Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
My Lords, if there is a Division in the Chamber while we are sitting, I will let the Committee know and we will adjourn for 10 minutes. We are anticipating a Division at around 5 pm.
National Insurance Contributions (Employer Pensions Contributions) Bill
(1 day, 4 hours ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Neville-Rolfe
Member’s explanatory statement
This amendment would exempt basic rate taxpayers in England, Wales and Scotland from the £2,000 cap.
Baroness Neville-Rolfe (Con)
My Lords, I am delighted to open proceedings with my noble friend Lord Altrincham on our first day in Committee and to be joined in this group by my noble friend Lord Leigh and the noble Baroness, Lady Altmann.
This is not a Bill we welcome. Contributors to research done by HMRC published last year were critical of all the hypothetical scenarios put forward by the Government, including the £2,000 cap, which I believe was seen as the most complicated option presented. This proposal will add to administrative burdens on business, as will become clear when we debate later amendments, especially where people have multiple jobs, start or change employment or vary what they do seasonally.
We are also greatly concerned that it will limit incentives to save, punish normal working people for making prudent and sensible decisions, and reduce pension adequacy. Pensions adequacy is one of the central long-term economic challenges facing this country and, under this Government, it is only set to get far worse. Today we are looking at another small nail in the coffin of such adequacy. Of course, the proposal was not in the Labour manifesto, which I think promised not to raise taxes on working people.
The research by HMRC has shown that employers were seriously concerned that
“changing the pension system could inevitably cause confusion and risk people becoming more disengaged with pensions”.
Against this unsatisfactory background, Amendments 1 and 14 make a simple but very important clarification, which is to exempt basic rate taxpayers from the £2,000 cap. According to the Society of Pension Professionals, one-quarter of the people who enjoy salary sacrifice, and who will be hit by the changes that this Bill will bring in, are basic rate taxpayers. Around 850,000 basic rate taxpayers will be affected by the cap, with possibly greater numbers joining them, as the cap is not indexed. The Minister might dispute those specific numbers, but even he conceded at Second Reading that people earning under £30,000 would be affected by this change.
Not only does this contrast starkly with the Government’s stated ambition, as set out in the Explanatory Notes and by the Minister at Second Reading, to affect only higher earners; it also disproportionately affects lower-paid workers. Salary sacrifice, as we know, allows an employee to give up a portion of their pay so that it is paid directly into their pension. That does not just attract income tax relief, as all pension contributions do; it also enables national insurance contributions to be saved on the amount transferred. So it is the contribution that working people pay every month that lies at the heart of this issue. Higher rate taxpayers continue to benefit from relief related to their tax rate of 40%. Basic rate taxpayers benefit less, since their tax rate is only 20%. We are talking, on Treasury estimates, about 850,000 basic rate taxpayers.
For a basic rate taxpayer, the 8% national insurance loss amounts to two-fifths of the value of their income tax relief. In absolute terms, the marginal cost of this policy is four times higher for lower-paid workers than for those on higher incomes. The problem goes further: this is a harsher blow to certain groups of savers than many had anticipated, particularly those repaying student loans. That is why I very much support Amendment 3 in the name of my noble friend Lord Leigh, which would prevent those repaying student loans from being hit by a double whammy. I will leave it to him to explain the detail.
Graduates begin repaying their loans once earnings exceed £28,745, at a rate of 9% if they are on the plan 2 scheme. If the Bill is unamended, graduates using salary sacrifice will no longer see that 9% effectively redirected into their pension via salary sacrifice once they exceed the £2,000 cap. For those individuals, the effective loss is not just 8% in national insurance but 17% at the margin.
This comes at a time when the newspapers are full of furious comment about the high interest rates—inflation plus a huge 3%—payable on plan 2 loans. The announcement over the weekend by Kemi Badenoch to support a cut in the rate of interest charged on some student loans issued in the decade up to 2023 is therefore most welcome and is a clear step toward addressing this problem, which the Government, distressingly, seem content to live with.
The interaction between that major issue of public concern today and this Bill on salary sacrifice comes through clearly in a comment from the director of the Chartered Institute of Taxation. She said:
“The change will disproportionately affect basic rate taxpayers because they will pay at 8% NIC on contributions over the £2,000 cap, compared with a 2% charge on higher earners. It will also disproportionately impact those with student loans who earn above the repayment threshold, as they will have incurred an extra 9% student loan deduction from their pay”.
At a time when we are urging people to do the right thing—to save, to plan ahead and to take responsibility for their retirement—the Government are choosing to hit lower-paid workers harder. That is the unavoidable consequence of how this policy operates in practice.
Worse still, it falls most heavily on a younger generation who already face higher housing costs, who paid for their university education and who now find work taxed more heavily under this Government’s jobs tax—last year’s £25 billion NICs changes, which we discussed in this Room and which we rightly warned would devastate youth employment. Because that prediction has proved accurate, especially for young people, the Government would be wise to listen to the concerns aired today and outside and make changes to this Bill. It is ironic in a way that we are considering this at the same time as the Pension Schemes Bill, which is designed to improve pension saving and the incentive to save. We are doing the opposite here: making pension saving harder, less attractive and less fair.
Our amendments provide a simple solution for the Minister. By exempting basic rate taxpayers from coming under the cap, we would ensure that the Government’s stated aim is achieved and that we modify what is in effect a regressive tax. Our amendment offers a simple, targeted means of mitigating the harm that this policy will cause to some of the more financially vulnerable people in our society and I urge the Minister to accept it. If he cannot, he should explain to the Committee why his Government are choosing to disincentivise people from taking responsibility for their own future at precisely the moment when state pensions are under significant strain, which is set to intensify in the years ahead. Lower savings today means lower retirement income tomorrow and greater reliance on the state for future needs.
I turn to my Amendments 2 and 15, which ask the Minister a very simple question. What precisely does the Treasury mean by a “higher earner”? Throughout the passage of this Bill, the Government have repeatedly justified this policy on the basis that it is targeted at higher earners. At Second Reading, the noble Lord, Lord Livermore, described the reforms as “fair and balanced” and said that they,
“protect lower and middle earners”.—[Official Report, 4/2/26; col. 1684.]
Similarly, the Explanatory Notes state plainly that the Bill
“limits the NICs relief available to higher earners”.
Those are the Government’s words, but nowhere in the Bill, in the Explanatory Notes or in the Minister’s speech is the term “higher earner” actually defined.
That is a serious matter, because the practical effect of this policy suggests that it reaches well beyond any intuitive understanding of what a “higher earner” might be. The Minister has already acknowledged that individuals earning £30,000 and below will be affected. Industry experts have warned that those earning between £30,000 and £60,000 are likely to feel the impact most acutely. Median earnings in the UK are around £37,000 and, in London, they are £10,000 greater. Given this, who are these “higher earners” to whom the Treasury refers?
Since the election, we have heard a succession of phrases from the Treasury: working people, ordinary earners, higher earners. The language shifts, but what has remained constant is the refusal to define these terms. When this House considered the national insurance Bill last year, we warned that the burden would ultimately fall on working people. That proved correct; and the same risk arises here that rhetoric about protecting lower and middle earners does not align with the actual distributional impact of the policy, and the Government are allowed to get away with it because they never set the goalposts in the first place. If the Government’s objective is generally to protect those on lower and middle incomes, that objective must be capable of scrutiny. Scrutiny requires definition. Without definition, we cannot assess whether the Government are meeting their own stated aims. That seems a basic requirement of transparency in fiscal policy-making. I look forward to the debate, and I beg to move.
Lord Leigh of Hurley (Con)
My Lords, I shall congratulate my noble friends Lady Neville-Rolfe and Lord Altrincham and the noble Baroness, Lady Altmann, on Amendments 1 and 2, then I will speak to my Amendments 3 and 16.
This Bill has a number of disadvantages to the economy and society, as it penalises pension saving and retirement security while, of course, leading to higher costs and a higher administrative burden for employers. It may also lead to some employers reducing pension generosity or even scrapping salary sacrifice schemes altogether, so it may well discourage and disincentivise good behaviour. One has to question whether the limited expected tax yield justifies the cost, particularly as we know that behavioural response will reduce the amount of tax generated, and it simply is not fair for many people, disproportionately affecting certain groups such as savers and lower-income earners.
However, the Government cannot argue that it was in their manifesto, because it was not. In fact, it was the reverse—the manifesto pledged no increases in tax, including national insurance. We can argue that it is important that we have a very good look at certain aspects of this Bill and try to point out its shortcomings, together with making some constructive and, I hope, helpful amendments. After all, it looks like some 44% of employees using salary sacrifice for pensions will be impacted by this measure. It is important that we look at the Bill in detail, as the Society of Pension Professionals—SPP—has warned the Government that planned restrictions to salary sacrifice could reduce retirement saving and increase costs for hundreds of thousands of employers and millions of workers. The SPP has warned that the changes are likely to reduce pension savings at a time when government figures already show that 15 million people are not saving enough for adequate retirement; that rises to 25 million if the state pension triple lock is removed.
The Reward and Employee Benefits Association has warned that this Bill will put strain on businesses and push millions of people into poorer retirement. In a survey it undertook, an overwhelming 99% of businesses said the organisation would be affected by the cap and 70% said this Bill would increase the administrative burden. Furthermore, a third of businesses expect the change will make it difficult for them to attract and retain talent. It has been described as a change from sleepwalking into a retirement crisis into speedwalking into one.
I appreciate that all I have said is somewhat of a preamble, but it needs to be said, and it will be said by me only once, although it applies to all the amendments we will discuss today and possibly on Thursday—although I gather the plan now is to curtail debate today if at all practical. Is the noble Lord waving at me? Does he not know either? Fair enough. I always pay attention to Government Whips waving at me.
I turn to Amendments 3 and 16—parallel amendments because of Northern Ireland—in my name and that of the noble Baroness, Lady Altmann. They deal with the complications this Bill brings in respect of student loans. I appreciate this is a little technical and complicated and may not be best resolved by debate in this Committee so much as by discussion between all relevant parties before Report. I thank my noble friend Lady Neville-Rolfe for setting me up to explain it all. I will do my best but, as I say, this may be a difficult format in which so to do.
Lord Mackinlay of Richborough (Con)
My Lords, let me make my declaration. I am a chartered accountant and chartered tax adviser, so such legislation is the thing I live for on a daily basis.
My noble friend Lady Neville-Rolfe has laid out the ambitions of pensions. Unfortunately, in the first 18 months of this new Government, pensions are seemingly no longer protected as something desirable—that is, something we wish on our population so that they can build for the future and have a good, well-funded retirement.
Let us consider what this new Government have already done. One of their first moves in their first Budget in 2024 was to lay out the framework for bringing private pensions into the net of inheritance tax. As an adviser, I have to say that, when my previous Government introduced a measure to take personal pensions out of IHT, it was a very generous measure, but it has, I think, proved its worth. I was somewhat sceptical— I am one of those people who likes a low tax regime—but having IHT-free pensions was always quite a generous measure. Over time, it has shown itself to be a very good measure, because people are contributing towards pension funds in a way they may not have been encouraged to do. That has to be to the good.
I am sure that I do not need to tell this Committee about a lot of the planning behind pensions and why people do it. The reason outlined by my noble friend Lady Neville-Rolfe for exempting lower rate taxpayers from this regime is a good one. I say this as a practitioner: if the thought is that this is some loophole that is massively exploited by the great body of UK taxpayers, that has never been my experience, I am afraid. I do not see levels of salary sacrifice that would be sufficient to have even put this on the radar in the first place, frankly.
Why do basic rate taxpayers pay into pensions? I am afraid that not enough do. Thankfully, the implementation of auto-enrolment under our last Government will, I think, bear fruit as one of the most positive footprints that we left. We will, in time, have hundreds of billions of pounds put aside in good funds. Nest has been a great success, offering a variety of funds that taxpayers can choose, from lower risk to higher risk, and there is even a sharia fund, which was news to me. No matter what, the whole spectrum of the UK taxpaying base in auto-enrolment will be building up a fund for the future. During our time in government, we thought pensions were a good; they will restrict the number of people who may be looking for or needing pension credit in the future, because they have built up a decent amount for themselves.
For the 40% taxpayer, of course, putting aside for a pension is almost a no-brainer, because the tax saving is a good in itself, even if one is putting into a slightly riskier equity-based fund. Because you protected it through a good amount of tax relief, the downside still makes taking a bit of a risk worth while. Again, over time, risk usually means a potentially higher return. For those stuck over that £100,000 to £125,140—whatever it is—threshold for the 60% rate, one does not really need to be a rocket scientist to know that using pension planning to try to get back below £100,000 is a good deal. Beyond that, at 45%, pension planning is a very good way to go. For the higher rate taxpayer, it is so obvious to do that type of pension planning. That follows some of my noble friend Lady Neville-Rolfe’s thinking that the higher rate taxpayer does not particularly need that additional help, even though I am never one to say that more taxes should be paid.
For the basic rate taxpayer, however, we need to encourage as much as we can. There is not much encouragement from the 20% relief; that is not very dynamic or exciting. Dare I say that if one stays a basic rate taxpayer, the risk of inheritance tax will potentially not fall on that type of family, given that you have two £325,000 thresholds and the relief for domestic property, potentially allowing £1 million for a couple? It is a broad-brush but perhaps reasonable guess that, if one stays a basic rate taxpayer throughout life, the £1 million threshold will probably be exempt from inheritance tax. It is exactly those people who need the help and support.
What we see with this legislation is not any grand plan for pension planning; there is a grand plan to take a little more money from a lot of taxpayers for the benefit of the Treasury. In so doing, I am afraid that this Government are in serious danger of destroying those really good foundations that we laid—with the support of the Labour Party at the time, broadly—in personal planning, particularly in auto-enrolment, and all that good work done over many years.
In support of my noble friend Lord Leigh of Hurley’s very clever observation, which had escaped me, about the recognition of income for the purpose of calculating income for the student loan, it may be that the Financial Secretary to the Treasury’s interpretation is that there is nothing to worry about and this is already covered and will never be pursued. If that is the case, a statement from the Floor today would be helpful in that regard. Even if there is some ambiguity, which I have no doubt that there is between this multitude of regulations —for national insurance, student loan and taxation purposes—I see no reason why the Government would not adopt this amendment as very sensible. I thank my noble friend for pointing out something that the drafters had perhaps not seen in the first place.
I will be speaking, no doubt, at regular points during the day, but these are my initial observations. The Government should be very careful: they are destroying a very good bedrock, which we created, of pensions that were to benefit many millions of people across this country. This is a small tax-raiser too far, which will bear dreadful fruit into the future.
Lord Londesborough (CB)
My Lords, I support all the amendments in the first group but will restrict my comments to Amendment 1 in the name of the noble Baroness, Lady Neville-Rolfe. This concerns the £2,000 cap in Clause 1, which unfortunately hits a crucial cohort of workers: those going through the gears, where their earnings are moving up from around £25,000 per annum to £50,000. There is a disproportionate impact on the younger end of the workforce—those getting promotions and taking on added responsibilities —whom we as a nation need to encourage to increase their pension contributions, given our rapidly ageing population. This cohort’s life expectancy may be nearer 90, if current trends continue.
There is also a disproportionate impact on our SMEs, which I will address in more detail later. Given the high preponderance of basic rate taxpayers in their workforces, the Bill will, as it stands, make growth, recruitment and retention of staff that much harder, at a time when they are still absorbing the £25 billion hike in employers’ national insurance contributions.
My final point at this stage is on bonus payments, specifically bonus sacrifice arrangements, which are a particular target of the Bill. This really is not smart economic policy, given our need for a performance-driven workforce, where bonuses on merit play a critical role in improving productivity, especially in the private sector. Frankly, they should also feature more, not less, in the public sector.
Lord Ashcombe (Con)
My Lords, clearly there remains a tension within government between the Department for Work and Pensions and the Treasury. As we heard at Second Reading, the DWP is focused on encouraging people to save more for their retirement, yet the Treasury continues to pursue measures to fill its coffers, while increasing the burden on both employees and employers yet again.
The Minister spoke of protecting ordinary workers yet, in many cases, the Bill does the opposite. It penalises individuals who are trying to act responsibly, and prepare for a secure and dignified retirement, by removing the very tool—national insurance relief—that was put in place to assist saving for a pension. With the average salary, as we have heard, being around £37,500, anyone on that income who sacrifices more than £2,000 into their pension will face an additional national insurance charge of 8% above that £2,000. That will be a penalty and the reality for all basic taxpayers.
It is difficult to imagine that the DWP can view this outcome with enthusiasm. Once again, the Treasury appears to be prioritising short-term revenue over long-term stability, leaving future Governments to address the financial consequences created today. It is precisely these workers—those on modest incomes who are doing the right thing by saving—who need the most support in building their pensions, rather than being pushed towards greater reliance on the state in the future.
For that reason, I strongly support, and I believe the DWP would agree—I have not spoken to the department —Amendments 1 and 14 in the names of my noble friends Lady Neville-Rolfe and Lord Altrincham, and the noble Baroness, Lady Altmann. Briefly, I also support my noble friends in their Amendments 2 and 15, having heard the arguments this afternoon concerning the definition of higher earners. It is simplicity to me that transparency is essential, as opposed to opacity, which can lead only to confusion. Therefore, I believe that this issue should be tied down.
Finally, I would also like to offer my support to Amendments 3 and 16 in the names of my noble friend Lord Leigh of Hurley and the noble Baroness, Lady Altmann. Many graduates, including my two sons, already shoulder a significant and in many cases unnecessary burden in repaying their student loans at interest rates that feel wholly disproportionate. It is not until they are paid about £66,000 that they start to pay down the interest. There are few graduates—probably even fewer in the current hiring climate—who reach this sort of pay quickly. I suspect it takes at least five years —that is the case for one of my sons on the fast track in the Civil Service—and much longer for the majority.
Baroness Coffey (Con)
My Lords, I somewhat understand where the Government are coming from in trying to get rid of salary sacrifice entirely—by the way, it is still available for employees of the House of Commons or the House of Lords for the on-site nursery. One thing that the Government seem to have missed out is that they have not provided a lot of information on how they have reached the figure of £2,000. It feels as if they are looking for £4 billion or £5 billion to pay for things such as getting rid of the two-child limit on universal credit—not child benefit; every child gets child benefit. It feels like a short-term measure, as one of my noble friends has just pointed out, to hit certain policy objectives before the next general election. The challenge here is the long-term consequences of where people are putting into their pensions today. The other thing the Government do not seem to have considered is that it is not usually employees who decide the percentage that they are required to contribute to the salary sacrifice scheme. That is normally decided by the employer.
More generally, we are starting to see this awful approach of people on rather modest earnings reducing the amount of money they put into a pension for the future, with all the knock-on costs that other noble Lords have pointed to, but I would go further. How much money is paid towards housing costs and similar is increasing at a significant rate, so it becomes this odd sort of choice where people are trying to do the right thing. Admittedly, this may currently benefit lots of people. That is why Amendment 1 is so important, instead of “How can I take from Peter to pay Paul?” We know the other significant cost of pension tax relief is to make sure that we do not have doctors and consultants reducing their number of hours. So those sorts of policy changes have already been made, and this Government decided not to do that, even though it applies to bankers and all the other people who earn significant amounts of money.
Before Report, I think it is worth the Government setting out in more detail where they got their figures from and why they have ended up at this point instead of just, fairly glibly, saying this will not affect earners. We need more detail. The information put forward by HMRC is basically an insult to everybody reading it by trying to suggest that somehow it gives us a proper tax impact and information notice. It really does not. If we approached this in a more evidence-based way, there would start to be more support and understanding of what the Government are trying to achieve. The Government are trying to find some more money, but at the moment it feels as if they are hitting younger people, people still at certain parts of their career who are already stretched, and this is the way that they are able to make a contribution to their future. As has already been pointed out, it may not be so good for higher rate—and that is okay; people make policy choices when they vote for parties, although, as my noble friend Lord Leight of Hurley pointed out, this was not in the manifesto. I would be grateful to the Minister if he could commit to a more detailed assessment to share with the Committee before we return to this on Report.
Lord Davies of Brixton (Lab)
I support the Bill. It is an eminently reasonable approach to the difficult financial situation in which we found ourselves when the Labour Government took office. No one likes increases in taxation—it is easy to say “No, no, no”—but given the outcome of the election, some increase in taxation was required.
I listened to the debate with interest, including the points raised on student loans in relation to Amendments 3 and 16. I do not understand it, but I hope that my noble friend the Minister does and that he can give a satisfactory response.
I am a bit concerned when people talk about the Bill “penalising” people. Taking away an advantage struggles to be a penalty. The idea of salary sacrifice makes no sense; it is regulatory arbitrage and a sort of kludge that has no real justification. It is also unnecessary. The idea that the pension system will suffer greatly from the removal of this particular tax relief is fanciful. Some people regard the golden age of pensions as having been 10, 20 or 30 years ago; virtually no one then had salary sacrifice and yet schemes boomed and people saved for retirement. We cannot sustain an argument that providing an adequate pension for most people requires this form of salary sacrifice, particularly when £2,000 is being allowed.
As I said at Second Reading, I disagree with the idea that this is, in some way, a mortal blow to pensions— I may exaggerate slightly, but there was continual suggestion that this was a severe blow to people’s attempt to provide themselves with a decent pension. It is interesting that people who are arguing to keep this salary sacrifice are those who, at the same time, oppose the triple lock, and yet the triple lock is doing far more than this would do for people on low incomes to secure an adequate income in the future, so I do not accept that argument about impact.
The important issue is that this bit of tax relief on pensions should be seen in the context of the overall tax relief on pensions. What is the right level overall of providing relief through the tax system for pension provision? We all know it is substantial; it is enormous. If you count all the different forms it could take, it comes to about £90 billion. When the scheme has matured, this will take away £2.5 billion. That is why I said at Second Reading that it is marginal; it is not crucial for the future of pensions.
The issue of tax relief on pensions is controversial. Think tanks love a report on tax relief on pensions. None of them is proposing an increase in tax relief on pensions, yet this is the way that we are heading. The Government’s figures—which no one has disputed—suggests that more and more people will seek more and more salary sacrifice to get more and more tax relief on pensions. Yet when the think tanks look at these issues, they say, “Well, no, it should be targeted towards the lower paid”. If anyone thinks that this will cause problems—I am looking at the noble Baroness, Lady Kramer; I think the Liberal Democrats have supported, or toyed with, the idea of having a flat-rate tax relief on pensions—I suggest that moving to a flat-rate tax relief on pension contributions will cause an absolute nightmare.
There is one point here that I accept. My noble friend the Minister can take it as a helpful suggestion rather than a criticism, but the use of the term “higher earner” could have been judged better. Noble Lords will be pleased to know that I have a spreadsheet, which calculates the impact that people suggest this measure is going to have. Of course, the 2% and 8% feature means that there is a kink in the line of the relief that you get from salary sacrifice because, up to a certain level, you pay 8% contributions through national insurance and you are getting the relief at 8%. Then, after that, it is 2%. It is not that the Government are seeking out people to charge more money; it is the structure of the system.
Let us look at the figures. I sometimes have problems in these debates when other speakers quote figures because it is difficult to understand them without seeing them in writing with some explanation. I think that, in general, there should be a ban on quoting figures in these sorts of debate. However, I am going to quote some figures. The median level of contributions to a pension scheme is 5%—that is, between 4% and 6%—on median earnings below £40,000. Now let us take the higher figures: someone paying employee contributions of 6% with earnings of £40,000. They are using salaries in full on their contributions. For them, the change will be an extra £32 a year. Those are the figures we are talking about for those on median earnings and those on median contributions.
As has been mentioned, bonus sacrifice is clearly a separate issue. This is where the legislation is required. It is being exploited in these circumstances. The bonus should be enough. The bonus is of great value. Some people in the City get vast bonuses. The idea of using that money to exploit this illogical tax relief through salary sacrifice is abhorrent.
I support the legislation. The term “higher earnings” could have been handled better but the whole issue—people on median earnings paying very little more and complicating the system in order to remove basic rate taxpayers; perhaps my noble friend the Minister can tell us about the impact it would have on income—has been over-egged; that was, I think, the phrase I used before. This is an eminently reasonable measure to address the country’s financial problems.
Lord Fuller (Con)
My Lords, the noble Lord said that he cannot see the sense in this. Why do we have this incentive in the tax system? The answer is that it is the role of government to incentivise good behaviours, which include saving for your retirement, trying to climb the ladder and trying to do better for yourself, not least because, in so doing, you reduce your reliance on the state in later life. That is the sense of the salary sacrifice process.
This Government have perpetrated a series of attacks on youngsters at the start of their careers, graduates and people making a start in their working lives. The Renters’ Rights Act has driven up rents. The Employment Rights Act has made it harder for businesses to take a chance on somebody who may be unqualified or changing role. The Government are putting youngsters into unemployment with the jobs tax. Now this slim Bill will add many more cases—I am going to list them in a minute—of intergenerational unfairness. Let nobody say that Labour is on the side of the youngsters who want to get on.
Baroness Kramer (LD)
My Lords, I made my views on this Bill fairly clear at Second Reading, so I am going to try to observe the discipline of not repeating my Second Reading speech. I am sure that I will not be absolutely 100% on that, but I am going to try.
I want to look first at this group of amendments. Amendments 1, 2, 14 and 15 put forward by the noble Baroness, Lady Neville-Rolfe, are particularly relevant because I do not think that at Second Reading we came away with a clear understanding that basic rate taxpayers were going to be significantly caught by the changes in this Bill. The focus on higher earners— I agree very much that we need “higher earners” to be properly defined—leaves us with a mistaken impression. I hope very much that the Government will provide some degree of clarity—the noble Baroness, Lady Coffey, called for the evidence—on who is impacted and how they are impacted. We ought to have that information in front of us. I will be troubled if this captures people on basic rate tax, given the pressures that they already face.
I would like to focus much more strongly on Amendments 3 and 16, because I do not think that at any point at Second Reading we addressed the impact on graduates repaying student loans and the impact on their take-home pay. I want to thank a gentleman called Tim Camfield who did some calculations and forwarded them to me because, as I worked through his calculations, it seemed to me that he had to be right. He wrote in the context of reading a response from the OBR to what I understand was an FOI in which it said that it did not believe that the Bill had any impact on student loans. It seems to me that very evidently it does and we need to know that. If the Government do not intend it and are going to have a workaround that will prevent it, then frankly we need to know that as well.
We all know that students have been under extraordinary pressure and that the Government openly have frozen the starting repayment threshold, but this, in effect, if Tim Camfield and others are right, would be a backdoor, further blow to this group. Whenever people say “student loans” and you are a Liberal Democrat, it is important to say—and I do not want to give a speech on our new policy—that my party recognises its role in creating the student loan repayment scheme. But frankly, the scheme is so changed, and graduates are under such pressure, that we now recognise that it is broken. I will not go through our policies—they are extensive—to completely reform that system.
I look now to the Minister to give us some real clarity, both on who is impacted and how extensively—how a normal person might read that as being an ordinary worker on a relatively modest income, rather than just a higher earner—and on the issue of student loans. I have some information on the distributional analysis that I will use in group 3 but, on the principle of trying not to repeat myself constantly, I will wait until then.
Lord Leigh of Hurley (Con)
My Lords, prompted as I am by my noble friend Lord Mackinlay, may I just take a moment to remind the Committee that I am a member by qualification of the Chartered Institute of Taxation and have received very helpful briefings from it?
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, it is a great pleasure to respond to the debate on this first group of amendments. I thank all noble Lords who have contributed.
This first set of amendments, in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, seeks to exempt basic rate taxpayers from the Bill. I have listened closely to the points raised and the concerns expressed during this debate. The Government have ensured that the measures in the Bill do not affect the majority of basic rate taxpayers. Around 74% of basic rate taxpayers currently using salary sacrifice will be protected by the £2,000 cap, and almost all—95%—of those earning £30,000 or less will be protected. The small number of basic rate taxpayers with contributions above £2,000 will continue to benefit from employee national insurance relief, worth £160 a year, in addition to the full income tax relief that they receive on their pension contributions. Of the small number basic rate taxpayers who are impacted, half will face an annual additional national insurance contributions liability of less than £50.
While we recognise the intention behind the amendments laid by the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, exempting basic rate taxpayers would, in practice, be operationally challenging and add significant further complexity to the tax system. That is because the tax system can confirm which band an individual is in only at the end of a tax year, when reconciliation of their income tax liabilities has taken place. Adding complexity to the system would also likely lead to an increase in costs for employers, as they would be required to bear the burden of identifying the full extent of their employees’ potentially multiple sources of income.
This leads me to the amendments in the names of the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, which seek clarity on the basis on which the Government consider certain employed earners to be “higher earners” for the purposes of the national insurance charge, as well as how the contributions limit reflects that assessment. The Explanatory Notes set out that the policy rationale is to limit
“the NICs relief available to higher earners on employer pension contributions made through salary sacrifice arrangements whilst protecting lower earning pension savers by introducing a £2,000 threshold. Most employees and their employers who make typical pensions contributions via salary sacrifice will be unaffected”.
This is indeed the effect of the Bill. Some 87% of pension contributions made via salary sacrifice above £2,000 are forecast to come from higher and additional rate taxpayers. Some 74% of basic rate taxpayers using salary sacrifice will be protected by the £2,000 cap, and almost all—95%—of those earning £30,000 or less will be protected.
Let me turn lastly to the amendments in this grouping tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baroness, Lady Altmann. They seek to exempt salary sacrificed pension contributions over the limit from being included in student loan repayments definitions to employees making student loan repayments. The salary sacrifice changes made through the Bill equalise the national insurance contributions treatment of salary sacrifice above the cap with other types of employee pension contribution, which are counted as earnings when calculating student loan repayments.
There may or may not be good arguments for or against that, but we do not consider this Bill an appropriate vehicle through which to amend the basis of student loan repayments. The basis of calculating income from student loan repayments is set out in separate regulations, and we do not believe that this Bill should seek to vary that. It is also the case that, of employees making contributions via salary sacrifice, younger people are much more likely to be fully protected by the £2,000 cap than those over the age of 30. Some 76% of those in their 20s who use salary sacrifice are protected by the cap, compared to half of those aged 30 and above.
In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.
Baroness Neville-Rolfe (Con)
My Lords, I am pleased that we have begun Committee by addressing this issue and grateful to all noble Lords who have spoken. I am grateful to my noble friend Lord Leigh of Hurley, who seemed to be saying—I think with support from outside bodies—that the Treasury’s financial estimates were over-optimistic. That may, of course, be true of the figures that the noble Lord, Lord Livermore, has kindly given us, which we will obviously need to have a look at, on the effect of the change.
The difficulty as I see it is that the policy remains vague. Its impacts are largely unknown and the income group it is intended to capture is undefined. The Treasury’s assessment of how it will operate in practice has been inadequate. It is a complex mechanism by which to raise a relatively modest amount of revenue and does not take effect until 2029. It is a tool, if not a very sensible one, designed to make the Chancellor’s sums add up, rather than a longer-term policy. Even if the Government succeed in raising anything like the figure set out in the Treasury note, the projected yield declines sharply within just a few years of implementation.
There is also an issue of definition. I think the potential cost is greater. As the noble Baroness, Lady Kramer, said, there is a risk that middle and lower-income workers, and those paying basic rates of tax, will be drawn into scope. After all, this is a dynamic situation—we will come on to discuss whether there are ways of tackling that—but it could have serious consequences, and we would need to come back to the point about pension saving, long-term adequacy and, ultimately, future liabilities for the state. There is also an issue about irregular payments—“bonuses” was the word used by the noble Lord, Lord Londesborough. The majority of bonuses, in my experience, are small, as I know from my time at Tesco, but they can be used usefully to invest in pensions.
The absence of any safeguard in the Bill to prevent basic rate taxpayers being captured is a significant omission. If the Government are confident that such individuals will be protected, they should be willing to put that protection in the Bill. The noble Lord, Lord Ashcombe, rightly supported the need for transparency, and of course Amendment 2, which requires Ministers to define “higher earners”, would achieve just that. Even the noble Lord, Lord Davies of Brixton, agreed that there was a “kink in the line”.
Her Majesty’s Opposition are very concerned about the unfair impact on those struggling to pay their student loans at a rate of interest which is impossible to justify. The Government must look seriously at how to mitigate this, as my noble friend Lord Leigh of Hurley explained with his customary vim, and to do this in the Bill—not promise to do something elsewhere. This is a big issue that has been raised and it has to be solved. We are very sympathetic to those with big debts, which they will have to pay off under the loans scheme, so a way needs to be found to help them.
There is an ambiguity, as my noble friend Lord Mackinlay of Richborough said from his position as a tax expert, and we need to listen to him. He also warned of its damaging implications, on top of those already introduced for IHT on pensions. This is part of a wider attack on pensions which it is important to do something about if we are to tackle the problems of long-term pension sustainability.
I beg leave to withdraw my amendment, but I may need to come back to this on Report, as it is at the heart of the acceptability of this Bill.
Lord Leigh of Hurley
“(6DA) Contributions to pensions where employees are not offered alternative compensation are not to be treated as optional remuneration arrangements.”Member’s explanatory statement
Where an employee has the option of a cash allowance or additional pension contribution, that would be an optional remuneration arrangement. But where no cash alternative is offered then there is clearly no optional arrangement and this amendment would therefore make it exempt.
Lord Leigh of Hurley (Con)
The purpose of the Bill is to catch salary sacrifice schemes. As we discussed in the previous group, this is where an optional remuneration arrangement has been made, but there are instances when an increased pension could be offered to an employee and no option is offered for the cash increase in salary. That is the area that I am exploring in my amendments.
In these circumstances—according to the Labour Party’s manifesto, the drafting of the Bill and all the Explanatory Notes—I do not think there is an intention to change the national insurance treatment. Indeed, this is clarified in the policy background sections of the Explanatory Notes on the Bill issued by the Government. This amendment, tabled by me and the noble Baroness, Lady Altmann, seeks to make that clear and cannot be seen as controversial.
Amendment 4 is easier to explain than Amendment 3, so let me have a go. I accept that Amendment 3 is not easy to understand, and I am not sure I understood the Minister’s response to it. It would be very helpful if, before Report, he could clarify whether he agrees that, as I suggest in Amendment 3, the definition of earnings will be affected by the Bill, and whether the Government will address that issue.
The Bill is predicated on the definitions of optional remuneration arrangements. They can include company cars and—as the noble Baroness, Lady Coffey, said—assisted places in nursery, medical insurance and other areas, but the Bill makes it clear that we are focusing here on salary sacrifice. The reason for my amendment is that there may be some people who achieve an increase in pension contributions but not through salary sacrifice. In my view, an optional remuneration arrangement has not been properly scoped or defined for the purpose of the Bill.
Perhaps it is easiest to understand this concept when thinking about a new employee. Such a person will be negotiating their compensation with a potential employer. Let us say they are offered a salary of £50,000 and a £5,000 pension contribution. They might feel that this is insufficient payment and seek a higher salary. The employer could refuse that on the basis that all people of that rank in their organisation receive a sum of £50,000 and they have no flexibility—but they may offer an increased pension of £10,000 rather than £5,000 to reach an agreement. How is that negotiated figure of £10,000, which was previously £5,000, to be treated? What if the employer said, “I will reduce the salary to £45,000 and give you £15,000 in pension”? Is this an optional remuneration arrangement, particularly with a prospective, rather than actual, employee?
Similarly, let us look at termination settlements. An employee may receive a lump sum in lieu of any other claim and might be offered an excess amount over the normal £30,000 to be paid directly to the pension scheme. Is that an optional remuneration arrangement?
Let us consider something perhaps closer to home for the Minister: cases where collective bargaining takes place. There might be two offers on the table: one is for a 5% increase in pay but will keep employer pension contributions at 8%, and the other is for a 4% increase with an increased employer pension contribution of 10%. If the collective bargaining unions agree on the latter, are we to assume that this is an optional remuneration agreement? I would assume not, but it is not clear.
In the negotiations of remuneration, what if a person agrees with an employer that they will not take any increase in salary but they want a greater pension payment? That is not salary sacrifice—which is in the heading of the Bill and peppered throughout the definitions used in the Bill and the Explanatory Notes—but does it qualify as an optional remuneration arrangement?
This is a probing amendment to try to get some clarity into the Bill. Clarity is needed because there is so much in the Bill that, frankly, does not seem to have been considered as it relates to people’s working lives.
Amendment 33, in my name and that of the noble Baroness, Lady Altmann—and, yes, in this group—deals with the very difficult situation where a person has a number of employments. It seems a bit disappointing that the Bill does not address this obvious problem. Perhaps the draftsman had only one job—I do not know. National insurance contributions are typically calculated weekly or monthly for most employees, and calculated separately by different employers, assuming such employees are not part of the same group; if it is all one group company, it is done by one head office, typically.
The question arises: how will the £2,000 limit be applied across different periods and employments? This could be covered in regulation later, I suppose, which seems the Government’s favourite approach to much of legislation, but it is right to discuss this in Committee and encourage the Government to put their thinking cap on now to try to get it right so that there can be proper consultation and scrutiny before the legislation is enacted.
Where employees are paid monthly, should that employer apply 1/12th of the £2,000 to each month’s salary-sacrificed earnings or wait until the month in the year in which that amount has exceeded £2,000? Likewise, as the noble Lord, Lord Londesborough, questioned, what happens when an annual bonus is paid? Does that distort the £2,000, which I assume is for the year to 5 April? The bonus could be paid in May or June, completely distorting all the figures. If an employee changes employment part way through the year, how does that work in practice? Does the amount sacrificed in the old employment carry over to the new employment, or should the employee benefit from two separate caps, which will be the requirement for information to be passed from one employer to another? How will HMRC cope with this? Currently, no information exchanges are available.
Then, of course, there are a number of us—I include myself—who hold down more than one job at a time. I declare that interest, although I am not caught by the Bill. Will the £2,000 annual cap be split between each employment, or can employees benefit from two separate caps so that each employer can offer £2,000—which might encourage some slightly unexpected behaviour of people taking lots of jobs, or with subsidiaries or associates, as a clever avoidance trick? There is already incentive within the NI system to do this, as separate allowances exist for separate employers.
We also have to think about financial privacy here, as information would need to be shared across different employers. I raised earlier the problems facing us where an employee does not actually sacrifice salary but still makes a pension contribution, and it is not clear what happens if an employee enters into a bonus waiver in exchange for an increased employer pension contribution. It is complicated, because the employee has no legal rights to the bonus, so there is nothing to sacrifice. What is the Government’s view in these circumstances?
All in all, one can see an administrative nightmare all around. It would be extremely helpful if these issues could be addressed by the Treasury in guidance, setting out the basis on which the Treasury considers how the Bill will apply before it comes into force, hence my amendment.
While on my feet, I support the amendments tabled by the noble Lord, Lord Fuller, which seem pretty clever to me. I am somewhat annoyed I did not think of them myself, because it is pretty obvious when you read his amendments that it must be right—I am supposed be the chartered accountant—that there should be some spreading to allow for circumstances where one year was not a good year and another was. That seems only fair. I beg to move.
Lord Fuller (Con)
My Lords, I rise to speak to my Amendments 4A, 4B, 17A and 17B, and the associated review clause, Clause 29A. I will also speak to support Amendment 33 in the name of the noble Lord, Lord Leigh of Hurley.
Taken together, these amendments try to address the practical workability of proposals for employers with employees who have multiple employments and fluctuating income, and to ensure consistency with other parts of the taxation system while being consistent across Great Britian and Northern Ireland.
How easy it must be for the huddles of Ministers and civil servants sitting in their little meeting pods in that ground floor cafe at 1 Horse Guards—or perhaps dialling in from home, having taken the dog for a walk—to tinker with their spreadsheets and to come up with policies viewed through the lens of their personal experiences but which do not stand up in the real world. We have new tax policies that have damaged the national economy and growth. This Bill in particular, however, damages incentives for individual employees and companies for which they work; these are incentives to work hard, to climb the ladder, to improve yourself and to save for a secure retirement, and incentives for employers to attract the best talent.
As we have heard, it is not just the people on 100 grand that this policy affects—although it raises their marginal tax rate to 70% if they are paying off a student loan—it affects a whole raft of people. With the minimum wage now set at over £26,000, millions of ordinary hard-working people—the sort of people this Government say would escape higher taxation—will now be snared in this net, as the Daily Telegraph has reported. It amounts to a new tax on workers; this much we know. But my amendment focuses on the potential unfairness to a particular type of hard-working employee that makes it nearly impossible for their employers to administer it: an employee juggling several jobs.
How do the Government intend to deal with this and make fair the practical unintended consequences and perverse outcomes? Let us take the example of the employee who works several jobs. How will her employer know when or if she has maximally sacrificed her two salaries without reference to the other? That point was made very ably by the noble Lord, Lord Leigh of Hurley. The noble Lord also identified the privacy issues that come with this—which I wish I would have thought of.
Let us take another example, of an employee engaged in seasonal work who wants to save monthly into a pension on salary sacrifice. How does he set his regular contribution at the start of the year without knowing whether he will bust his allowance later on? In his winding on the previous group, the Minister said that you will never know the band until the end of the tax year--well, quite.
What about the employer who wants to do the right thing by his graduate employees and knows how difficult the job market is for them right now? Let us say he wants to attract the best talent by offering accelerated repayments of student loans by way of a salary sacrifice opportunity. We have a colleague in this House who is a graduate, and his graduate loan is running away; he is paying off £400 a month and still the debt is getting larger. We must help these people.
What about the youngster saving for a pension? As I said at Second Reading, my daughter’s boyfriend is no fat cat; he is living in a flat share with people he does not know in Brixton—I do not know whether the noble Lord, Lord Davies of Brixton, ever knocked on his door as I invited him to do at Second Reading. But ask his opinion on this and he will say that instead of improving his own financial security—and perhaps that of my daughter in due course—by reducing his dependence on the state in later life, his ability to save for his future and to progress now is weakened. These are practical and personal examples; each of them damages that incentive to work hard and save hard. That is bad enough.
However, this Bill further discriminates against the private sector worker who needs to save for his own retirement under the direct contribution system, when public sector employees have the taxpayer pitching in another 20% to their pot. The ham-fisted way this Bill ignores the real-life complexities for these real-life people and their real-life examples that exist outside the comfortable, monthly-paid final salary pension world shows how the Treasury views these things through its own particular lens.
Lord Mackinlay of Richborough (Con)
Perhaps I may make some comments on Amendment 33 put forward by the noble Baroness, Lady Altmann, and my noble friend Lord Leigh. My noble friend recommends that there be some Treasury advice on this. I do not think Treasury advice is good enough. Surely we are in the thicket of drafting legislation. Let us have those rules very open and clear within the legalisation before us.
I am confused about what is intended here. It is intended to be a £2,000 limit for the employee across all employments? At the wind-up of the previous group, the Minister, the Financial Secretary to the Treasury, quite correctly said that there would be excess complication in the system proposed by my noble friend Lady Neville-Rolfe’s amendment because an employer would have to know about their employees’ tax arrangements and whether they had rental income or income from other employments or investments. That was a very reasonable observation by the Minister. However, this legislation is, as it stands, somewhat silent on a similar complication that would exist across multiple employments.
There is an attempt to smooth out monthly variations in the directors’ arrangements for national insurance calculations, because directors are obviously able to adjust their income a bit more fluidly. I am sure that the Minister is aware that if a normal employee has a very big bonus, potentially in one month, the monthly threshold for maximal class 1 deductions for national insurance will be breached for that month and there will be technically an avoidance of national insurance, because the following month, when employment income goes back to a normal level, full national insurance would be taken. For those able to manipulate their income—and I use that advisedly in a broader sense, but directors can have a little more influence on how they are remunerated—there is a procedure within legislation to iron out those peaks and troughs on an annual basis.
Accepting within the tax and national insurance legislation that a normal employee should be able to benefit from a big peak one month and avoid national insurance, is it the intention that across multiple employments that £2,000 per year will be available to each employment? I think that, as the Bill stands, it does, and I welcome that, because it almost matches what happens in other national insurance legislation applying to an employee. However, it will not be good enough simply to have Treasury advice post-legislation. I would rather that that be clarified today so that we can discuss it further and amend as appropriate on Report. However, my thanks, as ever, go to my noble friend Lord Leigh and the noble Baroness, Lady Altmann, for highlighting the point in question, because it is what life is all about. Currently, it is not uncommon for people to have a multitude of employments.
The main things that I want to discuss on this group are the amendments put forward by my noble friend Lord Fuller—Amendments 4A, 4B, 17A and 17B —which all cover aspects of a similar theme. Call me simplistic, or perhaps old-fashioned, but I would prefer there to be similarities in different parts of the tax system. We have accepted in the tax system the three-year carrying forward of unused pension contribution relief within income tax. It used to be £40,000 a year; now, it is £60,000, and it remains unaffected thus far by two Budgets. I do not want to give Chancellor Reeves any ideas for the future but that sum of £60,000 seems to have survived two Budgets, so perhaps we may live in some hope. In income tax regulations, we have a situation where you can carry forward three years of unused relief, so, in year 4, one could—if one had sufficient income and this was a sensible thing to do in the tax regime in which one found oneself for that year—make a contribution of £240,000. The Treasury is very comfortable with that and, so far, there have been no efforts to amend that in the Budgets we have seen.
I go back to our discussion of the basic rate taxpayer, who may have multiple employments, who may be between employments and who may have both good and bad years. It would seem to stand to reason that we should have a similar idea of carrying forward to allow that sum of £2,000, as it currently stands. Obviously, I would rather it were higher; other amendments laid by noble Lords seek to amend it to £5,000 or £10,000, but I am talking just about the £2,000 limit. I know that my noble friend Lord Leigh gave some examples from real life but there may be situations where, for whatever reason, a pension contribution or a salary sacrifice cannot be made because the taxpayer—for example, a student, and potentially a newly employed one at that—simply needs the cash that year and is prepared not to have the tax and national insurance relief.
Again, this would be neither a difficult nor unusual situation. Someone’s child may be getting married, or they may need private healthcare because the NHS is not providing what is needed. Whatever it is, there are a multitude of real-life situations where cash may be king for a year. Following the income tax arrangements, surely it cannot be unacceptable for that small £2,000 limit to go forward for three years in exactly the same way so that the national insurance shield—that is, the benefit of making a contribution—is at least maintained for years when it was not needed.
Drawing on my professional experience, I can be absolutely sure that many of these brought-forward years are never used. They are used on a “first in, first out” basis, so year 1 carries forward to year 4. If it is not needed to be used, that falls out of bed, then you have years 2 and 3; in the fourth year, if any years are unused, you are carried forward to year 5, whereafter year 2 disappears. It is extremely rare for the full carry-forward to be used. The amounts involved in this sensible carry-forward measure proposed by my noble friend Lord Fuller seem very reasonable and not that costly for the Treasury, whose demand in all this has nothing to do with pensions but is about raising cash. I ask the Minister to look at this carefully—not today, obviously, as I am sure he will say no to most everything—on Report, to see whether we can consider this matter more carefully.
Finally, I go back to the amendments in the names of my noble friend Lord Leigh and the noble Baroness, Lady Altmann. If there is an intention behind the multiple employment arrangement, let us please see it in the Bill, not just in guidance from HMRC at a later date.
Baroness Altmann (Non-Afl)
My Lords, first, I need to declare my interests as set out in the register as a non-executive director of a pensions administration company and as a board adviser to a pension provider.
I believe that the Bill is premature—the extent of the amendments being proposed to it is evidence that it has been rushed, and I do not quite understand what the rush is, given that the policy is not intended to start until 2029. I must admit that I immediately thought at the Budget, when the measure was announced, that it was simply a means for the Chancellor to find some revenue to make the books balance in the way that she had hoped. That is not necessarily a criticism, I just felt that it seemed to be the reality. Then suddenly, a few weeks, effectively, after that Budget, we get the primary legislation.
I apologise to the Minister because I have enormous respect for him and I know that he has a very difficult task. I think he understands very well a number of the points we are making, but so many of the issues we are covering here do not seem to have been thought through. The list of potential banana skins and uncertainty seems to be growing by the day, and the practical issues simply have not been recognised, let alone resolved, as has already been evident. We will come to more as we go through Committee.
Let us just consider the risks highlighted in some of the amendments. For example, Amendments 4 and 17 from my noble friend Lord Leigh, to which I have added my name, are trying to clarify what is actually caught by the Bill. If an employer increases workers’ pension contributions, will it automatically be assumed that that was in some way a salary sacrifice? The employer may just have decided to increase its contributions for some other reason. How will we know? How will anyone know?
The uncertainties do not stop there. What about Amendment 33, to which I have also added my name? If someone has multiple jobs, how will anyone be able to track the salary sacrifice pension contributions made through a tax year? We will come on to what happens when someone changes jobs.
We saw in the previous group the effect on student loan costs for students. I know the Minister said that can be dealt with elsewhere in regulations because those student loan rules are set in other regulations, but if they are not in the Bill then they will be caught, it seems to me. I did not hear an argument that says they will not be.
Who is responsible for compliance? Who is responsible for reporting to HMRC? Again, we have heard about the problem with privacy. They are just the uncertainties that we are trying to sort out with some of these amendments.
Then we have the unknowns, which seem to be skirted over. We certainly know that take-home pay will fall for a number of workers who currently get salary sacrifice, either by the 2% or the 8% of the national insurance contribution offset they will potentially lose. Employer costs will rise.
I have huge respect for the noble Lord, Lord Davies, and all the calculations he does, and I recognise that, in some ways, the amounts of money, as he correctly calculated, perhaps seem rather small to us. However, as an economist, I know that decisions, incentives and behavioural changes occur at the margin. It is marginal changes, however small, that can make a significant overall impact over time. If employer costs are rising because they are paying extra national insurance on the pension contributions that they have always been making, it is bound to affect future pay rises and employment levels. We have no modelling of how much that impact might be.
Lord Davies of Brixton (Lab)
I spend most of my time in these debates about tax relief on pensions defending the existing system, because the people I tend to mix with regard that tax relief as grossly unfair. It obviously gives far more to the higher paid than the lower paid, and that is why there is widespread discussion of having flat-rate tax relief on pensions. If we were starting from scratch, I think we could do that, but we are not. We have to start from where we are.
Where we are is in having extremely high levels of, effectively, government subsidy for people to save for retirement, but that begs the question: what is the right level of tax relief for pensions? Does it just happen to be that we have alighted at the correct level, or is that an issue we are not allowed to discuss? Putting words into the mouth of the noble Lord, Lord Fuller, he seems to be adopting the argument: “The more the merrier—let’s increase it by even more”. No, there is a genuine question here. What is the right level of tax relief to encourage people to save for their retirements? It is a reasonably practical debate and, on this side, we have come to the conclusion, possibly as an interim measure, that it should be a bit lower than it is currently. That certainly does not justify the doom and gloom about this particular change—I have made my point several times.
I am no longer a small business person, but for 30 years I was and I employed people who had multiple jobs. It is not a new issue. There is nothing new about the idea of employers having to cope with the complications of the national insurance system for people who have multiple jobs, particularly where, even with two jobs, their total income is more than the £1,250 that it is at present. It is not a new issue that employers are going to have to deal with. In principle, there is an additional complication; they have to sort out where the £2,000 limit applies. However, it is reasonable to expect employers to undertake those tasks. To be honest, I do not think that an ice-cream salesman is really a genuine example, but I may be wrong.
Lord Fuller (Con)
I take my territorial designation from Gorleston-on-Sea. When I was a boy, there was nothing better when the sun was out than going down to Della Spina’s, the ice-cream place. It is not just about ice cream; there are stately homes and all sorts of things that work with the weather. That is why I chose the example of the umbrella salesman or the ice-cream vendor. There is a whole part of the UK economy that depends on the weather. We have the most unpredictable weather, there are the most turbulent income and costs associated with that, and that boils down into variable emoluments. It is not just the market gardener or the farmer; it is the people involved in hospitality or whatever. To say that it is trivial demeans the pubs, the restaurants, the stately homes and that wider part of the visitor economy, which is particularly visited on the coast and in coastal communities. I wonder whether the noble Lord would like to reflect on the somewhat dismissive way in which he put that huge part to one side. Millions of people work in these sectors; they would be disadvantaged by the Bill and that needs to be recognised.
Lord Davies of Brixton (Lab)
I accept the noble Lord’s reprimand. I was actually making another point, which is about how many ice-cream salespeople are operating salary sacrifice arrangements. That may not be immediately germane. In fact, the remarks that the noble Lord just made support my point. Those part-time employees and part-time employers are already having to cope with the problems that arise from multiple employments and how the national insurance system is not, in truth, tailored very well for those circumstances. I accept that.
Lord Mackinlay of Richborough (Con)
I would like to assist the noble Lord, Lord Davies, on multiple employments. For an employer faced with an employee with multiple employments, which is not uncommon, it has no reference at all to the individual employer—it is of no interest. An employer runs a payroll scheme only for the amounts that that employer pays that employee. If there is a second employment, it is for that employer to deal with how much they are paying that employee. There is no interaction between the employers to say, “Do a management of NIC”. This goes to the heart of the problem with Amendment 33.
There is only one example where an employer has to take any notice of multiple employment, which is when their employee may have a second employment that is above the ceiling for paying the maximal national insurance. That is where you have a system of form CA72A, which is supplied by the employee to the DWP. The DWP may not actually do anything about it; I have found in most cases in my professional career that the DWP seems to lose the paperwork and the employee has to make an after-year claim for the excessive NIC that has been deducted. That is the only example where the second employment may receive advice from the DWP to say, “Ah, only deduct 2% from this employee because they are paying maximal amounts on a primary employment”. I wanted to clarify the current situation across national insurance administration for double or triple employments. I hope that is of assistance.
Lord Davies of Brixton (Lab)
Yes; I thank the noble Lord for his advice. As I said, I have operated the system myself, and so he is really just making my point: the structures are there to deal with multiple employments. It is not being introduced to the issue by this particular measure. Obviously it would be more complicated with this measure—I accept that, and I look forward to my noble friend the Minister’s response on that issue—but it is not a new issue.
Baroness Kramer (LD)
My Lords, as with the previous group, the noble Lord, Lord Davies of Brixton, made a comment on what he thought was Lib Dem policy; it might be—I am just not sure. We have discussed simply kicking out all this complexity and having a flat rate of relief on pensions. After listening to the last debate, I think that that has probably accumulated a lot of votes from around this Room, because the complexity that we have had described under this group of amendments is absolutely extraordinary. The noble Baroness, Lady Altmann, referred to the banana skins, and I think the noble Lord, Lord Leigh, talked about it being a nightmare. I am troubled that all of this is being left to consultation with the industry and to future regulation and future guidance, as if it can all be absolutely sorted with a bit of quiet attention. But we have heard the problems of how you deal with the many cases where people have multiple employers.
The noble Lord, Lord Mackinlay, made it clear that it is a relatively small handful of people who at present have to be dealt with through the Department of Work and Pensions to make sure that there is not a complexity. However, this would now apply to all kinds of people across a very wide range of activities and income. Trying to deal with the complexity of all these measures and delaying that has got us very disturbed. It is a bad principle for legislation. It is not that there is not a role for regulation and guidance, but that essentially should just be doing the finesse on a policy that has been clarified, whether it is in primary legislation, through evidence put before Parliament or through Statements made by the Ministers.
I think we have a real concern that this is going to turn out to be absolutely unworkable. The consequences of that, both for public finances and for individual decisions made by people, probably means that this legislation will collapse at some point. We ask the Minister to go back to the department and make it clear that clarity is absolutely necessary. If there are problems here that can never be reasonably and sensibly resolved, they should be recognised at this stage.
Baroness Neville-Rolfe (Con)
My Lords, I shall speak first to the amendments in this group that stand in my name and then to those tabled by my noble friends. The noble Baroness, Lady Altmann, helpfully outlined a list of banana skins or uncertainties from her experience, such as the cost of changes in employment contracts and payroll software and of dealing with employees concerned about the change. She was right to ask whether we need to legislate so rapidly given the complexities that seem to be thrown up by today’s useful debate.
My amendments, Amendments 5 and 18, helpfully supported by the noble Baroness, Lady Altmann, chiefly concern the principle of parliamentary oversight. Nothing is more central to our work. Under Clauses 1 and 2, the Bill quite properly provides that regulations reducing the £2,000 contributions limit must be subject to the affirmative resolution procedure. That is right. If the Treasury lowers the cap, Parliament must be given the final say. What the Bill does not provide is affirmative scrutiny where the Treasury alters the methodology by which the cap is calculated or applied. That omission is significant because new subsections (6C) and (6D) do not deal with minor technical points but determine how the policy will operate in practice for thousands of earners whose pay patterns do not fit a neat monthly model.
Let us look at new subsection (6C). It permits regulations to prescribe an equivalent contributions limit for those paid weekly or at other intervals. That phrase “other intervals” is remarkably broad. It covers shift workers, contractors, seasonal workers, gig economy participants, those on irregular pay cycles and those with multiple employments. People in these forms of employment make up a large and growing segment of the modern labour market, yet the detail of how the limit will be translated for those individuals is not in the Bill. It is left entirely to regulations and consultation, as the noble Baroness, Lady Kramer, said. The annual cap is scrutinised in primary legislation, but, inconsistently, the translation of that cap into weekly, irregular or non-standard pay structures, the arrangements when an employee moves and other detail of importance to both workers and those operating payrolls, are to be set out later in regulations without the same degree of parliamentary approval. These points can be material in terms of compliance costs and fairness. In other words, those whose circumstances fit most neatly within the annual framework benefit from full parliamentary scrutiny, while those whose pay patterns are more complex do not. We submit that if the methodology by which the cap is applied to those workers is altered in a way that materially changes who pays and how much, that is a policy decision and one which requires greater scrutiny from your Lordships’ House and the other place.
The same concerns arise under new subsection (6D). There, the Treasury is given powers to determine by regulation when amounts treated as remuneration are deemed to be paid, in prescribed cases to treat a figure other than the amount foregone as remuneration and to calculate that alternative figure in such manner and on such basis as may be prescribed. These are extremely broad powers. They allow the Treasury not merely to administer the cap but to redefine how remuneration is attributed and calculated for NICs purposes. If such methodological changes can be made without returning to Parliament for affirmative approval, the House will have ceded oversight of important mechanisms that determine the real-world effect of this new policy.
My amendments simply make the point that where the method by which the contributions limit is calculated or applied is altered, Parliament should have the opportunity to approve the change. The Committee is currently scrutinising the Bill line by line. We are examining the consequences. It would be inconsistent if, once enacted, substantial changes could be introduced through regulations subject only to the negative procedure. If the Government are confident that any such changes would be technical and uncontroversial, they should have no objection to subjecting them to affirmative scrutiny.
These provisions will affect real employers and real employees. They will determine compliance burdens, payroll calculations and the effective tax treatment of pension saving. They are not trivial matters. In short, where the substance of the policy shifts, Parliament should be asked to approve that shift. I hope the Minister will recognise that this is a sound and serious constitutional point and give it proper consideration.
Amendments 4 and 17, tabled by my noble friend Lord Leigh of Hurley, make an interesting case. The Government’s policy intent, as set out in the Explanatory Notes, is to apply a national insurance change where pension contributions are made pursuant to optional remuneration arrangements—in other words, where an employee has chosen to forgo cash pay in return for an employer pension contribution. However, there are some workplace pension arrangements where no such option exists: the employee is not offered a cash alternative, there is no choice between salary and pension, and the employer contribution is simply part of the structured remuneration package.
In these circumstances, it is difficult to see how the arrangements can properly be described as optional. There is no alternative compensation available and there is no optionality. The amendment therefore makes clear that where no cash alternative is offered, the arrangement should not be treated as an optional remuneration arrangement for the purposes of the new NICs charges. I would therefore be grateful if the Minister could clarify whether arrangements with no genuine cash alternative are intended to fall within the scope of the Bill. If not, I hope he might look favourably on this clarification.
My noble friend Lord Leigh’s Amendment 33 makes a further important point that the Bill should not come into force until the Treasury has published clear guidance setting out how the contributions limit will apply in cases of multiple concurrent employments. This is a matter of basic administrative clarity and fairness. The question about two caps for two jobs came from my noble friend himself, and it would be interesting to know the answer.
My noble friend Lord Mackinlay doubts whether guidance is the right route, and wants to know what the arrangements will be today, with amendments to the Bill if we believe—in the light of the answers—that that is needed. We certainly need clarity, a change to the scrutiny of regulations to the affirmative, and perhaps guidance when we have the answers.
Finally, I turn to Amendment 4A in the name of my noble friend Lord Fuller. As drafted, the Bill introduces a flat £2,000 annual limit, above which salary sacrifice to employer pensions will attract national insurance. It is a hard cap. But real earnings do not operate in neat annual instalments; for many people, remuneration fluctuates significantly from year to year. Without any carry-forward mechanism of the kind well articulated by my noble friend Lord Mackinlay, which is apparently not very costly, the Bill creates a cliff edge. An individual who sacrifices modestly for several years but has a single high-earning year will be treated as if that year existed in isolation. That is not how pension saving works elsewhere in the tax system.
The pensions annual allowance regime already provides a three-year forward framework. Amendments 4B and 17B would align the national insurance treatment with that established precedent. The alternative amendments, Amendments 4A and 17A, simply provide the Treasury with a permissive power to introduce such a mechanism. They offer flexibility should Ministers be concerned about immediate fiscal implications.
Amendment 29A would require an independent review within 18 months of implementation. The Bill introduces a new compliance framework affecting payroll systems, remuneration design and pension planning. Therefore, it is entirely reasonable that Parliament should require evidence of its real-world impact, particularly on fluctuating earners and on employer administrative burdens. I do not agree with the noble Lord, Lord Davies of Brixton, that the extra burden of complexity on employers can be dismissed, particularly now we have heard that currently there is so little interaction between second and third employers. We want fewer burdens, not more. Enough is enough, and I look forward to a proper and detailed response on these very important technical points.
Lord Livermore (Lab)
My Lords, I am grateful to all noble Lords who have spoken in this debate. I begin by addressing Amendments 4 and 17, tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baroness, Lady Altmann. These amendments relate to the technical and operational detail of the legislation, including the definition of “optional remuneration arrangements” and procedure. I fully understand the concern underlying them, which is to ensure that the Bill operates in a targeted, proportionate way and does not inadvertently affect ordinary employer pension contributions. The Government share this objective and I am grateful for this opportunity to clarify our intent.
The Bill before the Committee already relies on the established definition of “optional remuneration arrangements” set out in the Income Tax (Earnings and Pensions) Act 2003; this is the same framework that has applied since the optional remuneration arrangement rules were introduced in 2017. Under that definition, the rules apply only where an employee is given a choice—for example, a choice between receiving earnings or receiving employer pension contributions instead. This includes salary sacrifice arrangements, where an employee agrees to a lower cash salary in exchange for a pension contribution, or situations where an employee chooses pension contributions in place of a cash allowance.
Importantly, the Bill does not affect employer pension contributions where no such choice exists. Where an employer makes pension contributions as a standard part of the remuneration package and there is no alternative of cash or earnings available to the employee, those arrangements do not fall within the definition of “optional remuneration arrangements” and are, therefore, outside the scope of the Bill. In those cases, standard employer pension contributions will continue to be fully exempt from national insurance contributions, exactly as they are now. Nothing in this legislation changes that position.
Baroness Altmann (Non-Afl)
May I ask for some clarification? The Government’s intention is to try to encourage higher pension contributions. If an employer decides to increase their pension contributions, how would one know that that had not been at the expense of some salary they might otherwise have paid? Would it just never be caught? Can we safely assume that increased employer pension contributions will not be caught unless there is some official paper that says, “This was instead of salary”?
Lord Livermore (Lab)
I suppose I would ask the noble Baroness: who does she mean when she asks, “How would one know”? Who is “one” in that instance? HMRC? That would be reported to HMRC, would it not?
Baroness Altmann (Non-Afl)
As what? It would just be an increase in pension contributions because the employer has decided to increase the amount they will provide for their staff from, say, 6% to 8%. It is nothing to do with what they are paying the staff; it is not the result of negotiation. Their standard contribution was 6% and is, perhaps, going to 8%. Some people might be concerned that that would be considered by HMRC as an optional arrangement because the pensioning contribution has gone up, although that may not have been intended. The Government’s intention is, I hope, to get employer contributions to increase.
Lord Livermore (Lab)
The example given by the noble Baroness is not a salary-sacrificed pension contribution. What she is describing is exactly what you would want to happen. Surely you want the pension contribution to go from 6% to 8%.
Lord Livermore (Lab)
I do not understand where the problem is, because that is a good thing.
Baroness Altmann (Non-Afl)
The issue is that there seems to be a risk. Can we somehow—I am not quite clear how—clarify in the Bill in case HMRC might decide that that is caught by the Bill?
Lord Livermore (Lab)
I am happy to take this away and look at it, but I cannot see any way in which that would be the situation. Employers presumably increase their pension contributions all the time. That is a good public policy outcome. There is no way in which that would be caught by these regulations. I have made that extremely clear in what I am saying.
Lord Mackinlay of Richborough (Con)
My Lords, I will ask the question in a slightly different way, which may flush out what I think we are trying to get there. Say, for instance, that there is an inflationary rise by an employer every year—there always has been and, one would have expected, always will be—and, in the world post this legislation, the employer has decided not to give a salary increase, for the first time ever, but the equivalent amount has gone into an additional employer contribution to a pension. If HMRC was to come in and investigate the payroll records of that employer, would it conclude that this was a contrived arrangement that fell within this legislation, or would it just be something that the employer can do, which the Minister seems to be describing as being perfectly good and dandy?
Lord Livermore (Lab)
It is a perfectly good outcome if the employer increases their contribution into an employee’s pension. That is something we want to achieve. On specifically how HMRC would view that, I am very happy to take that away, but I do not believe in any way, in what I am saying, that that is the intention of what we are doing.
I will finish what I was saying. In those cases, standard employer pension contributions will continue to be fully exempt from national insurance contributions, exactly as they are now. Nothing in this legislation changes that position. For these reasons, the Bill already draws the correct boundary by relying on a well-established and familiar legal definition. It targets only those arrangements where an employee is given a choice between cash and pension provision, and it does not interfere with ordinary, non-optional employer pension contributions.
I turn to Amendments 5 and 18 in the name of the noble Baroness, Lady Neville-Rolfe, and supported by the noble Baroness, Lady Altmann, and the noble Lord, Lord Altrincham. These amendments relate to parliamentary scrutiny and procedure. I agree with noble Lords about the importance of maintaining strong parliamentary scrutiny, particularly where changes could affect individuals’ national insurance liabilities. That is an important principle and one that the Government share. That is why the Bill contains a series of safeguards to protect scrutiny and transparency.
The Bill explicitly provides that, where regulations are used to reduce the generosity of the £2,000 limit—that is, where changes would lower the contribution limit and thereby increase the amount of earnings subject to class 1 national insurance contributions—those regulations would be subject to the affirmative procedure. This ensures that any change which tightens the policy or increases liability is brought before Parliament for full scrutiny and approval.
By contrast, where regulations are made simply to implement the policy, to set out administrative arrangements or to increase the £2,000 limit, thereby resulting in less national insurance being payable, it is standard practice for those regulations to be subject to the negative procedure. That approach reflects the well-established distinction between substantive policy changes and regulations which deal with administration or confer additional relief.
This is not a new or novel approach. It follows the established precedent for regulations made under the existing powers in Section 4(6) and Section 4A of the Social Security Contributions and Benefits Act 1992 and the corresponding Northern Ireland legislation. In those cases, regulations of an administrative or beneficial nature have routinely been subject to the negative procedure.
I also note that the Delegated Powers and Regulatory Reform Committee has carefully scrutinised the powers in the Bill, including the proposed level of parliamentary scrutiny. The Committee has confirmed that there is nothing in the Bill that it wished to draw to the special attention of the House.
Taken together, these provisions ensure an appropriate and proportionate balance: robust parliamentary oversight where the policy is made less generous, and a well-established, efficient procedure for setting out administrative detail and making changes that operate in favour of contributors.
Baroness Neville-Rolfe (Con)
Before the Minister moves on, would he consider making an affirmative regulation on the very first occasion? The discussions that we have had this evening show that there is quite a bit of complexity here, and that has compliance costs for employers and employees. It seems odd to take the precedent of the social security Act on something new and difficult. I wonder whether that would be worth considering. Perhaps the Delegated Powers and Regulatory Reform Committee did not have the benefit of the experts here who have explained some of the problems. I am sure the Minister cannot say anything today, but could he at least have a look at whether the first such regulations could be by affirmative resolution, which is a practice that I have encountered with lots of other Bills that we probably worked on together?
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
Can we just let the Minister reply to that?
Lord Livermore (Lab)
I have set out very clearly which will be approached with the negative procedure and the affirmative procedure, and I do not think it is our intention to deviate from that very clear precedent.
Amendment 33, tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baroness, Lady Altmann, relates to the operability of the contributions limit for those with multiple concurrent jobs. Amendments 4A, 4B, 17A, 17B and 29A, tabled by the noble Lord, Lord Fuller, also relate to operability of the contributions limit, with a focus on those with fluctuating earnings and their employers.
I fully understand the concerns that noble Lords have raised about how this measure will operate in practice, particularly for those with more complex employment arrangements and irregular patterns of remuneration. While the Bill provides the necessary powers, the full operational detail of the £2,000 cap will be set out in regulations that are yet to be published. The purpose of this two-stage process is to ensure that when the cap is introduced, it operates effectively across a wide range of real-world circumstances, including for individuals with multiple jobs, complex payroll arrangements, changing employment or fluctuating remuneration patterns over the course of a year.
Lord Mackinlay of Richborough (Con)
Is the Minister’s understanding of the Bill that the £2,000 threshold will be in the entirety of a single employee or across each employment? At the moment, with NI regulations the employee benefits from different thresholds in each employment that is held. That means that with less than £12,570 in each multiple employment no employee national insurance is paid at all. Is the intention for it to be £2,000 in total across any number of employments, or £2,000 per employment?
Lord Livermore (Lab)
That intention will be set out in the regulations once we have fully consulted relevant employers.
Lord Fuller (Con)
There is a transfer of risk, of prejudice, from the individual, who is responsible under the current arrangements, to the employer. That has not been fleshed out at all. If you have a salary sacrifice that is processed by the employer, all of a sudden that employer trespasses on the duty at the end of the tax year for the employee to put in his tax return. There has been a muddying of the water here between the employee and the employer. I know we are going to come back on Report, and I hope we will get it done in a day, but the Government should lay out their approach to this and state where the liability sits and where the penalties may be applied for honest mistakes made in that interface between the employer and the employee. That is not at all clear, and it should be.
Lord Livermore (Lab)
I am grateful to the noble Lord for his further thoughts. The carryover feature—
Baroness Kramer (LD)
I do not want to be problematic here, but I wonder whether the Minister can understand that we are looking at a very different Bill and very different implications if the £2,000 contribution limit is per individual across a range of employments, or per job, and perhaps they have three or four. It is a fundamental difference, and while the details of how things would be done in the future and the operational issues may well have to wait for regulation, guidance and consultation, it seems to me that that core issue defines this Bill, and we should know that before we complete its passage.
Lord Livermore
Obviously, I hear what the noble Baroness says.
The carryover feature of the pensions annual allowance, referenced in the justification for the amendments tabled by the noble Lord, Lord Fuller, sets the maximum amount of tax-relieved pension savings an individual can build up in a tax year without triggering a tax charge, which for most people is £60,000. The carryover feature is intended to accommodate one-off irregular spikes in pension saving or defined benefit accrual. The annual allowance carry-forward requires individuals to hold or obtain accurate records to track usage and eligibility and is not intended for day-to-day retirement planning. The Government do not consider it suitable to introduce a similar mechanism in the context of the cap on national insurance contribution-free pension saving in the Bill.
Before the detailed regulations that support the introduction of this change are finalised, HMRC will work closely with employers, payroll providers and software developers to ensure the policy operates smoothly for businesses and individuals. This engagement is not a formality. It is a necessary step to ensure that we collaboratively identify the best and most workable way to apply the £2,000 national insurance contributions-free limit, minimise administrative burdens and avoid unintended consequences, particularly for those whose earnings are spread across more than one employment.
Taking the time to engage properly and test implementation options is the best way to ensure that the policy works as intended from the outset. That is why the Government have committed sufficient time to work with stakeholders, up to and including the preparation of the important guidance for operation that the noble Lord, Lord Fuller, has raised in Amendment 29A.
On Amendment 29A, which proposes a reporting provision on the administrative cost borne by employers, I note that, upon the introduction of the Bill to Parliament, a tax information and impact note was published by the Government, setting out the impact of this policy’s operationalisation on employees and their employers. Supporting those who will implement this change within their organisations is vital, but we do not agree that that support should take the form of additional reporting requirements.
In light of all the points I have made, I respectfully ask noble Lords not to press their amendments.
Lord Leigh of Hurley (Con)
My Lords, this debate has been very helpful because it has sort of blown a hole in the Bill. The noble Baroness, Lady Altmann, summed it up rightly: what has happened is that the Government started with the answer and then tried to find the question. In other words, they were desperately looking to find £4 billion from somewhere and came up with this random salary sacrifice idea. Why salary sacrifice? Why not say that NI on pensions does not apply over X amount and limit it that way? I am afraid that the Bill just does not work.
For example, in the case I raised about a new employee where an employer is negotiating over X amount of salary or Y amount of pension, is that a salary sacrifice? The Minister could not answer that. On the £2,000 cap, the Minister could not answer. He could not answer on the collective bargaining point or whether a bonus applies. On how we deal with multiple employments, I do not think that was satisfactorily answered. I also think that the spreading point was not satisfactorily answered.
I take the point that this provision is not scheduled to come in until April 2029. I respectfully make the point that we might all be busy then on other matters but, given that the earliest is April 2029, is it not right now to pause the Bill, work constructively with us and many others who have much greater knowledge, certainly than people on this Bench, and to think through how we might find a constructive way forward? Just hoping that we might get it right in regulation is bypassing democracy. It is the purpose of the House of Lords to examine Bills, make constructive suggestions, identify and highlight holes and issues, and seek to amend them. It is fair enough that this is what the Government want to do, but they have to be clear as to how it works before the Bill goes through.
I suspect the Government will find fierce opposition to the Bill as it is on Report from a large number of people in the House, so one would hope that the Government will pause, reflect, consider and consult—on the Bill, not in regulations—to enable us to get this right. The Minister is very good at putting himself in our shoes and has done so to some extent, and I hope that he will do so again in respect of these amendments. I particularly hope that Amendment 29A comes in, so that a future Chancellor can produce a report. I beg leave to withdraw Amendment 4.
Lord Altrincham
Member’s explanatory statement
This amendment and another in the name of Baroness Neville-Rolfe would uprate the £2,000 cap by the percentage change in the consumer price index during the period before 2029-30, and would require the cap to be uprated by the same percentage as the change in the consumer price index each year thereafter in Great Britain.
Lord Altrincham (Con)
I thank the Minister for his customary courtesy in hosting our Committee and for his patience with us as we move to group 3. I will open on this group, which is on contribution limits and indexation, and comment on those after the Division.
Lord Altrincham (Con)
I thank noble Lords for their patience. I will resume the opening of group 3, on contribution limits and indexation, and will comment on Amendments 6, 13, 19 and 25 in my name and that of my noble friend Lady Neville-Rolfe. We also have a wide range of other amendments, many of which speak to the same set of concerns. I will not address the other amendments in this group in great detail, therefore, but I want to note that I am glad that the same issue has been largely echoed not only on this side of the Committee but across it.
We have already debated the principle of whether this measure is wise, but even those who are broadly sympathetic to the Government’s intentions ought to look carefully at what will happen if the £2,000 cap is left to stand unindexed year after year. The answer is that the Government will end up taxing people twice: once through the cap itself, and again through the quiet, insidious effects of inflation. The Government have chosen £2,000 as their figure. Let us take them at their word that this is intended to protect those on low and middle incomes while bearing down on very high earners; that is what the Minister has told us, in effect, and we should judge the policy against its stated purpose.
The problem is this: a cap that is not uprated in line with inflation does not stay in the same place. It moves, and in one direction only, pulling more and more people into its reach as wages and prices rise while the threshold stays frozen. We have seen this story before in our tax system. We know precisely how it ends. Fiscal drag, by any other name, is still fiscal drag, and, when it operates on a cap that limits pension saving, it is particularly harmful.
Consider an employee today contributing 5% or 6% of a salary that sits just at or above the threshold. Over three years of even modest inflation before the cap comes into force in 2029, then year after year thereafter, that same real-terms contribution will be clipped a little further each time. The worker has not become richer in any meaningful sense. They have simply been caught by a fixed line in the sand that the Government have chosen not to move. A number of different options set out in this group could mitigate this, such as raising the cap by different amounts or applying a percentage. I would like to hear from the Minister what impact these would have. For now, I believe that our amendment on uprating by CPI is the most realistic, but all have some attraction.
Given the complexities of administration already discussed—and apparently reflected in compliance costs in the years running up to the introduction of this new regressive tax—there may be a case here for providing for sensible indexation from day one. When we reformed salary sacrifice in government, we decided to continue it uncapped for pension purposes for a very good reason: we need to incentivise people to pay into their pensions to improve retirement adequacy and, indeed, to build a habit of saving. Sadly, the Bill goes in the opposite direction.
I appreciate that pensions adequacy will be debated more fully later on in our proceedings, but it is too important not to be addressed at this stage. If an increasing number of people find themselves caught by a cap as they sacrifice what are, in real terms, ever more modest sums through salary sacrifice, the inevitable consequence will be a reduction in retirement saving, affecting, as we have already discussed in Committee, people on modest earnings or, as the noble Lord, Lord Londesborough, mentioned, the cohorts over £25,000. Absent any uprating mechanism, the policy will steadily draw in those on lower and middle incomes, penalising individuals, in effect, for doing the responsible thing and saving for their retirement. As we made clear at Second Reading, improving retirement adequacy ought to be a central objective of government policy, not something undermined by it.
We must also be candid about the long-term implications. When people save less today, the shortfall does not disappear; it re-emerges later as a greater pressure on the state and, ultimately, on future taxpayers. I remain unconvinced that the Treasury has properly grappled with these behavioural and fiscal consequences, and the increasing cost of unfunded future retirement liabilities. The Government are taking significant risk with long-term savings behaviour by making even marginal changes, as was noted by my noble friend Baroness Altmann, or the expected behavioural changes by employees and employers noted by the OBR. I look forward to the contributions from other noble Lords with amendments in this group and the response from the Minister. I beg to move.
Lord de Clifford (CB)
My Lords, my Amendments 8 and 21 seek to simplify the changes to salary sacrifice and link it to NIC, which is a tax that will be applied to the pension contributions. I note my interest in the register as an employer who currently runs a salary sacrifice scheme for our auto-enrol pension scheme.
In my Second Reading speech, I talked about the attack on the middle-income employees, and this amendment seeks to make a small adjustment to those middle-income earners. I support other amendments in this group in principle, especially those trying to increase the limit. I would welcome a higher limit than the one I am proposing, but this is a practical change and will help many. I tried to create equality by increasing the NIC free limit for all employees up to a proposed limit of £50,000 to £170,000. This NIC threshold would allow them just to pay 2% on salary sacrifice pension contributions. The noble Baroness, Lady Neville-Rolfe, and my noble friend Lord Londesborough mentioned this inequity in their speeches at Second Reading, and it has also been mentioned a lot this afternoon.
As the Bill currently stands, anyone who has a salary of £40,000 or above and who is making salary sacrifice contributions of 5%, which is the auto-enrolment employee contribution, would start paying national insurance at 8% up to the national upper earnings limit—of which the current annual threshold is £50,270. At this amount, employees would then only be charged at 2% for further pension contributions. This amendment seeks to increase the limit to that figure of £50,270, thereby removing inequity for some employees paying 8% on their pension contributions and others paying only 2%—the majority being higher earners.
Another benefit of the Government linking it to the NIC threshold is that when they wish to make changes to the threshold—to freeze them or increase them, subject to fiscal requirements of the economy—it would automatically change the NIC-free contribution within salary sacrifice, meaning they do not have to make any specific changes to the limit. It would also allow the NIC non-contribution to automatically increase with some sort of link to inflation and wage growth.
It could also help with the implementation of these changes as it would simplify some of the changes for software developers, with all national insurance already set up in the programme. As we covered in the last group, the Government could treat salary sacrifice in the way NIC deductions are currently calculated—on either a weekly or monthly basis. This, however, does not cover someone with several jobs and how it will be applied to them. I look forward to the Government’s research, and possibly some clarity before Report.
A further small benefit is that it would make it easier for employees to try to calculate their take-home pay and what pension payments they can make on a monthly basis to help plan for the future. The amount this amendment would save for employees paying NIC is a maximum of about £41 a year—as the noble Lord, Lord Davies, has covered—but these small amounts, if put into savings, would grow to a large amount by retirement age. Also, small amounts will make the running of a family home better.
Employers will still pay the bulk of the NIC to be collected, with this being 15% on these types of pension contributions. The maximum charge for employers will be about £77 a year, so not of significance with regards to what is trying to be raised by this change. The Government set out that this change was to focus on higher taxpayers, and this amendment would ensure most basic taxpayers would not have to pay NIC on their salary contributions. It would also solve one of the issues mentioned in Amendment 1 tabled by the noble Baroness, Lady Neville-Rolfe.
Will the Minister say where the £2,000 NIC-free amount come from? We know it was based on independent research commission by His Majesty’s Revenue and Customs. We know that three hypothetical options were offered to employers for feedback and that the response was that, of the three options, £2,000 would have minimal impact on business. How did the researchers produce this £2,000 figure as it appears to be an arbitrary amount?
This practical amendment does not change the principle of the Bill or what the Government are trying to achieve. It closes a loophole for some who are making pension contributions without paying NIC. This change does not change the focus from removing the allowance from the target group—higher rate taxpayers and additional taxpayers—who, according to the Minister, account for about 87% of salary sacrifice contributions. The estimate of the sum raised by this change will not reduce significantly.
Finally, this change would support workers and working families in the UK, who are the target of the Government. I very much hope the Government will have a positive approach to this amendment, and I look forward to the Minister’s response.
Baroness Altmann (Non-Afl)
I will speak in support of my Amendment 9, as well as the amendments to which I have added my name, Amendments 7 and 20.
I have proposed my amendment so that—if we are to go through this exercise, which I hope we will not—no basic rate taxpayers would be likely to be caught by the measure. If the minimum contribution on which they can have national insurance relief is £10,000 a year, they are unlikely to be caught, unless they get a very large bonus. I hope that we will be able to deal with some of these issues.
The reason for suggesting a £10,000 per year pension contribution is based on the minimum amount that the very top earners are able to contribute to pensions. Under the tapered annual allowance, for example, £10,000 seems considered to be, if you like, an acceptable level of pension that is not egregious in some way.
My preference would be that, if we are to go down the route of capping the national insurance reliefs available to anyone who is paying into a pension, we do that in the way that I have just suggested, which is the same as one does with tax relief. If you pay in more than £60,000 a year, you do not get any extra tax relief; but if you pay in, for example, more than £10,000 a year, you do not get any national insurance relief on the amounts on top of that. That would be so much simpler.
I stress to the Committee that I believe that the Government and the Minister have not realised the complexity—the sheer scale of the administrative tasks—that will be involved if the Bill proceeds as it is. I liked the idea suggested by my noble friend Lord Leigh to put this on hold and do the work that we are trying to get the Government to do straight after the Bill passes before we finish and finalise the legislation, so that we have a better idea of what we are doing.
I also have a lot of sympathy with the approach that the noble Lord, Lord de Clifford, has outlined. We all seem to be trying to make the Bill operate in practice in a rather less difficult, complicated and costly administrative manner. The amendments tabled by the noble Baroness, Lady Kramer, to which I added my name, on £5,000 are just another way of trying to square this circle. I look forward to hearing the Minister’s thoughts.
I must confess that the idea of inflation linking this limit, if we were to get it, each year would probably just add to the complexity of an already incredibly complex set of changes that we are thinking of making to the Bill. We would not know, from one year to the next, what the new limit will be, because it will not be £2,000 or £10,000—I hope we will not end up there. I hope the Minister understands the spirit in which I am trying to suggest the £10,000 figure and the people I am trying to help: the basic rate taxpayers. I really do fear that they will have a much worse pension outcome if this goes ahead.
Baroness Kramer (LD)
My Lords, this is the group of amendments on which I have been the most focused. I will not repeat my Second Reading speech, in which I talked about the importance of growing pension savings to fuel the growth agenda, but the Government must realise that this policy just does not align with that. However, I hope that the Government are beginning to understand that life today is long and it is not easy to put aside enough from the working years to achieve a decent retirement without depending on the state. According to the Resolution Foundation, changes made under the Bill will hit at least half of those who use salary sacrifice, affecting a large number and a wide range of households.
Different noble Lords, as we see in the amendments here, have proposed different increases to the contributions limit. Amendments 7, 10, 11, 20, 22 and 23 are in my name, and I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord Londesborough, for signing some of them. The core of my amendments would increase the contributions limit from £2,000 to £5,000, preferably with a further annual increase linked to RPI. I confess that there is not a lot of science behind my choice of £5,000, but running it past people who deal with pensions, I began to think I had hit a sweet spot with that figure. The response was that it would support people making the rather difficult choice of what to do with their money and provide a little more of an incentive to save in a pension rather than to spend.
As part of this process, my colleagues in the other place were able to obtain some research from the Commons Library, using PolicyEngine and its interactive dashboard. That work is not definitive but it provides a useful picture of the distributional effects of raising the contribution limit. An uplift of £5,000 would give the greatest gains to the two top income deciles—we would all expect that. But just a shave behind those two deciles, the next highest gainers are the second decile, which is not, I expect, the result that the Government would have predicted. This group would have within it a cohort of young people, probably in their early to mid-20s, perhaps one pay rise into their careers, still willing to live in shared accommodation and to live quite frugally, and not yet trying to pay off student loans, get a mortgage or support children. Surely this is the group that any Government should target to get into saving for a pension in a big way.
Early investment enables a pension pot to grow, but it is a narrow window. As people move into the age of families and mortgages, they cut or even stop pension savings, and women are even more affected if they reduce work to care for children. Only later in life do people return to significant savings and by then it is very late in the day. Frankly, we should make sure that they also have strong incentives to save at this point in their lives to avoid sharp drops in living standards in old age. I think the Government have looked at earners as if they belong to fixed blocks: low earners, middle earners and high earners. In reality, most people’s profiles as earners and savers change as they go through life, and the incentives therefore have to be shaped to maximise and to meet that profile.
Some of my amendments would increase the £5,000 contribution limit annually by RPI. The noble Baroness, Lady Neville-Rolfe, discussed increasing the £2,000 limit by CPI. I know that the noble Baroness, Lady Altmann, considers this an additional complication but, frankly, we have to tackle this issue of frozen thresholds, which in eras of inflation have just such a negative impact.
Lord Londesborough (CB)
My Lords, I will speak to Amendment 6, tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, which I have signed, and to Amendments 7, 11, 20 and 23, tabled by the noble Baronesses, Lady Kramer and Lady Altmann, to which I have also added my name. I am broadly supportive of all the amendments in group 3, including the very practical suggestions that we have just heard from my noble friend Lord de Clifford.
I will start with the very reasonable proposal in Amendment 6 to uprate the £2,000 cap by the percentage change in the CPI. I will not get involved in CPI versus RPI, which has just been very well covered by the noble Baroness, Lady Kramer. Without one of these mechanisms, we are allowing inflation and fiscal drag, as the noble Lord, Lord Altrincham, pointed out, to diminish the real contribution value of what will be for many significantly reduced salary sacrifice. These amendments address that and I believe they are hardly controversial.
Amendment 7 in the name of the noble Baroness, Lady Kramer, is more material in terms of the numbers, changing the contribution limit from £2,000 to £5,000, but, again, it has my support. My overarching concern about this £2,000 cap is that it will compound the existential problem of inadequate pension provision in this country. I encourage the Minister, if he has not already done so, to read carefully the latest report from the Economic Affairs Committee, Preparing for an Ageing Society. On that committee, I sit with the noble Lord, Lord Davies of Brixton, although we are both about to be rotated off, and one of us possibly removed entirely from this place—but that is a separate issue.
During the inquiry, expert witnesses warned us that, despite the success of automatic enrolment, we are in a situation where we have created an awful lot of small pension pots that are hard to find, hard to keep track of and, crucially, do not add up to enough, including those pension plans deemed to be in the upper quartile. UK people currently outlive their pension savings by about eight and a half years and, of course, the gap is even greater for women. As life expectancy increases, this problem will only grow worse.
Lord Ashcombe (Con)
My Lords, the amendments in this group either increase the level of pension contributions exempt from national insurance or seek to prevent fiscal drag. Both aims are very welcome. In many respects, the higher the exempt amount, the better; on the face of it, Amendment 9, in the name of the noble Baroness, Lady Altmann, is the most attractive in that regard. Although it does not provide protection against fiscal drag, she did explain why. That said, assuming inflation remains under control, it would take many years for average contributions to reach the equivalent of £10,000, one hopes, just as it would take a fair amount of time—half, obviously—to reach the £5,000 level proposed in Amendment 7 by the noble Baroness, Lady Kramer, and others. Both would, however, offer meaningful support to average earners who receive a windfall. My noble friend Lord Leigh of Hurley addressed the issue of bonuses earlier. Those earners may wish to act prudently by making a significant one-off pension contribution, without being caught by this punitive tax charge.
The amendment in the name of the noble Lord, Lord de Clifford, offers a simple and workable approach, which he explained, yet this modest uplift would not be free of any fiscal drag, as we already know the basic tax rate on which the salary sacrifice threshold will be based. However, the amount would move if the tax bands increased—if only. I fear that, in the long term, this would work against the very employees the noble Lord seeks to protect, but it is better than the £2,000 mentioned in the Bill.
Finally, I turn to the amendments designed to counter fiscal drag, a mechanism that, as we all know, is one of the least transparent ways in which Governments of all colours raise revenue. Who does it fall upon most heavily? Once again, it is the middle and lower earners of this country: the teachers, nurses, engineers and shop owners—the list goes on—the people on whom the nation depends. Yet the Bill risks penalising them for doing exactly what we encourage: saving responsibly for a decent pension in retirement. The amendments in the names of my noble friends Lady Neville-Rolfe and Lord Altrincham anchor the thresholds to the consumer prices index, while those in the names of the noble Baroness, Lady Kramer, and the noble Lord, Lord Londesborough, use the retail prices index, and we have just heard why.
However, taken together, this group of amendments is of real importance and I support them all, to a greater or lesser extent. We have to try to move this absurdly low number. Each of them, in different ways, seeks to protect the middle and low earners who are trying to do the right thing and save for their futures.
Lord Mackinlay of Richborough (Con)
My Lords, I support a number of the amendments within this group. Obviously, the one that catches my eye the most is the one in the name of the noble Baroness, Lady Altmann, which proposes the highest increase to £10,000. But I am very reluctant that we put into legislation more figures that become fixed and then become fiscal drag in future.
I write a regular column in the Money section of the Daily Telegraph—I am not sure it is declarable for this particularly, but it is on issues of tax. I wrote an article just a couple of weeks ago on inheritance tax. The threshold has been fixed at £325,000 since 2009, and I say with no great enthusiasm that we had 14 years of government, from 2010 to 2024, where we did not increase that. The Government with the blue flavour have not been good at increasing and uprating thresholds in line with inflation.
As has been said quite widely, it becomes the quiet hand that just increases more money to the Treasury in a fairly underhand way, you could say, because the Government have done nothing new: they have simply sat with the legislation that they have and, lo and behold, the magic of inflation cuts in and more money is raised from the same tax. If the 2009 threshold of £325,000 for IHT had been uprated to today, it would now represent £569,000, reflecting that in parts of the country, a house at £325,000 in 2009, which was intentionally free of inheritance tax, is not free of inheritance tax today. With this legislation, we are potentially implementing a fixed £2,000, which, with fiscal drag and inflated or inflating wages over time, will drag more and more people into the net.
The Financial Secretary to the Treasury has said in glowing terms during the course of this debate how good pensions are. I have no doubt that everyone in the Room thinks that pensions are a good thing. Unfortunately, it seems that that good thing is being whittled away. It does not take much for people to change their behaviour. I am concerned that the £2,000 threshold will mean those on the edge will only ever make a £2,000 salary sacrifice. They will not, under any circumstances, particularly if they are a basic rate taxpayer, ever go to £2,001—with an additional pound —or beyond. They will simply have smaller pension pots, as was very adequately described by the noble Lord, Lord Londesborough, in his good contribution.
There is the magic of compounding—I believe that Einstein even called it the eighth wonder of the world. It is the magic by which, just with plain inflation, £1 is put away in a very dull, FTSE-based equity plan—or even, should one wish, into government gilts over a very long period—and it goes up. By receiving just 4% or 5% of interest per year, those small pounds from years ago become very big pounds by the time one comes to retirement. As the noble Lord, Lord Londesborough, very ably said, people have small pots. Even with the great success of auto-enrolment, those pots still remain pretty small; they are not quite enough to supplement a long retirement as people live longer.
I support the good things that the Minister said about pensions. There always seems to be a bit of a cover from a Government who say “Well, only 26% of people will be caught”—I think the Minister said 74% of basic rate taxpayers will not be caught—as if that 74% is more than half and so we need not worry. I am afraid that I do worry about the 26% who will be caught and may do different things—namely, they will not put money away for their savings. For administrative ease, I think the higher the better, so that we do not implement into our tax and national insurance legislation yet another fiscal drag that gets worse and worse over time.
The plea repeated by many in Committee today is to pause and wait, because this will not come in until 2029. Our wide-ranging debate has highlighted a lot of flaws and problems. One of the big flaws seems to be that the Minister who has drafted this legislation remains a little unclear, dare I say it, whether this applies per person or per employment. That seems to go somewhat to the heart of what we are debating. I would almost suggest that we draw stumps and come back another day when the Minister is clear on that, after having asked somebody—I suppose someone in HM Treasury—what is intended. Is it £2,000 per person or per employment?
On the basis of that ambiguity, however, I recommend that we have an uprating to £10,000 at the highest level. Given all the uprating measures that noble Lords have described today—whether an inflationary index is applied or a flat £5,000 becomes the new base level, as the noble Baroness, Lady Kramer, proposed—I am afraid that the £2,000 threshold is looking very threadbare. It drags far too many basic rate taxpayers—the normal end of taxpayers—into its potential net. The danger is that they will not save and will not grow their own pots into the future. People on low pension income in the future will become reliant on the state.
What we are doing here is trying to get a bit of sugar today into the Treasury coffers. A sugar rush, where the future will have to be paid for as more people fall into pension credit and other forms of retirement benefit payments, could so easily be avoided by introducing every measure we possibly can, here and now, to get people saving for their own future.
Lord Leigh of Hurley (Con)
My Lords, it is worth reminding ourselves that this legislation was prompted by a document published in May last year with this eye-catching title: Understanding the Attitudes and Behaviours of Employers Towards Salary Sacrifice for Pensions. It concluded:
“All the hypothetical scenarios explored in this research”,
including the £2,000 cap, were “viewed negatively” by those interviewed. It said that the changes would cause confusion, reduce benefits for employees and disincentivise saving for a pension. The report came to the conclusion that, of the three proposed hypothetical options for change, the £2,000 cap was no more than the least bad option.
As has been discussed here, even the OBR has stated that, in the first year in which this measure bites, there will be an estimated revenue of £4.48 billion from the Bill, but it will drop in the next year to £2.6 billion. That is a massive fall in revenue. Should HM Treasury not be worried about this? Should it not be asking itself, “How can we bring in something that leads to a drop in revenue of 50% in year 1?”? The taxpayer wants to know. Could an assessment be done of whether this is likely to be the case in some of the scenarios set out in these amendments—in particular, the £5,000 and the £10,000? I do not know this, because I do not have the resources to do that, but I suspect that, although bringing the cap in at £5,000 and £10,000 would not lead to the £4.48 billion in year 1, it would lead to a much more consistent figure in the subsequent years, for the long-term benefit of the country. As my noble friend Lord Mackinlay said, it will be a bit of a sugar rush and will force people to make most unfortunate changes in their patterns of savings, which the Government cannot be keen to see happen.
Lord Livermore (Lab)
My Lords, I am grateful to noble Lords who have spoken in this debate.
First, I will address Amendments 6, 10, 11, 13, 19, 22, 23 and 25 in the names of by the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham and Lord Londesborough. These amendments seek to uprate the cap by the percentage change in the consumer prices index or the retail prices index. The Government agree on the need to keep the level of the cap under review to ensure that it continues to meet its policy objective: keeping the cost of salary sacrifice tax reliefs on a fiscally sustainable footing while protecting ordinary workers. However, we disagree with the approach set out in these amendments because it would be inconsistent with the approach taken in respect of other pension tax reliefs, which are not routinely indexed with inflation.
For example, in 2023, when the previous Government made changes to the annual allowance, they increased it by a set amount rather than indexing it; the annual allowance was otherwise not routinely uprated or index-linked. The Government are taking a pragmatic, balanced approach to ensuring that the cost of tax relief on salary sacrifice pension contributions remains fiscally sustainable. The future level of the cap in the next decade and beyond is for future Budgets in those decades.
This leads me on to Amendments 7 to 9, 20 and 21 in the names of the noble Baronesses, Lady Neville-Rolfe, Lady Kramer and Lady Altmann, and the noble Lords, Lord de Clifford and Lord Londesborough. These amendments seek to increase the cap beyond £2,000. It is important to consider the level of the cap in the wider context of the objectives of this change, which are about keeping the tax system on a sustainable footing while protecting ordinary workers. Without reform, the cost of this tax relief is now set to almost treble in cost, from £2.8 billion to £8 billion, with the vast majority of the benefit going to higher earners because around 62% of salary sacrifice contributions come from the top 20% of earners. Although some tax experts have called for pension salary sacrifice to be abolished entirely, the Government are taking a more measured and pragmatic approach.
As I said earlier this afternoon, the £2,000 cap protects 74% of basic rate taxpayers using salary sacrifice. This means that three-quarters of those earning up to £50,270 a year who use salary sacrifice will be protected by the cap. Almost all—95%—of those earning £30,000 or less who use salary sacrifice will be entirely unaffected by the changes. Some 87% of salary sacrifice contributions above the cap are forecast to be made by higher and additional rate taxpayers. Increasing the level of the cap in the way proposed by these amendments would cost additional money and would undermine the objective of putting this tax relief on a sustainable footing for the future. Such changes should also be considered in the wider context of pension tax relief, which amounts to more than £70 billion each year; that spend will be entirely unaffected by this legislation.
In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.
Lord Altrincham (Con)
My Lords, as many noble Lords have made clear in their remarks on this group, the policy as currently drafted operates as a rather untargeted tax. Introducing indexation by RPI or CPI—described by the noble Baroness, Lady Kramer, as the goose and gander amendment—would be a straightforward and proportionate step that the Government could take now to mitigate what I can only assume is an unintended consequence. We on these Benches would also support the higher limits proposed by noble Lords and noble Baronesses today to mitigate behavioural changes that may undermine the objectives of this initiative or the Bill entirely.
The Minister has heard a range of constructive proposals this afternoon as to how this issue might be addressed. I very much hope he has listened carefully to the strength of feeling across the Committee and that he will give serious consideration to adopting one of these solutions. I beg to withdraw the amendment.
Baroness Neville-Rolfe
“(5) The amendments made by this section do not apply where the employer—(a) is a small or medium-sized enterprise, or(b) is a charity or social enterprise which meets the conditions in subsection (6).(6) The conditions are that—(a) the employer meets the definition of a small or medium-sized enterprise in section 465 of the Companies Act 2006, and(b) the employment is carried out wholly or mainly for the purposes of that charity or social enterprise.(7) In this section—“charity” has the meaning given by section 1 of the Charities Act 2011;“social enterprise” means an undertaking which—(a) has as its primary purpose the achievement of social or environmental objectives, and(b) principally reinvests its profits for those purposes;“small or medium-sized enterprise” has the meaning given by section 465 of the Companies Act 2006.”Member’s explanatory statement
This amendment exempts small and medium-sized enterprises, and small and medium-sized charities and social enterprises, from the provisions of the Bill in Great Britain.
Baroness Neville-Rolfe (Con)
My Lords, I will speak first to Amendments 12 and 24, which would exempt small and medium-sized enterprises, charities and social enterprises from the salary sacrifice pension contribution cap introduced by the Bill. I also welcome Amendment 27, tabled by the noble Baroness, Lady Kramer, requiring a review of the ability of SMEs to recruit and retain staff.
Small and medium enterprises have been hammered under this Government. They have introduced policies that will cost businesses £25 billion annually in tax compliance alone, according to the firm Together Accounting. Their previous NICs hike added a further £25 billion burden and there are business rate hikes, minimum wage increases and the Employment Rights Act. Is it any wonder that 52 businesses per 10,000 are entering insolvency, nearly double the rate from just five years ago? The Federation of Small Businesses reports that 63% of businesses now cite tax as their primary concern. Business confidence has plummeted. This is something that I have spoken about many times, and the Conservative Party stands with small businesses. They are the lifeblood of our communities, our jobs market and our economy.
Our amendment tries to shield SMEs and charities from what is effectively yet another damaging tax by exempting them from this policy. Given the onslaught SMEs have suffered under the Government, the rationale for this needs little explanation. SMEs operate on thin margins, often without sophisticated accounting mechanisms or payroll and accounting teams. They will be disproportionately affected by this policy and should be exempt.
Turning to charities, before the Budget was even confirmed, the Charity Finance Group ran a survey of the sector specifically on the question of salary sacrifice. It found, and I urge the Committee to note these figures carefully, that 81% of charities reported that the salary sacrifice change would have a negative impact on their ability to offer competitive benefits to staff. Nearly seven in 10 had already started to reduce headcount or expected to do so in the near future, and that was before this further measure. It is not surprising that they are worried, as in my experience charities often have more complex employment arrangements: seasonal working, moving jobs, and weekly rather than monthly pay. They also often have much less sophisticated payroll systems.
CFG warned explicitly that, for charities operating on tight margins, salary sacrifice has been a critical tool and a way both to support staff and to achieve meaningful savings on employer national insurance at the same time, stretching limited resources further while enabling employees to build better pension provision. To cap that mechanism is to remove one of the few cost-efficient tools available to organisations that cannot increase prices, raise equity finance or easily diversify their income when grant funding or public contracts do not keep pace with costs.
The wider context of what has happened to charities under the Bill matters here, too. Last year, on Report, the House of Lords carried amendments to the then national insurance contributions Bill that would have protected small charities with revenues under £1 million from the main NICs rise. However, the Government rejected them, and we have seen what happened there. The Government have said that they want to build a stronger economy and a thriving civil society. That ambition is not well served by a policy that removes from smaller employers and civil society organisations one of the most effective tools that they have to compete for talent and support their people in saving for retirement.
Amendment 26 asks that, within 12 months of this Act coming into force, the Government commission and lay before Parliament an independent review of its impact on small and medium-sized enterprises, including administrative costs, compliance burdens, employment costs and the ability of SMEs to attract and retain staff—and, crucially, that this be assessed in the context of the cumulative changes to employer national insurance since July 2024.
Time and again, the Government’s approach has displayed a worrying lack of understanding of how small firms actually operate, how thin their margins are, how sensitive they are to cumulative costs and how easily confidence can be shaken. We saw it with the previous national insurance hike and in the rushed recalibration over pubs, and we see it all over again in this Bill and the rush to pass it when the vital detail is still to be settled. We know that the revenue collected will almost halve in the second year of implementation, so there will be lots of new compliance costs and an uncertain future.
If the Government are confident that this measure will not materially damage SMEs, they should welcome the opportunity to demonstrate that through an independent review. If they are serious about growth, entrepreneurship and avoiding further damaging U-turns, they should look at the cumulative picture. Given the scale of pessimism now facing the small business community and the stakes for employment and growth, I urge the Government to accept this amendment. SMEs do not trust the Government to act in their interests. If the Treasury were to adopt such an amendment—as well as the associated one for Northern Ireland, where there are so many SMEs—perhaps this trust might start to be rebuilt. I beg to move.
Baroness Altmann (Non-Afl)
My Lords, I have added my name to all of the amendments in this group. Again, I think that they are very important. I am pleased to have added my support for my noble friends Lady Neville-Rolfe, Lord Altrincham and Lady Kramer—if I may call her my noble friend—as well as for the noble Lords, Lord de Clifford and Lord Londesborough. All of them are picking up on the huge risks that are being posed in terms of additional administrative costs, burdens and complexity for small and medium-sized businesses, charities and social enterprises, which, as my noble friend Lady Neville-Rolfe explained, have already had so many extra burdens placed on them.
I reiterate that I hope that the Minister will recognise that we need this analysis and this type of work before we make the primary legislation that we are considering here, rather than afterwards. I also hope that, if the Minister does not have ready answers, modelling or analysis that would address the issues these amendments are trying to understand in more detail, we can, as we have heard before in Committee, put some of this on hold until we have a better understanding of what the real-world impacts will be.
Lord Londesborough (CB)
My Lords, I will speak to Amendments 12 and 26, tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, to which I have added my name. I am also supportive of Amendment 27 in the name of the noble Baroness, Lady Kramer, to which I should have added my name; I apologise for not doing so.
I spoke in the previous group about pension inadequacy. This is especially true for employees in our start-ups, scale-ups and SMEs in general. So the exemptions proposed in Amendment 12 get my full support. I should declare my interests as a chairman, investor and adviser to a range of start-ups and scale-ups.
There is an element of Groundhog Day here: some noble Lords will remember that I tabled a similar exemption on behalf of SMEs in last year’s NICs Bill. With the invaluable support of the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, we achieved a majority of about 100 on Report. At that point, we issued some fairly blunt warnings in relation to jobs; I am afraid that those warnings have been borne out by the employment figures, especially at entry level and in part-time roles among SMEs. These same employers, who are struggling both to create new jobs—look at the vacancy numbers—and to sustain existing ones, face yet more complications and costs in the area of national insurance contributions. Increased burdens at a time when we desperately need to generate per capita economic growth are not well timed.
Some noble Lords will have read the recent letter a couple of weeks ago from the FSB—the Federation of Small Businesses—to the Chancellor of Exchequer. It made for particularly grim reading. More than a third—I emphasise that—of employers among SMEs plan either to shut down their companies or to reduce output due to higher employment costs, increased business rates and increased energy costs. If we want to protect our vital SME ecosystem, we need to stop punishing them—I say “punishing” because it is appropriate, as these are punitive measures—and complicating their business of employment.
In the light of what I have just said, there is a clear need for a review of the impact of the Bill on SMEs, as is outlined in Amendment 26, which also gets my full support.
Lord Ashcombe (Con)
My Lords, I support the amendments in this group in the names of my noble friend Lady Neville-Rolfe, the noble Baroness, Lady Kramer, and others—in fact, quite frankly, most of the noble Lords currently in Committee.
These amendments speak directly to the reality facing SMEs and charities, which are organisations that form the backbone of our economy and social fabric. These employers have already endured a succession of rising costs—I have a few to add, so I will go through them again—such as higher national insurance, changes to inheritance tax, increases in the minimum wage, new obligations under the Employment Rights Act, business rate adjustments and the continuing shock of energy prices. A handful of sectors have received modest relief but, for most, these pressures fall straight to the bottom line. The cumulative effect is profound.
Charities are no better placed. They are all under extraordinary strain, yet they provide services that the state itself cannot easily replace. How do these organisations continue to operate if further costs are piled on them? My noble friend mentioned the outrageously appalling numbers.
There is even more concern when donors are typically being more hesitant, due to the overall sentiment in the country to donate. This is not merely short-sighted; it risks creating far greater financial and social pressures for future Governments. The Bill adds yet another cost: it raises employment expenses at a time when many organisations are already stretched to breaking point. It undermines their ability to offer competitive pension packages, often one of the few tools available to attract and retain skilled staff. There is a high chance that these businesses will simply withdraw salary sacrifice schemes and may simply withdraw themselves from the market.
Implementation is scheduled for 2029, which gives these operations time to review the situation, which is, as we have heard, very complex. Many SMEs do not have HR teams to manage new thresholds, payroll changes or contract revisions. They will be forced to pay for external support that they can scarcely afford in the current climate. This is not a policy that encourages growth; it is one that diverts time, money and energy away from the very activities that drive economic vitality. This is on the basis of companies that employ on an annual basis, but what happens if they take on shift and seasonal workers who may have more than one occupation, which we have already heard quite a lot about? The complexity merely increases ever more, as does the expense, if the company is prepared to continue with salary sacrifice schemes at all.
Lord de Clifford (CB)
I have had the privilege of putting my name to Amendment 27 in the name of the noble Baroness, Lady Kramer; the noble Baroness, Lady Altmann, has added her name to it as well.
I own an SME business, and this Government’s changes to NIC have significantly affected it. Of the 8% rise in salary costs to my business in the past 12 months, 25% of that figure—or 2%—was the NIC change. The changes proposed would increase that further.
This amendment seeks a review of the effect of the change on SME businesses and on employment rates within SMEs. SMEs are the bedrock of employment in this country, as was covered by my noble friend Lord Londsborough. The addition of this pre-profit tax does nothing to encourage growth, investment or employment. This review is very much welcome to identify any changes within SME businesses, to ensure that we remain healthy and can create opportunities for growth and jobs for all generations, especially the young.
Lord Mackinlay of Richborough (Con)
My Lords, I normally do not support measures that carve out certain sectors from others in the normal weft and weave of enterprises in the country, but I support this one, particularly Amendments 12 and 24 which seek to carve out small and medium-sized companies under the Companies Act 2006 and charities and social enterprises. I think a tipping point has now been reached, particularly on the back of the Employment Rights Act, increased national insurance and higher minimum wages, particularly those applying to younger employees.
We are seeing that already with the highest rate of NEETs—younger people out of work—than I think we have ever seen before: 700,000 at present. What always happens under a Labour Government is certainly happening. It usually happens over a longer period—over the full five years of a Labour Administration—but it is happening very quickly within their first 18 months. Levels of unemployment are higher than we have seen. We now have higher rates of youth unemployment than the EU average. In days of old, we used to point our fingers over the channel, laugh at the level of youth unemployment over there and wondered how on earth they got it so wrong—but no more. The finger-pointing is now coming from that side of the channel to us, wondering how we could be so stupid so quickly. I think that tipping point has been reached.
A reality for small and medium-sized enterprises, particularly the smaller ones, is that they do not run their own payrolls; they contract out their payroll requirements to payroll bureaus. It is very commonplace. I would say the tipping point could be even up to 50 employees, where the company will pay a bureau to do all the complicated stuff—processing the real-time information, taking in the coding notices, working out the statutory sick pay—that comes with running a payroll. Smaller and medium sized enterprises want to get on with the business they do. Whatever the business might be—whether a retailer, a pub, a printing company or whatever—it does not particularly want to add to the administrative burden internally and deal with the cost of it, so they tend to outsource it.
My thoughts on these amendments might be a little different if we knew—and I will say it for a third time today—whether this £2,000 threshold measure applied for the employee across all their employments or across each employment. If it does apply to the employee across multiple employments, then the payroll bureau way of doing things becomes extremely complex. It will have an additional burden to speak to the payroll bureau and the tax office for the details of the employee’s other employments. Until we have an understanding of what that really means within this legislation, I think we are a little bit out at sea.
However, there are other things going on in the employment market at the moment. We have one sector that is growing quite well in terms of the employment numbers and the number of new employees: the public sector. It is about the only sector that is growing, and of course it does not really do much for the GDP of the nation because every penny has to come on the back of proper profits and taxes that are derived from the private sector.
As someone who was once involved in the SME sector, I know that there is often a competition going on between a potential employment available to a good and skilled potential employee in the market. They have the choice of going to the public sector, which gives six months of paid illness leave and another six months of half pay—there are not too many questions asked. There is lots of working from home and lots of other lovely benefits—such as an accumulating index-linked pension—which few in the private sector can match anymore. The days of the final salary pension really only exist in one place, and that is now in the public sector. Therefore, the SME sector has a struggle to recruit, especially when the market is good.
A skilled employee, when given the choice of working in the public sector with all those benefits or working in the private sector—where the pension, sickness benefits and holiday benefits are not so good, and the requirement to worked damned hard is different in expectation—will choose the public sector. There is a conflict going on in employment. The one thing that small businesses might be able to offer, however, is a better pension provision, and these measures will stop that. It is the one thing they can use to attract a good employee. To deprive the small business sector, charities and those in social enterprises of the opportunity to offer a little bit of gold plate in the employment offer to a very good employee is a very backward step.
For perhaps one of the first times, I actually support these amendments because employment rights and running payrolls have become so complex, and there are more and more burdens for businesses, which are negatively impacting them. A carve-out for smaller enterprises under the measures proposed by Amendments 12 and 24 are to be supported because the backs of small and medium-sized enterprises are breaking, and they need support that, I am afraid, this legislation does not provide them.
Baroness Kramer (LD)
My Lords, as we discussed at Second Reading, the Federation of Small Businesses has warned that the impact of the Bill could meaningfully disadvantage small businesses. In a way, I look at social enterprises and charities as, essentially, a subset of the SME sector. Big businesses can often devise ways and perks to reward people that are simply not available to SMEs, so they can dampen the impact of the Bill on their workforces and widen that competitive gap.
As a consequence of that, I thank the noble Lord, Lord de Clifford, for signing Amendment 27 in my name, and the noble Lord, Lord Londesborough, for saying that he would have signed it. Frankly, when these noble Lords give warnings on what will happen and what is happening in the small business sector, I really hope that the Government are listening because, unfortunately for our economy, their track record has a real history of being correct, and those warnings need to be taken seriously.
As other noble Lords have said, SMEs are already under pressure. I am not going to repeat the saga of the burdens on them, but we have to recognise that this is a time when we absolutely need small businesses to accelerate their hiring, especially of young people, and make serious investment in productivity and growth. Once again, this is another measure where I can see no alignment between the Bill and the Government’s industrial strategy or growth policy. It seems to pull in completely the wrong direction.
Amendments 12 and 24 would straightforwardly exempt SMEs. Amendment 27 in my name would give the Government a chance to make their case, in a sense, because it would require a detailed review within 12 months of the Act being signed, which is obviously long before the Act will come into force. The review would target the two issues that we have said are so critical—SME recruitment and retention—and would also look at this matter in the context of the cumulative impact, particularly of NICs changes since this is a NICs Bill. It seems wise to encompass a look at these two NICs changes as being linked and entangled in the way they impact on small businesses.
I do not want to take up much more of the Committee’s time, but it is important to stress that this is not the time for uninformed decision-making; that has been echoed through group after group of amendments. I am not rejecting the other amendments but Amendment 27 would be a relatively modest way for the Government at least to do something that begins to put evidence before Ministers and Parliament.
Lord Livermore (Lab)
My Lords, I am grateful to all noble Lords who have spoken in this debate. First, I will address Amendments 18 and 24 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, which would exempt small and medium-sized enterprises, charities and social enterprises from the Bill.
The Government agree on the importance of supporting small businesses and ensuring that they are not unduly impacted by these changes. Small and medium-sized enterprises are far less likely to offer pension salary sacrifice than larger businesses. According to Nest Insight, around 33% of small businesses offer pension salary sacrifice to their employees, compared with 83% of large businesses. In addition, employees of small and medium-sized enterprises are far less likely to have contributions exceeding the £2,000 cap; only 10% of employees in SMEs have pension contributions through salary sacrifice exceeding the cap. Exempting small and medium-sized enterprises in the way suggested by the amendment would therefore introduce significant additional complexity into the tax system and would be disproportionate given the limited impact that this policy is expected to have on these businesses. The Government are engaging with employers and other industry stakeholders ahead of these changes coming in.
Similarly, Amendments 26 and 27 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham, Lord Londesborough and Lord de Clifford, would require a review of the impact of the Act on small and medium-sized enterprises. As I have already said, the Government agree about the importance of supporting small businesses. The changes in the Bill will mainly impact larger employers, which are much more likely to use salary sacrifice and to have employees who are contributing above the £2,000 cap.
More widely, the Government are delivering the most comprehensive package of support for small and medium-sized businesses in a generation through the small business strategy, unlocking billions of pounds in finance to support businesses to invest and removing unnecessary red tape. Ahead of the cap coming into operation, the Government will continue to work closely with employers, payroll administrators and other stakeholders to ensure that the changes are implemented in the least burdensome way for businesses of all sizes currently using salary sacrifice.
In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.
Baroness Neville-Rolfe (Con)
My Lords, if the Government truly wish to support SMEs and charities, they should not press ahead with a measure that those enterprises have told us—I gave a great deal of evidence, and we have heard this from others as well—will damage them, increase their operating costs and complexity and reduce their ability to offer options to their employees. The noble Baroness, Lady Altmann, put the case well.
The noble Lord, Lord Londesborough, with his unique experience of SME businesses, reminded us of the dire situation facing SMEs, with significant numbers closing down, as one can see on almost any high street. My noble friend Lord Ashcombe emphasised the cumulative effect and rightly added energy prices to the problems that SMEs and charities are facing. The Bill will raise employment costs at a time when companies are already stretched to boiling point.
The noble Lord, Lord de Clifford, illustrated the problem with information drawn from the impact of NICs on his business, which I found particularly compelling. He is very keen to have the hope—I think that is the right word—that will arise from the proposed review. My noble friend Lord Mackinlay reminded us of the large number of NEETs who are out of work, as well as of how we now have higher youth unemployment than the EU, generating what he referred to as a tipping point.
My noble friend rightly raised—I hope that the Minister will come back on this—the key unanswered question of whether the £2,000 cap will apply per employee across multiple employments. We must have an answer on that because it will make a great deal of difference, especially to smaller operations. I am impressed by the fact that, for the first time, my noble friend has agreed to support a carve-out for SMEs and charities, on which I have campaigned for the past 11 years.
The Minister and I have often exchanged views on SMEs, but this is an opportunity for him to make a concrete change to the Government’s policy on this matter, do something to show that the Government listen to SMEs and small social enterprises and provide them with a bit of relief from the mountain of complexities piled on them. I urge the Government to think again and make a positive change to the Bill in this area. It would not be expensive, but it would protect jobs and businesses, help our economy and, above all, reduce compliance costs for both this vital sector and the officials who are taxed with policing the changes and gathering revenue.
Lastly, I reiterate my support for the review of SME recruitment and retention proposed by the noble Baroness, Lady Kramer, in the light of the cumulative NICs changes that we have seen over the past 18 months. Like her, I hope that the Government are listening. For now, I beg leave to withdraw the amendment, but we will, I think, want to revert to the position of SMEs and charities when we come back on Report later in the spring.
Baroness Kramer
“Calculation and publication of lifetime pension values(1) The Secretary of State must calculate and publish illustrative projections of the lifetime value of pension savings before and after the changes made by this Act.(2) For the purposes of this section, “lifetime value” means the total pension income an individual is expected to receive over their lifetime.(3) Projections must—(a) be based on clearly stated assumptions, and(b) include examples covering a range of income levels and pension entitlements.”Member’s explanatory statement
This amendment seeks to require the publication of illustrative lifetime pension outcomes.
Baroness Kramer (LD)
My Lords, I will try to be speedy. The amendments in this group in various ways would require that the work to assess the impact of the Bill on pension savings and pension incomes is done and put before Parliament. My Amendment 28 would make this a responsibility of the Government. Amendments 29 and 30 in the names of the noble Baronesses, Lady Altmann and Lady Neville-Rolfe, would require an independent review. These three amendments have different degrees of detail and emphasis, but I suspect they can easily be redrafted to cover all the key elements.
It seems to me that behind all these amendments sits a basic question: did the Government do their homework? If they had, they could pretty much hand us everything we have requested tomorrow morning. I fear that this has been another off-the-hoof policy where the Government poorly understand the consequences, and I think that needs to be exposed and dealt with. It is true that implementation of the policy is not until 2029, probably the other side of another general election, but, frankly, that is not an excuse for doing this wrong, for not having the evidence and for not making it available. That is what I think every amendment in this group seeks to achieve in a different way. I beg to move.
Lord Altrincham (Con)
My Lords, Amendment 30 has a simple purpose: to ensure that before the Act is commenced there is an independent review of its impact on pensions adequacy—which we have been talking about again and again through this Committee—saving behaviour and on those repaying student loans, and that Parliament must see the findings before the provisions take effect.
Pensions adequacy is one of the central long-term economic challenges facing this country, and under the Government it is set to get far worse. The Institute for Fiscal Studies’ report Adequacy of Future Retirement Incomes: New Evidence for Private Sector Employees could not be clearer. On current trends, around four in 10 private sector employees saving into defined contribution schemes are projected to undershoot the Pension Commission’s replacement rate targets. Even using a far more modest minimum living standard benchmark, a substantial minority are not on track to reach it.
The IFS also makes a crucial point that, since the Pensions Commission report 20 years ago, lower returns on saving and longer life expectancy mean that the savings rates required to hit adequacy benchmarks are higher than previously thought. In other words, the adequacy challenge has intensified, not diminished. Yet what are the Government doing in the Bill? They are altering one of the key mechanisms through which many working people build their retirement savings without any independent assessment of what that will mean for adequacy.
Baroness Altmann (Non-Afl)
My Lords, this group of amendments is, once again, trying to do the work that needed to be done before we had this Bill. All the proposals are important, in my view. Mine is a version of what we need to find out. I genuinely believe that this needs to be done independently of government because there are so many elements that government may not or seems not to have considered.
Effectively, this is another tax increase. At the margin, it can only make pension provision worse. It cannot improve it at a time when we are supposed to be trying to help people have better pensions going forward. It can only, at the margin, as I say, deter employers and employees at the current levels of provision and encourage reduction.
The Society of Pension Professionals has pointed out that 290,000 employers are using salary sacrifice in this country at the moment. We know that there is an expected saving in 2029-30 of £4.8 billion and a further saving of £2.6 billion in 2030-31, but even with those figures, the OBR points out that the revenue raised is subject to uncertainties related to the potential responses to the change. We have heard an awful lot about the potential responses to the change today and it is inevitable that, although the Prime Minister stressed in March 2025 the Government’s commitment to reduce employers’ compliance costs by 25%, this Bill alone will significantly increase the cost for those employers who have been using salary sacrifice as a way of helping their employees have a better pension outcome.
Pensions administration is already a problem that has been swept under the carpet for far too long. We know that the pension rules are ridiculously complicated and that data errors abound. If we continue to have these ongoing changes or salami-slicing of the tax advantages that pensions have, rather than one holistic review of how we provide pensions and incentivise both individuals and employers to provide for themselves in later life, then we will never end up with the kind of system we need. We will continue to add complexity to an already extraordinarily complex system.
I hope that my suggestion of a review, which would include what this Bill would do to the use of salary sacrifice as a whole by employers, will again signal to the Government what the likelihood seems to be. Given that the Bill already foreshadows future changes, employers who are currently running salary sacrifice will start to realise just how complicated it will be to adapt to the measures of this Bill. They will then think, “Are we going to have to go through this all again if the limit changes or if some other change happens? We’ll just abandon the idea of salary sacrifice altogether, and perhaps those who are already contributing more than the minimum will cut back to the minimum”. We need to be very mindful of this kind of change and whether we can have a holistic overall view of pension provision in the private sector, in particular, and the way in which we incentivise employers and employees.
Lord de Clifford (CB)
My Lords, I added my name to Amendment 29 in the name of the noble Baroness, Lady Altmann. She has just summed up a lot of my issues, so I will keep this brief because it is late.
I will come from the perspective of one limited experience: my business. The success of auto-enrolment is fantastic, and the salary sacrifice scheme has really helped. I have 18 and 19 year-olds saving for a pension; it is only small amounts, but it really helps them. The other thing is that those who are slightly better paid find it so easy to increase their pension contributions and then pull them down again when they need their funds. I believe this Bill will be a disincentive to those people who are trying to save a bit more.
Therefore, I support this amendment, which seeks to check that we do not lose the advantages that auto-enrolment has brought to SMEs and has forced employers like me—I think back when we instigated ours—to bring in pension schemes. There is real value to that. The experience of the noble Baroness, Lady Altmann, in pensions is a lot greater than mine, so I welcome a review, especially an independent one. It is so important that we start saving for our pensions. My noble friend Lord Londesborough came up with some statistics earlier and the report from his committee is important.
Those are the reasons why I support this amendment. It is essential that we continue to review how people save for their pensions.
Lord Livermore (Lab)
My Lords, I am grateful to all noble Lords for their contributions to this debate.
I turn first to Amendment 28, tabled by the noble Baroness, Lady Kramer, which seeks the publication of illustrative projections of lifetime pension saving values before and after this change. The Government do not agree that this amendment is necessary to provide the required information on personal pension saving outcomes. The impacts of the measures in the Bill, including on employees and employers, are already set out in the tax information and impact note published alongside the Bill’s introduction.
Additionally, the Government published a policy costing note, which includes detail on the tax base and static costing as well as a summary of the behavioural responses expected by individuals and employers. The Office for Budget Responsibility has set out impacts in its economic and fiscal outlook, making it clear that it does not expect a material impact on savings behaviour as a result of the tax changes made in the Budget. Similarly, there are already a number of existing tools and services that individuals can use to understand their personal financial position and estimate their potential retirement income.
Amendments 29 and 30, tabled by the noble Baronesses, Lady Altmann and Lady Neville-Rolfe, and the noble Lords, Lord Altrincham and Lord de Clifford, would require the Government to take advice examining the impact of this change on employers, pension adequacy and workers’ pay. They also seek to make commencement of the Act conditional on the publication of an independent review of its effects, including on pension adequacy. The impacts of this measure have already been set out across the range of usual publications for changes to national insurance; these include the published tax information and impact note and policy costings note, as well as the Office for Budget Responsibility’s economic and fiscal outlook.
These amendments raise a wider point about the role of salary sacrifice in the pension salary saving system, particularly in relation to incentivising saving and improving pension adequacy. It is important to place this measure in context. Salary sacrifice existed in the 2000s and early 2010s, yet, during this period, there were falls in private sector pension saving. The key factor that has led to an increase in saving in recent years, as many noble Lords have noted in this debate, is automatic enrolment. As a result of automatic enrolment, more than 22 million workers across the UK are now saving each month.
Although all of us here share a commitment to improving pension adequacy, many groups at higher risk of under-saving—including the self-employed, low earners and women—are not the most likely to benefit from salary sacrifice. Only one in five self-employed people save into a pension, but they are entirely excluded from salary sacrifice. Low earners are most likely not to be saving, but higher earners are more likely to be using salary sacrifice. Many women are under-saving for retirement, but many more men use pension salary sacrifice.
The pensions tax relief system remains hugely generous, and there remain significant incentives to save into a pension. The £70 billion of income tax and national insurance contribution relief that the Government currently provide on pensions each year will be entirely unaffected by these changes.
Given the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.
Baroness Neville-Rolfe
“(2) The provisions of this Act, other than this section, may not come into force unless and until the conditions in subsections (2A) to (2C) are met.(2A) The Secretary of State must undertake an independent review of the impact of this Act on employers.(2B) The report must in particular consider—(a) the direct and indirect costs incurred by employers as a result of this Act,(b) the effect of the Act on employer pension contributions and the use of salary sacrifice arrangements,(c) the additional compliance costs necessitated by this Act, and(d) any consequential impacts on employment practices, workforce retention or remuneration structures.(2C) The Secretary of State must publish the report of the review and lay it before both Houses of Parliament.”Member’s explanatory statement
This amendment makes commencement of the Act conditional on the publication of an independent report on its impact on employers.
Lord Wilson of Sedgefield (Lab)
There is agreement on my side that we will go on for a little while after that.
Baroness Neville-Rolfe (Con)
Sorry—I was advised that there is no agreement beyond 7.45 pm.
Lord Wilson of Sedgefield (Lab)
It has been agreed with the clerks and everyone that we will go beyond that to 8 pm so that we can try to get it all finished.
Baroness Neville-Rolfe (Con)
Well, I have been told that there is no agreement beyond 7.45 pm. I do not have a Whip in here.
Lord Wilson of Sedgefield (Lab)
We will stick with 8 pm. If we start now, we will be able to finish it by then; if not, we will not.
The Deputy Chairman of Committees (Viscount Stansgate) (Lab)
Allow me to offer my help to the Committee. As I understand it, it is possible for this Sitting to continue until 8 pm.
Baroness Neville-Rolfe (Con)
My Lords, my amendment in this group seeks to make the commencement of this Act conditional upon the publication of an independent review of its impact on employers.
The Government’s decision to cap national insurance relief on salary sacrifice pension contributions at £2,000 per year has been presented as a measure targeted at higher earners, but the reality, as those of us who have spoken to businesses up and down the country know, is rather more complicated than that. This is not simply a matter of adjusting the tax affairs of a few well-paid executives. This measure hits employers directly and in ways that Ministers have not thus far adequately costed or explained. For small and medium-sized enterprises in particular, the costs are not trivial. Many have structured their entire remuneration and pensions offerings around salary sacrifice arrangements. They have done so because it is administratively straightforward, it benefits their staff, and it has had the backing of the previous Government as a sensible way to encourage workplace pension saving. Those businesses now face not only higher employer national insurance costs but also the compliance burden of unpicking arrangements that may have been in place for years.
Let us be plain about what this means for a small business. We are talking about firms with perhaps 20 or 30 staff, businesses that do not have large HR departments or in-house tax teams. They will need to review every employment contract, revisit their payroll systems and, in many cases, seek professional advice to understand their new obligations. What is particularly troubling is that we have not seen from the Government anything approaching a comprehensive assessment of these impacts. We know that HMRC consulted last year, but it got a dusty answer. The OBR has produced some high-level revenue estimates, which do not reassure us, and we know from the Treasury note that it expects this measure to raise several billion pounds by the end of the Parliament. But what we have not seen, and what employers and employees alike are entitled to expect, is a proper independent analysis of what this means in practice, especially for SMEs and middle-income employees.
There has been no serious attempt to model the indirect costs, the effect on employer pension contributions, the likelihood that firms will scale back their own contributions to compensate for higher tax costs, or the impact on workforce retention where salary sacrifice has been used as a recruitment and benefits tool. The OBR itself has acknowledged significant uncertainty in its projections, noting that revenue yields are highly sensitive to behavioural change—a very important point—and yet the Government press ahead without the evidence base one would expect for a measure of this scale.
My concern—which is shared by a range of voices in the pensions industry and in business groups and among those who have looked carefully at the measure— is that, in restricting salary sacrifice without proper analysis, the Government risk undermining the very pension-saving behaviours they claim in other contexts to support. As the ABI has put it, savers and the pension system need stability. What we should not be doing is swapping pension stability for short-term revenue raisers.
The Minister has cited a number of statistics on the numbers whom HMT anticipates will be affected, but these fail to recognise that the Government have almost no idea of how employers and, therefore, employees would respond and be affected by those changes. As I have already mentioned, the OBR has said that there is a high level of uncertainty over the size of the behavioural response. If an employer stops offering a salary sacrifice because of the compliance costs and complexity, as many of them have warned they will, then every one of their employees will be affected. So how can the Minister say that 74% of basic rate taxpayers will be left unaffected when HMT has no idea how the organisations employing them will react to the Bill? Indeed, the detail is still unclear. The point many noble Lords have raised stands: the Bill brings a great deal of uncertainty, and the Treasury does not understand the wider effects of what it is proposing—thus my wish to delay commencement until we have a clearer view.
I welcome Amendment 32 in the name of the noble Baroness, Lady Kramer, which references the OBR’s supplementary forecasts. I do not want to steal her thunder, but the issues this forecast raises are numerous. Of particular concern are the behavioural changes that it anticipates. The OBR estimates that behaviour reduces the 2030-31 yield by around 48% compared with the static figure. Employers are assumed to redirect pay growth into employer contributions, employees are assumed to shift into relief at source or net pay arrangements, and there are additional pass-through effects into wages and profits. In other words, nearly half the static yield depends on assumptions about how employers and employees respond. The options open to employees and employers are numerous, and they have three years to think about it.
Another serious concern highlighted is that HMRC does not hold comprehensive data on salary sacrifice usage. As we understand it, the modelling used by the OBR relies heavily on ASHE survey data and historic APSS 107 returns to estimate bonus sacrifice behaviour. The OBR therefore assigns this measure a medium-high uncertainty rating with particular uncertainty around behavioural responses and the size of the bonus sacrifice base. This policy is uncertain. How will it affect savings, how will it affect behaviour and, significantly, how much will it raise and for how long?
I know others may have questions for the Minister, but the new arrangements come into operation in 2029-30 and, as we have all been saying, there is time for more questions to be asked and answered and for more work to be done. I hope the Minister will look at these various amendments positively. I thank the Deputy Chairman for his clarification on timing, and I beg to move.
Baroness Kramer (LD)
My Lords, the noble Baroness, Lady Neville-Rolfe, has relieved me of the burden of trying to explain the primary clause within my amendment, which would require a formal review and report on the OBR supplementary forecast information release. As she said, this came out on 5 February, I understand in response to an FoI request, which, frankly, is no way to provide information to Parliament. As she said, it concludes that behavioural response to the measure—and that is key to the impact that this Bill will have—is highly uncertain. The further detail that she provided is so similar to what I would have provided that I am not going to repeat it. I thank the noble Lord, Lord de Clifford, for also signing this.
The other part of the review would cover the operational remuneration arrangements and the impact on pension adequacy and salaries. I know the Minister thought he covered this issue, but I think he could tell that in the Room uncertainty continues. Further clarification is needed around this issue because employers are going to be looking for that. This is an opportunity to provide it.
I have to say that I do not think I have ever seen an OBR report that is so filled with the word “uncertainty”. Obviously, it stands behind what it has written, but it does not feel like a report that has been written with a great deal of confidence. That confidence needs to be in place for Parliament to act on legislation.
Lord de Clifford (CB)
I have the pleasure of supporting the amendment from the noble Baroness, Lady Kramer. At Second Reading, I raised behavioural change and the OBR’s forecast about the drop in income is essential. Employers will look to find the most tax efficient way to make pension payments, and therefore we need the OBR to make sure that it accounts for these payments. As an employer, although it will increase administration, if there is a saving to be made, we will look for opportunities to pay pension payments in alternative ways. We covered that earlier, and the Minister gave a little reassurance that employer pension contributions may be acceptable and will not be counted as a salary sacrifice. As an employer, that would be welcome.
Lord Londesborough (CB)
I will very briefly add one question about the OBR forecast. I think that the noble Baroness, Lady Kramer, said at Second Reading that she found the timing “weird”. I certainly find it extraordinary that we have a five-year forecast of which the first three years are irrelevant—they are zero—and then we have a 48% fall in the second year. This begs the question: where are the forecasts for years three, four and five? If we are following this trend, we have a fireworks display. As the noble Lord, Lord Altrinchan, said, the Government should not be indulging in short-term fiscal levers. Where are the forecasts for those years? These measures do not actually come into effect until the financial year 2030.
Lord Livermore (Lab)
My Lords, I will first address Amendment 31, tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham. I agree on the importance of transparency on the impact of this policy, including on employers. However, an additional publication is not necessary to achieve that objective. A number of documents have already been published in line with the usual practice for national insurance contribution changes, which comprehensively set out the impacts of this measure, including on employers.
The tax information and impact note was published alongside the introduction of the Bill. This sets out the number of employers expected to be impacted by this measure, the one-off costs—including familiarisation with the change, the training of staff and updating of software—and the expected continuing costs, including performing more calculations, and recording and providing additional information to HMRC, where salary sacrifice schemes continue to be used. This equates to a one-off £75 and an ongoing £99 per business per year. The Government also published a policy costing note, which includes detail on the costing of the measures, including the tax base, static costing and a summary of the behavioural responses expected by individuals and employers.
The Office for Budget Responsibility published its economic and fiscal outlook, which provides the OBR’s independent scrutiny of the Government’s policy costing. The OBR also published a supplementary forecast note, which provided additional information that it received in last year’s Budget to further increase the transparency of this measure. Taken together, these publications already provide an appropriate and comprehensive assessment of employer impacts.
On Amendment 32, the OBR’s economic and fiscal outlook and its supplementary forecast—
Lord Ashcombe (Con)
I thank the Minister for giving way. He has mentioned up to five different publications where this information may be found. Is it not possible for the Government to bring it into one place, so that we can actually see what the information is?
Lord Livermore (Lab)
My Lords, as I have already said, it has been published in various places, and I do not see the need to bring that into one place, as the noble Lord asked.
On Amendment 32, the OBR’s economic and fiscal outlook and its supplementary forecast publications set out how behavioural responses have been considered in certifying the costing. Some of these behavioural assumptions were also published in the policy costing note accompanying the Budget. The supplementary forecast information was drawn from analysis and data supplied to the OBR by the Government ahead of Budget 2025, in line with the standard process by which the OBR scrutinises and certifies costings. The Government’s published costings therefore already reflect these behavioural effects, and the OBR has certified these costings in the usual way. Given that the material reference is already publicly available and has been fully reflected in the certified policy costings, it is not necessary to review the OBR’s supplementary forecast.
If the noble Lord, Lord Londesborough, will forgive me, I will write to him with the answer to his specific question. In the meantime, given the points I have made, I respectfully ask noble Lords not to press their amendments.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to all noble Lords who have spoken in this debate—a shorter debate than we probably needed—and I am particularly grateful to the noble Baroness, Lady Kramer, and the noble Lord, Lord de Clifford, for drawing out so clearly the scale of the uncertainty that we are facing here.
The Minister has referred to various costings and has described them as conventional, but the truth is that the tax impact notes that have been published are inadequate, as indeed were parallel information notes published last year when we were discussing the national insurance changes of £25 billion. As a result, the consequences we are now seeing in the economy were not, to my mind, adequately flagged up.
However, where a policy is acknowledged by the OBR to carry medium to high uncertainty, and where almost half of the projected yield depends on a behavioural response that is not known in advance, I think the data that we have is incomplete. It is therefore reasonable to pause and require an independent assessment, and we have time for that. The alternative is that the Government legislate blind and then ignore the impact of the measures they take, as they did last year. In this case, of course, it will be a long time before we know the impact, because the measures will come into play in 2029-30.
In matters of pension saving and employment costs, stability and predictability are essential. If the Government are confident in their policy, they should have nothing to fear from the independent scrutiny that we have proposed. But time is late; we have reached the witching hour, and I beg leave to withdraw the amendment.
The Deputy Chairman of Committees (Viscount Stansgate) (Lab)
I thank members of the Committee for the expeditious way they have dealt with this Bill in one sitting. I also extend our thanks to our colleagues from Hansard, who have been able to stay until we concluded. The Committee’s proceedings on the Bill have been completed.
House of Lords
Post-16 Education and Skills White Paper
(1 day, 4 hours ago)
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Lord Watson of Invergowrie
To ask His Majesty’s Government how they plan to use the Post-16 education and skills white paper, published on 20 October 2025, to promote and deliver a culture of lifelong learning.
The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)
My Lords, the post-16 White Paper sets out our plan for giving people of all ages the skills and knowledge that they need to succeed and we need in order to develop a workforce that supports growth and national renewal. Through a range of policies and reforms across government, including the introduction of the lifelong learning entitlement, we will take a system-wide approach to promoting a culture of lifelong learning.
Lord Watson of Invergowrie (Lab)
I thank my noble friend for that response. I know she is aware that tomorrow marks the 60th anniversary of the launch by the then Arts Minister, Jennie Lee, later Baroness Lee of Asheridge, of the White Paper which led to the establishment of the Open University. That institution stands today as one of the finest legacies of any Labour Government. The 1966 White Paper emphasised that student enrolment should be open to everyone. This was referenced in the post-16 White Paper comment that there should be “no place or person” excluded from further education. Does my noble friend agree that more flexible pathways into and through higher education are necessary, as well as improved adult skills, that these are critical for economic growth, and that the Open University has a major role to play in this?
Baroness Smith of Malvern (Lab)
I strongly agree with my noble friend’s comments. I recognise the enormous contribution that a previous Labour Government made through Jennie Lee with the establishment of the Open University—and the contribution that the Open University has made in the last 60 years to enable people to learn in a way that suits them throughout their lives. It has transformed many people’s lives. As my noble friend says, we need to learn from that, not just in terms of our higher education but in how we can use the lifelong learning entitlement to enable people to learn throughout their lives—in further education and through independent learning providers and HE, supported by student finance. In the modern world, with a changing workplace, it is crucial that we enable that to happen and it is right that people have those opportunities.
Lord Johnson of Marylebone (Con)
My Lords, the lifelong learning entitlement was intended to usher in a skills revolution. But I fear that it will turn into a pea-shooter initiative unless the funding, the eligibility of which is restricted to level 4 and level 5 courses, is widened so that students can take level 7 courses. Will the Government set out what plans they have to do that?
Baroness Smith of Malvern (Lab)
It is important that we introduce the lifelong learning entitlement in a relatively restricted way, enabling us to build for the future. The key requirements, which I was addressing yesterday, are to provide flexibility for students at levels 4, 5 and 6. Those are the first priorities that we have set for the lifelong learning entitlement.
Baroness Wolf of Dulwich (CB)
My Lords, the lifelong learning entitlement was the number one recommendation of the Augar review back in 2019, so one cannot say that implementation has been very rapid. Can the Minister give us any progress information on how many providers are proposing to offer modular provision, and on the consultation on break points in degrees, which would make it easier for people to study without having to undertake a complete undergraduate degree?
Baroness Smith of Malvern (Lab)
I am very happy to write to the noble Baroness, and I am kicking myself for not knowing the numbers which will be in a position to offer modular provision in January 2027. We have taken quite a careful approach to ensuring that those which are able to do that will be offering high-quality courses at that point. We have had a very good response to that.
We are working now to determine how, as the noble Baroness says, we can enable there to be break points in degrees so that people can, at both level 4 and level 5, in some ways bank the learning that they have done and then possibly return to it later in life. I know she will push me to say that it is also important that we expand the numbers of students who are taking level 4 or 5 courses on their own as well.
Lord Addington (LD)
Following on from the emphasis on level 4 and 5 courses, what are we doing to encourage parents and pupils to accept that going on to level 4 and 5 courses after A-levels is a socially acceptable option, and one which schools should encourage? This cultural barrier is clearly one that has to be scrambled over.
Baroness Smith of Malvern (Lab)
The noble Lord is right. When we were talking yesterday about the opportunities provided by V-levels and T-levels, I also talked about the way in which they would increase the numbers of people who would take level 4 and 5 courses. We all have a responsibility to show the credibility and the currency that both vocational and technical education can provide for young people.
Baroness O’Grady of Upper Holloway (Lab)
My Lords, this year marks the 20th anniversary of Unionlearn, which my noble friend Lord Blunkett should take a good deal of credit for, and which, at its peak, together with union learning reps, helped a quarter of a million workers into learning for the first time. Many of them would never have gone through a conventional classroom. Can my noble friend the Minister say what progress there is for supporting Unionlearn and enabling it to get back to helping more working people back into learning in the workplace?
Baroness Smith of Malvern (Lab)
My noble friend is absolutely right. I can remember the contribution made by the union learning fund to support trade unions to enable the development of skills in their workplaces. It is a real shame that the last Government removed the funding from it. I can tell my noble friend that this is something that, relatively recently, we have been discussing within one of the two departments that I operate within. We are thinking about how we can get some of those benefits back and ensure that trade unions are able to contribute in a way in which they historically have done, to not only the representation of the workforce but the development of the workforce.
Baroness Rawlings (Con)
I declare my interest as a former chairman of King’s College London. What discussions have HMG had with the principals and vice-chancellors of universities on this subject?
Baroness Smith of Malvern (Lab)
I chair an advisory group on how we can develop and deliver the lifelong learning entitlement, which is well attended by vice-chancellors. I talk about the opportunities for lifelong learning whenever I get the chance.
The Earl of Effingham (Con)
My Lords, we support the Government’s White Paper objective that higher education reforms will drive economic growth. But that will work only if degrees benefit both students and the taxpayer. Does the Minister agree that there are currently too many degrees which contribute to neither growth nor positive outcomes?
Baroness Smith of Malvern (Lab)
Although the noble Earl did not revert to the language that some of his colleagues have used about university degrees, I share the view that, if we are expecting both young people and the state to invest in higher education, it needs to be of high quality. That is why I support the Office for Students in its current work to have a better definition of “quality” for higher education courses and why we have made it clear that we will want to link future increases in tuition fees to that measure of quality.
Baroness Rafferty (Lab)
My Lords, I too commend the work of the Open University in opening access to higher education. Can my noble friend the Minister confirm that there is a targeted pathway in place to reduce the numbers of young people not in employment, education or training?
Baroness Smith of Malvern (Lab)
I can absolutely confirm that to my noble friend. Since my right honourable friend the Secretary of State for Work and Pensions took on the role, it has been a key priority to tackle the 900,000 young people who are neither earning nor learning. That level is far too high and has been in existence for far too long. That is the reasoning behind the investment this Government are making in the youth guarantee, for example.
Lord Laming (CB)
My Lords, I am sure that the Minister will agree that lifelong learning needs to be based upon a strong foundation, which has at its heart valuing education. That means that all parents should ensure that their children get into school, stay in school regularly and value the education that is on offer.
Baroness Smith of Malvern (Lab)
The noble Lord is absolutely right. That is why we celebrate the 5 million additional days that children have been in school over the last year. In our schools White Paper we set a further challenging target to get young people back into school and attending full-time. The noble Lord is right that we need the support of parents to do that.
Quantum Technology
(1 day, 4 hours ago)
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Lord Holmes of Richmond
To ask His Majesty’s Government what steps they are taking to ensure the UK is able to optimise the opportunities arising from quantum technology.
The Minister of State, Department for Energy and Net Zero and Department for Science, Innovation and Technology (Lord Vallance of Balham) (Lab)
My Lords, the UK’s national quantum programme has seeded a world-leading emerging sector. The Government are increasing investment from £1 billion in the last decade to £1 billion over the next four years. This funding will accelerate deployment of quantum sensors, networks and computers, turning the UK’s research excellence into industrial impact. It will also build the skills base, infrastructure and international partnerships necessary to cement the UK’s leadership position in what are game-changing technologies.
Lord Holmes of Richmond (Con)
My Lords, the UK has an extraordinary opportunity when it comes to quantum: a potential 7% increase in productivity by 2045. That is some £212 billion. Does the Minister agree that the Government need to go further and faster in skills; in accepting all the recommendations of last year’s quantum taskforce; in scaling, to make bigger bets right across the quantum stack; and in driving demand, with government as an efficient, effective first customer—in short, being bolder and going deeper? The benefits to the UK economy can be measured in the billions.
Lord Vallance of Balham (Lab)
The short answer is yes, and noble Lords will hear more about that shortly. All those things are critical. We have a good skills programme. There was a good report in July last year to deal with that. We are looking at options, including the use of procurement to make sure that this technology is pulled through.
Lord Patel (CB)
My Lords, with the leading position that the UK has in quantum computing, what plans do the Government have for translational research, particularly in the areas of drug discovery, pharmaco- kinetics, next generation imaging and compute power, which will be needed to deliver on artificial general intelligence?
Lord Vallance of Balham (Lab)
The noble Lord asks an important question. Quantum computers will be best for quantum problems. Drug discovery is a quantum problem, so it is exactly the sort of area for which this will be useful. We have five hubs specifically looking at both basic science and translation: a biomedical sensing hub dealing with imaging and other areas, including blood testing; a sensing, imaging and timing hub in Birmingham; an integrated network hub in Edinburgh; a quantum computing hub in Oxford; and a hub on position, navigation and timing. These are all about pulling the technology through in due course.
Baroness Jones of Whitchurch (Lab)
My Lords, given the worrying flow of some UK quantum companies taking money from or moving abroad, particularly to the US, in search of additional funding, is my noble friend the Minister confident that we are doing enough to map where in the UK the expertise is? It is important to us for national security, apart from anything else, that we have our own sovereign capability. Are we mapping it as well as we can and do we have an early warning system, such that we can intervene when some of these newly developing companies are thinking of going abroad, so that we can give them the support, funding or whatever else they need to stay in the UK, where we need them to grow?
Lord Vallance of Balham (Lab)
My noble friend asks an important question. There is no doubt that UK quantum companies look pretty attractive at the moment. We have a good idea of where those companies are, what their skills are and what is going on across the quantum space, but I believe there is a need to have all the levers in place to make sure that these companies stay in the UK. Yes, that is about funding, but also about regulation, procurement and giving the signals that can leverage the investment that these companies will need, as many of them are getting up to very significant valuations.
Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
We will take the Lib Dems then come to the Conservative Benches.
Earl Russell (LD)
My Lords, quantum technology clearly has profound implications for our future national security, including for the secure communications on which we all rely and for potential future threats to cryptography. How are the Government working to ensure the alignment of the national quantum strategy with our cyber and national security strategies? What assessment have the Government made of the UK’s sovereign capability in key parts of the quantum supply chain?
Lord Vallance of Balham (Lab)
There are two important parts to that question. First, it is necessary to make sure that all existing data go through into post-quantum cryptography—in other words, into things that cannot be broken by quantum computers. That process is being led by the National Cyber Security Centre, which is working with businesses and trying to get them into place to have that ready, but it is not a short-term project. It will take quite a long time to get all that done. Secondly, the race is on to make sure that we are at the very forefront of getting a working, scaled quantum computer, because that is what will give us an advantage in all these areas. We work very closely with the security agencies across all this.
Lord Waldegrave of North Hill (Con)
Will the Minister acknowledge that our theoretical physicist community, which is powerful and underpins so much of the sensible things the Minister has been saying, is feeling considerable anxiety at the moment because of the scale of the cuts proposed by UKRI to the Science and Technology Facilities Council? Will he urge UKRI to publish an impact assessment of its proposals?
Lord Vallance of Balham (Lab)
I absolutely acknowledge the concern of a particular branch of physics—particle physics and astronomy—which has historically been placed under the Science and Technology Facilities Council. That is a bit of an odd situation, because it means its funding is traded off against facilities. That is exactly what is being looked at, at the moment. My number one priority for UKRI is to protect and grow investigator-led, curiosity-driven research, because that is the very thing that will give us the advantage in 10, 20 or 30 years. There is a very clear instruction that we are going to protect that. At the moment, UKRI is looking at the impacts of potential changes to funding, but no decisions have been made on that yet. I recognise the problem.
Lord Birt (CB)
My Lords, quantum technology is possibly, indeed probably, the most disruptive and transformational technology yet invented by mankind. Thankfully, with our world-leading science base, the UK already has the second-highest number of start-ups working in this sector. Thankfully too, we definitely have a considered embryonic national strategy, which the Minister has outlined. Nevertheless, is it not inevitable —we can see it happening already—that the UK will soon be outspent by the US, China and the EU? Do we not need continuously to recalibrate our strategy?
Lord Vallance of Balham (Lab)
The noble Lord is right. About 11% of all companies in the world in quantum are in the UK. We are second in investment, but this is a race, others are spending huge amounts of money here and many of our companies look pretty attractive. That is why we have a series of programmes, not just funding at the front end to keep grant funding and other support but thinking about how we get pull-through into procurement. That is what will keep these companies here, allow them to grow here and allow them to have the export opportunities. I look at this on a daily basis. This is a critical technology, a big growth opportunity for the UK and one where we have years of advance progress putting us at the leading edge. Over the past 60 years or so, as a country we have not done well at making sure we scale and keep companies and new technologies. We must do everything we can to achieve this in quantum.
Viscount Camrose (Con)
My Lords, to build on the important point raised by the noble Lord, Lord Birt, quantum technologies will at some point, probably soon, enable a huge range of new capabilities across our lives, including in defence, healthcare, commerce and scientific research. So significant, broad and complex will be the impact that I suspect we will look back with nostalgia at the relative ease and simplicity of regulating AI. Can the Minister share what plans the Government have to regulate quantum and what steps, if any, have been taken so far?
Lord Vallance of Balham (Lab)
The first thing to say is that I think AI and quantum will come together, so the two technologies will be extremely powerful. We commissioned some work from the Regulatory Horizons Council, which has produced the world’s first approach to regulating quantum, very much in the line of regulating use, not the development of the technologies. That has led to a series of fora where regulators are getting together to discuss this. It is something that we are at the leading edge of, but it is very early days for knowing exactly what that regulation should look like. I am sure this House will have many views on that subject.
Lord Fox (LD)
My Lords, I think we have been lulled to some extent by the fact that quantum has taken a long time to get to this point. The Minister replied to the noble Lord, Lord Holmes, that money has been accelerated from £1 billion over 10 years to over four years, but does he not recognise that the rate of progress has accelerated even further? Should the Government not go back and look again at even more acceleration? If not, we will be passed.
Lord Vallance of Balham (Lab)
I can assure the noble Lord that I look at that every day. I am looking at ways to make sure we unlock more private sector capital to get this acceleration. This is at a stage where these companies need to grow as private sector companies. We need to help that. We need to unlock the masses more capital than government could or should give to make that happen.
Prisons: Education
(1 day, 4 hours ago)
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Lord Storey
To ask His Majesty’s Government what assessment they have made of the provision of education in prisons.
The Minister of State, Ministry of Justice (Lord Timpson) (Lab)
The provision of prison education is not good enough and budgets have not kept pace with rising costs. I am determined to improve the quality of education by driving up classroom attendance, expanding access by embracing digital learning and strengthening partnerships with employers such as Morrisons, FirstGroup and Marston’s to provide training and jobs on release. Work to improve reading in prisons is a priority and I am pleased to let your Lordships know that Lee Child is our first prison reading laureate.
Lord Storey (LD)
My Lords, I am sure we can all agree that education will play a crucial part in trying to reduce the incredibly worrying reoffending rates. The Minister has been very kind in giving me detailed responses to Written Questions. I am sure Members will be concerned and worried, in relation to our education programme providers, that at Feltham 60.2% of education programming was not provided and at Wetherby 44.9% was not provided—and so it goes on. Can the Minister assure us that the programmes will be fully provided by the contracted provider? Will we get a rebate on the money that was not provided? Finally, do we have any means of inspecting the quality of provision and the quality of delivery?
Lord Timpson (Lab)
I thank the noble Lord. He is absolutely right and I am looking at this on a daily basis. I walk past too many classrooms in prisons that are not full. Some are only one-third full. If I owned an airline and my planes were one-third full, I would not be doing very well. Recent Ofsted inspections have been encouraging, but we need to make sure our prisons are far more stable. When they are 99.9% full, the priority is not education, unfortunately, but it should be. It is a combination of having more stable prisons, working with our education providers to create a more stable environment to get more men and women out of their cells into education, and developing in-cell digital learning.
Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
We will hear from the Conservative Benches next, then we will go to the Labour Benches.
Earl Attlee (Con)
My Lords, I pay tribute to the work of the Minister, but can he explain why we continue to release prisoners early without requiring or securing a measurable improvement in literacy and numeracy?
Lord Timpson (Lab)
This is the final question that the noble Earl will be asking me, because today is my 600th day in the job and his penultimate day in your Lordships’ House. I thank him very much for his contribution. There are too many people coming in and out of prison, especially in female establishments. The average number of days spent in a female prison that I have been to recently is less than 45, which is not enough time to give people training. The staff we have in our prisons do an incredible job educating men and women. Anna Fellingham, who is the librarian at HMP Frankland, was recently praised by the inspectors for her creative writing courses for all abilities. It is the time that our educators spend with prisoners in stable prison environments that is going to make the difference. We want people to leave prison not just being able to read and write but having the skills for a job on release, so that when they get out, they do not come back.
Baroness Blower (Lab)
Does my noble friend agree with me and the University and College Union that this is the time to make a clean break with the outsourced delivery of prison education and to bring it back in-house to be run by the Department for Education, for the benefit of prisoners and as a public service rather than for profit? Hundreds of jobs look like being cut and we hope this would stop that. Can he make an intervention to ensure that we do not lose more prison educators, whom we clearly need? I thank him for the warmth with which he speaks about prison education, but we need to keep them in and it should be an in-house service.
Lord Timpson (Lab)
My noble friend knows we have had a mixed model of education in our prisons for nearly 30 years. What is important is that we support our educators and support staff in prisons by getting prisoners out of their cells into classrooms so they can do the fantastic work that they do. For me, the focus is on the right kind of support for the right prisoner at the right time. Prisoners and prisons differ, so we need to make sure we target it in the right way. But when we talk about education and we think about classrooms, we also need to think about workshops, because getting skills like dry-lining, bricklaying, and painting and decorating is just as important in many ways, and probably more important to many prisoners, as going to the classroom, which many of them had a bad experience of when they were younger.
The Lord Bishop of Chester
I was encouraged by the Minister’s previous comments. I was going to ask about vocational education and whether the impact of that is being measured. Clearly, all education matters. At a recent visit to HMP Styal, I was particularly impressed by the work of The Clink, which sadly has shut after 10 years. How can the Government invest better in partnerships in that vocational sphere?
Lord Timpson (Lab)
I thank the right reverend Prelate. Styal is my local female prison that I have been going to for probably most of my life, so I am well aware of the challenges but also the opportunities there. The partnership model is something that I have been doing for 25 years, encouraging businesses, volunteers and charities to go into prisons, work with prisoners and give them skills. I am pleased that a number of companies are opening up workshops—Iceland, for example, has recently set up establishments—but, unfortunately, we have 72 workshops that are vacant at the moment. One of my priorities is to fill those workshops, not just with organisations coming in but with internal prison industries. We manage to make everything in a prison cell apart from the TV, the duvet and the pillow, so there are more things that we can make. We are trying to do more work across government to make things, give people skills and help the economy.
Baroness Bull (CB)
My Lords, the Minister will know that neurodivergent people are disproportionately represented in prisons; a 2021 review found that the figure was up to 50%. So educational needs are higher but, unlike in mainstream education, there is no incremental budget to deal with this. What are the Minister’s Government doing to empower tutors to meet the special educational needs of prisoners with neurodivergence, so that they can come out of prison equipped to live a life without crime? Will the Government commit to solving the complexities of data collection? Without understanding the scale and nature of the problem, it will be very difficult to address it.
Lord Timpson (Lab)
I shall address those two separate points. Data collection is something that challenges me every day, along with vetting. As someone who has run a business where I had all the information at my fingertips, I find it frustrating, as I know other colleagues do, that we do not get all the information we need to manage—but that is something that I am working on.
On neurodivergent prisoners, we have made big strides in appointing neurodiversity managers in prisons, but also in focusing not just on classrooms but on the environment where prisoners are. Some of the most inspiring work that I have seen in prisons recently is on autism wings, where staff are heavily trained to support these often vulnerable and challenging prisoners. When they do, the prisoners’ behaviour completely turns around and they go from being challenging, often violent prisoners to being those who really engage with the regime and get the skills they need.
Lord Marks of Henley-on-Thames (LD)
My Lords, among the challenges to successful education in prisons are excessive hours spent in overcrowded cells and the lack of internet access alluded to by the Minister. What plans do the Government have to address both those challenges in the context of prison education?
Lord Timpson (Lab)
There are some good reasons why we do not want internet everywhere in prisons, but 90% of the English estate now has digital learning in its cells in various ways: Launchpad or Coracle. My vision is that we need to go much further with that, as well as offering a much wider curriculum on iPads or computers in cells, because that is an increasingly popular way for prisoners to educate themselves.
Lord Sandhurst (Con)
My Lords, as we have heard, today is my noble friend Lord Attlee’s penultimate day as a Member of this House, so I take this opportunity to thank him for all his hard work and wish him well.
The manifesto pledged the Government to work with prisons to improve offenders’ access to purposeful activity. Last week the Minister informed the House that access to in-prison education can reduce offending by up to nine percentage points. Why then has the Minister approved a prison education settlement that will cut core national education in prisons by 25%?
Lord Timpson (Lab)
The noble Lord is correct that it cuts the actual provision: the budget we have has gone up, but you just get less value for money. This comes back to my aeroplane theory: I want the aeroplane—that is, the classrooms—to be full. However, we are doing more than that. We have a working-week trial in five prisons, where prisoners will be out of their cells for most of the day. This comes back to the point that we need to run stable regimes in our prisons, so we can have a regular drumbeat of education and purposeful activity. That can make the difference between people getting the skills they need and them leaving prison with no skills—and, when they leave with no skills, it is pretty obvious what happens.
Student Loans: Review
(1 day, 4 hours ago)
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Lord Young of Cookham
To ask His Majesty’s Government what plans they have to review the student loans regime.
The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)
My Lords, given the inherited fiscal situation, we are making tough but necessary decisions to protect both taxpayers and students. It is right that those who can afford to repay their student loans do so. The system remains heavily subsidised. Lower-earning graduates are always protected by the cancellation of any outstanding loan and interest at the end of their repayment term. The Government continuously review student finance to ensure that it remains fair, sustainable and supportive of students from all backgrounds.
Lord Young of Cookham (Con)
I am grateful for that. At the moment, a student leaving with an average debt of £53,000 has to earn £66,000 per year just to cover the interest on the debt. The deputy leader of the Labour Party recently described that as “egregious”. The Budget made the situation even worse by freezing the thresholds for students from 2027. A month ago, the Chancellor described the current regime as “fair and reasonable”, but not a lot of people agreed. Does the noble Baroness think the leader of the Opposition might be on the right track by suggesting capping loans at RPI?
Baroness Smith of Malvern (Lab)
I know the noble Lord would not want the suggestion to be made that the level of debt impacts on the amount anybody repays in any given month, because, of course, that is wrong. As I have already identified, the majority of students do not repay the whole of their loan, so they already receive a considerable subsidy from the state. I am sure there are noble Lords in this House who feel slightly aggrieved about being accused, as the leader of the Opposition did, of presiding over a scam in developing the current plan 2 student loan system, but it is important that we maintain the protection for students and graduates that the student loan system creates while being open to thinking about how we can mitigate its burdens on students and those who are repaying their student finance.
Baroness Smith of Llanfaes (PC)
My Lords, what assessment have the Government made of how the increasing burden of student debt will influence young people’s decisions not to go to university, particularly for young people in regions of the UK where average salaries are really low? Are we going back to a situation where attending university will be just for the wealthy?
Baroness Smith of Malvern (Lab)
No we are not, and nor should we, which is why we have made increasing access and participation a major pillar of our reforms of higher education. Despite the student loan system, we have seen an increase in the numbers of young people going to university. We now need to close the gap between those who come from advantaged backgrounds and those who come from disadvantaged backgrounds, which has stubbornly remained. The student finance system removes any upfront fees from students to ensure that anybody who could benefit from higher education can.
Baroness Garden of Frognal (LD)
My Lords, as the noble Lord, Lord Young, said, the student finance system is broken. Students face soaring repayments that they never signed up for. May I suggest, for instance, that public sector workers—doctors, nurses, teachers, members of the Armed Forces, civil servants, and so on—who will never earn the eye-watering salaries of the private sector, have their loans written off after, say, 10 years of public service? Meanwhile, how about a complete revamp and building a cross-party consensus on what a fairer system would be?
Baroness Smith of Malvern (Lab)
To be clear, once again, the level of debt does not determine the level of repayments that students make. To suggest that it does confuses and misleads those thinking about going to university. I take the point that has been made recently about the pressure of student loan repayments. As a Government, we have had to set priorities in the 18 months we have been in power. We have chosen to stabilise the finances of our universities, introduce maintenance grants, increase the maintenance support for students, take action to reduce the unacceptably high numbers of young people who are neither earning nor learning—let alone getting the chance to go to university—and reverse the decline in young people starting apprenticeships. That is a pretty fair set of priorities.
Lord Londesborough (CB)
My Lords, in England alone, outstanding student debt now stands at £270 billion and is forecast to reach £500 billion by the late 2040s. With respect to the nation’s balance sheet, how much of this total debt do we realistically expect to be repaid? What, therefore, are the net liability implications for keeping to our fiscal rules?
Baroness Smith of Malvern (Lab)
As a Government, we recognise and support the public subsidy that the student finance scheme implies for students. For plan 2 full-time borrowers who started their courses in 2022-23, for example, we expect that only 32% of them will repay their loans in full. This is therefore a public subsidy for those individuals and for realising the broader public benefits that higher education brings, not only for those who have the opportunity to go through it but for society more broadly.
Baroness Winterton of Doncaster (Lab)
My Lords, I am glad to hear that my noble friend the Minister thinks that changes could be made to the system to make it fairer. However, does she agree that it is not sensible to think that there was a golden era when everybody went to university without worry? I went to university during a time when there were maintenance grants, but there was huge pressure in those times, particularly on people from lower incomes whose parents could not afford to put the top-ups in. We need to remember that when we consider the changes that need to be made. If she can make it fairer, that is good, but do not imagine that there was some previous time when everything was wonderful.
Baroness Smith of Malvern (Lab)
My noble friend makes a very important point. I went to university without a student loan, but I was part of only 14% of young people who were able to benefit from higher education. That figure now stands at more than 50%, and we need a student finance system that recognises that. I reiterate that the Government are making changes to student finance. We will reintroduce student grants and we are increasing maintenance loans for students. We are therefore opening up the opportunity for more students from lower-income backgrounds to get the benefits that higher education brings.
The Earl of Effingham (Con)
My Lords, as my noble friend Lord Young of Cookham put it so well, Rachel Reeves says that the student loan system is “fair and reasonable”; Lucy Powell, on the other hand, says that the system is “unfair” and “egregious”, while Bridget Phillipson says that it is not a priority for the Government. With three contradictory views on a review of student loans, is it any surprise to the Minister that, according to the latest Ipsos survey, over two-thirds of the country
“do not have confidence that the Government is running the country … properly, competently or seriously”?
Baroness Smith of Malvern (Lab)
I wonder whether the noble Earl has had the opportunity to discuss with some of his colleagues whether they believe that the system that they introduced is a scam. This is a system that was introduced by the previous Government. Plan 2 is no longer in operation for students starting today. Finally, if the leader of the Opposition is trying to suggest to students that they will repay less through a cap on interest, she would, of course, be misleading them, because that would not be true.
Baroness Deech (CB)
My Lords, the Sutton Trust, which has done wonderful work in this area, has shown that students who cannot afford to leave home do worse in their studies and throughout life. Will the Minister give student maintenance top priority and make it open to everybody, as it was in my time? I hope she will be brave enough not to shy away from the possible need to cut university places, have some mergers and make sure that we are not oversupplied with courses and universities that are not worth the money that students are paying.
Baroness Smith of Malvern (Lab)
I am afraid that I do not agree with the noble Baroness that reducing the numbers of people who can benefit from higher education is the most effective way to address this issue, although I agree that we need to address the cost of living crisis that current students face. That is why we are increasing the support available through maintenance loans, and it is why this Government will reintroduce the maintenance grants cut by the previous Government.
Industry and Exports (Financial Assistance) Bill
Universal Credit (Removal of Two Child Limit) Bill
Sustainable Aviation Fuel Bill
(1 day, 4 hours ago)
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The Minister of State, Department for Transport (Lord Hendy of Richmond Hill) (Lab)
My Lords, I am grateful for the scrutiny, due diligence and expertise of noble Lords during the debates on this legislation. This Bill is a huge step forward. By unlocking the potential of sustainable aviation fuel production in the UK, we can significantly reduce aviation’s greenhouse gas emissions, grow the economy and support green jobs. Your Lordships’ input as this Bill has progressed through this House has meant that it leaves this place in better shape.
I thank the noble Lord, Lord Moylan, whose engagement and scrutiny of this legislation has been welcome, particularly on HEFA. I am sorry about the acronyms—this Bill is particularly full of them. The noble Baroness, Lady Pidgeon, and the noble Earl, Lord Russell, have been exemplary in their engagement on the Bill. I thank them for their continued scrutiny, and in particular for making sure that transparency is at the forefront of the Bill. I also thank the noble Lord, Lord Grayling, whose amendment to the Energy Act paved the way for the first consultation on a revenue certainty mechanism for SAF. His expertise on this subject has been invaluable.
The Bill will now ensure the Secretary of State can enter into revenue certainty contracts only where the supported SAF is produced at a facility in the UK, which was always the Government’s intention. In addition, I thank the noble Lord, Lord Ravensdale, for the expertise and clarity he has brought to our discussions on power to liquid and feedstocks more generally. Finally, I extend my personal thanks to all the officials who have supported me, including the Bill team, legal colleagues, the drafting team in Parliamentary Counsel and others who have been involved in its successful passage.
I look forward to seeing this Bill pass. If we are to create the jobs and attract the business investment Britain needs, we must grow aviation and grow it sustainably. This Bill does just that. I beg to move.
Lord Harper (Con)
My Lords, before I say a few words, I would like to declare my interest, as listed in the register, as non-executive chair of RVL Aviation. I thank the Minister and the Government for continuing the sustainable aviation fuel regime that we set out, the revenue certainty mechanism and the investment in UK industrial production of sustainable aviation fuel. I thank him for listening carefully to the points made by colleagues in Committee, and for bringing forward appropriate amendments on Report. Finally, I thank him for responding to a number of points I made by committing to keeping the House informed as government policy develops in this area. I am very pleased to support the Bill as it makes its way on to the statute book.
Lord Trefgarne (Con)
I welcome the passage of this Bill. It will result in a slight increase in costs as far as the training sector of aviation is concerned, but that is a small price to pay for the overall benefits.
Lord Ravensdale (CB)
My Lords, I remind noble Lords of my interest as a chief engineer working for AtkinsRéalis. I will briefly thank the Minister and his team for their time in all our meetings and for their collaborative approach during the passage of the Bill. In particular, the accommodation we reached on the exclusion of hydroprocessed esters and fatty acids fuels—HEFA—from revenue certainty mechanism support, and the helpful response of the Minister to the intervention from the noble Lord, Lord Harper, on a Statement in Parliament if that were to be changed, meets the intent of my amendments and that of the noble Lord, Lord Moylan. This will provide important clarity for industry and focus support where it is most needed in de-risking the more immature technologies.
It has been welcome to see rare cross-party support for a Bill in the energy space, and I hope we can carry forward that collaborative spirit on future energy Bills in the next Session.
Baroness Pidgeon (LD)
My Lords, as we reach the final stage of this Bill, I say a huge thank you to the Minister and his team of officials. They have been incredibly open to discussion and have genuinely listened to our concerns throughout this process. I hope the Minister agrees with me that our discussions on reporting and monitoring will help to ensure that the impacts of the legislation are understood thoroughly as it is implemented, including by government, the sector and other stakeholders. This level of engagement has been vital in making sure that it is practical and ready to work in the real world. This legislation will provide the clarity and confidence the industry needs to finally get the wheels turning on sustainable aviation fuel.
I thank Adam Bull in our Whips’ Office for his support and hard work behind the scenes. I thank my noble friend Lord Russell for his immense work and support on this Bill. Ultimately, our goal is to see the aviation industry embrace a cleaner future. This Bill is an important step forward, making sustainable aviation fuel a common reality rather than a distant goal and ensuring that we can stay connected while significantly reducing the sector’s environmental impact. I look forward to seeing this legislation put into practice and seeing a much higher proportion of sustainable fuel in the sector in the years to come.
Lord Moylan (Con)
My Lords, despite the applause from all sides of the Chamber for this Bill, I am afraid it remains a very troubling piece of legislation. It has been described by the noble Baroness, Lady Pidgeon, effectively as a piece of net-zero legislation, but, as I have insisted throughout its passage, this is not net- zero legislation. The net-zero effect in relation to sustainable aviation fuel was achieved by the SAF mandate put in place 15 or 16 months ago, which requires airlines to mix in an increasing amount of HEFA, and, increasingly, other fuels, over time. That is what will make the contribution to net zero.
This Bill is in fact a piece of industrial policy. It is based on the premise that somehow, because we will consume SAF, we need to be a world leader in producing it. Despite my pressing the Government repeatedly, the Minister has not been able to offer any reasons for thinking that we have a comparative advantage in this field and that we should dedicate resources to it. The Bill’s means of doing this is by piling subsidy upon subsidy. It really is, as I say, very troubling.
Through this Bill, we are now guaranteeing a floor price for SAF producers, and the risk is being transferred away from them. That risk is being transferred down the chain to airlines and their passengers. We on our side sought a commitment from the Government to be transparent about the likely impact on fares. Instead, they, along with the Liberal Democrats, chose to shield the travelling public from the dangerous knowledge of what they will actually pay for this policy over the years ahead. Much of what matters to make this Bill work is in fact saved for secondary legislation and indeed for commercially confidential negotiations between officials on the one hand and the shark-toothed lawyers of the international investor sector on the other. It is a recipe for success—I am sure the Minister would want to say that.
Despite all that, I cannot fail to thank the Minister for his now reliable courtesy and helpfulness in the passage of this legislation, in working with the official Opposition and other noble Lords, and in his responsiveness. I also thank his officials, who have been very helpful and have responded rapidly and efficiently when we have had questions for them. I am grateful to all those people for doing that.
I pay particular tribute to my noble friends Lord Harper and Lord Grayling for their contribution in the debate, but also to the noble Lord, Lord Ravensdale, with whom I worked on certain amendments. We have achieved some improvements to the Bill as it has passed through your Lordships’ House. None the less, the best solution for this Bill would be that it is never called upon or used, and that we procure sustainable aviation fuel for use in our airline industry from the cheapest and most efficient source, whether that be produced here in Britain or elsewhere.
Lord Hendy of Richmond Hill (Lab)
I thank all noble Lords and I commend the Bill to the House.
Labour Together and APCO Worldwide: Cabinet Office Review
(1 day, 4 hours ago)
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Baroness Finn (Con)
My Lords, the Prime Minister promised to clean up politics, yet we have had the Cabinet Office investigating one of its own Ministers before belatedly referring the matter to the independent adviser. The process has been conflicted from the outset. The Cabinet Office investigation was conducted by the propriety and ethics team, PET—a team to which a former Labour Together staffer was appointed. Does the Minister agree that such an appointment to PET was plainly unwise, and is the person in question still in that position?
We are told that the Minister in question must remain in post while the independent investigation takes place. Can the Minister here cite where within the remit of the independent adviser it says that he cannot be investigated while suspended as a Minister? Will she set out to the House the precise terms of the referral to the independent adviser and whether the investigation extends beyond Mr Simons’s tenure as a Minister?
Baroness in Waiting/Government Whip (Baroness Anderson of Stoke-on-Trent) (Lab)
Good afternoon. I thank the noble Baroness for her questions, of which there were several. Let me see whether I can assist her with some of her concerns.
First, I place on record my thanks and the thanks of the Government to the civil servants who have so diligently undertaken their work. The noble Baroness will be aware that civil servants are bound by the Civil Service Code, and that therefore all their actions are impartial. Given some of the questions, it is important that we do not cast aspersions on their impartiality or their ability to do their roles without fear or favour.
On the appointment on a former member of staff from Labour Together to the team, I would like to clarify that the post in question sits within the wider propriety and constitution group, not in the propriety and ethics team. That member of staff had nothing to do with the fact-finding exercise that was undertaken by the Cabinet Office.
To confirm the process, what has happened is a fact-finding mission by the propriety and ethics team, the findings of which were discussed with the Prime Minister, with the recommendation that the independent adviser on ethics undertake a process. Sir Laurie Magnus is now undertaking that process, and I would expect him to report soon. Noble Lords will be aware that all his publications are placed in the public domain, so we will all be able to read his recommendations.
On the role of the Independent Adviser on Ministerial Standards, I hate to say it but the clue may be in the name: it is on ministerial standards. Sir Laurie Magnus can investigate only Ministers, as has always been the case. There is no such thing as a suspended Minister; there is a Minister or not a Minister. Therefore, he is undertaking an investigation into the Member in the other place as a Minister.
Lord Wallace of Saltaire (LD)
My Lords, the serious questions about the behaviour of Josh Simons, who is now a Minister, and the inappropriateness of his pursuit of particular journalists are now under investigation, and we support that investigation. I want to ask a wider question about the transparency of funding for third-party campaigns. Why on earth was Labour Together so protective about its funding and will we now be told where its funding was coming from? Will the Government take the opportunity of the elections Bill, now published, to ensure that third-party campaigns are caught by the requirement for transparency of funding? This is a question across the spectrum, as the Minister will remember. The Free Speech Union, for example, recently took out an emergency injunction to prevent its funding being leaked. In a democratic society, we should be told where these third-party campaigns are getting their money from.
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Lord raises a genuinely important point that we have discussed in recent weeks. He will be aware that the elections Bill has now been published. I should declare that I have, historically, been responsible for a third-party campaign, HOPE not hate, and that, until the general election, I used to run Index on Censorship. The noble Lord will appreciate some of my concern about recent events. To be clear, the questions pertaining to the actions of Labour Together are a matter for Labour Together, not a matter for the Government. It is an independent organisation, subject to its own governance structures, and noble Lords will be aware that it has its own reporting arrangements. On the wider point, it is something that Members of your Lordships’ House will be discussing in great detail when the elections Bill is in front of us.
Baroness Kennedy of The Shaws (Lab)
My Lords, I cannot begin to express how appalled I am that attacks should have been made upon independent journalists investigating a matter which was a legitimate matter to be investigated by the media. I should declare immediately that I am on the high-level legal panel that advises the Media Freedom Coalition, a global coalition of 51 countries that are seeking to protect journalists. It is quite shocking that any person holding a leadership position should be attacking journalists, when we know that independent journalism is fundamental to democracy and our security, and absolutely something that this Government and any Government should be protecting. I really am concerned at how thin this investigation might have been—it did not go deep enough. The funding has been raised, and what the funding is about, but I am asking the representative on the Front Bench to explain to us how deep this investigation was. This goes to the heart of our democracy. Attacking journalists—good journalists—should never take place.
Baroness Anderson of Stoke-on-Trent (Lab)
My noble friend and I worked together when I was the chief executive of Index on Censorship, and in fact I was a member of the National Committee for the Safety of Journalists under the previous Government, which, under the current Government, is co-chaired by Jess Phillips MP and Steph Peacock MP. My noble friend will be aware that we announced yesterday that the Media Freedom Coalition will be co-chaired by the UK for the next two years. I appreciate and share many of her concerns. The investigation that is currently under way is about the actions of Josh Simons as a Minister. My noble friend will be aware that there are other investigations ongoing, outside government, related to the actions of APCO, and Labour Together obviously has its own governance issues to deal with.
Lord Harper (Con)
My Lords, I point out that the Minister has just highlighted the flaw in this process. When the Prime Minister makes a decision about the continuation of Mr Simons as a Minister, will he have just the information provided by the Independent Adviser on Ministerial Standards, or will he look at Mr Simon’s behaviour when he was at Labour Together? As the noble Baroness has just said, his actions in that organisation appear to have been an attempt to smear journalists. If it is found that he did that, that is what would make him not fit to be a Minister. Is the Prime Minister going to look at that when he makes his decision?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, I would hope that the Prime Minister will use both the recommendations from Sir Laurie Magnus as well as every other form of information available to him.
Baroness Stowell of Beeston (Con)
My Lords, this House does not question the Minister’s commitment to press freedom, but, clearly, we must judge the Government on actions rather than words. Although in this case the threat of legal action does not appear to have been deployed, she will know that the anti-SLAPP legislation is critical to the protection of press freedom. In opposition, her party were very much committed to this legislation, and they have said that they are committed to it, but there are reports that we will not see it in the next King’s Speech. Can she give us an update on that?
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Baroness is even more aware than I am that it is well above my pay grade to comment on the contents of the next King’s Speech. But she will be aware that I actively campaigned on the issue of anti-SLAPP legislation alongside many other Members of your Lordships’ House, and I know that my colleagues in the department share similar commitments.
Lord Young of Acton (Con)
My Lords, I declare an interest as the director of the Free Speech Union. To answer the point made earlier, when our website was subject to a cyber attack and the names of our, for the most part, small donors—who had donated to campaigns such as defending Hamit Coskun, on trial for burning the Koran—were illegally published by an extreme criminal protest group, we felt we had no choice but to take out an injunction to stop their names being published. It would have been a breach of their privacy.
Two current Labour Peers are directors of Labour Together and were directors when Josh Simons took the decision to fund APCO. Has the Minister taken the opportunity to discuss Josh Simons’ behaviour with those Labour Members?
Baroness Anderson of Stoke-on-Trent (Lab)
I thank the noble Lord for bringing that to my attention. I am not aware of the Members of your Lordships’ House to which he is referring, but if he would like to speak to me outside the Chamber, I look forward to that conversation.
Lord Speaker’s Statement
The Lord Speaker (Lord Forsyth of Drumlean)
My Lords, before we come to the Statement on the Government’s response to the House of Commons humble Address, I remind the House that various police investigations have been reported in the media in recent days. While none of the cases is currently sub judice, I invite noble Lords to exercise restraint in commenting on specific matters under investigation, and to avoid saying anything that might prejudice those investigations.
Lord Mandelson: Government Response to Humble Address
(1 day, 4 hours ago)
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Baroness Finn (Con)
My Lords, I thank the Leader of the House and Lord Privy Seal for the opportunity to respond to this Statement.
We are three weeks on from the Motion passed in the other place for this humble Address to be presented to His Majesty, and not a single document has yet been published. We often hear that Ministers are moving at pace, but this time Ministers are moving at an unacceptably slow pace. Transparency delayed is transparency denied. The Government must not drag their feet in complying with the clear instruction of Parliament. Can the Lord Privy Seal confirm that there will be no further slippage in the timetable for publication?
In the other place, the Chief Secretary to the Prime Minister accepted that compiling the material will take some time and spoke of publication “very shortly” in tranches. But “very shortly” is not a plan. Parliament’s instruction requires urgency as well as completeness, and we will continue to hold Ministers to account for delivering both.
The Chief Secretary also told the other place that the first tranche would be published in early March. Can the Lord Privy Seal clarify what the Government mean by early March? For example, should the House expect publication within the first week of March, and can she confirm the precise date on which the first tranche will be laid?
The humble Address expressly exempts papers that would be prejudicial to UK national security or international relations. These papers are instead to be referred to the Intelligence and Security Committee, the ISC. Can the Lord Privy Seal explain what test officials are applying when they decide that disclosure would be prejudicial in each case? Will she also confirm that material identified as engaging those exemptions is being passed to the ISC promptly as it is identified, rather than being held back and sent only once the wider collation exercise is complete, so that the committee can begin its work without delay?
It has also been noted that the ISC’s secretariat is provided by Cabinet Office officials. We unequivocally do not question the independence or integrity of the ISC, but given that the Cabinet Office is also leading the Government’s sifting and handling of material for publication, what steps are being taken to ensure that these parallel roles do not create even the perception of a conflict and that the ISC has the resources and independence it needs to do this job quickly and thoroughly?
I turn to the documents the Government say they are withholding following discussions with the Metropolitan Police. In the other place, the Speaker has been clear that the police cannot dictate to that House what may be required under a humble Address. Will the noble Baroness the Lord Privy Seal confirm that the Government accept the principle behind that statement—that the duty to comply rests with Ministers, and that any documents withheld because of the live investigation will be published as soon as it is possible to do so? Will she also consider setting a clear backstop for further updates to Parliament so that the process cannot drift indefinitely? More broadly, humble Addresses are understood to be binding resolutions of the House. Does she accept that a failure to comply with the humble Address without proper justification could be treated as a contempt of Parliament?
The official Opposition have called for clarity on what is to be published, what is being withheld, and why. Will the noble Baroness commit to publishing a comprehensive list of the categories of documents within scope, identifying which have been disclosed, which have been referred to the ISC and which are being temporarily withheld—for example, because of the police investigation —together with the reason in each case? If she cannot give a firm commitment today, will she undertake to write to clarify the Government’s position?
We have been patient and constructive, but the public interest in these papers is clear. They must be published in a timely way if lessons are to be learned and accountability secured.
Lord Wallace of Saltaire (LD)
My Lords, we all now recognise that it was a massive misjudgment to appoint Lord Mandelson to the post of ambassador in Washington. The Prime Minister has already apologised for that. He is not the first Prime Minister to have made such a serious error, and opposition parties should avoid pretending that they are entirely innocent of similar past mistakes. That will persuade the public only that all politicians are aggressively partisan and potentially corrupt.
However, there should be a much wider canvas for this investigation. We need to know not only about the involvement of Lord Mandelson in the Epstein network but how far others in the UK were involved and whether any of the trafficking of young women took place through Britain and British airports. The interaction between a sexual exploitation network and the provision of confidential government information to rich financiers is a potentially explosive mixture. It could deepen public mistrust in not only our political elite but the City of London and its links to New York banks. Then there are the rumours of Russian links with all this. It is vital to demonstrate as much transparency as possible, with a vigorous attempt to uncover what has really taken place.
We recognise the challenge that the vast mass of documents to be examined poses. We also recognise that there will be some areas where national security interests unavoidably prevent full publication—particularly the rumours of Russian links, if they turn out to have some foundation—but we ask the Government to publish and explain to the public as much as possible, in order to rebuild public trust.
I hope the Minister also recognises that the British Government are now in a position where they can and should set an international example of our adherence to democratic accountability and the rule of law. There have already been a number of comments in Washington on the contrast between American and British reactions to this developing scandal: no recent arrests in the United States, reluctant release of heavily redacted documents and an Administration doing their best to deny any involvement, contrasted with the Government and Head of State in London taking the limited British involvement seriously.
Democracy and the rule of law are under attack in the United States and elsewhere. We on these Benches therefore encourage our Government to demonstrate in everything they do in this developing scandal that accountability and the law matter enormously. There is likely to be a lot more still to come out from all these documents that will embarrass the US Government and America’s financial, high-tech and business elites, as well as their counterparts in the UK.
The previous Conservative Government resisted publication of the full extent of Russian penetration of British politics, primarily because its deepest penetration had been of the Conservative Party. We still do not know how far it extended or what lessons we all need to learn. I again encourage the Government to publish a much fuller version of the ISC’s Russia report to alert the public to the threats of foreign interference in British politics that we face, and as helpful background to the sad mixture of money, sleaze and sexual exploitation that Lord Mandelson, Andrew Mountbatten-Windsor and perhaps other leading British people were caught up in.
The Lord Privy Seal (Baroness Smith of Basildon) (Lab)
My Lords, I thank the noble Baroness and the noble Lord for their questions; I will try to answer as many as possible. I do not recognise the noble Baroness’s suggestion about delay in dealing with this. There are a lot of documents to be produced. The Government have been very clear that there is no hesitation at all in complying fully and completely with the humble Address. I hope that reassures her.
There is no scheduled timetable but it is important that, with so many documents, we do not wait until we have every document but get them out in tranches. Some of those may be out of sequence, in a sense, but all government departments have been asked to be very clear that all documents must be kept, whatever form they are in, and that information and messages must be kept so they can be fully disclosed.
The noble Baroness asked for confirmation on what is being withheld. Only two areas are being withheld. Information will be sent to the ISC. The Government will make a judgment on whether that information has an impact on international security, international relations and national security. If the Government make that judgment, it will then be given to the ISC to assess. There is a clear process and an assessment of the Government’s judgment on that when it is sent to the ISC. The other issue—which I understand is one document, or maybe a suite of documents—is the questions that were asked of Peter Mandelson by No. 10. That is the information that is currently with the Metropolitan Police. There is obviously a delay in publishing that, but as soon as we are able to do so we will. I take into account the Lord Speaker’s comments that nothing should be allowed to prejudice justice.
The noble Baroness asked what “early March” means. I am tempted to say that early March means early March. I do not know quite how further to describe early March: does it mean 1 March or 2 March? It means early March. It will be published in early March and I expect we will see the information produced in the next couple of weeks or so.
The noble Baroness also raised the slightly curious point about the independence of the ISC, which the House of Commons raised as well. I hope I have not misunderstood—she is shaking her head at me, so perhaps I did—but the ISC has to be able to conduct its work without fear or favour and have the full confidence of the whole of Parliament in doing so. Although the staff are employed by the Cabinet Office, she will know from her experience of the Civil Service how very much they work for the ISC.
Having said that, I understand that there have been discussions about whether those staff should be employed directly by the ISC or whether it is more appropriate that there is a pool of people who work for the ISC and may return to other Civil Service jobs. The important thing is that they have the resources to do their job. I have absolute confidence in the Members of this House who are members of the ISC—the noble Lord, Lord West, the noble Baroness, Lady Brown, and the chair, the noble Lord, Lord Beamish, who is behind me, keeping an eye on me—to ensure they do their work fully, completely and properly. I am sure the noble Baroness, Lady Finn, will agree.
The noble Baroness commented that the Metropolitan Police cannot dictate to the House and asked whether the Government accept their duty that any documents held should be released afterwards. I have already answered that: they will be released where we are able to do so and where that does not jeopardise any possible further action the police may want to take.
The noble Lord, Lord Wallace, addressed how all of us can make mistakes. He referred to mistakes by past Governments and by this Government. Indeed, I heard his party leader on the radio this morning talking about mistakes that he had made. When mistakes are made, three things must happen. First, there must be an admission that a mistake has been made. Secondly, how it happened must be understood. Unless you understand how and why it happened, you cannot take the action that is needed to protect yourself and others from making similar mistakes in the future. Thirdly, an apology is required. I will never suggest that no Government ever made a mistake—it is human life—but to understand how and why, to put the wrong right and to apologise are important steps forward.
The noble Lord asked the Government to publish and explain as much as possible. Yes, transparency—particularly in an era of distrust of politicians, which we have been in for some time—democratic accountability, the rule of law, and being as open and transparent as possible are important. Who would have expected, when the Epstein papers, documents and emails were released, that this would reverberate around the world? It is uncomfortable for any Government to find themselves in a position where the information in those emails was completely unknown by them. The sense of betrayal, hurt, anger and upset in seeing those documents and that information is enormous. I assure the noble Lord on that.
The noble Lord says that there are rumours about Russian influence. It is very difficult to do anything about rumours. I worry about rumours. It is evidence that we must work on. Any evidence that can be made available should be made available. However, he will understand, in talking about the Russia report, that it is about finding the balance between transparency and international relations and security. I am grateful for the work that the ISC is doing on this, and generally, as I think the whole House must be, to ensure that it is confident that this balance is right and that it can work with the Government on this. However, the responsibility for national security ultimately lies with the Government.
The noble Lord says that there is further embarrassment to come. I am less worried about embarrassment than I am about not doing justice to the young women and girls who were abused by Jeffrey Epstein. There are times in life when we have to take a bit of embarrassment to ensure that justice is done.
Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
We now move on to up to 20 minutes of Back- Bench questions. It is Back-Bench questions, not speeches.
Lord Beamish (Lab)
My Lords, the noble Baroness, Lady Finn, raised ISC staff. Their job, and that of the committee, was made incredibly difficult by the previous Conservative Government cutting the budget and interfering with the appointments to the committee. The committee met the Prime Minister last year. This was the first time that the committee had met a Prime Minister in 10 years. Following that, the budget was increased. Negotiations are ongoing about moving the staff outside of the Cabinet Office. I assure your Lordships that those staff are dedicated, hard-working individuals who work very closely with the committee. I ask my noble friend: if the committee requires more resources, will those resources be given to deal with this task?
Baroness Smith of Basildon (Lab)
I am grateful to my noble friend for his point about the staff. I tried to do it justice but, as chair of the committee, he did it much better than I could. It is important that there is no question that the committee and the House have full confidence in the staff and the work that they do. Yesterday in the House of Commons, the Chief Secretary to the Prime Minister made it clear that there are ongoing discussions. It is important that the resources that the ISC needs are available. I understand that discussions on that are taking place.
Lord Harper (Con)
My Lords, the Leader of the House referred to things we did not know. The problem for the Prime Minister is that he confirmed in the House of Commons that he did know that Lord Mandelson had an ongoing relationship with Jeffrey Epstein after he had been convicted for child sex trafficking, and he still appointed him as ambassador to the United States of America. That is a bit of a problem.
Can I pick up on something that the Leader of the House said about decision-making? The humble Address said that all information in the terms of the Address would be published, except where it was prejudicial to national security or international relations. I understood that the process of pulling together all those documents was being overseen by the Cabinet Secretary, who I understand has delegated that to the Permanent Secretary in the Cabinet Office, and that it would be that official who made the decisions about what was prejudicial and what therefore went to the ISC. The Leader of the House has just said that that decision is going to be taken by the Government, by which we normally mean Ministers. Can she clarify whether the decision about which documents are prejudicial and will therefore go to the ISC will be taken by the Permanent Secretary in the Cabinet Office, who has been delegated that task by the Cabinet Secretary, or by Ministers?
Baroness Smith of Basildon (Lab)
The noble Lord raises two points, the first of which concerns what the Prime Minister did or did not know. I do not think anybody was aware of the extent of the activities of Jeffrey Epstein and the relationship between him and Peter Mandelson until these documents were released. The other point is the information that the Prime Minister and No. 10 have given to the Metropolitan Police. Questions were asked of Lord Mandelson and the answers that were forthcoming to the Prime Minister were not, as we now understand, the case. The Prime Minister feels that he was lied to by Peter Mandelson then. It is the extent of that relationship that is really important.
On the humble Address, I was talking about government in the widest sense. The Cabinet Secretary has delegated this to the Permanent Secretary at the Cabinet Office, who will be the person sifting the documents to ensure that the documents sent to the ISC are those that the Government have withheld for reasons of international security and international relations and our national security.
Baroness Ludford (LD)
My Lords, my noble friend Lord Wallace of Saltaire raised the suggestion we have seen in the press that Jeffrey Epstein’s trafficking victims could possibly have been brought into the UK through private airports. I remember 20 years ago this issue being raised in relation to the victims of extraordinary rendition, in which I am afraid the UK Government colluded. Has that loophole really not been closed? Have there been no immigration or security controls on who comes into this country in private jets?
Baroness Smith of Basildon (Lab)
I do not know whether the case is exactly as the noble Baroness describes it. What I do know is that all evidence is being looked at to see whether there is any evidence of such trafficking. That means going back through records over some time to see what is available. If there is any evidence of trafficking, of course the appropriate action should be taken as a matter of urgency.
Lord Harris of Haringey (Lab)
My Lords, I am grateful to my noble friend the Lord Privy Seal for the way in which she is approaching this discussion and the answers that she has given. Can she confirm the situation about the humble Address? Obviously, it was constructed by the leader of the Official Opposition with a view to perhaps causing maximum embarrassment, but that is the job of opposition, and we should not be surprised at that. I understand that the framing of it potentially covers all diplomatic cables, many of which would automatically be copied to the UK ambassador to the United States. Can my noble friend confirm that part of the task that the Permanent Secretary in the Cabinet Office has been given is to judge whether or not those can be released? Is there not an important principle that releasing diplomatic cables or material relating to diplomatic cables is prejudicial to the interests of this country? Even if that diplomatic cable said what a nice person whoever it was is and that they had a really good discussion, the fact of releasing some, but not all, cables raises the question about those which are redacted. Is that not in itself likely to be prejudicial to the national interest? This is an important process, which requires a great deal of diligence.
Baroness Smith of Basildon (Lab)
My noble friend is right. It is an important process. Our international relations with countries across the world where we have diplomats and where they have provided information in the UK’s national interests may at times be sensitive. The humble Address is quite clear that, where there are issues of national security or international relations, those documents and that information will be passed to the ISC for it to make a judgment. To come back to my noble friend’s point about whether it was intended to be embarrassing, the truth may be embarrassing at times but if it leads to justice and a better outcome then it is the right thing to do. The Government have no problems complying fully with the humble Address.
Lord Redwood (Con)
I welcome the Government’s decision to take this very seriously and to publish in tranches. Given that many days have now elapsed, will the Government publish a tranche tomorrow to show good faith, so that the proper process of scrutiny can begin?
Baroness Smith of Basildon (Lab)
I do not know whether the noble Lord heard my earlier answer. We will not be publishing documents tomorrow but as soon as possible. I imagine that it will be in the next couple of weeks.
Baroness Laing of Elderslie (Con)
My Lords, the House appreciates that the noble Baroness has had to answer a lot of questions in a short time, but she has not as yet answered the final question asked of her a few moments ago by the noble Baroness, Lady Finn, about whether the Government will commit to publishing a comprehensive list of the categories of documents within scope, identifying which have been disclosed, which have been referred to the ISC and which have been temporarily withheld—for example, because of a police investigation—together with the reason in each case. The more complicated this matter becomes, the more helpful it would be if the Government could give that information. If the noble Baroness cannot immediately answer that question, will she commit to answering it in writing to the noble Baroness and the Opposition as soon as possible?
Baroness Smith of Basildon (Lab)
I have no problem answering questions at the Dispatch Box—it is probably one of the highlights of my day.
I am slightly puzzled by the question, though I will take it back. It seems to me that, if it has already been said what the document is that is being withheld from the Metropolitan Police—that information was announced in the House of Commons yesterday and I have said it here today—and if we then publish a list of documents that are being sent to the ISC because the issues are significant to international relations or national security, does that not give more information that could undermine national security or international relations? There is an issue of transparency, but transparency does not extend to such issues. It has already been accepted that the documents will be sent to the ISC. I will look at this, but the noble Baroness should have faith that if the ISC is receiving those documents then it can look at them. If it is that she wants a list of confidential information that is being given to the ISC, I am not sure that that takes the House any further, or whether that might undermine the work of the ISC. I am not sure that it is a helpful suggestion.
Lord Pannick (CB)
My Lords, the House is grateful to the noble Baroness the Lord Privy Seal for the clarity of her answers. Will she confirm that, once the ISC has decided that a document should be disclosed, notwithstanding any concern that the Government may have had about its implications for national security or foreign relations, the Government will comply with the decision of the ISC?
Baroness Smith of Basildon (Lab)
I am grateful to the noble Lord. My understanding is that the exact details of how this will work in practice are still being discussed between the Government and the ISC. Those discussions will be concluded this week, but the Government have no interest in withholding information if it does not relate to international relations or national security. I hope that, if we get it right, the issue will not occur in the first place, but those discussions will take place between the Government and the ISC this week to conclude the terms of reference.
Lord Jackson of Peterborough (Con)
My Lords, I thank the noble Baroness the Lord Privy Seal for her answer. I make the point that the then Opposition moved and invoked an humble Address on a number of occasions during the Brexit negotiations, at very critical junctures. At that stage, it was not necessarily in the national interest to reveal all the information that the Her Majesty’s Government were using.
I just take the noble Baroness back to the report on due diligence. Surely it is for parliamentarians and the wider public to make a judgment not only on the veracity of the due diligence report presented by the Cabinet Office to the Prime Minister but on the Prime Minister’s judgment in what he did with that report. It seems odd, and perhaps the noble Baroness will explain why it was, that a charge of misconduct in a public office is inextricably linked with the release or otherwise of the due diligence report that was presented to the Cabinet Office. Finally, will she say what is an acceptable delay before that very important document on which we will judge the Prime Minister’s judgment is published?
Baroness Smith of Basildon (Lab)
First, I am not quite sure what the noble Lord’s comments on the humble Address were aimed at. He has heard no complaints whatever from me or from this Dispatch Box about complying fully and totally with the humble Address. I do not think I made any complaints about humble Addresses previously, as the noble Lord implied, so I am not quite sure what he was saying.
I can also tell him that no charges have yet been brought of misconduct in public office. The evidence being looked at has come to the fore, post due diligence and security vetting, from the Epstein files. Nobody in this House or outside it could have had any warning, or a crystal ball or anything, that could have indicated the extent of those messages and what they contained. So, if any charges are brought of misconduct in public office, it will come from those emails that were released. I will wait and let the police do their work on that, to see whether charges are brought against any of the individuals who have so far been arrested.
Tobacco and Vapes Bill
(1 day, 4 hours ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
17:59 - Division on Amendment 1 - Ayes: 78 / Noes: 246 - Amendment 1 disagreed.
Lord Murray of Blidworth
Member’s explanatory statement
This amendment seeks to remove the generational ban for tobacco products in England and Wales by raising the age of sale to 21.
Lord Murray of Blidworth (Con)
My Lords, I will speak to all my amendments in this group, which is all of them barring Amendment 203. I thank my noble friend Lord Naseby, who has signed all my amendments.
The amendments all do the same thing: they would remove from the necessary places in the Bill the generational smoking ban—that is, the prohibition on tobacco sales to all those born after 1 January 2009—and replace it with a fixed age of sale of 21. In my view, this policy was wrong when it was adopted by my party in government, and it is still wrong now.
In asking noble Lords to support this amendment, I will make six points. The first is in relation to prohibition. A generational ban may sound like a progressive step to protect public health, but it is de facto prohibition, and there remains no evidence anywhere in the world that prohibition of a long-standing legal product has ever worked. In time, this policy will result in the termination of a legally controlled, highly regulated, highly taxed industry, which will be replaced by an illegal, uncontrolled, unregulated, untaxed criminal bonanza.
Baroness Northover (LD)
My Lords, I shall speak to Amendment 203 in my name, which is also supported by my noble friend Lady Walmsley. She is sorry that she cannot be here today because of ill health. I know she is keeping a close eye on us, but I hope she takes it easy and will be back with us soon.
Amendment 203—to change the subject slightly—would require the Government to publish, shortly after Royal Assent, a communications plan to support the implementation of the smoke-free generation policy and to raise public awareness. We know that the ban on smoking in public places was effectively communicated so that those who needed to take action were well prepared to do so and the public knew what the plans were. We want to see the same actions here.
When this amendment was tabled in Committee, it was excellent to hear the Minister strongly agree that such communication was vital. Many of us involved in this debate over the years know from experience how effective public health communication can be. We have played our part in the major advances in tobacco control, from smoke-free public places to changes in the age of sale and plain packaging—and we have had all the same arguments coming back at us. None of those reforms succeeded by chance. They worked because they were carefully planned, cross-party in approach and underpinned by communication strategies that brought the public with them. The Bill is an excellent piece of legislation, far-sighted and potentially significant for our children and grandchildren.
We fully realise how the industry—represented here today, I can see—will, as ever, push back against this measure using every device in the book. We have seen that time after time in this Chamber over the years, with very familiar arguments.
I commend those who have helped to bring about this legislation, from Professor Khan to Professor Chris Whitty, from Rishi Sunak to the current Government. The Bill team have done a fantastic job in bringing together previously fragmented strands of tobacco regulation, seeking to close loopholes so that we create a framework that is robust enough to withstand future industry innovation, which, again, is extremely familiar. This might indeed be one of the last tobacco Bills needing to pass through this House—not that I hold my breath.
This legislation contains a world-leading and genuinely novel policy to help to deliver a smoke-free generation, which the Opposition are also theoretically committed to. It therefore creates a real opportunity not just to implement a new age of sale but to communicate the harms of smoking and promote smoking cessation, just as the ban on smoking in public places did. I therefore welcome the Minister’s comments in Committee that clear guidance will be published and the Government will work to ensure successful implementation. But guidance alone is the minimum requirement, and I hope the Government’s ambition goes further than that.
In 2007, as those of us here then will remember, when smoke-free legislation was introduced, the message was simple, consistent and widespread. The Government did not leave it to businesses and others to explain on their behalf. Stakeholders were identified early, supported properly, not undermined with all sorts of reasons to feel anxious, and given time to prepare. Guidance, signage and materials were ready well in advance. National TV adverts raised awareness. The result was immediate: we saw 98% compliance on day one, accompanied by growing public support.
That approach achieved more than compliance; it changed attitudes. It sparked conversations about the harms of smoking, not the liberties—as if an addiction is a liberty—and encouraged many people to try to quit. That kind of cultural shift is exactly what this legislation should aim to replicate. Although the rising age of sale applies to a specific cohort, a wider objective is to engage the whole population and frame smoking cessation as a shared national endeavour.
Lord Naseby (Con)
My Lords, I support the 27 amendments in this group, which were so ably spoken to by my noble friend.
Members of the House may not know—there is no reason why they should—that when I came back from working in India and Sri Lanka, both of which are very extensive users of tobacco, I joined an advertising agency on the marketing side. In particular, I was asked to help on the marketing of Gallaher products such as Park Drive and Senior Service. That experience meant getting to know those companies in depth, and I began to understand how the industry operated. Of course, at that point I had no idea that I would become a Member of Parliament some 10 years later, but I realised that this is not a flippant industry. This was an industry employing thousands of people, particularly in skilled areas, and an industry that, as far as I could see as a marketing man, listened to the problems of health.
I am married to a full-time GP, and I have a son who was a GP. I have admired various political parties that ran the National Health Service through the 1960s, 1970s, 1980s and onwards. You only had to go into your own surgery to see the effort put in on the ground to encourage people not to smoke. It was not as if the industry ignored it. Pressure was understandably put on, whereby advertising, in which I had a role to play, should be targeted in terms of age and timing. The media at that time was very different. But, on the recommendation that I and my team went through, the industry recognised that it should avoid advertising to young people and took positive steps to that effect.
I hasten to say that I have no financial involvement; I do not have any stocks and shares in tobacco companies. I am only speaking from experience. When I got to the other place as the honourable Member for Northampton South, I continued to take an interest in the industry. I am impressed with the efforts that were made jointly by the industry and various Governments. But I do express huge disappointment to the present Government that, as far as I understand it, they have resisted attempts to talk to the industry in depth, particularly to retailers and the other representatives. They certainly feel that they have been ignored, and that is not a good position to be in.
Leaving that aside, we come back to the central issue of what the Government are proposing and what I and others are proposing. Twenty-one is a sensible age. I did my national service as an RAF pilot from 18 to 20, and then I went to Cambridge. By that time, you can decide for yourself what you are going to do. This idea of a phased introduction is confusing to all those involved.
There is a problem on the ground. I live in Bedfordshire, next door to Northamptonshire. We have a lot of small towns. For one newsagent, roughly 19% of his income comes from tobacco. It is falling, but that is understandable. It is falling because the percentage of the population who smoke has dramatically fallen between the period when I first got involved, in 1964, and today. I do not argue that it would not be better if it had fallen a bit further, but it has fallen dramatically. This is an issue for the retail trade.
Another issue that His Majesty’s Government appear not to be terribly up to date on is the illicit tobacco trade, which is a huge problem today. As I understand it, His Majesty’s Government recognise that only 10% of cigarettes consumed in 2023-24 were illicit. That, in itself, equals 12 billion illicit cigarettes. However, when you dig a bit deeper, the National Crime Agency’s Deputy Director for Illicit Finance, Sal Melki, has stated that the combined law enforcement agencies’ Operation Machinize seized 4.5 billion illicit cigarettes in 2024. Surely that is the area we should be focused on. We do not need new and complicated laws—that is a real target. I do not understand why His Majesty’s Government are not making that a real priority. As it is, the illicit trade is totally undermining our situation.
I had the privilege of working as a junior Minister in Northern Ireland. I am not blaming anybody, but it was my own party that failed to deal properly with the situation in Northern Ireland. I am really upset that we did not do it better, but we did not. It ought not to have happened. But, quite frankly, even if the Government’s wish was to go through, it is not going to happen in Northern Ireland. That is not good. We are part of the United Kingdom; we do not want to have another category where poor Northern Ireland is left out in the cold.
I am not going to repeat the points my noble friend has already made. This amendment that he and I have put down is a simple proposition to replace the generational ban with a minimum legal purchasing age of 21. I plead for the House to think long and hard. I shall certainly be supporting this amendment if my noble friend tests the opinion of the House at the appropriate time.
Lord Pannick (CB)
My Lords, I have listened very carefully to the speeches from the noble Lords, Lord Murray and Lord Naseby. However, what they cannot avoid is that their amendment, by maintaining the legal sale of tobacco products to persons over the age of 21, will continue the enormous damage to public health and the enormous cost to the National Health Service that is caused by the consumption of this product.
I am not persuaded by the freedom arguments. We ban heroin. We require that people wear seat belts, even if they are over the age of 21 and they may take a different view. If Sir Walter Raleigh were to bring tobacco into this country today for the first time, there is surely no doubt whatever that it would be banned because of its noxious, dangerous character. The Bill contains such detailed provisions relating to legality precisely because this has been a lawful product for so long. I think the Government are quite right in the way they seek to deal with it.
The only other argument of substance presented was from the noble Lord, Lord Murray, relating to illicit tobacco products. But that is an unfortunate consequence of banning any product. We ban cannabis. There is an illicit trade in cannabis, but I do not think the noble Lord, Lord Murray, is a supporter of legalising the sale of cannabis. The enactment of the Bill will do an enormous amount to educate the public of the dangers that this product causes and of the need to ensure that we move forward now to promote public health.
Lord Clarke of Nottingham (Con)
My Lords, I want to speak to my interest. About 30 years ago, I was a director of British American Tobacco. I started smoking when I was at school, and I have now been smoking for about 70 years. At the moment, the thought has not crossed my mind that I am going to abandon my enjoyable smoking of small cigars.
Leaving that aside, I recall that when I was at BAT, just as my noble friend’s experience of Gallaher has confirmed, we were desperately anxious to keep our reputation as a company and make sure the dangers of our product were brought to people’s attention and we could protect our reputation. I will not reminisce for too long, but I recall that we lobbied the then Government to make it illegal to sell our products to under-18s. They rejected that idea because of counterlobbying from retailers. We certainly offered no resistance whatever to the widespread publication of the health risks of smoking, which are considerable.
We were often accused of doing dreadful things. People who campaigned against our product decided they had to campaign against the evil organisation that was involved in it. But this was a complete misunderstanding of our attempt to maintain a good reputation. It was, in fact, an extremely well-run company. My opinion is that smoking should not be banned and made illegal if the sale is to adults who are fully informed that they are adding to the risk to their health that motoring and other things already pose to them and decide that the pleasure of smoking involves them taking it on.
I will not repeat all the excellent arguments of the noble Lord, Lord Murray, who put the case perfectly clearly and well—I agree with every word he said. I find the proposition, which was first put forward by my own party towards the end of our last period of office, a quite extraordinary one. It is going to be found that shopkeepers are making an illegal sale if their customer is a day older than the legal limit imposed by Parliament. I assume that in 60 years, somebody like me will be required to go into a shop taking my birth certificate, saying that I am 85 so can legally buy a cigarette, whereas if I was 84 years of age it would be an illegal act to engage in this transaction. I cannot see how shopkeepers are going to comply with the law except by demanding some proof of date of birth and continuing to demand that proof as the legally entitled purchasers steadily grow older and older. I am sure it is well intentioned. It is another attempt to reinforce the already very successful efforts we have made in this country to reduce the incidence of smoking. But it is faintly ridiculous and slightly preposterous, and, given the history of the decline of smoking in this country, it is quite unnecessary.
The most important point that the noble Lord, Lord Murray, makes to those who might be faintly neutral in this debate is that it will stimulate organised illegality. It most undoubtedly will. He made the arguments for that, but I remind the House of the best example in my lifetime. Until about 30 years ago, betting on racehorses was legal only on the course, and there was a firm law saying that you could not place a bet on a horse—it was strictly illegal—unless you were actually at the course.
Lord Young of Cookham (Con)
My Lords, for the first time in my life, I will publicly disagree with my noble friend Lord Clarke. I will speak briefly but very strongly against this group of amendments, which would simply defeat the object of the Bill: to introduce a generational ban and achieve over time a smoke-free country.
Less than two years ago, a generational ban was the policy of a Conservative Government, and the then Prime Minister, Rishi Sunak, described it as one of his proudest initiatives. In that Parliament, on a free vote, the vast majority of Conservative Members of Parliament supported the Bill, as did 28 out of the 30 members of the Cabinet. All the arguments that we have heard this afternoon were put forward at that time, listened to and discounted. In this Parliament, the measure passed with a majority of 415 to 47, so it is fair to say that the Bill has broad cross-party support, and it is popular outside. It has a clear objective of reducing the burdens of smoking on the economy and the NHS.
I will leave it to others to deal with the argument about illicit tobacco and the Windsor Framework; I just want to tackle the libertarian argument, following the speech of the noble Lord, Lord Pannick. I listened to all the libertarian arguments when a Conservative Government made it compulsory for motorcyclists to wear crash helmets. We heard the arguments about well-informed adults being aware of the risks. Nobody would now reverse that piece of legislation. We heard the same arguments on compulsory seat belts. Both those measures were introduced by a Conservative Government. We heard the same arguments about smoking on public transport, on trains and in pubs. Yes, there is a libertarian argument, but in my view there is a much broader benefit in moving to a smoke-free country.
Lord Sharpe of Epsom (Con)
My Lords, I will speak in favour of the amendments tabled by my noble friend Lord Murray of Blidworth. I will concentrate on one narrow area—one of the practical aspects of this generational ban—which, as my noble friend Lord Clarke highlighted, is the inevitable difficulty of age verification in stores. I am sure the Minister will soon argue that age verification is a well-established practice and therefore should present no particular difficulty, but the implications of the Bill in a few years’ time are profound, as my noble friend noted.
Judging the difference between an 18 year-old and a 40 year-old by eye is not especially difficult—although at this point I note that there are a number of Peers on the Government Benches who regularly claim that even that is impossible in the case of asylum seekers. But how is a shopkeeper supposed to judge the precise age of someone who is apparently 40 years old in a few years’ time? Is he 40? Is he 39? Is he 40 in 364 days? I am sure that we will soon hear the argument that the point is actually somewhat moot, because that 40 year- old born after the 1 January 2009 will have never smoked or shown any desire to smoke because of the Bill. But that is simply not a credible argument. As my noble friend Lord Murray noted, the generational ban is a de facto prohibition, and one does not need to be a dedicated student of history to know that prohibition of any kind has never worked. Indeed, it serves to make whatever is being prohibited more desirable, more glamorous and more edgy. Plenty of people will still choose to smoke.
In effect, the state will therefore be asking shopkeepers to both comply with and police the law at the same time. To put some statistics around this, the Association of Convenience Stores represents 50,000 local shops, petrol forecourt sites and independent retailers across all locations. Last year, it reported that there were 57,000 incidents of violence against people working in convenience stores. Some 87% of store workers reported verbal abuse and 44% reported hate-motivated abuse. The top three triggers of this violence epidemic were encountering shop thieves, enforcing age restriction policies and refusing to serve intoxicated customers. Does the Minister think this will get any better when the shopkeeper has to ask two middle-aged men for their passports—or, indeed, an 85 year-old for his birth certificate?
Today, I read that the British Retail Consortium has reported that there were 1,600 incidents of violence and abuse per day in shops in the year 2024-25. That is down from the previous year, but it is still a staggering number. It is welcome that the Crime and Policing Bill will make assaulting a retail worker an aggravated offence, but that is, I contend, highly unlikely to make any difference at all to the number of incidents around age verification, which are inevitable. I am sure the Minister will also refer to the increase in police numbers and neighbourhood policing officers due by 2029. That is also welcome, of course, but I note that the previous Government bequeathed more police officers than ever before in this country, and that did not have a noticeable impact. The simple fact is that this measure will inevitably cause more trouble, and the Government will be unable to do much about that. It is ludicrous to pass a law that will provoke the breaking of other laws.
My noble friend Lord Murray’s amendments would achieve the Government’s aims without causing this needless aggravation. The Government’s own impact assessment states that a one-off increase in the age of sale to 21 would be just as effective in the short term at reducing smoking rates, compared with a generational smoking ban. The Government should change tack and accept my noble friend Lord Murray’s amendments.
Lord Rennard (Non-Afl)
My Lords, I oppose Amendment 1 and the associated amendments tabled by the noble Lord, Lord Murray of Blidworth, because I believe wholeheartedly that a country free from the harms of tobacco would transform the public health of this nation and prevent huge amounts of human suffering. We heard from the noble Lord about the reversal of the planned policy in New Zealand, but we did not hear an explanation for that. The explanation is quite simple: there was a change of coalition parties following a general election. One of the new coalition parties feared the drop in revenue to the Government as a result of the policy being introduced and a reduction in the prevalence of tobacco smoking, which surely proves the point that that party accepted that such policies as this would be effective.
We have heard about the wonderful, kind-spirited nature of the tobacco industry in caring for young people, but not enough about the many decades of deceit, in which that industry knew full well the links between its products and lung cancer, and covered up what it knew and lied about them, as it lied about tobacco smoking of a second-hand nature. This is not an industry which we can trust for a remote second.
Lord Clarke of Nottingham (Con)
May I ask what evidence the noble Lord has for that? I well remember, when I was on the board of BAT, that we acknowledged the health risks. We were accused of somehow denying it, but the people with this bizarre conspiracy theory were never able to produce any examples of our denying it, because we did not, and we did not oppose warnings and labels on packages. It is just part of the mythology of the more extreme fringe of well-intentioned anti-tobacco lobbyists.
Lord Rennard (Non-Afl)
My Lords, with respect, I am not part of any extreme fringe, and the views I have enunciated are shared almost entirely by the medical profession in this country. For decades, the tobacco companies had evidence that tobacco was linked to lung cancer, yet they kept denying until it was proven by showing the number of people with lung cancer who smoked and the number of people with lung cancer who did not. The industry hid that as it fought tooth and nail against such things as plain packaging with many bogus arguments. This is the most deceitful industry in the world.
We have heard about the cliff edge problem, but it is one that we have now. At 17 years and 364 days, you may not buy tobacco, but you can on your 18th birthday. With these amendments, that would change to being able to buy tobacco on your 21st birthday, but not after 20 years and 364 days on this planet.
My experience of being orphaned at 16, and finding my mother, a heavy smoker, dead in her bed as a result of hypertensive heart disease, with smoking obviously a key factor in her death, has driven me, ever since then, to support people trying to quit—that is most smokers, in my experience—and to prevent the tobacco industry promoting addiction to its lethal products. The Bill proposes a world-leading policy of which we should be proud, and we should not make it less effective, as proposed by many amendments in this group.
Raising the age at which someone can legally be sold a cigarette works in terms of reducing tobacco consumption. It may not be 100% effective, but that is not a reason to try to make it less effective. We know that raising the age of sale in England from 16 to 18 in 2007 reduced smoking rates among 16 and 17 year-olds by 30%. In the US, when the age of sale was increased from 18 to 21, the chance of a person in that age group taking up smoking fell by 39%.
The tobacco industry employs the most deceitful and dangerous lobbyists in the world. Their role is to try to protect its enormous profits and persuade more people—in particular young people—to take up the deadly habit in order to replace the 50% of its consumers whose lives are shortened by smoking tobacco.
One argument we hear from opponents of tobacco control legislation is that it represents a so-called nanny state. This is a term that I feel is really used only in the media. The phrase does not resonate with the public, who are highly supportive of tobacco control legislation. I hear laughter, but polling shows that 68% of the public support the smoke-free generation. The Chief Medical Officer has been clear that there is no freedom in addiction. Many people start smoking as children and become addicted almost immediately. Two out of three people who try just one cigarette go on to become daily smokers, and three-quarters of smokers say that they would never have started if they had the choice again.
It is also important to be clear what this policy does and does not do. The rising age of sale does not remove any current adult’s ability to buy tobacco; it simply phases in a high minimum age of purchase for future generations. That is a proportionate approach. By contrast, accepting these amendments would mean that those aged 18 to 20 who already smoke would suddenly be unable to buy tobacco legally—a far more intrusive step.
Smoking remains one of the greatest preventable burdens on our public services and our economy. It is responsible for up to 75,000 GP appointments every year. It costs the country approximately £27.6 billion in lost economic productivity. It costs the NHS almost £2 billion annually and local authorities nearly £4 billion a year in social care costs. That is money we do not have, and which could and should be spent on improving health, not managing preventable harm. The number of people—
Baroness in Waiting/Government Whip (Baroness Blake of Leeds) (Lab)
My Lords, I remind the noble Lord that this is Report stage of proceedings. His speech is a bit on the long side. Can he bring his remarks to a close, please?
Lord Rennard (Non-Afl)
My Lords, I hear some responses from the Benches next to me who disagree with this. I hope, however, that they will consider carefully the arguments that I am making, and those that come from the Minister shortly.
Lord Blencathra (Con)
My Lords, unlike the noble Lord, Lord Rennard, I rise to support my noble friends’ amendments in group 1, not to defend tobacco, but to defend common sense, public safety and the livelihoods of tens of thousands of small shopkeepers who would be most harmed by a policy that looks simple on paper but is deeply dangerous in practice.
First, the burden on retailers and communities is real. Small shopkeepers already face unprecedented levels of crime and intimidation. The Bill would force them to enforce a moving legal threshold every year, placing the full weight of policing on their shoulders.
We heard an awful lot from the noble Baroness, Lady Northover, on guidance. I am listening to my noble friend Lord Sharpe of Epsom describing what the shopkeeper would have to do, and I would love to see what the Government guidance will be for that shopkeeper. When they ask, “What is your age? When were you born? Prove it.”, how on earth will the shopkeeper be able to deal with people in their 20s, 30s and 40s when trying to stay on the right side of an ever- changing law?
The implementation of a generational ban on tobacco sales will have profound, unintended consequences for shopkeepers, law enforcement and retailers—to the benefit of organised criminals—across the UK for years to come. That is not hyperbole; it is a sober description of the risks we are being asked to accept with this.
Secondly, the policy will drastically expand the illicit cigarette market and hand control to organised criminals. Everybody knows the stark evidence—even though HMRC will never admit it—that illicit tobacco loses the Treasury £3.5 billion per annum. Some 25% of all cigarettes sold are illicit and cheap, and the price differential drives consumers to illegal sources in pubs, clubs and under-the-counter sales.
This ill-conceived generational ban—admittedly, a stupid idea from the last Government—will create a permanent cohort of consumers who cannot legally buy tobacco, and where demand exists, supply will follow. That supply will be by criminal networks. Let us look briefly at Australia as a sign of what will unfold in the UK. Organised crime gangs dominate the illicit tobacco market in Australia, which has led to arson, violence and the takeover of local markets by criminal gangs.
Thirdly, enforcement capacity is already stretched to breaking point. Trading Standards and other front-line agencies have lost staff and lack the resources to police a complex, ever-changing age rule. Enforcement bodies are underfunded and under-resourced; adding a perpetual generational rule will only widen the enforcement gap and shift the burden to retailers and local communities, who will be unable to cope. When enforcement fails, the law becomes a paper shield for criminals and a real threat to honest businesses.
What is the sensible alternative? It must be setting the age at 21, as set out in my noble friend’s amendment. This is not a retreat from public health; it is a pragmatic, enforceable measure that achieves the same long-term outcome for young people while avoiding the catastrophic side-effects of a generational ban. My noble friend set out in detail from the Government’s own impact assessment how raising the age to 21 would achieve the same long-term aim.
A minimum age of 21 is clear, static and much more easily enforceable. It allows retailers to train staff once and apply a consistent rule, and it reduces the incentive for criminal markets to exploit a permanently excluded generation. It also aligns with international practice and with the Republic of Ireland’s own policy direction, reducing cross-border legal friction.
Finally, we must pair any age change with stronger enforcement and support. If we raise the age to 21, we should simultaneously strengthen fixed-penalty regimes, resource trading standards and Border Force properly and invest in targeted education and cessation services. Enforcement must be credible—it is not at the moment. Everybody knows that you can get illegal cigarettes in any pub or club in the country. We need stepped penalties for repeat offenders, licensing powers that bite and better funding for the agencies that will be asked to do the work.
All of us in this House and Parliament share the aim of reducing smoking, but good ends do not justify bad, unworkable means. A generational ban risks destroying small businesses, empowering organised crime, overwhelming enforcement and creating legal chaos. A minimum legal purchasing age of 21 is a proportionate, enforceable and effective alternative that would protect public health without the catastrophic unintended consequences. If we come to a vote, I urge the House to reject the generational ban and support a measured, evidence-based approach that combines an age limit of 21 with robust enforcement and support for cessation. I support my noble friend’s amendments.
Lord Sentamu (CB)
My Lords, I listened to the noble Lord, Lord Pannick, and he persuaded me that, at the end of the day, we are dealing with a question of health, not choice. I will give an example. Colin Bennetts, Bishop of Coventry from 1998 to 2008, died in July 2013 after a period of illness due to cancer. His lungs were filled with deposits of smoke. He said to everybody, “I have never smoked in my life”, but as a youngster he had worked in an office where cigarettes were lit at every moment. Colin, who had not smoked, died of lung cancer. You do not have to smoke to die from it —others sitting near may get it.
I respect the noble Lord, Lord Clarke, but you cannot compare gambling on horses with smoking. Gambling on horses affects only those gambling, but secondary smoking is detrimental to anybody in a place where people are smoking. I do not think these amendments would be helpful. We should stick with the Bill as drafted, because we are trying to protect people’s lives and make them healthier.
I suffered what is called in medical terms a lung infarction, where bits of your lungs do not quite operate. I still have that illness, so every time I go into a place where there is a lot of smoking, I can barely breathe—I have to get out into the fresh air and get it in my lungs. Friends, this is about health. If we do not do this now, then when?
Lord Stevens of Birmingham (CB)
My Lords, I declare my interest as chair of Cancer Research UK. Given that smoking continues to be the single biggest cause of cancer, it will not be a surprise that I oppose the amendments in this group, which would substantially weaken this landmark legislation. In explaining why, I will respond to each of the six points made by the noble Lord, Lord Murray of Blidworth.
First, the noble Lord argued that we do not need more tobacco control legislation anyway because smoking rates are already coming down. That is not correct; Javed Khan has pointed out that, among the most deprived parts of the country, on current trends we will not be smoke-free until 2044. In any event, some in the tobacco industry have come to the same conclusion. I quote from an advert that Philip Morris took out in the New Statesman, no doubt designed to influence people such as us: “Here in the UK, smoking rates are not declining fast enough. None of the home nations are on course to hit their smoke-free dates, and the most deprived communities are lagging significantly behind”. The suggestion that we can just assume that the status quo will produce a benign outcome is incorrect.
The noble Lord’s second argument was that, rather than having a generational tobacco sales restriction, we should instead just move towards delaying the age at which smoking can be initiated to 21. The tobacco industry would doubtless switch its efforts to targeting twenty-somethings instead of teenagers. On the surprising claims we have heard in respect of the behaviour down the decades of Gallaher or British American Tobacco, I simply say to noble Lords: google their internal documents. They have all been disclosed as a result of international treaties and court cases, and noble Lords will see the systematic duplicity, bribery and corruption that has continued across the world in advancing big tobacco’s agenda. Those documents, the internal files, are there: noble Lords can check them out for themselves.
The noble Lord, Lord Murray of Blidworth, referred to the Republic of Ireland as an example we should perhaps be following, when it proposed to adopt the age of 21. However, the director of the tobacco industry-funded front organisation FOREST said of the effect of adopting the age of 21 as a tobacco sales restriction:
“If you’re not careful, you’re actually going to make smoking … fashionable again. You’re going to actually encourage young people to smoke”,
on the back of this proposed sales restriction to over 21 year-olds.
The third argument we heard was about the black market. For reasons that are a non sequitur, we have several times heard cited the example of Australia. The amendments in this group relate to changes to the age of sale. There has been no change in the age of sale in Australia. As far as I am aware, it is still 18 and has been for 30 years. So, whatever else is going on in Australia, it has got nothing to do with the amendments in this group in respect of age of sale. In fact, the Australian example tells us that you need rigorous enforcement. Until very recently, there was no retail licensing available for New South Wales, Victoria or Queensland, covering about 70% of the Australian population, and it has only been patchily introduced subsequently.
There is agreement that we need strong enforcement to deal with the illicit trade, but the argument that we should essentially do whatever it takes to maximise revenue for the Exchequer is a flawed one. If that were the case, as we have heard from other noble Lords, we would be legalising and licensing handguns, assault weapons, fentanyl or crack cocaine. The fact is that, when it comes to tobacco control policy, it is not the Laffer curve that we should focus on, it is the life expectancy curve.
The fourth argument has been around the impact on retailers. I accept that there are legitimate concerns, and the noble Lord, Lord Sharpe of Epsom, has rightly drawn attention to the epidemic of violence and also noted the provisions that will be in the Crime and Policing Bill as one step to attempt to tackle this. But the fact is that the progressive age of sale restrictions in the Bill are an evolutionary measure that will be phased over many years, giving retailers much opportunity to adjust. There are substitutes that they can sell, including vapes, as alternatives to smoked tobacco. Surely, nobody is suggesting that the trump argument should be that we need to sustain the margins of retailers at the expense of 80,000 people who die prematurely from smoking every year.
The fifth argument we heard was around the Windsor Framework. It is fair to say that alternative legal opinions are available. Member states are free to determine the age limit that they see as appropriate on their territory. This does not constitute a trade restriction within the meaning of the EU treaties. In any event, even if a court found that it did, it could be justified on public health grounds. Perhaps the Minister can confirm that the Bill has the support of Northern Irish Health Ministers and that legislative consent has been received from the Northern Ireland Assembly.
Lastly, we come back to the liberty argument: the freedom of unborn smokers to become addicted in decades to come. Well, those of us who take the opposite view judge that this is a proportionate response to a great harm. It is a novel piece of legislation; we will need to see how it plays out in practice. One of the government amendments that will be before us on Report will be precisely a report on its real-world effects in the coming years. In the meantime, to weaken what has the potential to be one of the most fundamental health-improving pieces of legislation this Parliament has ever enacted would in my judgment be a grave error.
Lord Bethell (Con)
My Lords, it is a privilege to follow the noble Lord, Lord Stevens, who gave a pretty good summary of many of the arguments against this group of amendments. I join him in all that he said. My fundamental motive is twofold. First, I would like to see the eradication of smoking in this country. That is a vision that we should embrace and be proud of. Just kicking the can and putting up the age limit, as this group of amendments seeks to do, would simply extend a very large and unfair addiction that kills two-thirds of its users and that we could all do without.
Secondly, I am very proud that my party was leading on this issue and brought about the generational ban. I remind noble Lords to have a moment of self-awareness. This is a measure that is massively supported by voters, taxpayers, smokers, Conservatives, retailers and even by the tobacco companies which, at least in this country, have a notional commitment to the eradication of smoking. You can judge whether to take that at face value, but that is at least their rhetorical position. So it seems out of date for my noble friends Lord Murray and Lord Naseby to be stalwarts for the permanent establishment of smoking in the face of such opposition.
Lord Bethell (Con)
Noble Lords have, perfectly reasonably, rebutted me on that. But my point is that the modern retail experience does not rely on retailers squinting to try to judge the difference between 21 and 22 year-olds. It is mandatory for almost everyone to produce ID when they are purchasing any restricted product. As the noble Lord, Lord Stevens, rightly said, it is right that the Government support this regime. I am pleased to see statutory guidance, updated training standards and enforcement tools as part of the Bill.
Regarding stories about the black market, I must express grave reservations about some of the points that have been made in this debate. They remind me more of stories of Arthur Daley and “Minder” than of modern Britain and I am not sure how relevant stories of Australian biker gangs shooting each other are. Just to correct my noble friend Lord Napier, he said that 4 billion—
Lord Bethell (Con)
My noble friend is looking very well on it. He mentioned that 4 billion cigarettes had been taken by the police in 2024. According to HMRC, the number is 24 million. I draw attention to that because there is a lot of loose use of numbers in the description of illicit trade.
Lord Naseby (Con)
The figure that my noble friend quotes is correct from the source that he quoted, but, after further investigation, it was found that the figure I quoted was the correct figure.
Lord Bethell (Con)
If my noble friend is correct, I will absolutely and humbly correct myself. Maybe we could have a drink afterwards and compare notes on that.
On the question of freedom, I too am a passionate believer and fighter for freedom. However, the freedoms I care about are not only the freedom of choice but the freedom not to be impoverished by taxes and not to see my nation, my country, ruined by the health, welfare and productivity costs of carcinogenic, nasty toxins such as cigarettes. The financial cost on ourselves, and particularly on our children, of this industry is absolutely enormous and is still growing, even if the numbers have stalled. So the freedom from addiction and debt should be included in any discussion of what the freedoms are. For those reasons, I will be voting against this package of measures.
Baroness Gerada (CB)
My Lords, I am also against these amendments. I will disclose a conflict of interest: I started smoking when I was 16—and 33 years later, like many of us who start to smoke at that age, because it is a childhood disease, I gave up.
We know and have heard about all the health effects of smoking, but we also have to realise that smoking is an easy addiction to start. I have looked after every addiction—heroin, cocaine, alcohol—and smoking is the easiest. You need only two cigarettes for 80% of people to be addicted, like me, for 33 years, and many people, like me, try to give up.
It is not just addiction that is the problem. It is not even about death, although death is a bad outcome to have. It is also about all the other complications. Like many smokers, I have lost many of my teeth. Our eyesight goes. We have skin problems. Smoking causes all sorts of things.
As a GP for nearly 30 years, I am pleased that I have seen a massive reduction in people with smoking-related diseases. My surgeries used to be full of what we call blue bloaters and pink puffers and full of people with premature heart disease. It is not an accident that I no longer see that in my consulting room; it is because of the hard work of our Chief Medical Officers, the Department of Health, ASH and many others to stop normalising smoking.
On the issue of the black market, there is of course a price differential. Wherever there is a price differential you will get a black market, whether it is diesel, cigarettes, alcohol or whatever. But the Bill is about stopping people starting—as the noble Lord said, preventing the next generation that has not even been born from starting. We have to focus on prevention, which is what the Bill is about.
Baroness Fox of Buckley (Non-Afl)
My Lords, the noble Lord, Lord Rennard, called this a world-leading policy. It is world-leading, because no one else in the world has chosen this policy. One wants to know why. At least the noble Lord, Lord Stevens of Birmingham, admitted that this was novel and therefore untested. Can we at least have a little humility by admitting that the Bill is an experiment? It is a risk.
How you do age verification, as rather wittily described by the noble Lord, Lord Clarke of Nottingham, is a bit untested. How will we cope with the 84 year-old versus the 85 year-old—will there be a scrap? It is said that it is not going to happen for many years, but I thought the idea of legislators was that you were meant to think about the future, not just tomorrow, and the long- term implications of policies that pass.
Let us be honest: there is no good practice to copy with this Bill. There is no evidence about exactly how it will work or whether it will work. The claims on its behalf are largely based on modelling and speculation, and that is not evidence; it is not scientific. Therefore, the moral high ground and the sense of certainty deployed by those who are enthusiastic about the Bill, and the disdain towards those of us who are sceptical about it, are just a little misplaced.
I therefore request that, as we go through the very short Report stage, because a lot of us have been through a longer Committee stage, we are honest about things such as cost-benefit analysis—what is lost, what is gained—and, rather than moral righteousness, consider whether this is actually fit for purpose, even the purpose of those people who are putting the Bill forward. Whatever the intentions of those promoting the Bill, many of the clauses in it are counterproductive.
I know we are not on this section yet, but as an ex-smoker who started vaping, I am utterly distraught that we now have a Bill that, to all intents and purposes, treats vaping and tobacco as interchangeable, despite a denial by the Government. I do not think that there will be the health gain that is claimed.
My final point at this time—because I will be back —is that it is a little rich to sneer about freedom. Saying the word “libertarian” gives certain people a thrill; they can feel as though they are morally virtuous. I do not consider myself to be a libertarian, despite what Wikipedia says. However, I fully embrace living in a free society. I do not think that freedom is something I should be embarrassed about, nor that saying that people should be given choices about their lifestyles makes you to the right of Genghis Khan, or whatever it is that people are implying—or, worse, in the pay of big tobacco, which is the inference of many of the contributions. At some stage relatively soon, lots of adults—the 84 and 85 year-olds, because these kids do grow up to be adults—will be denied a choice. This Bill affects adults.
People can make choices about whether they take risks in their health. I suspect that practically everyone I know is using those weight-loss injections. To me they are a bit risky—I think, “Are they safe?”—but I am not mounting a campaign yet, because half this House would be out. People say it is worth the risk. A lot of people do daft things such as going skiing—mad; too risky for me. There are all sorts of things. People have been known to have the odd extra pint or eat the odd greasy breakfast. People take risks and make choices about their health all the time.
I do not want more people to smoke, but I also think that, in a free society, we have to give a certain degree of room for people to make choices—even the wrong choices. We live in a free society. Deciding the right and wrong choice is what happens in authoritarian regimes, but in a free society we say, “I don’t think you should do that, but I’m not necessarily going to legislate so that you can’t do everything I personally disapprove of”. We should not even say, “You shouldn’t do that, because I know best for your health what you should and shouldn’t do”. In medical ethics, there are times when you go to your doctor, who says, “Take this”, and you say, “I decline to take that medication; I do not want that intervention”. In a free society, a doctor cannot force you to do what you do not want to do—even the virtuous health professional who we are all meant to revere.
As we carry on this Report stage, can we all show a bit of humility? Living in a free society puts before us difficult moral decisions. There is no necessarily right or wrong. We are allowed to scrutinise a Bill that is put before us without being accused of somehow being evil because we do not go along with the Bill. Just because the Conservative Government, when they were in, and the Labour Government now agree—if that is the basis on which we should not scrutinise, we might as well all go home. I am sad to say that, for some of us, the Conservative Party has had far too much agreement with the Labour Party over recent decades.
Lord Brady of Altrincham (Con)
I am a Conservative Member who, in the other House, voted against this proposition. Does the noble Baroness not share my concern that one of the unspoken nonsenses of this legislation is that far too many young people are already choosing to smoke cannabis, instead of cigarettes that they might legally obtain? That proves that, however we try to legislate or regulate this market, people will do what they choose to do. Virtually no effort is made to clamp down on the illegal smoking of cannabis.
Baroness Fox of Buckley (Non-Afl)
I am allowed to come back on that. All I want to say is that I do not want it to go down in Hansard that I am such a libertarian that I support the smoking of cannabis: I am not Zack Polanski. It is also the case that we have to think of the unintended consequences and the real world and real young people, rather than imaginary ones.
Lord Magan of Castletown (Con)
My Lords, I support the amendment from the noble Lord, Lord Murray. We have heard a lot of nonsense from those from whom we would expect to hear a lot of nonsense. It is more surprising that those from whom we would have expected to hear some good sense have most grievously erred and strayed.
The proposed legislation will in no way stop people smoking; it will simply drive smoking underground. Health issues will not improve and highly aggressive criminal involvement in this trade will soar. His Majesty’s Treasury will be denied at least £10 billion a year, which will accrue to the benefit of the criminal underworld. This crass development will turn out to be a disastrous policy swerve. Look at the empirical evidence: prohibition or intended prohibition has turned out to be a disastrous and damaging policy in many parts of the world. This ill-thought-through legislation will have to be repealed in due course. Let us come to our collective senses: the consequences of this proposed legislation will be dire.
The Earl of Erroll (CB)
My Lords, I will be very brief. I am worried not about whether it is right or wrong to try to stop smoking but about whether this would work. There is no point in passing laws that do not work, as they are not respected. I think back to the amount of pot that was smoked when I was at university, to all the drugs generally around the place, and to the switch from alcohol to ecstasy and other things when they were cheaper because the price of alcohol had been raised. We tamper around with it, but the problem is much deeper than that: people need to take things to stave off reality a bit, from time to time.
I was not a smoker, because I saw my friends wheezing at school. I tried it; everyone was worried about the amount of chocolate I ate, so I briefly tried smoking. I gave up after my second sore throat and saw no benefit from it. To be honest, this will not be an effective way of stopping smoking, so I see no point in it. It will cause problems with policing. We can handle age verification in various ways, but I will not bore your Lordships with that now. We should not make life more complicated for everyone. They will go on smoking if they are driven to it, and we do not want to make it look attractive, which driving stuff underground does.
Baroness Hoey (Non-Afl)
Before I say a few brief words about the amendment from the noble Lord, Lord Murray, and his excellent speech, I congratulate my former constituent, the noble Lord, Lord Clarke of Nottingham, who made an excellent speech. He spoke for common sense in how we treat adults. We will probably be allowing people to vote at 16 and we allow all sorts of things to happen at a much younger age, yet we do not realise how this generational ban will affect older people making decisions about their own lives and health.
As the noble Baroness, Lady Fox, said, people take risks all their time. I am suffering from a very sore back, because I took a risk in thinking that, at my age, I could still ski—I found it quite difficult last week. We all take such choices. After the age of becoming an adult, people have to be able to make those choices. We should be spending our time educating young people. I do not want people to smoke—I have never smoked in my life—but I do not see this generational ban working.
To the people who want to see smoking stopped, I point out that, as the noble Lord, Lord Murray, said, this generational ban will end up in the courts. Labour Peers did not listen when people said that the immigration Bill and the legacy Bill would not apply to Northern Ireland. It is clear from what has already been said by many noble KCs, by the European Union itself and by those seven countries that have given detailed reasons that this Bill cannot apply to Northern Ireland, not just because of the Windsor Framework but generally because of the tobacco directive.
If we were really serious about getting rid of smoking, we would ban tobacco altogether. That will never happen, because the Government like having the money that comes in from it. I do not understand how anyone could think that, by voting for something that will take years to implement, no matter what the Government say, we will not land up in court over and again with legal issues. Until the Windsor Framework goes, this will not happen. I have an amendment next week, so I will not go into any more detail on that now. Whether or not you agree with the generational ban, this might be a reason to look seriously at the amendment from the noble Lord, Lord Murray, on the age of 21, even if you think that, in principle, adults over the age of 18 should be allowed to make their own decisions.
Earl Russell (LD)
My Lords, I will briefly sum up for the Front Bench on this interesting group of amendments. Our position is that we support this generational change and welcome the Government bringing it forward. This is not party-political; these ideas come from across the House, and we welcome them.
From our point of view, changing the age of sale to 21 would be tinkering at the edges and would not bring about the change that we all know we need. Nobody who has ever smoked a cigarette or been a smoker would wish otherwise. Imagine for a moment that, today, we were not considering this ban but contemplating introducing cigarettes for the first time. Nobody with a modicum of common sense would ever contemplate introducing cigarettes and allowing corporate companies to sell products that kill half their users. We all need to change this. My own father died of emphysema, and I am sure there is hardly anyone in this House who has not been impacted by tobacco.
This might be one of the most important things that any of us in the House do in our lifetime. It is hard to see another piece of legislation having such a beneficial impact on preventing harm and misery for people in society and helping them to lead healthier and better lives.
We see no insurmountable problem in this legislation. Yes, it is new and novel, and there will be teething problems—I cannot say there will not be—but they are all surmountable. Age verification and ID are commonly used, we need to look after our small retailers and look at how this change will be implemented, and there are other views on the EU question, but this is essential and it needs to be done. We have had conversations about freedom of choice, but we would not allow any young person to pick up a loaded revolver with two chambers and one bullet and give them the freedom of choice to spin it, put it against their head and pull the trigger.
Lord Clarke of Nottingham (Con)
Does the noble Earl not agree that we would save many lives if we passed a law saying that nobody should be allowed to drive a motor car unless there is a man waving a stick walking in advance of them? Similarly, if we banned electric bicycles, we would prevent a great deal of injuries and possible deaths. We all have to face these kinds of judgments as part of the human condition and living in a society.
Earl Russell (LD)
With the greatest of respect, there are degrees of risk. There is no electric bike or motor vehicle that we have allowed that kills 50% of people who get on a bike or in a car. The noble Lord is comparing apples with pears. The dangers of smoking are known and proven, and are far greater than anything else.
To conclude, we welcome this generational ban. There are particular issues that need to be looked at and the Bill will need to be regularly reviewed, but we will come to amendments on that. This is the most important thing that we must do. It is essential that we make progress to improve the public health of people in this country.
Earl Howe (Con)
My Lords, I thank my noble friend Lord Murray for his amendments in this group and all noble Lords for their contributions to this important and lively debate.
Reducing smoking rates and, in particular, preventing young people from taking up tobacco, with its highly damaging and pernicious consequences, are goals that I believe command broad support across the House. My noble friend’s amendments present us with an opportunity to settle in our minds the best way those goals might be achieved. From our debates in Committee and again today, we know there is a dichotomy of views on that.
My noble friend has eloquently made the case for substantially lifting the age of sale such that the legal purchase of tobacco by anyone under the age of 21 would be rendered impossible. The Government, on the other hand, have proposed the much more radical step of initiating a complete ban on tobacco sales to anyone born after 1 January 2009, thus creating, year by year, a wider and wider cohort of individuals for whom access to cigarettes and other tobacco products in shops will be legally barred.
Neither of these proposals, whether that of my noble friend or that of the Government, provides an absolute block on young would-be smokers accessing tobacco; so long as cigarettes remain a legal product, nothing could. However, if the generational ban can be made to work as intended, there can surely be no doubt that the benefits to public health over the long term will be immense. My right honourable friend the previous Prime Minister arrived at that realisation during the last Government, and the present Government have seen fit to agree with him.
There are two main arguments against the generational ban: one relates to civil liberties; the other is that of practical workability. I will not repeat the points that have been made on those themes, but I acknowledge that what is proposed in the Bill is, by any standards, without precedent in our consumer law. For the first time, a permanent legal distinction will be drawn between two adults based solely on their date of birth. One person may lawfully purchase a legal product while another, perhaps a year younger, may not. This would be not because of any difference in capacity or circumstance but purely by virtue of when they were born. The question people ask is whether in a free country that is right.
Following on from that are the questions around enforcement and general practicability. There are major questions around verification. As the years go by, shopkeepers will need to satisfy themselves that the person in front of them seeking to buy tobacco is 42 as opposed to 41, and so on. That does seem very different from a straightforward age of sale cut-off, which is a rule that everybody understands. Would shops and customers get used to this rigmarole? How easy would it be? As my noble friend rightly said, a number of countries have chosen to adopt the course that he is advocating rather than the generational ban.
I must, however, declare my hand. This Bill, as I have said, is an opportunity—an opportunity to make a transformational change in an area of public health that successive Governments have agreed is one of the two or three most important and far-reaching in our midst. Indeed, I would say that it is the most important. I do not think that the civil liberties arguments stand up to scrutiny for very long when we are talking about the chance of preventing serious ill health across millions of our population. Smoking needs to be made deeply unfashionable. My noble friend’s amendments, although entirely well meant, are unlikely to achieve that scale of health benefits nor that kind of attitudinal change.
There is uncertainty in whatever we decide to do. I am content for my noble friends on these Benches to make up their own minds on these matters. My noble friend, whom I greatly respect, will urge colleagues to join him in the Lobbies if he chooses to divide the House. At the same time, I hope he will understand that it ill behoves me, as my party’s spokesman for health and social care and as a former Health Minister, to pass up what I see as a golden opportunity to do something imaginative and radical, which is why I support the Government in their excellent ambitions.
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
My Lords, I am most grateful for the contributions to this debate. I think we can safely say that there is no unanimity of view, as a number of noble Lords have commented. I am particularly grateful for the support from both Front Benches, as has been consistent throughout. I am also grateful for the support of a number of noble Lords, including the noble Lords, Lord Pannick, Lord Young, Lord Rennard, Lord Stevens and Lord Bethell, and the noble Baroness, Lady Gerada, and others.
Lord Murray of Blidworth (Con)
My Lords, what an excellent debate showing your Lordships’ House at its best, with superb speeches on both sides of the argument. It would be invidious to list them, so I will not. I thank the Minister for her reply and her tolerance of my points throughout Committee and Report on the Bill.
Three thoughts occurred to me during those speeches. The first related to the point first raised by the noble Lord, Lord Pannick, who is a man to whom I listen very carefully. He tried to draw an analogy between my amendment and the ban on heroin, or the requirement for people to wear seat belts in a motor car or a helmet when riding a motor cycle. That is, however, to ignore the fact that there is always a balancing exercise in deciding whether to ban something. One of the factors to consider is proportionality. We know from the excellent speeches we have heard this evening that what the Government propose by the Bill is untested and a gamble, not only with the lives of people who may take up smoking but with the livelihoods of shopkeepers and many involved in the retail trade. This policy is not properly thought through, and I am afraid that the analogy made by the noble Lord, Lord Pannick, does not satisfy me that my reasoning is flawed.
The second thought that occurred to me as I listened to the speeches of the noble Baroness, Lady Northover, and the noble Lord, Lord Rennard, is that I am always astonished that they retain the use of “liberal” in the title of the Liberal Democrat party. Having heard their speeches, it is surely redundant.
My third thought was during the excellent speech of the noble Baroness, Lady Fox of Buckley. She said that freedom is not something to be embarrassed about. I very much hope, if the noble Baroness has yet to order her coat of arms from Garter, that she uses that redounding phrase as her motto. With that ringing in your Lordships’ ears, I beg to test the opinion of the House.
Lord Moylan
Member's explanatory statement
This amendment provides that regulations to specify methods of customer age verification must be made by the affirmative resolution procedure.
Lord Moylan (Con)
My Lords, I will speak briefly to Amendments 3 and 12, which would have the effect that the regulations to be issued in relation to age verification should be made under the affirmative process, rather than the negative process as originally envisaged.
When I tabled these amendments in Committee, the Minister showed what I thought was a hint of favour towards them, so I had the temerity to retable them on Report and lo, what do I find, but that the Minister has added her name to them. With that, I think they require no further argument. They were recommended by the Delegated Powers and Regulatory Reform Committee. I beg to move Amendment 3 and will move Amendment 12 at the appropriate moment.
Baroness Northover (LD)
My only comment on this group is that we would not support Amendment 26, which would require a fund to be set up for age-verification technologies. If any fund were to be set up—we do not see the need for it—then it should be funded by the tobacco industry. I note with great interest that the Minister has signed the amendments tabled by the noble Lord, Lord Moylan.
Lord Udny-Lister (Con)
I will briefly speak to Amendment 26, which is in my name, about the cost implications for small retailers and convenience stores. It is really a plea to the Minister to make some money available and introduce a grant system which can assist them. Age-verification technology is not cheap. They need to invest in a robust IT system. We need to build up a market for age verification. We also need one that protects consumers’ data and strengthens enforcement without penalising shopkeepers.
I think we all acknowledge that small shopkeepers are already in difficulty; it is not an easy time for them. We should look at anything we can do to help, and I think this would help. A simple act such as this would make it that much easier to ask the difficult question about age verification.
Baroness Fox of Buckley (Non-Afl)
My Lords, I half support Amendment 26. I would also like to congratulate the noble Lord, Lord Moylan.
The introduction of this regressive and untested generational ban on tobacco sales obviously raises the thorny issue of how it will be implemented in terms of retailers checking ages. Following the discussion on the first group, it is worth noting that this is very different from standardised age checks, which we already have, where there can be challenges at 18 or 21 and over.
I would like to quote Trading Standards Wales, which described it as creating
“a two-tier age system for tobacco whereby someone born in 2008 would be legally able to purchase tobacco products whilst someone born in 2009 would not”.
It seems that, for this Bill to work in its own terms, enforcement is key, but it is not clear how that will be practical. Again, to quote Trading Standards Wales:
“Having a two-tier age system means that young people could still obtain cigarettes from older friends or family members that smoke and, it is unlikely that any parties would report each other to the authorities as both would face legal consequences in doing so”.
Earl Howe (Con)
My Lords, I begin by thanking my noble friends Lord Moylan and Lord Udny-Lister for their amendments in this group. I welcome the fact that the Government have accepted my noble friend Lord Moylan’s amendments and congratulate my noble friend on pressing the point.
Turning to the amendment in the name of my noble friend Lord Udny-Lister, I will pick up the cogent points made by the noble Baroness, Lady Fox, because this brings us to the broader question of age verification. Our debates in Committee demonstrated the genuine concerns among retailers that a strict “no ID, no sale” policy could become a serious flashpoint for violence and abuse directed at shop workers—an issue that, I am sure the Minister will agree, cannot be dismissed lightly. There is also a risk of confusion among customers, particularly where different age thresholds already apply across tobacco, alcohol and other age-restricted products; any new requirement must not add to that complexity. The process for purchasing these products should remain clear and readily understood by all members of the public and, crucially, shopkeepers.
Against that background, it would be extraordinary if technology were not to play a part in making that process easier and less potentially fraught. Can the Minister tell us anything about the cost and affordability of such technology? What specific consideration was given to these concerns during the Government’s consultations, and what assessment has been made of the potential impact on retail workers of what could become a cumbersome and confusing set of procedures with, as I have said, the added risk of threats and abuse to shopkeepers? At the very least, is any guidance planned to ensure that new verification requirements do not create a patchwork of conflicting obligations at the point of sale?
Baroness Merron (Lab)
My Lords, I am grateful for the contributions to this short debate. I thank the noble Lord, Lord Moylan, for bringing back Amendments 3 and 12, which would change from negative to affirmative the procedure for making regulations to specify steps that may be taken to verify the age of customers.
In Committee I committed to returning with the Government’s response to the recommendations made by the Delegated Powers and Regulatory Reform Committee. We have carefully considered those recommendations and listened to the support within your Lordships’ House, and I can confirm that we are accepting the recommendations in full. Therefore, as noble Lords have observed, I have—I think we can say unusually—put my name to the amendments from the noble Lord, Lord Moylan. I can only counsel the noble Lord not to get used to it. I am very pleased to support his Amendments 3 and 12.
I have tabled government Amendment 105. For consistency, I have also tabled Amendment 110 to Clause 76, which is an equivalent amendment that provides the power to specify age-verification steps for Northern Ireland.
Amendment 26, tabled in the name of the noble Lord, Lord Udny-Lister, would require the Secretary of State to establish a financial assistance scheme for the acquisition of age-verification technology by producers and retailers of nicotine products. I absolutely understand that the noble Lord’s aim is to support retailers—something that I hope the noble Lord heard me saying on behalf of the Government—and to strengthen adherence to age restriction laws. But I say to the noble Lord and the noble Baroness, Lady Fox—it is important to clarify this point—that the Government have no plans to mandate the use of age-verification technologies to enforce age of sale.
Checking that a customer is over the age of sale is a well-established concept for retailers, and they should continue to take reasonable steps and exercise due diligence to ensure that they do not sell age-restricted products to anyone underage. To provide clarity for retailers on the types of ID that they can use, the Bill provides powers to specify in regulations the steps that may be taken to verify a customer’s age. This includes the types of digital identities that can be used.
On some of the points raised by the noble Earl, Lord Howe—I know that other noble Lords are, rightly, concerned about this—I confirm once again that the Government will work with the retail sector, as we are already doing, to publish clear, workable guidance to support it with these legislative changes. With that, I hope that the noble Lord, Lord Udny-Lister, understands the Government’s position, and I encourage noble Lords to support Amendments 3, 12, 105 and 110.
Lord Moylan (Con)
My Lords, I am grateful to noble Lords who have spoken in this short debate. Concerning the debate about enforcement, as somebody who in the past had political responsibility for trading standards in a local authority, which is the mechanism by which enforcement of underage tobacco sales is achieved, and having sat through the whole of Report so far this afternoon, I am surprised that there has been no mention of trading standards. Perhaps we will get to this later, but trading standards will need some help as well, because a considerable burden is going to be placed on it if this mechanism of a generational age limit is to go ahead. With that, I am grateful for the support for my Amendment 3.
Earl Russell
“Power to add vaping products or nicotine products to sale prohibitions(1) The Secretary of State may by regulations amend section 1 for the purpose of adding vaping products or nicotine products specified in the regulations to the list of items in subsection (1).(2) The Secretary of State may by regulations amend section 2 for the purpose of adding vaping products or nicotine products specified in the regulations to the list of items in subsection (1).(3) Before making regulations under this section the Secretary of State must consult any persons the Secretary of State considers it appropriate to consult.(4) Before making regulations under this section the Secretary of State must obtain the consent of the Welsh Ministers if the regulations contain provision which would be within the legislative competence of Senedd Cymru if contained in an Act of the Senedd.(5) Regulations under this section are subject to the affirmative resolution procedure.”
Earl Russell (LD)
My Lords, this group is on restrictions on vaping products. I thank my noble friend Lady Walmsley for her support. We welcome and commend the Government’s ambition to create a smoke-free generation, but if our goal is truly to protect the next generation from addiction and ill health, we must go further towards a nicotine-free generation as well. Big tobacco must not be allowed to re-establish its market through the vaping industry. The Government often speak of delivering the smoke-free generation, yet this phrase does not appear in the Bill.
My amendment has been through a bit of a journey. My original intention had been to amend a general purpose clause in the Bill, but, as I said, there is not one in the Bill. I then planned to add a general purpose clause but, on advice from the Public Bill Office, I instead decided to table this enabling power allowing further controls on nicotine products, should that ever prove necessary.
While cigarette smoking has continued to decline, vaping has increased, particularly among young people. Some 20% of 11 to 17 year-olds have tried vaping; 5% of 11 to 15 year-olds vape regularly, rising to 12% for 16 to 17 year-olds. If you ask any parent or teacher, this trend is unmistakable.
Vaping should be a tool for smoking cessation, not for a new generation of addicts to provide revenues for big tobacco. The provision is modest and enabling. It compels no action but does give Ministers the power, through the affirmative procedure and after consultation with the devolved Administrations, to respond swiftly when new evidence of novel nicotine products emerges. Flexibility is crucial, because legislation often lags behind the innovative curve of the tobacco industry. Without it, as soon as this legislation is passed, we may find new products emerging.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise to welcome government Amendments 14 and 15, and I look forward to hearing from the Minister. I will not go through them in detail, as I am sure she will, but I note that this is a lovely practical example, and all credit to the Government that their campaigning has worked. We heard in Committee from both Action on Smoking and Health and the Mental Health and Smoking Partnership about the need for an exemption in in-patient mental health settings for vaping vending machines. The Government have clearly listened, and this is an example of how this all should work, so let us applaud and highlight that.
I support Amendment 16, which the noble Earl, Lord Russell, has just introduced. The ban on disposable vapes is clearly being widely, almost universally, got around. The noble Earl spoke about producer responsibility. Well, we have a profoundly irresponsible industry that is behaving in ways that have serious health and environmental impacts. I spent most of this afternoon hosting an event for the National Association of Local Councils. As soon as I said I was leaving to do the Tobacco and Vapes Bill, the reaction was, “Waste!” That is understandable. Let us look at some figures from Biffa on three recycling facilities, in Suffolk, Teesside and London. Before the ban on single-use vapes came in, they saw an average of 200,000 vapes mixed in with general waste; after the ban came in, that went up by about 3%. There was perhaps a rush of material being sold in that immediate period, but from everything we are hearing, the waste problem is still enormous, and the risk of these lithium batteries exploding and catching fire in waste lorries and recycling centres is absolutely enormous.
We need more action on public health, too. I spoke to a young person today who said, “Well, I’m a bit confused about how vaping relates to health and cigarettes”. Young people are not getting a clear message, and they are being sold these things everywhere. This amendment is saying we need to keep a watch on this and be ready to catch whatever the industry does next, because we know big tobacco is profoundly irresponsible. As the noble Earl said, this is perhaps not the exact way to do it, but we need to make sure we hear from the Government that they are prepared to take action against big tobacco at any time.
Baroness Fox of Buckley (Non-Afl)
My Lords, I, too, warmly welcome government Amendments 14 and 15, which create an exemption for vape vending machines in mental health hospitals. This was really good to see: it is a humane step and will be very beneficial to patients. It proves that the Government can listen and amend, and I hope there might be more listening and amending, and exemptions, even at this late Report stage. It makes our debates feel as though they can get somewhere. This was an important concession for the Government to make, so I am really pleased to see that.
I have grave concerns about Amendment 7 in the names of the noble Earl, Lord Russell, and the noble Baroness, Lady Walmsley. There is a real danger here that we end up seeing this Bill as a vehicle for a relentless attack on anything to do with nicotine. Unless I am much mistaken, the Bill does not intend—even though this is its effect—to treat all nicotine products in an undifferentiated way. It is aware of Cancer Research’s statement that vaping is “far less harmful” than tobacco and is the most popular tool to help people quit smoking.
But, following on from the remarks of the noble Earl, Lord Russell, I do not want to say simply that vaping can be considered positive only if it is used as a smoking cessation tool, because people will then undoubtedly—and they do undoubtedly—vape as a recreational habit. Is the Government’s aim, or this amendment’s aim, to tackle dependence on any substance whatever? Nicotine is the one that is named, but will caffeine be next? Where do we draw the line? As far as I am concerned, that should not be what this Bill tries to do.
I worry that this will lead to mission creep in the Bill, which will create a kind of pre-crime. I listened to the noble Baroness and I do not think that we should have a moral panic about vaping: that is the main thing. It is not appropriate for this Bill to start doing a pre-crime anticipation of all the things that might or might not go wrong in relation to vaping. That would be a disastrous outcome of this Bill. So I urge the noble Baroness to avoid the siren voices of those urging her to take it even further down the line of prohibition. I urge her to hold firm to the notion that, although there will be some suggested regulation of vaping, we should not and must not make vaping indistinguishable from tobacco in the public’s eye by treating them as equally problematic through the course of the Bill.
Baroness Northover (LD)
I very much support my noble friend Lord Russell’s amendments, which seek to address the abuse of vapes and other nicotine products. When you go into any local shop or see adverts, you must mentally think that those promoting these should hang their heads in shame. I mentioned in Committee the example from my own extended family, where vaping has been the route for teenage relatives to become addicted to nicotine and, from there, to smoking. So I fully support everything that we are doing to reduce nicotine dependency, and I support my noble friend’s amendments here.
Despite that, we welcome the Government’s amendments that create an exemption for mental health settings, allowing the continued use of vape vending machines. Written evidence submitted to the Bill Committee by, for example, the Cambridgeshire and Peterborough NHS Foundation Trust and others made it clear that vape vending machines located in mental health wards are currently a crucial part of delivering effective smoking cessation services. Several trusts using these machines have reported that they provide a safe and straightforward way of ensuring that patients can access vapes when they need them. It is therefore welcome that the Government have listened to this evidence and made this concession.
In England, vapes are now the most commonly used smoking cessation aid, and it is awful that they have been exploited for other purposes. Nevertheless, vaping is recommended by NICE as the first-line smoking cessation tool and is more effective than traditional nicotine replacement therapies. Smoking prevalence in in-patient mental health settings remains extremely high, with estimates of about 50% overall and some studies reporting rates as high as 80% in individual hospitals, so I see why the Government have decided to take this particular measure forward.
Although it is technically possible for vending machines to be stocked with other forms of nicotine replacement therapy, this would not reflect patient preference, and we need to be guided by what works to support smokers to quit. As my noble friend Lord Russell said, that is what vapes should be about. The risks associated with proxy purchasing would seem to be low, particularly in closed wards, but I would be interested to hear from the Minister further on this point and to have clarification on how she envisages these machines operating within the new licensing scheme.
Therefore, although we accept the Government’s amendments in relation to mental health settings, we think that they need to do more to tackle the awful spread of nicotine addiction that we now see among young people. I look forward to the Minister’s response.
Earl Howe (Con)
My Lords, I will speak to my Amendments 13A and 14A only as a means of thanking the Minister very much for her Amendments 14 and 15 in this group. As a number of us argued in Committee, including in particular my noble friend Lord Moylan, there is a strong case for saying that, in a secure mental health setting where staff often find themselves dealing with patients in a high state of agitation, a vending machine dispensing vapes or nicotine products not only would do no harm but could be of considerable benefit to the well-being of the individuals being treated, and potentially to staff as well, as a knock-on effect. I am very glad that the Minister felt able to reconsider this issue in the way that she has.
I confess I am troubled by Amendment 7 in the name of the noble Earl, Lord Russell, because, although its stated purpose is to future-proof the Bill, the signal that it sends is perhaps regrettable in the context of current public attitudes towards vaping as a means of quitting cigarettes. A substantial percentage both of the general public and of smokers mistakenly believe that vapes present a greater risk to health than smoking tobacco, extraordinary as that is. The NHS is unequivocal that vapes provide a far safer route to managing nicotine addiction than continuing to smoke. The prospect that they could at a later stage simply be swept into the same prohibition regime risks creating uncertainty, discouraging switching and undermining public health gains. We need to remember that the Bill already contains extensive regulation-making powers in respect of vaping and nicotine products—on advertising, flavours, packaging, display and sale—and those powers are wide-ranging and substantial. So adding a further power of this breadth is, I suggest, unnecessary overreach.
I am afraid that I think Amendment 16 is unnecessary as well. The Bill already contains extensive powers to regulate vaping products, from product standards and enforcement to environmental controls. The Government are already consulting widely and gathering evidence in these areas, and I am afraid I do not think there is any need for the creation of yet another statutory taskforce.
Baroness Merron (Lab)
My Lords, I am grateful to all noble Lords who have contributed to this debate. The Chief Medical Officer’s advice on vapes is quite clear: although vaping is less harmful than smoking and can be an effective quit aid for adult smokers, non-smokers and children should never vape. In the design of policy proposals, it is imperative, we feel, to get the balance right—I say this to noble Lords who raised this point—and we sought to get the balance right between protecting future generations from the risk of vaping and ensuring that vapes remain accessible for adult smokers. I hope the noble Baroness, Lady Fox, in particular will welcome that.
Amendment 7 from the noble Earl, Lord Russell, would add a new clause to the Bill to provide a regulation-making power that could be used to add vaping and nicotine products to the smoke-free generation provisions in England and Wales. I understand the aims of the noble Earl in bringing this forward, but I have to say—again, I hope this will be helpful to noble Lords who expressed concerns—that there is a fundamental difference in safety between vapes and tobacco products.
Tobacco is uniquely harmful. Up to two-thirds of deaths in current smokers can be attributed to smoking —so vaping, while it is not harm free, is significantly less harmful than smoking. Given the current research on health harms, the evidence base does not support extending smoke-free generation provisions to vapes or to nicotine products.
Also, to respond to the amendment, the Government should assume new powers only where there is clear justification for future regulatory change. Certainly, introducing a vape-free generation power, as suggested, would be a major step not currently supported by evidence. An age of sale restriction of 18 for vaping and nicotine products is therefore considered proportionate to protect children and young people, particularly as they may be more susceptible to the risks from nicotine use, including addiction.
On Amendment 16 from the noble Earl, Lord Russell, and to the points raised alongside this by the noble Baroness, Lady Bennett, I hope that I can provide a reassurance that the Government are already delivering a comprehensive programme to tackle youth vaping, strengthen enforcement and reduce environmental impacts, and have the relevant expertise required on these issues. It is our contention that it is not necessary to put this on a statutory footing.
The noble Earl, Lord Russell, as did the noble Baroness, Lady Bennett, asked how we would deal with the environmental impact of vapes. That is an extremely important area. What I can say is, as part of our upcoming circular economy growth plan, to which the noble Earl referred, the task force will consider circular design. That means including cross-government approaches such as would fit this Bill; it will consider regulation of product features and support increased recyclability—and I think that is the right place for it to be dealt with. We have to remember that last June we banned the sale and supply of single-use vapes, and from 1 October this year we will introduce a vaping products duty, which we know is effective at dissuading price-sensitive young people. Furthermore, we have a range of measures in this Bill that will tackle the drivers of youth vaping and allow us to take action on advertising, packaging, flavours and display. To support the development of future regulations, importantly, we have recently conducted a call for evidence to gather views on issues such as flavours, nicotine limits and tank sizes. There are differing opinions on all of these, so I think the call for evidence is the right approach.
The Bill also strengthens enforcement with powers that will enable us to introduce a licensing scheme and product registration scheme. Through our £10 million enforcement programme with National Trading Standards, which I referred to in the previous group, we will fund the vaping expert panel to provide valuable guidance for trading standards professionals on the enforcement of regulations.
We are also commissioning independent research through the National Institute for Health and Care Research. This includes a comprehensive analysis of all youth vaping studies and a five-year long living evidence review that will collate the latest research of vaping. Additionally, last year, we announced a landmark 10-year study that will include in its investigations the long-term health impacts of vaping on young people’s health. I consider that all these will greatly build on to the knowledge base and evidence base that we have.
Amendments 13A and 14A, tabled by the noble Lord, Lord Kamall, seek to exempt sales from vape vending machines in mental health hospitals for patients and staff aged 18 and over. I am very grateful to the noble Lord for raising this issue. As I am sure the noble Lord realises, we believe that the Government’s amendment covers what he is intending to achieve—and I am glad that he is indicating his agreement on that point.
I listened carefully to the concerns raised by noble Lords in Committee on patients in mental health facilities—something particularly close to my heart, as I am the Minister for Mental Health. These patients’ liberties may be restricted in terms of their being able to access vaping products to meet the public health need of helping them to quit smoking or manage nicotine addiction. Adults with a long-term mental health condition have much higher smoking prevalence rates than the general population, and this exemption takes into consideration the concerns that were raised by Peers, for which I am grateful, related to helping those people with a long-term mental health condition to quit where needed and it is appropriate.
In my reflection on these concerns, I am pleased to say that is why I have brought forward government Amendments 14 and 15, and I am very pleased to have the welcome of both Front Benches, as well as the noble Baronesses, Lady Bennett and Lady Fox. These government amendments provide an exemption from the ban on vape vending machines for adult mental health in-patient facilities in England and Wales. To be clear, the wording of the exemption has been very deliberately chosen. It is tightly defined to include only adult mental health in-patient settings and only in areas intended wholly or mainly for in-patients. By its nature, that means that staff will also be able to access these machines, but the exemption would not extend to areas that are not mainly for in-patient use, such as a visitors waiting room or a staff room. I hope that gives some indication to the noble Baroness, Lady Northover, on how this might work.
We are retaining the wider ban on vending machines to prevent young people from accessing age-restricted products, and to protect the next generation from being hooked on nicotine. I hope that this provides the necessary reassurance to the noble Earl, Lord Russell, and that he will feel able to withdraw his amendment.
Earl Russell (LD)
My Lords, I am thankful for all those who have spoken in this debate and for the Minister’s detailed response.
On government Amendments 14 and 15, I am grateful to the noble Lord, Lord Kamall, for bringing the issue forward, and I am grateful to the Minister for listening and bringing forward the Government’s own amendments. As the Minister has commented, they have been welcomed across the House; they are compassionate and sensible measures, so they are very welcome indeed.
On my Amendment 7, I tried to explain the journey that I had been on in terms of a general purpose clause. It might be that the wording of my amendment was still a little bit clunky. I want to be absolutely clear: it is not a relentless attack on nicotine, and I am not anti-vaping. The question is where we draw the line on these issues, which is probably for another Bill in future. I absolutely recognise the role of vaping in smoking cessation, but what I do not want is a new product line for big tobacco to create new nicotine addicts and to create future revenue. Where we sit between those two points is perhaps a matter for another Bill, but those issues will at some point need to be addressed. That should not be done in a way that is overly restrictive, but it should also not be done in a way that is overly free in allowing big tobacco to exploit young people and get them addicted to nicotine when that does not need to happen.
Turning to my Amendment 16, I listened to what the Minister said and I welcome the fact that the Circular Economy Taskforce is looking at these issues. We will look at those recommendations closely when they come forward. The Government say they have banned single-use disposable vapes. I must admit that, to my mind, to all intents and purposes, in the real world that is simply not the case. They are still single-use products. All that being said, I welcome the Minister’s response and I beg leave to withdraw my amendment.
Baroness Northover
“Transparency of tobacco sales data(1) The Secretary of State must by regulations make provision requiring every manufacturer and importer of tobacco products to publish, on a quarterly basis, data relating to the sale of tobacco products in England and Wales.(2) Regulations under subsection (1) may in particular include provision requiring publication of—(a) the volume of sales of tobacco products, broken down by product type, brand and geographical region, and (b) such other information as the Secretary of State considers appropriate for the purposes of assessing tobacco consumption and its effects on public health.(3) Data published under regulations under this section must be made publicly available in a format accessible to public health authorities, local authorities, and other relevant bodies.(4) Regulations under this section are subject to the negative resolution procedure.”Member’s explanatory statement
This amendment would require the Secretary of State to make regulations obliging tobacco companies to publish sales data, to improve transparency and support public health policy.
Baroness Northover (LD)
My Lords, Amendment 10, in my name and that of my noble friend Lady Walmsley, would require the Secretary of State to make regulations requiring tobacco manufacturers and importers to provide quarterly sales data to assist public health activities. These regulations may include information about, for example, volume of sales, geographical area and product type.
Tobacco is not like any other industry, as we have been discussing. The products sold by the industry kill around two-thirds of long-term users and the harms are widespread and well-documented. Yet the industry treats its data as a commercial secret, leaving public health authorities in the dark. The information already exists. The tobacco industry holds it. This amendment would ensure that the data are harnessed for the public good.
I note that, although Amendment 10 outlines areas where regulations could be brought, it does say “may”—there is flexibility there for the Government. All that is required is that they make progress in this area. The noble Earl, Lord Howe, noted in Committee that HMRC and the Department of Health currently have access to some data. However, we do not feel that that is sufficient. We have heard from those working in public health that there are gaps which, if filled, would benefit activities on the ground.
Smoking is responsible for deep health inequalities, with modelling from Cancer Research UK, for example, showing a 25-year gap between the most and least affluent communities in this country in achieving smoke-free status. That is a shocking illustration of health inequality, reflected in nearly twice as many smoking-related cancers in the poorest areas compared with the wealthiest. Access to sales data would help local authorities, trading standards and public health agencies target resources effectively, monitor patterns of use and respond quickly to emerging threats.
Other countries do this. Canada’s Tobacco Reporting Regulations require manufacturers to report on over 20 ingredients and 40 emissions, along with sales and promotion data, to assist Health Canada in policy decisions. Australia requires companies to report on sales volumes, product pricing, advertising, promotion, and sponsorship activities and expenditure, alongside information regarding ingredients.
Mandating transparency—we were discussing transparency earlier—is the right step. It holds the tobacco industry more accountable and ensures that public health can act on the evidence, rather than wait for other data sources. For these reasons, I urge the Government to support this amendment and commit to improve transparency for an industry that has avoided accountability for decades. I beg to move.
Baroness Grey-Thompson (CB)
My Lords, I covered Amendment 17A, in my name, in Committee, so I will be brief.
Currently, the vast majority of cigarette butts are made of cellulose acetate, and each cigarette butt contains around two straws-worth of plastic. Globally, around 6 trillion cigarettes are smoked each year, with 4.5 trillion butts being littered. In the UK, around 3.9 million cigarette butts are littered daily. That is equivalent to 6,000 cigarette butts being dropped in every parliamentary constituency every day. Each plastic butt can take up to 10 years to break down into tiny fragments or microplastics, and they have polluted the entire planet, from the summit of Mount Everest to the deepest oceans. Worryingly, according to recent scientific research, the level of microplastics being found in human brain tissue samples has increased by 50% since 2016 and is increasing in other organs. Local authorities in the UK spend around £40 million a year fighting a losing battle—money that many would argue could be better spent on vital front-line services. The industry could have made a change, but so far has not gone far enough.
Banning plastic cigarette filters is supported by the public, including smokers. In polling commissioned earlier this year by the Parliament News website from Whitestone Insight, a member of the British Polling Council, 2,000 people were asked for their views on this issue. When asked:
“Would you agree or disagree with these statements? Cigarette manufacturers should be required by law to switch from using plastics in cigarette butts to a fully biodegradable alternative”,
almost nine in 10, or 86%, agreed, while just one in 20, or 6%, disagreed. Interestingly, even among current smokers, the vast majority—77%—supported the change. Support was high across every age group, social group and region. In contrast, asked if cigarette manufacturers should be able to continue to use plastic filters, just 13% agreed. The survey also found that eight in 10 people support the government levy and additional taxes on cigarette brands that refuse to switch from traditional plastic butts, including 51% of smokers. Some 84% of UK adults would support cigarette manufacturers being fined for not switching to biodegradable butts, with the revenues going towards paying for cleaning up the environment.
I do not think that this is a party-political issue. It was discussed by MPs, who voted on an amendment that was supported cross-party, including by Conservatives, Labour, Lib Dems, Reform, independents and unionists. Unfortunately, the Government did not accept the change that was being put forward. If we are going to be serious about how we consider the environment, this could be an important change.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a great pleasure to follow the noble Baroness, Lady Grey-Thompson, with whom I nearly always agree, but not on this occasion. The noble Baroness and your Lordships’ House will know that concern about plastics, microplastics, nanoplastics and public health, including the way in which they are penetrating every corner of this planet and every piece of our body, is something I am gravely concerned about. As I will come to later, my amendment calls for banning filters altogether.
Very often in your Lordships’ House, I find myself acknowledging that something that is being proposed is not exactly what I want but would be an improvement. I am afraid that I am not convinced that the ban on plastic filters that the noble Baroness proposes would be an improvement. We had an extensive debate in Committee, which I am not going to reprise, but, basically, we have a problem, in that the term “biodegradable”, which is what is being proposed, is exceedingly unclear and is not defined. There is very clear evidence that these so-called biodegradable filters can take nearly as long to degrade as the plastic ones, leach harmful chemicals and remain in the environment for a long time. Studies have also shown that people who believe that cigarette butts are biodegradable are more likely to litter them. Although this might look like a small step in the right direction, I do not believe there is the evidence to actually take us in that direction.
Amendment 77, in my name, as was extensively canvassed in Committee, proposes to end the environmental and health harms of so-called cigarette filters, compelling the Government to act now and ban all cigarette filters, which have no health benefits, reasonable evidence of health harms and, of course, huge environmental harms, whether they are plastic filters or the so-called biodegradable ones.
I thank the noble Earl, Lord Howe, and the Liberal Democrats for Amendment 76, which explores a consultation on this subject. I am absolutely delighted, for the second group in a row, to say to the Minister that the series of amendments that she has tabled, which mean that the Government are preparing the way for banning filters in the future, is a significant step forward.
However, I want to keep my amendment on the paper to make the case for why this action must be taken now. The problem of so-called guilt-free littering makes the littering problem even worse. Companies that manufacture so-called biodegradable filters continue to make profits only if people continue to consume tobacco; the biodegradable filters proposal is essentially coming from the tobacco industry.
This country has never been afraid of leading the world when it comes to tobacco control. We could be—we hear the phrase world-leading so often in your Lordships’ House—the first country in the world to ban so-called cigarette filters. We could use this as an opportunity to reverse the damage done by decades of industry marketing, raise awareness of the harms of smoking and incentivise smokers to quit.
The World Health Organization has said that it believes a ban on filters would have a significant impact on discouraging consumption. A 2023 randomised controlled trial found that those smoking filterless cigarettes consumed less, and filtered cigarettes were perceived to be better tasting, more satisfying, more enjoyable, less aversive, less harsh, less potent and less negatively reinforcing than unfiltered cigarettes.
I recognise that in Committee the Minister said that she would like more evidence and modelling on this behavioural point. There are now academics working on that very point. I am sure they will be reaching out, and I will make sure that the noble Baroness hears about that as well.
While I agree with the Minister that the long-term solution here is to eliminate tobacco use—that is obviously the ambition that pretty much everyone can sign up to—with 5.3 million smokers still in the UK, 75% of whom admit to littering their butts, there is a strong case for action. I am glad to see that the Government’s position has again shifted on this since Committee. I thank Action on Smoking and Health and my colleagues in the All-Party Parliamentary Group on Smoking and Health, as well as the academics who have been highlighting this issue and moving this forward.
Finally, and briefly, I express Green support for Amendments 10, 204 and 133, and particularly for the suggestion in Amendment 133, which I spoke on extensively in Committee, for warnings on individual cigarettes and cigarette papers. Again, this is a place where we would not quite be first in the world, but we would certainly be in the leading pack of doing something that has been shown to have positive impacts in reducing smoking, which is what we are all after.
Earl Russell (LD)
My Lords, I will speak to Amendment 204 in my name and those of the noble Lords, Lord Young of Cookham and Lord Crisp, and the noble Baroness, Lady Walmsley. I thank them for their support for this important amendment. This amendment proposes a “polluter pays” levy on tobacco manufacturers, ensuring that those who profit from one of the most harmful products in human history contribute to repairing some of the immense damage they have caused. The principle is simple and widely accepted: when an industry causes profound harm and reaps extraordinary profits, it should help to meet the costs of addressing that harm.
Given the unambiguity of that harm, it is only right that those who are responsible contribute to putting it right. The amendment would require the Secretary of State, within two years of Royal Assent, to establish a levy on companies deriving income from the manufacture of tobacco products. Its receipts would form a dedicated fund within the Department of Health and Social Care used solely for smoking cessation, tobacco control and healthcare for those suffering from smoke-related illnesses. Regulations would be made under the affirmative procedure to ensure proper parliamentary oversight.
This is not a new charge on consumers. It draws on the vast profits of an industry that for decades has taken far more from the public purse and the public’s health than it has ever contributed. Four companies control over 95% of UK tobacco sales, enjoying monopoly-like power and profit margins averaging 50%, some five times the UK manufacturing norm. Together they make almost £900 million a year in UK profits, and they often pay little corporation tax here in the UK.
Compare that with the cost. Smoking drains £43.7 billion a year from society in England, including a cost of £1.8 billion to the NHS and far more in lost productivity, social care and human suffering. Tobacco duty and VAT raise barely £6.8 billion—only a fraction of the real cost of these harms. The “polluter pays” principle already underpins environmental law and is embedded in gambling reforms, where a statutory levy funds prevention and treatment. It is only logical to apply the same reasoning to tobacco, a product that kills nearly 74,000 people every year in England.
Lord Rennard (Non-Afl)
My Lords, my Amendments 129 and 133 would place a duty on the Government to consult on whether health warnings should appear not just on cigarette packets or the inserts within them but on every single cigarette, by printing the warnings on the paper enclosing the dangerous tobacco. In Grand Committee, the noble Baroness, Lady Merron, whose great work on this Bill is much to be admired, said that this was something the Government could look at in future but not something they were looking at now, and that secondary legislation could provide for this in future. I ask: why not consider it now, and why not meet my request for a consultation to begin?
This idea is not new or untested. It was first endorsed by the All-Party Group on Smoking and Health in 2021, and then in the Khan review commissioned by the previous Government in 2022. Canada has already implemented this approach on cigarette papers, with demonstrable impact. Australia followed suit last April, albeit with warnings only on the filters. The evidence gathered for Health Canada examined how smokers and non-smokers responded to cigarettes carrying health warnings directly on them. The findings were striking: cigarettes displaying warnings were consistently regarded as less attractive, while those without warnings were more likely to be seen as less dangerous. In other words, the absence of a warning sends its own message—and it is the wrong one.
I strongly welcome the Government’s decision to introduce pack inserts that direct smokers towards quitting support. I argued strongly for this when we debated the Health and Care Bill. It is a positive and sensible step, but it does not address the problem that the first cigarette smoked is often offered from someone else’s packet. Warnings on individual cigarettes would get to these people in ways that pack-based measures simply do not.
This effect of warnings on individual cigarette papers has been shown to be especially pronounced among younger people. They are more likely to be offered a single cigarette in social settings, as opposed to purchasing a whole packet that already has warnings on it or may have an insert in future. Printing warnings directly on the cigarette would ensure that the health warning is present at the point of use, not just at the point of purchase. Evidence from focus groups in Scotland found that warnings on individual cigarettes were perceived by young people as embarrassing, with the consensus being that it would be very off-putting for young people.
It is sometimes disingenuously claimed that there is no need for health warnings about tobacco as the dangers of smoking are already universally understood. Action on Smoking and Health found in an analysis of its survey data that younger smokers, the very people who would benefit most from this measure, were less likely to be aware of the full risks of smoking. But awareness alone does not change behaviour. The average smoker makes 30 attempts to give up before succeeding. My amendment would help them give up every time they handle a cigarette.
More importantly, it would help prevent people smoking their very first cigarette. The evidence shows that, the greater the range of interventions we deploy, the greater our chances of preventing uptake and encouraging cessation. Different messages resonate with different people, and tobacco remains a uniquely lethal consumer product. We should be prepared to use every effective tool available to reduce the harm it causes to smokers, their families and everybody else.
Finally, I know the Minister has raised concerns about how visible the messages might be and that, in some countries where this has been implemented, they appear only on the filter. The UK could do things differently if we choose, as in Canada. It is often said that a picture is worth a thousand words. If I could display to this Chamber a picture of the effective health warnings on Canadian cigarette papers, it would be easy to see how effective they are. If the Minister cannot accept this amendment today, I hope she will say not just that this measure might be considered in future but that it will be considered now, beginning with the consultation requested.
Lord Young of Cookham (Con)
My Lords, I have added my name to two amendments in this group. Before coming to those, I will say a word about Amendment 77 from the noble Baroness, Lady Bennett, which I was initially attracted to. Like many other noble Lords, I went to a presentation by ASH, where we listened to health experts explain that filters do not prevent anything noxious reaching the lungs. On the contrary, they have ingredients in them that might be damaging. Far worse, because of the filter, smokers inhale more than they would have done had there not been one, as they think it is safe. It may be that the 25 government amendments achieve in a rather roundabout way what the noble Baroness seeks to do in Amendment 77. We will listen with interest to the Minister when she speaks to her amendments.
Amendment 133 was ably spoken to by the noble Lord, Lord Rennard. As I have said before, when I was a Health Minister in 1979, I tried to get the tobacco industry to adopt putting a warning on cigarettes and it declined on the grounds that ink was carcinogenic. This was not an argument I found very persuasive. Here we are, nearly 50 years later, still discussing something that at the time was world-beating, although I understand that I have now been overtaken by Canada.
Amendment 204, spoken to by the noble Earl, Lord Russell, sits rather uneasily in this group, which is otherwise about filters, in that it is about the tobacco levy. I want to make a number of points. First, previously the Government ruled this out on the grounds that they consulted on a levy model in 2014. Indeed they did, but this is a very different model from that which they consulted on. Crucially, in the one they consulted on, the levy would have been passed on to the consumer, with all the impact on RPI or CPI. This model has been constructed to avoid that; it would control the price that tobacco can be sold for, leading to very different outcomes from the model consulted on by the Treasury, and would not allow tobacco companies to pass the costs on to consumers as they do at the moment. It would raise revenue. One estimate has been £5 billion. Even if it is a fraction of that, it is money well worth having.
The scheme would not be complex to administer. As the noble Earl said, there are only four manufacturers. The department already operates the PPRS, controlling medicine prices, with far more manufacturers than are involved in tobacco. Crucially, the Khan review, already referred to, which was initiated by Sajid Javid when he was Health Secretary, pointed out that the Government were not going to hit their then target of a smoke-free England by 2030. It recommended the levy—this was an independent review commissioned by the last Conservative Government—and reinvesting the money in media campaigns targeted at those elements of the population who were still smoking.
Finally, I know that the Minister will not mind me reminding her of what she said when a similar amendment was debated in 2022 and passed in your Lordships’ House by 213 to 154. She knows what I am going to say; she supported and voted for that amendment, saying that it would
“provide a well-funded and much-needed boost, and a consultation would allow this proposal to be tested, refined and shaped”.—[Official Report, 16/3/22; col. 297.]
Well, that is what we are asking for today. She did not persuade me in Committee when she gave the reasons why she had changed her mind. Perhaps she can have another go this evening and explain why she will now urge the House to reject what she thought was a good idea four years ago.
Lord Kamall (Con)
My Lords, since this is the first time I have spoken on Report, I declare my interest as a professor of politics and international relations at St Mary’s University, Twickenham, where I teach an MBA module on healthcare policy and strategy. I also work with the Vinson Centre for the Public Understanding of Economics and Entrepreneurship at the University of Buckingham, and we sometimes run seminars on evidence behind public health policy.
Baroness Merron (Lab)
My Lords, I am most grateful for the contributions to this debate. I will start by addressing the government amendments tabled in my name. The issue of filters, as we have heard in this debate, has been raised throughout the Bill’s passage, both in the other place and in Committee in your Lordships’ House. As the noble Baroness, Lady Northover, said, action on filters has been proposed by parties from across the political spectrum.
However, there has not been a consensus on a single approach, and it is that that we have sought to deal with. That is why we are taking a suite of powers to enable secondary legislation to regulate filters, should evidence suggest that it is necessary. Although these powers could enable the banning of filters in the future, they also enable us to regulate filters in other ways, such as regulating their packaging, advertising, display in stores and free distribution.
As the noble Lord, Lord Young, referred to, there is evidence that people incorrectly believe that some cigarette filters make cigarettes less harmful. There is absolutely a risk that this could influence smoking behaviours. The fact of the matter is that cigarette filters provide no protection from the health risks of smoking.
The noble Earl, Lord Russell, asked about the Government’s intention to take action. On that point, and more broadly, the evidence base about the direct health impact is still in formation. We will explore commissioning further research to understand the harms and, based on that, consider further consultation. For these reasons, we are not able to accept Amendment 76 from the noble Earl.
Since we are taking these powers on filters in the Bill, Amendment 77, tabled by the noble Baroness, Lady Bennett, and Amendment 17A, tabled by the noble Baroness, Lady Grey-Thompson, are therefore not required—a point raised by the noble Lord, Lord Kamall. Should we choose to ban filters, we would indeed be the first country in the world to do so. It would be a significant step, and noble Lords will understand that, before making any such decision, we need to interrogate the issue fully and ensure that all potential consequences are considered. However, we will now have the powers to act through these government amendments if and when the evidence emerges.
Specifically on Amendment 17A, evidence currently suggests that filters labelled as biodegradable can still leach harmful chemicals into the environment, as the noble Baroness, Lady Bennett, said. There is also evidence to suggest that people who believe that cigarette butts are biodegradable are more likely to litter them, as noble Lords have said.
I turn to Amendment 10, tabled by the noble Baroness, Lady Northover. I am sympathetic towards attempts to increase transparency of the tobacco industry. I therefore understand why she brought this forward. However, Clause 95 already provides powers to make regulations that could require producers or importers to provide specified information. This could include sales data, as well as market research, from producers of any relevant products within the scope of Part 5, not just tobacco products. This clause also enables us to make provision about when and how the information must be provided, and the publication of any such information. I reassure the noble Baroness that we will consult on these requirements as we develop the necessary regulations.
I am sympathetic to the aims of Amendment 204, tabled in the names of the noble Earl, Lord Russell, and the noble Lords, Lord Young of Cookham and Lord Crisp. However, as I said in Committee, again in answer to the point the noble Earl raised, we already have a “polluter pays” tax on tobacco in the form of tobacco duties. The UK has some of the highest tobacco taxes in the world. Duty rates on all tobacco products were increased by 2% above inflation at the Autumn Budget 2025. This duty raises about £8 billion a year.
I appreciate that the amendment proposes combining a levy with regulating prices, but the reality is that, because of the ongoing structural decline in the UK tobacco market, we are sceptical that there is the suggested level of profit available in the system. Regulating pricing would also be a complicated and resource-intensive policy to design and implement, and which we believe is unlikely to be successful in meeting its objectives, such as raising additional revenue. It would be challenging to design restrictions that industry could not circumvent, for example, by shifting focus to products not included in the cap or avoiding tax through international transfer pricing. Therefore, as I stated previously, our preference is to continue with tobacco duties—an understood approach which incentivises those who currently smoke to quit and generates revenue that can be put back into a full range of public services.
Finally, Amendments 129 and 133 were tabled by the noble Lord, Lord Rennard. I am grateful for the noble Lord’s support for strong tobacco control. However, with respect to these amendments, we already have the ability to regulate the information provided on products which could enable us to mandate health warnings in the future. We already have some of the most stringent regulations in the world on cigarette packaging, emphasising health harms. They include the requirement for plain packaging and graphic picture warnings on the outside of cigarette packets. We have announced that we are introducing pack inserts to cigarettes and hand-rolling tobacco. Therefore, we do not plan to introduce dissuasive cigarettes. However, as the noble Lord, Lord Rennard, did acknowledge in his contribution, the Government will continue to monitor the evidence.
I hope that this provides reassurance to noble Lords that the Government are committed to evidence-based policy to tackle the harms from tobacco use and that the noble Baroness, Lady Northover, will feel able to withdraw her amendment.
Baroness Northover (LD)
My Lords, this is a vital Bill, even if we are seeking to improve it further. We have clearly made progress on filters and there are a number of other areas where progress can be made under the Bill. I note the Minister’s encouraging words in relation to my amendment on data and transparency. In the light of that, I beg leave to withdraw.
Schools White Paper: Every Child Achieving and Thriving
(1 day, 4 hours ago)
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Baroness Barran (Con)
My Lords, I start by thanking the Government for the Statement and the publication of the schools White Paper, the SEND consultation and the update on teacher recruitment. I also acknowledge the time taken by the Secretary of State and her ministerial colleagues in communicating in particular the Government’s proposals in terms of reforming support for children with special educational needs and disabilities, including taking time to talk to parents. This is a very important and sensitive area, and that is appreciated by all.
The Government have been very clear about their intent with these reforms, but I will ask the Minister some questions, particularly on realigning the incentives in the system. Before the Minister points out any of the mistakes of the previous Government, I will be absolutely clear that there was an issue with the 2014 reforms in relation to incentives. The principles that underpinned the Children and Families Act, which introduced education, health and care plans, were not flawed. The aim of creating a tailored and comprehensive single plan for a child was not a bad one; nor was the requirement for local authorities and partners to jointly commission services and to focus on outcomes and participation of children; and nor was the extension of rights and support into further education and training, so that young people with SEND were better prepared for adulthood.
The problems came with the incentives, which ended up unintentionally pushing parents to seek specialist and, in many cases, very expensive support for their child. Every one of us, as a parent, would seek the best possible support for our children, but it ended up driving up costs in a way that no one anticipated. I hope that the Minister can set out how the incentives will work in the proposed system, because the existence of earlier intervention support, which is very welcome, does not equate to parents believing that it is sufficient for their child.
It would help to understand how the department and Ministers have thought through the incentives for parents and for mainstream schools to intervene and improve outcomes. If the Minister could walk us through an example, it would be very helpful. Perhaps she could expand on the plan set out on page 84 of the consultation to redirect more money into the core budget and say how much the Government anticipate will be taken out of education, health and care plans to make that happen.
I would also be grateful if she could set out how confident the Government feel that the new funding for inclusive mainstream provision and for the specialist workforce will be sufficient. At first sight, the figures do not look sufficient when one thinks about them at an individual school level, although I appreciate that they are very large in relation to any negotiation with His Majesty’s Treasury. Unless they are sufficient, parents understandably will seek to revert to specialist support as the only route to adequate help for their children.
The same is true when one looks at the numbers set out in the document in relation to the specialist workforce, where I see that the plans of the previous Government, particularly in relation to educational psychologists, are being continued at a rate of 200 a year. I appreciate that it is difficult to recruit and find these staff but, again, they need to be there in sufficient numbers.
I apologise if I missed this in the document, but I wonder whether the Government considered using approaches that I think are used quite frequently on the continent, where funding is given to a local area and all schools can benefit from provision for the children with the most complex needs where no individual school has sufficient children to make it viable to support them. Finally, will the Government be piloting these approaches to test how they work in practice, so we avoid unintended consequences?
Apart from incentives, can the Minister address some of the concerns that have been expressed by parents who are worried that their rights will be eroded? I hope that this will be an opportunity for the Minister to reassure those who are listening. There are many areas that have been highlighted: I will pick just a couple. First, education, health and care plans were set with a legal test of whether it “may be necessary” for provision to be secured through a plan, not whether a child has “complex” or “severe” needs. That appears to be changing. The document says that education, health and care plans
“will be developed with the setting, and in consultation with parents, after the Specialist Provision Package and placement decisions have been made”.
The Minister will know that parents are worried about that.
Finally, can I give her the opportunity to answer the question that her colleagues have so far declined to answer? Could any child who currently has an EHCP lose it in future?
Lord Addington (LD)
My Lords, the first thing to say is that I have been asking for this to come out for a long time, so I thank the Government for getting there eventually. The document does accept that it is a difficult and slow process that we are starting, and anybody who kids themselves that it is not will be doing a disservice to everybody involved. We are talking about 2030 for getting some structure in place. You have to train people, to get other people used to being told that they are operating differently in the classroom, and to get schools to re-incentivise, with an inclusion strategy and individual support plans. This is a cultural shift which will take real effort and time to push through. If we accept that, how will we make sure that everybody in every school understands that they have a duty and the ability to identify and tell parents what the problem is? That is where it all starts to go wrong.
At the moment, there is a disincentive for anybody to be identified by a school as having a special educational need, because you have got a budget that comes from the main school budget, which means you have got a choice between four kids getting their dyslexia support or help for autism or ADHD, or the roof leaks. How is that to be squared? It is not just more money; it is the allocation of money, and it is the duty. If you have an individual plan going through, are you flexible enough to allow that to be implemented?
There has been an acceptance in this Chamber every time I have spoken that you do not work harder; you work smarter. Individual groups will have a different take on this. I am a dyslexic, and I declare my interest as the president of the British Dyslexia Association. I use technology and I work with people who use technology—I declare my interest as the chairman of Microlink PC. The incentives I have there and the problems I square up to are different to those in the autism sector, which is probably one of the most vocal groups. How are we going to work these two in together? How are we going to have the flexibility to allow a school to actually undertake these different types of approach?
If you have that, if you make that an incentive, you stand a chance of getting a better situation, but only if you have identified that you can get the right help to the right person. Take dyslexia—I will cling to mother and talk to the one I know about. If it is not just the English teacher but the maths teacher who realises bad short-term memory means these individuals will not remember formulas and equations, bring those two together so everybody knows you will work differently. You can go into dyscalculia and others. The noble Baroness, Lady Bull, is not here but she has actually raised this and done a great service in bringing it further forward. When these groups come through, how are we going to get the capacity into the school to identify and bring it forward?
The reassessment of all plans and support structures when you get to secondary school is a natural break—you go from acquiring basic skills to acquiring knowledge to pass exams. But how are we going to make sure that is not something where somebody says, “Right, you are doing this here”; it should be about how you continue, not how you stop. There is a fear, and it has become very apparent. I recommend the “Woman’s Hour” podcast if noble Lords want to have a definition of the fear that has come out about this. How are we going to deal with that? These are the sort of questions we are going to have to start to answer today and carry on with.
I welcome the approach here, but unless you actually get a more coherent pattern that reassures those who have fought to get their EHCPs, spending time, blood and not a little money on them, what are we going to do? Can we also have a commitment from the Minister that the Government will be looking at how to remove lawyers from the system? In many cases, there are a lot of very second-rate lawyers who have taken this work on and are milking the system. We cannot go back to this. We cannot go back to this situation where only the articulate and well off are getting the help they need.
I applaud the attention towards subjects like sport and music, because it helps with special educational needs if you have got some positive attitude towards them. How are we going to bring this together? How is the flexibility and that inclusion pathway going to be put down so that the rest of this can be put on? If you get that right, you stand a chance of making a real improvement here. If we do not have that and we do not have the identification capacity, you will not achieve that much.
The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)
My Lords, our White Paper, Every Child Achieving and Thriving, sets out our ambition to improve the lives of all children and young people, combining the support they receive at home with a school experience that is challenging, enriching and inclusive.
First, we will broaden children’s experience of education with a knowledge-rich curriculum, smooth the transition between phases, and introduce an enrichment entitlement for every child and accountability changes that promote breadth.
Secondly, we will ensure that children who have been sidelined for too long are fully included. We want every child to have the best start in life, with support available earlier and locally. Deprivation funding will be targeted to boost outcomes for the most disadvantaged children, and we are launching two place-focused missions to provide a blueprint for national change. Our ambitious SEND reforms will support mainstream inclusion so that children can access help without waiting for lengthy assessments or having to engage with lawyers—including from our £1.8 billion Experts at Hand programme, wrapping professionals such as speech and language therapists around schools, and removing the incentive that both the noble Baroness and the noble Lord have identified for parents, who are desperate for the support that they need and want for their children, to have to fight through a lengthy process to get an education, health and care plan. But for those with more complex needs, new specialist provision packages, designed with experts and parents, will define the support required. All this is backed by £7 billion more for SEND in 2028-29 compared with 2025-26.
Thirdly, we will move from children and communities withdrawing from school to engaging with a new pupil engagement framework. Improved behaviour and attendance support and clearer information for parents will help strengthen relationships between families and schools.
Finally, we are building the strong foundations needed to deliver this change—more expert teachers, better training and improved maternity provision, deeper school collaboration through a trusted model and innovation powered by data, AI and regional RISE teams. These reforms, shaped by the largest national conversation on SEND, put children, families and inclusion at the heart of our system, and together they will ensure that every child in every community can achieve and thrive.
To give more detail on the incentives and funding point raised by the noble Baroness, Lady Barran, we have been clear that we will reform the system through the addition of £4 billion over the next three years, including the £1.6 billion for the inclusive mainstream fund, because we must get to a position where more parents feel confident that their children are receiving the support that they need in schools, alongside their friends and as part of their communities. We will provide £1.6 billion for that fund over three years, with over £500 million per year over the next three years to mainstream schools and other educational settings. That fund will give schools and other education settings direct responsibility over funding to empower them to deliver for children and young people with SEND. Over time, there will be a rebalancing of funding from the high needs budget into schools’ budgets, in line with new accountability arrangements—funding in schools where it needs to make the difference.
In addition, our £1.8 billion fund will enable there to be what we are calling Experts at Hand—speech and language therapists, educational psychologists, occupational therapists and others supporting children and teachers before the point at which children need to get to have an education, health and care plan. That funding will provide, for example, the equivalent of 160 days’ worth of support in a secondary school and 40 additional days in primary. We will expect schools to work in groups in order to ensure that, where it does not necessarily make sense or is not possible to provide that provision in one school, they can work together in order to ensure that that provision is available.
The key point here, as we think about education, health and care plans, is how we move to a system where children will not need an education, health and care plan to get support in the first place. Although, to be clear, education, health and care plans will remain for children with complex needs, they will be based on evidence-driven, expert-determined, specialist provision packages, which will enable better and more effective commissioning by local authorities of the provision that is most likely to provide support for children. They will back up the education, health and care plans, which will remain for those children with complex needs.
We are clear that we need to transform the system before we change the EHCP system. That is why we have been clear that no child will have their EHCP renewed before 2028-29 and that it will be only those children who are currently in year 2 or below, who will come to the end of their primary, at which point it would seem appropriate to review their education, health and care plan. Many of them may well continue with that plan; for others, the transformed system and the development of individual support plans for every child with special educational needs may provide a better opportunity at that point.
The noble Lord, Lord Addington, is right. We need to train people and teachers in order to be able to deliver the inclusive education that is at the heart of this reform. That is why we have already announced the £200 million additional support for every teacher and educator, from early years through to colleges, to get training in special educational needs and the type of teaching required to support children and young people. That is why we will make additional support and practitioners available in early years to help to identify those children who need additional support, and it is why we will invest in research to find the most effective ways of doing that throughout the system.
To conclude, our ambition is clear: to build an education system that enables every child, wherever they live and whatever their needs, to achieve and to thrive. These reforms will deliver earlier support, stronger inclusion, broader opportunities and higher standards for all. They are shaped by parents, grounded in evidence and backed by significant investment. Most importantly, they place children at the heart of every decision that we make. Working together, we can create a system that is fairer, more ambitious and fit for the future. That is how we will ensure that every child can achieve and thrive.
Baroness Maclean of Redditch (Con)
My Lords, I know from my work as an MP how sensitive this issue is and how important it is to families. I used to represent a constituency that the Minister will know very well.
There are concerns that we should not ignore. A number of eminent clinicians and psychiatrists are now raising concerns that the expansion of diagnostic labels to conditions such as autism and ADHD is causing children with the most severe and complex needs to be overlooked. Given that one in three EHCPs is now given for autism and that the number of children overall with SEN is rising, does the Minister think there is any validity in these concerns? If she does, will she look at it? What is the response? Will the Fonagy review look at this issue specifically as well?
Baroness Smith of Malvern (Lab)
The noble Baroness is right that I know that constituency very well, having proudly represented it for 13 years—although I am afraid that the history of Worcestershire’s approach to special educational needs has not always been as effective as we would want it to be. There is a challenge to be made to local authorities to ensure that they are stepping up to the mark, given the considerable additional investment that we are putting into the system.
On the point about diagnostic labels, the important thing is that we should not be waiting for a child to receive a label to determine whether they have needs that need to be met, both through more inclusive mainstream teaching and through additional support being provided within schools. Even when we get to the specialist provision packages, they will be determined not by labels but by the needs that children have in order to make progress.
On the point about overdiagnosis, we need to be careful. The Secretary of State has been clear about that. He has commissioned further research into the nature of the diagnosis, particularly in the areas of mental health and other learning difficulties. That is an appropriate thing to have done.
Baroness Wilcox of Newport (Lab)
My Lords, I am sure that my noble friend will agree that great teaching is vital to great schools and great childhoods. We both shared the pleasure of working at the chalkface for many years. What will the Government do in the months and years ahead to ensure that great teachers stay in the profession and that they themselves achieve and thrive?
Baroness Smith of Malvern (Lab)
My noble friend is absolutely right—and also about the joy that teaching brought to us both. That is why, alongside the White Paper, we published the implementation plan for delivering an additional 6,500 specialist teachers in our secondary schools and colleges. It is why, through the already improved pay for teachers, we are providing incentives for them to stay; why we are continuing to look at the working conditions that teachers operate under; and why, for example, the White Paper extends maternity pay for teachers from a pretty low base. Using all those things, and the support for teachers to do the job that they love even better, we are already seeing some progress in keeping more teachers in the classroom. We will continue to ensure that we focus on that.
Baroness Morris of Yardley (Lab)
My Lords, I very much welcome this document. It is very important and ambitious, but it is not without risk. The way in which the Government have consulted on it—and, in a way, taken their time—gives us the best possible chance of making a success of it. I hope that is the case.
I have two questions, which I hope the Minister can address. First, on the extra money going into the system to support SEND, I very much welcome the work that the Government plan to do on a new formula for supporting children from disadvantage. Will the way the SEND money goes into schools be part of that review and go in with money in the normal way, or will it take a different route? Will the details of that be announced? Secondly, I note that the White Paper allows local authorities to set up trusts. There is a quirky sentence, I think in chapter 5, which says that these local authority trusts will not be allowed to intervene or get involved in the day-to-day running of the school. That is not my impression of what happens with trusts at the moment. Will the rules that surround a local authority-led trust be exactly the same as the rules that surround others, or will they be slightly different, as this seems to indicate?
Baroness Smith of Malvern (Lab)
My noble friend is right that the White Paper proposes a different approach to how we fund disadvantage, recognising that a “yes or no”, free school meals analysis of whether somebody is disadvantaged does not really get to the heart of the nature of that disadvantage. We will consult on that in relation to the money that schools receive for the pupil premium and for the disadvantage factors within the national funding formula, some of which would relate to children with SEND but is not specifically about SEND. The £4 billion additional funding for SEND will be allocated in the way I outlined in my first answer.
On the point about local authority trusts, it is the objective of the White Paper for all schools to be part of a trust. We are clear that, in some cases, there may not be existing trusts that could take on a school. For that reason we will also allow local authorities to set up trusts, but it is not the intention to recreate local authorities through trust provision. That is the reason for the particular arrangements for local authority trusts.
Lord Hampton (CB)
My Lords, I congratulate the Government. As a teacher, I think this is an amazing document and I look forward to talking about it a lot more. Something I particularly love about it is the high expectation of families. A question that comes to me—one of many—is that it talks about experts at hand, wrapping professionals around mainstream settings. I love the fact that the schools are becoming the experts, but it is pretty light on detail. Can the Minister be a little more specific about how this is going to happen?
Baroness Smith of Malvern (Lab)
I am glad that the noble Lord recognises the emphasis on families and the relationship between schools and parents. An important element of the White Paper recognises, as I know the noble Lord does from his teaching career, that although teachers make a phenomenal difference to how children succeed, many other factors outside schools also impact on that. That is why this builds on a range of other activities, including those to support children to arrive at school ready to learn and our efforts to tackle child poverty, and brings stronger expectations on schools to ensure that they develop better home-school agreements and communicate consistently.
On the point about experts at hand, this is where I was talking about the additional funding that will enable some of those experts who, I am afraid, are currently spending too much time carrying out assessments or are in excellent special schools but are not able to offer that expertise out to schools, to develop it. Yes, there is work to be done on the design of how that happens, but this is considerable investment to deliver an average of 160 days to secondary schools precisely to get that support to children without them having to go through the torturous process of getting an education, health and care plan.
Baroness Shawcross-Wolfson (Con)
My Lords, I start by thanking all the officials involved in producing this very ambitious White Paper and crediting Ministers for their determination to tackle this very difficult issue. I wholeheartedly support their emphasis on early intervention.
The Minister very helpfully set out the plans for the £4 billion of spending that I understand is coming from the department’s existing spending review settlement over the next three years. I wonder whether she could also confirm—or correct me if I am wrong—that the Treasury is providing an additional £3.5 billion in 2028-29 as a one-off payment. Is this funding earmarked to cover the projected £6 billion of deficits that the OBR set out? I would be grateful if she could clarify that for me and tell me if I have misunderstood.
Baroness Smith of Malvern (Lab)
The £4 billion is additional funding over the next three years. The £6 billion that the OBR identified was based on the premise of an unreformed system. That the system is being reformed means that, by the time we get to 2028-29 and 2029-30, we will be operating in a very different system. As part of the local government settlement, we have also begun the process of writing off and taking over responsibility for the money that local authorities have built up from overspending on special educational needs in recent years. Those two things are separate.
The Lord Bishop of Manchester
My Lords, I declare an interest in that my diocese has more than 190 Church schools and we educate around 60,000 children, in the total roll across them. The Church of England has already officially welcomed the White Paper and these Benches echo that this evening.
In Manchester, we have been looking at those points of transition—the transition from preschool into primary and from primary into secondary. In the past five or six years, the Bolton metropolitan area has had a project called Children Changing Places, because we recognise that, in those points of transition, children’s academic, social and spiritual development can go backwards, so we have been investing money into those points of transition. I note that both the White Paper and the Minister, in her replies this evening, referred to those points of transition. Might I tempt her to say a little more about how children can be enabled to manage those transitions without dropping back in their various levels of attainment?
Baroness Smith of Malvern (Lab)
The right reverend Prelate makes a very important point. As an example, we are working on how we can ensure that children are better prepared when they start school with an ambitious target to improve that, and investment in Best Start in Life and childcare to enable it.
Another key transition is from primary to secondary. Too often, key stage 3—the first three years in secondary—is not spent as effectively as it could be. Developing a new programme around the best practice for key stage 3 and really focusing on that will be part of the work of the RISE teams.
Another area where transition is often raised is in relation to SEND and children going from mainstream schools into colleges. We will make better provision for that and expect schools, at an earlier stage, to provide the information that colleges need to help children with special educational needs to thrive.
Lord Knight of Weymouth (Lab)
My Lords, I remind the House of my education interests, in particular as chair of STEM Learning and of the E-ACT multi-academy trust. At some of our E-ACT primary schools in Bristol, we have been investing in speech and language therapy training for all our mainstream teachers in reception and early years. As a result, we are identifying more pupils with special educational needs but fewer are going on to have education, health and care plans. That gives me optimism in the basis for early intervention in these reforms and that it will work.
My question to my noble friend is around the seven specialist provision packages. Getting the detail right on those is crucial to gain the confidence of parents. How can we ensure that the consultation that the department is carrying out will properly include all stakeholders, including those with special educational needs and disabilities?
Baroness Smith of Malvern (Lab)
My noble friend has identified the benefits of early intervention, as he says. We need a clearer and more evidence-based approach to what is appropriate for children with complex needs, which is why we are creating a new set of nationally consistent specialist provision packages. They will be designed to set clear expectations of what high-quality specialist provision should offer. They will be developed by experts and tested with families to make sure that they work in real life and reflect the best evidence about what helps children thrive. As I said, they are not based on diagnoses; instead, they will focus on the support that a child needs to learn, communicate, feel regulated and take part in school life. This important work will also be reviewed by an independent national expert panel, which will help to keep them up to date.
Baroness Bennett of Manor Castle (GP)
My Lords, my question relates to the plans for a review of education, health and care plans after primary school from 2030. For children with a special school place from September 2029, there is a promise to keep their place, but their EHCP will be reviewed.
I am drawing on my experience as a governor at a primary school in London that had an autistic unit. When it was created, the assumption was that children would be there for a few years, would get support and would then be able to move into mainstream schooling. That was not the experience. As school years go forward, the curriculum becomes more complex and the social setting of a classroom becomes more complex, and children were not able to make that progression.
If there is to be a review of EHCPs at the end of primary, do the Government have any evidence or data on how many people with an EHCP will lose it? We have to pick up the point from the noble Lord, Lord Addington, about parents putting so much time, energy and money into securing these EHCPs and the fear of losing them. What will the benefit of the review be versus the cost to parents?
Baroness Smith of Malvern (Lab)
First, to be clear, the majority of children who have an EHCP are in a special school. No child who is in a special school will need to leave a special school placement at any point. Secondly, on the point about bases in schools, part of the investment that we are putting in is to enable more opportunities within schools, to develop the type of bases that will provide specialist support for children but enable them to stay in mainstream schools in their communities, alongside their friends.
Lord Mohammed of Tinsley (LD)
My Lords, I echo the point made by the noble Lord, Lord Addington, that these changes are desperately needed. The system is currently broken and we need to see change. I press the Minister on the issue of the pupil premium, a scheme designed for funding to follow disadvantaged young people. If any review is undertaken of how that money is allocated, can the Minister assure us that it will be done in a transparent way so that we know which people may lose out? Can the Minister commit to at least trying to protect funding for care-experienced young people when it comes to the pupil premium?
Baroness Smith of Malvern (Lab)
This is not about how we cut the money that is available for disadvantage; this is about how we ensure that it is spent in a way that recognises that not all disadvantage is the same. We will be maintaining—in fact, we have increased—spending on the pupil premium. In relation to the overall review of the funding formula and the way in which we allocate the pupil premium, all of that will be subject to consultation, which will be starting this summer.
Baroness Thornton (Lab)
My Lords, I welcome this initiative and the document—they are brilliant. However, I want to ask about the children who might have to attend a special school because of their particular needs and the challenges that they face. As somebody has already mentioned, one of the problems that local authorities face in the overspend on this concerns some of the special schools that we already have, which are profit-gouging. They are overcharging huge amounts of money for our most vulnerable children. We know that there are excellent special schools in the sector run by charities, social enterprises and, indeed, some of the private enterprises, but it is clear that those making vast profits need to be dealt with. I welcome the investment that has been proposed, but I would like to ask my noble friend the Minister about the transition that will happen. Will new powers be needed for local authorities and others, to make sure that we do not leave children and parents vulnerable because of the schools that are having to be dealt with?
Baroness Smith of Malvern (Lab)
My noble friend is absolutely right. There is excellent work going on in our special schools, in the state sector and the independent sector. However, it cannot be right that there is a differential of three times between that which is charged in independent special schools and that which is charged in state special schools. Where that reflects highly specialised provision, that is legitimate, but where it is feeding private equity and, as my noble friend says, focused on profit, it is wholly wrong. That is why we will improve the regulation of independent special schools and, using the specialist packages that we are developing, create price bands indicating what local authorities will pay for children to go there. We can then be clearer that the money we are spending is delivering outcomes for children and not profits for private equity.
Baroness Debbonaire (Lab)
My Lords, my question has been partly answered. I thank my noble friend the Minister for bringing the Statement to the House and for the White Paper. I would like to press her a little more on that very topic. While it is absolutely right that these schools not be run for such profit-gouging as has been mentioned, how will needs be assessed in the case of children with very complex needs who are currently in specialist education that is well-run? I declare an interest, in that my nephew works with those children.
Baroness Smith of Malvern (Lab)
Children in special schools, either in the state sector or in independent special schools, will be there by virtue of an education, health and care plan. They will keep that education, health and care plan if they are in a special school. That will now be reinforced by clearer evidence and recognition of what the best practice would be for those children. Part of that evidence will be informed by the excellent work that is happening within special schools. If we can also get some of the expertise in special schools into mainstream schools through the £1.8 billion investment and the “expert at hand” provision then we really will have made sure that we are making the most of the excellent work that happens in our special schools.
Tobacco and Vapes Bill
(1 day, 4 hours ago)
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Lord Udny-Lister
Member’s explanatory statement
This amendment seeks to ensure that the new definition of heated tobacco product is included in the age of sale and other regulations covering vapes and nicotine products.
Lord Udny-Lister (Con)
My Lords, the purpose of my amendment to Clause 10 is simply to ensure that heated tobacco products are explicitly addressed within the age of sale framework. I am strongly of the view that, when Parliament seeks to regulate a product, it must define it clearly. As other noble Lords have repeatedly mentioned, there is still a high level of inconsistency and ambiguity in this Bill, which renders it fundamentally flawed unless many of these amendments are supported over the next few days. Both retailers and trading standards officers require certainty when it comes to product classification, and a clear statutory definition would avoid later confusion, reduce the overall risk of litigation and strengthen accountability, which must remain the overriding purpose of this Bill if it is to stand any chance of delivering what I believe is the Government’s intended result. In the interest of making the Bill workable on the ground, I hope that this minor change will have your Lordships’ support.
My amendment to Clause 11 mirrors the approach that I have taken concerning Clause 10. I am again asking for consistency so that, where vaping products are referenced, heated tobacco products are dealt with explicitly. We cannot pass legislation through this House where there is ambiguity. I fear that, if these points are ignored, the Bill will lack the clarity required to make it practically enforceable. As such, we in this House will be placing a grave, unfair burden upon those in enforcement. Furthermore, we will be creating unfairness for compliant businesses, which comes with the not inconceivable risk of pushing retailers towards the temptation of rogue and illicit trading. We need to legislate coherently across product categories rather than allow voids to undermine the objectives that the Government are seeking to achieve.
I will speak now to Amendments 87, 89, 90, 101, 113, 189 and 190 in my name. I wish to ensure that the phrase “or consumed in any other way” is removed and that a clear definition of heated tobacco is inserted. It is important to note that heated tobacco does not burn tobacco; it heats it. This is important as evidence indicates lower toxicant exposure compared with that of most cigarettes. If future adult access is to be prohibited, this decision must be based on proper assessment and evidence, which is lacking at this time. The purpose of Amendments 189 and 190 specifically is simply to insert some precision into the Bill. These amendments replace “consumed” with “smoked” and remove reference to heated tobacco devices. I put it to your Lordships that “consumed” is excessively broad. Through slightly better drafting, we can protect businesses, enable better enforcement and protect the courts from uncertainty. I beg to move.
Baroness Fox of Buckley (Non-Afl)
My Lords, I commend the noble Lord, Lord Udny-Lister, for helping to differentiate products and for having some precision in the way we discuss these issues. I have been concerned throughout about a one-size-fits-all approach. I do not think it helps anyone. It certainly does not help in relation to health, let alone retailers and so on, as has been described.
Heated tobacco should not be conflated with vapes, but it should also not be conflated with smoking cigarettes or tobacco in that sense. As the noble Lord explained, heated tobacco products are heated, not combusted. That means that, although they might have some degree of harm, there is a body of evidence that shows that there is a huge reduction in harmful products from heating tobacco rather than smoking tobacco. This matters to me because a lot of people use heated tobacco as a smoking cessation tool, as a form of giving up smoking.
When I have raised issues concerning the evidence on heated tobacco, I have been told that the problem with that evidence is that it is based on research produced by the tobacco industry rather than by independent researchers. I point out that, none the less, it is scientific evidence and can be tested as such, whoever pays for it. But if there is some concern about the evidence, I encourage the Government to consider how they can fund research into the very different types of product we are talking about, rather than simply dismissing any evidence they do not like the look of because of who funds it. We need to have a sense of proportion and should not treat all products the same. As I say, I therefore reject the one-size-fits-all approach. We will have much better legislation if these things are clarified on the face of the Bill and we all know what we are talking about, and do not just lump things under the single heading of “harmful and dangerous”.
Baroness Northover (LD)
My Lords, this group of amendments relates to heated tobacco and its inclusion in the Bill, and in particular the rising age of sale. It is essential that the measures in the Bill apply to all tobacco products without exception. We have learned repeatedly that, where legislation leaves loopholes, the tobacco industry exploits them. We saw this with cigarillos—products defined as cigars but designed to resemble cigarettes, evading plain packaging with the flavour and pack size rules, as we discussed in Committee.
The Bill is a chance for truly comprehensive legislation. I am particularly concerned about Amendment 89, which would remove the phrase
“or consumed in any other way”.
That would leave the door wide open for further innovation from the industry to continue selling tobacco products here in the UK. The regulatory powers in the Bill must be broadly defined, including powers over packaging and presentation. This is not overreach; it is future-proofing based upon our past experience. Without it, we invite industry innovation designed solely to sidestep regulation and undermine public health.
Heated tobacco products should not be conflated with vapes. Vapes can be and are recommended for smoking cessation, following evidence, including a Cochrane review, showing that they are a helpful tool for smokers. Heated tobacco products do not meet that standard and are not recommended by NICE. They are used by fewer than 1% of people in the UK, yet awareness of them is rising, particularly among young people. Alarmingly, nearly one-quarter of 11 to 17 year-olds are now aware of these products, and that may well be the result of their marketing in supermarkets and online.
I therefore welcome government Amendments 217, 218 and 219, which ensure that the comprehensive definition of a tobacco product applies from the moment the Bill comes into force. That will help to address the ongoing and unacceptable advertising of heated tobacco products in supermarkets and elsewhere. If we are indeed serious about creating a smoke-free generation, all tobacco products, including heated tobacco, must be included without ambiguity or exception.
Lord Kamall (Con)
My Lords, my noble friend has tabled a number of amendments on heated tobacco products. Although there may be some concern about what is behind them, they raise important questions that I am afraid the Government have yet to answer with any real precision.
As I noted in Committee, there appears to be some evidence that individuals who switched from conventional cigarettes to heated tobacco products show lower levels of exposure to harmful chemicals than those who continue smoking. I am just comparing them to cigarettes, not to vapes. To be clear, I do not suggest that this settles the question of harm—these are relatively new products, and the long-term evidence base is still developing—but it means that the Government cannot simply treat heated tobacco products as interchangeable with conventional cigarettes without explaining why they refuse to consider their relative harm compared to cigarettes. I am talking about not absolute harm, but relative harm.
There is also the practical question of where these products may be used. The position on indoor and outdoor spaces remains, as far as I can tell, unclear. Heated tobacco does not produce combustion or sidestream smoke in the conventional sense, and yet it is not obvious from the Bill how the Government intend to address that distinction—if they intend to address it at all.
More fundamentally, can the Minister explain what specific evidence underpins the decision to include heated tobacco in the generational ban? I am sure all noble Lords accept that current evidence shows that vapes are relatively safer than smoking. It may be that vapes are relatively safer than heated tobacco, but as yet, we have not seen definitive evidence. Unfortunately, as noble Lords have said, much of the research on heated tobacco is funded by the tobacco industry. I can understand the concern there. I hope the Minister will correct me if I am wrong, but there is no definitive independent research on the relative harms of heated tobacco. If there is definitive research, can the Minister write to noble Lords with links to the relevant academic papers? I think we saw one link to a meta study that was not very good, but there has been no meaningful in-depth research.
This reminds me of a conversation I had with a friend, who told me that when they tried vapes to quit smoking, it unfortunately did not do the job for them. When they went back to their doctor, he said that he was not supposed to do this, but he suggested heated tobacco as a relatively less harmful alternative. While he hoped his patient might have switched from cigarettes to vapes, since this had not happened—we do not live in a perfect world—he preferred his patient to use heated tobacco to going back to cigarettes. Once again, this was a practical approach based on relative harms.
I completely understand the concern that, if we overpromote heated tobacco, we might find that smokers switch to it rather than vapes. Given that the policy rationale rests substantially on reducing harm—we should be looking at absolute harm and relative harm— I would welcome clarity on whether the Government are satisfied that the case for treating heated tobacco like cigarettes is proven. It will be interesting to see that distinction between heated tobacco and cigarettes. Is the science still sufficiently uncertain to warrant a more cautious approach?
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
My Lords, I appreciate the contributions made in this debate. I will start by addressing government Amendments 217, 218 and 219, tabled in my name; I am grateful to the noble Baroness, Lady Northover, for her support.
The Bill updates the definition of a tobacco product in legislation relating to promotion and advertising, and in Scottish legislation, to
“a product consisting wholly or partly of tobacco and intended to be smoked, sniffed, sucked, chewed or consumed in any other way”.
Those last few words,
“consumed in any other way”,
are the key ones. What does this definition do? It ensures that all forms of tobacco products, regardless of how they are consumed, are captured by this legislation, including—this is important to the points raised by noble Lords—any future novel tobacco products.
These amendments bring forward the commencement of this updated definition to the day of Royal Assent, rather than two months after Royal Assent. That is because the Government’s view is that all tobacco products currently on the market are already captured in the current definition, so it is appropriate for this future-proofing amendment to come into force at Royal Assent because there is no change to the law for which notice would be required.
Amendments tabled by the noble Lord, Lord Udny-Lister, seek to redefine how heated tobacco products are captured within the Bill so that they are no longer treated in the same way as other tobacco products. These amendments also seek to prevent provisions being extended to heated tobacco devices in the future.
On the points raised by the noble Lord, as well as by the noble Baroness, Lady Fox, and the noble Lord, Lord Kamall, the Bill deliberately defines tobacco products expansively and includes heated tobacco. The reason for that is that there is no safe level of tobacco consumption and all forms of tobacco are harmful.
On the points raised about evidence, there is evidence of toxicity from heated tobacco in laboratory studies; the aerosol generated by heated tobacco devices contains carcinogenic compounds. Unlike vapes, there is limited evidence that heated tobacco can support smoking cessation, despite what is claimed by the tobacco industry. On the matters of evidence raised by the noble Lord, Lord Kamall, and the noble Baroness, Lady Fox, as has been set out by all four UK Chief Medical Officers in a technical note to noble Lords, any suggestion that heated tobacco products are safe or should be promoted as quit aids in some way is entirely misleading.
I say to the noble Lord, Lord Kamall, that, through the National Institute for Health and Care Research, we are funding high-quality research into tobacco products. Between 2020 and 2025, £25 million was invested in a NIHR research programme to research tobacco control, and that will help us develop the evidence base. Exempting heated tobacco products from the smoke-free generation policy and other provisions in the Bill would simply allow the tobacco industry to continue to find a way to addict future generations to harmful and addictive products. The Bill is completely geared to go the other way.
The noble Lord, Lord Kamall, asked about heated-tobacco-free places. We will return to the whole issue of tobacco-free places when we come to group 16, so I am sure that that will be debated then. I hope that I have been able to clarify the Government’s position for noble Lords, and that the noble Lord, Lord Udny-Lister, will feel able to withdraw his amendment.
Lord Kamall (Con)
Before the Minister sits down, she talked about research that was done on tobacco products between 2020 and 2025. In that time, was any specific research done on heated tobacco as part of tobacco products?
Baroness Merron (Lab)
The specific definition is “tobacco control research”, so it would be strange if it did not include what we know about already, which includes heated tobacco. I will be glad to confirm that to the noble Lord in writing.
Lord Udny-Lister (Con)
I thank the Minister for her reassurances, although I am afraid that I do not agree with her. However, I accept that we have taken this as far as we can. I beg leave to withdraw the amendment.
Lord Moylan
Member’s explanatory statement
This amendment provides that regulations to specify methods of customer age verification must be made by the affirmative resolution procedure.
Baroness Merron
“(1A) But subsection (1) does not apply in relation to a vape vending machine made available for use in a mental health hospital if the machine is in an area that is intended wholly or mainly for inpatients.”Member’s explanatory statement
This amendment creates an exception to the offence of having management or control of premises on which a vape vending machine is made available for use. It applies where the vending machine is in a mental health hospital in an area intended wholly or mainly for inpatients.
Baroness Merron
““mental health hospital” means an institution (or part of an institution) maintained wholly or mainly for the reception and treatment of inpatients who—(a) are aged 18 or over, and(b) are suffering from mental disorder (within the meaning of the Mental Health Act 1983);”Member’s explanatory statement
This is consequential on my first amendment to clause 12.
Lord Moylan
“Offence of manufacturing, supplying or offering to supply counterfeit nicotine products(1) A person who manufactures, supplies, or offers to supply counterfeit nicotine products, including tobacco and vape products, commits an offence.(2) A person guilty of an offence under this section is liable—(a) on summary conviction, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;(b) on conviction on indictment, to imprisonment for a term not exceeding 3 years or an unlimited fine, or both.(3) In this section, “counterfeit” means any product or packaging bearing without authorisation a trade mark identical to or indistinguishable from a registered trade mark.”Member's explanatory statement
This amendment strengthens the criminal penalties for the production and sale of counterfeit nicotine products with a view to protecting consumers, upholding safety standards, and safeguarding legitimate businesses from unfair competition. It introduces a tiered sentencing structure, permitting tougher consequences for serious offences.
Lord Moylan (Con)
My Lords, in approaching this amendment, I start with a very powerful series of BBC News reports that were broadcast before Christmas—other noble Lords may have seen them. The BBC accompanied trading standards officers—and, I believe, Customs and Excise—on raids of various high street premises in various provincial towns. They were shops that looked like stores; you would call them mini-markets or something like that. They had goods on the shelves—packets of soup and whatever it might be that you might conceivably want to buy—but their business was not actually selling these things, and nobody who went into those shops was particularly interested in buying the packets of soup that adorned the shelves.
Lord Johnson of Lainston (Con)
I am never quite sure whether I should declare an interest in this debate as someone who has smoked the occasional cigar, but on this set of amendments I declare an interest in that I have teenage children. I see their actions, which chime very much with what the noble Lord, Lord Moylan, has just discussed.
We are in danger of creating a two-tier system—we do this across the board, and I am afraid we in this House are guilty of it—whereby we have excess intense regulation, which affects law-abiding citizens and consumers, and we focus on that, feeling that we have done our job and can sit back and relax, having stopped smoking, drinking or whatever it may be. But the reality is that we simply end up creating a second and entirely unregulated market.
I saw the same documentaries that my noble friend saw and was surprised, but not by the clandestine nature of organisations and illegal groups of pirates supplying illegal cigarettes and vape products under the counter or under the table in a pub—these were shops that were well advertised. In fact, I was quite impressed with some of the branding. Some of them were chains; they have become multinational corporations with headquarters, running an effective illegal system that pays no taxes. Clearly, as these documentaries showed, they had other issues, such as money laundering and very bad employment systems.
In conversations with the Minister, I have been encouraged by the realisation of this two-tier issue. It is not simply in the physical sense; it is also online. The teenagers I speak to say they have never actually bought a legal packet of cigarettes. It would not occur to them: at £20 a packet, they would be better off taking up cigars. Instead, they buy everything online, where there are no age checks. They can usually get hold of somebody else’s credit card, and it is delivered to the house. I find it very alarming that we will spend our time in these debates, and the Government will spend a huge amount of effort on a so-called ban of smoking and nicotine products, while at the same time allowing an illegal market to flourish.
From conversations with the Minister, which I found extremely helpful, I am aware that online sales are hard to regulate because of how enforcement happens at the local level: there is no one authority, although specific authorities will take leads in certain areas. There does not seem to be enough money or focus on this important issue. I am saying this because I care about the retailer and about the end ambition, in some measure, of this overall government initiative. It would be extraordinary if we focused all our efforts on a great sledgehammer to crush legal, law-abiding and decent retailers who are trying to do their job, and law-abiding consumers, without realising that we are creating another monster that needs to be tamed.
Lord Udny-Lister (Con)
I shall talk about the two amendments in my name. First, the Bill does not provide a deterrent; the proposed fixed penalty of £200 is nothing to those involved in this illicit trading and organised criminal activity. It is obvious that the unscrupulous retailers will simply absorb the costs and just continue with what they are doing.
It is worth mentioning at this point—and I have seen this—that when people are selling illegal tobacco it is not under the counter. You can have a nice card with all the different brands laid out for you to pick and choose from. It is very professional: a serious bit of criminality out there. I might add that I do not smoke, but I have seen it with others. That is why I am seeking through this amendment support to introduce a stepped penalty regime, escalating for repeat offenders and enabling referral to national and enforcement bodies where organised criminality may be involved. If we want to stand any chance of cutting down this illicit trade and the sale of tobacco and vapes, enforcement must have real teeth. Without a stepped penalty regime and referral powers, the Bill and the generational ban will be nothing more than symbolic.
Amendment 63 is on the points I have just made about having a more robust and stepped approach to penalty notices. I want to strengthen enforcement further by introducing a new statutory referral duty where a fixed penalty notice is issued. If the Bill does not confront the organised criminal network, it will just continue. We want local authorities to issue fixed penalties, and then to refer the matter to the National Crime Agency and relevant police forces and to share intelligence, which is key. It is further my intention that this amendment place a statutory duty on the NCA and police to investigate whether organised crime, excise or VAT evasion is at scale or other serious offences are involved.
Baroness Fox of Buckley (Non-Afl)
My Lords, I wanted to speak to two amendments in this group that are about the opposite ends of the retail spectrum. On the one hand, there are law-abiding shopkeepers who need to be given a certain leeway if they mess up at the start of this legislation. At the other end of the spectrum are those open lawbreakers who hide in plain sight.
I added my name to Amendment 63 in the name of the noble Lord, Lord Udny-Lister, which is about giving relevant authorities the discretion to issue a warning notice to first-time offenders. Because this is totally novel and internationally unique legislation, enforcement will be important; but because this is a bit of an experiment, some leeway has to be given to allow it to settle in without criminalising people unnecessarily.
Fixed penalty notices are precisely designed to enable offenders to avoid criminal prosecution and reduce the burden on the courts. That is how they are usually used. I am just worried about the overcriminalisation of shopkeepers via this Bill; it is important to be proportionate and allow that discretion. Allowing trading standards officers to issue warnings to first-time offenders would promote the idea that shopkeepers can learn what the rules are and find out that they have had their warning. I am sure that many initial breaches are likely to be unintentional, and a warning will help a business to understand the rules and allow them not to repeat the mistake, and so on. Therefore, fines are reserved for repeat or serious offences; that is an important way in which to approach this.
In relation to an earlier amendment about communicating what the Bill will do, although I do not necessarily agree with it, it is obviously important that people understand the implications of the Bill when it becomes law. If it passes, which it will, there will have to be quite a steep learning curve for all sorts of different parts of society.
I want to draw attention to something called Local Vape Action, which has just been launched in Maidstone in Kent. It is a local partnership involving retail shops working with the local community and doing education, engagement and enforcement. There are initiatives happening locally where people are trying to say, “We are the good guys; we are the people who are compliant; we’re trying to keep to the rules”. They are trying, for example, to improve the appearance of high streets, making sure that legitimate vape retailers—not the ones that the noble Lord, Lord Moylan, described—want to take some responsibility for not being the rogue traders. I think that is to be commended.
Baroness Northover (LD)
My Lords, I am delighted to have the support of the noble Baroness, Lady Fox, on my earlier amendment on the communications strategy, and that she has come around to my point of view on this. It clearly is vital that we have an excellent, proactive communication strategy in relation to this new policy, as I argued on the first group.
These amendments seek to ensure that penalties for offences are fair and proportionate. I am very sympathetic to Amendment 60 from the noble Lord, Lord Udny-Lister, which looks like a very useful attempt to take a stepped approach to fines; it seems a very reasonable way to go about this. I look forward to hearing what the Minister says about that, and why she feels, if she does, that it is not necessary or appropriate.
We believe that Amendment 63 is not necessary, as the ability to give warnings already exists. On Amendment 17 on counterfeit products, I am delighted to return the compliment to the noble Baroness, Lady Fox, who says that she does not like to have unnecessary new offences, by telling her that we understand that this is currently an offence under the Trade Marks Act and that offences under that Act are automatically lifestyle offences, meaning that a proceeds of crime application can be used to remove criminal earnings. Maybe the Minister can comment on these various amendments.
Lord Kamall (Con)
My Lords, my noble friends Lord Moylan and Lord Udny-Lister benefited this debate by coming forward with their amendments in this group based on their extensive experience in local government. I warmly welcome Amendment 17; counterfeiting nicotine products is not a victimless crime. It undercuts legitimate businesses that are already operating under considerable regulatory and financial pressure.
Let us be clear that the cumulative burden placed on small businesses, regulatory or otherwise, is already substantial. These businesses, as other noble Lords have said, are already playing by the rules. They pay their taxes and comply with an ever-increasing, complex regulatory framework. It is simply not fair that they should find themselves undercut by operators selling counterfeit products outside that framework entirely.
Beyond the commercial harm, there is a serious consumer safety dimension. Counterfeit nicotine products are unregulated, untested and potentially dangerous. I ask the Minister to confirm that the Government share the view that the robust criminal penalties for counterfeiting are not only appropriate but essential. I would be grateful to hear what steps are being taken to ensure that enforcement capacity exists to make sure that these penalties are meaningful.
At earlier stages of the Bill, I know there were some concerns about the capacity of trading standards, for example. The sum that the Government have made available for local trading standards is to be welcomed, but some still wonder whether it will be enough or whether it is a drop in the ocean.
My noble friend Lord Udny-Lister’s amendments reflect a sensible approach to fixed penalty notices. A step penalty structure that treats a first offence differently from repeated non-compliance is surely right. While some local authorities may already have discretion to issue a warning instead of a fixed penalty for first-time offenders, as my noble friend has raised, it is important that first-time offenders are not treated unduly harshly given the complexity of some of the regulations that these small retailers will have to face. I hope the Minister, if she feels that she cannot accept the amendments as they stand, can say some positive things about them.
Baroness Merron (Lab)
My Lords, this has been a helpful debate on an issue that concerns us all in this Chamber.
On Amendment 17 tabled by the noble Lord, Lord Moylan, I agree with his desire to take robust action against counterfeit products—I am sure we all do—but I cannot accept the amendment simply because I do not believe it is necessary, not because of specific objections. I heard his invitation for me to continue as I started, but, unfortunately, I cannot do so for this amendment. We believe it is not necessary, as referred to by the noble Baroness, Lady Northover, because protections against trademark infringement are already a matter for existing legislation.
On the point about necessary legislation addressing counterfeit products, which I accept, I say to the noble Lord and the noble Baroness, Lady Fox, that the Trade Marks Act 1994, as we have heard, already provides significant penalties for breaching these rules. They include: on summary conviction, imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both; or, on conviction on indictment, a fine or imprisonment for a term not exceeding 10 years, or both. These are significant penalties.
Baroness Fox of Buckley (Non-Afl)
In terms of duplication, I argued on the Crime and Policing Bill that it was probably not necessary to legislate for assaulting a shop worker to be against the law, as assaulting anyone is. I asked why there was a specific point about shop and retail workers and was told that this would make a special case of shop workers to emphasise their vulnerability. The point about duplicating laws has never held the Government back before, because they keep doing it.
Baroness Merron (Lab)
I must admit that I have a different view. Where we already have legislation covering the specific points we are talking about, as we have here with the Trade Marks Act 1994, there is no reason to go further. The legislation is already working. It is fair to raise the example that the noble Baroness gave, but I do not share her view on that duplication, as it was important specifically to identify shop workers. Maybe we just need to disagree on the duplication or otherwise of legislation.
While trademark protection is not a matter for the Bill, powers in Part 5 will enable the Government to introduce regulations relating to packaging, product safety and product registration. Those who breach these regulations following their implementation may face significant penalties of up to two years’ imprisonment, a fine or both. The penalties broadly mirror the penalties provided by the noble Lord’s amendment, albeit I accept he proposes a slightly higher maximum term of imprisonment of three years instead of two.
The noble Lord, Lord Moylan, raised legitimate points about the scale of the illicit market and also potential connections to other illegal activities. On that point, HMRC and Border Force’s joint illicit tobacco strategy sets out the continued commitment to tackle and disrupt the organised crime groups behind the illicit tobacco trade, a commitment supported by over £100 million of new funding.
Lord Moylan (Con)
My Lords, that is a disappointing response. I repeat that my amendment does not rest on any claim that this Bill is going to make a bad situation worse. I do not want to get into that argument. It is a bad situation already. We should be willing to acknowledge that perhaps it is worse than we realise—especially those of us who do not spend a lot of time on provincial high streets and in working-class areas where this happens and is widespread. We need vigorous tools to deal with it.
I entirely accept what the noble Baroness, Lady Fox, said about the need for nuance in how enforcement is carried out. I am aware of the enforcement code that regulators use, including trading standards, because I have worked with it. One wants to be lenient to the honest shopkeeper who muddles up a 40 year-old with a 41 year-old. However, it is not possible to sell counterfeit goods accidentally. You know if you are selling counterfeit goods—it is a deliberate action—especially if you have them stashed in the attic and under floorboards. You are not making an honest mistake when you sell them. We need to be very hard on these people.
My noble friend Lord Udny-Lister has got something, in arguing for a gradation of fines and punishments that will bite harder on people who are repeat offenders or more serious offenders. The Bill misses a trick on that.
On this side—and, I suspect, if they reflect on it, in other parts of the House—there is concern that the Government have not got this element of the Bill right and that they will have to come back to it. The ideal thing would be if they came back to it before the Bill was enacted, at Third Reading, perhaps with something along the lines that my noble friend Lord Udny-Lister produced. It is possible that they could put it right later when they discover that they have made a mistake, but that is much more messy and would not have the desired effect.
I am disappointed. The Government will have to return to this, and the sooner the better. In the meantime, I beg leave to withdraw my amendment.
The Earl of Lindsay
“(3A) Regulations made under this section may not prohibit the display of tobacco products in any premises, or part of premises—(a) which are exempt from the prohibition on the display of tobacco products under regulations made under the Tobacco Advertising and Promotion Act 2002, in so far as that exemption relates to specialist tobacconists, or(b) which are operated by a specialist tobacconist.”Member's explanatory statement
This amendment, connected to another in the name of the Earl of Lindsay to Clause 14, would preserve the existing exemption for specialist tobacconists from tobacco product display restrictions in England and Wales. Their effect is to ensure that the regulation-making powers in clauses 13 and 14 cannot be used to remove or circumvent that long-standing exemption, whether directly or indirectly through changes to existing display regulations.
The Earl of Lindsay (Con)
My Lords, Amendments 18, 19, 127, 147, and 192 are in my name and that of the noble Lord, Lord Mendelsohn. In the absence of the noble Baroness, Lady Walmsley, I declare my support for the spirit of her Amendment 126, although I am seeking to tackle the issue that she is addressing in a slightly different way. I declare an interest as president of the Charter Trading Standards Institute. However, these amendments are not CTSI amendments; they are very much my own.
I have tabled these amendments in a constructive spirit, as part of what I hope will be recognised as a good faith effort to identify an evidence-based, proportionate and workable solution for handmade cigars within the Bill’s existing architecture. As I have previously said, I unequivocally support the Government’s objective of reducing youth smoking and protecting future generations from smoking-related harms. Nothing in this group of amendments seeks to undermine this. It is rather that the proposed amendments seek to ensure that, in pursuing that objective, we do so in a manner that is proportionate, evidence-based and fair to a small number of lawful, specialist businesses.
Handmade cigars are fundamentally distinct from mass-produced tobacco products. They are also fundamentally distinct from mass-produced, lower-priced, machine-made, small format cigars and cigarillos, all of which occupy a very different segment of the market. This distinction matters in market characteristics and, most importantly, in the evidence base relating to youth uptake and public health.
Handmade cigars are artisanal products. They are individually crafted, higher-value, relatively expensive, premium products. They are sold almost exclusively through specialist tobacconists and other distinct retail channels to informed adult consumers. They are not impulse purchases. Of overriding importance is that handmade cigars are not inhaled, and they are consumed infrequently and not habitually. They are often associated with special occasions or celebratory moments, and are an important feature of the UK’s hospitality sector.
There is no credible evidence that handmade cigars contribute to youth uptake or act as a gateway to nicotine addiction. The last time detailed UK data on cigar usage was collected, it was found that the overwhelming majority of cigar smokers were over the age of 25, with most being over the age of 35. Handmade cigars therefore occupy an entirely different segment of the market, in price, consumer profile and usage.
Their production is uniquely different, which brings me to our Amendments 127 and 147. Handmade cigars are low-volume, high-variety, artisanal products, manufactured in small batches, mostly by producers in Latin America and the Caribbean. There are over 1,300 individual product lines, almost all of which are packaged manually. Requiring bespoke standardised packaging specifically for a single market such as the United Kingdom is simply not practical or commercially viable.
As currently drafted, the Bill would enable the Secretary of State to impose the standardised packaging regime to handmade cigars in the same manner as to mass-market cigarettes, et cetera. Such a measure ignores known risk profiles and market characteristics, and certainly does not represent sound evidence-based policy. The certain outcome of this is that handmade cigars would disappear from our market altogether, along with the long-standing specialist retailers whose businesses depend upon them and, of course, their employees.
These two amendments, therefore, would exempt handmade cigars from the retail packaging regime, accompanied by a tightly drawn statutory definition of what constitutes a handmade cigar. They recognise that the policy rationale for plain packaging in the context of high-volume, youth-sensitive products does not translate to artisanal, individually crafted cigars sold in specialist premises to adults. They acknowledge that imposing such measures on the handmade cigar sector is totally disproportionate when there is no evidence of youth uptake, no discernible public health gain, but the strong likelihood of catastrophic operational and economic burdens being placed on small, compliant, law-abiding businesses.
These facts would have become evident had there been a more comprehensive and focused impact assessment. The impact assessment produced by the department, which runs to 164 pages, makes just three mentions of cigars, with no quantification of the likely economic impact to businesses trading in these products, no small and micro-business assessment, and no discussion of alternatives.
In speaking to these amendments, I ask the Minister whether she can confirm that the Government’s response, which has been pending since January 2025, to the call for evidence to inform potential future regulation of standardised tobacco packaging will confirm that handmade cigars will retain their status quo, as exempted from the introduction of plain packaging.
Lord Johnson of Lainston (Con)
My Lords, first, I thank the Minister for her highly engaged approach to these issues facing small specialist tobacconists in the niche handmade, hand-rolled cigar industry. I also appreciated the assistance of her officials at the Department of Health, who have been sitting through a very long debate and must be wondering when it is going to end; I think this is the last group. They demonstrated a high level of understanding of cigars, their impact on health and the effects this Bill could have on the people involved in the specialist industry. I really do appreciate that. We have had a hugely successful, open dialogue around what is a very important issue.
I believe from my conversations with the Government that they do not want to destroy this important cottage industry of mainly small family-owned firms—which, I might add, attract a huge amount of tourism to this country and are world class in their standards of service and compliance. They sell a product which is not associated with childhood smoking, and they are not at risk of contributing to the remorseless rise of vapes, snuses and other nicotine delivery products. Wonderful shops like Davidoff, Fox, Sautters and Cgars, to name a few, employ hundreds of people and give satisfaction and happiness to thousands more.
It is very important that we accept the amendments proposed by my noble friend Lord Lindsay to protect these stores, especially those in the cluster of St James’s Street. I know we will come on to this later, but I would particularly welcome comments from the Minister on guidance to local authorities in this area, which reflects a number of the points in these amendments, as well.
The issues around packaging are also surprisingly important to the industry. We are not asking for anything other than a commitment to the continuation of existing legislation, which protects how speciality tobacconists display cigar products and can trade new and, importantly, vintage cigars. These products have to be stored and distributed in cedar or cedar-lined wooden boxes, which cannot be changed at source. It is important for noble Lords to understand this; they have to be transported in a certain way, in a certain type of box. It is not simply about moving them into some other type of packaging; and the packaging cannot be changed at source, since they predominantly come from important trading partners such as Cuba or the Dominican Republic, which do not have the capacity to change the packaging to enable us to have plain packaging.
By the way, the boxing and labelling system also helps ensure authenticity. This follows the discussion we had about counterfeiting earlier.
It is also important to recognise that these boxes and how the cigars are packaged are a far cry from packaging that advertises or that is targeted at children. It should be noted that health warnings are already applied to all these boxes. I stress that we are not looking for a carve-out or loophole with these amendments; we are looking simply for the continuation of a sensible policy to allow a niche industry of speciality tobacconists, with important trading partners, to exist and continue its trade as planned. This fits in with the express quotes from the Minister that, in effect, preserving the status quo as it stands today and rolling it forward is part of the Government’s agenda. We respect that and find it enormously helpful.
There is overwhelming evidence that going back on this original legal commitment would mean the end of the specialist cigar industry, so if we introduced plain packaging, it would be devastating for this important area of our economy and would have no benefit to the overall plan of making Britain smoke-free either.
I went to inspect the offices of Hunters & Frankau, which is the main importer of Cuban cigars, to see how a ban on ordinary box packaging could be implemented. If your Lordships saw the hundreds, if not thousands, of product lines in this Indiana Jones-like warehouse—I must say, when I had a chance to tour those storerooms, it was a very happy moment for me—your Lordships would see that it is totally impractical to bring in some type of plain packaging, given the way these authentic handmade products are sourced and distributed.
Canada and Australia have been quoted as having brought these measures into place. They are very different markets, so I do not think they are comparable in reality. In actuality, it has led to the almost total collapse of the handmade cigar industry as a result of the reduction of lines from many hundreds down to a few tens. The effect has not been on large multinationals or big tobacco; it has been the closure of many small businesses. Family-owned tobacconists and specialty suppliers have closed as a result. Needless to say, the consumer also suffers.
Finally, I would be grateful to hear confirmation that the Government have no plans to go back on previous legislation that allowed for a very small number of sampling rooms in this country—I believe the number is fewer than 30. These are not to be confused with so-called cigar lounges, of which there are many, which are predominantly outdoor areas, albeit with some type of heating and sometimes roofing. The investment in these humidors, which is what they are, with sampling rooms attached, has been significant. Several major hotels have integrated them into their business model. They are part of the supply chain of handmade premium cigars and to disestablish them would cause significant unnecessary harm.
I reassure noble Lords that at no point will these actions create a loophole for big tobacco. I am very aware that that has happened in the past, with flavourings, cigarillos and so on. Protecting these characteristics will not see an increase in youth smoking. I think we are all agreed on that. No one I have met, even those who are most fanatical about this Bill—some people are, and I do not disrespect that—wants to see an end to our specialist tobacconist industry today.
These are small, family-owned businesses, which behave impeccably, are drivers of tourism, create income for the Exchequer and behave extremely effectively in providing a niche community with cigars. To have clear commitments about these important matters from the Minister at the Dispatch Box would allow the industry to continue to be a highly responsible part of British retail. It would allow these small, family-owned stores to continue to drive footfall and income for this country. It would be a fair way to treat the adult, free-choosing, occasional cigar smoker into the future too.
Baroness Bennett of Manor Castle (GP)
My Lords, as we have already heard, the amendments in this group seek to carve out exemptions for specialist tobacconists, particularly when it comes to cigars. I will focus primarily on Amendments 126, 127, 147 and 192. I begin by focusing on what cigars actually are. They are often described—and we have heard them described—as luxury or artisanal goods, but they are, first of all, carcinogenic tobacco products that are harmful to human health.
I support the Government’s approach, as the Bill stands, to comprehensive tobacco control regulation that ensures that future generations do not become addicted to any form of tobacco. We have heard arguments that their use is infrequent and primarily among those over the age of 25. Indeed, the absolute numbers show that the majority of cigar smokers are over 25, but that reflects population size. In reality, among smokers—this is a really important point—the younger someone is, the more likely they are to be smoking cigars. Toxic influencers such as Andrew Tate actively promote cigar use to a young, predominantly male audience, linking cigars with power, wealth and success. We know how quickly this kind of influence can spread and be taken up if we leave loopholes for it.
As we have already heard, cigars have traditionally benefited from carve-outs of regulation on things such as pack size, flavours and packaging. Were we to change that now it would open the door to future innovations, as some of the proponents of these amendments have already acknowledged, with, for example, cigarillos. Action on Smoking and Health data shows that these are popular among young people who smoke: 35% of 11 to 17 year-olds have tried them in 2024 and 2025. We must not leave space in the Bill for innovation by the merchants of death, which I am afraid these amendments do.
Although I understand the intention behind the amendments that refer to plain packaging, I do not support them. The suggestion is that plain packaging will be fatal to the industry. I note that New Zealand, Australia, Canada, Ireland and Uruguay all apply standardised packaging to all tobacco products, including cigars. Data from Canada shows that, since that has come in, there has been only a very minor drop in the sale of cigars, in line with traditional long-term trends.
It is also important to note that the power to introduce plain packaging for cigars is not new. It already exists under regulations introduced in 2015 by the Conservative-Liberal Democrat coalition and implemented by a subsequent Conservative Government. The Government issued a call for evidence on this in November 2024.
Finally, I will touch very briefly on smoke-free places and cigar lounges. I do not support Amendment 192. Yes, the customers may choose to be in that space, but the staff may not have a realistic practical choice about being there; it may be the only job they can get. We do not want workers exposed to second-hand smoke under those kinds of conditions.
Baroness Northover (LD)
My Lords, my noble friend Lady Walmsley signed Amendment 126, to which the noble Earl, Lord Lindsay, referred. It seeks, above all, to ensure that all small retailers are treated fairly. I am sure the Minister will be addressing this.
Moving on to cigars and cigar lounges generally, I do not see why these should be exempt. In Committee, we heard from the noble Baroness, Lady Ramsey, about a new cigar lounge in Sheffield which has opened near a school. A public health team at the council made representations saying that it had serious concerns about the impact of the lounge, particularly in an area where smoking causes great health inequalities, but it was powerless to stop this. As we have just heard, having staff working indoors in these lounges seems to go against the very intention of the original smoke-free legislation, which was to protect staff from the harmful impact of second-hand smoke.
Lord Kamall (Con)
My Lords, my noble friend Lord Lindsay’s excellent and persuasive arguments in support of the amendments in his name and that of the noble Lord, Lord Mendelsohn, who is not in his place, cannot be bettered, so I shall not try to, except to say that I support them.
Regardless of one’s attitude to smoking, there is a general recognition of the important role that specialist tobacconists play. They are small, highly regulated businesses that serve a discerning adult clientele. They are not engaged in the mass-marketing of cigarettes, nor are they driving youth uptake. Specifically, handmade cigars are not cigarillos. Premium handmade cigars are luxury products, purchased occasionally at a considerable cost by informed adult consumers. I was surprised to learn in Committee that they attract overseas visitors, who spend huge amounts of money here in the UK because these handmade cigars are packaged and marketed in a way that is unique to the United Kingdom. It is difficult to see how such establishments constitute a meaningful threat to the Government’s stated objective of reducing youth smoking and creating a smoke-free generation.
I stress that many of the criticisms made of cigars are made of cigarillos, but it is important that we distinguish between cigarillos and the unique products that are artisan cigars, whatever one thinks of them. I do not smoke; I think smoking is a disgusting habit. I do not drink alcohol; I think drinking alcohol is a terrible thing. But I am a liberal and I do not seek to impose my views on other people. It is important to distinguish between handmade crafted cigars and mass-marketed cigarillos, which may well be attractive to young people. I believe that cigarillos should be seen in the same light as cigarettes.
Since the introduction of the Bill, there has obviously been enormous anxiety among specialist tobacconists around the country about what the Government might choose to do to their day-to-day businesses. These amendments will, I hope, provide the Minister with an opportunity to reassure the sector. There is real concern that if plain packaging regulations were to be imposed on hand-rolled cigars, this would constitute an almost instant death for every specialist tobacco business. We heard about other countries where plain packaging has been imposed, but the UK continues to attract people who want to buy the packaging and all the marketing around it, whatever we may think of it.
For the good reasons already stated, these businesses enjoy special dispensations from the provisions of the law which apply to the generality of tobacco retailing. These dispensations are well founded, well understood and respected across the supply chain. As far as I am aware, they have not been abused. Many of the complaints about the uptake of cigar smoking are in relation not to these types of cigars but to cigarillos. This area of tobacco retailing is so niche that it is irrelevant to the vast majority of smokers. There is no reasonable case for the Government to choose to exercise powers to impede, restrict or otherwise alter the day-to-day lives of those involved in this specialist sector.
To be clear, I am talking about packaging. I am not referring to any of the amendments concerned with cigar lounges. I understand the concerns that have been expressed about workers who may not wish to be exposed to cigars but have no choice but to take that job and be exposed. I am talking about specialist tobacco manufacturers and retailers. Obviously, any attempts to restrict these businesses would involve some consultation with the Department for Business and Trade, so I sincerely hope that the Minister will be able to confirm that the Government have no intentions to restrict the specialist manufacturers in this way and to make their businesses unviable.
Baroness Merron (Lab)
My Lords, I am grateful to all noble Lords who have contributed to this debate. On Amendments 127 and 147, tabled by the noble Earl, Lord Lindsay, and Amendment 126, tabled by the noble Baroness, Lady Walmsley, I have listened to the points that have been raised by noble Lords, not just today in the Chamber but in engaging outside the Chamber, which I have been pleased to do, and I have listened to the calls for handmade cigars to be exempt from packaging provisions in this legislation.
I remind the House, as I have had to remind noble Lords in other discussions, that the powers to regulate the packaging of all tobacco products are not new; they already exist. They were first introduced under the coalition Government as part of the Children and Families Act 2014. At the time when the powers were introduced, the Government of the time rightly recognised the need to ensure that these powers applied to all tobacco products, future-proofing the legislation, so introducing an exemption for handmade cigars now would weaken what is in effect long-standing legislation. I remind noble Lords that one of the points about the Bill is to bring together legislation that is in other areas into a Tobacco and Vapes Bill, which is what we are doing.
As I have said on a number of occasions, all tobacco products are harmful. That includes cigars and those marketed as premium or handmade. When burned, all tobacco products release toxic compounds that pose a risk to the user. In fact, research has found that some toxicants, including carbon monoxide and certain carcinogens, are higher in cigar smoke than cigarette smoke, and of course the toxicants that are found in tobacco smoke in cigars increase the user’s risk of developing diseases such as cancer, heart disease or respiratory disease. As the four Chief Medical Officers of the UK set out in their technical note to noble Lords, any suggestion that cigars are substantially safer than other tobacco products is not accurate.
Given the health harms of all cigars, it is appropriate that they are in scope of the legislation and that the Government retain our current ability, introduced in 2014, to regulate the packaging of all tobacco products. Moreover, exempting product categories is likely to lead to exploitation by the tobacco industry, which will always find a loophole to exploit. For example, following the ban on menthol cigarettes in 2020, tobacco companies began marketing cigarette-like menthol-flavoured cigarillos.
I shall provide some assistance on the points being raised today. As I said, I have heard concerns from noble Lords about future packaging restrictions that could impact specialist tobacconists more significantly than other retailers, and concerns about potential unfairness arising from that. I can say, as I have said before, that it is absolutely not this Government’s intention for any future packaging requirements to put any small businesses, including specialist tobacconists, out of business. Our intent is that any future packaging regulations make the health harms of these products clear while minimising the impact on businesses.
The noble Earl, Lord Lindsay, asked about future regulation on packaging. If that is to be the case, further impact assessments will be prepared in advance, including the economic impact of any proposed regulations. The policy proposals for any packaging requirements will be a matter for consultation, and all businesses—including, I am sure, specialist tobacconists —will want to respond and will be welcome to. I want also to be clear that the Government will consider the impact any policy proposal has on small businesses, including specialist tobacconists, via future published impact assessments, as I just said. It is important, however, despite these points, that the Government retain their current powers to regulate the packaging of all tobacco products, as any carve-out would potentially create loopholes for exploitation, as other noble Lords have expressed concern about.
Amendment 192 from the noble Earl, Lord Lindsay, seeks to maintain the existing exemption to allow individuals to sample cigars and pipe tobacco indoors in an enclosed and ventilated area in a specialist tobacconist shop. The Government are, as noble Lords know, committed to protecting people from the harms of second-hand smoke, which is why we launched a consultation on expanding smoke-free places on 13 February.
On the point the noble Baroness, Lady Bennett, made, there are a number of exemptions to the current smoke-free legislation, including an exemption for sampling rooms—not smoking lounges, as the noble Baroness, Lady Northover, referred to—in specialist tobacconists, providing certain criteria are met, as outlined. The Government do not intend to remove this existing exemption for specialist tobacconists. The consultation explicitly states our intention for the exemption to remain.
Finally, Amendments 18 and 19, tabled by the noble Earl, Lord Lindsay, seek to maintain the existing exemption for specialist tobacconists to display tobacco products. There are several exemptions to the current tobacco display legislation, including an exemption for specialist tobacconists. In England, this allows specialist tobacconists to display tobacco products as long as they are not visible from outside the premises. The Government’s intention is not to remove this existing exemption for specialist tobacconists. This will be reflected when we consult on future display regulations later this year.
It is important that the Bill balances the public health aims with any disproportionate impacts on businesses, including specialist tobacconists. However, we will continue to monitor this niche market to ensure that it is not targeting young people or exploiting the existing exemptions. I hope that, on this basis, the noble Earl, Lord Lindsay, will feel able to withdraw his amendment.
The Earl of Lindsay (Con)
My Lords, I am grateful to the Minister for the thoughtful answers she has given to the various points my amendments have raised. I am also grateful for the time she allowed for discussions between Committee and Report to understand the issues better; my thanks to her. I am grateful to my noble friends Lord Johnson of Lainston and Lord Kamall for the support they have offered for these amendments.
Before coming back to what the Minister said, I say to the noble Baronesses, Lady Bennett and Lady Northover, that there is quite a lot of confusion over the statistics relating to cigars as a generic category. I remind both of them that my amendments deal solely with handmade cigars, not with cigars as a single generic whole.
As I said, handmade cigars are not inhaled. They are relatively expensive compared with other smoking options. A lot of cigars out there on the market are machine made; some of them are small enough to be cigarillos. The statistics about young people indulging in cigar smoking almost wholly relate to people who are smoking not handmade cigars but other types of cigar.
Baroness Bennett of Manor Castle (GP)
I am very aware of the hour, but I just had a quick look online and saw “Andrew Tate’s favourite cigars”—exactly the kind of very expensive products that the noble Earl is talking about. That is what is being promoted to young men in particular.
The Earl of Lindsay (Con)
I remind the noble Baroness that very expensive cigars are usually unaffordable to young people, which is why the vast majority of cigar smokers are over the age of 25 and most of them are over the age of 35. The statistics bear that out.
I am grateful for all the interest that these amendments have inspired. Most of all, I am grateful to the Minister for the very thoughtful response that she has given and for her undertakings that it is not currently the Government’s intention to remove certain practices that allow the specialist tobacconist sector to continue. These are important because, despite what has been suggested, I re-emphasise that handmade cigars are not inhaled or habitual. They are almost solely associated with occasions such as Christmas and birthday parties and the up-market hospitality venues. For the continued survival of the almost always family-owned specialist tobacconist, continued access to handmade cigars for those types of events and occasions is extremely important to maintain. The Minister’s assurances will be valued by all those in the handmade cigar sector.
Baroness Merron
Member’s explanatory statement
This amendment, and my amendments to clauses 62, 80, 113, 114, 115, 116, 117, 118, 120, 122, 123 and 124, would ensure that the effect of a person’s action is considered by reference to what it will be, rather than what it currently is (for consistency with the mental element of these offences).
Baroness Merron (Lab)
My Lords, the amendments in this group are government amendments relating to the advertising provisions. They are in large part technical in nature, but they have a clear and important purpose: to stop the advertising and promotion of products that risk addicting a new generation to nicotine. They also ensure that the regime is clear and capable of being enforced fairly and consistently across all settings, whether online or offline.
We know why we are here today. In 2025, more than 1 million children reported having tried vaping. We have seen the brightly coloured and cartoon advertisements that have clearly appealed to young people. The Bill delivers on this Government’s mandate to stop the blatant advertising of vapes to children while continuing to support adult smokers to quit.
Government Amendments 20, 99, 111, 148, 150, 154, 156, 158, 160, 162, 164, 167 and 170 to 172 are minor and technical amendments. They simply update the wording across the clauses that create offences relating to free distribution, advertising, brand sharing and sponsorship. These amendments will ensure that the offence is committed, for example, as soon as an advert is published, which may not have been the case in some circumstances. That means that, for example, if a leaflet with an advert is put through a letterbox, the offence arises when it is delivered, not when the resident eventually reads it.
I have also tabled Amendment 165, which restores specific exceptions that already exist in current law. These make it clear that intermediaries—companies such as TalkTalk or BT—that provide passive internet services such as internet access cannot be liable for advertising offences in certain circumstances. This does not reflect a change in policy. The Bill does not intend to change the circumstance in which passive service providers may be liable. However, to put the matter beyond doubt, these amendments explicitly protect providers of passive services who have no ability to control, publish or remove adverts if they satisfy the circumstances prescribed in the exceptions.
Government Amendments 173 to 174, 179, 180 to 183, and 185 to 187 make it clear that the product placement provisions in Part 6 are not retrospective. They restate the existing law in relation to tobacco, and ensure that the new restrictions apply only going forward and do not affect programmes made before they came into force. This means that broadcasters or on-demand programme service providers will not be required to review or edit existing programmes. Finally, Amendment 184 removes now redundant amendments to video-sharing legislation that was repealed by the Online Safety Act 2023.
I turn to what is perhaps the most substantive amendment in this group—Amendment 166—and Amendments 175 to 178 on the public health defence. In Committee, I explained that the Bill already allows public health authorities to take certain steps to promote vapes as a means to quit smoking. Noble Lords raised important questions about how this applies to pharmacists, pharmacies and GP practices that both support smoking cessation and operate as businesses. I listened carefully to these concerns and, in response, I tabled an amendment creating a specific defence to provide clarity on how this will work in practice. This amendment allows businesses to promote non-branded vapes and nicotine products where it is done in arrangement with the public authority for public health reasons. In practice, this means that public authorities will continue to be able to partner with businesses such as pharmacies to run effective public health campaigns that promote vaping for smoking cessation.
We have also replicated this exception for on-demand programme services to ensure that public health authorities can continue to work with businesses to promote vaping for smoking cessation through these platforms. I hope this provides reassurance to noble Lords that healthcare professionals, including pharmacists and GPs, can continue to display smoking cessation materials. It also ensures that others, such as design agencies commissioned by public authorities, will not be caught inadvertently by the offence provisions when supporting this work.
I know that all these matters were of concern to noble Lords; I am therefore, as I said, glad to put forward amendments to tackle these very real points. I look forward to hearing the views and contributions of noble Lords in this debate, and I hope I can count on their support.
Baroness Northover (LD)
From these Benches, the Minister can count on our support.
Lord Kamall (Con)
My Lords, the hour is late and, given that some of my noble friends have left the Chamber—no doubt to enjoy a very expensive handcrafted cigar—it is left to my noble friend Lord Effingham and me to offer the opposition. If I had any temptation to call a Division, I can see that I am outnumbered.
I thank the Minister for tabling these amendments. I know that many of them are technical, but some are very important. I particularly welcome Amendment 165, which provides sensible protection for internet service providers acting merely as conduits, caching services or passive hosts. They are not really active in this space. They do not initiate, select or modify the content transmitted across their networks, and it would not be fair or practical to render them criminally liable for material of which they have no knowledge and over which they exercise no control.
Similarly, Amendments 166 and 178 ensure that legitimate public health campaigns are not inadvertently caught out by the advertising offences in the Bill. Where a person is acting in accordance with arrangements made by a public authority and for the purpose of promoting or protecting public health, it would be wrong for them to face criminal liability.
Finally, we welcome Amendment 183 because it ensures that the new restrictions do not apply retrospectively to programmes that were already in production before the new rules came into force. I suppose this is all a very long way of saying that we welcome the amendments from the Government.
Baroness Merron (Lab)
I am delighted to receive the support of both Front Benches, either in a few words or in a few more words. This is to fulfil a mandate to stop the blatant advertising of vapes to children, while continuing to support adult smokers to quit. I therefore commend the amendment to the House.