Examination of Witnesses

National Insurance Contributions(Rate Ceilings) Bill – in a Public Bill Committee at 9:33 am on 27 October 2015.

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David Gauke MP and Cerys McDonald gave evidence.

Q 15

Photo of Andrew Rosindell Andrew Rosindell Conservative, Romford

We will hear oral evidence from the Treasury. We have until 10.45 am. I ask the panellists to introduce themselves.

Mr Gauke: Good morning, Mr Rosindell. I am David Gauke, Financial Secretary to the Treasury, and this is Cerys McDonald, deputy director of personal tax at the Treasury.

Q 16

Photo of John McNally John McNally Scottish National Party, Falkirk

I will repeat the question I asked earlier. There has been a lot of speculation in the media and the press about the possible effects on the thresholds of the tax credit cuts. The Bill legislates to prevent rises in the current rates of class 1 and secondary class 1 national insurance contributions, but says nothing about the thresholds. Are changes to thresholds absolutely ruled out for the duration of this Parliament?

Mr Gauke: The thresholds are kept under review, and announcements are made at Budgets and autumn statements from time to time. They automatically increase in line with inflation, but as I said, it is a matter that is always kept under review.

Q 17

Photo of John McNally John McNally Scottish National Party, Falkirk

Are you saying that there is a possibility that they will be changed?

Mr Gauke: The Bill relates to rates. That was the policy set out by my party in the general election. It does not specify anything with regard to thresholds.

Q 18

Photo of John McNally John McNally Scottish National Party, Falkirk

What I am trying to get at, Minister, is that there will have to be some sort of transition period for working-class people. We in this Committee are trying to find out whether that will be a possibility. During the transition period, it looks as if national insurance contribution thresholds will be moved.

Mr Gauke: Just to clarify the point I made a moment ago, there is an area relating to thresholds, in terms of the link with the upper earnings limit in the Bill. As for the vote in the House of Lords yesterday, the Chancellor will set out his response to that in the autumn statement.

Q 19

Photo of Wendy Morton Wendy Morton Conservative, Aldridge-Brownhills

The balance of the national insurance fund has continued to fall sharply in spite of the modest economic recovery. Is not legislating to prevent even small rises in national insurance contributions throughout this Parliament irresponsible in such circumstances?

Mr Gauke: No. Our commitments as a Government—our additional expenditure on the NHS, for example, and the triple lock guarantee for the state pension—are clear statements that we will fulfil. If it is necessary to top up the national insurance fund, we will do that to fulfil our objectives of increasing spending on the NHS and meeting our obligations on the state pension. Ultimately, meeting those objectives depends on the state of the economy and the public finances, not on the position of the national insurance fund.

Q 20

Photo of Wendy Morton Wendy Morton Conservative, Aldridge-Brownhills

How can the fund cope if there is an unforeseen crisis?

Mr Gauke: First, as Mr Whiting pointed out, the fund is unlikely to face an unforeseen crisis due to expenditure. There is flexibility within the regime for top-ups from the Consolidated Fund from the Treasury to ensure that the national insurance fund can fulfil its obligations. In terms of our commitments, this requires us to have a strong economy and sound public finances  and to control public spending in other areas, so that we are in a position to see the increase in departmental spending in the NHS that I am sure we would all like.

Q 21

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

In terms of the national insurance fund, the trend is not looking good. In 2008-09, the fund was sufficient to cover 71% of its liabilities. By last year, that had dropped to 25%. Some commentators are suggesting that this year it will fall below the Government Actuary’s recommended one sixth, which is 16.7%. I understand that the Government Actuary has indicated that a top-up will be required this year from the Consolidated Fund, I imagine as you just indicated. I understand what you said about flexibility. Can you give an indication of how big that top-up from the Consolidated Fund for the national insurance fund is likely to be for this financial year and for the remaining years of this Parliament?

Mr Gauke: I can say that, for the 2015-16 tax year, a top-up of £9.6 billion has been provided for in legislation. That is the potential number; it is not to say that that will be necessary. I am not sure that I can give a number for future years as such. It will depend upon various factors, but there is provision for top-up from the Consolidated Fund if necessary.

Q 22

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

Forgive my ignorance, but does it require primary legislation? You talked about the £9.6 billion being provided for in legislation for this financial year. Is that secondary or primary legislation? What is the mechanism?

Mr Gauke: It is secondary legislation.

Q 23

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

So if the transfer needed to be more than £9.6 billion in this financial year, that would require fresh secondary legislation this year? I am not saying that will be the case, but asking what would happen if it were.

Mr Gauke: I think that is an assessment of what could be necessary this year, but for future years we would require further secondary legislation to provide such a top-up.

Q 24

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Minister (Treasury), Member, Labour Party National Executive Committee

What steps have the Government put in place to review this legislation in terms of reports or otherwise? Are there any triggers that will lead to its suspension?

Mr Gauke: There are no formal processes for reports or triggers for suspension. All legislation is of course kept under review. I remind the Committee of the purpose here. It is to emphasise and underline our commitment not to increase national insurance contribution rates in the course of this Parliament. That is what my party set out at the general election, and this legislation is to support that.

Q 25

Photo of Wendy Morton Wendy Morton Conservative, Aldridge-Brownhills

The Government have said that the Bill has no financial implications. If a grant is needed from the Treasury to maintain the mandated threshold of 16.7% of expenditure, is it your view that this constitutes a financial implication?

Mr Gauke: We have various commitments in terms of Government spending and we also have various commitments in terms of taxation, one of which is not  to increase the employers’ or employees’ rates of national insurance contributions. As a Government, we will abide by those commitments. This legislation emphasises and underlines that commitment by passing a law to support it. The point I would make is that if there is a shortfall in the national insurance fund, our response is not to increase the national insurance contribution rates.

Q 26

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Minister (Treasury), Member, Labour Party National Executive Committee

There is real concern that, given the fall in the balance of the national insurance fund, there will be implications for NHS funding. Can you confirm that there are no anticipated funding cuts on the horizon in terms of the NHS?

Mr Gauke: Yes, I can confirm that. I come back to what I was saying earlier: if the Government are committed to funding the NHS properly, as we are, we will find the resources. The fact that the national insurance fund, for argument’s sake, goes in one direction does not mean that spending cannot go in a different direction. It is ultimately a spending decision to decide how much we spend on the NHS. Of course, Government need to fund it, but that funding could come from the national insurance fund or the Consolidated Fund, or there could be a transfer from the Consolidated Fund to the national insurance fund.

Q 27

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Minister (Treasury), Member, Labour Party National Executive Committee

What measures will the Government put in place to provide assurances on this? The Government have imposed the Bill to provide assurance about the ceiling rate on national insurance contributions, but will they do the same to protect the NHS funding element?

Mr Gauke: We do not intend to legislate on that funding, but I point to our record in the last Parliament of increasing expenditure on the NHS in real terms. We are committed to doing the same in this Parliament.

Q 28

Photo of Mark Menzies Mark Menzies Conservative, Fylde

Following up on that point, is there a clear commitment from the Government to put measures in place to ensure that NHS funding is not reduced as a result of the measures in the Bill?

Mr Gauke: The measures in the Bill will not reduce NHS funding. There is not, in truth, a hard and fast link, because expenditure on the NHS is not confined simply to money coming from the national insurance fund. It is a clear commitment from our party at the last general election, and of course, we have a spending review coming up next month that will set out the details. A Government who are determined to focus support on the NHS, who can deliver a strong economy and who are prepared to make difficult decisions on other aspects of Government expenditure are in a position to provide the support to the NHS that we believe is right.

Q 29

Photo of Lucy Frazer Lucy Frazer Conservative, South East Cambridgeshire

The Government have committed to simplifying the tax system. Mr Whiting confirmed that this measure will do that, and that it will bring certainty and stability through lack of change. Do you think that the change will have an impact on any other tax measures?

Mr Gauke: Of course, in the Finance Bill, we also brought in the tax lock in respect of income tax rates and VAT. I hope that that provides a degree of certainty and stability to taxpayers. In particular, in the context  of employers’ NICs, the Bill provides an important degree of certainty for employers that they will not be hit by an increase in the rate of the jobs tax, if I may use that term. I hope that that provides certainty and stability. Of course, we are taking other measures as a Government, and we intend to publish a business tax road map by April next year setting out our plans over the course of this Parliament. It is all about creating an environment in which businesses can grow and invest, knowing that they have a Government who want a tax system that is supportive of them.

Q 30

Photo of Andy McDonald Andy McDonald Labour, Middlesbrough

Rather than simplifying the tax system, this effectively does a big fat nothing. It keeps things exactly as they are. Have you made any assessment of how much the process has cost?

Mr Gauke: First, what you might describe as a big fat nothing— keeping things as they are—can, as Mr Whiting said, at times be something that businesses welcome in terms of providing greater certainty. Also, as you heard, the Office of Tax Simplification is looking at the relationship between income tax and national insurance contributions to see if there is scope for simplification in that area. I think that the costs of the process would be negligible, but it is nevertheless of value to have legislation that underlines the Government’s commitment regarding tax rates.

Q 31

Photo of Andy McDonald Andy McDonald Labour, Middlesbrough

Is keeping things as they are, not making any changes and putting Parliament through this, really a wise use of parliamentary time?

Mr Gauke: Yes, I think it is. I think it is a justifiable use of parliamentary time to underline the commitment that my party made at the general election to not increase the rates. The fact that we have legislation to that effect underlines that commitment, and I hope that, at the end of the day, Mr McDonald, you do not feel that you have had a futile day.

Q 32

Photo of Huw Merriman Huw Merriman Conservative, Bexhill and Battle

To turn the question from the hon. Member for Middlesbrough on its head, does the Treasury keep estimates of how the stability that this gives business will benefit the economy?

Mr Gauke: It is difficult necessarily to measure that. It is difficult to take the things in isolation. Overall, if you look at what we have done, as both a coalition Government and a Conservative majority Government, in terms of, for example, reducing our rate of corporation tax, addressing the worst effects of the jobs tax, which we inherited in 2010, some of the measures we have taken regarding capping business rates, and so on—over a period of five and a half years or so—we have taken a large number of measures to help businesses and to ensure that we have a thriving private sector, creating the jobs and tax receipts that we need to fund the NHS and so on.

Q 33

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

Reversing that, I would suggest that the Bill arguably creates greater uncertainty, because although the Government have chosen, following your party’s manifesto commitment, to lock in a cap on national insurance contributions, you are taking action  in some areas and not others. For example, there are about 1,300 tax reliefs and you are not locking all of those in.

In answer to an earlier question, you referred to a review of business taxation, which I think you said would be launched in the spring. That in itself creates uncertainty, and I suggest that the argument that the Bill creates greater certainty is wrong. It creates greater uncertainty because people say, “You’re locking in this but we notice you’re not locking in other stuff, so other stuff might change and adversely affect businesses or individuals.”

Mr Gauke: First, to be clear, we will publish our business tax plan—road map, if you like—in the spring, setting out what we will do. It is not the announcement of a review as such. It is, to some extent, conclusions.

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

Until then there is uncertainty.

Mr Gauke: But my wider point is that it is important in terms of the larger taxes to provide greater certainty to the British people. We will not be putting up tax rates. We do not believe that that would be the right thing to do. I also make the point that my understanding is that, at the general election, the Labour party also made a commitment not to increase the rates of employer and employee national insurance contributions, income tax and VAT. The difference between us that we are legislating for it but, as I say, the idea of ruling out increases in tax rates is not, as I understand it, something to which your party, Mr Marris, is opposed.

Q 34

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

We did not say that we would do it for business certainty.

Mr Gauke: Well, whatever the reason for doing it, that, I think, was your party’s position. It was a manifesto commitment, and it is right that we fulfil it.

Photo of Andrew Rosindell Andrew Rosindell Conservative, Romford

Those are all the questions of which I have been notified. Does any other hon. Member wish to ask a question or raise an issue that has not been covered thus far?

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

On a point of order, Mr Rosindell. May I thank you for your chairing of the Committee today, particularly as I suspect that, like me, you missed the Canadian breakfast this morning?

Photo of Andrew Rosindell Andrew Rosindell Conservative, Romford

No, I went to it, actually.

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

I had a meeting. I thank you, Mr Rosindell, for your commitment to your service as a Chair and for chairing the Committee today.

Photo of Andrew Rosindell Andrew Rosindell Conservative, Romford

Thank you. I thank the witnesses for their attendance today and for duly answering the questions. If there are no further questions, I thank hon. Members for their attendance.

Ordered, That the debate be now adjourned.—(Mel Stride.)

Adjourned till this day at Two o’clock.