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Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2023

Draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023

Debated on Monday 6 February 2023

The Committee consisted of the following Members:

Chair: Judith Cummins

† Atkins, Victoria (Financial Secretary to the Treasury)

† Bradley, Ben (Mansfield) (Con)

† Britcliffe, Sara (Hyndburn) (Con)

Callaghan, Amy (East Dunbartonshire) (SNP)

Creasy, Stella (Walthamstow) (Lab/Co-op)

† Crosbie, Virginia (Ynys Môn) (Con)

† David, Wayne (Caerphilly) (Lab)

† Eustice, George (Camborne and Redruth) (Con)

† Howell, Paul (Sedgefield) (Con)

† Kawczynski, Daniel (Shrewsbury and Atcham) (Con)

† Lavery, Ian (Wansbeck) (Lab)

† Logan, Mark (Bolton North East) (Con)

† Milling, Amanda (Cannock Chase) (Con)

† Oppong-Asare, Abena (Erith and Thamesmead) (Lab)

† Smith, Nick (Blaenau Gwent) (Lab)

† Stephenson, Andrew (Lord Commissioner of His Majesty's Treasury)

† Twist, Liz (Blaydon) (Lab)

Huw Yardley, Committee Clerk

† attended the Committee

First Delegated Legislation Committee

Monday 6 February 2023

[Judith Cummins in the Chair]

Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2023

I beg to move,

That the Committee has considered the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2023.

With this it will be convenient to consider the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023.

It is a pleasure, as always, to serve under your chairmanship, Mrs Cummins. I hope the Committee will forgive me for putting these two important sets of regulations together. They will be of considerable benefit to all our constituents who rely on both child benefit and guardian’s allowance, but also, importantly, to constituents who pay national insurance contributions.

In his statement in November, my right hon. Friend the Chancellor set out the difficult decisions that the Government have made to support stability, growth and public services. As hon. Members know, he made those decisions against the backdrop of significant economic challenges, including high energy prices—partly as a result of Putin’s illegal war in Ukraine—which have driven inflation across the world; rising interest rates; and higher levels of Government debt.

Despite, or indeed because of, the challenges we face, the Government are supporting working people and the most vulnerable in society, so today we are setting a number of national insurance contribution thresholds for the next financial year in order to continue supporting working people. In fact, in July last year, we increased the primary threshold and lower profits limit from £9,880 to £12,570 to match the income tax personal allowance, which is the largest ever increase to personal tax starting thresholds. I am proud that, through the regulations, we are supporting the most vulnerable in society, including by uprating child benefit, the guardian’s allowance and most rates and thresholds of tax credits by 10.1% from April this year. That is in addition to our wider uprating by 10.1% of benefits that are administered by the Department for Work and Pensions, including the state pension, and the cost of living support that the Government have provided and will continue to provide into the future.

The social security regulations set the national insurance contribution limits and thresholds, as well as the rates of a number of national insurance contribution classes, for the 2023-24 tax year, and make provision for a Treasury grant to be paid into the national insurance fund, if required, for the same tax year. Although the scope of the regulations under discussion is limited to the 2023-24 tax year, the Chancellor has also committed to maintain certain thresholds at their current levels in future years.

The primary threshold and lower profits limit—this becomes a bit technical; I hope that Committee members stay with me as I set out the details—are the points at which employees and the self-employed start paying class 1 and class 4 NICs respectively. The change meets the Conservative party manifesto commitment to ensure that the first £12,500 earned by individuals is tax free; it does not affect an individual’s ability to build up entitlement towards contributory benefits, such as the state pension, and I know that Committee members want to ensure that that is the case.

At the spring statement last year, the Government announced that self-employed individuals with profits between the small profits threshold and the lower profits limit will continue to build up entitlement to certain contributory benefits without paying any class 2 NICs. Class 2 NICs are now paid above the newly introduced lower profits threshold, which is set at £12,570 to align with the NICs lower profits limit for class 4 NICs. This change contributed to the Government meeting their manifesto commitment to ensure that the first £12,500 earned is tax free.

The upper earnings limit, which is the point at which the main rate of employee NICs drops to 2%, and the upper profits limit, which is the point at which the main rate of self-employed NICs drops to 2%, are aligned with the higher-rate threshold for income tax, at £50,270 per annum. As well as class 4 NICs, the self-employed pay class 2 NICs above £12,500. The flat cash rate of class 2 NICs will increase to £3.45 in 2023-24, in line with inflation. Self-employed people earning below £6,725 may pay class 2 NICs voluntarily to protect their entitlement to certain contributory benefits. Class 3 NICs allow people to voluntarily top up their national insurance record. The rate for this will increase in line with inflation to £17.45 a week in the relevant tax year.

I turn now to employer NICs. The secondary threshold is the point at which employers start paying employers NICs on their employees’ salaries. In the autumn statement, the Chancellor announced that this threshold will remain at £9,100 in 2023-24 and will be fixed at this level until 2028. This supports the public finances while still ensuring that the largest businesses pay the most. The employment allowance, which the Government raised from £4,000 to £5,000 last April, means that the smallest 40% of businesses with an employer NICs liability pay no NICs. The thresholds at which employers of employees eligible for NICs reliefs—for example, those with under 25 apprentices, those employing veterans or those with new employees in freeports—have also been fixed in these regulations.

The regulations also make provision for a Treasury grant of up to 5% of forecasted annual benefit expenditure to be paid into the national insurance fund, if needed, during 2023-24. A similar provision will be made in respect of the Northern Ireland national insurance fund. This is purely a precautionary measure. We note that the report from the Government Actuary’s Department forecasts that such a grant will not be necessary, but we consider it prudent to make such a provision at this stage, in case it is needed.

I turn to the second set of regulations. As hon. Members know, the Government are committed to delivering a welfare system that is fair for claimants and taxpayers, while providing a strong safety net for those who need it most. These regulations will ensure that tax credits, child benefit and guardian’s allowance increase in line with the consumer price index, which showed inflation at 10.1% in the year to September 2022.

In summary, this proposed legislation makes changes to the rates, limits and thresholds for national insurance contributions, makes provision for a Treasury grant, and increases the rates of tax credits, child benefit and guardian’s allowance in line with prices. I very much hope that the Committee will find agreement on these regulations.

It is a pleasure to serve under your chairship, Mrs Cummins, and to consider these regulations in Committee.

I thank the Minister for her comments. As we have heard, the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2023 give effect to the annual rerating of a range of national insurance contribution rates, limits and thresholds, for the purpose of calculating liabilities for the tax year beginning in April. This process, as the Minister mentioned, occurs annually and is primarily designed to take into account the rate of inflation, which is at a record high, causing much concern and hardship across the country.

The Chancellor announced at the autumn statement that most national insurance rates, limits and thresholds would be fixed at their 2022-23 levels for the coming tax year. The only rates that will increase in line with inflation, measured at 10.1% for the year to September 2022, is the flat cash rate of class 2 and class 3 contributions. This change is expected to bring 55,000 individuals into paying national insurance by the tax year 2027-28. Given the pressures facing households across the country, this rise will be alarming for many, as I am already seeing in my constituency cases. The explanatory memorandum to the instrument states:

“Increasing the rates of Class 2 and 3 NICs will be a small tax increase in cash terms for individuals.”

Will the Minister take this opportunity to let us know the exact figure or estimate that the Treasury has produced for the rise?

The instrument also allows for payments of a Treasury grant to be made into the national insurance fund. Could the Minister set out why this year’s figure, which must not exceed 5% of the estimated benefit expenditure for the tax year, has significantly decreased from last year’s figure of 17%? What is the significance of that difference?

The second instrument sets out the annual rates of working tax and child tax credit, and the weekly rates of child benefit and guardian’s allowance for the coming tax year, which I note is also an annual process. This instrument looks more promising, as the rates have been increased in line with CPI. Labour welcomes the increase and will support the instrument; we welcome any help for people struggling in the face of soaring energy bills and inflation.

I have one question for the Minister, on which I hope she can shed some light. Published alongside the instrument was a review of tax credit monetary amounts, as required by section 41 of the Tax Credits Act 2002. It sets out each element of the various tax credits discussed today, listing the 2022 rates and 2023 rates and making it clear whether they have been adjusted in line with inflation. Almost all the rates are rising by CPI, or 10.1%.

However, the family element of child tax credits and the income disregard element of tax credits do not appear to be rising with inflation, with the proposed 2023 rates unchanged from those in 2022. The report states that if inflation is taken into account, the former should be set to £600, but instead it will be £545, and that the latter should be set at £2,755, but instead it will be £2,500. Will the Minister inform us why these rates are not being adjusted for inflation?

I thank the hon. Member for Erith and Thamesmead for her thorough examination of the regulations. It is a pleasure to respond to her; this is not usually her portfolio, but it is very nice to be appearing with her.

The hon. Lady asked a number of questions. I hope she will forgive me, but it is taking a little time to get the technical answers to those. In particular, she asked for the exact figure for the class 2 and class 3 increases. I am told that for class 2, it is 30p a week per person. For class 3, it is £1.60 a week per person. I hope that helps her.

The hon. Lady also asked why we are paying less into the fund this year. The Committee may recall that the Government Actuary’s Department predicts that we will not have to use the fund; none the less, as part of prudent housekeeping, we will set some money aside. The Government Actuary’s Department forecasts that a Treasury grant will not be needed for the relevant tax year, as I said, and the 17% figure was set due to the uncertainty around the impact of the pandemic on the economy.

We know how successful Government interventions were in supporting more than 11 million jobs in our economy and keeping millions of businesses afloat in each of our constituencies, but, of course, that comes at a price, which is one of the factors that we in the Treasury must grapple with as we plan for the future. This year, we do not believe that such a high rate is required, because of some of the steps that we have taken to set the economy back on the right track, so 5% has been set on a contingent basis. As I said, however, we do not expect to have to use it.

The hon. Lady asked about a review of tax credit monitoring. She rightly asked why the family element of child tax credit is not rising. The family element is an additional amount paid on top of an individual child element. It has never been uprated in the same way, and it is more sustainable, we say, to handle it in this way. None the less, I know that we all welcome that element as part of our efforts to support families with their finances—at any time, but particularly with the cost of living crisis.

I thank the Minister for clarifying those points; it is helpful to find out why the family element is not increasing. Could the Minister clarify whether the case is the same for the income disregard element?

I know that the answer will come to me quickly, because we in the Treasury pride ourselves on reacting and responding quickly to the circumstances. The hon. Member for Blaenau Gwent was also trying to catch my eye, so now may be an appropriate time for him to intervene, then I can try to answer both questions at the same time.

I thank the Minister for giving way. I am just going through the explanatory memorandum to the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023. The consultation outcome on page 3, paragraph 10 says that there was no consultation because of the Treasury reviewing the rates. Families in these circumstances faced particularly high energy costs last year, so would it not be valuable, for fairness, for the Treasury or the Department for Work and Pensions to look at the other measures tackling high energy costs and their impact on families to ensure a fairer outcome for families from this important measure?

I know that the hon. Gentleman welcomes the uprating by 10.1% of that particular allowance. It is a vital allowance for those who play such an important role in our society. On the impact of high energy prices, we are not just relying on the uprating of this particular type of tax credit; we are bringing in a whole range of measures, primarily through the Department for Work and Pensions. For example, we are giving a £900 one-off payment to people who are on means-tested benefits, and additional money for the elderly and for those on disability benefits. This uprating is an annual event and, precisely because the CPI was as high as it was in September, we are uprating —rightly, in my view—all these sensitive benefits and allowances to help those who are the most vulnerable in our society.

I accept that there have been extra measures on families’ energy costs, and I welcome the increase by CPI, or 10%. My point is that there are other inflationary measures, including the higher energy costs, that this group in particular faces. Could those measures be looked at as part of the consultation, either now or in the future, given the extraordinarily high energy costs for such families?

I thank the hon. Gentleman for raising that interesting point. We have settled on CPI as the preferable rate of inflation, because it ensures the fairest outcome for those receiving help from the state and for the taxpayers who enable benefits and other public services to be funded properly. Indeed, we changed to CPI from the retail price index some years ago. The Government keep other measures of inflation under review. We think CPI is the most appropriate index at the moment, but we will keep that under review.

I hope that the hon. Gentleman welcomes the recent observations of the Office for Budget Responsibility, which thinks that the energy price guarantee has had a powerful buffering impact on the rate of inflation in recent months—as much as 2% or 2.5%. As well as helping our constituents with their bills in the immediate term, we hope that the guarantee will have a longer-term impact on getting inflation down. The impact of inflation on our economy is stark, which is why the Prime Minister is rightly focusing on it and, indeed, why it was the first promise in his new year speech. Inflation hurts everyone, but it hurts the poorest in society the most.

Before I sit down, I am keen to answer the question from the hon. Member for Erith and Thamesmead. I am told that income disregards are conventionally frozen, but I want to get some more information to her, so I undertake to write to her on that important point.

Question put and agreed to.



That the Committee has considered the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023.—(Victoria Atkins.)

Committee rose.