National Insurance Contributions: Hospitality Sector

Baroness Kramer Excerpts

Thursday 13th February 2025 Lords Chamber

[Lord Livermore (Lab)]

Well, it was quite a long question. The noble Earl asked me to break it down specifically, so I am answering him. By the spring Budget, that number had reached £16.3 billion, and by July, it had reached £22 billion.

[Baroness Kramer (LD)]

My Lords, the changes to the employers’ NICs threshold now mean that someone working part-time for just eight hours will be subject to employers’ NICs—a huge additional cost for the whole hospitality sector, including the pubs, which the Prime Minister says he champions. Will the Government not only reverse this hike but follow the Lib Dem proposal to halve employers’ NICs on part-time workers, saving the hospitality sector and the jobs of so many people who, because of responsibilities, disabilities or other limitations, absolutely rely on part-time work?

[Lord Livermore (Lab)]

The answer to the noble Baroness’s question is no. Of course, we recognise that the retail and hospitality sector has struggled in recent years. At the Budget, we introduced a number of policies, including freezing the business rates small business multiplier. Together with the small business rates relief, this will exempt over a third of properties from business rates. On national insurance, as I have said before, there are consequences to responsibility, but there would have been greater consequences to irresponsibility, and it is not clear to me how the noble Baroness would fund her policies.

Economic Growth: Public Spending

Baroness Kramer Excerpts

Wednesday 12th February 2025 Lords Chamber

[Lord Livermore (Lab)]

I completely agree with my noble friend. He is absolutely right that the previous Government left a £22 billion black hole; they had no idea how to fund that. We have still heard absolutely no alternative put forward by the Conservative Party: no alternative for dealing with the challenges that we face, no alternative for restoring economic stability and therefore no plan for driving economic growth.

[Baroness Kramer (LD)]

My Lords, does the Minister accept that growth will be very limited unless we fix the NHS, but that the NHS cannot be fixed until we significantly strengthen and expand both community health and social care services? So why are the Government levying increased employers’ NICs on GPs, dentists, pharmacies, hospices and care services so that they are now planning significant cuts? How does this make any sense? By the way, our proposals were costed and funded.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. With the greatest respect, she wants the investment in the National Health Service but is opposing the national insurance contributions increases that fund this increased investment. I am afraid that you cannot have one without the other.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Kramer Excerpts

Committee stage
Thursday 6th February 2025 Grand Committee

The Minister has frequently asked, not unreasonably, how it will all be paid for. I have made suggestions, including DST, a digital services tax. Interestingly, on the front page of the Times business pages today, and probably other journals as well, is the news that the Americans are going to put VAT on low-value consignments from the EU—bizarrely, two days after I mentioned it. There are opportunities to raise revenue elsewhere, apart from the NIC carve-out, which the Government might make. The purpose of having Bills reviewed in your Lordships’ House is to give the Government time to pause and consider. Are the Government really going to ask Peers of all parties and none to vote against such an amendment, knowing the damage this will do to people in the sector? I suspect that every constituency in the country has a care home that is going to suffer. This is the moment for the Government to think again and I very much hope they will be minded to do so. I beg to move.

[Baroness Kramer (LD)]

My Lords, I am speaking here as a winding speaker. The Committee will know that, on Monday, we discussed this whole sector in great detail, and the noble Lord, Lord Leigh, has echoed the numbers and essentially the substance of that first discussion.

We on these Benches take a very different conclusion about an impact assessment with a potential delay attached and £10,000 per institution. The noble Lord, Lord Leigh, gave an example of one of his particular interests facing a £1.1 million additional charge, so I do not think that £10,000 is going to make a ha’porth of difference to it. We think that the proposals are completely inadequate. We have always said that we need the exclusion of this whole sector from the changes in the NICs levies, and on that we stand our ground.

I shall say again to the Minister, who often replies that the Government have given an extra £600 million to this sector, that the noble Lord, Lord Leigh, and I have exactly the same figures, and the cost of the NICs Bill alone for this sector, according to the Nuffield Trust, is £900 million. So we are already £300 million behind, and that £600 million was meant to fill a whole lot of other cost gaps that continue for this sector, which is so crucial to our society.

I was interested to listen to the Conservatives on this issue. I was looking it up today: migrant workers make up 32% of care workers in England. Those figures are from November 2024. As I understand the policy announcement today, I am sure that the Conservative Party thinks that these are wonderful people to be able to look after our elderly and empty the bedpans, but they will be throwing them out of the country as soon as they have finished work, because they will not be permitted to become British citizens. So to me there is some interesting contradiction in this respect for the individuals and the assessment that they are not fit to be British. The noble Lord, Lord Leigh, sees no conflict in that, but I suspect that many others will see it, and I am sure that my party does: when we tell these people that they are valued and respected, we really mean it.

Once again, we do not think that these amendments are adequate to the need, and we stand our ground on the amendments that we first moved—but then, of course, under Committee rules, withdrew—on Monday.

[Lord Livermore (Lab)]

My Lords, I shall address the amendment tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lords, Lord Altrincham and Lord Leigh of Hurley, which seek to increase the value of the employment allowance for those providing social care, and the amendment tabled by the noble Lord, Lord Leigh of Hurley, which seeks to require the laying in Parliament of an impact assessment on social care providers 12 months after commencement and every 12 months subsequently.

As a result of the measures in this Bill, combined with wider Budget measures, the Government have provided a real-terms increase in core local government spending power of 3.5% in 2025-26, including £880 million of new grant funding provided to social care. This funding can be used to address the range of pressures facing the adult social care sector. Increasing the employment allowance for specific sectors would introduce new pressures that would require either higher borrowing, lower spending or alternative revenue-raising measures. It would also add complexity to the tax system.

The Government of course carefully consider the impacts of all policies, including the changes to employer national insurance. As I have said previously, an assessment of the policy has been published by HMRC in its tax information and impact note. Further, the OBR’s economic and fiscal outlook sets out the expected macroeconomic impact of the changes to employer national insurance contributions. The Government and the OBR have therefore already set out the impacts of the policy change. This approach is in line with previous changes to national insurance and taxation, and the Government do not intend to provide further impact assessments. In light of those points, I respectfully ask noble Lords not to press their amendments.

--- Later in debate ---

In responding to the first group of amendments on our first day of Committee, the Minister made a virtue of this Bill simplifying the employment allowance. He said that any amendments trying to introduce sector-based exemptions were “incoherent”. The noble Lord, Lord Eatwell, has argued that exemptions from this Bill should not be made because they make more complex a tax system that is already noted for its complexity. My Amendments 55 and 56 would reduce complexity and introduce more simplification. I commend them to the Minister on that basis, and I beg to move.

[Baroness Kramer (LD)]

My Lords, I think that the amendments we discussed on Monday would have covered the public authorities issue but I am not absolutely sure, so clarification from the Minister would be extremely helpful. Can he also clarify for us the protections put in place for micro-businesses? The noble Baroness, Lady Noakes, is usually right when she identifies these issues. It is beginning to sound as though the sector is somehow not qualifying for that level of protection. It would be most helpful to understand that.

[Lord Altrincham (Con)]

I thank my noble friend Lady Noakes for her amendments in this group; for her extremely well-made case as to how we might look to soften the blow for public services and the private sector; and for drawing attention to so many areas on the edge of public services that will be affected, such as dentists and childcare jobs. This is where the impact will be widely felt across the country.

On Amendments 54 and 55, the Government have stated that the purpose of this Bill is to repair the public finances. A key aspect of this plan is to ensure that public authorities can continue to operate efficiently without being overly burdened by rising employment costs. By increasing the employment allowance for public authorities to £20,000, we would reduce the financial pressure on them to provide essential services. Increasing the employment allowance specifically helps offset rising staffing costs, which are expected only to grow as the Government invest more in public services.

As the Government focus on boosting public sector capacity to meet future challenges in depopulation, the higher allowance would support that goal. It would provide greater flexibility to focus on improving service quality and enhancing delivery without worrying about escalating employment costs. The proposal aligns with the Government’s goal of unlocking economic growth. The ability to support and maintain a strong and capable public sector workforce means that these services can continue to contribute positively to the wider economy. This tax increase will inevitably drive policy-driven unemployment, which we have talked about, as already evidenced in the recent jobs numbers.

I understand that the Minister believes that the Government had no flexibility when they produced their Budget and made these tax choices. However, as the months have passed, the economic situation has changed and there has been quite a bit of wage inflation. As such, these proposals to increase the employment allowance could be cost-neutral to the amount of money raised, and should certainly not be immediately dismissed as unfunded policy decisions.

[Lord Livermore (Lab)]

My Lords, the amendments tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, seek to expand the eligibility of the employment allowance to domestic workers and the public sector, and to increase the value of the employment allowance for organisations carrying out functions of a public nature.

As we discussed on the previous day in Committee, the employment allowance was introduced in 2014 by the previous Government. Currently, eligible small businesses with employer national insurance bills of £100,000 or less receive £5,000 of employment allowance, which means that they can deduct £5,000 from the total employer national insurance that they pay on their employees’ wages. This Bill increases that employment allowance to £10,500 from April 2025. It also seeks to expand the employment allowance to all eligible employers by removing the £100,000 eligibility threshold, which will simplify and reform employer national insurance so that all eligible employers now benefit. All of the remaining eligibility criteria remain unchanged.

As has been the case since the employment allowance was introduced in 2014, organisations operating wholly or mainly in the public sector are not eligible to claim it. As we discussed during the previous session in Committee, eligibility for the employment allowance is not determined by sector but depends on the make-up of an individual business’s work. The HMRC guidance explains that this is based on whether an organisation is doing 50% or more of its work in the public sector.

The noble Baroness, Lady Noakes, asked for some specific figures in relation to that. The number of those claiming the employment allowance varies from year to year because the amount of work done in the public sector varies from year to year. It is for individual businesses to determine the amount of work that they do in the public sector, therefore data is not collected in the way the noble Baroness asks for.

The noble Baroness also asked for specific additional assessments. As I have said many times before—she is no doubt sick of me saying so—the Government have provided the impact assessments that we intend to provide and do not intend to provide any further such assessments. I am not aware of any plans for a specific information campaign, in the way that she asks for, but I am very happy to take her suggestion back and discuss it with colleagues.

[Baroness Kramer (LD)]

I thought that the Minister was about to sit down, so I apologise if I moved too soon. I would just like to clarify something. In the situation described by the noble Baroness, Lady Noakes, where somebody employs a nanny, a carer or whatever else, I have always worked on the assumption that the employment allowance at £10,900 would, in effect, negate any employer’s national insurance on that individual. If that is not correct, it would be helpful for me to understand that. I thought that that was how the micro-business protection worked; if I have got it wrong, please let me know.

[Lord Livermore (Lab)]

I think that I have an answer for the noble Baroness but I would like to double-check it so, if she does not mind, I will write to her to be absolutely certain on this point.

[Baroness Kramer (LD)]

Thank you.

[Lord Livermore (Lab)]

In conclusion, the Government have provided £4.7 billion of funding to support public sector employers with increased employer national insurance. Expanding eligibility for, or increasing the value of, the allowance would come with additional costs and would reduce the revenue generated by this Bill; this would then require either higher borrowing, lower spending or alternative revenue-raising measures. In the light of these points, I respectfully ask noble Lords to withdraw or not press their amendments.

--- Later in debate ---

[Lord Jamieson (Con)]

My Lords, I also support my noble friend Lord Fuller’s amendment. Local government finance is in a parlous state, with more than 70% of funding used for adult and children’s social care, which, due to demographic pressures, is growing substantially above GDP and inflation. In some places, this is exacerbated by housing costs due to the housing shortages across the country.

The latest local government finance settlement has not helped, as the additional government funding is the worst I can recall, after taking account of national insurance, since I became chair of the Local Government Association in 2019. I agree with my noble friends’ comments on this. Yet the financial pressures on local government continue, forcing many councils to put up council tax by the maximum of 5% and, in several cases, to seek additional rises above that. National insurance rises pose a particular burden on local councils. The LGA, as mentioned by my noble friend Lord Fuller, estimates that the cost is around £1.7 billion, of which around £1.2 billion is indirect. The Government have committed to fund the direct costs of the national insurance rise but, as my noble friend Lord Fuller mentioned, that does not even cover the full direct costs.

I emphasise that figure of £1.2 billion. There has been some commentary that it needs to be absorbed by suppliers. Frankly, that is not realistic. For instance, in one of the biggest areas—social care staff and care workers—you have agencies that just are not capable of absorbing that level of cost. They will have two options: get a price rise from the council, or stand away from their contracts. We councils cannot afford that so we will inevitably be forced to pay the extra amounts of money.

For example, in Central Bedfordshire Council—where I am a councillor and therefore declare an interest—the shortfall is around £2 million for the direct costs after the financial settlement. I talked to the finance director yesterday and he estimated indirect costs of around £10 million. To put that in context, that is more than a 5% council tax rise will generate. So, even after such a rise, we will not cover the national insurance rise.

That will inevitably mean that we will have to look at cuts to our essential services, the majority of which are statutory—the classic potholes, parks, libraries, et cetera. They are all up for grabs, so to speak. That is just not fair on our residents, who are paying additional council tax and seeing cuts to their services. I support the amendment, so that the impact of the national insurance rise can be truly worked out on a council basis and then properly funded.

[Baroness Kramer (LD)]

My Lords, I realise that I am very much in danger of becoming repetitive, but this is the last grouping that we will deal with today. If I may, I always feel like cheering on the noble Lord, Lord Porter, every time I hear him speak, which may put him in jeopardy, but it is probably reflected by voices across the Committee.

The issues being raised are crucial. I will not repeat the discussion that we had last Monday and Wednesday, which covered this same area in great detail. However, the amendments put forward then, which would basically exclude adult and child social care, housing associations, charities and others from the changes in the employers’ NICs threshold, would answer very many of the problems that local authorities are going to face. While I understand that this amendment seeks an impact assessment, we go for exclusion of these various necessary services and on that, once again, we stand our ground.

I thought that there might be some mention of town and parish councils in this group, which will get no protection at all from the increases in employers’ national insurance that they will face. We put forward an amendment last week that would exclude them from this. Once again, I ask that town and parish councils not be overlooked in the process of understanding that the public sector will be protected. With the changes that the Government are mooting in going to strategic authorities, town and parish councils will be the only real local government layer left, quite frankly, where somebody within a community knows that community, speaks to the people in it and acts on their behalf. Because they are funded purely through tax rather than through some government grant, the Government have not given them the off-set for the additional costs that they will have to carry. They amount to so little—£10 million a year. The Government would not even notice it. Without that, because they have no other sources of income, they will absolutely be required to increase their taxes by between 1.5% and 3.5%.

These councils should not be overlooked. They might be very small, but they are vital. For many people in this era, they are the connection to politics in a world where there is so much cynicism over politics and people do not feel the reality of it any more. I hope very much that the Conservatives, having made such strong statements on the effect of all these changes, will consider coming into the Lobbies with us on Report.

[Baroness Neville-Rolfe (Con)]

My Lords, I support Amendment 70. I am delighted that my noble friend Lord Fuller has joined the Committee today and spoken with such passion and eloquence, and I support his proposal for an impact assessment of the costs involved with this Act on local authorities. It was also good to hear from my noble friend Lord Porter; as a former civil servant many years ago, I was amused by his comment about policies hanging around in a drawer. I particularly remember that when I used to go to the Council in Brussels; there were a lot of proposals that used to hang around for a long time.

I agree that the jobs tax is the wrong approach, and I agree with my noble friend Lord Jackson that there are some tricky issues in parts of local government. I have to say that I have often been an admirer of local government, particularly councils, over a long career.

This week the Government confirmed £502 million of funding to help local authorities to cover the increased costs of directly employed staff due to the changes in the national insurance contributions. Ministers have also allocated £13 million separately to mayoral combined authorities, with some allocations to follow in due course. As we have heard, local authorities will need additional support in the face of the jobs tax. I welcome the fact that Ministers have brought this support forward, but we have heard from my noble friend Lord Fuller that that the allocation is totally inadequate. He called it a £1.226 billion headache, while my noble friend Lord Jamieson, also very experienced in this area, explained that it is just not possible to absorb these sorts of costs, for example, by reducing prices to suppliers. Services will inevitably have to be cut.

I shall highlight some examples where we believe the allocations will fall short. Hampshire County Council is facing a £10 million increase in costs due to the increase in NICs but the allocation it has received from the Government is just £7 million, leaving a £3 million shortfall, which I suspect is quite typical. My noble friend Lord Jackson talked of the likely demise of the lido in Peterborough and of libraries that are closing, although I am glad to say that, so far, we have kept our libraries open in Wiltshire. We are also hearing reports from Kensington and Chelsea and Harlow councils that they are facing a shortfall following the announcement of the allocations.

Clearly the Government’s additional allocations need to cover every penny of the increased cost to local authorities, otherwise they are going to have to cut services. It would therefore be helpful if the Minister could commit to engaging with MHCLG to seek assurances about what is happening and how that could be improved.

Councils, as we have heard from my noble friend Lord Fuller, have been treated a lot worse than sectors like the police, the Civil Service and the National Health Service. This is a case in point for the argument we have been making throughout Committee where the Government have failed to produce thorough and comprehensive impact assessments. Mistakes like this can be made. The new refusal of the Treasury to provide essential information in debates like this, when such major changes are taking place, is extremely disappointing, as my noble friend Lady Noakes said, in her usually trenchant way. The Minister needs to listen to the Opposition when we call for a proper assessment of the impact of this policy on our local authorities. We want to know about other sectors too, but local authorities are this particular group’s concern and we will be returning to the charge.

The truth is that the Bill is very damaging. It will have perverse effects that will reduce the expected national insurance and tax take, as we have heard from the OBR, and it will have a negative effect on jobs, prices and growth. I hope the Minister will think further in the light of these four days of debate before Report.

I should say that I have enjoyed this Committee because of the insights it has given into many sectors and their challenges. It has been an extraordinary cross-cutting debate, and I look forward to Report on 25 February after our much-needed winter break.

Covid Counter-Fraud Commissioner

Baroness Kramer Excerpts

Wednesday 5th February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am not sure what that has to do with the Question before us, but the Prime Minister and the Minister involved absolutely have set out the circumstances of that case in the letters that they exchanged.

[Baroness Kramer (LD)]

My Lords, does the Minister recognise that a key reason why exposing Covid fraud has been so slow and difficult is the inadequacy of whistleblowing protection, which exposes so many whistleblowers to financial ruin and career destruction? The harm is not tackled by the duty of candour, which is important but is not whistleblower protection. Will the Government please deliver urgent reform as a crucial way not just to solve this problem, but to deter or catch early any kind of future abuse? I recommend to the Minister proposals for an overarching office of the whistleblower.

[Lord Livermore (Lab)]

I am very grateful to the noble Baroness for her question, and I absolutely agree with the underlying point she is making. I met Tom Hayhoe, the Covid Counter-Fraud Commissioner, last Friday, to make sure that I was fully prepared for this Question. I discussed his work with him, and he told me that he is considering a whistleblowing mechanism to enable the public to draw attention to abuses they are aware of. The work he is doing is absolutely in line with what the noble Baroness is asking for.

UK–China Economic and Financial Strategy Dialogue

Baroness Kramer Excerpts

Tuesday 4th February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble and learned friend for his question. He is right: this was the first economic and financial dialogue since 2019. The Chancellor was absolutely clear that we cannot ignore the fact that China is the second-largest economy worldwide, and our fourth-largest trading partner. He is right that financial services are the jewel in the crown of our relationship with China. That is why our financial services were the key focus of the Chancellor’s visit, which secured significant outcomes in terms of a new green bond, new commercial licences and quota allocations, the UK-China wealth connect, and capital markets and financial regulatory co-operation. That co-operation will continue and be strengthened.

[Baroness Kramer (LD)]

My Lords, could the Minister tell us whether the dialogue included a discussion of BRICS Pay? This is the alternate payment system that the BRICS countries have created in order to be able to move away from SWIFT. Obviously, it assists sanctions- busting, and it potentially destabilises the global financial system. What discussions were held on BRICS Pay?

[Lord Livermore (Lab)]

I am aware of the issue raised by the noble Baroness, but I do not believe that discussions took place on that. The Government consider that it is up to each individual country to decide what international agreements it wants to be part of.

Growing the UK Economy

Baroness Kramer Excerpts

Monday 3rd February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. Obviously, it is not for me to suggest what inquiries the Economic Affairs Committee should conduct. If it were to conduct such an inquiry, I would certainly read its report with interest, and I think we would see that the record of the previous Government on the economy was nothing short of catastrophic—whether it was their austerity, which took demand out of the economy at exactly the wrong moment; their disastrous Brexit deal, which has reduced GDP by some 4%; or their disastrous Liz Truss mini-Budget. All of these things have done long-term deep-seated damage to the economy, which will take time to turn around, but I believe we are starting to turn that around and we will continue to do so.

[Baroness Kramer (LD)]

My Lords, given the passenger forecast for a third runway of a doubling of passenger numbers at Heathrow, I was told that domestic passengers would come from all the regional airports because the airlines would cease to fly direct international flights from regional airports, including both Birmingham and Manchester, and instead feed to Heathrow. I was told that the international passengers would be almost exclusively transfer passengers—one of the reasons for arguing that not a lot of additional transport is needed into London. I understand why all of that works to create profits for the airport, but I find it very hard to see how that creates any growth. Can the Minister please explain how, particularly, that damage to the regions will help with regional growth and, frankly, how transfer passengers contribute significantly to overall growth?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. This is, I think, probably one of the few issues that we disagree on. Obviously, she is asking me to comment on what she was told several years ago, and I cannot necessarily comment on what she was told then. She is describing, I think, the concept of a hub airport, which is why Heathrow is such a specific proposition, and will lead to significant amounts of growth in our economy, not least because of freight. The amount of freight that Heathrow conducts, the increase in trade, and the new emerging markets that an expanded Heathrow will connect us to, will directly lead to increases in growth in this country. That is an incredibly valuable thing.

The noble Baroness spoke about regional growth and regional airports. I would simply point her to the enthusiastic response from regional airports. They have come out very strongly in support of an expanded Heathrow, because they know it will lead to expansion for them and growth and jobs in their areas. We know that, in terms of the economic benefits of the expansion of Heathrow, 60% of those benefits will be outside London and the south-east. So I genuinely disagree with the noble Baroness when she says that it is negative for the regions; I think this is a very positive point for regional growth.

Low and No-Tax Jurisdictions

Baroness Kramer Excerpts

Thursday 30th January 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, first, I welcome the noble Baroness, Lady Coffey. She made a fascinating maiden speech; I thank her for it. Her interest may be in bins, but by speaking in this debate, she has, either voluntarily or involuntarily, joined the society of financial geeks who speak about tax issues in this House. I am the least expert of them, so I am glad that she has now joined the cast.

I thank the noble Lord, Lord Sikka, for obtaining this debate; it is very timely and important. He helped us all by explaining base erosion and profit shifting— BEPS—which is, in essence, the use of artificial transactions to shift profits into tax havens or lower-tax jurisdictions and avoid the taxes that would otherwise have been payable in the country where the profits arose. At the global level, the OECD estimates that, annually, some 4% to 10% of global corporate tax revenue is lost through BEPS. The Tax Justice Network alleges that the losses are almost double the OECD estimate and that a network of British Crown dependencies and overseas territories is responsible for some 23% of those losses.

Discussions of Crown dependencies and overseas territories are for another day—there is a very complex debate to be had—but I point to the experience that the noble Viscount, Lord Hanworth, referred to: the exposure yesterday of the Abramovich tax avoidance scandal. It was exposed publicly by a group known as Cyprus Confidential. It underscores how limited HMRC’s capability is to pursue large tax avoiders and their enablers. I join the noble Lord, Lord Davies, in asking: what kind of remedies could be put in place? As the noble Lord, Lord Sikka, said, we could use a great deal more clarity on what exactly is being lost to the UK; the tax gap is not an adequate way to try to analyse or to expose this set of problems.

We need to take some credit here in the UK, because under different Governments we have sought to join international efforts to tackle BEPS. In many ways, we have been a leading voice in developing the OECD’s two-pillar strategy, which is supported by 135 countries and jurisdictions. Under it, pillar 1 would reallocate part of the profits of the largest and most profitable multinationals from where they “earn income” under accounting rules to where they “sell” products and services. Pillar 2 would impose a 15% minimum tax on the global corporate profits of multinationals with over €750 million in turnover based on the residence of the corporation. The OECD estimates that, by implementing pillar 2, global tax paid by the world’s biggest multinationals would increase by $192 billion per year.

Although multinationals in a number of sectors use profit shifting—the noble Viscount, Lord Hanworth, talked about the motor industry—the sector of most concern, by far, is the technology sector, which has so many tools to use in profit shifting. Frankly, here we are primarily talking about US-based corporations. I looked at the actions that the UK has taken. As the noble Lord, Lord Leigh, said, in 2015 there was the diverted profits tax; it did not raise a lot of money, but it led to some changes in behaviour. I join the noble Lord, Lord Sikka, in asking: why has country-by-country reporting ended up getting dropped? Perhaps the Minister can help us with that.

In 2020, the UK implemented a digital service tax of 2%, reflecting its concern that foreign—again, primarily US—technology multinationals were profit shifting to reduce their UK tax bill. The DST raised £678 million for the Treasury last year, predominantly from Google, Amazon and Apple. The tax also provides a more level playing field for UK-based technology firms. As the noble Lord, Lord Leigh, said, it is described as a temporary measure until pillar 1 is completed, which, I think, is why attention has not been paid to it. I join him in suggesting that it is time that the Government looked at the DST, to see if it could be enhanced in ways that would better represent both the loss of gross revenue and the unevenness of the playing field.

To enact pillar 2, the UK introduced in 2024 a multinational top-up tax—MTT—and a domestic top-up tax, DTT. The Finance Bill, which is now making its way through Parliament and which we will receive although we will be unable to amend it, is intended to complete the UK legislation for pillar 2 by introducing the undertaxed profits rule, UTPR. This is the bit with teeth. As the noble Lord, Lord Leigh, said, it is estimated to bring in about £2.8 billion a year.

There is a real question, as far as I understand, about when this will be implemented, once the legislation is passed. Can the Minister give us some clarifications on the date? There are growing concerns that, potentially, it could be kicked into the long grass. The problem is, as we can all anticipate, the arrival of President Trump. He very clearly said that the OECD agreement on BEPS has

“no force … in the United States”.

It has withdrawn from all the relevant treaties, but this is a far stronger statement.

In November, the FT printed an article entitled

“Trump win puts global corporate tax deal ‘in peril’”.

It suggested that countries would be too scared to apply UTPR to US-based companies for fear of punitive tariffs. Indeed, the big tech companies, which have the US President’s ear, as we all know, have said very clearly through their lobby groups that they plan to use trade negotiations to push back strongly against even the UK’s existing 2% digital services tax.

To add another complication to all this, in a rapidly changing world, we have cryptocurrency. I regard cryptocurrency basically as pyramid schemes masquerading as technology, but they can certainly provide a mechanism for bad actors who want to carry out any kind of tax avoidance, including profit shifting. I am interested to know how this changes the thinking of the Government and HMRC in trying to keep a grip on the profit-shifting strategies that are increasingly employed.

One thing I would suggest is that it is time to make sure that we link up with potential allies who are also willing to stand firm against base erosion and profit shifting. We know it is the EU; I suspect it is also Canada and Japan, and there should be others. My party has called for the Government to seize the opportunity of a pan-Europe customs scheme as a mechanism which would perhaps help us pull together our relationship with the EU but then also engage with other allies around this issue. I ask the Minister: are we in discussion with others who share our worldview on how we keep alive the strategy to end base erosion and profit shifting in this new Trump era? This really has to be done collectively, because it is one of those areas where we either hang together or, frankly, we hang separately.

Non-domicile Status

Baroness Kramer Excerpts

Tuesday 28th January 2025 Lords Chamber

[Lord Livermore (Lab)]

I am very grateful to the noble Lord, as always, for mentioning the £22 billion black hole. He mentions lost revenue. I remember the noble Lord telling me when my party was in opposition that our policy on non-doms would not raise any revenue, but in fact cost money. Just a few weeks after that, his Government performed a screeching U-turn and scored over £20 billion by implementing our policy, when they adopted it as their own. He was mistaken then, and I am very confident that he is mistaken now. The costings certified by the OBR for the previous Government’s and this Government’s reforms account for a potential behavioural response. But I do not recognise at all the figures that the noble Lord gives, which are purely speculative.

[Baroness Kramer (LD)]

My Lords, dropping the changes anticipated to the non-dom regime would not be fair to UK-domiciled taxpayers and to UK public finances. However, it is also wrong if those who have come from abroad to work here end up paying double taxation. Have the Government looked to update the UK’s tax treaties, which are meant to eliminate double taxation but currently fall short in significant areas, especially with complex tax countries such as the USA? Would he agree that it is not just a fairness issue? Sorting the many discrepancies would encourage many productive people to remain who are currently either leaving or considering leaving.

[Lord Livermore (Lab)]

I am very grateful to the noble Baroness for her question. To be clear, we are not dropping any reforms; we are making sure that they are working as intended, and we are trying to make the system as simple as possible to use so that those people are able to come to our country and invest in it. The noble Baroness asked about double taxation conventions. The Chancellor has been very clear that the reforms to the taxation of non-domiciled individuals do not affect the UK’s existing double taxation conventions, and we do not intend to change those treaties.

Agricultural and Business Property Reliefs: OBR Costing

Baroness Kramer Excerpts

Monday 27th January 2025 Lords Chamber

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

My Lords, I am grateful to the noble Baroness for her question. I do, however, totally dispute her characterisation of this policy. At the Budget, we had to take some very difficult decisions on welfare spending and tax that were necessary to fix the public finances and support our public services. We had to do that to address the mess that we inherited from the previous Government. We took those decisions in a way that makes the tax system fairer and more sustainable.

As a result of the measures we are taking, individuals will continue to be able to claim 100% relief for the first £1 million of combined business and agricultural assets, and 50% thereafter. Given the nil-rate bands, that means a couple can pass on up to £3 million between them to a direct descendant inheritance tax-free. In answer to the noble Baroness’s question, the measures will go ahead as planned.

[Baroness Kramer (LD)]

My Lords, my colleagues on these Benches have made it clear that we oppose this tax change; we are concerned about the impact of it on family farms and the rural economy, and the knock-on effect on food pricing and food security. We have proposed alternative taxes in lieu. However, in the spirit of compromise, I propose that the Minister looks at lifting the individual thresholds for inheritance tax and agricultural property to £3 million. It would provide great relief for the genuine small farms and would still capture those who are seeking to use investment in farm property as a loophole for tax avoidance. Frankly, having seen the OBR numbers, it would be a very little loss to the Exchequer.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Kramer Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Lord Howard of Rising (Con)]

I just say, in relation to that and to the noble Lord’s arguments, that what he completely forgets is that manufacturing companies faced with this will simply move their production abroad. That is what he forgets.

[Baroness Kramer (LD)]

Maybe I can be helpful by using the Library note on this occasion and a quote that it has from the OBR. The paragraph is headed “Labour supply”:

“The OBR expects workers and firms, respectively, may reduce labour supply and demand in response to lower wages and higher employer costs.”


That is a reference to these changes, including the NICs.

“It anticipates the measures in the bill may reduce labour supply by around 0.2%, or a little over 50,000 on an average-hours equivalent … basis, by 2029/30”.


Perhaps that quote about the OBR is helpful in the context of the conversation going on at the moment.

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Moved by

[Baroness Kramer]

3: Clause 1, page 1, line 1, at end insert—
“(A1) The Social Security Contributions and Benefits Act 1992 is amended as follows.(A2) In section 9(1A), after paragraph (aa) insert—“(ab) if section 9AA applies to the earnings, the part-time worker secondary percentage;”(A3) After section 9A insert— “9AA Part-time worker secondary percentage(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b), this section applies to the earnings paid in the tax week, in respect of the employment in question, where the earner is a part-time worker.(2) For the purposes of section 9(1A)(ab), the part-time worker secondary percentage is 7.5%.(3) For the purposes of this section, a “part-time worker” has the meaning given in Regulation 2 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.””Member’s explanatory statement
This amendment sets a new National Insurance Contributions rate for part-time workers.

[Baroness Kramer (LD)]

My Lords, all the amendments in this group are in my name. They break, essentially, into two parts. Amendments 3 and 12 relate to national insurance contribution rates for part-time workers. They are not a request for an exemption from the change but would establish a new rate for part-time workers of 7.5%, so this is a far more aggressive pair of amendments than those we discussed in previous groupings. Amendments 58, 59 and 60 are all about reviews. If I may, I will discuss part-time work first and then look at the reviews, to try to provide some clarity.

Why have we taken a more aggressive position as we look at the situation of part-time workers? It is because we think that we now need to focus on the most disadvantaged, who are finding work difficult to obtain and finding it hardest to earn in a reasonable way to promote their standard of living. We think that part-time workers need to be viewed through a different lens. Traditionally, they have been an add-on side group, and I think that in some people’s minds there is still the idea that people who work part-time either work for pin money or are extremely well paid and need to work only a limited number of hours. That is not the character of part-time work as it is today, and we want this special category to be identified and recognised.

Under the changes to the thresholds in the Bill, in many cases part-time work will be brought into employer NICs for the first time. Currently, a person could typically work 14 hours a week without incurring employer NICs, but that will be reduced to approximately eight hours. It is a dramatic difference. Very few people will be working fewer than eight hours in any meaningful way.

The number of people who engage in part-time work has grown significantly. Today, there are about 8.5 million people. That set of people is overwhelmingly made up of those who carry with them some recognised disadvantage: people with health issues, be they mental or physical; people with caring responsibilities who are trying to improve the family income, as well as get out of the house to some degree; and people recovering from periods of unemployment and trying to rebuild their confidence and work credentials.

For many young people, part-time work is the entry point. Some of them are students who could not remain in education if they did not have part-time work to go along with it, but it is also increasingly becoming a route to the first job and to getting some sort of credentials that will give you the ability to go on and develop a career in full-time work. With this growing sector, we are changing as a society and using part-time work far more.

The Government will be very aware that, as they look at their growth agenda, one of their primary goals is to get older people who have become economically inactive—typically, those aged over 50—back to work. I suggest that part-time work is by far the most likely route for those individuals, so making that attractive, and making them attractive to employers, who may not have thought of employing somebody older who will therefore retire in a certain number of years, may well be a very important part of that strategy.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I just want to say a quick word to the noble Lord, Lord Macpherson—in a sense, the voice of the Treasury. This notion of part-time workers as very wealthy people who work only a few hours a week is totally dated. The collegiate group of part-time workers, if you like, is now hugely more varied and much more heavily represented by people in disadvantaged positions. We might have known that had we had a more effective impact assessment.

I have to say that I have some sympathy with the Minister, because I have been complaining for years—this involves the previous Government as well—about the inadequacy of impact assessments. As a former banker, if I had been presented with that document as a piece of analysis by somebody on a project that I was working on, that would have been the end of them working. We need to move to a world where we get proper information in an impact assessment. I do not think it would be to the Government’s disadvantage; it would lead to far better discussion because we would all be on much more secure ground.

With all that said, I am very pleased with the degree of discussion that we have had on an issue that is often overlooked. I beg leave to withdraw my amendment.

Amendment 3 withdrawn.

--- Later in debate ---

Once again, I congratulate the Liberal Democrats on tabling these amendments. They are flawed, for the reasons I have indicated, but perfectly capable of amendment—to broaden the scope from universities, for example. The amendments point to real needs and real hardships that have been created by a Government who have not thought through the consequences of their policies in this and in other taxation.

[Baroness Kramer (LD)]

My Lords, I am standing in what would usually be a winding position, but I think Amendments 4 and 5 have been so thoroughly discussed and I am very much in support of most of the comments.

I say to the noble Viscount, Lord Chandos, that I think it is very dangerous to always worship at the altar of simplification. As the noble Lord, Lord Forsyth, said, if it was the precise phrase, you end up with so many hard cases as a consequence of that. The noble Earl, Lord Kinnoull, talked about a specific charity that is delivering warm spaces—and on a day like today, when we have had to bring additional heaters into this Room, boy, something like that comes home. It is now facing additional costs that it could not possibly have planned for, without the time to put any kind of scheme in place that would give it the breathing space to be able to deal with that kind of challenge. I just find it extraordinary.

However, I wanted primarily to speak to Amendment 8, which has been less discussed today. I thank the National Association of Local Councils for a briefing. Like many others, I was very shocked when the Government confirmed that the upper tier of local authorities would qualify for financial support to offset the increased cost of employer NICs, but parish and town councils were to be excluded because they do not receive funding through the local government finance scheme. Parish and town councils raise their funding via precept. Therefore, these councils will undoubtedly have to increase local taxes in order to cover the additional costs. They have nowhere else to go.

I am sure that that was not in Labour’s manifesto and that this is something Labour did not intend, but there really is no other route they can go down other than to increase council tax. Its calculation is that the NICs increase will cost English parish and town councils approximately £10 million each year, requiring an increase of something between 1.5% and 3% to cover the additional cost—that is £10 million each year, and £50 million over the life of a Parliament. It really is a rounding error. I just cannot understand why town and parish councils were excluded from the provision for upper tier councils.

Part of the argument is around fairness, but there is also an argument around democracy. Many people can relate to their town and parish councils, as others have said, in a way that they do not relate to higher tiers. It is at the parish and town level that money goes to projects that are specifically designed around the needs of a local community. They really are very different in the services that they provide. I am concerned, on a broader scale, about the centralisation of local government that we have been seeing: in essence, we are looking at unitary authorities with something like half a million people in them as the decision-making, strategic and implementation element of local government.

I very much fear that the difficulties that parish and town councils will face will turn them much more into agencies of that upper tier, rather than something at the level of local government with the capacity to respond to local needs and to underpin the character and nature of each individual community. The amount of money is so trifling that, in putting these councils on an equal basis with upper tier ones, there must be some other agenda at work here. I do not know what it is; perhaps the Minister could enlighten us.

This amendment is in my name, as are Amendments 4 and 5. I very much hope that the Government are listening because these are issues of significance.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Kramer. I will be brief; I want specifically to speak in favour of Amendment 8, given that I raised this issue at Second Reading. I should declare my position as vice-president of the National Association of Local Councils.

I agree with everything that the noble Baroness, Lady Kramer, said. I have just one point to add. As the noble Baroness was speaking, I was thinking about a recent visit to Shropshire. A whole lot of town and parish council leaders and councillors were gathered in a room and talking about all the projects that their councils were running. One of the things I thought about were the photos and slides that were being shown, and how much volunteer effort was involved in the projects being displayed. The money is spent by town and parish councils because they are close to, and there in, the community. Often, it is a community effort to install the bug hotel in the allotments or to put up swift boxes around towns—all sorts of things that many people get involved in on a voluntary level. In taking money away from that, the multiplier effect is much greater. As the noble Baroness, Lady Kramer, said, we are talking about a tiny sum of money in central government terms but something that is hugely consequential in communities up and down the land.

I spoke at some length on charities earlier but there are two specific points that I want to make. I mentioned earlier—the Minister did not respond to me on this—the idea of having a one-year delay for charities so that they have time to work out both the budget and ways to deal with the rise in national insurance; this was something that both the noble Earl, Lord Kinnoull, and the noble Lord, Lord Randall, raised. It would be interesting to hear from the Minister about that point regarding a delay specifically for charities.

I wish to pick up the point from the noble Viscount, Lord Chandos, about complexity. An organisation either is or is not a charity. That would be a really simple way to see this, involving low paperwork. Complexity would be easy to introduce; for a small or medium-sized enterprise or something, it might be more complicated. I do not think, I am afraid, that anyone can compete with the Green Party on our views on simplification because we want to roll together income tax, national insurance and capital gains tax. If that were the case, the Green Minister would not be over there: we would be going through this in one day in the House—provided it was still constituted as it is now when we got to that stage.