National Insurance Contributions Increase
Published date : 08 March, 2022
That we are currently experiencing the gravest cost of living crisis in memory should not be in the least bit a controversial thing to say. It has been caused by inflation from a number of fronts: the shortage of labour caused by Brexit and the ending of free movement; the increased trade frictions as a direct consequence of Brexit; covid-19 and all that has befallen us over the last two years; and, most recently, the rapidly increasing costs of energy. Amidst all this it is absolutely extraordinary that any sentient, competent Government would seek to pile on the agony by increasing national insurance contributions for employers, employees and the self-employed.
I will give way shortly but first want to make some progress, because this represents a shattering of the Conservatives’ manifesto promises—and I am sure the hon. Member will want to be fully cognisant of this before he takes to his feet to chide me. On page 2—the inside page—of the Conservative party’s 2019 manifesto, entitled “Get Brexit Done: Unleash Britain’s Potential”, we had an introduction from no lesser a personage than the Prime Minister himself, rather grandiosely titled “My Guarantee”, which said:
“We will not raise the rate of income tax, VAT or national insurance”.
That was signed off with the Prime Minister’s signature, and it was a statement quite literally not worth the paper it was written on.
I am spoiled for choice; I give way to the hon. Member for South Cambridgeshire (Anthony Browne).
For a moment there, I was going to ask the hon. Member if he would give way to me. Yes, I do accept most of those things but, as I also set out very clearly, there are those aspects that are exogenous and global and there are those, such as through Brexit and from the poor response to covid in many respects, that are entirely self-inflicted. I am happy to draw a distinction and I hope that, on reflection, the hon. Member might do so, too.
Let us not be in any doubt about the enormity of the crisis facing us. The National Institute of Economic and Social Research has warned that the number of UK households classed as destitute could rise by nearly a third to more than 1 million this spring after the Government bring in their national insurance increase. Ofgem recently announced that millions of householders will see their energy bills rise by £693 as a result of the increase in the energy cap from April. The Joseph Rowntree Foundation warns that the energy price cap rise will have a harsher impact on the poorest families, who will spend on average 18% of their income after housing costs on energy bills after April. Energy UK recently warned that household energy bills could rise by another £1,000 by October as wholesale gas prices continue to soar, with households facing the prospect of bills between £2,500 and £3,000 this year. Consumer prices, as measured by the consumer prices index, were 5.5% higher in December 2021 than a year before, the highest inflation rate recorded since 1992. And of course we must not forget that the Bank of England increased interest rates from 0.25% to 0.5% and forecasts that real household disposable incomes are set to fall by 2%.
The UK Government’s “Health and Social Care Levy” police paper claims:
“This levy provides a UK-wide approach which enables us to pool and share risks and resources across the UK”.
In accepting that, we should be absolutely clear about whom the risks are being pooled among. We must be in no doubt whatsoever that the upcoming national insurance hike is a tax on jobs as well as on individuals, when people are already suffering. The increase will not touch property income, pensions or income from savings, but will fall squarely on the shoulders of those who are salaried or whose income is drawn from profits.
We have heard about figures showing that the top proportion are paying higher amounts, but we would expect that. What I am interested in is the marginal rate of tax, because that is the true measure of fairness—how much of someone’s income they are having to give over as a result of a taxation measure. Let us look at one group in particular: our students. This national insurance hike will mean that, if student loan repayments are included, graduates earning just over £27,000 will pay a marginal tax rate in excess of 42%. We have heard that government is about choices and it is clear from the choices this Government are making that the combined effect of their policies will hit the lowest earners, the youngest earners and those with the least economic assets the hardest.
I say that I very much doubt that, and there is analysis by the Institute for Fiscal Studies that suggests very differently, but again this comes back to the marginal rate of tax and there is no doubt that this is going to have a greater impact on the marginal rate of low earners than that of higher earners.
I would like to make some progress.
Again, I refer the hon. Member for Gloucester (Richard Graham) to the concept of the marginal rate of tax and ask him to look at the totality of the impact—if he had been patient I would have happily given way; he had no need to resort to such devices.
On raising additional resources for health and social care, as we are invited to believe this levy is supposed to do, it is surely much fairer as a general principle to spread the burden by increasing income taxes across the board on both earned and unearned income, as well as to look again at areas such as inheritance taxes and capital gains, so that the totality of the wealth of the nation can be taken into consideration in sharing the burden. There is a real danger in my view, particularly as a result of localised property price inflation, that this policy will further widen economic, social, generational and geographical divides, baking that unfairness into the social and economic settlement for decades to come. We have a Government who like to talk the language of levelling up while doing the exact opposite on personal and business taxation. We will be paying the costs of that in reduced growth and lower incomes for many years to come.
That is the problem from a social justice perspective, but it is almost every bit as bad from a policy making perspective. Apart from moneys going to the NHS in England and an unspecified amount eventually trickling through to social care in England, we still have only the sketchiest idea of what this resource will be invested in. There are significant whole-system problems in health and social care in England which predate covid. That is not to say things are great everywhere else, but I get
absolutely no sense that the UK Government have started to embrace the systemic issues that cause the blockages and poorer outcomes that are there and that money will only go so far to solve, including the high levels of unmet need, staff shortages and poor workforce pay and conditions, as well as the fragile provider market. In that sense, the Government are doing what they routinely like to criticise others for and focusing on inputs rather than outcomes, and surely outcomes for people in health and social care should be driving the reform that is needed.
It is not in doubt that there was a pre-covid pandemic crisis in health and social care, let alone the post-covid one, but that will not be remediated either by this policy or by the Prime Minister’s utterly bogus repeated claims about building 40 hospitals. Reform requires thought as well as resource, but surely fairness demands that the resource for that reform comes primarily from those with the broadest shoulders and an economy that is able to and is growing sustainably and productively.
I support Scottish independence and want full tax powers for Scotland, and I have no doubt in my mind that an independent Scottish Government would not be using the equivalent of national insurance in such a way for this purpose. Until that changes, we are stuck with and reliant on the Conservatives—out of all character—prioritising the interests of those on lower and middle incomes over the most wealthy.
Go on—give me one last chance.
I do not think that is true, but, even if it was, those economies that fall the furthest rebound the fastest.
We seem to be reliant on the better nature of the Conservative Government—one that sadly is often lacking—with them somehow going against all their instincts to protect the interests of lower and middle-income earners over those of the highest. I shall not be holding my breath on that front.
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