Social Security (Contributions) (Re-rating) Order 2012

My Lords, when the index number used to calculate and evaluate the performance of the Bank of England was changed from RPI to CPI a few years ago, the target inflation rate was lowered from 2.5 per cent to 2 per cent to take account of the difference in the indices. No such change has been enjoyed by the rest of us. The Bank of England has a better arm-lock on the Treasury than does the general public, particularly those of us who pay national insurance contributions or, as we shall discuss later, receive tax credits. As someone who has taught a course on index number theory for a number of years, one of the most important lessons one can take from index number analysis is that there is no such thing as a true measure of any particular variable in a complex index. In this case, there is no such thing as a true measure of inflation. The choice of index is purely a matter of the purpose for which it is to be used. In the cases before us today, the purpose of the change in the index is to increase taxation by stealth. The role of indexation is supposed to be to protect real positions, whether of benefits or contributions. As is evident from the Government's own impact statement, which shows a benefit to the Treasury of £1 billion a year by the fiscal year 2015-16, real values are not being protected in this case. Much has been made in the discussion of the changes to personal taxation and national insurance of the increase in the personal tax threshold. The change in the level of national insurance contributions debated today may appear minor in comparison and has received far less attention—but as it stands, the decision to index direct taxes by CPI and to contract out national insurance rebates produces a net increase to the Treasury revenue of £1 billion. There is more to come. The two orders combine to create a fiscal drag which by 2015-16 will increase the tax burden by £1 billion a year, as I mentioned. With contribution thresholds increasing at CPI—the lower of the two standard measures of inflation—more workers will be caught in the higher bracket of payments than would otherwise have been the case. I note with interest that the impact assessment note issued by the Treasury indicates that 21 million employees will lose out by £6 a year on average in the next fiscal year. The Government are rather coy and do not tell us what will happen in the subsequent fiscal years of 2013-14, 2014-15 and 2015-16, even though they give the aggregate figure, so they must know what is happening. Why are they not telling us? If they do not know, the aggregate figure is simply a fiction. I believe the aggregate figure, so what is happening to individuals in this case? Given that the Treasury expects to raise £1 billion in 2015-16, what is the impact of the change on individuals over the course of the Parliament? Finally, I would be grateful if the Minister could offer his view on what the benefit is of a whole variety of uprating mechanisms being used by the Government across various departments, different benefits and payments, and contributions. For example, he will be aware that other price rises such as student loan repayments or rail fares continue to be uprated at RPI. Why is one on the CPI and the other on the RPI? The answer is simply that it maximises the benefit to the Treasury. We all know that. The Minister will also be aware that the Chancellor has previously stated that he has an ambition for the default indexation assumption for indirect taxes to be moved to CPI when the fiscal position allows. Why can we not move to it now? The answer is that it would reduce the rate of taxation, and so we are sticking with the higher rate on indirect taxes so as to get the biggest benefit for the Treasury. Let us not be deceived by this uprating story. It is a minimalist move, and one which with respect to thresholds has been designed to extract more from the contributor to national insurance. That is what is clearly conveyed in the Government's own assessment of the figures. So in presenting the changes to thresholds and contributions, why does the Minister not simply come clean and say, ““We have increased contributions””? The last Budget was one that actually increased direct taxation, contrary to what the Chancellor of the Exchequer told us.