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.”[1] In a speech the Conservative leader 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).[2]

In his Budget speech on 8 July the Chancellor George Osborne confirmed that “in the coming weeks” the Government would legislate to “prohibit any increase in the main rates of income tax, national insurance and VAT for the next five years.”[3] The Budget report explained that provision to this effect would be included in a Summer Finance Bill, to be presented to the House at the conclusion of the Budget debates:

The government will legislate to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and employer and employee (Class 1) NICs rates, ensuring that they cannot rise above their current (2015-16) levels. The tax lock will also ensure that the NICs Upper Earnings Limit cannot rise above the income tax higher rate threshold; and will prevent the relevant statutory provisions being used to remove any items from the zero rate of VAT and reduced rate of VAT for the duration of this Parliament. (Summer Finance Bill 2015)[4]

On 14 July the Government published Finance Bill 2015-16. Clauses 1 & 2 provide for this ‘tax lock’ for income tax and VAT.[5] 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 its 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.[6]  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. This is 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.[7]

The Bill received a Second Reading on 15 September 2015. It completed its Committee stage in a single day, 27 October, when it was agreed, unamended, without a division. In turn the National Insurance Contributions (Rate Ceilings) Act 2015 received Royal Assent on 17 December 2015.

Notes : 

[1] Conservative Party, 2015 General Election Manifesto, April 2015 p27

[2] “Cameron pledges to ban tax rises until 2020”, Financial Times, 29 April 2015. Mr Cameron also publicised this commitment on Twitter.

[3] HC Deb 8 July 2015 c336

[4] Budget 2015, HC 264, March 2015 para 2.53. see also, HMRC, Tax lock: Income Tax, NICs and VAT: tax information & impact note, 8 July 2015

[5] The Bill, explanatory notes and details of its scrutiny are on its Parliament page.

[6] Bill 54-EN, July 2015 para 15

[7] For more details on these procedures see, The Budget and the annual Finance Bill, CBP813, 10 July 2015.

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