National Insurance

Oral Answers to Questions — Treasury – in the House of Commons at 11:30 am on 27th February 2003.

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Photo of James Gray James Gray Conservative, North Wiltshire 11:30 am, 27th February 2003

What estimate he has made of the effect on employment of the national insurance rises due in April.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

In line with long-established practice, the Government do not forecast employment. However, estimates by independent analysts show that the impact on employment from an increase in national insurance contributions is likely to be close to nil.

Photo of James Gray James Gray Conservative, North Wiltshire

Perhaps it is just as well that the Paymaster General does not predict the effects on employment. May I remind her of the words that the Government used in a press release that tried to justify the climate change levy after the 2000 Budget? They said:

"The lower National Insurance Contributions will act to promote employment opportunities".

Does she accept that the opposite also applies and that higher national insurance contributions will act to the detriment of employment opportunities, so that this is in a very real sense a tax on jobs?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I am sure that the hon. Gentleman welcomes the fact that the reform of national insurance for the low paid removes the barrier that existed for so many people in taking jobs and being employed in the economy. He will remember that he put out a press release calling for more funds to be made available to the national health service. The national insurance rise that provides for that money is supported by people such as Anthony Goldstone, who says that business can benefit from it. If we are to have a first-class health service, we must pay for it. The national insurance rise is the best way to do so and will save money for business, which is currently losing about £11 billion a year in sickness days. It will ensure a healthier work force as well as a more just nation.

Photo of Ann Cryer Ann Cryer Labour, Keighley

Does my right hon. Friend remember that when we introduced the national minimum wage the comments made by Conservative Members were very similar to those that we are hearing this morning about the increases in national insurance contributions? I remind my right hon. Friend that we were told that unemployment would go up by hundreds of thousands and that it would be the end of civilisation as we knew it. I do not think that any Conservative Member would criticise the national minimum wage today.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

My hon. Friend is right. Mr. Howard forecast repeatedly over a number of years that the introduction of the national minimum wage would lose 2 million jobs. In fact, since the election of this Government, there have been more than 1.5 million new jobs in the economy, unemployment is at its lowest rate and employment is at its highest rate. When we compare that with the record of the previous Government—2 million jobs lost, 1 million of which were in manufacturing, and 1.4 million disappearing from the economy—we can see the effect of their proposal for a 20 per cent. cut in public expenditure. That would have a real impact on employment, not the national insurance—

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. May I say to the Minister that her answers are getting overlong and bordering on matters that are outside her responsibilities?

Photo of Michael Spicer Michael Spicer Chair, Conservative Party 1922 Committee

Does the Paymaster General accept that, typically, low-taxed economies are dynamic and high-taxed economies are static?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

To be brief, I entirely agree with the hon. Gentleman. I am glad that he supports this Government, who, according to the Organisation for Economic Co-operation and Development, have created one of the lowest tax environments in the world, certainly lower than any of our European competitors, and the soundest economy of our European partners. What is more, we are paying for a national health service that this nation wants to be the best health service in the world, so that his constituents will get the treatment that they need.

Photo of Anne Begg Anne Begg Labour, Aberdeen South

Will my right hon. Friend confirm that all the money raised by the national insurance rises will be invested in the national health service and that the largest proportion of money will go towards employing extra staff, extra nurses and extra doctors, thereby helping employment?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I can confirm that the rises in national insurance have led to approximately £40 billion more for the national health service. They have meant more nurses, more doctors and more patients being treated, including Conservative Members' constituents, who would not be treated if the Conservative party cut public expenditure by 20 per cent. under the Flight plan.

Photo of Peter Tapsell Peter Tapsell Conservative, Louth and Horncastle

Why is the Chancellor tightening his fiscal stance by increasing national insurance contributions when the growth rate is declining? Does he expect the Bank of England to accommodate his spending plans through further reductions in interest rates? What is the point of pursuing conflicting fiscal and monetary policies?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

We are increasing public expenditure at a time when it is vital to do that; the Conservative party wants to cut it.

Photo of Mr George Stevenson Mr George Stevenson Labour, Stoke-on-Trent South

Is my right hon. Friend aware that she has the full support of Labour Members for the increases that will take place in April to ensure that we have a properly funded national health service that is financed through taxation? I remind her that, in my constituency, expenditure on the health service has more than doubled in the past five years. We will get a new hospital, and the primary care trust's budget has increased by 30 per cent. in real terms. The new hospital will stimulate employment in the constituency—the Opposition often forget that point.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

My hon. Friend is right. There are 20,000 more nurses, 7,500 more consultants, 2,000 new GPs and 60 new hospitals. Those developments create jobs and services in our constituencies. The Conservative party would cut all that through the Flight plan.

Photo of Michael Howard Michael Howard Shadow Chancellor of the Exchequer

May I invite the Paymaster General to return to the real world for a moment? Will she confirm that the tax on jobs and pay, which comes into force 38 days from today, will cost a typical family £440 a year? Will she also confirm that, at the same time, massive council tax increases—even greater than the huge rises forecast in the pre-Budget report—will take effect? Is it any wonder that the Health Secretary recently said that there would be

"one hell of a lather about taxes rising", and that many people would conclude that the Government's approach "actually . . . isn't working"? Does the Paymaster General agree with the Health Secretary's comments?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The right hon. and learned Gentleman should return to the real world in his constituency, where he calls for more expenditure on health. He needs to tell hon. Members where he would find the extra money. He should explain to the House and his constituents why he supports the Flight plan, which would cut public expenditure by 20 per cent.

Photo of Michael Howard Michael Howard Shadow Chancellor of the Exchequer

The Paymaster General and the Chancellor can dissemble all they like about our policies, but we will tell the truth about theirs. Has the Paymaster General forgotten the Labour party's 1997 election manifesto? It stated:

"The level of public spending is no longer the best measure of the effectiveness of government action".

The sad truth is that the Government's failure to reform public services has left the Chancellor with no option but to levy increasingly higher taxes. Are not the Government locked in a vicious cycle of ever higher taxes and ever failing public services?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The right hon. and learned Gentleman has selective amnesia. He does not remember that he has called for more GPs in his constituency. He says one thing to his constituents about wanting more money and another in the House, where he proposes the Flight plan and 20 per cent. cuts. The Government's record on employment, job creation and funding the NHS and public services forms such a contrast to the economic policies of the Government of whom he was a member. They had the highest unemployment, lost the most jobs and had the highest interest rates.