National Insurance Bill becomes law as Lords express concerns over high tax burden

Leading for the government, Baroness Vere of Norbiton, said the Bill would “ slash taxes for 29 million working people” by reducing rates of employee and self-employed National insurance contributions (NICs)from 6 January 2024.

Baroness Vere said the measures were part of an effort by the government to “reward and incentivise work” and would be worth over £9 billion a year.

Lord Sikka (Lab) expressed concerns that the measure would be inequitable, with people in London and the south-east of England with higher wages likely to benefit more compared to the rest of the country. He added that the reduction “provides little comfort to most families” due to the cost of living crisis.

Lord Sikka proposed instead that the government could abolishing VAT on domestic fuel, or by cutting the standard rate of VAT. He also suggested that the government could have taken stronger action against tax avoidance to enhance economic efficiency.

Baroness Primarolo (Lab) asked about the impact on the NHS from the decision to reduce NICs and called for the NHS budget to be protected. Baroness Vere could later confirm that around 20 per cent of NHS funding came from the NI fund.

Baroness Kramer (Lib Dem) said that the measure would contribute to the inequality in Britain. She said; “When ordinary families are trying to cope with stagnant wages and a cost of living crisis, it is particularly unacceptable for a Government to dress up a rise in taxes as tax cutting” adding that the UK was now Europe’s most unequal large economy.

Kramer also pointed out that the decision to maintain the national income tax thresholds at current levels would increase receipts by around £45 billion. She said: “a typical earner will pay £400 more next year in tax and NICs after these measures, and a middle-income earner will pay £1,200 more”.

Kramer also suggested that the NI cut for self-employed workers could help alleviate “HMRC’s harsh and shambolic loan charge regime”. She urged the government to do something for the self-employed workers and follow through with the recommendations of  the 2017 Taylor review of working practices. Baroness Vere committed to following up with details on the review.

Lord Livermore (Lab) said his party supported the bill, but remained concerned by Britain’s high tax burden. He told Peers; “the truth is that the tax burden will now rise every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever”.

Lord Livermore said the cuts would be “more than eclipsed by (previous) increases in taxes”, citing the freezing of national insurance and income tax thresholds for six years as an example.“This fiscal drag means that nearly 4 million more people will pay income tax and 3 million more people will pay the higher rate”.

Responding for the government, Baroness Vere agreed that taxes were too high; “I absolutely accept that taxes will go up, although this national insurance cut reduces them”.

Vere defended the government’s tax policies, repeating the benefits of the NICs cut for workers and the self-employed.  She also told Peers that the government was committed to reducing taxes “in a responsible manner”.

Responding to Lord Sikka, Vere said that the NI reduction would “benefit everybody who pays national insurance”. She added that low-income households would see the largest benefit as a percentage of income.

Later in the day, the Bill completed its third reading, with Baroness Vere outlining its intentions and, alongside Baroness Kramer, acknowledging the work of Treasury and parliamentary officials in its passage. The Bill received Royal Assent on 13 December, at which point it became known as The National Insurance Contributions (Reduction in Rates) Act 2023.

The full second reading debate here.