National Insurance Contributions (Reduction in Rates) Bill

– in the House of Commons at 10:34 am on 30 November 2023.

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Second Reading

[Relevant documents: Oral evidence taken before the Treasury Committee on the morning of 28 November 2023, on the Autumn Statement 2023, HC 286; Oral evidence taken before the Treasury Committee on the afternoon of 28 November 2023, on the Autumn Statement 2023, HC 286.]

Photo of Laura Trott Laura Trott The Chief Secretary to the Treasury 11:53, 30 November 2023

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

This is a landmark moment: the economy has turned a corner. Having rightly supported people through covid with £400 billion of spend and then £100 billion over the winter to support people with energy costs, we on the Government side of the House know that we have to pay back what we have borrowed. The Labour party opposed every single measure to do that, and every difficult decision, but because of those difficult decisions, we are in the position we are in today. Because of those difficult decisions, the Chancellor can put forward an autumn statement that focuses on growing our economy, supporting businesses and, crucially, cutting taxes, and that is what we are here to talk about today.

Photo of Laura Trott Laura Trott The Chief Secretary to the Treasury

I think by my count none, which is unfortunate and I think speaks to their lack of the commitment to cutting tax that we have on this side of the House. The Bill will cut taxes for 29 million working people. It has three measures: the reduction in national insurance contributions in class 1 primary main rate; the reduction of the NICs class 4 main rate; and the removal of the requirement to pay class 2 NICs. We are prioritising national insurance for two key reasons. First, we want to put more money in the pockets of working families, and NICs are the most targeted way to do that. Secondly, better reward for work makes working more appealing, and the more people work, the more there is a boost in growth.

Let me take the House briefly through the measures in the Bill. The first is the reduction in the employee class 1 NICs main rate, which the Chancellor announced in the autumn statement. By reducing the main rate by two percentage points, from 12% to 10%, on earnings between £12,570 and £50,270, we will cut taxes for more than 27 million employees. That will save the average worker more than £450 a year, and they will see the benefit in their payslips right at the start of the new year, as this legislation will come into effect on 6 January.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

I thank the Minister, and the Government, for what they are bringing forward. The cut in national insurance in the autumn statement is a welcome step, and my constituents tell me that. Unfortunately, many are also saying that the average working-class family, including many in my constituency, will still be facing the highest taxation levels. I am not being churlish, not for one second—I want to make that clear—but can the Minister encourage me and my constituents that there is more to offer from the autumn statement and that those people have more to gain?

Photo of Laura Trott Laura Trott The Chief Secretary to the Treasury

I thank the hon. Gentleman for the opportunity to talk about this, because it is important. Taxes for the average worker will have gone down by £1,000 since 2010. We have not hidden from the fact that we had to make some very difficult decisions to pay back our covid debts, and those have fallen on the highest paid, because that is the value that we espouse as a party. Because of those difficult decisions, which were opposed every step of the way by the Opposition, we are able to cut taxes for everybody—that is what the values of Conservative Members are all about.

We will cut and reform national insurance contributions for the self-employed by cutting the class 4 rate by one percentage point from 9% to 8% from April 2024. Finally, we will remove the requirement for self-employed people with annual profits above the national income tax personal allowance of £12,570 to pay class 2 NICs, also from April 2024. Those who pay voluntarily will still be able to do so, and I assure hon. Members that low-paid self-employed people who make voluntary class 2 contributions will not pay more.

The Bill simplifies the system for self-employed taxpayers, bringing it closer to the system for employees, and not only putting more money in their pockets but reducing the administrative burden. As a result of changes in the Bill, a self-employed person who is currently required to pay class 2 NICs every week will save at least £192 per year. Taken together with the cut to class 4 NICs, an average self-employed person on £28,200 will see a total saving of £350 in 2024-25. That will benefit around 2 million people. Importantly, those with profits under the small profits threshold of £6,725 and who pay class 2 NICs voluntarily to get access to contributory benefits, including the state pension, will continue to be able to do so.

The Government are committed to tax cuts that reward and incentivise work, and that grow the economy in a sustainable way. These measures do just that. The Office for Budget Responsibility states that the autumn statement package will reduce inflation next year, and measures in the Bill will be worth more than £9 billion a year, the largest ever cut to employee and self-employed national insurance.

A vote for these measures is a vote to give 29 million people an average yearly saving of more than £450. These reductions in tax will not only benefit those in work; according to the Office for Budget Responsibility, they will lead to the equivalent of almost 100,000 people entering work, because they will ensure that work pays and will drive more people to seek employment.

There is another point here, and that is about choices. I hope that the Opposition will support these measures today, if only for the reasons I have already set out. The public support them and business supports them. If the Opposition do not support them, it will represent a choice. The shadow Chancellor, Rachel Reeves, has often spoken of her fiscal rules that will have debt falling in the final year of the next Parliament. At the autumn statement last week, the OBR confirmed that public sector net debt is set to fall in that final year, with headroom of £30 billion. Implementing the permanent tax relief for business investment, plus the legislation before the House today, represents a choice to use around £20 billion of that £30 billion of headroom on these measures.

There is a path here, if the Opposition want it, to deliver the £28 billion a year. They could use up every penny of headroom, reject full expensing and reject today’s tax cuts, but what they cannot do—what the OBR, the financial markets and every secondary school maths textbook will not let them do—is vote for our policies today, borrow an extra £28 billion a year and still meet their own fiscal rules. The numbers simply do not add up. That is what I mean by choices.

The Opposition have to choose. Do they stick to their plan to borrow an extra £28 billion a year, which the Institute for Fiscal Studies says risks sending inflation, interest rates and mortgage rates up, or do they choose our plan to bring inflation down, taxes down and debt down? They cannot have it both ways. If the shadow Treasury team has no answer today, it will fall to the Leader of the Opposition to grasp the issue. Rather than anonymous briefings to the BBC over the weekend, he will have to make a choice. That is the difference between being the party of opposition and being the party of government: credibility with the public over credibility with their activists.

This Bill represents the choices made on this side of the House. I have spoken at length about why we have made them. I hope that the shadow Financial Secretary to the Treasury, James Murray, can inform us honestly and straightforwardly on which side of those choices his party will land. If he cannot, we can all conclude, as Lord Mandelson himself said only a few months back, that Labour is not ready to be the party of government. I commend the Bill to the House.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury) 12:02, 30 November 2023

Whatever the Chancellor said last week and whatever the Chief Secretary to the Treasury said today, the truth is that the Conservatives cannot hide from the facts when it comes to the level of taxation in Britain today. The inescapable truth facing families across the UK, and the truth that the Government cannot hide from, is that under the Conservatives, the tax burden in Britain is on course to reach its highest level since the second world war. As the Resolution Foundation made clear in its blunt analysis of measures in the autumn statement, personal taxes are going up, not down.

Any cuts to personal taxation announced last week are more than eclipsed by hikes in tax that this Government had announced before; the freezing of national insurance and income tax thresholds for six years is now expected to cost taxpayers £45 billion. They are not just giving with one hand and taking with the other; it is worse than that. As I said last week, it is as if the Conservatives have nicked someone’s car but then expect them to be grateful when they pay for the bus fare home.

Photo of Alun Cairns Alun Cairns Conservative, Vale of Glamorgan

Does the hon. Gentleman recognise the context in which the autumn statement was made? Was he not a cheerleader for the furlough scheme and the financial support provided during covid and the energy price shock? Does he recognise that that needed to be recovered but, because of the difficult decisions we have taken, we are now in a position to reduce taxes?

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

The context in which the autumn statement was made was 13 years of Conservative economic failure. There have been 25 tax rises in this Parliament alone and the tax burden is set to rise to its highest since the second world war. That is the context that the British people are facing, and that is the context in which the autumn statement was made.

The impact on people across Britain is brutal. As a result of the Conservatives’ decisions on personal taxation, households will be left facing an average tax rise of £1,200 from the Government. Looking across all taxes, we know that, by the end of the decade, taxes in the UK will have risen by the astonishing equivalent of £4,300 for every household in the country. That is the context in which we are debating the Bill’s Second Reading.

Let me make it clear for the benefit of the Chief Secretary to the Treasury that Labour welcomes the cut in national insurance that the Bill includes. We believe that taxes on working people are too high, and we have long said that we want to see them come down when they can be cut in an economically and fiscally responsible way. We will support the Bill, but we believe that the Government need to be honest with people. The Conservatives need to be honest and admit that they are responsible for the biggest hit to living standards on record, and that this has been the biggest tax-raising Parliament that our country has ever seen.

This is not the first time we have debated national insurance rates in this Parliament. Just over two years ago, I stood here, opposite the Financial Secretary’s predecessor —more accurately, his predecessor’s predecessor’s predecessor’s predecessor—to debate Second Reading of the Health and Social Care Levy Bill. That Bill introduced, in 2022-23, a 1.25 percentage point increase in national insurance contributions for employees and employers—an increase that we rightly described at the time as

“a new tax on working people and their jobs.”—[Official Report, 14 September 2021;
Vol. 700, c. 845.]

Hon. Members may recall that when the Government published that legislation, their own tax information and impact note on that tax rise confirmed:

“There may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.”

We opposed that legislation, and it was clear to a wide coalition, including the Federation of Small Businesses, the British Chambers of Commerce, the CBI and the TUC, that it was the worst possible tax rise at the worst possible time.

As time went on, the then Chancellor—now the Prime Minister—realised that he had made a mistake. He tried to make a partial U-turn in last year’s spring statement by increasing national insurance thresholds, yet the Institute for Fiscal Studies quickly pointed out that that move would not undo damage already done. Its director, Paul Johnson, confirmed:

“Almost all workers will be paying more tax on their earnings in 2025 than they would have been paying without this parliament’s reforms to income tax and national insurance contributions, despite the tax-cutting measures announced today.”

Later last year, the 1.25 percentage point national insurance rise was finally reversed, yet, as we know only too well, any benefits that many families may have hoped to gain from that U-turn were rapidly eclipsed by the Tory mortgage penalty, following the Conservatives’ catastrophic mishandling of the economy. The impact of that recklessness is still with us today, as mortgage holders across the country face a hit of £220 a month when their current deals end.

The truth is that whatever the Conservatives do, they keep making working people worse off. That has been true over the 13 years that they have been in power, it has been true over the past two years of changes to national insurance, and it will be true after the Bill becomes law.

The Chief Secretary to the Treasury has been trying desperately to paint today’s national insurance cuts as the answer to the cost of living crisis. Last week, she claimed that

“taxes for the average worker have gone down by £1,000”.—[Official Report, 22 November 2023;
Vol. 741, c. 360.]

I believe she repeated that claim today, yet analysis by the House of Commons Library makes it clear that national insurance and income tax on the median earner will rise from £6,112 in 2010-11 to £7,364 in 2024-25. Will she confirm—or will the Financial Secretary confirm on her behalf—whether she stands by her earlier remarks and explain exactly how those figures were calculated? The experience of people across Britain is very different from the picture that she is trying to paint.

Photo of Richard Graham Richard Graham Conservative, Gloucester

Perhaps the answer to the question of the shadow Chief Secretary to the Treasury is that the income tax starting point has doubled from around £6,000 to more than £12,000. That provides the extra £1,000 take-home pay every year that he is puzzled about.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

The hon. Gentleman promoted me inadvertently, as I am the shadow Financial Secretary to the Treasury, but I thank him for his vote of confidence. Our point is that today’s tax cut, which we support, must be seen in the context of 13 years of the Conservatives in power: 13 years of economic failure, with 25 tax rises in this Parliament alone and the tax burden on course to be the highest since the second world war. Whatever the Chief Secretary to the Treasury might say, people across Britain are experiencing life very differently from how she paints it.

However welcome the measures in the Bill may be, they come after 25 tax rises in this Parliament alone. The British people will not be fooled. No matter what statistics the Government contrive or the gloss they try to put on their record, people across Britain need ask themselves just one question: do they and their families feel better off now than they did 13 years ago? The answer is a resounding no. At last week’s autumn statement, we learned not only that the tax burden is still on track to be the highest since the war and that inflation has been revised upward across the entire forecast period, but that growth rates have been cut for next year, the year after, and the year after that.

It took some gall for the Chancellor to say that he was delivering an “autumn statement for growth”—comments repeated today by the Chief Secretary to the Treasury—since the Office for Budget Responsibility reports that next year’s growth rate has been cut by more than half. Low growth has dogged our country for the past 13 years. The autumn statement makes it clear that the Conservatives still have no plan to get our economy growing as it should. Since 2010, under the Conservatives, GDP growth has been stuck at an average of 1.5% a year, down from 2% in the Labour years before. If the economy had continued to grow for the past 13 years at the rate it grew under Labour, it would be £150 billion larger—the equivalent of £5,000 per household every year.

As we all know, because of that low growth, the Conservatives have had to keep putting up taxes on working people. Low growth and high taxes have made people across Britain worse off. That is the reality of the past 13 years of the Conservatives in power. The Bill’s tax cuts cannot even remotely compensate for the damage they have done to our economy and the living standards of people across Britain.

Although we support today’s tax cut, we know that our country needs economic growth to make working people better off and to get our public services off the floor. That is the plan from Labour. We are the party of fiscal responsibility and of business, with a plan to make working people better off. Come the next election—it cannot come soon enough—people across Britain will look at the Conservatives’ record and the bleak achievements they will claim. In this Parliament, real disposable household incomes will have fallen the furthest, following 20 years of pay stagnation. Real average earnings are not forecast to return to their 2008 peak until 2028. Four million people have been dragged into paying tax, with 3 million more in the higher rate—the biggest hit to income on record. Next year, real-terms income will be 3.5% lower than it was before the pandemic. This the biggest tax-raising Parliament Britain has ever seen.

Whatever the Conservatives say or do, and whichever way they try to twist and turn, reality has caught up with them. We have been here before. We remember the Conservatives promising to cut income tax ahead of the 1997 election. Back then, people decided that it was too little, too late, coming as it did after 22 tax rises in that Parliament. As this Parliament approaches its end, today’s Conservative party is showing itself to be even more divided and desperate than in the late ’90s. As the next election draws nearer and the Conservatives try to cling on to power, the risk grows that they will get more desperate with their promises and more reckless with taxpayers’ money. Britain needs a plan to get the economy growing and make working people better off. That is what Labour is offering and why a general election cannot come soon enough.

Photo of Harriett Baldwin Harriett Baldwin Chair, Treasury Committee, Chair, Treasury Committee, Chair, Treasury Sub-Committee on Financial Services Regulations, Chair, Treasury Sub-Committee on Financial Services Regulations 12:14, 30 November 2023

I am not sure that I have ever heard a more grudging shadow Front Bench speech on measures that the Opposition support. They support them so wholeheartedly today that none of their Back Benchers has shown up to speak to them.

I endorse the measures in the legislation. The Chief Secretary is right to point to the turning point that the UK economy has reached this year, thanks to the steps taken a year ago to ensure that fiscal policy did not cut across the central bank’s aim to reduce inflation to its target. Thanks to that, inflation, which might have been as high as 13% last year, has fallen to 4.6%. That means that today, the earnings of the average UK worker are rising faster than the rate of inflation. We are seeing real earnings growth. That is the turning point that I am talking about.

The shadow Minister and the Chief Secretary both talked about the choices that the Chancellor could make on this occasion. In the evidence that the Treasury Committee took this week on the autumn statement, we saw the clear impact of the Chancellor’s choices on two long-standing challenges for the UK economy: slow productivity growth and the fact that not everyone has returned to work since the pandemic. When we get to the Finance Bill, I will expatiate further on the supply-side measures on the labour market and permanent full expensing, but today I will focus on the national insurance contributions element, which the Office for Budget Responsibility also considered to be a supply-side measure.

In the evidence that we took, we heard from the member of the Office for Budget Responsibility, Professor David Miles, that the choice to go for the national insurance contribution reduction in the autumn statement created a “definite positive” as an incentive to work. The OBR forecast that it will bring close to 100,000 full-time equivalent extra workers back into the workforce. That is so important. Paul Johnson from the Institute for Fiscal Studies noted in his evidence that, compared with a similar cut in income tax rates, a cut to national insurance is more progressive. It benefits people in work, but only on their earnings up to £50,000. That is important context for the choice that the Chancellor took.

I also welcome the simplification of taxes—a concept our Committee is committed to. Far too many things in our tax system act as disincentives to doing an extra hour of work. There are too many complicated withdrawal rates. The steps taken on class 2 and class 4 contributions represent a simplification of the tax system. Interestingly, we were told in our evidence session that the changes to class 2 and class 4 reduce

“the incentive for people to incorporate to gain a tax advantage.”

We should have a tax system that is broadly neutral on those two things.

Professor Miles told us that he thinks that the national insurance cuts are “unambiguously” a more positive incentive to work. The Office for Budget Responsibility does not see the measures as inflationary. He also said that

“some people at the margin who thought it perhaps was not worth working might now be persuaded to actively try to get a job”, and that the measures will help retain people in the labour force.

To conclude my short remarks on the narrow measures in the Bill, I wanted to focus on the evidence that we have received on the choice that the Chancellor took on national insurance, and how that is very much focused on the structural challenges that the UK economy faces.

Photo of Drew Hendry Drew Hendry Shadow SNP Spokesperson (Economy) 12:19, 30 November 2023

We have heard an awful lot about choices at the start of this debate. What is abundantly clear for families in Scotland and across the nations of the UK is that the Government have chosen to ignore the burning cost of living crisis that they put in place for families.

Let me be unequivocally clear from the outset that the Chancellor’s attempt to masquerade the Bill as meaningful support for people is nothing short of a farce. I said to him at the statement that it would not bear scrutiny and it has not borne scrutiny. Families in Scotland already grappling with the harsh realities of the soaring cost of living are acutely aware of the UK Government’s role in their deteriorating financial situation. No amount of Tory spin can disguise the stark truth of their policies, or the fact that those families are faced with a future of perma-austerity under Westminster.

The autumn statement was a critical opportunity for meaningful intervention. It was, to say the least, a profound disappointment. It offered scant relief to households across Scotland—households already beleaguered by the catastrophic decisions of this UK Government. The audacity of the Chancellor in trying to package the reduction in national insurance rates as a major tax cut is an insult to the intelligence of the Scottish people. We are witnessing funding for public services pushed to breaking point due to years of real-terms cuts to the Scottish budget. The Scottish Government have sought to protect workers and services, and are having to do that with diminishing resources, yet the UK Government have shamefully neglected to prioritise investment in the NHS and other public services, which will, according to the OBR, see a cut of £19 billion in the coming years.

The Bill, in legislating for the changes to national insurance outlined in the autumn statement, is a glaring example of the Government’s disconnect from the realities on the ground. The changes announced by the Chancellor, some to take effect from January onwards, are a mere drop in the ocean of what is urgently needed now by families struggling with rampant food price increases, punishing increases in rents and mortgages, and the dreaded prospect of another winter with soaring energy bills. The Government could have listened to our pleas to provide a £400 energy bill rebate, to reduce the price cap and more. Instead, they will preside over a 5% increase in the energy price cap to land on 1 January—hardly a happy new year for those who cannot afford now to switch on the heating.

Let us dissect the facts. The main rate of NICs for employees is to be cut from 12% to 10%, a change affecting those earning between £12,571 and £50,271. For the self-employed, the rate drops from 9% to 8%, with the flat-rate NIC charge also being scrapped for some. On paper, those changes might appear beneficial, but in reality they are superficial. The Resolution Foundation’s Torsten Bell aptly noted that

“taxes are up not down”.

This is no generous gift to the public; it is a thinly veiled attempt at distraction. The Institute for Fiscal Studies highlighted a concerning trend: despite these nominal cuts, we are facing the most significant rise in taxes in recent memory. The tax threshold freezes since 2021 will largely, if not entirely, counteract any benefits of the Chancellor’s 2p cut to NICs next year. For someone with average full-time earnings, that means a saving of £449 in NI contributions, but an increase of £413 due to the unchanged tax thresholds. The Chancellor’s so-called giveaway then amounts to a paltry £36 for the average earner—a far cry from the over £450 boasted about today.

From the detrimental effects of austerity to the chaos of Brexit and now the mismanagement of the cost of living crisis, it is abundantly clear that the Westminster Government are a liability for the working people of Scotland. They are left to shoulder the burden of Westminster’s disastrous decisions. Our public services, the very foundation of our society, are under threat. The Chancellor’s spending plans, particularly his silence on them post March 2025, signal a disturbing turbo-boost of austerity. The OBR’s report rings alarm bells. The UK Government’s fiscal strategies are shrouded in uncertainty and wishful thinking.

The Scottish Government are handed a real-terms reduction in the block grant, yet are expected, miraculously, to maintain public services with, for example, a health budget increase of less than 0.01% for 2024-25. Inflation sits, even today, at 4.7%, so that NHS money equates to only £10.8 million blown away by inflation before it arrives, leaving only the cold sting of a sharp cut in reality.

The autumn statement and the Bill will serve as stark reminders that Westminster Governments are fundamentally misaligned with the values and needs of the people of Scotland. Our aspirations for a fair, just and prosperous society cannot be realised under such governance. Independence remains the only viable path to ensuring the wellbeing and prosperity of the Scottish people.

In conclusion, it is imperative that the Government acknowledge their failings, even at this late stage, and take decisive steps to truly support households and public services across the nations and in Scotland. Until such time, we in the SNP will remain unwavering in calling for real help for people struggling with rising rents and mortgages, struggling to pay for their shopping, and terrified of the cost of their energy bills this winter. Our values are to champion the interests of the Scottish people to safeguard our communities and the families who live in them. We will continue to call for the real power of independence to deliver on them.

Photo of David Simmonds David Simmonds Conservative, Ruislip, Northwood and Pinner 12:26, 30 November 2023

It is a pleasure to speak, very briefly, in this debate.

My starting point is the concern I felt, when I listened to my right hon. Friend the Chancellor of the Exchequer making his autumn statement and highlighting this aspect of the measures he was taking, to hear cries of “not much” and “big deal” from some on the Opposition Benches. It is important to reflect that even if we were looking solely at the class 2 national insurance contributions element, the amount that adds to a household income equates to more than the cost of a child’s school uniform for a year. It is a quarter of what the average household in the UK spends on Christmas. These are significant amounts of money for a good many of our constituents. Indeed, for one of my constituents who is affected by the ultra low emission zone policy, it would even pay their ULEZ charge for a fortnight. Taken in concert with the rest of the measures, it will make a significant difference to many household budgets and ensure that people have more money in their pocket in the new year.

I represent a constituency that, according to the ONS, is very much a constituency of workers. We enjoy a very high level of employment and self-employment, a very low level of unemployment and, I am very pleased to say, higher household income on average than the rest of the UK. But within that, there are many, many workers—those who are beginning their careers, or who have faced unstable employment—for whom this will make a real and practical difference. For that reason alone, I enormously welcome the measures we will be voting on today.

I would like to offer the Chief Secretary and the Treasury team an issue for consideration, which arises out of something I see in my constituency. It has been the subject of a lot of debate in this House in the last week or so. In 2019, the Conservatives stood on a manifesto that set a target of an additional 600,000 foreign students coming into the UK. That manifesto commitment has been achieved. We know that it earns us, in foreign currency income, around £35 billion a year. It is a bigger earner for the United Kingdom than our oil and gas industry, so it is incredibly important to our economy. Part of the thinking behind it was that many of those workers would become longer-term residents of the UK, especially in areas of great need: our national health service, caring professions and the technology industry. I hear from a good many constituents about the challenges they still face recruiting those workers to ensure that my constituents who need an operation can get it on time and that businesses can grow.

Home Office figures show that a very large proportion of those people leave the United Kingdom at the conclusion of their studies, but that some stay. Concern has been expressed about whether those who transition into work after being foreign students or those who are here for a brief period on a working visa and subsequently move abroad pay a sufficient amount into the UK economy to cover the costs of the benefits they may well receive. Right hon. and hon. Members have highlighted those who come to the UK under care worker visas, but who bring with them dependants who have significant health and educational costs. Would the Treasury team, in due course, give consideration to setting a differential rate of national insurance contributions for those who come to the UK on those types of visa, in line with the measures already taken of charging those applying for those visas a significantly higher fee and the national health surcharge? It would then become absolutely clear to everyone in this country that people who are here for a short period will pay a contribution that reflects the potential benefits available to them, whereas those who are lifelong citizens, for whom those costs will be spread out across their entire working life, will enjoy the benefit of a lower rate?

Every country in the developed world has faced a similar set of challenges around interest rates and costs of living. We all know what the reasons are: the impact of covid and the impact of rising US interest rates, which set basic interest rates and mortgage rates across the whole of the developed world. However, as my hon. Friend Harriett Baldwin said, the turning point has clearly been reached. Most of us can see and feel in our constituencies the signs of a return to growth and a sense of prosperity. The fact that wages are now rising ahead of inflation is hugely significant to the living standards of all people, but especially to those on lower incomes the measures I am here to support today are incredibly important. I commend the Treasury team for bringing them forward.

Photo of Richard Graham Richard Graham Conservative, Gloucester 12:31, 30 November 2023

It is a pleasure to join this debate, albeit one attended by literally zero Back Benchers of His Majesty’s loyal Opposition.

This debate and the changes to national insurance raise narrow issues of the amount of tax being paid by our constituents, wider issues relating to the question posed by the shadow Minister, James Murray—“Are you better off today than you were in 2010?”—and broader still questions about the value and purpose of life and what matters most to our constituents. I shall touch on all three in turn.

On the narrow issue, the national insurance payments mooted in the Bill, there is widespread agreement that they are good news for our constituents, because they mean lower tax. It is recognised that there is social justice in the measures, because they are not applicable to those earning more than £50,000 a year. We already know that no party in this House will oppose them. On the narrow issue, therefore, the Chancellor, the Treasury and those involved in creating the Bill have clearly got it right.

As my hon. Friend Harriett Baldwin pointed out, this can easily be seen to be one of the measures by which we judge a turning point in the wider economy. After all, only a few months ago there were widespread expectations that the economy would be in recession, unemployment would be rising, taxes would be increasing, and there was very little wiggle room for the public finances to be seen to improve. All those things have been turned around. None of us can say with certainty that we are in full summer, but the green shoots are evident and things are changing.

On the broader issue of what we measure to answer the question, “Are our constituents better off today than in 2010?” there are different aspects. I suspect the shadow Minister had most clearly in mind a simple calculation of whether salaries net of inflation were higher or lower, and if we take that on its own, it will be a challenge for many Government Members to demonstrate that the answer is yes. For my constituents in Gloucester, average take-home pay has risen from £25,000 to £31,000, but their salaries have not kept up with increases in inflation. That is only part of the equation though; we need to take into account all the different forms of taxation, which include council tax. It is a cliché but true that council tax rises faster and is higher in Labour-run councils, whereas the Conservative-run council in Gloucester has done a good job of keeping it as low as possible over the last 14 years. Then, there is the question of take-home pay. As I pointed out to the shadow Minister, because income tax now applies only at £12,500, rather than at just over £6,000, the take-home pay element has increased by £1,000.

Other than that relatively straightforward financial calculation, there are many measures on which I hope all of us would want to answer “Yes” to the question, “Are you better off today than you were in 2010? I shall pick out a few of these crucial indicators, because they are relevant to the wider context of the Bill.

The Centre for Cities report is an excellent source of data for those who live in cities, so let me highlight a few elements of what its latest report said about Gloucester. We are one of the 10 lowest cities for economic inactivity. In effect, we have low unemployment and high employment —in fact, ours is the third highest employment rate, having risen last year from 76% to 84%, a 7.5% increase. The regional average is 79%, so we are way ahead of the south-west’s average. That means that many more people have purpose in their lives—they have occupations they can thrive in; they are bread-earners at home and useful role models for their children—and the city as a whole has a strong sense of purpose.

It is often forgotten, but many people remember vividly that their jobs were kept by the £400 billion spent during by the pandemic. The furlough scheme ensured that during the pandemic people could shelter at home, confident that their job would still be there, and those who had their own business know that the vast majority of those businesses would undoubtedly have gone bankrupt during the pandemic. The small businessmen and women, the self-employed, the entrepreneurs, all came through that period intact, whereas under a different scheme that would have cost taxpayers’ less, they would have struggled. The question, “Are you better off today than in 2010?” needs to encapsulate other questions: “Was your business able to survive? Was your job kept? Were you still able to be self-employed during a period when so many people around the world were struggling horribly?”

We in Gloucester are extraordinary in that our city has one of the very lowest percentages of population with no formal qualifications. In fact, extraordinarily, Gloucester has fewer people with no formal qualifications than Cambridge, and we are only 1% behind Oxford. The skills of my constituents are different from many of those in Oxford or Cambridge. A large number of our people are highly skilled with higher apprenticeships working in industries like aerospace, nuclear and high-level engineering. Those occupations, apprenticeships and higher apprenticeships have increased hugely over the last 13 or 14 years and are seriously threatened by the prospect—any prospect—of a Labour Government.

Let me illustrate that statistically. Since 2010, there have been almost 15,000 new apprenticeship starts in Gloucester—15,000 in a population of about 100,000. The run rate of apprenticeships nationally—5.5 million new apprenticeships since 2010—would have been almost halved under the Labour run rate between 2005 and 2010. Were Labour’s current proposals on apprenticeship spending to go through, it has been suggested that 140,000 apprenticeships would no longer exist. Therefore, the skills that my constituents have, which are being valuably used in leading sectors that are being supported by the Treasury and this Government, would be at serious risk under a new Government who did not value apprenticeships so highly.

The question, “Are you better off today than you were in 2010?” could also be rephrased, “What will happen to your skills, your purpose, your job and your future earnings under the changes proposed by the Labour party, which is so sadly absent here today?”

There are different issues that we need to consider in answering the question, “Are you better off today?” Education is vital for all of us, and everyone in the country needs to be more aware that our PISA rankings have risen from 25th to fourth in reading and from 27th to 16th in mathematics. I might be one off on both, but it is a significant leap forward. Those skills are vital to all our young constituents getting the opportunities they deserve.

Within infrastructure, there is the whole question of public transport. Gloucester has additional train services to Bristol, Worcester and down to London. There is a wider range of services, sports, culture and leisure, and cultural regeneration and the role of heritage are incredibly important to any city. Gloucester’s more than 40 wins from the National Lottery Heritage Fund have brought alive our old buildings and rebuilt pride in the city. These things are all part of answering, “Are you better off today than you were in 2010? Is where you live a better place today than it was in 2010?”

National insurance contributions are coming down sharply, which will mean an average saving of around £350 to each of my constituents and £450 for those on salaries over £35,000. All of that will be appreciated, but it is about the wider context in which it happens: the gradual recovery and the sense of green shoots coming through after a difficult year. That is important, and then there is the wider context of what has been achieved over the last 13 to 14 years. We must all take that into careful consideration.

Photo of Priti Patel Priti Patel Conservative, Witham 12:41, 30 November 2023

I congratulate my hon. Friend Richard Graham on his remarks. He provided a lot of sensible context for this debate and I will address some of his helpful points shortly.

It is very unusual to talk about fiscal matters, or fiscal legislation, to an almost empty Chamber. It is unheard of during my time in Parliament. As my hon. Friend will know, back in 2010, after the financial crisis, when we had to consider the long-term economic plan to build back our economy and to restore fiscal competence, there were many long, heated debates, and rightly so, in which proper scrutiny was given not just to Bills and legislation but to an exposition on the state we were in and how we needed to get ourselves back on to an even keel by growing the economy through Conservative policies.

That brings me to today’s theme. Conservative policies have, over the last decade, helped to restructure the economy, rebuild our country and create jobs and economic growth. They have made us stand tall in the world once again. I remember, in 2010, 2011 and 2012, looking at our financial ratings with a degree of despair. Thank goodness we are no longer in that state, which I think we all welcome.

I welcome this Bill and thank the Treasury and, in particular, my right hon. Friend the Chancellor for bringing it forward. Any measure that brings down the tax burden should be welcomed, because it represents a positive and constructive step in the right direction for our constituents. Our constituents are taxpayers and, ultimately, they want to keep more of the money they earn, and they want to know that the Government are spending their money responsibly.

Reducing the class 1 primary rate from 12% to 10% will put money into people’s pockets from 6 January—the sooner, the better. I commend the Government for bringing forward this vital fiscal measure. I am disappointed that there are not more colleagues here to debate it, but that is just how Parliament is right now.

The £450 benefit to a worker on the average salary will make an important difference to households. My hon. Friend David Simmonds put it succinctly when he spoke about what it means for households at this time of year and for domestic budgets and spending.

I am particularly pleased to see the elimination of the class 2 rate and the reduction of the class 4 rate, which will help the self-employed from the start of the new financial year. I never tire of coming to this Chamber to say that I represent a constituency and a county of entrepreneurs. We are self-starters. We are self-made people. We are very proud of the contribution that the people of Essex make to our country. They are net contributors to His Majesty’s Treasury, which is all the more reason why they should get a tax cut.

As a Government who believe in enterprise, economic growth and letting people stand on their own two feet, we should do everything possible to support the self-employed and sole traders. It is hard work being a sole trader and being self-employed. We know about the regulatory burdens and pressure that HMRC puts on sole traders and the self-employed in particular, but they are the backbone and the engine of our economy; they are the lifeblood that creates jobs.

Some 80% of my constituents are employed by small and medium-sized enterprises—that is 20 percentage points higher than the national average—and we want them to continue to thrive and grow, as is right and proper. They are the embodiment of the entrepreneurial spirit that our country needs to create growth. I sometimes feel that we do not always give them the voice they need. It is easy for the big companies that can lobby central Government Departments to get their voices and representations heard. We are here for our constituents as their MPs. Even at business questions this morning, Members spoke about three family-run businesses. That is who we should be supporting.

We have seen a reduction in the number of self-employed people from around 5 million just before the pandemic to just over 4 million this year. That is why I believe we must back them, support them and encourage their growth. We should hold out that ladder of opportunity. Where they need help and support, we should back them as a Government and as a country.

I always come to this House to give a shameless plug for family-run and self-employed businesses in my constituency. It is also important that we buy British and support local firms in our country and in our constituencies. It is important to remember that the self-employed contribute an estimated £278 billion to the economy, and the fiscal and supply measures will make it easier for them to trade.

The ability to do business, to trade and to set up a business are so important. Lower taxes will mean that more people want to give it a go and set up a business. They are the ones taking a risk, so they are the people we should back and support. If we want to be healthy, competitive and drive growth, these are the very people who innovate and invest in new technology and do things that are edgy and somewhat different, while providing vital services to so many of our constituents and being pioneers in certain sectors. That is why keeping taxes down should be at the core of our mission in government.

As we have already aligned the class 1 and class 4 thresholds, to match the tax-free threshold on income tax, we all welcome that the burden of national insurance contributions has been reduced for the self-employed. That is why I am disappointed that there are not more Opposition Members present.

Photo of Dominic Raab Dominic Raab Conservative, Esher and Walton

My right hon. Friend is making a brilliant speech. I totally agree with her on the NICs paid by employees and the self-employed. In Esher and Walton, the average employee will receive a tax cut of £589 a year, benefiting 50,000 people. She is right that we are here to give a voice to the ambitions and aspirations of local people in our constituencies. Aside from the Labour Benches being totally empty, there is not a single Liberal Democrat Member here. Is it not churlish that, at this particular time, they are not doing more to support people on low and middle incomes?

Photo of Priti Patel Priti Patel Conservative, Witham

My right hon. Friend is right about that; his observation is spot-on. He will recall that, as I said in my opening remarks, when we have been in this Chamber to discuss important fiscal and economic measures, it has more often than not been to a full House. It is appalling that when the Government are backing working people and doing the right thing for them by putting more money in their pockets, the Opposition are all hiding. They are failing to recognise something that their constituents will benefit from. The Opposition should be giving a positive voice and supporting it, because it means more jobs and growth in every constituency across the country. As parliamentarians, we should all welcome that.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. The hon. Gentleman was quite late in and did not hear the beginning of the right hon. Lady’s speech.

Photo of Priti Patel Priti Patel Conservative, Witham

Thank you, Madam Deputy Speaker.

As has been mentioned, the alignment with the tax-free threshold should also help with the future plans to simplify the tax system. We had a bit of a discussion on this last week, but it is important in today’s debate again to raise the prospect of simplifying the tax system—more should be done in that area—by merging income tax and national insurance together. That is why I am disappointed that more Opposition Members are not here to discuss it. Last week, we had a semi-healthy discussion about it. It is out of the scope of this Bill to table an amendment to bring those two taxes together, but I urge those on the Treasury Bench—I would also be happy to work with other colleagues on this—to consider taking that up in advance of the spring Budget. Much more can be done here. Such a move would simplify taxes for the entrepreneurs and self-employed even further. As we know, when we come to the end of the tax year they are constantly having to do all sorts of things to satisfy His Majesty’s Revenue and Customs.

In 2012, I asked the Treasury a written question on integrating those taxes, and the then Exchequer Secretary replied by stating:

“Since Budget 2011, the Government have engaged extensively with stakeholders to develop options for operational integration of Income Tax and National Insurance Contributions. As many stakeholders have recognised, this is a complex issue with potentially significant implications for employers’ payroll operations. The Government will provide an update on this work later in the autumn. As we have already made clear, this is a long-term reform on which the Government will proceed carefully.”

That was a long time ago—it was 11 years ago. Although this is a complex issue, I maintain that such a move would help to simplify the tax system. I know that the Treasury Committee has looked at this area, and my hon. Friend Harriett Baldwin touched on it today. Such a move would help to make payroll much easier for businesses, and allow them to co-ordinate income and revenue in a much more straightforward way.

Although this next issue may not be directly within the Bill’s scope, it does relate to NICs. I would therefore like to take the opportunity to restate for Treasury Ministers the position on fiscal drag. The OBR forecasts show that a freezing of the NICs thresholds and the income tax thresholds will, relative to consumer prices index inflation, and after taking into account the tax cuts here, bring in an estimated £27 billion in the next fiscal year, 2024-25, with this rising to nearly £45 billion more for the Exchequer in 2028-29. The OBR is clear on that. Ministers know my views: as we go into spring next year, and as the economy grows and more revenues come in, I urge them to look at this area all over again.

This Bill is welcome. It is a positive step in the right direction, along with the entire autumn statement. I commend my colleagues for the work they have done on it. The speed at which the Government are acting to bring forward the benefits of the NI changes and get them into pay packets as early as possible is right; it is commendable and should be supported, as I hope it will be by all colleagues in the House. The Government must continue to look at further steps. We want more economic growth. We are pioneers when it comes to innovation and small business. We need to find other ways to lower taxes so that people can keep more of their earnings and, importantly, we ensure that our economy is match-fit for the future so that it continues to grow.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury) 12:54, 30 November 2023

Before I start, I want to say that we have heard during the debate that former Labour Chancellor Alistair Darling has died at the age of 70. I am sure Members will agree, no matter which side of the House they sit on, that he was a man who cared deeply about people across the country, and that our thoughts are with him and his family today.

The Government may want our constituents to believe that they are easing the burden on their pay packets, but the reality is that households have not given the state this much of their earnings since the 1940s. Despite the warm words that we have heard today on tax cuts, households are now paying £4,000 more a year than they did under the previous Labour Government. This is a crippling tax burden for those struggling to make ends meet through the cost of living crisis. Despite today’s commitment to reduce NI, as a result of the Tories’ decisions on personal taxation, working people are left facing an average rise of £1,200 since 2010. So although Labour supports the measures put forward today to lighten the load that NICs are placing on our constituents, we should see this announcement for what it is: a cynical attempt to draw voters’ attention away from the fact that, under this Government, their living standards are going down and taxes are going up, while their wages continue to stagnate.

As the British people already knew, the promises made today cannot compensate for the damage that has been done. The measures announced today are equivalent to handing back £1 for every £8 of the Conservatives’ tax rises since 2019. The freeze in the personal allowance threshold means that a couple on an average wage will still be a staggering £350 worse off per year, regardless of cuts to personal taxation. The wider freezing of current thresholds has confirmed that an additional 4 million of the poorest in society will now pay income tax by 2029.

The scorecards for last week’s autumn statement are now in, and our leading independent economists do not seem that impressed. The OBR has confirmed, following the Chancellor’s announcement, that real household disposable incomes will drop by 7% next year. As my hon. Friend James Murray noted, the head of the Institute for Fiscal Studies has also given a damning verdict, stating that the NICs reductions that we have been debating today “pale into insignificance” compared with the threshold freezes announced by the Chancellor. According to the latest International Monetary Fund forecast, the UK will have the slowest growth in the G7 next year. The Bank of England has confirmed that there will likely be zero growth in the economy until 2025. Those are not figures that the Government should be proud of.

If that economic backdrop were not bad enough, our constituents are also left worrying about how to pay for their mortgage and avoid having to sell the family home due to the reckless actions of this Government. Working families will see an average increase of £220 a month in mortgage costs because of the Tory mortgage bombshell, and 1.5 million households are also set to suffer as they desperately try to re-fix their mortgage deals next year. The Chancellor and other Conservative Members may want us to believe that the economy has turned a corner and that the cost of living crisis is over, but millions of people are still struggling to make ends meet. So of course we welcome the tax cut being debated today, but it is a drop in the ocean for working families who are still bearing the brunt of this Government’s economic decisions.

Despite the desperate smoke and mirrors we have seen from the Chancellor, it is now clear that this Government do not know how to find the solutions to address the fundamental challenges facing this country right now—all the challenges that our constituents are facing day in, day out. After 13 years of failure, it is time that the Government got out of the way and let Labour deliver its plan for the economy and how to grow it again, get wages rising again and get Britain its future back. For all the warm words that we have heard today, if the Conservatives sincerely believe in their policies, they should ask the general public and call a general election as soon as possible.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury 12:59, 30 November 2023

On behalf of the Government, I join Tulip Siddiq and the whole House in expressing our deepest sympathies to the family and friends of Alistair Darling. I know he had many personal friends in the House who knew him very well indeed. I never had the pleasure of interacting with him here, but what an incredibly calm and dignified gentleman he was. Perhaps that is something we can all reflect on.

Although the debate was somewhat one-sided, as most contributions came from the Government Benches, I thank all hon. Members for their contributions. This important Bill delivers tax cuts and rewards and incentivises work, while growing the economy in a sustainable way. I will respond to many of the points raised.

Jim Shannon rightly pointed out the importance of looking after the lowest paid and having a fair tax system, which we are delivering on. Over the last 13 years, we have lifted hundreds of thousands of families out of poverty, and we have a progressive tax system where the top 1% of taxpayers pay 28% of all income tax.

My right hon. Friend Alun Cairns and my hon. Friend Richard Graham highlighted the context in which the autumn statement was delivered and recognised the fact that we have faced not one but two global crises: the pandemic and the cost of living challenges. Those challenges are not unique to the United Kingdom and, despite the myths peddled by the Opposition, whoever was in Government would have faced those challenges. We do not remember the Opposition arguing against any of the intervention or support measures at the time—it is as if they have completely forgotten about that. Not recognising the context and the global circumstances speaks volumes about their inability to run the economy. We operate not in a vacuum but in a global system.

My hon. Friend the Member for Gloucester went on to highlight the remarkable progress made over the last 13 years, particularly in areas such as tax thresholds. Under Labour, the income tax threshold was £6,475, whereas it is now £12,570, and the NICs threshold was £5,715, whereas it is now £12,570. That is incredible progress. Together with the increases in the national living wage, that means people on the national living wage working full time are 30% better off in real terms than they would have been under Labour. That is a remarkable achievement and shows, despite the myths the Opposition peddle, that we look after the lowest paid in society. That will always be a priority of this Government.

My hon. Friend showed, yet again, his incredible insight, knowledge and commitment to his constituency by setting out a range of areas in which his constituents have benefited over the last 13 years, including by highlighting the importance of skills and apprenticeships. I could not agree with him more.

Photo of Rehman Chishti Rehman Chishti Conservative, Gillingham and Rainham

The Minister is talking about apprenticeships, opportunities and skills, and in Gillingham and Rainham, we have seen over 8,000 apprenticeships. Does he agree that the concept of the Bill and the autumn statement is that if people work hard and do the right thing, they keep more of the money they earn? If they work hard and then retire, they get dignity through the pension triple lock—I know my residents from Darland, who are in the Gallery, very much appreciate that. If it were left to the Labour party, there would be more borrowing, spending and debt. We saw what happened before and we do not want to go back to that.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

I could not agree with my hon. Friend more. He has given me the opportunity to leap swathes of my speech, because he has put those important points incredibly well.

My hon. Friend Harriett Baldwin, who is my constituency neighbour and the Chair of the Treasury Committee, highlighted the importance of the autumn statement as a turning point, as articulated by the Chancellor, and the all-important supply-side measures in it that will help spur on business, create employment and generate incremental economic activity. As a result of the spring Budget and the autumn statement, the OBR has said that the economy is likely to be 0.5% larger. When we are talking about an economy of over £2 trillion, that is a huge incremental value to the UK economy.

Unfortunately, the spokesperson for the SNP, Drew Hendry, failed to recognise that we have addressed the cost of living to the tune of £100 billion in support. He also forgot that in the autumn statement we had an increase not only in the living wage but in benefits, aligned with inflation; in pensions; and in the local housing allowance rate, to the 30th percentile. That means 1.6 million families will be better off, gaining an average of £800 in support. It is not true to say that there were no cost of living support measures in the autumn statement.

My hon. Friend David Simmonds recognised the considerable impact of those measures and the fact that they make a meaningful difference to his constituents. He raised issues about visas and students, which I am happy to discuss with him further.

As always, my right hon. Friend Priti Patel articulated core Conservative values incredibly well. The autumn statement recognised the importance of spending every penny of taxpayers’ money incredibly carefully and responsibly, as well as ensuring that we are there to support people through the tax system wherever we can. She is right to be passionate about small businesses and entrepreneurs. Small Business Saturday takes place this weekend and I am sure many of us will be out supporting small businesses, not only on Saturday but in the run-up to Christmas and beyond.

The Opposition spokespeople peddled so many myths and untruths, I do not know where to start. [Interruption.] We addressed many of them in previous debates, so I will not hear from them. The way they react speaks volumes.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. The Minister did not mean to say “untruths”, did he?

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

I take back that comment, Madam Deputy Speaker. There were some presumed facts that require challenge, as we saw earlier in the week. At one point, the shadow Chancellor claimed that the forecasts were going to be £40 billion smaller. The shadow spokes- people know full well, because it is stated by the OBR, that economic growth by the end of the forecast period is higher than it was in the spring forecast. [Interruption.] I am sorry if I have to explain that to Opposition Members—if a number is bigger than the previous one, then that means growth and not decline. We could possibly forgive that mistake if it were not made by the people trying to become the Chancellor of the Exchequer. It is extraordinary incompetence—a £55 billion difference is not something we can easily ignore.

As my hon. Friend the Chief Secretary to the Treasury pointed out earlier, we are pleased that the Opposition are supporting the national insurance cuts, but to combine that with their commitments on spending, to the tune of £28 billion, and then claim that there will not be an increase in debt is farcical. It is not true; we know that will happen, and we are seeing the same old Labour. As Margaret Thatcher said:

“The problem with socialism is that you eventually run out of other people's money.”

That was true then, and it is true now.

I thank hon. Members for their contributions. The Bill delivers a tax cut for 29 million working people, and I am pleased that it will be getting support from across the House.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

I join the two Front Benchers in saying how deeply sad it is to hear the news that Alistair Darling has died. He was an incredibly well-respected, thoughtful and kind man who was devoted to public service. I know all Members will want us to send their condolences to his family.

Question put and agreed to.

Bill accordingly read a Second time; to stand committed to a Committee of the whole House (Order, this day).

Further proceedings on the Bill stood postponed (Order, this day).