My Lords, it is a pleasure to open this debate on the National Insurance Contributions (Rate Ceilings) Bill before us today. The Bill implements the Government’s manifesto commitment that pledged not to increase the main rate of 12% and the additional rate of 2% for employees’ class 1 national insurance contributions, and the employer rate of 13.8%. The Bill also places a ceiling on the employee upper earnings limit. This is part of a wider package of measures designed to provide businesses with the certainty that they need to invest with confidence, and also to help deliver the low and competitive rates of taxation to underpin our growing economy.
Noble Lords will be aware of the Government’s strong record of significantly reducing the burden of national insurance. At Budget 2011, the Chancellor of the Exchequer announced a £21 a week above inflation increase in the employers’ national insurance contributions threshold; in 2014, the Government introduced the employment allowance to support businesses and charities across the UK, reducing the national insurance bills of over 1 million employers by up to £2,000 a year. The employment allowance allows employers to deduct up to £2,000 a year from the total of employer national insurance contributions that would otherwise be due to be paid to HMRC. Around 450,000 businesses and charities will not have to pay any employer national insurance contributions at all.
The Government are now going further. Noble Lords will recall that, as part of the summer Budget, the Chancellor announced that the employment allowance would be increased to £3,000 from next April. From April of this year, the vast majority of employers with workers under the age of 21 were lifted out of employer national insurance contributions. This move has supported over 1.5 million jobs for young people. Noble Lords may be aware that in a further move to support young people in employment, from April of next year the Government will abolish employer national insurance contributions for all apprentices under the age of 25. It is through these reforms that the Government are improving skills, increasing employment and delivering on their long-term economic plan.
I turn to the contents of this Bill. Noble Lords will be aware of the Government’s election commitment not to increase the main rates of income tax, value added tax or national insurance. The Finance Bill contained legislation to deliver that commitment for income tax and value added tax; this Bill delivers on the commitment for national insurance contributions. First, the Bill sets a ceiling on the rates of class 1 national insurance contributions paid by employees and employers. Secondly, it enshrines in law the existing convention that the level of the upper earnings limit for national insurance contributions will not exceed the level of the higher rate threshold for income tax. Both the ceiling on the rates of class 1 national insurance contributions paid by employees and employers and the ceiling on the upper earnings limit come into force on Royal Assent of this Bill, and will apply until the start of the first tax year following the next general election.
The Bill provides much-needed certainty for employers and employees that a ceiling is being placed on the main and additional class 1 national insurance contributions primary percentage paid by employees at a rate of 12% and 2% respectively; sets a ceiling on the employer class 1 national insurance contributions secondary percentage rate of 13.8%; and ensures that the upper earnings limit will not exceed the higher rate threshold for income tax. Furthermore, it is possible to increase the main rate of employee national insurance contributions and employer national insurance contributions by 0.25% each tax year through secondary legislation. So this legislation helps to make it clear that this will not happen. This means that businesses can make investment decisions, confident in the knowledge that this Government will not change the ceilings on the employee and employer national insurance contribution rates for the duration of this Parliament.
In summary, the Government have already taken action to reduce significantly the burden of national insurance contributions on most employers across the UK. The Bill supplements that work. It demonstrates the Government’s overarching commitment to provide certainty on tax rates for the duration of this Parliament. In doing so, it delivers on the Conservative manifesto pledge to maintain low and competitive rates of taxation by preventing the main and additional rates of national insurance contributions paid by employees and employers from being increased above their current levels. This is an important Bill and I commend it to the House.
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