Opposition MPs bid to reverse NICs increase

Opening speeches

Labour’s Shadow Chancellor Rachel Reeves opened the debate by saying the heavy burden of this tax rise on working people is made worse by other increases to the cost-of-living, such as rises in energy and food prices. Reeves cited Resolution Foundation research published this week that finds that the average household will experience a £1,000 hit from tax rises and energy price increases this year.

Reeves said that the OBR had stated that the Chancellor’s own policy choices are boosting inflation. She said the Prime Minister had promised at the election not to raise taxes on income, VAT or national insurance. The National Institute of Economic and Social Research (NIESR) had said that job-intensive sectors will be disproportionately hit hard by this NICs rise, she said.

Reeves described the Government’s energy rebate as a ‘buy now, pay later’ scheme for energy prices, based on the premise that prices are going to fall, which does not bear any relation to the facts. She called on the Government to look again at Labour’s proposal for a one-off windfall tax on oil and gas producers to cut household energy bills by up to £600 this year.

Conservative Sir Oliver Heald intervened to say if a tax is put in for one year, that will not pay for the continuing costs over future years. Reeves said the money can relieve pressure now. Labour’s Clive Betts backed Reeves, saying the Government had confirmed where properties are let with council tax and rents being paid in the same bill, the council tax rebate of £150 will go not to the tenant, but the landlord. If the landlord owns multiple properties, if they are not owned by a corporate entity, they will get multiple amounts of £150.

Back on NICs, Reeves complained that the Chancellor is protecting - not taxing more - those who earn huge incomes from a large portfolio of buy-to-let properties and those making large sums from selling stocks and shares. The ‘super-rich’ will not be paying more, she said. At the same time as the Government are raising NICs, they are writing off billions of pounds – she claims £9 billion – in COVID-19-related economic support schemes fraud.

Responding to Reeves, the Chief Secretary to the Treasury Simon Clarke acknowledged that the Ukraine conflict would have economic repercussions and present a ‘serious challenge on the cost of living’. He said that is why, this financial year and next, the Government will provide over £20 billion to help the public with the cost of living.

Responding to an intervention from a Labour MP asking about the impact on the Treasury’s coffers as a result of increases to petrol prices Clarke noted firstly that a ‘tremendous amount’ of revenue had been foregone through the freeze on fuel duty.  He then identified ‘a misapprehension’ about the way that VAT works. “There is often a focus on domestic fuel and the impact that it is having on our income. To that point, the more that people spend of their discretionary income on domestic fuel costs, which are VAT chargeable at 5% as opposed to the full rate of 20%, the less that the Treasury recoups. In that regard, we have to be careful about some of the arguments around that.”

The minister contested Rachel Reeves’ view that ‘the facts have changed', saying the COVID-19 backlog has not changed and the damage that it has done to our ability to deliver the healthcare that people need has not gone away. Only a broad-based tax such as income tax, VAT or national insurance can raise the sums needed for such significant investment.

Using NICs as the base means the levy will be paid for by employers, employees and the self-employed, including, from April next year, by workers over state pension age, the minister explained, adding that this is a progressive way to raise funds because those who earn more will pay more, and that there is an ‘equivalent’ increase in dividend tax rates to ensure fairness. He said an alternative is to borrow, but the UK’s high level of borrowing leaves us susceptible to shocks, including changes in interest rates and inflation. With investment in the sector hitting an all-time low in 2020-21, a windfall tax on oil and gas, as suggested by Labour, would in his opinion not be an appropriate solution.

Backbench and other speeches

Labour’s Justin Madders warned that data from the Institute of Directors in January demonstrated that more than a third of businesses would respond to the increase by raising prices and passing on the burden to customers, ‘yet again increasing inflationary pressures’. The same report also said that nearly a fifth of businesses would consider employing fewer staff because of these rises.  

Grahame Morris, Labour, called on the Government to scrap the NICs hike, and work with him and others and with the Fairer Share campaign to scrap council tax, and support a proportional property tax to counter the cost of living crisis.

Clive Betts, Labour, said the tax rise does not give any extra money for councils to fund the gap in social care funding, which has grown wider over the last 10 years. What else will the Government do to fund local councils? They will make sure that councils must put up council tax by around three per cent. Council tax is a disproportionately unfair tax for poorer families, he said.

Beth Winter, Labour, agreed with calls for a major additional benefit uprating, proposals for significantly increasing the national minimum wage and for taxing wealth. On the latter she suggested a windfall tax on North Sea oil and gas, a one-off wealth tax, as advocated by the Wealth Tax Commission, an increase in capital gains tax, as proposed by the Trades Union Congress, progressive national insurance contribution changes or an increase in dividend taxation, as the Institute for Public Policy Research and others have advocated.

SNP Treasury Spokesperson Richard Thomson complained at the unfairness that the NICs increase will not touch property income, pensions or income from savings. He then spoke about marginal rates of tax, saying the NICs hike will mean that, if student loan repayments are included, graduates earning just over £27,000 will pay a marginal tax rate in excess of 42 per cent. He said we have a government who like to talk the language of levelling up while doing the exact opposite on personal and business taxation. He complains that MPs only have only the ‘sketchiest idea’ of what this resource from the tax rise will be invested in.

Kirsty Blackman, SNP, said people under 40 years-old cannot just dip into their savings to fund the massive increase in energy bills that is coming, and the massive increase that is coming because of the NICs hike. If the UK Government want to make money and reduce public sector net debt, a great way to do that is through immigration. In 2016-17, migrants reduced public sector borrowing by £4.4 billion. We would get to £450 billion pretty quickly if we added up the amount of positive benefits we can get from migration, said Blackman.

Plaid Cymru’s Treasury Spokesperson Ben Lake called on the Government to ditch or postpone the NICs rise because now is not the time to place a further cost on families and businesses and the situation in which we find ourselves is ‘drastically different from last week, let alone last year’ when the NICs rise was announced. From Brexit to covid, with all the corresponding supply chain disruption, loss of business and inflationary pressures, he said there is growing evidence that businesses just cannot withstand further pressure. He said rural fuel poverty already at some 14 per cent and people in rural areas the lack of public transport infrastructure forces many to be dependent on private car use. He said we need targeted relief, perhaps through a reformed rural fuel duty relief scheme.

On Reeves’ concerns about COVID-19 fraud, Jerome Mayhew, Conservative, said we have the Taxpayer Protection Taskforce, which has recruited 1,265 staff. We also have the work done on powers for the Insolvency Service and Companies House to link company directors directly to their bounce back loans, which has been used on 61,758 companies, catching loans worth £2.1 billion. The combination of those two factors means fraud is therefore reduced to an estimated 7.5 per cent of contracts, which is at least within spitting distance of the average for government programmes of as much as five per cent.

Fellow Conservative Anthony Browne said that, unlike income tax, national insurance is ‘ringfenced legally and operationally’ for the NHS.

Closing speeches

Labour’s Shadow Financial Secretary James Murray said that, from the very start, it was clear that this was a ‘deeply unfair’ tax hike that would hit working people and their jobs. Murray said the Government’s own tax information and impact note on the tax rise admitted that it will have an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce, and the Institute for Fiscal Studies warns of this tax rise involving a large, unjustified and problematic bias against employment and labour incomes.

The Financial Secretary to the Treasury Lucy Frazer closed the debate by saying the levy is a means to tackle a number of crucial ends, the Government is providing support worth more than £20 billion across this financial year and next that will help families with the cost of living, and since 2010 Conservative governments have kept lower-paid people out of tax.

The UK’s level of debt means that it is vulnerable to shocks, including changes in interest rates and inflation, the minister said. The public finances are stronger because of our early, bold action to support the economy during the pandemic and because we did not shy away from tough choices, she added. If we do not bring in this taxation, we will have future generations left paying bills in our stead, she claimed.

Hansard for the debate is here.