It is certainly the case that during the downturn the decision to remove the 50p rate of tax was wrong. We would certainly argue that in the current climate that 50p rate should have been maintained. In that respect at least, I agree with the hon. Gentleman.
I wish to raise at this point the Conservatives’ future plans to replace national insurance because that is pertinent to the measure under discussion. In July, the Financial Secretary commissioned the Office of Tax Simplification to review the interplay between income tax and NICs. He said:
“I would like the Office of Tax Simplification to look at what the impacts, costs and benefits of closer alignment would be and to set out what the necessary steps would be to achieve closer alignment. We believe greater integration of the two systems has the potential to remove economic distortions, reduce burdens on business, and improve fairness across individual earners.”
These are all sensible objectives, and I assume this is still a longer-term Government objective, so let me ask the Minister how this Bill assists in the delivery of that aim.
I said earlier in my contribution, and also in a debate on the financial statement in July, that the Chancellor promised a tax lock but that legislation to stop tax rises was
“just a gimmick and no one is going to buy it”—[Official Report, 8 July 2015; Vol. 598, c. 348.]
Indeed my hon. Friend the Member for Edinburgh East (Tommy Sheppard) made the same point:
“If these provisions are included in what”
is now this Bill today
“it will only take a clause”
in future legislation
“to overturn them. They are therefore literally not worth the paper on which they are written.”—[Official Report, 21 July 2015; Vol. 598, c. 1441.]
He was right, of course, and that ties in with what I said earlier about a lack of confidence.
Of the Bill that became the Labour Government’s Fiscal Responsibility Act 2010, where levels of debt and deficit were planned but there was no sanction if they were broken, the current Chancellor said that it would achieve
“a constitutional first of imposing no legal sanction on the person who is likely to break it. No other Chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own Budget”—[Official Report, 26 November 2009; Vol. 501, c. 708.]—
until now.
Let me reprise that for this Bill. This is a constitutional second. Only one other Chancellor has felt it necessary to bring legislation before this House in order to convince people that he has the confidence to implement his own
Budget. We saw Gordon Brown go from Joseph Stalin to Mr Bean; I fear the First Secretary may be reverting to a rather rusty clunking fist.
As has been said, a large number of stakeholders have contributed to this debate, and key from our point of view are the words of Howard Archer, chief European and UK economist at IHS Economics, who said that such a move would restrict the Chancellor’s ability to achieve his targets:
“In particular, if the public finances fall markedly short of their targets, the chancellor would have to face making even more spending cuts and/or raising other taxes. Or just accepting the missed targets. There really still needs to be a lot more clarity on the whole Conservative fiscal policy”.
That is absolutely right.
It is also worth noting the comments of Jonathan Portes from the National Institute of Economic and Social Research. He said the pledge not to increase the main taxes
“considerably reduces our flexibility if things turn out different from expected. This is why I have absolutely no doubt that Treasury and Bank of England officials were tearing their hair out at this.”
What discussions, if any, have the Minister, the Chancellor or the Treasury had with the central bank about these proposals and the inherent lack of flexibility that they generate?
Let me turn now to some of my final questions. I ask Members to bear with me as I describe some of the complexity of the current NICs regime. Employees pay NICs on their earnings if they exceed the lower earnings limit, which is set at £112 a week. A zero rate of NICs is charged on earnings between the lower earnings limit and the primary threshold of £155 a week. Earnings above the primary threshold are charged NICs at a rate of 12%, subject to a cap on the upper earnings limit, which is set at £815 a week. Earnings above that are set at 2%.
Employers pay NICs on employee earnings at a rate of 13.8% on earnings above the secondary threshold, which, at £156 a week, is a difference of £1 from the primary threshold for employers. There is no ceiling on secondary class 1 NICs.
As everyone in the Chamber knows, self-employed people pay a weekly flat rate class 2 NIC. They may apply for an exemption from paying class 2 contributions if there are no profits, or if their profits are less than, or expected to be less than, £5,965 for the year. This replaced a small earnings exemption from April this year. In addition, they may be liable for separate class 4 earnings, and on it goes.
Tax simplification is a great idea, and we can see precisely why. Will the Minister explain how these proposals will make the NICs regime more straightforward? In addition to those categories, individuals may be entitled to make voluntary class 3 contributions to avoid or fill gaps in their NI record to ensure that they qualify for basic retirement pension and bereavement benefits. Does the Minister expect more or fewer people to make additional voluntary contributions as a result of the tax lock to the NICs described in the Bill, and will there be any encouragement for them to do so?
The majority of NICs receipts are paid into the national insurance fund, which is separate from all other revenue raised by taxation. The fund is used exclusively to pay for contributory benefits. If the revenue yield from national insurance does not rise in the planned heroic way that I described earlier, can we expect to see cuts directed at the contributory benefits that people have already paid for? There is often unintended consequence from any legislative change—and sometimes perfectly foreseeable behavioural change that may affect yield forecasts. That is an argument that Treasury Ministers have, from time immemorial, fallen back on when they are implementing bad decisions. What assessment have the Government undertaken to predict if any negative behavioural change is likely from these measures, particularly given the differential in rates and thresholds between employee, employer and self-employed national insurance contributions?
Finally—this is really my most important question and at the heart of our disquiet over a legislative attempt to provide certainty over this Parliament—as the majority of NICs receipts are paid into the national insurance fund and that fund is used exclusively to pay for contributory benefits, may we have a cast-iron guarantee from the Minister today that this legislation is not and will not be the start of an attack on, or an erosion of, the contributory principle that applies to national insurance contributions?
2.44 pm