On 30 March 2022, the second reading and all remaining stages of the National Insurance Contributions (Increase of Thresholds) Bill are due to take place in the House of Lords. The bill would increase the main threshold at which employees and the self-employed start to pay national insurance contributions (NICs). The bill completed all its stages in the House of Commons on 24 March 2022. No amendments were made during Commons stages.

References in this briefing to the bill’s explanatory notes are references to the notes as published ahead of the Commons stages of the bill.

What changes have been announced?

NICs are divided into different classes, depending on a person’s employment status and earnings. The classes and thresholds for 2021/22 are:

  • Class 1: Employees under the state pension age with earnings above the primary threshold (PT), currently £184 a week. Class 1A or 1B are paid by employers on their employees’ expenses or benefits.
  • Class 2: Self-employed people with profits above the small profits threshold of £6,515 or more a year.
  • Class 3: Voluntary contributions.
  • Class 4: Self-employed people with profits above the lower profits limit (LPL) of £9,569 or more a year.

The Government has already legislated that the PT and LPL thresholds would rise from April 2022 in line with consumer price inflation of 3.1%, to £190 a week or £9,880 a year, respectively.

In the spring statement on 23 March 2022, the chancellor announced that NICs thresholds would be increased as part of the Government’s measures to reduce the cost of living:

The spring statement increases the annual national insurance primary threshold and lower profits limit from £9,880 to £12,570, from July 2022. This aligns the primary threshold and lower profits limit with the income tax personal allowance. This will help almost 30 million working people, with a typical employee benefitting from a tax cut worth over £330 in the year from July.

The Treasury has estimated that the cost to the Exchequer will be £6.25 billion in 2022/23, reducing each year to £4.5 billion in 2026/27. The spring statement said that the threshold changes would mean around “70% of NICs payers will pay less NICs, even after accounting for the introduction of the health and social care levy”, which will increase NICs rates by 1.25% for employees and employers from April 2022.

What would the bill do?

The bill has five substantive clauses. The bill’s explanatory notes state that it would:

  • Increase the primary threshold (PT) of class 1 NICs.
  • Increase the lower profits limit (LPL) for class 4 NICs.
  • Provide a regulation-making power to ensure the threshold for paying class 2 NICs is equivalent to the class 4 LPL and make provision that self-employed people with profits lower than the LPL are to be treated as having made class 2 NICs.

Clause 1 of the bill would increase the class 1 PT from £190 a week to £242 a week from July 2022.

Clause 2 would provide that the LPL for class 4 NICs would increase from £9,880 to £11,908 with effect from 6 April 2022, and further increase from £11,908 to £12,570 from 6 April 2023.

Clause 3 would require the Treasury to make regulations to ensure the threshold for paying class 2 NICs is equivalent to the LPL threshold, and to treat the self-employed with profits under that threshold as having made class 2 NICs.

Clause 4 would make transitional and consequential provisions, including arrangements for employees with more than one employment in the 2022/23 tax year and arrangements for the NIC thresholds of company directors.

Clause 5 would provide that regulations made using the powers in the bill are to be made by statutory instrument. Regulations made under the powers of clause 3 are to be made using the draft affirmative procedure and must be approved by both Houses. Any other regulations are to be subject to the negative procedure.

Why is the bill being fast tracked?

The explanatory notes provided the following justification for fast tracking the bill:

The legislation is required to be in place from 6 July 2022. The increase in PT and LPL will require changes to be made to the systems of employers and HMRC (including those designed to facilitate pay as you earn). To help ensure that people are not over-taxed it is important for both those employers and HMRC to have as much time as possible to implement the changes. This is particularly important given all employees in the UK liable for NICs will be affected.

What happened in the House of Commons?

The bill completed all its stages in the House of Commons on 24 March 2022. There was broad cross-party support for the bill and no amendments were made. However, members of opposition parties raised concerns about the background to the bill, in the context of the rising cost of living. Several MPs criticised the spring statement for not providing enough support to those on low incomes or to the unemployed and pensioners, who would not benefit from the NICs thresholds increase.

Second reading

Introducing the bill at second reading, Simon Clarke, the Chief Secretary to the Treasury, said:

The bill includes the largest cut to personal tax in a decade. It rewards hard work and supports the lowest earners. Its measures, while sweeping in scope and ambition, will make a real tangible difference to the lives of millions of people.

He claimed that the Government was taking action to help those on low incomes, including:

The doubling of the household support fund to £1 billion, the action that we have already taken in cutting the universal credit taper rate [to 55%], and the biggest cut that we have ever made to fuel duty.

James Murray, Shadow Financial Secretary to the Treasury, said:

The Opposition will support today’s bill, as any help for people facing the chancellor’s national insurance tax hike in April is something we welcome. There are benefits to raising the threshold at which people begin to pay national insurance, but we should be conscious that the bill has more to do with the chancellor’s increasingly desperate desire to paint himself as a tax cutter than it does with a well-thought-through package of measures to help people with the struggles they face.

Labour MP Stephen Timms, chair of the Commons Work and Pensions Committee, asked the Government whether it was correct that people on universal credit would not benefit from the threshold increase as much as those not on universal credit, because their additional income would be subject to the 55% taper rate. Simon Clarke said he had not seen the analysis to which Stephen Timms referred, but he said he would “look at it” and “it is certainly our ambition to keep bringing down the taper rate so that people get to keep more of what they earn”.

Richard Thomson, the Shadow SNP Deputy Spokesperson for the Treasury, said the SNP “welcomes the bill insofar as it goes”. However, he criticised the spring statement for not cancelling the forthcoming health and care levy NICs increase from April 2022.

Committee stage

At committee stage one amendment and four new clauses were tabled to the bill. None of the proposals were made to the legislation.

Amendment 1 was tabled by Wera Hobhouse, Liberal Democrat Shadow Leader of the House of Commons, and Wendy Chamberlain, Liberal Democrat Spokesperson for Work and Pensions. The amendment sought to bring forward the implementation of the threshold increases from July 2022 to April 2022. The Government rejected the amendment. Lucy Frazer, Financial Secretary to the Treasury, said:

The Government are implementing the change as early as possible, from 6 July. It is not possible for the majority of software and payroll providers to deliver the measure for April. Its delivery to an April timeline would see millions of individuals paying the incorrect amount of NICs at the start of the tax year, in just two weeks’ time.

Wera Hobhouse withdrew the amendment.

The four new clauses, tabled by a range of opposition members, sought to require the Treasury to produce reports on the impact of the bill on poverty, low pay, universal credit claimants, and the tax implications for earned and unearned income.

Lucy Frazer rejected the new clauses. She said a distributional impact on household incomes had been produced as part of the spring statement and she reiterated the measures the Government had already taken to help those on the lowest incomes. The new clauses were ultimately not moved.

During committee stage, James Murray, Shadow Financial Secretary to the Treasury, asked the Government why the changes to class 2 NICs would be made by regulations at a later date and why the bill backdated some of the threshold changes to April 2022. He said:

First, why are the changes to class 2 contributions to be made by way of regulations, rather than being implemented through this bill? I note that clause 5(3) seems to make it clear that regulations arising from clause 3 will, as they would amend acts of parliament, have to be laid before and approved by a resolution of each House. Will the minister explain why the detail on clause 3 will therefore be decided a later stage, and not with the class 1 and class 4 changes today? Secondly, clause 3(2)(b) makes it clear that the changes to class 2 contributions may be made to have retrospective provision from 6 April 2022. So why is it possible to backdate changes to class 2 contributions to April 2022, yet changes to class 1 and class 4 contributions can take effect only from July?

Lucy Frazer did not directly answer the back-dating question. However, she said:

The reason that the measures will be brought in through regulations is that we need to consult, including those who will be doing the payroll. The need to consult was one of the points made by the Low Incomes Tax Reform Group.

Report and third reading

The bill was reported without amendment, read a third time without debate, and passed.

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Cover image by Sarah Agnew on Unsplash.