National Insurance Contributions (Rate Ceilings) Bill 2015-16

30 October 2015

The National Insurance Contributions (Rate Ceilings) Bill 2015-16 would prevent any increase in the current rates of Class 1 National Insurance contributions paid by employees and employers for the duration of the 2015-20 Parliament. It would also provide that the Upper Earnings Limit could not exceed the higher rate threshold - the sum of the personal allowance and the basic rate limit - as proposed by the government in its pre-Budget proposals.

In its 2015 General Election manifesto the Conservative Party stated that, in government, it would “not increase the rates of VAT, Income Tax or National Insurance in the next Parliament.” In a speech David Cameron confirmed that this ‘tax lock’ also meant that there would not be any extension to the scope of VAT, or an increase in the ceiling set for the main rate of National Insurance contributions (NICs) by employees - the Upper Earnings Limit (UEL).

On 14 July the government published Finance Bill 2015-16. Clauses 1 & 2 provide for this ‘tax lock’ for income tax and VAT. At the same time the government published a separate Bill which would prevent any increase in the current rates of Class 1 NICs, and prevent the UEL exceeding the higher rate threshold for income tax (that is, the point at which individuals start to pay income tax at the higher rate). The higher rate threshold is the sum of the personal allowance and the basic rate limit - the band of income which is charged tax at the 20% rate. The National Insurance Contributions (Rate Ceilings) Bill (Bill 54 of 2015-16) does not make any other provisions, so has only five clauses. The text, explanatory notes, and its progress to date are set out on this Parliament page.

The lock would apply to a tax year which came after the date of the Bill’s Royal Assent, and before the first parliamentary general election after that date. In the case of the UEL, the lock is set by reference to the ‘proposed’ higher rate threshold, announced in the government’s “pre-budget proposals”. This is intended to be the Chancellor’s Autumn Statement before the tax year in question. Clause 3 of the Bill, which makes this provision, is worded this way as it is common practice for NI thresholds to be set by secondary legislation, introduced before the start of the tax year, often before the Budget statement. By contrast, income tax thresholds for the tax year are set, definitively, in the Finance Bill, introduced after the Budget.

The reason for this separate Bill is that statutory provisions regarding NI cannot be included in the annual Finance Bill because the Bill’s remit – as set out in its long title – specifically excludes any tax that does not raise money for financing central government as a whole. Usually the long title of the Finance Bill is of the form, “a Bill to grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Finance, and to make further provision in connection with finance.” As a consequence the Bill cannot include provisions relating to NICs – since they are collated in the National Insurance Fund, to meet the costs of contributory benefits exclusively. Similarly the Finance Bill cannot impose a charge to finance other bodies in the public sector (such as local authorities), or to authorise borrowing.

The National Insurance Contributions (Rate Ceilings) Bill reaches the Report stage in the House of Commons on 3 November 2015.