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National Insurance Contributions Bill

These amendments offer alternative ways to deal with what we perceive to be a significant problem with the Bill. I shall set out in detail how they would work, but before I do so I shall put the problem in context. All hon. Members are aware of how important taxation is as a constitutional matter, and the House guards very jealously its right to raise revenue. In the broad historical sweep, for instance, the English civil war and the American revolution could be considered relevant to this discussion, although I shall not refer to them in detail. All parties in this House consider the proper scrutiny of revenue-raising measures to be very important. This country has two forms of taxation on income—income tax and national insurance—and it is worth taking a moment to look at the different ways in which they are dealt with in this House. Income tax was introduced as a temporary measure in 1798; it was abolished five years later and then reintroduced on a permanent basis in 1842. Partly as an historical overhang, since 1860 we have renewed income tax every year, although previously it had been renewed over groups of three or seven years on a number of occasions. However, the review of income tax is also part of Parliament's power over the Executive, as the Crown cannot raise revenue if Parliament is dissolved. Corporation tax is subject to the same restriction. In essence, this debate is about thresholds. Since the introduction of the Finance Act 1977, when the Rooker-Wise amendment was implemented, thresholds and personal allowances have increased in line with inflation; they do so unless Parliament expressly states otherwise. The clear intention was to prevent stealth taxation, as thresholds and allowances are both diminished by inflation. Of course, inflation in 1977 was somewhat higher than it has been for some few years now. We still have fiscal drag within a year, but not from year to year. Parliament retains the ability not to uprate allowances and thresholds in line with inflation. Indeed, it exercised that power as recently as 2003-04, but it must do so explicitly. It does so through a Finance Bill. This is where I would like to make a comparison with national insurance contributions. With income tax, from the point of view of the taxpayer, the concern is that thresholds will not increase in line with inflation. Our practical concern with national insurance contributions is with the upper earnings limit increasing faster than the rate of inflation. There is also a concern—it is probably more theoretical than practical—that the lower earnings level or primary threshold could fall, but at a practical level the political debate over many years has been about whether the upper earnings limit might increase more rapidly. The contrast between national insurance contributions and income tax is considerable in that respect, because thresholds regarding national insurance contributions are determined by regulation, as opposed to primary legislation or a formula that can be amended through such legislation. Section 1 of the Social Security Pensions Act 1975 provides a safeguard, however. The upper earnings limit cannot be increased by more than seven and a half times the lower earnings limit, or by less than six and a half times the lower earnings limit. Why? Such an arrangement prevents abrupt changes in the scope of national insurance contributions without proper parliamentary scrutiny. On looking at the debate on Second Reading and in Committee on that legislation, I noted that the concern expressed in Committee was that the provisions were unduly flexible and that six and a half to seven and a half was too wide a band to permit the Government to vary the national insurance contributions upper earnings limit. I also noted that representing the Opposition on that occasion in 1975 was my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who raised some important points about flexibility. It shows that things do not necessarily change as much as they might do. The concern in 1975 was that the provisions were too flexible. Clearly, Parliament was provided with an opportunity to restrict the power of the Executive to vary the upper earnings limit unduly and rapidly to increase the upper earnings limit to make a substantial increase in the tax on income that people in the United Kingdom would face. That brings me to one of the major problems that we have with this Bill. Clause 1(1) abolishes the ratio and the protection that means that only so much can be done by regulation.