National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Bakewell of Hardington Mandeville Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

Moved by

[Baroness Bakewell of Hardington Mandeville]

7: Clause 1, page 1, line 1, at end insert—
“(A1) In section 9(1A) of the Social Security Contributions and Benefits Act 1992, after paragraph (aa) insert—“(ab) if the employer is a specified employer under subsection (1B), the specified employer secondary percentage;”(A2) After section 9(1A) of that Act insert—“(1B) A “specified employer” means a farmer.(1C) For the purposes of this Act, the specified employer secondary percentage is 13.8%.””Member’s explanatory statement
This amendment provides that farms would continue to pay contributions at current rates.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I will speak to Amendments 7 and 66 in my name. I apologise for not being able to speak at Second Reading. Much in my general points will have been said by many others previously.

Farmers provide a vital role in the country. They grow crops, keep stock, protect land and have engaged with the change from BPS to ELMS, with many farmers seeing biodiversity on their farms increase as a result. Farming is not a career choice for the faint-hearted. The early, dark and cold mornings, the late nights at harvest time and a seven-day week, often for 52 weeks of the year, take their toll. But farmers are essential to food supply.

Amendment 7 is intended for farmers who, on a small farm with a low income, still have to pay national insurance, as would any other low-wage employers. The vast majority of farm businesses are small, with a farmer and a small number of family members. These family members are either paid employees on PAYE or partners in the family business, which pulls them into self-employment and payment of NI through that route.

Class 2 contributions are at a flat rate and used to be charged on self-employed people. From April 2024, self-employed people no longer have to pay them. The self-employed farmer therefore does not have to pay class 2 contributions, but has to pay class 4 contributions on their profits—if there are any.

The next group of farmers employs a small number of people—one or two workers—on PAYE with the usual NI implications. Some farmers with a small number of workers employ the workers as contractors, who work on multiple farms during the season or week. I ask the Minister whether some farms might actually see a saving in NI contributions, as the threshold for small businesses was increased. Would this help the sole or family farmer?

There is, of course, another group of large farms that employ significant numbers of people, many of which will be impacted by the NI increases: dairy farms; horticultural businesses; pig and poultry enterprises; and large arable and livestock farms. These larger farms are profitable and may be able either to absorb the additional cost of the NI rise or to pass it on. It is those farms in the middle range that are likely to struggle and may not survive in their current form.

I came here this afternoon from a meeting discussing the horticulture sector. We were informed that the rise in wage rates, coupled with the NI contributions rise, will cost members of Horticultural Trades Association £134 million. This was causing considerable concern around how the industry would cope. The Horticultural Trades Association has a considerable number of garden centres in its membership.

I shall now move on to Amendment 66. My very real concerns are for those in the food supply chain. In the meat industry, ignoring retail, the total additional cost is in the order of £160 million a year: £60 million is down to wage increases and £100 million to national insurance. In some supply chains, employment costs are huge. For example, in the beef industry, the cost of labour on a farm to produce cattle is not in itself huge but the labour costs in killing, processing and transporting the cattle and meat are significant. The national insurance change for employers and employees in the supply chain will put financial pressure on these businesses, which include meat processors, vegetable packers and dairy processors. The costs imposed on them will inevitably trickle down to the farm gate as the supply chain looks to recover the money from farmers.

The same can be said for retailers. Farmers will be squeezed. Retailers are not making money on basic foodstuffs; they make their money on cornflakes, cereals and similar products. There will be huge pressure on food prices and food supply chains. Some businesses—mainly the medium-sized operations—will go under. The larger ones will pass on the increase and survive. The smaller farmer, by adding value and providing niche products, may survive. The small business threshold is helpful. Such businesses often employ only one person; the national insurance goes down in this case.

The employment costs on most family farms are not the big cost. Apart from in the meat industry, where costs are in the supply chain, the other farming sections with large on-farm costs include dairy farms and those engaged in horticulture. In the latter case, workers who plant crops then pick them when they are ripe represent a significant cost. Not all crops can be harvested by machinery. There will always be a role for a real person to be involved in the horticultural side of produce—often a seasonal worker.

When making an alteration to the financial employment arrangements, which could have a significant impact on those employed, it is always prudent to review the impact of the policy change. It will not be acceptable to say at a later date, “Oh, we didn’t realise how this change would affect certain sections of society”. Amendment 66 asks for a review of the effect on farming, which includes those in the supply chain as well as those working on farms. The effect of the increase in national insurance is going to be considerable; a review will be essential to measuring the impact accurately. I realise that the Minister is not engaged in farming, but I hope that he will be able to make the case for these two amendments to his colleagues in the Treasury. I beg to move.

[Lord Howard of Rising (Con)]

My Lords, I rise to speak to Amendment 36 in my name. I declare my interests as a farmer and an employer. I have already spoken about a lot of what is relevant to this amendment in an earlier stage, so I will spare your Lordships from any repetition.

Farming is a difficult business with unpredictable factors that do not appear in every business: weather; insect life; the ability of animals to damage themselves, and so on. Of course, the most difficult thing of all is the uncertainty of what they will receive for their product. Commodity prices vary greatly, not only from year to year but in the time between the planting and harvesting of a crop. The Government have already hit farmers with the 20% inheritance tax on agricultural land. To burden them now with an increase in national insurance contributions is brutal.

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[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords who have contributed to this debate. I will turn first to the amendments tabled by the noble Lord, Lord Howard of Rising, and the noble Baronesses, Lady Bakewell of Hardington Mandeville and Lady Kramer, which require impact assessments of this Bill on farms.

The Government, of course, recognise and greatly value the important role played by the farming sector. We carefully consider the impact of all policies, including the changes to employer national insurance. Indeed, as we have previously debated, an assessment of the policy has already been published by HMRC in the tax information and impact note, including impacts on the Exchequer, the economy, individuals, households, families, equalities, businesses including civil society organisations, and details of monitoring and evaluation. Further, the OBR’s Economic and Fiscal Outlook sets out the expected macroeconomic impact of the changes to employer national insurance contributions on employment, growth and inflation. The Government have, therefore, already set out the impacts of this policy change. This approach is in line with previous changes to national insurance and previous changes for taxation, and the Government do not intend to publish further impact assessments.

I now turn to the amendments tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville and Lady Kramer, seeking to exempt the salaries of farmers from the increase in employer national insurance, and the amendments tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, seeking to increase the employment allowance for persons employed on farms. This amendment would reduce the revenue raised from this Bill and require either higher borrowing, lower spending or alternative revenue-raising measures. I also note that creating new thresholds or rates based on the sector of a business would introduce distortion and additional complexity into the tax system.

Despite the difficult fiscal situation, the farming and countryside programme budget has been protected at £5 billion across the across the next two years. This includes the largest ever proportion of the Budget directed at sustainable food production and nature recovery in our country’s history. This will accelerate the transition to a more resilient and sustainable farming sector, support investment in farm businesses and boost Britain’s food security. The Secretary of State for Defra has also set out the Government’s long-term vision to make farming more profitable. This includes reforms such as using the Government’s purchasing power to buy British food, planning reforms to speed up the delivery of farm buildings and other infrastructure that support food production, and work to ensure supply chain fairness.

For the reasons that I have set out, I respectfully ask noble Lords to withdraw or not move their amendments.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I thank the Minister for his response. The impact assessment needs to go further than farms and cover the supply chain. I am sure he will be aware of that in six months’ time. I thank noble Lords who have taken part in this short debate.

Amendment 36 of the noble Lord, Lord Howard of Rising, is also about making an assessment of the impact of the rise in national insurance. The noble Baroness, Lady Neville-Rolfe, talked about raising the employment allowance to £20,000. I have some sympathy with that.

I am disappointed that the Minister is unable to agree to my amendment, which would make a considerable difference to small farms. However, I can see that he is not going to change his mind, and I beg leave to withdraw the amendment.

Amendment 7 withdrawn.