Cuts to National Insurance approved by MPs

The National Insurance Contributions (Reduction in Rates) (No.2) Act sees employee NI contributions cut by 2p from 10% to 8%, and for the self-employed from 8% to 6%.

Ministers said the cuts would boost the economy, while Labour said the tax burden was still rising. Labour abstained on the Bill but the SNP voted against it.

Second reading debate

Exchequer Secretary to the Treasury Gareth Davies said the reductions to NI mean the government is cutting taxes for 29 million people, which is “particularly remarkable” in the aftermath of the pandemic, war in Ukraine and energy price rises. “We believe that the tax system should be fair and simple, yet the way we tax people’s income is particularly unfair,” he said.

He added that, taken together with previous cuts to NI in the Autumn Statement, this tax cut is worth £900 a year to the average worker.

Referring to comments made by the Chancellor about abolishing NI entirely in the future, Davies confirmed: “It is my party’s ambition to eliminate national insurance.” Robin Millar (Conservative) said he was “very happy with the aspiration to reduce further or eliminate national insurance”.

Priti Patel (Conservative) said that while ministers should “level with” taxpayers and admit taxes “have gone up” in recent years, the two most recent cuts to NI would make a difference to working people.

She also backed NI being “either phased out or subject to reform”, adding: “We need to simplify our tax system in this country.”

John Redwood (Conservative) said higher taxes had been needed in recent years in part due to the impact of the pandemic, while he also wanted to see changes to other taxes to support businesses, such as a further increase in the VAT threshold.

However, he warned against the assumption of further changes to NI in the future, saying that “getting rid of all national insurance employee contributions is just an idea; it is not a pledge and it is not a policy”.

Steve Double (Conservative) said the cut to national insurance will be “hugely welcomed” by taxpayers. “Because of the difficult decisions that we have made, we are now able to start to cut taxes for people,” he added. “The reality is that the effective tax rate is at the lowest it has been since 1975.”

Responding to criticisms that the NI cuts would not benefit pensioners, Double and other Conservative colleagues said they were already protected by the triple lock commitment.

Labour said the cuts to National Insurance were wiped out by other tax rises and the impact of frozen thresholds. Shadow Financial Secretary to the Treasury James Murray said that “even after the changes we are considering today, the tax burden will continue to rise in each and every year of the forecast period, with the UK still set to have its highest tax burden in 70 years”.

However, he said Labour would support the Bill as “the tax burden on working people is too high”.

Clive Lewis (Labour) agreed that, despite the latest cut, OECD figures show 35.3p of every £1 generated in the UK is collected as tax, due to rise to 37.7p by 2029.

Shadow Economic Secretary Tulip Siddiq (Labour) added: “OBR figures show that for every 10p extra that working people pay in tax under this plan, they will get back only 5p as result of the combined cuts to national insurance contributions.”

Murray added that future mooted plans to abolish NI entirely “leave a £46 billion hole in the public finances”, which he described as “the height of irresponsibility”. He added that, should this be achieved by merging NI with income tax, it would “cause particular alarm for pensioners”, who could see an average tax hike of about £800 each.

Lewis suggested public finances could instead be boosted with a wealth tax, saying: “We can raise billions to pay for the public services we need without raising tax on the lowest paid or middle earners, and without increasing the income tax burden, by putting a little more tax on those with the greatest wealth and the broadest shoulders.”

Sarah Olney (Lib Dem) said despite the NI cut, the government is “continuing to stealth-tax millions of hard-working families and pensioners through the freeze on national insurance and income tax thresholds”.

“Since last April, a typical household has already paid almost £1,500 extra because of the Chancellor’s stealth tax hit, while enduring higher mortgage or rental costs, sky-rocketing energy bills, and soaring food prices,” she said.

Kirsty Blackman (SNP) spoke in support of her party’s amendment calling for the Bill to be rejected to allow the government to instead “prioritise investment in public services spending over yet more cuts in spending which would be the result of lowering tax revenue by reducing NIC rates”.

“The Bill is the wrong measure at the wrong time,” she said. “We do not think it is the right time to introduce it, and we think the focus should be on public services.”

Blackman said the cuts to NI will have a “disproportionately positive impact on higher earners and a disproportionately negative impact on lower earners”.

The SNP’s Treasury spokesperson, Drew Hendry, added that, despite the NI cut, those earning up to £19,000 will “still be worse off, or at least no better off” due to frozen thresholds, whereas the “biggest gainers” are those earning over £50,000.

He said: “What we needed in the Budget were measures to help people with food, with mortgages, with rent and with energy costs. We needed public services protected, and proper investment in the NHS.”

Winding up, the Financial Secretary to the Treasury, Nigel Huddleston, said: “The national insurance cuts we are debating reward work and will provide a further boost to the economy. We are turning a corner, and the plan is working.”

The SNP amendment was defeated 300-44, before the Bill passed its second reading.

Committee stage and third reading

At the Committee of the whole House later in the day, two new clauses were put forward by opposition parties but rejected.

New Clause 1, to review of the effects of reducing employee and self-employed NIC contributions to zero, was defeated 292-170.

This new clause was proposed by Labour, whose spokesperson, James Murray, said it would “require the Treasury to come clean and set out the impact of the Conservatives’ plan to reduce national insurance contributions for employees and self-employed people to zero… It would compel the government to set out how they would fund the black hole that their plan creates.”

New Clause 2, proposing a review of the effects of frozen thresholds, was defeated 293-169.

This was put forward by the Lib Dems. Proposing the new clause, Alistair Carmichael explained that it would “compel the Treasury to report to this House its forecasts of the change to the number of people who are set to pay national insurance contributions as a result of the thresholds for payment remaining frozen until 2028, instead of increasing in line with the consumer prices index, which would be the case otherwise.”

Carmichael also spoke about the history of national insurance, referring back to Lloyd George’s Budget which introduced it, and saying that, more than any other levy, “it is the symbol of our shared obligations—what we owe each other as a society and as communities in support throughout our lives. The point of national insurance is that we pool and share resources geographically and generationally. We pay our stamp on each payslip, trusting that, when the time comes for us to retire, someone else will continue to pay taxes that will fund our pensions.”

The Financial Secretary, Nigel Huddleston, dismissed both new clauses, saying that the impact of policy and any changes to policy “will be subject to the usual public scrutiny, including from the OBR on costs. It is therefore not necessary to produce additional reports.” He accused the Labour spokesperson of being “incapable of understanding the difference between an ambition and a policy”.

Additionally, Murray, for Labour, put a question to the minister about what conversations he has had with employers and payroll software developers about whether they will be ready to implement the provisions in this Bill from the start of the next financial year. “Is the minister confident that every relevant employee will indeed receive the cut to national insurance in their first pay cheque of financial year 2024-25?”

The Financial Secretary replied that the government “understand the impact of policy changes, and I put on record how grateful we are for all those who have implemented and executed the recent changes so speedily and effectively. Employees whose employer is unable to make changes in time, and who have left their employment, may request a refund from HMRC. The government are confident that the majority of software developers will be able to make changes to their payroll software in time for 6 April.”

Following a brief third reading debate the Bill passed by 293 votes to 41.

Read the full transcript of the Commons debates.

The House of Lords debated and agreed the Bill (no amendments being proposed) on Monday 18 and Tuesday 19 March, before it was given Royal Assent on Wednesday 20 March.