Clause 2

National Insurance Contributions Bill – in a Public Bill Committee at 10:45 am on 7th December 2010.

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Question proposed,That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Clause 2 deals with class 4 changes to national insurance, which are largely on self-employed profits, and so on. I want to press the Minister on whether there is a shortfall between the rhetoric that his party—and indeed the Liberal Democrats—enunciated before the general election, and the reality of the changes that are now being made. Although the Bill simply talks about the rise in employer and class 4 national insurance contributions, the suite of policies that both parties in the coalition Government were pursuing implied that they would stop the rise for employers. The coalition agreement talked about

“our pledge to stop the rise in Employer National Insurance contributions from April 2011.”

That is not to lessen or alleviate that rise, but to stop it.

We are not simply looking back at what the parties in the Government said before the general election, when a lot of their campaigning against what they called “the jobs tax” and how it had to be reversed created an assumption among the general public that any proposed changes to employer national insurance contributions would be reversed and not enacted. That was, by and large, the expectation that came from the general election campaign. I concede that the small print of the Conservative manifesto noted that the 1% would be counteracted with a change in the thresholds, which, no doubt, the Minister will refer to. However, it was not necessarily highlighted that the threshold change would only counteract around two thirds of the amount involved. As I understand it, the yield from the changes to employer national insurance contributions is roughly £4.5 billion in 2011-12, yet the expenditure by increasing the threshold in 2011-12 comes to only £3.1 billion. That gives a £1.3 billion shortfall, which may be welcomed by many employers, but it may fall short of their expectations given what they heard during the general election campaign, and what they read subsequently in the coalition agreement.

Accuracy for the general public is exceptionally important, and there was an understanding that the policy would be reversed, rather than simply chipped away at. I wonder whether the Minister can explain how, in the coalition agreement, the words on page 25 came to describe it as a

“pledge to stop the rise in Employer National Insurance contributions”.

Perhaps he can also explain how that will be amended.

The Liberal Democrats themselves promised that they would reverse the change to employer national insurance contributions. I am not sure whether that was simply for employers; it may even have been for employees as well, but it was certainly in the Liberal Democrat manifesto. In recent days, we have become used to Liberal Democrats explaining that, “Well, what was in our manifesto doesn’t actually stand; it was superseded by the coalition agreement”—as though year zero suddenly came into being. [Interruption.] I will give way to the hon. Member for Bristol West if he would like to clarify that matter.

The British public particularly remember what the Liberal Democrats said before the general election, when they were skipping around the country trying to hoover up votes with any number of promises on a whole series of different fronts. The Conservatives had clearly learned lessons from previous electoral defeats and inserted a set of subsections and small print into their pledges all along, although the tabloid press did not necessarily pick up on them. On 30 March, TheSun reported:

“The Shadow Chancellor promised to cancel a 1p National Insurance rise for everyone apart from high earners.”

We know that since then the Conservatives have reneged on the change for employees, who simply had to accept it; but the employers now need to know what is going on. We had an exchange about this during the evidence session. The Minister set out the threshold indexations, which I think were published on 3 December. Clearly there is an indexation change for the thresholds, on top of which I understand that some time in the  spring he intends to introduce the regulatory order, which will offset some of the employer change. I do not know whether he can tell us exactly when that will be.

I do not have my calculator with me in Committee, but can the Minister reiterate that the indexation changes are retail prices index indexations? I think that is what he indicated in the evidence session, but now that we have seen the figures could he confirm it? Can he also confirm, plainly and openly, that the threshold changes he intends to make do not stop the rise in the employer national insurance contribution? At the very least, employers up and down the country need to know that what they may have felt was a promise is now not being fulfilled.

Photo of David Gauke David Gauke The Exchequer Secretary

Clause 2 amends section 15(3ZA) of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992. The measure relates to the self-employed who will see a 1% increase from 6 April 2011, which was announced by the previous Government. Although not part of today’s Bill, the Government intend to reverse the impact of the previous Government’s tax on jobs by increasing the lower profits limits and the income tax personal allowance.

I give the hon. Member for Nottingham East credit for trying to make the most of what is a fairly weak case, which is in essence that here are a Government who are implementing a tax change in exactly the way that the larger party in the coalition Government said it would do in its manifesto. I note the point that setting these things out in a manifesto is seen as being the small print, but conventionally that is seen as something quite significant. To be fair, the electorate and, specifically, employers understood what we were doing. There was certainly no attempt on our part to conceal what we were doing.

Given the difficulties in the public finances, and given our desire to focus on protecting the lowest-paid and protecting lower paid jobs, which may be the most vulnerable in difficult economic conditions, we focused on raising thresholds and raising the personal allowance. It will mean that anyone earning £35,000 or less will not be affected by the national insurance contribution increases. It will mean that employers find that the damaging effects of the increase that was proposed are mitigated very substantially and, as I said, it is exactly consistent with what is in the Conservative party manifesto.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

But surely the Minister has to acknowledge that it is not exactly consistent with what is stated on page 25 of the coalition agreement, which mentions the

“pledge to stop the rise in Employer National Insurance contributions”.

Photo of David Gauke David Gauke The Exchequer Secretary

We have looked at the best way to stop the damaging tax on jobs, and the most effective way of doing that is by raising the thresholds in exactly the way that we are proposing. In clause 2, we are increasing the lower profits limit and the income tax personal allowance, and in clause 1, we are increasing the national insurance threshold and, indeed, the income tax personal allowance. That stops the most damaging elements and it will reverse them. Given the difficulties we face with the public finances, and given the constraints that we have inherited, that is a wise use of limited resources.

In the end, what would have been damaging to jobs provoked hundreds of business leaders to write in support of our policy. Tony Blair wrote in his memoirs that when 35 leading chief executives said that they would support our policy, that was the moment when he thought that the new Labour Government were finished, particularly as there was no response from any business leaders in support of Labour’s tax plans.

The measure demonstrates our commitment, despite the ruinous state of the public finances that we inherited, to ensure that the damaging jobs tax proposed by the previous Government will be substantially reversed in a way that is entirely consistent with the pledges that my party made in advance of the general election. We are pleased to be able to do that.

I want to address a couple of points of fact that were raised by the hon. Member for Nottingham East. The regulations that will increase the thresholds will be laid in late January, which is the same as would have happened under previous Governments. That will coincide with the laying of the Department for Work and Pensions benefits uprating regulations and the Government Actuary’s report on the changes. The primary threshold is increasing to £139 a week in April 2011. The secondary threshold—in other words, the employers’ threshold—is increasing to £136 a week. The hon. Gentleman also asked whether the indexations, which were announced in a ministerial statement last week, will be increased by RPI. I will save him getting out his calculator, because the answer is yes.

With those clarifications and points, I hope that clause 2 will stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The Minister is a good soul, who tries his best to do a diligent job for the nation and its finances, but it must be noted that those of us in opposition who want to articulate our critique of Ministers sometimes struggle to find the right language. I know that the description of arguments that may or may not be misleading, for example, can sometimes get us into the realms of unparliamentary language. I would never accuse the Minister of that, but there are some in the coalition, to whom he may have implicitly alluded when he said that the main Opposition party, as was, had set out the proposals out in the small print of its manifesto. Perhaps the Liberal Democrats were not quite as specific, but that is a second-order issue.

The fact that the coalition agreement stated that the coalition would

“stop the rise in Employer National Insurance contributions” is shorthand and a lazy, sloppy bit of drafting, which was deliberately designed to give the outside world the impression that the change in national insurance would be reversed in its entirety. The Minister may baulk at that as a minor issue, but he has acknowledged that it might have been better to use the phrase “substantially reversed”. The £1.3 billion shortfall may be short change to some in the Treasury, but it is a significant amount of money. Some employers may have expected it in return, but it did not come back as a result of the rhetoric used by the parties in the Government.

Photo of David Gauke David Gauke The Exchequer Secretary 11:00 am, 7th December 2010

I would be grateful for some clarity from the hon. Gentleman. Am I correct in thinking that it remains his party’s policy that it would not reverse a single penny of that increase?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am not sure at this stage of the Parliament. I do not have the massed ranks of Treasury officials that the Minister has at his disposal, and the calculator on my iPhone 4 does not allow me to give a commitment to a projection of what may or may not happen in the next Parliament. All I know is that the coalition agreement pledged to stop the rise, but that is not what is happening. The Minister has tacitly had to acknowledge that that is the case and I will accept that as an apology. It is always the case that the truth will out in the detailed scrutiny of legislation, so I am happy to proceed. I just wanted to emphasise that point at this stage.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.