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National Insurance Contributions Bill

My Lords, I am grateful to the noble Lord, Lord Davies of Oldham, for confirming that the Committee might move more expeditiously through this Bill than some other recent Bills. I think that the noble Lord said that I would understand why he opposes Clause 1 standing part of the Bill, but I could not quite work it out and I am even more confused now that he says that the Opposition support the 1 percentage point increase, which is the import of Clause 1. However, I guess that I will eventually get used to the way that the House operates on these things. If the purpose of this discussion is to put the Bill into a bit of context, I am certainly very happy to do that. The Government face the twin challenges of dealing with the inherited deficit and getting the economy growing again. In this wider context, the Bill goes to the heart of those challenges. I have repeatedly said that the recovery is likely to be choppy, and so it is proving. It is not easy to stimulate growth while bringing the deficit under control. The case of national insurance exemplifies the dilemma and the challenge. The 1 per cent increase in national insurance produces revenue of the order of £9 billion to £10 billion, which is necessary to deal with the deficit. Although we will put 70 to 80 per cent of the weight of deficit reduction on spending, nevertheless increases in taxation will bear part of the burden. Therefore, we start by accepting some of the changes that the previous Government proposed. We do not know what they had in mind on VAT. There were strong indications from Ministers in the previous Government that had they been returned to office they might well have increased VAT. In the context of national insurance increases, offsetting measures that go hand in hand with the Bill—although they are not in the Bill—will increase the secondary threshold by £21 a week and the primary threshold and the lower profits limit by £24 a week. This will significantly offset the rises in the Bill. The increase in income tax personal allowances and the reductions in the basic rate limit and in the national insurance upper earnings and profits limit will, as a combined package, go a substantial way towards offseting the effect of the national insurance rises. Compared with the plans that we inherited, employers will be more than £3 billion better off next year, and that figure will rise in future years. As I said, we are fully compensating for the £9 billion increase in labour taxation that the rate rise represents. The threshold rises will mean that the burden that the Government add to labour costs will lessen, and there will be more to share between employers and employees so that both will benefit. As a result of the way in which we are doing this, some of the benefit will be switched from national insurance contributions to income tax, so the net rise in national insurance contributions payments will be compensated for by a larger fall in income tax payments. Employers will be better off in respect of employees earning up to £20,000, while employers who have staff among the highest earners will pay more in national insurance contributions. We are agreed that the 1 percentage point increase is appropriate. Where we diverge from the analysis of the noble Lord, Lord Davies, is in seeing the proposed increase as a significant tax on jobs at a time when the recovery needs to be encouraged and bolstered. That is why we have made the offsetting increases in limits, and the increase in the income tax personal allowance. I am grateful to the noble Lord for enabling us to start our discussion by putting the Bill in a wider context, because that is important. Having explored the issue, I hope that we will now move on to the detailed points that he intends to raise.