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National Insurance Contributions

Volume 716: debated on Thursday 21 January 2010


Asked By

To ask Her Majesty’s Government what discussions they have had with representatives of small and medium-sized enterprises about the impact of the proposed rise in employer National Insurance Contributions.

My Lords, the Chancellor announced in the Pre-Budget Report a number of tax changes to tackle the public deficit. The increases in national insurance contributions in 2011 will enable the Government to protect spending on front-line priorities in health, schools and policing, at the same time as paying down debt. The Government have many discussions with small and medium-sized enterprises. Business organisations support the Government’s programme to halve the deficit over four years.

But is the First Secretary of State listening? Rather than making contradictory statements about inward investment from the touch line, would he get on the pitch and just urge his colleagues in Cabinet to stop imposing a tax on jobs at a time when individual insolvencies have reached record levels—five times higher in Labour’s recession than in all previous recessions combined since records began? That is 180,000 cases of individual misery. After 13 wasted years, we cannot go on like this.

My Lords, I am never knowingly off the pitch in fighting for the interests of British industry and British jobs. Previous experience indicates that rises in national insurance contributions need not choke off employment: contributions rose in 2003, also by 1 per cent, but employment went on rising. This increase is timed for 2011, when the UK economy is expected to be growing steadily and can afford it. But at least we on this side of the House are absolutely clear on the tax measures needed to cut the deficit. The noble Lord’s party says that it wants to cut the deficit further and faster than us. I think it would be of interest to the House to know whether the noble Lord’s party supports this measure. Its position on tax, with the knots into which it is tying itself on the married couple’s allowance, seems to change with every hour of the day. It is now not far off from midday. Perhaps it could say what the latest position is on its tax measures.

My Lords, the Minister has just said that the Government’s position on cutting public expenditure is clear. I am glad that it is clear to him, because it is not clear to the rest of the country. Can he possibly enlighten the House by telling us what the Government’s plans are on public expenditure levels for all those departments other than health, education and international development, where we understand there are to be no changes?

My Lords, restoring the public finances to a sustainable position without wrecking the economy or damaging essential front-line services means restoring growth in the economy. Growth is the best antidote to debt and will be the principal means by which we can reduce the public deficit without resorting to the draconian tax increases or the draconian reductions in spending that we expect to see from the party opposite should there be a change of Administration after the next general election. The imperative now is to focus on equipping people and business to return the economy to growth, to increase employment and to raise incomes. That is exactly what the Government are doing.

Can my noble friend the Minister say what the estimated loss of jobs would be if instead of increasing national insurance contributions the Government increased VAT to 20 per cent right across the board? If he cannot give the figures immediately, can he let me know in due course and perhaps also give us calculations on the number of jobs that would be lost in the economy if VAT went as high as 22.5 per cent?

My Lords, my noble friend is absolutely right to raise these questions. The party opposite suggests that it wants to reduce the deficit further and faster. If it were simply to advance by one year the deficit reduction plans that the Government have put in place, it would cost in the region of £26 billion. That amounts to the elimination of half the schools budget, or increasing VAT to 23 per cent. The entire country is entitled to know what the consequences would be of its policies, whenever it is in a position to let us know what they are.

My Lords, will the Minister say what assessment has been made of the impact of this rise on charities large and small, which have already seen a heavy and negative impact as a result of the current economic recession?

My Lords, the best solution for businesses and charities is to restore our economy to its previous growth rate. Among the other measures that we must take are measures to reduce the deficit, and I am afraid that that includes making fair but targeted tax increases in the way that the Chancellor has set out. The increase in national insurance contributions will be introduced in 2011, when everyone expects the economy to be growing. That will lift all the boats in our economy, including the boats of our most important charities.