National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Baroness Kramer and Lord Londesborough

Report stage
Thursday 5th March 2026 Lords Chamber

[Baroness Kramer (LD)]

On this issue of students, I really think this is unintentional, taking the Minister and others at their words. That is why accepting the amendment from the noble Lord, Lord Leigh, and correcting the issue now is something that I consider to be very important.

As I said, there is no need for me to keep speaking. I have made it clear that I will support quite a number of the other amendments in this group if they are moved, because collectively they address a fundamental problem. I appreciate all the comments that have been made in support of the amendments in my name.

[Lord Londesborough (CB)]

My Lords, I support broadly all the amendments in this group, but specifically Amendments 12 and 26 in the name of the noble Baroness, Lady Kramer, to which I added my name. I will be genuinely brief. These amendments, by raising the cap to £5,000 per annum, would address a core problem in the Bill: the limiting or deterring of the so-called moderate earners we have heard about from contributing sufficiently to their pension pots, which, as we already know, are nowhere near sufficient for the vast majority to fund their retirements. We are talking about retirement periods of 25 to 30 years if demographic trends continue. As we have heard, this includes many in the early stages of their working lives who need to get into the habit of contributing to pensions at the formative stages of their careers.

I remind the House of a stat that came out in Committee. On average, our current workforce will outlive their pension savings by eight to nine years, and this funding gap is widening year by year. Clause 1 is, in effect, raiding pensions to keep the Treasury within its fiscal rules in three years’ time. It is another crude example of kicking the can down the road, leaving another generation to sort out another widening deficit.

I was interested to hear the comments from the noble Lords, Lord Leigh and Lord Ashcombe. They raised some pertinent questions over the revenue-raising forecasts. I also fear that the Treasury has wildly underestimated the level of accelerated salary sacrifice over the next three years in the run-up to these measures. I have witnessed a number of business plans in companies that I am involved in; I should, of course, declare my interests as set out in the register.

To conclude, I fully endorse the excellent opening comments from the noble Baroness, Lady Neville-Rolfe, and the comments we just heard from the noble Baroness, Lady Kramer. I encourage your Lordships to support their amendments should they decide to test the opinion of the House.

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

My Lords, I am very grateful to all noble Lords who have contributed to this first group of amendments. I turn first to Amendments 1 and 17 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, which seek to exempt basic rate taxpayers from the Bill. As the noble Baroness, Lady Neville-Rolfe, noted, the vast majority—74%—of basic rate taxpayers using salary sacrifice will be unaffected by the changes in this Bill. Specifically, three-quarters of those earning up to £50,270 and using salary sacrifice will be entirely protected, and that rises to 95% when looking at those earning £30,000 or less who use this mechanism to save into their pensions. The minority 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 they receive on their pension contributions. Half of those basic rate taxpayers contributing above £2,000 will face an additional national insurance contribution liability of less than £50 a year.

Exempting basic rate taxpayers would also be exceptionally difficult to operate in practice and would add considerable additional administrative burden on to employers. That is because, unlike income tax, national insurance does not operate on an annual aggregated basis, nor does it determine liability by reference to an individual’s final tax position. An individual cannot be confirmed as a basic rate taxpayer until their full income position is reconciled at the end of the tax year, taking account of potentially multiple employments and other sources of income. To apply a tax band-based exemption, employers would be required to undertake year-end reconciliations across employments and account for other sources of income as well that sit wholly outside the design of the national insurance contributions system. This would represent a fundamental departure from established payroll processes, imposing significant complexity, cost and risk on to employers and payroll providers.

Amendments 16 and 29, in the names of the noble Baronesses, Lady Neville-Rolfe, Lady Kramer and Lady Altmann, and the noble Lord, Lord Altrincham, seek exemptions for small and medium-sized enterprises, charities and social enterprises. Exempting small and medium-sized enterprises and charities in the way proposed by the amendment would add considerable complexity to the tax system and would not be proportionate to the limited impact this policy is expected to have on those businesses. The changes in this Bill primarily affect larger employers, which are significantly more likely to operate salary sacrifice arrangements and to have employees contributing above the £2,000 cap.

Small businesses are significantly less likely to offer salary sacrifice than larger businesses. Only 28% of employees in SMEs use salary sacrifice for pension contributions, compared to 39% in larger firms. When it comes to contributions above the £2,000 cap, the difference is even clearer. Only 10% of employees in SMEs make pension contributions through salary sacrifice that exceed the value of the cap, compared to 18% of employees of larger firms. This underlines that the largest benefits from uncapped salary sacrifice are concentrated in bigger firms, not smaller firms.

In practice, the changes in this Bill will level the playing field between small businesses and their larger competitors, ensuring that the national insurance contribution advantages of salary sacrifice are not disproportionately concentrated among employees in big firms. More widely, the Government recognise the importance of supporting small businesses and charities alike.

This leads me to Amendments 7 and 23 in the names of the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham. These amendments 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 and how the contributions limit reflects that assessment. The Explanatory Notes for this Bill set out clearly that the Government’s objective is to limit the national insurance contributions relief available to higher earners on employer pension contributions made through salary sacrifice, while protecting lower-earning pension savers. These changes are about fairness and consistency across the labour market.

Additionally, groups who are most likely to be undersaving for retirement, such as those on the national minimum wage and the UK’s 4.4 million self-employed workers are completely excluded from using salary sacrifice altogether. The cap we are introducing through this Bill will protect the majority of basic rate taxpayers using salary sacrifice and ensure that the cost of national insurance relief on pension salary sacrifice is put on a fiscally sustainable footing.

I now turn to Amendments 5 and 21 tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baronesses, Lady Altmann and Lady Kramer, which seek to exempt salary sacrifice pension contributions over the £2,000 limit from being included in the definition of earnings used to calculate student loan repayments for employees. Student loan repayments are calculated using the same earnings base as class 1 national insurance contributions. As a result, salary sacrifice currently reduces both national insurance contributions and the earnings used to calculate student loan repayments. Any change in student loan repayments arising from this measure is a mechanical consequence of restoring those earnings to the national insurance contributions base. It is not a change to student loan policy itself; rather, it flows from levelling the playing field between those who are able to use salary sacrifice arrangements to reduce their earnings for national insurance contributions and those who are not. Of those employees making pension contributions through salary sacrifice, younger people are far more likely to be protected by the £2,000 cap than those above the age of 30. Some 76% of those in their 20s—

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[Lord Londesborough (CB)]

My Lords, I support Amendment 31 in the name of the noble Baroness, Lady Neville-Rolfe, to which I have added my name. I also add my vocal support for Amendment 32 from the noble Baroness, Lady Kramer, which I should have added my name to but did not. Both amendments concern the impact on SMEs. I am more concerned about the “S” part of that acronym, because medium-sized businesses with payrolls of over 100 staff are a lot better equipped to deal with the provisions of the Bill. I heard the Minister saying that only 10% of this group apply for salary sacrifice, which is a glass-half-empty argument. It is precisely because of that that we should be very concerned about the 90% who are missing out entirely on salary sacrifice.

When we go back to Amendment 31 and look at the impact, the employment data this year for SMEs is utterly dire—on vacancies, payroll and employment, part-time and full-time. I will not go through all the data, but I remind your Lordships that only 10 days ago, the Federation of Small Businesses wrote a letter to the Chancellor of the Exchequer warning that one-third of its members are planning either to shut down their business this year or to reduce their headcount, and that should send a real chill down the spine. I simply do not believe that the Government understand what it is to develop and foster a thriving SME ecosphere, on which, at the bottom of the pyramid, our economic growth utterly depends. I therefore throw my support behind these two amendments.

[Baroness Kramer (LD)]

My Lords, Amendment 32 is in my name. I realise that Amendment 31 is a broader amendment, and I have no objection to it whatever. It was written in response to a particular issue identified by the Federation of Small Businesses, which is that small businesses that use salary sacrifice regard it as one of the perks they can offer, in a very competitive market, for particular skill sets. Churn is a major problem for small businesses, so to be able to keep people and keep them happy really matters. It is tough for a small business, particularly when it is looking for a person with highly desirable skills, to compete against big businesses, which can offer perks of many different kinds. They may not offer salary sacrifice to the same degree, but they can offer other kinds of perks and advantages.

I am very concerned about the competitive impact on small businesses. I strongly agree with the noble Lord, Lord Londesborough, that this group is the foundation of our economy and its condition currently leaves us worried. At a time of a big push for growth, many of the unicorns will fall into a sector where they are in a battle for skills against large existing companies. My Amendment 32 would review within 12 months the impact very specifically on SME recruitment and retention. I hope the Government will pay serious attention to this area.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Lord Londesborough

3rd reading
Tuesday 4th March 2025 Lords Chamber

[Baroness Kramer (LD)]

I am sorry to disrupt the House, but it is common to use do now pass to say thank you and I certainly have thank yous to say.

I thank the House for passing a number of amendments that will substantially reduce the damage and harm being done by this Bill. The noble Lord, Lord Londesborough, took the lead on small businesses, the Conservative Benches took the lead on charities and transport for special needs children, and my own party took the lead on community health and social care. Those are all exceedingly important and I hope the Government will take the issues very seriously. I do not think we have ever heard better debates, frankly, than those in this House that talked about real-life experience to convey the significance of the impact of the original Bill.

I thank the Minister. He and his team were unable to give us any concessions but they said no in the nicest of ways. I thank all the other Benches. We worked closely together—Cross Benches, Conservatives and our party—because we all felt in an almost non-political way that it was really necessary to try to come to the rescue of the damage that we could see was going to occur.

There is one amendment that I did not mention and which I think is important because it may survive some of this process and that is from the Conservatives on an impact assessment. That is becoming a recognised vehicle for important assessment of Bills such as this and has historically not been adequate. Perhaps we could now change that for the future.

Lastly, I thank my own Benches. I thank my noble friends Lady Barker and Lord Scriven and the others who led on various areas within this. I also thank Elizabeth Plummer of our Whips’ Office who did so much of the heavy lifting. She will have my eternal thanks. It is so good to have somebody covering one’s back when trying to deal with complex issues. I thank the House in general for taking this issue so seriously and recognising its significance to so many people.

[Lord Londesborough (CB)]

I too have some thanks to give. I thank all noble Lords from across the House who voted for my exemption amendment on the 45% reduction in Clause 2’s secondary threshold for all organisations employing fewer than 25 staff. I particularly thank my supporters, the noble Baronesses, Lady Neville-Rolfe and Lady Kramer. I was delighted to have the support of both the Conservatives and the Liberal Democrats and, indeed, the majority of Cross-Benchers who were able to vote at that late hour.

I also thank the Public Bill Office for helping to draft an amendment that turned out to require five consequential amendments, the staff of the Whips’ Offices, and the Minister for at least listening and for his patient approach. I appreciate that he has a lot on his plate, but I hope that he and the Treasury appreciate that my amendment sits right behind their number one priority, which is to generate sustainable economic growth. That is why I tabled the amendment and I trust it will be given the full consideration and scrutiny it merits.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Lord Londesborough

Report stage
Tuesday 25th February 2025 Lords Chamber

[Lord Londesborough (CB)]

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

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

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

[Baroness Kramer (LD)]

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

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

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Lord Londesborough

Report stage
Tuesday 25th February 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I start by thanking everybody who voted for the previous amendment. Such a powerful message is engaged with that statement.

I am here to move Amendment 2, which is different in character from Amendment 1. The amendments in this group are primarily mine. There are a couple there from the noble Lord, Lord Londesborough, which I also support and know that he will present very effectively. The amendments in my name and that of my noble friend Lord Bruce of Bennachie, in essence, deal with part-time workers.

While looking at the impact of the changes to employer NICs, we became conscious of the changed position of part-time workers as members of our workforce. There are now more than 8.4 million people engaged in part-time work, who are exceptionally hard hit by the changes proposed by the Government in the NICs Bill. People who typically worked 14 hours a week incurred employer NICs in the past; that now drops to individuals who work typically only eight hours a week. Suddenly, there is a huge group of part-time workers who have become far less attractive to the employers that have provided their opportunities in the past.

The impact is especially great on the hospitality industry—an industry that we know is already on its knees. Some 37% of employees in hospitality are part time, and I think there is a view in the Treasury—I think that the noble Lord, Lord Macpherson, expressed it unwittingly in Committee—that part-time work is a sort of rich person’s luxury; it is people working for pin money. That, frankly, is a completely outdated attitude.

Today, part time is concentrated in the lowest pay bands. It is an entry point to work for many people in disadvantaged communities or with difficult histories. It is an economic lifeline for carers who can work part time but not full time, for students, for many with disabilities and for those who are economically inactive. We have a Government who say they want to take 2 million people off benefits and get them into work: part-time work is the entry point and the obvious first step.

We also want employers to see part-time work as exceedingly attractive, so that they start to add additional support, such as training and career opportunity, to part-time work because of this far more fundamental role that it can play. Instead, we have seen with this Bill that many employers are now openly saying that they intend to outsource abroad rather than employ part-time workers or that they will require part-time workers to become self-employed, with all the complexities of IR35.

As we looked at our concerns for hospitality and the high streets—many in those sectors are the backbones of communities—and because we looked at the nature of the part-time workforce, we made the call to go further in this amendment than in our others and seek not just to exempt part-time workers from the increase in employers’ NICs but to reduce the rate of employers’ NICs to 7.5%. As the noble Baroness, Lady Barker, said in the debate on the previous set of amendments, we had it in our manifesto and have since identified other tax opportunities that are available for fundraising. None of them is easy but, frankly, we would close loopholes in capital gains tax, we have talked about taxes on share buybacks and we would reinstate the surcharge on the major banks.

In the previous set of discussions we had a whole series of proposals from the noble Lord, Lord Clarke, who of all people is very aware of the range of possible choices. They may not be ideal, but they are certainly much better than the choice of employers’ NICs, with the impact that is happening. In this case we made that decision, and that is the characteristic of this amendment. The other amendments in the group in my name are all consequential. The noble Lord, Lord Londesborough, also has amendments in this group, and I am fully supportive of them. I beg to move.

[Lord Londesborough (CB)]

My Lords, I rise to speak to my manuscript Amendment 15A and its consequential Amendments 17 and 24, both of which are supported by the noble Baronesses, Lady Neville-Rolfe and Lady Kramer. I am very grateful for their support. I will also speak to consequential Amendments 30A, 31A and 32A in my name. For clarity’s sake, I will not be pressing Amendments 30, 31 or 32.

In short, these exemption amendments seek to protect all small businesses and organisations that employ fewer than 25 staff, including charities, from Clause 2’s steep and sudden drop in the NICs threshold from £9,100 to £5,000 per annum—or, on a monthly basis, from £758 to £417 and, for those who are paid weekly, from £175 to £96 per week. By maintaining these existing thresholds, these amendments would particularly protect part-time workers and smaller organisations including charities, hospitality and retail, which in some cases face increases in their NICs bill per employee as high as 50% to 70%. For this reason, I support the noble Baroness, Lady Kramer, with her Amendment 2.

I should quickly declare my interests as set out in the register, specifically as an adviser and investor to a range of small businesses in the UK, including a community-owned public house.

I will come on to the impact of these amendments shortly, particularly in relation to the challenging and interesting comments from the noble Lord, Lord Eatwell. I certainly do not agree that my amendments are designed to reduce government revenue, and I will come on to that in a moment. Surely, this is our role. This is the most important economic policy that this Government have yet to produce. We are where we are, and surely we should be scrutinising, particularly if we feel that poor decisions or poor structuring of these national insurance increases are doing damage to the economy.

On that theme, I will quickly share this: the latest survey from the Federation of Small Businesses reported that the proportion of its members facing contraction in the last quarter, Q4, jumped to 24%, its highest-ever level outside the pandemic. That is up from 14% in Q3. The FSB has also reported that confidence among its membership has fallen to its lowest point in 10 years. Meanwhile, the Chartered Institute of Personnel and Development has reported that over a third of the 2,000 firms that it interviewed plan to reduce their headcount in 2025 through redundancies or recruiting fewer workers. Rather than taking a sectoral approach, for which many others have spoken passionately already, my exemption amendment applies to all small businesses and organisations, including charities with fewer than 25 staff, which, as the Bill stands, face sudden and steep drops—in fact, 45% drops—in their per-employee threshold at which employers become liable to pay NICs.

Just to illustrate this, employee NICs on a salary of £30,000 are set to increase by 30%, from £2,884 to £3,750, for those employing more than three staff. For part-time workers earning, say, £15,000, the employer NICs can increase by more than 50% per job. These are not trivial increases. While I salute the Government for increasing the employment allowance in Clause 3, it is from £5,000 to £10,500, and this typically washes out increases only for micro-businesses, those employing fewer than three staff. All told, the larger the business in terms of employees and the higher the salaries paid, the lower the increase in percentage terms to its NICs.

Of course, I understand why the Government are raising tax revenues—I have no issue with that—but, by placing this burden so disproportionately on small employers, the Bill threatens to do significant damage to jobs, pay and economic growth. Anecdotal evidence suggests that this is already happening.

My amendments would help to protect the jobs of some 6 million workers employed by about 1 million businesses and organisations across the UK. Many of these are nascent companies that operate on low margins and are at critical stages of their development—yet they grow at the fastest rate, create jobs at the fastest rate and, through their size and agility, can be great innovators. They are a vital component of GDP and our growth, with annual turnover of some £900 billion. But this group also includes a huge swathe of family and local businesses spread across the country, struggling to keep their heads above water in what have been five very difficult trading years. A fall of just 2% to 3% in employment levels or hours worked in this small business sector could cost the Treasury more in lost tax revenues and increased benefit payments than it would gain from this measure.

Incentivising employment by restoring the NICs threshold would be accretive to GDP growth, the Government’s number one priority. It would help boost income tax revenues and employees’ NICs, and it would bolster VAT revenues and corporation tax. Above all, it would lift business sentiment and stimulate investment.

I listened with interest to the noble Lord, Lord Eatwell, describing all these amendments as wrecking amendments. Because we do not have a proper detailed impact assessment, that is an unfair charge and I challenge it on behalf of these amendments. I look forward to hearing from the Minister but, with respect, I expect to press these amendments when the time comes.