My Lords, I start by thanking all noble Lords for their thoughtful contributions to this debate. I shall do my best to address as many of the points raised as I can. Before I do so, it is worth returning to the purpose of the Bill before us. It will make major changes to the NICs system that will put billions of pounds back into people’s pockets at a
difficult time. In addition, the Bill underlines the Government’s ambition to promote tax cuts for working people and to simplify the tax system as a whole.
This ambition is delivered in the Bill by two main measures. The first is the increase to the NICs primary threshold and the NICs lower profits limit to £12,750 from 6 July—an increase that will equalise the NICs and income tax thresholds. On an individual level, this will mean that a typical employee will see their tax bill reduced by £330 in the year from July; for self-employed workers, that will be an equivalent saving of £250. It will also mean that around 70% of workers will have their NICs cut by more than the amount that they paid through the new health and social care levy. That is an important point to bear in mind when weighing the relative benefits of increasing the NICs thresholds versus not proceeding with the levy altogether. Those left with higher NICs bills will be, for the most part, higher and additional rate taxpayers. In addition, almost 2 million people will be taken out of paying class 1 and class 4 NICs and the health and social care levy entirely.
The Bill’s second measure seeks to alleviate some of the pressures caused by the rising cost of living on those who earn low amounts and who work for themselves, so that from April those with profits between £6,725 and £11,908 will not pay class 2 NICs. This will rise to £12,570 from April 2023. This measure will benefit 500,000 self-employed people, saving them up to £165 a year. These measures, taken together, will allow the Government to fulfil their commitment that the first £12,500 that an individual earns is free of tax. As I outlined earlier, importantly, removing class 2 NICs from the group of low-earning self-employed workers will not prevent them from building their eligibility to the state pension, and other contributory benefits.
The noble Baroness, Lady Ritchie, and many others set the context for the debate as the cost of living crisis that people face in this country. The Government completely acknowledge that. We also acknowledge that we cannot completely protect people from some of the difficult times they will face, but we will stand by the British people, as we did throughout the pandemic. I take it back to this specific Bill: the IFS has said that raising the NIC threshold is the best way to help low and middle earners through the tax system at this time.
I know noble Lords will be aware of the measures the Government are taking to support people. I will have to disappoint the noble Baronesses, Lady Ritchie and Lady Kramer, that I cannot look forward to future Queen’s Speeches or Budgets, but it is worth emphasising some of the support that is out there for families, which is worth over £22 billion in 2022-23. It includes providing millions of households with up to £350 to help with rising energy bills and helping people to keep more of what they earn. We have cut the universal credit taper rate and frozen alcohol duty, as well as announcing a further rise in the national living wage to £9.50 an hour from April 2022. Other measures, such as the increase to the local housing allowance rates introduced during the pandemic, the cuts to fuel duty and the increase to the household support fund, will also provide important support to people.
The noble Baroness, Lady Ritchie, made some important points about providing more dedicated support to people to move into work, whether those facing health conditions, the disabled, or single parents. The Government are absolutely committed to that agenda. That is why we have so many more work coaches in place to help people make that move into work, because in the longer term that is the way to help people to deal with the growing cost of living, but also, importantly, when they are in work to move into better and higher-paid work. That is why action on the national living wage, which is rising by 6.6% this April, as I said, is important. That will be an increase of over £1,000 to the annual earnings of a full-time worker on the national living wage. That is also why we have the new in-work progression offer for people who are among the lowest-paid workers on universal credit to access personalised work-coach support to help them increase their earnings. Importantly, we have also matched that with significant investment in our skills system for this Parliament— £3.8 billion in skills in England by 2024-25. That funding is absolutely targeted at helping people improve their earnings prospects and support their success in the labour market.
The noble Baroness, Lady Bennett, made a number of points that we might return to in the debate tomorrow, but there are a couple I want to pick up on. She talked about a new excuse for austerity. I am afraid that just does not match the figures. Total departmental spending will grow in real terms at 3.7% a year on average this Parliament. Total managed expenditure as a share of the economy is expected to increase across the Parliament to 41.3% in 2024-25. That compares to 39.3% in 2007-08, for example, so public spending is increasing during the course of this Parliament.
The noble Baroness, and indeed the noble Baroness, Lady Kramer, also asked about the universal credit taper rate and the impact it has on the threshold rise. Noble Lords are absolutely right that the UC taper rate could impact on the benefit felt by those on universal credit by the increase in the threshold. It is important to note that these individuals will be better off overall thanks to the change in the threshold.
That is a really important point about the taper rates in universal credit. It reflects the importance of the Government’s decision to reduce that taper rate from 63% to 55%. In the design of universal credit overall, compared to tax credits and the other benefits that it replaced, we are bringing down the really high marginal effective tax rates that people who were on benefits or receiving tax credits could face when they sought to take on more hours and progress in work.
The noble Baroness, Lady Kramer, and the noble Lord, Lord Macpherson, asked about increasing the secondary threshold for employers. The threshold will increase in line with CPI, but will not match the increases to those for employees and the self-employed. The Government are committed to supporting businesses and incentivising investment to support growth. We are increasing the employment allowance to help small businesses fulfil their potential and boost employment. Over 1 million employers are benefiting from the employer allowance and reducing their annual employer NIC bills. From April 2022, 670,000 of these businesses
will not pay NICs and the health and social care levy, due to the employment allowance. This includes 50,000 businesses which will be taken out of NICs and the levy by this increase. Due to the employment allowance, 41% of businesses will not be affected at all by the health and social care levy, while the next 40% will pay £500, 1% of their annual wage bill.
The noble Baroness, Lady Kramer, asked about the impact on the National Insurance Fund, the NIF. The Government Actuary’s Department is not required to produce a report alongside this Bill on the measures’ impact on the NIF. It will continue to provide a report alongside the annual uprating legislation, so the impact of these measures will be included in future uprating reports.
The noble Baroness also asked about the impact on health spending. She will know that the health and social care budgets for the next three years were set at the spending review and, as is standard, we will not reopen a multi-year settlement on the basis of changing forecast receipts. Forecasts can go up as well as down and the stability and certainty of funding is important for departments and the devolved Administrations.