---

National Insurance Contributions Bill

It is a pleasure to speak on this Bill, although it will not catch the headlines as some do. Today there have been three oral statements and 24 written statements—we are getting close to the recess, and it seems to be Government ““put out the trash”” time. The Bill may not even lead the debates on specifically Treasury issues; we have had the Poynter review, the security breach in Coventry and the row between the Treasury and the Bank of England on Northern Rock. However, we are debating the last legislative business before the end of the year—and I am delighted that we are. Although the Bill has been described as essentially technical, we can see from its contents and the story of how we got here a number of the attributes of the Government, and they go a long way in explaining some of the difficulties that the Government face. The first difficulty is that the Bill is, for all its technicalities, about a tax increase—two of them, in fact. As we have heard, the first increase relates to the national insurance contribution changes announced in the 2007 Budget. Hon. Members will recall it well: the then Chancellor announced with a flourish the 2p cut in income tax, and perhaps he achieved a tactical success. However, it soon emerged that he had made a strategic error, as the Budget became known as being about a tax con, not a tax cut. The national insurance change was part of that package of measures. As we listened to the then Chancellor on 21 March 2007, it was not clear what was being announced. He announced an increase in the level at which the top rate of income tax would be payable, increasing it from £38,000 to £43,000. However, he then said:"““I will align the income tax system with the national insurance system, with its ceiling set at the same threshold of £43,000””.—[Official Report, 21 March 2007; Vol. 458, c. 826.]" I do not know whether it was clear to other Members—it was not entirely clear to me—but he had just announced a tax increase of £1.5 billion a year. The argument for the alignment is that it promotes simplicity, and it is good to argue for simplicity; the Conservatives have been doing so for some time. We approve of simplicity. However, by aligning national insurance with income tax in that way, the Government have essentially imposed yet another stealth tax. The Chancellor has argued for simplicity in the reform of capital gains tax, although he does not do so as much these days. When the Government talk about simplifying the tax system, taxpayers need to start checking the spoons. The second tax rise is the reform of S2P, or the state second pension. I shall return to the details a little later, but as my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) pointed out, contributions that were once made towards earnings-related benefits now contribute towards nothing—they are just contributions to the Exchequer. The Exchequer will raise an additional £500,000 a year on rebates to opted-out schemes. Earlier, I quoted from the HMRC impact assessment. It said that 2.1 million people with income above the upper earnings limit are contracted out of S2P and that:"““These individuals will either see a reduction in their take-home pay as they will get a lower rebate on their national insurance contributions than would otherwise have been the case or a reduction of the money that goes into their pension scheme””."