National Insurance Contributions (Secondary Class 1 Contributions) Bill

Report stage
Tuesday 25th February 2025 Lords Chamber

Report (Continued)

20:30

Amendment 11 not moved.

Amendment 12

Moved by

[Baroness Neville-Rolfe]

12: Clause 2, page 1, line 12, after “£96” insert “or,
(b) for a person providing transport for children with special educational needs or disabilities, £175.”Member’s explanatory statement
Exemption for SEND Transport: This amendment would exempt employers providing transport for children with special educational needs or disabilities from the Government’s planned changes to the weekly threshold.

Amendment 12 agreed.

Amendment 13 not moved.

Amendment 14

Moved by

[Baroness Neville-Rolfe]

14: Clause 2, page 1, line 12, after “£96” insert “or,
(b) for a charity that has an annual revenue of less than £1 million, £175.”Member’s explanatory statement
Exemption for small charities: This amendment would exempt charities that have an annual revenue of less than £1 million from the Government’s planned changes to the weekly threshold.

Amendment 14 agreed.

Amendment 15 not moved.

Amendment 15A

Moved by

[Lord Londesborough]

15A: Clause 2, page 1, line 12, after “£96” insert “or,
(b) for businesses and organisations with fewer than 25 full-time employees, £175.”Member’s explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the secondary threshold at which employers become liable to pay national insurance contributions on employees’ earnings at £175 for businesses and organisations employing fewer than 25 staff.

[Lord Londesborough (CB)]

I will not make another speech, but I thank all noble Lords for their thoughtful and supportive contributions when we debated this amendment. I welcomed the challenges, particularly from the noble Lord, Lord Eatwell, who is not in his place, which I listened to with great respect. However, I disagree with his analysis. The cliff edge threshold is there in the Bill for all to see, and Clause 2 has moved it in the wrong direction, to the detriment of small businesses, economic growth and jobs.

I thank the Minister for his patient and construction interactions, but I wish to test the opinion of the House. I beg to move.

20:35

Division 6

Ayes: 199

Noes: 149

20:46

Amendment 16

Moved by

[Baroness Barker]

16: Clause 2, page 1, line 14, after “substitute” insert—
“(i) for a specified employer under section 9(1B) of the Social Security Contributions and Benefits Act 1992, £758, and(ii) in all other cases,”Member's explanatory statement
This amendment is linked to Baroness Barker’s amendments to Clause 1, page 1, line 2, Clause 2, page 1, line 12, and Clause 2, page 1, line 15.

Amendment 16 agreed.

Amendment 17

Moved by

[Lord Londesborough]

17: Clause 2, page 1, line 14, after “substitute” insert—
“(i) for businesses and organisations with fewer than 25 full-time employees, £758, and(ii) in all other cases,”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the monthly per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings at £758 for businesses and organisations employing fewer than 25 staff.

Amendment 17 agreed.

Amendment 18 not moved.

Amendment 19

Moved by

[Baroness Neville-Rolfe]

19: Clause 2, page 1, line 14, after “substitute” insert—
“(i) for a person providing transport for children with special educational needs or disabilities, £758, and(ii) in all other cases,”Member's explanatory statement
Exemption for SEND Transport: This amendment would exempt employers providing transport for children with special educational needs or disabilities from the Government’s planned changes to the monthly threshold.

Amendment 19 agreed.

Amendment 20 not moved.

Amendment 21

Moved by

[Baroness Neville-Rolfe]

21: Clause 2, page 1, line 14, after “substitute” insert—
“(i) for a charity that has an annual revenue of less than £1 million, £758, and(ii) in all other cases,”Member's explanatory statement
Exemption for small charities: This amendment would exempt charities that have an annual revenue of less than £1 million from the Government’s planned changes to the monthly threshold.

Amendment 21 agreed.

Amendment 22 not moved.

Amendment 23

Moved by

[Baroness Barker]

23: Clause 2, page 1, line 15, after “substitute” insert—
“(i) for a specified employer under section 9(1B) of the Social Security Contributions and Benefits Act 1992 or section 9(1B) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992, £9,100, and(ii) in all other cases,”Member's explanatory statement
This amendment is linked to Baroness Barker’s amendments to Clause 1, page 1, line 2, Clause 2, page 1, line 12, and Clause 2, page 1, line 14.

Amendment 23 agreed.

Amendment 24

Moved by

[Lord Londesborough]

24: Clause 2, page 1, line 15, after “substitute” insert—
“(i) for businesses and organisations with fewer than 25 full-time employees, £9,100, and(ii) in all other cases,”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the annual per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings at £9,100 for businesses and organisations employing fewer than 25 staff

Amendment 24 agreed.

Amendment 25 not moved.

Amendment 26

Moved by

[Baroness Neville-Rolfe]

26: Clause 2, page 1, line 15, after "substitute" insert—
“(i) for a person providing transport for children with special educational needs or disabilities, £9,100, and(ii) in all other cases,”Member's explanatory statement
Exemption for SEND Transport: This amendment would exempt employers providing transport for children with special educational needs or disabilities from the Government’s planned changes to the annual threshold.

Amendment 26 agreed.

Amendment 27 not moved.

Amendment 28

Moved by

[Baroness Neville-Rolfe]

28: Clause 2, page 1, line 15, after "substitute" insert—
“(i) for a charity that has an annual revenue of less than £1 million, £9,100, and(ii) in all other cases,”Member's explanatory statement
Exemption for small charities: This amendment would exempt charities that have an annual revenue of less than £1 million from the Government’s planned changes to the annual threshold.

Amendment 28 agreed.

Amendments 29 and 30 not moved.

Amendment 30A

Moved by

[Lord Londesborough]

30A: Clause 2, page 1, line 15, at end insert—
“(c) in sub-paragraph (c), leave out “the figure in sub-paragraph (b)” and insert—“(i) for businesses or organisations with 25 or more full-time employees, £5,000, or(ii) for businesses or organisations with fewer than 25 full-time employees, £9,100,”.”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the existing £9,1000 annual per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings for businesses and organisations employing fewer than 25 staff. This amendment applies to earnings periods which are multiples of a week.

Amendment 30A agreed.

Amendment 31 not moved.

Amendment 31A

Moved by

[Lord Londesborough]

31A: Clause 2, page 1, line 15, at end insert—
“(c) in sub-paragraph (d), leave out “the figure in sub-paragraph (b)” and insert—“(i) for businesses or organisations with 25 or more full-time employees, £5,000, or(ii) for businesses or organisations with fewer than 25 full-time employees, £9,100,”.”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the existing £9,1000 annual per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings for businesses and organisations employing fewer than 25 staff. This amendment applies to earnings periods which are multiples of a month.

Amendment 31A agreed.

Amendment 32 not moved.

Amendment 32A

Moved by

[Lord Londesborough]

32A: Clause 2, page 1, line 15, at end insert—
“(c) in sub-paragraph (e), leave out “the figure in sub-paragraph (b)” and insert—“(i) for businesses or organisations with 25 or more full-time employees, £5,000, or(ii) for businesses or organisations with fewer than 25 full-time employees, £9,100,”.”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the existing £9,1000 annual per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings for businesses and organisations employing fewer than 25 staff. This amendment applies to earnings periods which are multiples of a day.

Amendment 32A agreed.

Clause 3: Increase of employment allowance and removal of £100,000 threshold etc

Amendment 33

Moved by

[Baroness Neville-Rolfe]

33: Clause 3, page 1, line 20, at end insert—
“(2A) At end of section 1(2)(b), insert “or,(c) for an employer in the early years sector, £20,000.””Member's explanatory statement
This amendment, and another in the name of Baroness Neville-Rolfe to this Clause, would increase the employment allowance for employers in the early years sector from £10,500 to £20,000.

[Baroness Neville-Rolfe (Con)]

My Lords, I wish to test the opinion of the House.

20:51

Division 7

Ayes: 189

Noes: 151

21:01

Amendments 34 and 35 not moved.

Amendment 36 not moved.

Amendment 37

Moved by

[Baroness Neville-Rolfe]

37: After Clause 3, insert the following new Clause—
“Review of effect on economic growthThe Chancellor of the Exchequer must, within six months of the day on which this Act is passed, lay before Parliament a review of the impact of the measures contained in this Act on the rate of economic growth in the United Kingdom.”Member’s explanatory statement
This amendment would require a review of the impact of the measures in this Act on economic growth within six months of the day on which it is passed.

[Baroness Neville-Rolfe (Con)]

My Lords, I will speak to my amendments in this group and to Amendment 42 in the name of my noble friend Lady Lawlor.

One of the difficulties the House has faced in dealing with this Bill has been the Government’s refusal to provide official estimates of the effects they expect the proposals to have on the individual sectors of the economy where its effects are likely to be the most profound. When we discussed their assessment in Committee, the Minister referred us to the impact note published on 13 November 2024. But I am afraid it is a very limited document, with only five pages of substantive text and no detailed assessment of the impact of the national insurance charge on a number of very important areas. Given the harm this policy will have in the many sectors we have already discussed, it is vital that the Government assess this properly. So, as a second-best measure, we have suggested additions to the Bill requiring the Government to look at the various areas of concern and make an assessment of the effect of the NICs changes—including the employment allowance, which should of course limit the damage to the very smallest businesses.

My Amendment 38 would require a sector-by-sector analysis of the impacts of the Government’s jobs tax. I am very grateful to my noble friend Lady Noakes and the noble Lord, Lord Londesborough, for supporting the amendment. It includes key areas that are adversely affected but that we have barely discussed today, notably hospitality, the creative industries and retail, whose challenges were starkly set out in Committee by my noble friend Lord Wolfson of Aspley Guise, with his unique experience of the sector.

Amendment 37 seeks to establish the Government’s view on the effect of the jobs tax on economic growth. We know that economic growth is the Chancellor’s number one policy, so I hope the Minister will be able to give the House some clarity on the Government’s expectations in this area. I also support my noble friend Lady Lawlor’s Amendment 42 and look forward to hearing from her.

We are very concerned about the Government’s failure to publish a full sector-by-sector impact assessment for this policy. I therefore intend to test the opinion of the House on my Amendment 38.

[Baroness Noakes (Con)]

My Lords, I have added my name to my noble friend’s amendment. We debated impact assessments several times in Committee and the Minister’s reply was always the same formula. It went along the lines of: “HMRC has published a tax information note”—which the rest of the Committee thought was wholly inadequate—“and the Government never do any more than this on tax legislation. The Government intend to do no more in respect of this Bill”. That was not a proper debate on impact assessments. The formula hardly changed over the four days we spent in Committee. The Minister eventually cited some precedents, but they were much smaller in scale and different in impact, and provided a precedent only really for the fact that the Treasury treats Parliament with contempt when it comes to providing full information on legislation. It is about time that Parliament stood up to the Treasury. I urge noble Lords to support my noble friend’s Amendment 38.

[Baroness Lawlor (Con)]

My Lords, I support my noble friend Lady Neville-Rolfe and will say a few words about my Amendment 42 on reviewing the impact of the Act one year on in respect of the different categories of employers in the business sector—small, medium and large.

This is needed given the worsening outlook for the UK economy and employment, which has been going from bad to worse month by month since, and in response to, the Budget. Unemployment figures are up. In the quarter ending December 2024, 1.56 million people of working age were unemployed and the UK unemployment rate was 4.4%. Unemployment levels have increased by 210,000 over the last year. Economic inactivity is also up. At the end of the last quarter of 2024, 9.29 million people aged 16 to 64 were economically inactive; the inactivity rate was 21.5%.

Jobs are being cut, as this month’s figures from S&P Global indicate. Data reveals that the decline in staffing numbers in February was the sharpest since November 2020. The chief business economist at S&P Global Market Intelligence explained that the data revealed that

“business activity remained largely stalled for a fourth successive month, with job losses mounting amid falling sales and rising costs … One in three companies reporting lower staffing levels directly linked the reduction to policies announced in last October’s Budget”.

The number of vacancies fell in the last quarter too, although they remain slightly above pandemic levels.

We want the Government to take responsibility for their actions and face up to the costs they have imposed on growth, productivity and employment and the impact on businesses, be they small, medium or large. I echo the comments of my noble friends throughout Committee that what we had on 14 November and the figures presented at the time of the Budget were inadequate in detailing the sort of impact this country is already facing. Employees’ lives and livelihoods are at stake.

[Lord Eatwell (Lab)]

My Lords, Amendment 38, as written, is econometrically impossible. This cannot be done unless we have further specification of what is to be done. For example, are we to look at the effect of these changes assuming that the Budget had not changed or to look at their effect taking into account the consequential effects of the Budget which were also dependent on the national insurance changes?

Then, there were other tax changes that took place at the time which were also dependent on the national insurance changes. Are they to be taken into account or not? At the moment, the amendment does not tell us. Any serious economist faced with this would say, “Sorry, I can’t do this unless you tell me what I have to take as the underlying conditions”.

Amendment 38 is seriously defective and cannot really be taken seriously as it stands because it simply does not specify the underlying circumstances within which the particular consequences of the changes in this Bill are to be assessed. Without that framework, it is simply not possible to do in any way—or, if you like, anybody could produce any result they like by assuming different background circumstances. So, I am afraid that Amendment 38 is underspecified and, as a piece of serious econometrics, impossible, because the framework is not specified for the amount of information required to perform the studies.

On Amendment 42, I was very struck by the request of the noble Baroness, Lady Lawlor, that the Government face up to their responsibilities. It would be really helpful if the Conservative Party faced up to the damage it has done to the British economy over the past 14 years and to the disaster it has inflicted on the British people, which the Labour Party is now desperately trying to repair in very difficult circumstances indeed.

Once again, the issue of the impact of employment and productivity depends on a whole series of other factors. Are they to be taken into account or not? How is the particular effect of the national insurance change to be examined? If they were independent, then you could do that by saying that the national insurance change has no relationship to other changes taking place in the economy and therefore we can isolate it. But that is not true; the national insurance change has direct effects on the other components of the Budget and has effects which are interdependent. Without specifying the framework in which this amendment is to be considered, it is a false exercise. You could sit down, make any assumptions you like and get any result you like, to be frank.

Although it would be very interesting to perform this exercise, I am afraid that these amendments are so defective that they cannot actually give the guidance as to the exercise to be performed. Therefore, it is entirely inappropriate for amendments such as these to be in the Bill.

[Lord Davies of Brixton (Lab)]

I have to confess a smidgen of support for the amendments in this group—but not nearly enough to make me vote for them. I am going to complain about a different lack of information that has been presented to this House in relation to the Bill.

The point is that it is a contribution Bill—a contribution to the National Insurance Fund. I pursue a somewhat quixotic and lonely quest to persuade people of the importance of the National Insurance Fund, the whole point of which is that it receives contributions, has reserves and pays benefits. Somewhat oddly, simultaneous to discussions of the money coming in, in the earlier stages of Report, there was a discussion in Grand Committee of the money going out. My complaint is that there has been no discussion of the state of the National Insurance Fund. I am very much in favour of such a discussion because it is a crucial element of our welfare state.

The problem is that the information is available. I have it in my hand: the Report by the Government Actuary on: The Draft Social Security Benefits Up-rating Order 2025; and The Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments, National Insurance Funds Payments and Extension of Veteran’s Relief) Regulations 2025. Noble Lords might ask, “What’s that got to do with the Bill?” It says on page 7:

“This report also includes the expected effect on the Fund of the National Insurance Contributions (Secondary Class 1 Contributions) Bill”.


This is information germane to our current discussions, but at no stage—I am sorry to complain to my noble friend the Minister—has this been adequately, or in any sense, discussed as part of an overall consideration about the state of the National Insurance Fund. That is my complaint, and I have got it off my chest.

21:15

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the number of times that I have heard debates in this House calling for a greater degree of post-legislative scrutiny—seeing whether we got what we thought we were going to get—is legion. Any effort to try to make sure that our judgment of what the Government of the day were proposing is worth having because it starts to increase the sum of human knowledge.

I am sorry that the noble Lord, Lord Eatwell, took such a dim view of it all, and I rather regret he sullied his comments with an attack on the previous Conservative Government’s economic policy, but so be it. I was not clear whether he was saying that it is a bad thing to do in principle or that the drafting is defective in practice. I am sure that if he felt that, in principle, it was a good idea to do it, our Front Bench would be happy to work with him to make sure that the drafting reached the economic standards that he felt would make it useful and worth while. However, it is a mistake just to discard, without further thought, an attempt to see what happens after the event.

Therefore, which of these amendments is the best? I am not sure, but “there’s gold in them thar hills”, and we should be mining it.

[Lord Londesborough (CB)]

My Lords, I will briefly speak in support of Amendment 38, in the names of the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, to which I have put my name.

Given the enormity of the Bill, with its intention to raise £25 billion in NICs, and given the current broad-brush, macro impact note that came with it, it is surely incumbent on the Government to carry out sector-by-sector reviews and within six months. In particular, the impact on employment levels and hours worked in each of these sectors needs to be looked at, and there will be huge variations—anecdotally, we are getting evidence that variations are already there.

These reviews would also help the Government in shaping their industrial and sector strategies. I do not agree with the noble Lord, Lord Eatwell, that these studies are, in his words, “econometrically impossible”; yes, they are challenging, but not impossible. With the right will, suitable frameworks can be established for each of these sectors, and it is vital that this analysis is carried out.

[Baroness Kramer (LD)]

My Lords, I will be brief. I have some sympathy for the Minister, because, in providing the impact note—which, as the noble Lord, Lord Londesborough, said, had very thin content and was very high-level in general—he is merely following in Treasury tradition, which the previous Government, when in power, also pursued.

The time has come for us to make a stand and to say that we need detailed impact assessments of policy. As the noble Lord, Lord Londesborough, said, in a Bill as complex as this, and which affects many sectors, the impact note has to be far more granular than the kinds of documents we have received in the past. This is also valuable to the Government themselves, because I greatly fear that, within the Treasury, there is very limited understanding of what the consequences are for a wide range of sectors. This is a start in the right direction, making sure that both Parliament and the relevant government departments are informed and can act properly. We will support this.

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

My Lords, I will briefly address the new clauses proposed by the noble Baronesses, Lady Neville-Rolfe, Lady Noakes and Lady Lawlor, requiring the Government to conduct assessments on the economic and sectoral impacts of this Bill. As we discussed extensively in Committee, the Government have published an assessment of this policy in HMRC’s tax information and impact note. This sets out that around 250,000 employers will see their secondary class 1 NICs liability decrease and around 940,000 will see it increase; around 820,000 employers will see no change. The OBR’s Economic and Fiscal Outlook sets out the expected macroeconomic impact of the changes to employer national insurance contributions on employment, on growth and on inflation. The Government and the OBR have, therefore, already set out the impacts of this policy change. The information provided is in line with other similar tax changes, and the Government do not intend to publish further assessments. The Government will, of course, continue to monitor the impact of these policies in the usual way. As a result, I respectfully ask noble Lords not to press their amendments.

[Baroness Neville-Rolfe (Con)]

I thank the Minister for his reply, but I am sorry that he does not feel able to go further. I am particularly grateful to my noble friends Lady Noakes, Lady Lawlor and Lord Hodgson, and the noble Lord, Lord Londesborough, for their support, and I agree with the noble Baroness, Lady Kramer, that the time has come to take a stand. I do not share the concern of the noble Lord, Lord Eatwell. This is the sort of assessment that we do in the private sector, and in some other departments, and it is possible for the Government to add to the amendment in the other House if they feel they need to do so. We heard earlier from my noble friend Lord Ahmad that the Treasury had failed to consult individual sectors on the proposals under discussion. I know how averse the Treasury can be to that, having been a Minister in a similar position in the Treasury. I also share the fascination of the noble Lord, Lord Davies with the state of the National Insurance Fund, but I think that is for another day.

The Government’s impact assessment has been woefully inadequate for a change on such a huge scale. It is in the interests of the public that we understand fully the impact of the Government’s jobs tax on individual sectors—albeit retrospectively—and the overall figures that we have received from the Minister, which have been helpful in themselves, are just not enough. So I intend to test the opinion of the House on my Amendment 38, but in the meantime I beg leave to withdraw my Amendment 37.

Amendment 37 withdrawn.

Amendment 38

Moved by

[Baroness Neville-Rolfe]

38: After Clause 3, insert the following new Clause—
“Review of effect on certain sectors(1) The Chancellor of the Exchequer must, within six months of the day on which the Act is passed, lay before Parliament a review of the impact of the measures contained in this Act on the persons and sectors in subsection (2). (2) The review must consider the impact on—(a) charities;(b) creative industries;(c) dentists;(d) early years providers;(e) farms;(f) general practitioners;(g) hospices;(h) hospitality;(i) pharmacies;(j) retail;(k) small businesses;(l) social care;(m) universities.”Member’s explanatory statement
This amendment would require a review of the impact of the measures in this Act on certain sectors within six months of the day on which it is passed.

[Baroness Neville-Rolfe (Con)]

I wish to test the opinion of the House.

21:22

Division 8

Ayes: 182

Noes: 144

21:32

Amendment 39

Moved by

[Baroness Noakes]

39: After Clause 3, insert the following new Clause—
“Exemptions(1) The Treasury may by regulations specify that specified categories of person shall be exempt from the changes to secondary Class 1 contributions made by this Act.(2) The categories of person exempted by regulations may be defined by the activities which they carry out, their size, their legal status or in any other way that the Treasury considers appropriate.”

[Baroness Noakes (Con)]

My Lords, we come to an exciting part of this Report stage, having had several debates on this Bill.

The Bill will have significant impacts on: some types of employers; some business sectors and sizes of business; some types of employees; and some types of the provision of public services by bodies which are not themselves in the public sector. More broadly, we have heard that businesses will face the double whammy of the minimum wage increases and the national insurance increases together in just a few weeks’ time, and they are likely to respond by taking actions to reduce their workforce and the hours that their workforce can work and reduce wages where they are not constrained by the national minimum wage. Prices are likely to go up, and profits are likely to go down. All this will have negative impacts on the economy. It is difficult to avoid opening a newspaper nowadays without seeing one or more campaign groups, industry representatives and charity representatives making their case for the harmful impacts of this Bill, but to date the Government have been completely deaf to all these entreaties. All this is bearing down on the economy, which is already flatlining.

I can understand why the Government do not want to make any changes to a centrepiece of their growth-destroying Budget last October. We know there is almost no room left in their fiscal rules for any changes. There are lots of downside risks to the economy, and there are precious few upsides. These are all the results of choices that the Government have made in the last seven months, so I understand why the Minister’s response to every issue presented to him in Committee, and indeed again today, was that the Government reject the cases being made.

My Amendment 39 provides for a very simple power for the Treasury to issue regulations that exempt categories of employer from the national insurance changes that this Bill introduces. There is not even a parliamentary process attached to the regulations. My amendment would therefore allow the Treasury to act quickly, once it faces up to the fact that it really has created some problems. There are no downsides to the Government accepting this amendment, as they need never use it, but it would be a useful backstop if things turn out as badly as many of us believe they will.

It is not often that the Opposition Benches offer an unrestricted power to a Government to do things, but I and others are so alarmed by the potential impacts of this Bill that I think it is the right thing for the Government to take this kind of power in the interests of the country.

We have passed some amendments today that have taken some of the roughest edges off this Bill, and I hope they will survive their passage through the Commons, but this has not made the Bill completely harm free. My sincere hope is that the Government will support this amendment, if not in its current form then in a reworded form to their own taste at Third Reading. I beg to move.

[Lord Altrincham (Con)]

My Lords, I support Amendment 39 in the name of my noble friend Lady Noakes. I thank all noble Lords for their courage and grace in staying all the way through to group 7.

Amendment 39 would give the Treasury the power to exempt sectors that would suffer significantly under the Government’s national insurance rise. The amendment introduces a degree of flexibility that Ministers can use to protect the most vulnerable of British businesses; by allowing the Treasury to introducing specific exemptions when required, we can exempt them from the additional financial burden of the national insurance increase.

I am grateful to my noble friend for bringing forward Amendment 39. It is clear that we share many of the same concerns. The amendment in her name is closely aligned with those in the name of my noble friend Lady Neville-Rolfe that seek to exempt specific sectors, such as the social care or charity sectors. So many sectors need exemption from this policy, and we hope the Government will give the arguments thoughtful consideration.

[Lord Livermore (Lab)]

My Lords, Amendment 39, tabled by the noble Baroness, Lady Noakes, seeks to include powers as part of this Bill to exempt certain groups in future. As I have already set out, the revenues raised from the measures in this Bill play a critical role in repairing the public finances and rebuilding our public services. Clearly, any future changes that exempt certain groups from paying national insurance would have cost implications, necessitating either higher borrowing, lower spending or alternative revenue-raising measures. I would therefore respectfully ask the noble Baroness to withdraw her amendment.

[Baroness Noakes (Con)]

My Lords, I cannot make the Government accept a power that I have generously offered to be made a part of this Bill. I hope the Government do not regret at a later stage turning down this opportunity to allow them to save face in a simple, pain-free way. As I say, I cannot force the Government to accept a perfectly sensible measure that would allow them to repair some of the damage that this Bill will inevitably do. I beg leave to withdraw the amendment.

Amendment 39 withdrawn.

Amendments 40 to 42 not moved.

Amendment 43

Moved by

[Lord Fuller]

43: After Clause 3, insert the following new Clause—
“Impact of this Act on local authoritiesThe Secretary of State must, within six months of the day on which this Act is passed, lay before Parliament an impact assessment of the cost of the provisions of this Act on local authorities.”Member's explanatory statement
This probing amendment seeks to respond to concerns about increased costs for local authorities.

[Lord Fuller (Con)]

My Lords, I rise briefly to speak to Amendment 43 standing in my name on the Marshalled List. I know that it is late, but my purpose here is to probe whether the Government really understand and appreciate the impact, damage and hurt that these national insurance proposals will visit upon councils, those who work with them to deliver essential services and the users of those services—in many cases, the most vulnerable in society.

Since the Great Reform Act 1832, local authorities have been an integral part of our nation. Joseph Chamberlain unleashed the powers of municipal entrepreneurialism in the 1800s to bring gas and clean water to the growing metropolis of Birmingham. Councils sweep the streets. They collect the bins and run parks. They issue planning permissions and curate the conditions to build the national economy one local economy at a time.

I am a councillor and, for the last 14 years, I have led local government finance for Conservative councillors at the Local Government Association. I have seen it all. My noble friend Lord Pickles once said that there are only two people who really understand local government finance. I am not saying that I am one of those experts, but I am one of the small number of people who does more than most to celebrate the 140 things that councils do to make a civil society for every family, every street, every neighbourhood and every day.

That is why I know that councils’ finances in England are under pressure like never before. Reductions in grant funding, increases in the scale and complexity of service demand, and the recent spike in inflation and wage costs have created the perfect storm for town halls. The fundamental challenge facing the sector is that cost and demand pressures are rising faster than funding. While inflation has fallen steadily since the peak, significant cost and demand pressures remain in the system. In essence, council revenues tend to grow linearly with the growth in the economy, but lately costs have grown geometrically. There comes a point where the lines of income and demand diverge so much that the gap becomes unbridgeable.

Some of the reasons for this geometric growth have been demographic: as society ages, demand increases disproportionately. Some of them have been countercyclical: as the economy stutters, demand in respect of homelessness, for example, increases. There have been some consequences of changes elsewhere in the state. Well-meaning changes by the DWP, for example, have driven up councils’ second order spend on home-to-school transport by 62.7% in the five years to 2024. Of course, the Covid hangover has made things worse. We have already reached the moment where the gap between income and expenditure has become unbridgeable, and that is before the impact of national insurance on councils and their tied contractors, which is the subject of my amendment.

This is not a case of a Tory crying wolf. Just last week, the MHCLG announced that in the financial year 2025-26—next year—the Government have agreed to provide 30 councils with support to manage financial pressures via the exceptional financial support process. For eight of those councils, this included agreement to support in prior years. These are just the canaries in the mine. In aggregate, three services are responsible for two-thirds of all the cost—adult social care, children’s social care and SEND—and these pressures have seen the greatest increases.

Let us get some numbers on the record. Increased costs and demand in adult social care have seen a rise of £3.7 billion, which is 18% since 2019-20. Spend on children’s social care increased by 25% in real terms in the five years from 2019 to this year, owing to the increasing complexity of need and rising placement costs. The Labour-run LGA tells me that, by 2026-27, these cumulative pressures will have added 12.5% to the cost of delivering services in the two years since last year, leaving councils facing an annual funding gap of £6.2 billion across the two years from 2025 to 2027, just to maintain services at 2024 levels.

These pressures come on top of councils having already absorbed a 22.2% real-terms reduction in core spending power from 2011. That is before Labour produced its reckless war on the countryside by cancelling the rural services grant. This cannot carry on. There is no more fat to trim, and I want to explain why this is so serious and consequential, because we get to the nub of the matter.

21:45

The additional burden of national insurance on councils’ own payroll is estimated to be £628 million for directly employed staff, but indirect national insurance through commission providers will cost the councils an extra £1.13 billion next year. Taking the £1.13 billion and the £628 million, we see a total financial impact of the national insurance increases on councils and their tied contractors of £1.758 billion. Having given warm words and soft soap that the cost of NIC on local authorities would be compensated for, as they might be with the health service, the reality is that there is just a one-off £515 million allocated to the sector. Let us do the arithmetic. The extra costs and the Government’s grant have left councils with a £1.243 billion national insurance hole before all the other pressures that I have measured have been taken into account. The effect on the tied contractors is important to understand, because those outside contractors put their shoulder to the wheel: they work exclusively for councils, they are an extension of the council’s workforce, and they are on the team, but they cannot afford to take this one for the team.

I notice that he is not in his place, but it is time that the noble Lord, Lord Eatwell, appreciates the magnitude of the damage visited on councils by his party. The OBR and the MHCLG tell us that council tax raises about £40 billion a year, and that excludes parish precepts. We know councils have just put up council tax by between 3% and 5%. Whether it is 3% or 5%, the bold arithmetic is that the clear majority of last week’s council tax rises, which will kick in in April, will be passported straight to the Treasury through the national insurance tax. The vast minority of the extra money raised by council tax will not even stick to the sides and benefit local people in any measure. It means that most of the extra tax paid by council tax payers next year will not even benefit the local taxpayers themselves.

What this means, of course, is that, taken together with the other cost pressures, this is dangerously squeezing out all the other activities that should be the core purpose of a council—the sort of council that Chamberlain would recognise—such as planning for growth, keeping the streets clean and teaching kids to swim in the local baths. The council is perpetrating a deceit on the council tax payer. Next year’s council tax rises, for the most part, are not financing local services: most of that money is being passported straight to the Treasury. I really think that the noble Lord, Lord Eatwell, who tried to stifle debate earlier this evening, should be here in his place to hear that simple truth.

Put simply, this wholly new, unexpected NIC pressure fails to provide councils with the security of funding they need to reliably and effectively deliver for all their communities. Potentially worse, all this is aggravated because the £515 million that has been allocated as some sort of sop to compensate in small measure councils is for only one year, and none of it is guaranteed in any event after the comprehensive spending review, which could be another insult to injury.

I am conscious of the time, but it is a fantasy to think that local government reorganisation is the solution. Creating huge, remote strategic authorities to replace the local friendly districts will aggravate this funding situation even more. The work of districts still has to be done, but substituting that most efficient part of local government with mayoralties will not result in a reduction in layers of bureaucracy; there will still be three layers, but just bigger and more remote.

I have a warning about the profligacy of the new, larger, more remote tier of governance. My noble friend Lord Kempsell reports on his blog that the Greater Manchester Combined Authority

“has forked out a staggering £472,500 contract to fund its ‘Equality Panels’ … to … ‘advise, support and challenge’ Greater Manchester’s political leaders on matters that cause ‘injustice and inequality’. A further £52,500 has gone to a Faith and Belief Advisory Panel, and £54,000 to the Greater Manchester Youth Combined Authority”.

In total, that is nearly £600,000—money that would keep my district council going for nearly a month.

In fact, half the new unitaries established just three years ago, ostensibly to save the hard-pressed council tax payer in Cumberland and Somerset, are two of the 30 authorities now receiving exceptional financial support. Council finances are under stress, but the national insurance rises, coupled with local government reorganisation, will, if anything, cost council tax payers even more.

My amendment seeks for the Government to report on the effects of all this and, by extension, to open a conversation about compensating for the actual costs of the change. My amendment would have the effect that the doorstep services that residents value the most in cities, market towns, new towns, the countryside, coastal communities and cathedral cities can be protected.

I ask the Minister—I asked him before and he somewhat dismissively dissembled, but the issues are now even more stark—whether he accepts that the LGA’s updated figures are substantially correct when the direct and indirect costs of tied employment on NIC are taken into account. Does he recognise the £1.243 billion shortfall? Last time, he said that he did not really want to understand those figures and that he believed only figures calculated by the Treasury—the same people who told him that only a few hundred people would be affected by IHT.

I ask the Minister why local government is being treated differently from national government, when assurances were given at the outset that there would be equal treatment of the two. What assessment has been made on the most vulnerable? What commitment has been made to the comprehensive spending review? Can he tell us, clearly, how allowing councils to borrow against the additional costs of financing this national insurance rise helps meet the Chancellor’s golden rules?

My amendment is classified as a probing amendment, but it is no less serious for it. Labour has, quite simply, lost control of the handfuls of money that councils rely on to deliver their services, and this national insurance rise will push them to the edge. Labour cannot blame the Tories. This is a crisis devised in Downing Street, delivered by Marsham Street, but felt in every high street. I beg to move.

[Lord Altrincham (Con)]

My Lords, I support my noble friend and thank him for his brief-ish words on local taxpayers and his update on the Great Reform Bill as well. I thank him for his amendment to ensure that the Government initiate a review into the impact of this tax on local authority finances.

As countless noble Lords have remarked, both in Committee and during this debate, local authorities already find themselves in a perilous financial position. As my noble friend Lord Jamieson said in Grand Committee, local government currently spends more than 70% of its funding on adult and children’s social care. The Local Government Association has estimated that this measure will cost local authorities a total of £1.7 billion. Some £1.2 billion of that is indirect costs. While the Government may have offset the direct costs of local authorities, they have not done so for the indirect costs they will face. They will have either to cut public services or to put up council tax.

Given this, a review of the impact on local authorities is surely the minimum we can expect from the Government. I urge the Minister to accept this amendment.

[Lord Livermore (Lab)]

My Lords, I will speak briefly to Amendment 43 tabled by the noble Lord, Lord Fuller, which would require the Government to publish an impact assessment of the Bill on local authorities within six months of its introduction. The noble Lord set out eloquently the damage the previous Government did over 14 years to public services and to the funding available to local government. He asked me the same questions as he did in Committee, and I give him the same answer as I did then: it is not for me to comment on the calculations made by other organisations.

On impact, as I have set out previously this evening and extensively in Committee, the Government have already published an assessment of this policy and a tax information and impact note. The OBR’s Economic and Fiscal Outlook also sets out the expected macroeconomic impact of the changes to employer national insurance contributions on employment, growth and inflation. The Government and the OBR have therefore already set out the impacts of this policy change. The information provided is in line with other tax changes, and the Government do not intend to publish further assessments.

The Government will of course continue to monitor the impact of these policies in the usual way. I therefore respectfully ask the noble Lord to withdraw his amendment.

[Lord Fuller (Con)]

My Lords, I am conscious that it is late, and I do not sense any appetite to divide the House on this matter. I regret that the Government do not really appreciate the magnitude of what they are visiting on local authorities and, in particular, on those people, some of the most vulnerable in society, who rely on the council to fight for them and act in their corner. We are in a really sticky situation in local government, and I am not hearing any reassurance or even any acceptance that they are making a £6 billion hole over the next two years that is going to be visited on every town, street and community.

I am disappointed by the brevity and lack of detail in the Minister’s response. But I accept that it is late at night and am conscious of the time, so I will withdraw my amendment with regret and hope that at some stage the Government will at least take away the importance of this matter so that it is taken full account of in the comprehensive spending review. Councils cannot afford to carry this alone.

Amendment 43 withdrawn.