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National Insurance Contributions Bill

My Lords, I am pleased to open this debate on the Bill before us today, which has two purposes. The first part of the Bill introduces a 1 per cent increase in the class 1 employee and employer and the class 4 self-employed rates of national insurance contributions from April of this year. As some Members of the House will no doubt remember, this was announced by the previous Government in their 2009 Pre-Budget Report. If the increases were to be introduced as the previous Government had intended, they would have led to an increase in the cost of labour. I reassure the House that this Government intend to reverse the impact of the previous Government’s tax on jobs by increasing the employer national insurance threshold, the primary threshold for employees and the income tax personal allowance. At the Emergency Budget in June 2010, my right honourable friend the Chancellor confirmed that the personal allowance would be increased by £1,000 from next April and that the employer national insurance contributions threshold would rise by £21 a week over indexation. At the same time, my right honourable friend confirmed that it is our intention to raise the employee national insurance contributions threshold by £24 a week above indexation and to raise national insurance contribution rates by 1 per cent. The first part of the Bill before the House sets out how the increase in rates of 1 per cent will apply. First, it increases the employer rate from 12.8 per cent to 13.8 per cent. This 1 per cent increase will also apply to class 1A and 1B contributions that are paid by employers on benefits in kind and pay-as-you-earn settlement agreements. Secondly, it will increase the employee main rate from 11 per cent to 12 per cent. The same 1 per cent rise will also apply to class 4 contributions paid by the self-employed, which will rise from 8 per cent to 9 per cent. Thirdly, the additional rates of employee class 1 and self-employed class 4, payable on earnings or profits above the upper earnings limit and the upper profits limit, will rise from 1 per cent to 2 per cent. Compared with the plans that this Government inherited, over £3 billion a year is being returned to employers once our changes are fully implemented. Indeed, our actions will mean that some 880,000 low earners in the UK will be taken out of income tax altogether; that around 950,000 low earners will no longer pay national insurance contributions, while their benefit rights will be protected; that employees earning under £35,000 a year will pay less income tax and national insurance; and, that employers will pay less national insurance on all workers earning less than £20,000 a year. The second part of the Bill encourages employment and enterprise in areas of the United Kingdom that are most reliant on public sector employment. Our aim is to help these regions move to a more sustainable economic model—one based on private sector growth, enterprise and investment. That is why we are introducing a holiday from employer national insurance contributions, with the aim of providing support for qualifying new businesses in targeted areas of the United Kingdom. This action will reduce the costs of taking on new staff and provide support in the vital early stages of business development. In order to ensure affordability, the holiday will be limited to the first 10 employees taken on in the first year of business. For each of these workers, the holiday will last for 12 months, unless the closing date for the scheme, 5 September 2013, is reached before the 12 months have elapsed. The maximum amount that an employer can profit from any single employee will be limited to £5,000. At the time of last year’s Budget, it was estimated that start-up companies would save around £940 million worth of national insurance over the next three years. This is money that they can use to hire additional staff, expand their businesses or invest in our nation’s economic recovery. This is both an important and a necessary Bill. It will go some way towards enabling the reduction of the taxation of labour in targeted areas, to help support employment and secure the recovery. In short, the Bill is good for growth and good for jobs. I beg to move.