My Lords, on the first amendment tabled by the noble Baroness, Lady Kramer, which is on the timing of the threshold change, I am afraid I will have to disappoint her. The answer to the amendment and the point she raises has not changed in the last six days. The Government brought in immediate changes to help with the cost of living last Wednesday, such as the cut to fuel duty. However, for the threshold change, we are now just a week away from the start of the next tax year and more time is needed for employers, software developers and payroll providers to deliver this measure.
The noble Lord, Lord Tunnicliffe, asked why the Chancellor had not acted more quickly, given that we could see the pressures on the cost of living building, and the noble Baroness, Lady Kramer, referred to universal credit. The Chancellor took action on universal
credit in the Autumn Budget, cutting the taper rate and increasing the work allowance. Therefore, those measures can come in from April.
The noble Lord also mentioned that people would need to wait until July for support with their energy bills. Of course, the Chancellor announced a £9 billion package of support for energy bills not in the Spring Statement but at the time of the announcement of the change in the energy price cap. People will begin to see the benefit of that through the council tax rebates we are offering everyone in bands A to D of £150, and the £200 off bills now to be paid back over the coming years.
July is the earliest that this policy can be implemented by all software developers. It avoids millions of taxpayers having to make manual claims for refunds at the end of the tax year and employers having to make payroll corrections. Overall, the delivery timetable strikes the important balance between ensuring that individuals see the benefits of the increase as early as possible and allowing employers and payroll software providers sufficient time to update and test their systems so that the change is delivered smoothly, and for individuals to enjoy the benefits at the same time.
The second amendment asks the Government to lay a report considering the impact of the Act on disposable incomes, including if they are combined with a reduction in the national insurance rates of 1.25%. Her Majesty’s Treasury publishes regular distributional analysis of the impact of tax, welfare and spending decisions on households. The analysis published at the Spring Statement shows that, in 2024-25, the tax, welfare and spending decisions made since the 2019 spending round will have benefited the poorest households the most as a percentage of their income. The impact of government policy since spending round 2019 on the bottom four deciles is expected to be worth more than £1,000 a year, while there will have been a net benefit on average for the poorest 80% of households.
The aim of the Government’s regular distributional analysis is to present a comprehensive picture of the net effect of tax or welfare changes on household incomes in the round. As each policy decision will have a different effect on households, presenting the total impact over a relatively long period provides a more robust and stable approach than looking at every policy individually. Fiscal events are the appropriate time at which to publish comprehensive analysis of this sort because they allow the full range of government policy to be analysed together, in combination with the most up-to-date forecasts from the OBR.
The final amendment from the noble Baroness, Lady Kramer, concerns the Government laying a report to consider the impact of the Act on earned and unearned income, including an assessment of the impact of the future reductions in income tax. She touched on the history of national insurance and why it is not charged on unearned income. National insurance contributions are part of our social security system, which is based on the long-standing contributory principle, centred on paid employment and self-employment, with employers, employees and the self-employed paying towards the protection of those who have been in the labour market. Payment of NICs builds an individual’s
entitlement to claim contributory benefits, which then replace earnings in certain circumstances, for example if someone is unable to work or is retired. Unearned income is generally excluded from a liability to NICs as it is not derived from paid employment.
6.45 pm
On the question of a report on this subject, the Government are committed to being transparent on the impact of any tax reforms on individual incomes. That is why the Government already publish tax information and impact notes—TIINS—ahead of implementation. As the national insurance contributions measures are due to be implemented from July, the impact of the provisions of the Bill have already been published in the tax information and impact note published on GOV.UK. That sets out that the increase to the primary threshold and lower profits limit is a tax cut on earned income, which is income from employment or self-employment. The reform will benefit almost 30 million working people and it is a tax cut for a typical employee worth over £330 in the year from July 2022. I also acknowledge the request to publish the impacts of the income tax basic rate cut on earned and unearned income such as savings. The impacts will similarly be published in a tax information and impact note ahead of implementation in 2024.
I noted the concerns raised at Second Reading and in Committee about the different approaches to taxing earned and unearned income. I am sure that the noble Baroness is right that this is not the last debate we will have on that subject. I reassure the noble Lord, Lord Tunnicliffe, in particular, who raised some specific points in this area, about our approach to treating earned and unearned income in a similar manner. I can reassure noble Lords that the income tax cut does not apply to dividend income. Dividend tax rates will rise as planned this April and will not reduce in 2024. Dividend tax rates have always been separate to the main rates of income tax whereas savings rates have been aligned in recent years, and I see no reason for that to change now.
I also reassure noble Lords that the Government have taken significant steps to ensure that rental income is taxed fairly, including restricting finance cost relief so that landlords no longer get relief at their marginal rate if they are a higher or additional tax rate payer. Purchases of additional properties are liable to higher rates of additional dwellings surcharge, which are three percentage points above the standard stamp duty rates and part of the Government’s commitment to support first-time buyers. In addition, around half of landlords are also in employment or self-employment and will contribute to the health and social care levy in relation to their earned income. As noble Lords will have heard me say before, the levy establishes a long-term and sustainable source of revenue to give healthcare the extra funding it needs to recover from the pandemic and implement our social care reforms as soon as possible.
The noble Lord, Lord Davies of Brixton, pointed to the differences between class 2 and class 4 NICs and the possibility for arbitrage because the self-employed are treated differently from the employed. I will largely
resist the temptation to debate that in too much detail here. However, I note to the noble Lord that previous Governments have looked at this issue—I have scars on my own back from a Budget, I think in 2017, which looked at this issue. Members of the party opposite were not hugely in support of any reforms at that point, and I would be interested to know if that has changed since then. All I can say on the Government’s behalf is that there are no plans to look at reforming class 4 NICs.
With those comments, I hope I have addressed the points raised by this small group of amendments. I hope that the noble Baroness, although I know I will have disappointed her with some of my answers, has heard sufficient to withdraw her amendments.