National Insurance Contributions (Secondary Class 1 Contributions) Bill

(Limited Text - Ministerial Extracts only)

2nd reading
Monday 6th January 2025 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I wish all noble Lords a happy new year. It is a pleasure to open this debate. I am aware that the noble Baroness, Lady Kramer, has tabled a regret amendment expressing concern about the measures in the Bill. While I of course understand and respect the points raised in it, this Government had to take some very difficult decisions—not decisions we wanted to take, but necessary decisions to clear up the mess we inherited.

In the time I have available today, I will seek to explain why not acting was simply not an option, and why this Bill is necessary to repair the public finances, while protecting working people and rebuilding our public services.

I will begin by setting out the economic context in which the Budget decisions contained in this Bill were taken. As noble Lords will know, on her arrival at the Treasury last July, the Chancellor was informed of a £22 billion black hole in the public finances—a series of commitments made by the previous Government which they did not fund and did not disclose. Ahead of the Budget, the independent Office for Budget Responsibility had conducted a review into the circumstances surrounding a meeting it held with the Treasury on 8 February last year, at which the previous Government were obliged to disclose all unfunded pressure against the reserve.

The OBR’s review established that at that point the previous Government concealed £9.5 billion. However, as we now know, during the remaining five months they had left in office, the previous Government continued to amass unfunded commitments, which they did not disclose. By the time of the spring Budget, Treasury records show these had reached £16.3 billion. By July, they had reached £22 billion.

The Treasury has provided to the OBR a line-by-line breakdown of these unfunded commitments: 260 separate pressures which the previous Government did not fund and did not disclose. Neither did they make any provision for costs they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal, and £1.8 billion to compensate victims of the Post Office Horizon scandal.

The country inherited not just broken public finances but broken public services: NHS waiting lists at record levels, children in Portakabins as school roofs crumbled and rivers filled with polluted waste. Yet, since 2021, there had been no spending review and no detailed plans for departmental spending set out beyond this year.

Faced with this reality of broken public finances and broken public services, any responsible Chancellor would have had to act. Some noble Lords, during today’s debate, may argue otherwise: that we should have ignored the black hole in the public finances. But this is the path of irresponsibility, the path chosen by the Liz Truss mini-Budget, when mortgage costs increased by £300 a month, and for which working people are still paying the price.

That is not the path chosen by this Government. Our number one commitment is economic and fiscal stability. That is why, as a result of the Budget—and only because of the measures contained in this Bill, combined with other difficult decisions we have taken—instead of £22 billion of unfunded spending plans, within three years not a single penny of day-to-day government spending will be funded by borrowing.

Yes, it was a significant Budget, on a scale commensurate with the challenging inheritance we faced. And yes, it did mean taking difficult decisions. As a result, however—and only made possible by the measures contained in this Bill—we have now wiped the slate clean, creating a platform of stability in the public finances.

The Budget made another very important choice: to keep the manifesto commitments we made to working people to not increase their income tax, their national insurance or VAT. Compare that with the choices made by the previous Government, who chose to freeze income tax thresholds, costing working people nearly £30 billion. This Government could have chosen to extend that freeze, but that was not the choice we made. Instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again. However, keeping those promises to working people, while repairing the public finances and rebuilding our public services, did mean we had to take some very difficult decisions on spending, welfare and tax, including those in the Bill before your Lordships’ House today.

The Bill contains three key measures: first, an increase to the rate of employer secondary class 1 national insurance contributions from 13.8% to 15%; secondly, a decrease of the secondary threshold for employers—the threshold above which employers begin to pay employer national insurance contributions on their employees’ salaries—from £9,100 to £5,000; and, thirdly, measures to protect small businesses by more than doubling the current employment allowance from £5,000 to £10,500. The Bill will also expand the eligibility of the employment allowance by removing the £100,000 threshold so that more employers now benefit.

I of course understand that some of these measures mean asking businesses to contribute more, and I fully acknowledge that some impacts will be felt beyond businesses too. These are difficult decisions, and I understand and respect the legitimate concerns that have been raised, including by business. However, taken together, the measures in the Bill mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease. Some 865,000 employers will now not pay any national insurance at all, and over 1 million employers will pay the same or less than they did before. All eligible employers will now be able to employ up to four full-time workers on the national living wage and pay no employer national insurance contributions. The Government are also setting aside support for the public sector of £5.1 billion by 2029-30, ensuring that there is sufficient funding for our vital public services, including the NHS.

I also recognise that concerns have been raised about the wider economic consequences of the measures contained in the Bill—concerns I am sure we will hear in today’s debate. Let me be clear: not to act was not an option. The choices we have made were the only route to putting the public finances back on a stable path, while protecting working people and rebuilding the public services. The economic data we have seen in recent months is, of course, disappointing; in particular, the recent growth figures show the sheer scale of the challenge we face. However, there would have been far greater costs to continuing with the irresponsibility and instability that has been a near-constant feature of the past 14 years: from the chaos of Brexit and the disastrous deal that followed, through to the Liz Truss mini-Budget, which crashed the economy and devastated family finances.

Let us remember that the OECD now expects the UK to be the fastest growing European G7 economy, and at the Budget, the independent Office for Budget Responsibility was clear that, with particular reference to our capital investments, the Budget will increase the size of the economy in the long term. On living standards, the OBR forecast shows that real household disposable income will increase in real terms in each year of this Parliament; the level of real wages will rise by 3% over the next five years; and the number of people in employment will rise by 1.2 million over the course of this Parliament. Our planning reforms, pension reforms, skills reforms and industrial strategy will all contribute to higher growth, but none are yet included in the OBR’s forecast.

The measures contained in the Bill also contribute to significant new investment in the NHS. That vital investment—amounting to £25.7 billion extra for the NHS over this year and next—is only possible because of this Bill. It includes £1.5 billion for new surgical hubs; more than £1.25 billion to deliver over 1 million additional diagnostic tests; over £2 billion for technology and digital improvements to increase NHS productivity and save staff time; and £880 million more in local government spending to support social care. All of that will support the NHS to deliver an extra 40,000 elective appointments a week, helping us to bring waiting lists down more quickly.

The choices we have made are the right choices. They are not the easy ones, but the responsible ones: to rebuild the public finances, to protect working people and to invest in Britain’s future. None of those things would be possible without the Bill. It is of course possible to make different choices: to ignore the problems in the public finances, to continue to neglect our public services or to fail to protect working people. Noble Lords may wish to argue for that during today’s debate, but this Government were elected with a mandate to fix the foundations of our economy. The Bill delivers on that mandate and provides a foundation of stability on which we will now build long-term, sustainable growth. I beg to move.

Amendment to the Motion

Moved by

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[Baroness Neville-Rolfe (Con)]

My Lords, I must start by thanking the noble Lord, Lord Livermore, for his clear explanation of this short and simple Bill, the context as he sees it, and the “happy new year” that we all hope to see, despite everything we will probably hear today.

I endorse the tribute from the noble Baroness, Lady Kramer, to Baroness Randerson: what a shock. I will come to the noble Baroness’s Motion later.

Despite the welcome increase in the employment allowance—effectively advocated by my friends at the Federation of Small Businesses—it is difficult to hide the fact that this Bill introduces a jobs tax right across the UK; it represents a £23.7 billion raid on employers. During the general election six months ago, the Labour Party claimed that, if it formed the next Government, the first priority would be to increase the rate of economic growth, and the Chancellor said that they would be the “most pro-business Government ever”—that was the promise. I attended the Times summit, and businesses were very reassured by everything the Chancellor said.

On taking office, the Government, notably the Prime Minister and Chancellor, relentlessly and consistently stressed the allegedly dire state of the national economy, constantly referring to their mythical black hole of £22 billion. I believe it would be true to state that no positive words on UK economic prospects ever passed their lips. But, as Keynes and many other eminent economists stressed long ago, economic success is in part a matter of morale. That discovery was, apparently, forgotten by the Prime Minister and Chancellor.

The Budget is the principal mechanism by which the new Government were able to give effect to their aspirations and objectives. Unfortunately, it was widely and correctly described as anti-business. It raised taxes substantially by placing large new burdens on business, most notably by way of increases in national insurance. The consequences of this pessimism at the top of government, and the extra burdens on business, are clear for all to see: a faltering economy, thought by some commentators even to be verging on depression, and an unpopular Government. That is quite an achievement when the Government are only six months old. Noble Lords will recall that in the first half of the year, the economy was growing strongly and inflation had reduced sharply from the highs created by Covid, Ukraine and the energy crisis. I suggest that gives a much more accurate summary of last year’s economics.

Sadly, the financial world is of a similar view. On 3 January, the critical measure of confidence, the 10-year gilts yield, was at 4.59%, which was higher than its peak after the Kwarteng Budget. In Germany, the bond yield rate at the end of December was 2.38%, and even in Italy it was only 3.52%. This morning, we had a stark warning from the British Chambers of Commerce that more than half of firms were planning to raise their prices in response to tax hikes announced by the Chancellor in October. Business confidence is at a two-year low.

The Government introduced several business-related measures in their Budget, and unfortunately, they were overwhelmingly negative. The increase in employer national insurance contributions, which I will come on to dissect, was accompanied by the partial removal of non-domestic business rate waivers dating back to Covid; a further increase in minimum wages; and an affirmation of plans to introduce costly new rigidities into the labour market. This was a quadruple hit on our hard-working businesses, and that is before accounting for the IHT changes that have so unsettled family businesses and our farming community.

The minimum wage is, of course, something we do not oppose, but it introduces further costs to businesses, especially small businesses, at a time when they are drowning in extra burdens. These businesses all play a crucial role in helping the British economy to grow, which is what we all want.

A number of sectors have released reports detailing the profound consequences these measures will have on their businesses, and this has highlighted the extent to which the Government fail to understand not only the private sector but how to promote and encourage a growing economy. The December growth figures from the ONS were very disappointing: down 0.1%, as were the OECD and IMF comparisons.

The noble Baroness, Lady Kramer, actually set out the Opposition’s position on the various sectors affected. However, her amendment is too kind to the Government; the NICs changes are a jobs tax on all business and not-for-profit sectors, not just a few. Passing it will have no effect on the Bill and do nothing for the groups mentioned. Instead, we need the Liberal Democrats to join us, on Wednesday, in opposing the Bill’s committal to Grand Committee. The Floor of the House is the revising Chamber that can be relied on to delve into vital detail and the perverse effects of such legislation. There is huge concern across the country and we should be debating this Bill, which can be amended—unlike money Bills—in Committee in this Chamber.

I turn to some individual sectors. The Government have angered businesses across retail. Over 70 businesses sent a letter to the Chancellor outlining their concerns. Big employers, including Tesco, Sainsbury and Next, said that:

“For any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale. The effect will be to increase inflation, slow pay growth, cause shop closures, and reduce jobs, especially at the entry level”.


We find it particularly concerning that the Government maintain a rhetoric that they are pro-growth and pro-business, without listening to the very businesses that can help them. If they did, they would realise that their plans have not been thought through and that they will have far-reaching consequences in closures and the prevention of growth.

The retail sector estimated that the measures introduced in the Budget will cost the sector up to £7 billion a year, and that these costs will be offset through a reduction in headcount, a freezing of wages and increased prices for the consumer. From my own retail experience and observations in recent weeks, I believe that we risk more insolvencies and empty shops on the high street. This is all too likely to have a multiplier effect on confidence and investment. Reports state that the Centre for Retail Research forecasts over 17,000 store closures in 2025, confirming my fears.

UK hospitality will also pay a high price in adapting to the new taxes. The sector indicated that it will pay at least £1 billion as a result of the increase in national insurance alone and that this will hit its far from buoyant profits. Take an example: a survey from the British Institute of Innkeeping indicates that 40% of independently operating pubs will have to reduce their opening hours as a result of this increase in national insurance contributions alongside the other harmful measures towards businesses included in the Budget. As a pub-goer, I know that turning up to a closed pub puts one off going to the pub again and that that has a multiplier effect.

The increase in NICs is unusual in causing pain to many not-for-profit sectors. They often get by, despite straitened circumstances, because of their workers’ passion and hard work. A good example is our wonderful hospices, as we heard during the PNQ. The charity, Together for Short Lives—a children’s hospice—estimated that this specific increase will put up the cost of providing such hospice care by £5 million across the sector. This will have a seriously detrimental impact on already underfunded hospices and will reduce the availability of lifeline care for children across the country. The Marie Curie charity concluded that the NICs changes will force it to reduce headcount and limit services, with more terminally ill patients staying in hospital, which is bad for them and the NHS, at a time when the debate on assisted dying has highlighted the inadequacy and unevenness of hospice provision. I hope that the Government are listening.

Regrettably, this is part of the wider picture of underfunding in social care, which has already been highlighted. The Nuffield Trust says that independent care providers will face £940 million in additional costs. That dwarfs the £600 million of support introduced in the Budget.

The Government are rightly trying to make more use of pharmacies to tackle waiting times, and yet Community Pharmacy England says that they will be hit by an extra £50 million a year. GPs are caught, as we heard: the Institute of General Practice Management estimates extra costs of about £20,000 a year for the average practice. Ironically, the BMA says that, as public authorities, they are unable to access support via the increased employment allowance. They look with envy and surprise at arrangements already made to protect the NHS and Civil Service from the NICs hikes.

Finally, there is the extraordinary impact on nurseries, where the last Government did so much to extend childcare and help more mothers into work, which boosted growth. The National Day Nurseries Association estimates that the combinations of NICs and salary increases will mean an extra £47,000 on average per nursery, and that those providing more than 50% government-funded childcare will also be deprived of the employment allowance.

I look forward to hearing from others in this debate about the effect of these changes and their unfairness and perverse impacts on so many sectors.

To conclude, we cannot support the key provisions of the Bill. It is a betrayal—yes, a betrayal—of the promise in the Labour manifesto that all reasonable people interpreted as a commitment not to increase national insurance. The stuff said about “working people’’ does not cut the mustard. Moreover, we know from the OBR that the national insurance changes alone will reduce labour supply by 0.2% and add 0.2% to inflation by 2029-30. Sadly, we are already seeing this in business recruitment plans.

We look forward to carrying out our scrutiny functions effectively as this important Bill progresses. It would be very helpful if the Government could update us with their latest view of the impact of the proposed changes on jobs, wages and prices. We are very much in favour of a proper evaluation of policies in the light of experience, and, accordingly, we will be tabling a proposed new clause requiring the Chancellor to publish an assessment of the NICs increases on the employment rate a year after the passing of the Bill. I know from my time as a Minister that such amendments are routinely resisted by the system but that they can be helpful down the road to a responsible Minister keen to do the right thing.

In short, our position is that, even if the Government thought it was right to raise many billions in taxation, this is the wrong way of doing it. The country will regret it.

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[Lord Frost (Con)]

My Lords, we have heard a lot from the Minister and just now from the noble Lord, Lord Eatwell, about the alleged terrible situation in which the previous Government left the current Government. I have been known to criticise the previous Government myself, and there is a degree of truth in the criticism that we were too ready to resort to spending and to tax and national insurance increases. Indeed, I spoke in Cabinet against the previous effort to increase national insurance; it was one of the reasons why I left that Cabinet a few months later. However, in mitigation of the previous Government and some of their predecessors, that was not unique; it followed the trend established over the past 20 or 30 years to increase the size of the state, push up taxation and spending, and increase the pressure on the private sector.

It is that reality of the past 30 years that makes what we have heard from the Minister and the Government more broadly—the suggestion that they are fixing the foundations and marking a moment of change—so ludicrous and ridiculous. The Government like to claim that they are marking a different path, when the truth is that they are just doubling down on the path that has been set for the past 30 years. There is no change in this at all other than in size and in the energy driving us to a larger state, with higher taxes and higher spending.

The noble Lord, Lord Eatwell, talked about understanding arithmetic, but the arithmetic that I find hard to understand is why it is thought to be a change of direction when the plan in this Budget is to push up public borrowing £20 billion or £30 billion higher than it would have been under the previous Government’s plan, even though taxation is going up by another £30 billion or £40 billion every year. Despite all that, the deficit is still 1% of GDP higher than it would have been at the end of this fiscal period under the previous Government. How is that fixing the foundations? It is doubling down on the trend and making the situation worse. We know that the consequences will be lower growth, less dynamism and lower wealth for the country as a whole.

The specific tax change that we are looking at in this Second Reading debate is a major part of that problem. It is a well understood principle in economics that if you tax a thing you get less of that thing, and if you tax jobs you will get fewer jobs. Even now, Britain has one of the lowest tax wedges in the OECD—the gap between what employers have to pay employees and what they actually receive. European economies with typically higher tax wedges have many more problems with youth unemployment and long-term unemployment. Countries with very high tax wedges, such as Germany, Spain and Italy, have long-term unemployment more than one-third higher than ours. Spain’s is two-thirds higher, Belgium’s is nearly twice as high and Italy’s is highly still. With these measures—and the new employment regulation that is coming our way soon, no doubt—we are heading the same way too. Hiring is falling already, at 23% lower than a year ago. The OBR forecasts a lower participation rate—the “drag” from employer national insurance contributions, as it puts it, which boosts the decline in the participation rate by 50%.

The Government know perfectly well that this effect exists, even if they do not want to acknowledge it more than they have to. We can tell that they know that it exists because they are having to compensate the public sector to mitigate the problem. In so doing, they are reinforcing a divide that already exists between the public and private sectors. My noble friend Lord Forsyth alluded to this just now. Wages are already higher in the public sector and pensions are much more generous. Now the Government are beginning to establish the principle that the public sector should be protected from the consequences of the Government’s own decisions—just like the French nobility before the revolution, who did not pay the taxes imposed on everybody else. It did not end well for them and it will not end well for the Government, or for this country, if they create a privileged class that does not contribute to economic growth but just feeds off it.

As a result of this, we are seeing much more complexity, yet we need simplicity, not complexity, in the way our fiscal and tax systems work. The principle that is being established means that if you are fortunate enough to be on the payroll of the public sector you are shielded from some of these changes, but if you are unlucky enough merely to supply the public sector—for example, as has been said, a car firm taking special needs patients to hospital—or if you merely carry out public sector functions, such as hospices, then you will be on your own. As a result, we are going to see—indeed, we are already seeing—ever-increasing and, in many cases, entirely reasonable demands for exemptions or changes to the rules from those who happen to fall beyond this boundary. There will be new reasons to lobby, new reasons to generate complexity and new reasons to push up costs over time.

The last thing we need is more taxation. I urge noble Lords to look at the OBR’s fascinating historical public finances databank—I find it fascinating, anyway. It shows that, after the Autumn Budget, we now have public sector spending at around its highest level ever, outside the world wars and the pandemic, and taxation is at the highest level it has ever been in this country, even during wartime.

It is true that we are seeing huge strains on the public sector—courts, schools, roads, transport and so on. That is obvious, but we are seeing those not because taxes are too low but because growth is too low. We are exhausting the capacity of the economy to pay for the public goods that we all want to see. There is only one way to resolve that problem, which is to get the boot off the private sector and allow it to generate wealth. The Minister spoke of stability. We all want stability, but there are different kinds of stability and, if we are not careful, we are going to get the stability of the morgue in the British economy. We need activity, dynamism, change, energy and growth. Reversing the trends that we are on against all those things is of huge importance. That, by the way, is why it is so important that Committee on this Bill should be on the Floor of the House.

There is no manifesto commitment to this measure and it is right that we do everything possible to reduce its impact. The non-crisis British state is the biggest it has ever been, and any responsible Government will be trying to reduce it—for example, to what some, at least, regard as the halcyon days of the first Blair term, when the state was a whole 10 percentage points of GDP smaller and, not coincidentally, trend growth was a whole 1% of GDP higher. The current route of spending more and producing less will drive people out of work, crush growth and lead this country to penury, and these NIC measures will take us one further step down that road. The Government need to think again.

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[Lord Livermore (Lab)]

My Lords, it is a pleasure to respond to this Second Reading of the national insurance contributions Bill, and in doing so to respond to the points raised by the amendment in the name of the noble Baroness, Lady Kramer. I am grateful to all noble Lords for their contributions during today’s debate. The Budget in October involved taking some very difficult decisions: to clear up the mess that we inherited, to repair the public finances, to protect working people and to rebuild our public services. Faced with the reality of broken public finances and broken public services, not acting was not an option, which is why this Bill is necessary, as my noble friends Lord Chandos and Lord Layard observed.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, the noble Lords, Lord Forsyth of Drumlean, Lord Ahmad of Wimbledon and Lord Mackinlay of Richborough, and the noble Viscount, Lord Trenchard, focused on the Government’s fiscal inheritance and sought to deny the £22 billion black hole that the previous Government left behind. I am, of course, very grateful to all noble Lords who mentioned the £22 billion black hole and thank them for doing so.

The Treasury has provided to the OBR a line-by-line breakdown of the previous Government’s unfunded commitments—260 separate pressures. Noble Lords need not just listen to the OBR and the Treasury. They need look only at the out-turn data: central government current expenditure, published by the ONS, shows that for the six months since March the out-turn is £11.8 billion higher than forecast. That is £11.8 billion over six months—well on course for £22 billion over the year. The noble Lord, Lord Moynihan of Chelsea, asked why the money is not there. I politely suggest to him that it is because of the policies he supported under the previous Government.

Faced with this reality, as the Chancellor was, any responsible Chancellor would have to act. Ignoring this black hole, as my noble friend Lord Eatwell said, would have taken us down a path of irresponsibility—the path chosen by Liz Truss in her mini-Budget, for which working people are still paying the price.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe, Lady Noakes, Lady Bray of Coln and Lady Porter of Fulwood, the noble Lords, Lord Jackson of Peterborough and Lord Mackinlay of Richborough, and the noble Viscount, Lord Trenchard, sought to argue that the Bill breaches the Government’s manifesto commitments. That is clearly not the case. Despite the pressures on the public finances, the Government made a clear choice at the Budget to keep our promises to working people by not increasing their income tax, national insurance or VAT, and we went further by freezing fuel duty. Compare this with the decision made by the previous Government to freeze income tax thresholds—a decision which cost working people over £30 billion. Instead, our Budget ensures that, from 2028-29, personal tax thresholds will be uprated in line with inflation once again.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Moyo, the noble Lords, Lord Londesborough, Lord Forsyth of Drumlean, Lord Ahmad of Wimbledon and Lord Ashcombe, my noble friend Lord Eatwell and the noble Viscount, Lord Trenchard, focused on the impact of these measures on employers. We heard a lot during today’s debate from the noble Lords opposite about how much they know about business. One does wonder, then, why the economy was such a catastrophe over the past 14 years.

I accept, though, that the Bill will require some employers to contribute more. These are difficult decisions and not ones we wanted to take. I understand and respect the legitimate concerns that have been raised, including by some businesses. But, taken together, the measures in the Bill mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease. As my noble friend Lady O’Grady of Upper Holloway said, 865,000 employers will now pay no national insurance at all, and over 1 million employers will pay the same or less than they did before. In answer to the noble Viscount, Lord Trenchard, around 250,000 employers will see their liabilities decrease. Around 940,000 will see an increase and 820,000 will see no change.

The noble Lord, Lord Macpherson of Earl’s Court, asked about reducing distortions. Recent changes, such as reforms of the off-payroll working rules, have reduced distortions and we will keep this issue under review.

To all those noble Lords who asked, we have no plans to combine income tax and national insurance. Relative to other countries, our tax burden on employers hiring average earners remains low. The UK will remain below the OECD average and the third lowest in the G7, below France, Italy, Germany and Japan.

The noble Lord, Lord Jackson of Peterborough, asked about the impact of these changes on the public sector. We have set aside funding to protect the spending power of the public sector, including the NHS, from the direct impact of the changes, totalling £4.7 billion next year, rising to £5.1 billion in 2029-30. We are now working with departments to ensure that this funding is allocated appropriately, and specific allocations will be set out in due course.

In answer to the noble Lord, Lord Bruce of Bennachie, the Barnett formula will apply in the usual way. My right honourable friend the Chief Secretary to the Treasury is in regular contact with the Scottish Government on funding, including on the application of the Barnett formula.

Some noble Lords, including the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, and the noble Lords, Lord Scriven and Lord Sharkey, spoke about the impact of the Bill on GPs, dentists and pharmacists. As the noble Lords will know, every year, the Government consult with each sector about both what services they provide and the money that providers are entitled to in return under their contracts. As in previous years, this issue will be dealt with as part of that process. The Department of Health and Social Care will shortly confirm funding for GPs, dentistry and pharmacy.

The noble Baroness, Lady Kramer, and the noble Lords, Lord Forsyth of Drumlean, Lord Scriven, Lord Udny-Lister and Lord Sharkey, asked about adult social care providers. The Government are providing a real-terms increase in core local government spending power of 3.5% in 2025-26. To support social care authorities to deliver key services, we also announced a further £200 million for adult and children’s social care at the provisional local government finance settlement last month. This will be allocated via the social care grant, bringing the total increase of this grant in 2025-26 to £880 million, meaning that up to £3.7 billion of additional funding will be provided to social care authorities in 2025-26.

Several noble Lords—including the noble Baronesses, Lady Porter of Fulwood, Lady Bray of Coln, Lady Sater and Lady Neville-Rolfe, the right reverend Prelate the Bishop of Southwark and the noble Lord, Lord Blackwell—focused on the impact on charities, including hospices. We are supporting the hospice sector with a £100 million boost for adult and children’s hospices, to ensure that they have the best physical environment for care, and £26 million revenue to support children and young people’s hospices. More widely, the Government provide support for charities, including hospices, via the tax regime, which is among the most generous of anywhere in the world. Tax reliefs for charities and their donors were worth just over £6 billion for the tax year to April 2024.

The right reverend Prelate the Bishop of Southwark asked about listed places of worship. The outcome of this programme is currently being assessed by the DCMS, as it finalises its financial allocation for 2025-26. The right reverend Prelate also asked about SEN transport. In the Budget, the Government announced £2 billion of new grant funding for local government in 2025-26. This includes £515 million to support councils with the increase in employer national insurance contributions, which covers special educational needs home-to-school transport schemes.

The noble Baronesses, Lady Kramer and Lady Neville-Rolfe, asked about childcare and the impact on the rollout of the expanded entitlement. Early years providers play a crucial role in driving economic growth, which is why we have committed to open 3,000 new school-based nurseries in this Parliament. At the Budget, the Chancellor announced that total funding will rise to over £8 billion in 2025-26 to support providers. On top of this, last month, the Department for Education confirmed an additional £75 million to help the sector expand next year, and a further £25 million to support childcare for disadvantaged children through the early years pupil premium.

The noble Baroness, Lady Sater, asked when the impact assessment will be published. The tax information and impact note was published on 13 November, alongside the legislation when it was introduced. The latest forecasts for tax revenues were published alongside the Office for Budget Responsibility’s October Economic and Fiscal Outlook.

Many noble Lords—including the noble Baroness, Lady Neville-Rolfe, the noble Lords, Lord Macpherson of Earl’s Court, Lord Forsyth of Drumlean, Lord Londesborough, Lord Ahmad of Wimbledon and Lord Mackinlay of Richborough, and the right reverend Prelate the Bishop of Southwark—focused on the wider macroeconomic impact of the Bill. As I said in my opening speech, not to act was not an option. The choices we have made were the only route to putting the public finances back on a stable path while protecting working people and rebuilding public services. The economic data we have seen in recent months is disappointing. In particular, the recent growth figures show the sheer scale of the challenge we face, and the noble Lord, Lord Horam, set out the dire inheritance that we faced on growth.

The fact is that there would have been far greater cost to continuing with the irresponsibility and instability that has been a near-constant feature of the past 14 years—from the chaos of Brexit and the disastrous deal that followed, which reduced GDP by 4%, through to the Liz Truss mini-Budget that crashed the economy and devastated family finances. Let us remember that the Office for Budget Responsibility has also been clear that, with particular reference to our capital investments, the Budget will increase the size of the economy in the long term.

The noble Lord, Lord Blackwell, rightly identified the problem of inactivity, which is higher than it was before the pandemic. He rightly identified the issues in the benefits system that contribute to that. The Government will bring forward proposals in this area in the coming months. The noble Lord also asked about public sector productivity. Unlike the previous Government, we have introduced a 2% productivity target for all government departments and have said that above-inflation pay awards will be affordable only if they can be funded from improved productivity.

The noble Baronesses, Lady Neville-Rolfe and Lady Moyo, spoke about the impact on inflation. The independent Office for Budget Responsibility says that it expects inflation to remain close to the 2% target throughout the forecast period. This is of course very different from the previous Parliament, when inflation peaked at 11.1% and was above target for 33 consecutive months, and when mortgages rose by an average of £300 a month following the Liz Truss mini-Budget.

The noble Baronesses, Lady Neville-Rolfe and Lady Noakes, and the noble Lords, Lord Howard of Rising, Lord Elliott of Mickle Fell and Lord Altrincham, spoke about employment. The Office for Budget Responsibility’s October forecast, which takes into account all tax measures announced in the Budget, forecasts that the unemployment rate will now fall to 4.1% next year and remain low until 2029. It also expects the number of people in employment to rise by 1.2 million over the course of this Parliament. As I have said to the noble Lord, Lord Elliott of Mickle Fell, on previous occasions, we remain committed to the 80% employment ambition.

The noble Baroness, Lady Neville-Rolfe, asked about the impact of this Bill on living standards. As noble Lords will be aware, the previous Parliament was the worst for living standards ever recorded. The Office for Budget Responsibility’s forecast shows that real household disposable income will increase in real terms every year over the course of this Parliament.

The noble Lord, Lord Forsyth of Drumlean, and the noble Baroness, Lady Noakes, asked about the impact of the Bill on wages. The independent Office for Budget Responsibility expects real wages to increase by 3% over the next five years.

This Bill also serves another key purpose: to fix our broken NHS and put an end to over a decade of underinvestment, neglect and inequality, as my noble friend Lady O’Grady of Upper Holloway said. That is because this Government inherited not only broken public finances but an NHS experiencing the worst crisis in its history. It is for this reason that the Budget included extra investment of £25.7 billion for the NHS over this year and next—investment that is possible only because of the measures in this Bill.

This Government had to take some very difficult decisions, reflected in the Bill we have debated today; not decisions we wanted to take, but necessary decisions to clear up the mess we inherited. Some noble Lords have today argued otherwise. The noble Baroness, Lady Neville-Rolfe, set out her position eloquently, but I did not hear a single alternative proposal. What is her alternative—that we should have ignored the black hole in the public finances? That is the path of irresponsibility and a repeat of the path chosen by the Liz Truss mini-Budget. That is not the path chosen by this Government. Yes, it was a significant Budget, on a scale commensurate with the challenging inheritance that we faced.

I recognise that the measures in this Bill involve asking some businesses to contribute more. However, as a result, and made possible only by the measures contained in this Bill, we have now wiped the slate clean, creating a platform of stability in the public finances. In doing so, and in contrast to the previous Government’s choice to freeze income tax thresholds, we have protected working people, keeping our manifesto commitments not to raise their income tax, their national insurance, or VAT. Again, as my noble friend Lord Eatwell pointed out, the noble Baroness, Lady Neville-Rolfe, said that this was the wrong tax to raise, but gave no detail about what other taxes she would raise. Would she have raised taxes on working people instead? The noble Lord, Lord Forsyth, at least suggested taxing some pensioners more, but from the Official Opposition there simply is no plan.

We have made historic new investment in our NHS and begun to put an end to years of underfunding and neglect. The choices that we have made to repair the public finances, protect working people and invest in Britain’s future are the only responsible choices in the circumstances that we faced. None of these things would be possible without this Bill. This Government were elected on a mandate to fix the foundations of our economy, and that is exactly what we will do. The Bill delivers on that mandate and provides a foundation of stability upon which we will now build long-term sustainable growth so we can rebuild our public services and make working people better off.

--- Later in debate ---

21:00

Division 1

Ayes: 46

Noes: 61