My Lords, this measure will deliver a small but important element of the health and social care levy. The health and social care levy will create a long-term, sustainable source of revenue for healthcare. This extra funding will help the health and care system recover from the pandemic and implement reform to social care as soon as possible. The levy will operate as an increase to NICs rates in 2022-23 before becoming a stand-alone tax from 2023-24 onwards.
National insurance is a progressive basis on which to raise revenue. The primary threshold means that the lowest earners do not pay any national insurance contributions. Last week’s announcement that the Government are aligning the annual primary threshold and lower profits limit, the point at which employees and the self-employed respectively start paying national insurance contributions, with the income tax personal allowance at £12,570 from July 2022 will reduce NICs by more than £330 for a typical employee in the year from July and will mean that around 2.2 million working-age people will be taken out of paying class 1 and class 4 NICs altogether, on top of the 6.1 million who already do not pay national insurance.
These small but important regulations will ensure that the 2022-23 NICs increase is also applied to the married women’s reduced rate, as has been made clear in government communications and as is anticipated by stakeholders. The married women’s reduced rate was introduced to allow women to use their husband’s NI contributions to qualify for a state pension. This rate was removed by the Social Security Pensions Act 1975 and the circumstances in which it continues to apply are relatively unusual.
To qualify for this rate now, a woman must have opted into the scheme before May 1977, have been married at the time and not divorced since, currently be under state pension age and not have had a break of two years in her employment. As such, the rate applies to only a very small number of individuals. A 2019 scan showed between 250 and 1,000 such employments still qualify for this rate. Due to the qualifying conditions, we expect that fewer such employments, and fewer individuals, will qualify in 2022. Legislation is already in place so that, from April 2023 onwards, these individuals will be subject to the stand-alone health and social care levy in the same way as other individuals. However, in order for the 2022-23 NICs increase to apply to this group, further legislation is required. This has led to these regulations.
This measure will, for 2022-23, increase the married women’s reduced rate by 1.25 percentage points from its current rate of 5.85% to a temporary rate of 7.1%. This cohort will still benefit from a reduced rate of NICs compared with the main rate of class 1 NICs, which will be 13.25% for the 2022-23 tax year. Noble Lords should note that stakeholders are expecting this rate to increase. The 2022-23 NICs rates have been publicly communicated on GOV.UK. Employers and software and payroll providers have updated their systems to reflect this increased rate. Failing to increase the married women’s reduced rate for the 2022-23 tax year would mean that this group is unfairly advantaged compared with others. This group will, like others subject to the new levy, benefit from increased spending on health and social care. It is only right that they also contribute to its funding.
Exempting this group from the NICs increase would undermine the principle of the health and social care levy, which has been designed to apply consistently and fairly across the population. Although these regulations will apply to only a small number of individuals, the changes they make are therefore critical to ensuring that the health and social care levy operates correctly.
I understand that noble Lords may have concern with the speed at which these regulations have been provided. I recognise that this is not ideal and apologise for the delay in laying these regulations. I very much appreciate noble Lords’ co-operation and efforts to ensure that these regulations are properly scrutinised. The health and social care levy, and the temporary increase to NICs, have been thoroughly scrutinised and debated in recent months. I welcome this further engagement to ensure that the levy can apply as intended. I therefore beg to move.