National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Lawlor Excerpts

Committee stage
Tuesday 4th February 2025 Grand Committee

[Baroness Kramer (LD)]

My Lords, we consider these areas so important that employers’ national insurance contributions should not be changed from the current formula. Our position remains unchanged. We discussed it extensively in both substance and detail on the first two days in Committee, and I would not try the Committee’s patience by repeating all the arguments that were made from these Benches.

[Baroness Lawlor (Con)]

My Lords, I support these important amendments. Today, all three and four year-olds in England are entitled to free education before they start school full time at the age of five. In the year 2023-24, there were almost 23 children for every teacher—the highest ratio thus far. If we continue with this measure without amendment, we will see an even higher ratio, with the number of adults declining because of the costs, as we heard previously in Committee and again today. We have 3,100 nursery schools and 11,700 day nurseries, and they play an integral part in the induction of little people into the world of education. They are vital to the well-being of the child and, indeed, to parents being able to pay their way with confidence that their children are receiving an early years education. I urge the Minister to provide an exemption, or to ensure in one way or another that early years education and care providers, whether in a nursery school, a day nursery or another system—voluntary and independent, as well as public sector—are prevented from losing teachers due to the additional costs.

I echo what my noble friend Lady Neville-Rolfe said. I would be very happy with an increased employment allowance. We need an impact assessment, given the large number of people employed in this sector and the impact this measure will have on children’s education later in life. We are now paying the price of the Covid lockdown, with the children who passed through schooling at that age. Let us stop making things difficult for early years provision and try to improve it, not disimprove it by such a measure.

[Lord Livermore (Lab)]

My Lords, I will address the amendment tabled by the noble Baroness, Lady Neville-Rolfe, which seeks to prevent commencement of this Bill until an impact assessment is published for the early years sector.

Delaying commencement of the Bill would reduce the revenue generated from it and require either higher borrowing, lower public spending or alternative revenue-raising measures. The Government carefully consider the impacts of all policies, including the changes to employer national insurance. As I have stated previously in Committee, an assessment of the policy has been published by HMRC in its tax information and impact note, including impacts on the Exchequer, the economy, individuals, households and families, equalities and businesses, including civil society organisations, with details on 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 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.

Amendment 40, tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, seeks to increase the employment allowance for early years providers. This would introduce new pressures which would have to be met by either more borrowing, lower spending or alternative revenue-raising measures. I also note that creating new thresholds or rates based on what sector a business is in would introduce distortion and additional complexity into the tax system.

The noble Baroness, Lady Neville-Rolfe, asked for some specific figures. The figures are not broken down in the way that she asks for.

Early years providers have a crucial role to play in driving economic growth and breaking down barriers to opportunity. We are committed to making childcare more affordable and accessible. That is why, in our manifesto, the Government committed to delivering the expansion of government-funded childcare for working parents and to opening 3,000 new or expanded nurseries through upgrading space in primary schools to support the expansion of the sector.

Despite the very challenging fiscal circumstances the Government inherited, at the Budget the Chancellor announced significant increases to the funding that early years providers are paid to deliver government-funded childcare places. This means that total funding will rise to more than £8 billion in 2025-26.

In light of these points, I respectfully ask the noble Baroness to withdraw her amendment.

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[Lord Altrincham (Con)]

My Lords, I rise to move Amendment 30 on behalf of my noble friend Lady Monckton of Dallington Forest and to support Amendment 51 in the name of my noble friend Lady Neville-Rolfe.

Amendment 30 would delay the commencement of Clause 2 until an impact assessment had been published fully to assess the impact this tax will have on the retail sector, and Amendment 51 increases the employment allowance to £20,000 for that sector.

Retail is important because so many people work in it, not people on average or in aggregate in a Treasury forecast, but hundreds of thousands of individuals, some young, some in their first job, some working part time—as well as their families, their neighbourhoods and their customers—where they bring joy to themselves and to others every day. We know that this Bill will lead to job losses.

When the national insurance increase was first announced, there was an expectation, perhaps a hope, that the cost would be met by price rises or other changes rather than by job losses, but as the weeks have gone by, we know that the increase is being funded by job losses. That is why this impact assessment question is important because part of the impact is happening already. From the initial announcement to today, we already know that the policy is being funded by job losses, so the Bill is creating policy-driven unemployment. All of us in this Room share a little in the responsibility for this, but we should at least be very careful in our actions when we know that the cost will be unemployment.

As the noble Lord, Lord Eatwell, and others have said, we might hope that jobs will be created elsewhere. We must surely, on all sides of this debate, hope for job creation, but that does not change the short-term impact of job losses. Equally, we might hope for productivity improvements—say, the automation of retail—which is important anyway, as the noble Lord, Lord Wolfson, mentioned, but not, alas, if we can help it, at the cost of job losses.

To go back to what my noble friend Lord Leigh was talking about, to where the estimates at best are for those of us who are not in the Treasury, very roughly, it looks as if in retail the national insurance hike could easily lead to a 5% reduction in headcount, and if retail is of the order of 2 million or 3 million people, we could quite quickly get unemployment just from retail of 200,000. If you add a couple of hundred thousand from other areas, we are on the way to half a million job losses that could come from this policy. There was an expression earlier on about what is in scope in taxation and in the tax take. What is in scope here are individuals who will lose their jobs—unemployment is in scope. There are direct impacts on job losses.

The value of our retail sector cannot be understated. In 2024, retail sales in Great Britain were worth £500 billion, and 2.87 million people were employed in the sector: nearly 10% of all jobs in the British economy. That is therefore nearly 3 million people whose jobs will be put at risk due to this tax increase.

One of the great benefits of employment in the retail sector is that there is extraordinary element of flexibility, which allows a great number of young people to work in the sector. As has already been discussed in Committee, those who are paid the least will be affected the most. The noble Lord, Lord Wolfson, mentioned earlier that the cost impact on part-time and often very young workers is a 13% increase. This paints a bleak picture for our young people in the sector. Young people are already a more vulnerable group of people, and I am highly concerned that this tax increase will only paint a bleaker picture for young people trying to enter the job market.

The reduction of the threshold at which employers begin to pay employer’s national insurance to £5,000 will hit part-time employees the most. Given that half of all retail employees are part time, the fact that this jobs tax will bring 1.45 million part-time retail employees into the bracket is a devastating result for a sector that often employs young people.

The retail sector has responded with outcries at this tax that will be imposed upon it, with 81 major retailers writing to the Chancellor expressing concern over the impact the tax will have on the sector that typically operates with a 3% to 5% profit margin. In a survey done by the British Retail Consortium, 56% of chief financial officers said they would reduce the number of hours and overtime they offered their employees. This is why this is a jobs tax because businesses will be forced to cut costs in order to continue, and as such, it will hit workers the most.

I am concerned not only about the impact this tax raid will have on workers but about the impact consumers will face given the survey I mentioned above, where 67% of retailers responded that they would be forced to raise prices.

We in this Room are all aware of the impact that this tax increase will have and of the inevitable factor of creating unemployment. I look forward to hearing from other noble Lords on this issue, and I beg to move.

[Baroness Lawlor (Con)]

My Lords, I support my noble friend and his amendment, which is important. If the Minister will forgive me, we hear the same reply all the time. I do not think that HMRC’s figures, the Budget assessment or the OBR figures that we were given in November or December provide adequate information to sectors facing huge job losses. They need to plan ahead, and these assessments may spur the Government if it is written down in black and white that these jobs will go.

The economist Liam Halligan pointed out in his weekly column in the Sunday Telegraph at the weekend that, according to S&P’s bellwether PMI index of business leaders, firms are cutting jobs at the fastest rate since the financial crisis. He writes that there was a 47,000 drop in payroll employees in December, the biggest monthly fall since lockdown. Those figures were tallied after Sainsbury’s announced 3,000 job losses. At the same time, he wrote that personal insolvencies in England and Wales were up by 14% in 2024, with a huge spike after the Budget. UK company liquidations surged. In 2024, 3,230 companies were shut down under the courts.

Last week, I mentioned the impact on the retail sector. I will not go through it, but it is estimated that as a result of the Budget entirely, which includes the NIC costs, £7 billion will go out of the retail sector. Those figures are staggering. I cannot accept the Government’s blithe assessment. I know that the Minister is sticking to the Treasury line with the statement that the impact assessments published so far are in line with what has been published in the past. We are dealing with a different sort of measure in this NIC Bill. I have been in the House of Lords only since November 2022, but it is the first time in my experience here that we have faced a measure where it is clear to all concerned that there will be job losses on a significant scale. Surely, that should spur the Government to want to provide some kind of impact breakdown for the different sectors, whether they are the charitable, voluntary or caring sectors or in the only area where we will see growth, the private sector. If the Chancellor is so convinced and she and the Government are keen and will produce growth, they should recognise that this will come from the private sector. It does not come from growing the public sector. I hope the Minister will support or think again, as my noble friend proposes, on retail.

[Baroness Kramer (LD)]

My Lords, again, we discussed this area extensively over the first two days in Committee. I particularly recommend to the Committee the amendment tabled by the noble Lord, Lord Londesborough. The Government have put in place protection for microbusinesses. I think the calculation by the noble Lord was right, basically, that it is up to about seven employees. His proposals would put in significant protection for small businesses, those just up from micro and those potentially at the beginning of scale-up, which we need so much in this area. The noble Lord is now in his place, and I am delighted to make those comments in his presence.

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[Lord Jackson of Peterborough (Con)]

My Lords, it is a pleasure to contribute to this, the third day of Committee on this very important Bill. I say at the outset to the Minister and noble Lords that, again, this is a commencement amendment and does not seek in any meaningful way a permanent exemption to this jobs tax. It is merely an opportunity for the Government to think again, based on up-to-date and more contemporary empirical evidence, so that they can study properly a full impact assessment, as the Bill has an impact on a very important part of the healthcare sector: community pharmacies.

The Minister will know that there is significant concern across the whole NHS and the wider healthcare sector about the implications of these fiscal changes for community pharmacies. The figures produced by Community Pharmacy England suggest that these changes alone will generate an extra burden, an extra encumbrance, on community pharmacies of approximately £50 million, even with the changes in the employment allowance. If you strip out the employment allowance, the figure is approximately £74 million. If you add the two other cumulative factors to these fiscal changes, the encumbrance for community pharmacies is going to be very heavy.

Of course, on its own, we welcome the rise in the national minimum wage—we believe that low-paid people should be paid more and have a decent standard of living—but, remember, these burdens are falling on a particular part of the community. This will mean an extra cost of anything between £115 million and £152 million per annum, according to Community Pharmacy England. If you also add in the reduction in the business rates relief as it impacts on operating costs, the overall, universal impact on community pharmacies will be in the region of £200 million—that is, one-fifth of £1 billion.

Let us remember what community pharmacies are: an adjunct to the NHS, in that they are a neighbourhood health service. I accept that Governments have to make tough decisions; in fact, my own party, when it was in government, was not able to support community pharmacies to the level that we would have liked. There has been a real-terms reduction in pharmacy funding from central government since 2015. The lowest number of pharmacies are now open to the public at any time since 2009, which is 16 years ago: 1,250 pharmacies have closed since 2017. What we are talking about today is a policy decision that has at its heart the very viability of this sector.

As noble Lords will know, doctors and dentists are able to defray the costs of their non-domestic rates by direct reimbursement from the National Health Service. That is not the case with pharmacies; in fact, 90% of pharmacies’ work contracts are for NHS reasons and projects, such as dispensing advice and consultancy—principally dispensing.

Let us think about what community pharmacies do for their local communities. They are a lifeline. Flu immunisation, smoking cessation, sexual health services, alcohol misuse interventions, substance misuse services, healthy lifestyles, diet and nutrition, and generic health education—these are all vital functions that community pharmacies carry out. They take a sizeable burden off NHS acute hospital trusts—clinical commissioning groups as was—and, of course, primary care facilities.

They cannot put their prices up. Because they are locked into contractual arrangements, which are fixed, they cannot pass the costs on to the consumer. Often, they cannot make cuts in staffing or the services offered, or make redundancies, without in effect closing the facility—or at least hugely reducing the service that they deliver. They have, over the past 10 or so years, increased service delivery massively. They will put most public services to shame in terms of delivery of productivity in that period; indeed, they are the safety valve for the NHS.

We on this side of the Room are asking not for special favours or for the policy to be junked but for an opportunity for the Government to think again about the special circumstances of community pharmacies. My noble friend Lady Neville-Rolfe made an important point: the impact note that the Minister prayed in aid is out of date. I do not think that it has the up-to-date, topical data that it should have for the Government to properly consider, with the evidence available, the policy.

Incidentally, I should tell your Lordships that, naturally, I support the other amendments in this group: the employment allowance variation amendments, in respect of dentists and doctors, and, of course, Amendment 46 on pharmacies especially.

To conclude, this is about using an evidence-based analysis to create an impact assessment; to review the policy, at least; to inform the fairest and most sensible policy formulation; and to protect the interests of a vital part of our healthcare sector. If we do not do that, it will have a major impact on very vulnerable people who are NHS patients and who use the important services of community pharmacies. For that reason, I ask your Lordships to support this amendment and beg to move.

[Baroness Lawlor (Con)]

My Lords, I support my noble friend’s amendment on pharmacies. We must think of the impact. I have spoken to those who have been impacted already and worry that there is an impact not just on community pharmacies, which employ more pharmacists, but on small providers. When we look at what happens in towns and villages across the country, we see that, when a pharmacy closes down, elderly people, families and people looking for their prescriptions have to take a bus and go somewhere else. The impact on town centres of this sort of change can be quite significant. We have 3,560 independent pharmacies today.

In all of our debates today, we have spoken about the impact on each sector and how it might be alleviated, with amendment after amendment proposed from these Benches and from the Liberal Democrats, who spoke earlier in Committee. Barring retail and hospitality, today’s groups of amendments cover what are usually called public services. They are provided by independent providers. Some, such as the early years and hospice sectors, are charitable as well as independent. If they do not provide these services, there will be greater costs to the taxpayer, and they will do so in a much more bureaucratic and less person-sensitive way. The quality will go down and the cover will be broader; in fact, it will not meet the kind of person-to-person approach that we see offered by many independent providers.

I support my noble friend Lord Jackson because we are talking about people and their jobs: 80,000 pharmacists were employed in 2023-24. As well as them, we are thinking of pharmaceutical technicians, of which there are 34,300. These are real people and real jobs, and they are on top of the jobs that we have spoken about day in and day out in this Committee. I implore the Government and the Minister to think about what happens when people’s jobs go: not only do we as communities lose the services that are vital and which we have spoken about; we see an impact on our streets and our communities, and we increase the cost to the taxpayer—that will go further, in addition to the high hike in borrowing and the tax rises that the Government intend. We will see the further damage that will be caused to the economy. I implore the Government to think again.

[Lord Scriven (LD)]

My Lords, I wish to speak to the amendments in this group; I thank the noble Lord, Lord Jackson of Peterborough, for introducing it. I draw the Committee’s attention to the fact that I am the vice-chair of the All-Party Parliamentary Group on Pharmacy, so this issue is close to my heart.

The noble Lord, Lord Jackson, aptly outlined the pressure that community pharmacists are under at the moment and the issues that they face. He also mentioned a lot of facts and figures from Community Pharmacy England and the National Pharmacy Association, which have outlined the impact that these national insurance contributions will have on community pharmacy. The reason an impact assessment will not work is that the data is already out there, in terms of data from the industry itself. On average, every week, 10 community pharmacists are closing. There is a crisis in community pharmacy, which means that pharmacy after pharmacy in communities up and down this country can no longer survive and is falling by the wayside. An impact assessment would be useful only to reiterate the information that is already out there from the industry; it will not stop organisations falling by the wayside every single week.