreover, as a result of its impact on people’s incomes, it would bake
in inequality—both generational and geographical—for decades, mitigating social care costs for some but not for all.
The Bill removes some lower earners from the liability that the Chancellor has created, and we welcome that partial retreat. Realigning national insurance and income tax thresholds is broadly sensible, but I believe—I am happy to be corrected on this point—that it only takes us back to the status quo ante of 2010, when the Conservative Government first came to office. Paul Johnson, the director of the Institute for Fiscal Studies, posed an important question in The Times
“Why promise to spend billions cutting the basic rate of income tax whilst going ahead with an increase in NI rates? That will make the tax system both less equitable and less efficient. It will increase the wedge between higher taxes on earnings and lower taxes on pensions and unearned incomes. And wouldn’t that money have been better spent sooner helping those most in need?”
I certainly cannot quibble with that.
Let us not be fooled: even though the thresholds are moving, this is still a tax increase. There has been no shortage of informed opinion telling the Chancellor that this was the wrong thing to do, but from a political point of view I am bound to say that he has made mugs of his Conservative colleagues—not just those who had to swallow the indignity of betraying a manifesto pledge at the last election, but those who have gone all out to stoutly defend the policy over the last few months.
The manner in which the Bill has come before us exposes the nonsense that this tax rise was ever in any way “hypothecated”. If the right way to fund the health and social care levy was through a hike in national insurance—and I do not believe it was—it cannot also be right to backtrack on the extent of that rise. It is also impossible to argue that it is hypothecated when we see no corresponding increase in the health budget in England.
Raising the threshold will certainly take some people out of the scope of the measure that was previously announced, but overall, for those who are not in that category, this still represents a higher level of tax that they are paying to the state than would have been the case had it not gone ahead.
As with yesterday’s other announcements, notwith-standing the Chancellor’s conceit about being an instinctive tax-cutter, these measures are being paid for largely through fiscal drag. The other invidious element is the fact that state benefits are failing to keep pace with inflation. As the hon. Member for Ealing North (James Murray) said earlier, only one in eight workers will see their tax bills fall by 2025 as a result of these measures, and as I said in my opening remarks, this will be the highest tax burden since Clement Attlee was Prime Minister.
Let me now turn to the Barnett formula. I think that the Bill exposes the fragilities and frailties of that funding settlement. The Scottish Parliament has limited tax and benefit powers, but much of its funding is contingent on policy decisions being taken first of all in this place, for England, before any corresponding resources are released for devolved Governments. We see the foibles and the fragility of that in the Bill, but we also saw it during the pandemic, when decisions had to be taken here before those corresponding resources were released. That, in my view, is not a good way of trying to run the country. We should be trying as far as possible to align policy with resources so that there is clear accountability in terms of decisions made and outcomes delivered, and the funding structures of the devolution settlement are not conducive to that.
In his statement, the Chancellor seemed to me to cut the figure of the pickpocket who expects some credit for returning half an hour later to hand back someone’s wallet after abstracting the cash and cards that were inside it. It is amazing that he should expect any gratitude for what he is doing. I do not believe that any responsible Government seeking to tackle some of the crises facing public services post pandemic would reach for national insurance as the best way to do it. If, as I fervently hope, a Scottish Government will one day have full powers over their finances, I do not believe that they will reach for that lever either.
We support this Bill, but it is very much an indictment of the Government’s priorities that we are here to discuss it at all.
According to the IFS, median earners on around £27,500 can expect to be around £400 worse off in 2022-23 than in this financial year, even after the increase to the national insurance floor. Are they getting back all that they put in? How do the hon. Gentleman’s comments square with the lived experience that people on median earnings will have in the forthcoming financial year?
I think the hon. Gentleman is confusing cause and effect with the complicated system for forecasting tax revenues and then balancing payments between the Treasury and the Scottish Government. Would he like to add that clarification to his remarks?
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