James Cartlidge is a member of the Work and Pensions Select Committee, and is MP for South Suffolk.
The current furore over the Budget’s proposed changes to self-employed National Insurance Contributions is driven by forces that, whilst appearing strong, will pass as the next media storm hits. These are the tornadoes of the Westminster Village which blow powerfully for a while and often claim casualties, but eventually fizzle out. By contrast, the underlying policy substance behind the proposals is caused by shifting tectonic plates whose impact will not go away so easily, and which MPs will eventually have to respond to, whether we like it or not. The issue is whether we, the supposed party of Government, any longer have the stomach to make even the most moderately controversial changes so that we can respond to societal change.
On the Work and Pensions Select Committee, we are busily looking at both underlying issues: first, the intergenerational debate – at the heart of which is the cost of providing for retirees and whether future generations will receive the same deal; secondly, the surge in self-employment and the rise of the ‘gig’ economy (Uber, Deliveroo, etc). Yes, the ‘political’ part of the row about election pledges and personalities will linger, and is distinctly uncomfortable for a pro-business party that supports in its political DNA those who strike out on their own. But it is nothing to the challenge ahead for any Government wanting to do the right thing by the country in the face of vast structural changes in society and the economy.
On the one hand, we have an ever-growing rise in the cost of providing for those who are over 65 – not a ‘burden’ as such, but actually a great health success story, but nevertheless one whose huge cost we should be open about. On the other, the tax base for funding the welfare state is eroding, not least with the rise in self-employment. In my mind, we may have played the wrong cards defending the NICs change. I am not sure we should have tried to suggest that most self-employed would be “better off” under the plans. Recalling the row over business rates revaluation, another recent tornado that may or may not have passed, I’m sure other MPs noticed that firms who were hit with big hikes were not remotely persuaded of their merits if many other firms in the locale were supposedly better off. And in my view there was no point whatever in pretending we had not broken an election pledge. The point is surely to be transparent, and to justify the change in serious policy terms.
That being so, in my mind we should have focused the whole argument on pensions. Many self-employed will now receive more generous state pension provision because of recent reforms and the money raised will help pay for that extra liability for the state’s coffers. In my view, this is the one justification you need. If people think we should reverse the NICs rise, do they also think we should reverse the better state pension provision for the self-employed?
We should recognise at this point that we have a ‘Pay as You Go’ state pension. None of us, regrettably, have a state pension pot with our name on it accruing gains after much needed investment to spur the UK economy (if only); rather, workers pay their NICs and tax to fund the pensions of today on the expectation (more like hope) of receiving the same when they retire.
In other words, in absolute terms, the new higher NICs are not immediately funding the more generous state pension for self-employed persons affected since they are yet to retire. Rather, without the rise, the self-employed are shouldering an ever smaller share of an ever rising bill for funding today’s pensions and today’s pensioner benefits. That is the true impact of the current imbalance in the context of a ‘Pay as You Go’ system.
It might be said that the self-employed have less security and no access to benefits such as sick pay and holiday pay. That is entirely right. However, the ‘cost’ of those in exchequer terms is relatively minor compared to the cost of supporting not just the state pension and pensioner benefits, but also the social care system and NHS support for the elderly. Presumably the self-employed will not want to receive any less favourable treatment in the NHS or social care system, and will also want the winter fuel allowance, free bus pass etc that employed contributors will receive? It is here where the cost lies, and it is a cost that is vast and growing almost exponentially.
Perhaps we should look elsewhere for the money. But this is where the reality of our political promises and protections kick in. The NHS is out of bounds, has just been awarded more cash and is still well short. We are legally bound to spend 0.7 per cent of GDP on foreign aid. We are committed to the NATO target of two per cent of GDP on defence, and the will seems to be for more not less. The schools budget is protected and would ideally get a cash injection to resolve the ‘fairer funding’ promise which we have yet to deliver for the many under-funded but predominantly Tory counties.
By far the largest department for spending is Work and Pensions. But even this is now protected, and from my experience to even suggest looking at the triple lock or existing pensioner benefits – not to least to fund better social care for the most vulnerable pensioners – is to suggest boiling grandmas alive. DEFRA is promising to protect existing farm support on Brexit (for the time being, at least); BEIS has an industrial strategy to support and not much to trim. Local Government has been comprehensively raided already, and now the call is for ‘fairer funding’ between regions which would inevitably mean more cash. The Home Office and Justice have already been cut significantly, and pressure on the criminal justice system is intensifying. Transport is mainly capital spending, so cannot be used for ongoing commitments. DCMS is small, but the voice of the luvvies is loud.
So unless the Church Commissioner’s Office and the Leader of the Commons’ office have huge hidden bounty, we had better look again at tax. We are legally bound not to raise the basic rates of income tax, VAT or (the main rates of) National Insurance. We can’t touch the self-employed; the employed include many JAMs; the unemployed are presumably included in the DWP protected status bracket. What about the dead? ‘Death taxes’ bring even worse headlines than hitting ‘White Van Man’. That just leaves one final option – those yet to be born.
Eureka. Simple. We just borrow and get the next generation to pay for it, whilst standing like Canute in the face of structural change, and promising our future citizenry that they will receive the same as today’s pensioners. We may row back to defend one promise, but another more fundamental promise to the future is actually at stake.