National Insurance Contributions (Employer Pensions Contributions) Bill
(Limited Text - Ministerial Extracts only)
Read Full debate21:22 - Division on Motion A1 (as an amendment to Motion A) - Ayes: 95 / Noes: 137 - Motion A1 disagreed.
Lord Livermore
That this House do not insist on its Amendment 1, to which the Commons have disagreed for their Reason 1A.
1A: Because the Lords Amendment would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, in moving this Motion, I will also speak to Motions B, B1, C, D, E, F, F1, G, G1, H, H1, J, K, L, M and M1. The other place has disagreed with Amendments 1 to 12, as they would alter the financial arrangements made by the Commons. The other place did not offer any further reason, trusting that this reason is deemed sufficient.
While the Government disagree with the substance of these amendments, I am pleased that we have been able to discuss and debate these issues. I am very grateful to the noble Baronesses, Lady Neville-Rolfe, Lady Kramer and Lady Altmann, and the noble Lords, Lord Altrincham, Lord Leigh of Hurley, Lord Fuller, Lord Mackinlay and Lord Londesborough, for ensuring that these important matters have been addressed. On that basis, I hope that noble Lords are content not to insist on these amendments.
I turn now specifically to Amendments 1B, 1C, 2B, 2C, 6B, 6C, 7B, 7C, 8B, 8C, 12B and 12C, tabled by the noble Baroness, Lady Neville-Rolfe. These amendments would make commencement of the Act contingent on the publication of impact assessments on basic rate taxpayers, employees making student loan repayments and small and medium-sized enterprises.
Before addressing each of these in turn, it may be helpful if I remind your Lordships’ House of the documents that have already been published by the Government and the Office for Budget Responsibility. The tax information and impact note sets out the expected impacts of the policy on individuals, employers and the Exchequer. The policy costing note sets out details on the costings of the measure, including the tax base, static costing and a summary of behavioural responses expected by employers and employees.
The Office for Budget Responsibility published its economic and fiscal outlook, which provides the OBR’s independent scrutiny of the Government’s policy costings. The OBR also published a supplementary forecast note which provided additional information it received prior to last year’s Budget to further increase the transparency of this measure.
I should also like to remind noble Lords that the expected behavioural impacts of this measure have been set out in the policy costing note and both the OBR’s economic and fiscal outlook and supplementary note. Both the Government and the OBR have been transparent about the expected behavioural responses by employers and individuals.
I turn first to amendments which make the commencement of the Act contingent on the publication of economic and behavioural impact assessments on basic rate taxpayers. As set out in the Budget document, the £2,000 cap means that 74% of basic rate taxpayers who use salary sacrifice will be entirely unaffected by these changes. The remaining proportion of basic rate taxpayers who have contributions above the cap will still get national insurance contributions relief for the first £2,000 of contributions made by salary sacrifice in addition to the full income tax relief that is available to all employee pension contributions. Further, 87% of affected salary sacrifice contributions above the cap are forecast to be made by higher and additional rate taxpayers. This is a fair and pragmatic reform, and the distributional effects of it are clear. On this basis, the Government do not consider a separate and additional impact assessment on basic rate taxpayers to be needed.
I turn to amendments which make commencement of the Act contingent on the publication of economic and behavioural impact assessments on individuals repaying student loans. It is right that we focus on outcomes for younger generations, particularly given that, over the past 14 years, they have seen their fees trebled, interest rates increased and maintenance grants scrapped. Importantly, though, the £2,000 cap means that young graduates are broadly unaffected. In fact, the £2,000 cap means that 90% of graduates under the age of 30 repaying student loans who are saving into their pension are completely unaffected by this measure. Both this and the prior set of amendments make a broader point about pension savings and pensions adequacy for these populations. This is a real challenge for our pensions system, but the data is entirely clear that today’s salary sacrifice is not the answer. As discussed at earlier stages, salary sacrifice existed in the 2000s and early 2010s, yet there were falls in private sector pension saving during that period.
There has been a clear consensus throughout our debates that the key factor that has led to an increase in saving in recent years has been automatic enrolment. As a result, more than 22 million workers across the UK are now saving each month.
Although we all share a commitment to improving pensions adequacy, many groups at highest risk of undersaving, including the self-employed, lower 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 undersaving 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 which the Government currently provide on pensions each year will be entirely unaffected by these changes.
I turn to the amendments seeking an impact assessment on small and medium-sized enterprises and charities. The Government agree on the importance of supporting small and medium-sized businesses and charities, but small businesses are much less likely to use salary sacrifice than larger businesses. Furthermore, the £2,000 cap means that 90% of employees in SMEs making pension contributions through salary sacrifice will be entirely unaffected. Indeed, the largest benefits from uncapped salary sacrifice accrue to larger businesses, not smaller ones. In practice, the changes in the Bill will help level the playing field between small businesses and their larger competitors.
The amendment also requires assessment of the expected impact on business and compliance costs. This analysis is already set out in the tax information and impact note. As set out in that document, the administration of this measure is estimated to result in a one-off cost of £75 and an ongoing £99 per business per year for those using salary sacrifice.
The Government recognise that these changes will impact those currently using salary sacrifice. That is why we chose a long lead-in time of April 2029 to give employers maximum time to prepare for these changes. As mentioned previously, HMRC is engaging with employers, payroll providers and software developers to deliver the changes in the most suitable way with the fewest administrative burdens for businesses of all sizes that use salary sacrifice. For the reasons I have set out, I respectfully ask that the noble Baroness does not press her Motions. I beg to move.
Motion A1 (as an amendment to Motion A)
Baroness Neville-Rolfe
At end insert “, and do propose Amendments 1B and 1C in lieu—
“(3A) The amendments made by this section do not have effect in relation to basic rate taxpayers until the assessment required by section (Economic and behavioural impact assessment: basic rate taxpayers: Great Britain) has been laid before Parliament.”
“Economic and behavioural impact assessment: basic rate taxpayers: Great Britain
(1) The Secretary of State must—
(a) prepare an economic and behavioural impact assessment of the expected effects of the provisions of this Act on basic rate taxpayers in Great Britain, and
(b) lay that assessment before Parliament.
(2) The assessment must, in particular, include—
(a) an analysis of the expected behavioural effects of the provisions of this Act, including changes to pension contribution patterns, salary sacrifice arrangements, and employment practices, and
(b) an assessment of the expected impact on net incomes, pension savings, and pension adequacy,
for basic rate taxpayers.
(3) In preparing the assessment, the Secretary of State must have regard to—
(a) the adequacy of retirement incomes, and
(b) the effect of the £2,000 cap on long-term financial security,
for basic rate taxpayers.””
Baroness Neville-Rolfe (Con)
My Lords, I was disappointed that the Government sought to have all amendments passed by your Lordships’ House treated as engaging financial privilege. In light of this, we are unable to insist upon the amendments passed by your Lordships’ House. However, the issues we have raised remain of real significance. There is no sign that the Government have seriously engaged with the concerns we expressed. Significant features remain undefined.
The amendments we have brought forward today reflect a concern raised by many noble Lords on Report: crucially, that the Government have not undertaken the necessary analysis to understand how the Bill will affect basic rate taxpayers, those repaying student loans, and SMEs and charities.
The most worrying thing about the Bill is that it will reduce the incentive to save, particularly among the less well paid. Whether Ministers like it or not, it strikes at the heart of this and will inevitably reduce pension adequacy. The Minister himself has admitted that many of those paying the basic rate of tax and even some earning under £30,000 a year will be affected.
Not only will the Bill affect savers and pensions adequacy, it will impose costs on businesses and charities. The detail on these points is, concerningly, seriously lacking. Our three amendments in lieu and the consequential amendments dealing with Northern Ireland require a proper assessment of the projected economic and behavioural impact of this policy on those three groups. Crucially, this work has to be carried out before the Act comes into force.
First, for basic rate taxpayers there is a very real concern that this policy will reach far beyond those it is ostensibly aimed at. Individuals on modest incomes—those paying tax at the basic rate—may find themselves drawn into its effects. They are ordinary working people, often making careful decisions about how much they can afford to save. Yet we have not seen a clear assessment of how their net incomes will be affected, how their pension-saving behaviour may change or what this will mean for the adequacy of their retirement incomes.
Secondly, for those repaying student loans, the interaction between salary sacrifice, pension contributions and student loan repayments is not straightforward. There is a real risk here that some individuals repaying student loans could face higher effective deductions from their income or altered incentives around saving for retirement. Our amendments would ensure that the Government properly assess the impact of these interactions.
Thirdly and finally, small and medium-sized enterprises and charities are the backbone of our economy and our communities. They operate with limited margins and limited administrative capacity. Changes to employment costs, compliance requirements or remuneration structures can have tangible effects on hiring, wages and growth.
The Government must be able to answer these questions. By how much will this Bill increase their costs? Will it change employment practices? Will it have an impact on wage growth or the critical area of job creation? This Bill would change how people save, how employers structure pay, and how organisations make decisions.
Our amendments would simply require the Government to set out clearly and transparently what the effects are expected to be. They would offer the Government a constructive way forward and would seem to get round the problem of financial privilege. In responding, it would be helpful if the Minister could explain more clearly precisely why these provisions do not come into force until 2029. It looks as if this matter is regarded by the Government not as a serious measure but as a nasty present to their successors.
Lord Leigh of Hurley (Con)
My Lords, I will speak briefly to this group of amendments in lieu. I am grateful to my noble friend Lady Neville-Rolfe for returning these issues to the House despite the very disappointing decision to cloak all our previous amendments in the financial privilege. Up and down the country, SME businesses are horrified by this. They have had a wall of difficult legislation sent their way, such as the national insurance increase and the Employment Rights Bill, so they have not focused on this, but those I talked to who have focused their mind on it are very unhappy to say the least with the possibility of this Bill affecting their business.
I want to focus on one particular issue. We have heard repeatedly in recent weeks of the position facing graduates repaying student loans, which is simply not fair. For those on plan 2 loans in particular, the picture is particularly stark: an anaemic jobs market, high rents, high living costs and, on top of that, what amounts to a 9% graduate tax with interest rates of around 6.2%, meaning that for many, full repayment is not possible. I urge the Minister and others to speak to their children or their grandchildren who will tell them that they are put off by this Bill.
This policy now risks making the matter worse. It threatens to increase the effective burden on graduates precisely when they are trying to do the right thing by saving for their retirement through salary sacrifice. They see the costs that are ahead of them when they retire. For many, particularly recent graduates, disposable income is already stretched to the limit with rents and the cost of living, so they have little scope to save beyond the auto-enrolment minimum, which, as we have heard, is insufficient to provide savings for their longer life. If the Government undermine the salary sacrifice regime, they risk entrenching a generation who simply cannot afford to save enough for their retirement.
In conclusion, that is why this amendment from my noble friend matters. It asks the Government to do what they should already have done: properly assess the impact of this policy in relation to student loans. I do not think anything the Minister said specifically addressed the issue of the impact on students. I did not see it in any of the Explanatory Notes or anywhere else. It may have been because they did not think it affected it or they did not realise it, but it has not been done. In the absence of that work, the least the Government can do is pause and consider the long-term consequences before pressing ahead. The Treasury now has the opportunity and the responsibility to get this right. I urge the Minister and all other Peers to do so.
Lord Fuller (Con)
My Lords, once again, taken together, this is a further insult to working people. As we have heard this evening, it is about not the fat cats but the youngsters and the poorer paid who are starting off and trying to do the right thing, making their way in the world. There is already intergenerational unfairness, and this Bill amplifies it and makes it worse. The Government have a tin ear. When they say they are trying to look after the youngsters, they are speaking with a forked tongue. Youngsters just want a break, but this Government are beating them with a stick. We have got to stop it.
Lord Livermore (Lab)
My Lords, I am grateful to all noble Lords who have spoken in this debate.
On the topic of impact assessments, I remind noble Lords of the information that we have already published. The tax information impact note sets out the expected impacts of the policy on individuals, employers and the Exchequer. The policy costing note sets out detail on the costing of the measure, including the tax base, static costing and a summary of behavioural responses expected by employers and employees. The Office for Budget Responsibility published its economic and fiscal outlook, which provides the OBR’s independent scrutiny of the policy costing. The OBR also published a supplementary forecast note which provides additional information it received prior to last year’s Budget.
I also remind noble Lords that the expected behavioural impacts of this measure have been set out in the policy costing note and both the OBR’s economic and fiscal outlook and supplementary note. Both the Government and the OBR have been very transparent about the expected behavioural responses by employers and individuals.
The noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Londesborough, asked about the 2029 implementation date. As I have said already, we chose a long lead-in time of April 2029 to give employers maximum time to prepare for the changes. As I have mentioned before, HMRC is engaging with employers, payroll providers and software developers to deliver the changes in the most suitable way with the fewest administrative burdens for businesses of all sizes which use salary sacrifice.
The noble Lord, Lord Leigh of Hurley, spoke about small and medium-sized enterprises. I say again that the £2,000 cap means that 90% of employees and SMEs making pension contributions through salary sacrifice will be entirely unaffected. The noble Lord also mentioned students. He is absolutely right; as I said before, it is right that we focus on outcomes for younger generations, particularly given that, over the past 14 years, they saw their fees trebled, interest rates increased and maintenance grants scrapped. The £2,000 cap means that 90% of graduates under 30 repaying student loans who are saving into their pension are completely unaffected by this measure.
These are fair and balanced reforms. They give employers many years to prepare and they ensure that both our pensions system and the public finances are kept on a sustainable footing. The £2,000 cap protects lower-earning employees who use salary sacrifice to make pension contributions and preserves the tax benefit of salary sacrifice for all employees on the first £2,000 of their contributions.
Importantly, these changes leave the tax reliefs on regular pension contributions completely untouched. These reliefs are worth £70 billion a year and are available to all workers and employers, not just those who use salary sacrifice. For the reasons that I have set out, I respectfully ask the noble Baroness, Lady Neville-Rolfe, not to press her Motions. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, I am afraid that I am not satisfied with the Minister’s response, particularly on the question of the behavioural assessments that we have had. They are really not fit for purpose. I give notice that will I seek to test the opinion of the House on Motion A1 and, if successful, on further Motions.
Lord Livermore
That this House do not insist on its Amendment 2, to which the Commons have disagreed for their Reason 2A.
Lord Livermore
That this House do not insist on its Amendment 3, to which the Commons have disagreed for their Reason 3A.
Lord Livermore
That this House do not insist on its Amendment 4, to which the Commons have disagreed for their Reason 4A.
Lord Livermore
That this House do not insist on its Amendment 5, to which the Commons have disagreed for their Reason 5A.
Lord Livermore
That this House do not insist on its Amendment 6, to which the Commons have disagreed for their Reason 6A.
Lord Livermore
Moved by
That this House do not insist on its Amendment 7, to which the Commons have disagreed for their Reason 7A.
7A: Because the Lords Amendment would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.
Lord Livermore
Moved by
That this House do not insist on its Amendment 8, to which the Commons have disagreed for their Reason 8A.
8A: Because the Lords Amendment would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.
Lord Livermore
Moved by
That this House do not insist on its Amendment 9, to which the Commons have disagreed for their Reason 9A.
9A: Because the Lords Amendment would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.
Lord Livermore
Moved by
That this House do not insist on its Amendment 10, to which the Commons have disagreed for their Reason 10A.
10A: Because the Lords Amendment would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.
Lord Livermore
Moved by
That this House do not insist on its Amendment 11, to which the Commons have disagreed for their Reason 11A.
11A: Because the Lords Amendment would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.
Lord Livermore
Moved by
That this House do not insist on its Amendment 12, to which the Commons have disagreed for their Reason 12A.
12A: Because the Lords Amendment would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.