My Lords, I am obviously not opposed to the lifting of thresholds in today’s Bill, as it takes some of the lowest paid out of the burden of national insurance contributions. I fully recognise the point made by the noble Lord, Lord Davies, and again by the noble Lord, Lord Macpherson, which is that the lowest paid get no help from this at all because they fall below the existing lower threshold. I suspect that tomorrow, we will discuss extensively how the group on the lowest incomes have been helped least by anything that has come out of the Spring Statement, so I will leave some of that for then.
The Government should have not just raised the threshold but scrapped the whole increase. They had a £26 billion bonus of unexpected tax revenues available—we will probably talk tomorrow about how that happened through fiscal drag—and they could have easily imposed a windfall tax on the super-profits of the oil and gas companies. Again, I suspect we will talk about that more. Those kinds of actions would have genuinely helped people to face a cost of living crisis.
I am afraid that I see the whole package as reflecting the fact that the Government have very little empathy for the pressures and choices that people are facing. They will not just hear this from us. The Minister is being very self-congratulatory about all of the steps that have been taken, but she will hear from the public, because they feel the pain, face a squeeze on their budgets and incomes, and are forced to make choices and changes in their lifestyle. For some it is whether to heat or eat, and for many others there will still be extraordinary pressure, even if they are not trying to
work out how they survive falling into destitution. The Minister will hear a great deal from them, so I warn against this constant self-congratulation of having done so much. The public will be able to tell people, in pounds, shillings and pence, how little has happened to get them through this particular crisis. I agree with the noble Baroness, Lady Bennett, on this issue.
When the Chancellor made the Spring Statement, it became clear why he had earlier decided to increase NICs by 1.25%. He did so—here I agree with the noble Lord, Lord Davies—knowing that it would fund a very large share of a cut in income tax in 2024, just ahead of a general election. In fact, with the raising of the threshold, the numbers look extraordinarily matched. It is an optical illusion—why increase a tax in order to cut a tax? I do not think that it fooled anyone; it was simply a cunning plan to make the Chancellor look like a tax-cutter. Frankly, it was completely rumbled by the Institute for Fiscal Studies, which pointed out that the tax giveaway in 2024 would simply be giving back one-sixth of the increase in taxes that the Chancellor has made. He remains a high-tax Chancellor and they remain a high-tax Government.
I agree with others, such as the noble Lord, Lord Macpherson, that NICs and the health and social care levy that will follow do not fall on exactly the same group of taxpayers as income tax. The NICs increase and the future levies fall on employers, employees, the self-employed and dividend recipients. Indeed, as the noble Lord, Lord Macpherson, said, employers have been given no relief at all; they do not experience any benefit from the rise in the threshold and will still pay as before. Income tax ranges far more broadly, falling on all those who receive income, including rental income and income from trading assets, and a wide range of pension holders.
I hope that the Minister will explain this arbitrage to us today. No one understands arbitrage better than the Chancellor, and we are owed some clarity on who the winners and losers are in this tax arbitrage arrangement. I suspect that a shift from income tax to NICs is a very poor outcome for those who work and a very good outcome for those who get income from sources that are not tied to work. But we need to see the numbers, and I hope that the Minister will explain that logic. I am very grateful to the noble Lord, Lord Macpherson, for putting this in the longer-term context of a continuing move to a shift from progressive income tax to a far more regressive NICs system.
The Minister will undoubtedly say that the increase in NICs and the future levy are hypothecated to the NHS and then social care. I personally agree with those who think that very little of this money will actually reach social care, but let us set that aside for today and instead look at hypothecation, which really is a figment of accounting. The National Insurance Fund was created to fund the state pension but it is increasingly just a piggy bank. In that context, will the Minister today make clear what the impact on the fund will be from the drop in expected income arising from the increase in the threshold? This is not to criticise the increase, but I would like to understand how this will impact the fund and even more understand the consequences for funding the NHS and social care. After all, if this were truly a hypothecated levy, there
ought to be a drastic impact on the money flowing to the NHS and social care. Is that what is going to happen? I did not read it when I looked at the OBR numbers—perhaps it did not fully understand the input of the Government’s arguments that the NICs increase was wholly and solely related to funding the NHS and social care. That number would then have come down, if it was describing accurately.
It seems to me that the Bill also brings into the spotlight the whole issue of thresholds. The Chancellor is freezing tax thresholds in order to raise additional tax through fiscal drag. The original estimate last October was that fiscal drag would increase tax revenues by £8 billion. With sharply rising prices, that estimate is now £21 billion—these are OBR numbers. It is a huge tax rise, obscured by optical illusion. I am deeply concerned that the public’s mistrust of politics will get yet deeper and more cynical with these constant attempts at a sleight of hand. I attempted to draft an amendment to the Bill to require that at least the NICs threshold would in future rise annually with CPI, but that was apparently out of scope. It is a very live issue, and the Minister needs to explain why these thresholds will not increase with CPI in the future.
Finally, I have a more specific question for the Minister—and this is an issue which was raised by the noble Baroness, Lady Bennett. Like most of this House, I am very concerned that the Spring Statement did so little for the least well-off, especially those who rely on universal credit. Can the Minister tell me how the increase in the NICs threshold will apply to those who are in work but also on universal credit? Will she confirm what emerged from debate in the other House that the threshold change, or at least about half of it, is clawed back through the universal credit taper? The IFS has come to that same conclusion. How many people are impacted by the clawback which is the effect of the taper? I ask particularly because the Minister’s colleagues in the Government were completely flummoxed by this and only eventually accepted its accuracy.
The Resolution Foundation has estimated that 1.3 million people, including half a million children, will fall into absolute poverty—I stress “absolute poverty”, which is below 60% of real median income in 2010—so it is quite a shocker that people on low incomes and benefits are facing. Those not in work, including people with disabilities, will see a fall in income this year of 8%. The Minister will surely tell us that the Government have done a great deal to help these folk but, frankly, the numbers do not lie. There are rumours in the press that the Government are becoming frightened and that they will provide more help in the future. However, we are here today and this is an opportunity for the Minister to tell us what future changes are going to be made to benefit those who have been essentially left out, or barely helped, by the changes that we heard from the Chancellor last week.
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