National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Lawlor and Lord Altrincham

Committee stage
Thursday 6th February 2025 Grand Committee

[Lord Altrincham (Con)]

My Lords, I rise to move Amendment 35 on behalf of my noble friend Lady Barran and to support Amendment 43 in the name of my noble friend Lady Neville-Rolfe. Amendment 35 would delay the commencement of Clause 2 until an impact assessment had been published to fully assess the impact that this tax will have on schools and universities. Amendment 43 increases the employment allowance to £20,000 for universities.

The Government have quite a lot going on in education, with changes to private schools, academies, standards, teacher recruitment and mental health services. This Bill introduces a tax on education, breaking with the long tradition of avoiding taxes on education where possible, which are to the detriment of children and society. This tax increase will be implemented in the middle of a school year, which will put the most vulnerable schools at risk, regardless of how they are funded later. The policy has clearly failed to consider the impact an immediate tax rise will have. The IFS recently published a study indicating that, in the 2025-26 academic year, costs will outweigh funding. Since staffing costs tend to take up a large proportion of a school’s budget, there can be no doubt that this jobs tax will play a role in this funding crisis.

I turn to universities. As the noble Lord, Lord Sharkey, has mentioned previously, this tax increase will cost universities an estimated £372 million a year, as calculated by Universities UK. This is quite a vulnerable sector, as we know. For example, Coventry University has shared that the increase in fees will provide £1.5 million to £2 million in additional income, but the increase in national insurance that it faces will cost £3 million. The Government have given with one hand and taken with the other, as universities expected this fee increase to support their finances. Instead, it will be more than wiped out by the tax increase, when universities across the country already face financial difficulties.

Ultimately, our students will be forced to pay the price for these decisions, whether through further increased fees or a reduction in teaching staff for universities to sustain themselves. It is disheartening that the Government are not supporting our young people to pursue higher education. I am concerned that this group is already quite vulnerable in society, with youth unemployment sitting at around 14% in the final quarter of 2024, compared with the national unemployment rate of 4.4%. We talked about this and the problem of NEETs earlier in Committee. The rate of unemployment for our young people is already three times higher than the national average. To increase costs on education will leave the more highly educated people in this group who cannot find a job in more debt than before. In the 2022-23 academic year, there were 2.9 million students across our universities and nearly 400,000 staff. This Bill will have a negative consequence on all of them.

I urge the Government to think carefully about the choices they are making and the impacts this will have across society. We ask them to pause and consider the impact on schools and universities, just to be sure that it does not affect performance, given the vulnerability of young people at the moment and the Government’s objective to increase the number of teachers in the system. I beg to move.

[Baroness Lawlor (Con)]

My Lords, I support the amendments in this group: Amendment 35 from my noble friend Lady Barran, which asks for the new employer rates to begin after the tax year in which an impact assessment is published in respect of schools and universities, and Amendment 43 from my noble friend Lady Neville-Rolfe, to which my noble friend Lord Altrincham has added his support and which asks for a higher education allowance. I do so not only because the education of children is an obligation for their parents, who must ensure that children of compulsory school age are receiving an education—most do this in schools—but because, in this country, with its tradition of support for freedom of conscience as an enabling state, not a domineering one, Governments have gone hand in glove with the right of parents to decide what sort of education is best for their children. In these matters, the state has enabled parents to choose, rather than forcing them into state institutions through financial penalties or totalitarian laws.

That view has been part of the political arrangements for education when, irrespective of who is in power, the tradition has been that, where the law requires, the state enables. Barring the often political and ideological debates over education, it has done so through, among other ways, funding. Initially, it was a grant in the mid-19th century. That was followed in the 1870s by Gladstone’s Liberal Party introducing the obligation on parents of elementary education, but he refused the demands of what he called the “Prussian element” in his own party, who wanted to supersede the voluntary schools and replace them with a comprehensive, uniform state system. Thus, he allowed to survive, and indeed encouraged, what we now call voluntary schools: independent schools and Church schools which have educated children in this country for centuries. He expressly supported the right of parents to choose the best education for their children. Voluntary schools would be supported and supplemented by the new board or state schools.

That principle continued to inform education law in this country throughout the 20th century. Indeed, Britain’s history is a proud one. The education of children and young adults was often at the public’s expense, supported by those who could or would pay—be that the monarch, the guilds, the city corporations, the ratepayers or, later, in our own centuries, the taxpayer. In fact, until relatively recently, this country was an exemplar in educating its people irrespective of their parents’ means.

Under Elizabeth I, that tradition was recognised in law at the very start of the 17th century, when education was designated in law as a charity. Under the Tudors, some of the most famous schools had been just that: public schools. Winchester and then Eton were founded by the monarchs of the day to educate, as I recall, 70 poor boys so that their school education would equip them to go on to one of the universities of the day and be employed, I think, mainly as professional clerks in the Church, at the monarch’s service—a precursor to the Civil Service.

Anyway, many of those schools—Anglican, Catholic and dissenter—continue to flourish today, as Gladstone would have wanted. Not only were these schools regarded as the foundation of the education system, they were supported and encouraged in law through public funds. However, even if the funding systems changed, they were never penalised by discriminatory tax, as will happen under what this Government propose, not only in the extension of VAT but in the discriminatory penalty of the new NIC rates.

Despite stiff competition, they continue to be popular with parents, educating hundreds and thousands of children across the whole country. An impact assessment would reveal the true cost to children’s education and allow for a pause before this unthinking rush to destroy what works well and, as we have heard many times in this Room, continues to supplement what the state does and what the general taxpayer can afford.

There are 2,600 independent schools in the UK, mostly catering for the early years and primary stages of school. They educate more than 620,000 children, nearly 7% of UK school pupils and half of the parents who were at maintained schools: 25% in Edinburgh, 13% in London and 20% of all sixth-formers in the UK. They teach well. I will not go through the Ofsted reports on each of these schools but, on the whole, they do very well—better than maintained schools do on the whole, I am afraid, although some excellent maintained schools have done wonders recently; I take my hat off to them. They provide a school education to the highest potential of each individual student—just as the principles of the 1944 Act put it—which their parents judged was right for them.

I understand that one policy of this Government is an ambitious concentration on growing the public sector, with large pay increases—an aim of this Government that may go counter to the priority of economic growth for the whole economy. Perhaps the Minister would like to say, now or in writing, how many of the 28,000 new public sector appointments between July’s and October’s Budgets included new teachers and new doctors. Without good-enough teachers in our schools, maintained or independent, children at every stage of their education—early years and compulsory—will suffer.

Unless the Government listen and think again on these modest amendments, children’s education at this vital early and compulsory stage will suffer, as some independent and voluntary schools will be forced to lay off staff and will probably try to raise their fee income to make ends meet. They are the target of penal taxation, with the imposition of VAT and the new employer NIC hike. They are discriminated against because maintained schools will have these rises funded.

These amendments do not seek to run a coach and four through the measure. They are not demanding the outright abolition of the employer’s new NICs or the employment allowance, but they seek to improve the legislation. Wherever they are educated, we see the fruits of an education suited to the individual child. It is an essential stepping stone to adult life in which the recipient flourishes, and so the whole of society benefits. Education is not only a private good for a child; it is a public good for all of us and all who live in our country.

These are modest amendments designed to assess and ameliorate the impact on the independent sector—not to deny the Government their measure, but to do due diligence and mitigate the damage of an otherwise flawed measure. I hope that the Minister and the Government, in the spirit of the historic Labour Party, will be at one with the tradition of responsibility for the education of the young, in whatever institutions of the country they inherit, and will stop short of a new tax levy that will penalise those institutions and the education of our children. I hope that they will assess fairly the impact of the proposed measure on independent schools and will think again.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Lawlor and Lord Altrincham

Committee stage
Tuesday 4th February 2025 Grand Committee

[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.