National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Monckton of Dallington Forest Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Baroness Monckton of Dallington Forest (Con)]

My Lords, I declare my interests: as chairman of Team Domenica, a charity that looks after adults with learning disabilities; as a patron of the Acorns Children’s Hospice; and as a non-executive director of the Watches of Switzerland Group, a FTSE 250 company headquartered in Leicester.

To prepare for this debate, I have been in touch with several organisations across the sector to understand the devastating impact of the proposed legislation. To put my contribution into context, my career has been in luxury retail. In 1986, I opened Tiffany—the American jeweller—in this country in partnership with Tiffany’s in New York. This was a time when to be an entrepreneur was encouraged. The then-Chancellor proclaimed:

“It is the rediscovery of the enterprise culture … that will provide the only answer to the curse of unemployment, and the only true generator of new jobs”.


Little did I know at the time that this former Member of your Lordships’ House would become my father-in-law.

My noble friend Lord Forsyth of Drumlean is quite right in saying we need to reinvigorate the private sector. So, I started my research not in the luxury end of retail but in my local town in East Sussex. Heathfield Ironmongers, where I have shopped for the past 25 years, is closing on 31 January. Their website states:

“serving the local community since … 1919”.

It had suffered a drop in footfall after Covid, but the manager told me that the combination of the national insurance changes and the reduction of business rates relief was, as she put it, the final nail in the coffin.

Altus Group, the commercial real estate data provider, states that independent retailers are particularly expected to struggle this year. Around 85% of its predicted closures will be independents—that is 14,660 shops. Just think for a moment of the people who are currently employed there, and their families. What are they going to do?

I spoke to our immediate neighbour, who is a senior executive in a large insurance company. She told me that, partly because of this legislation, they will now be outsourcing most of their IT and project manager roles to India, Greece and Portugal. They are opening offices in these countries and making the UK roles redundant. They have accepted that, in order to do this, they will have to train people up to the level of competency that they have in the UK, but they say they have no choice, as their combined operating ratio—a measure of their underwriting profitability—would be too high if they retained their UK staff due to the changes in national insurance contributions.

One of the areas that is most affected—and we have heard this several times today—is the hospitality industry, in which Team Domenica plays a very small part. The group UKHospitality has calculated that the October Budget will deliver an increase to the annual tax bill of £3.4 billion, with a 10% rise in the cost of employment per person. The Institute for Fiscal Studies has said that businesses employing people on the national living wage will face the biggest hit from the increase. As an employer of 3.5 million people, hospitality is set to be the hardest hit. For example, it would cost an extra £1,140 to employ a student working 14 hours at the weekend. So, first-time workers will become unaffordable for hospitality businesses, thus removing valuable entry-level experience and training.

The overwhelming feedback I have received from across the sector is that this is just not sustainable. There were three particularly interesting points raised by the people I spoke to. First, all large businesses will be hit equally, but the Government should have considered the mix of labour costs on companies’ P&L and tiered the increase. Businesses with a high mix of labour will be hit harder and profitability will be wiped out. Secondly, businesses are significantly reducing the amount of capital they would have been spending in the year ahead as they cannot justify the level of returns, so growth will be stifled. Thirdly, inflation will accelerate as everyone is looking at increasing prices to mitigate.

On the charitable area, for my small charity alone the national insurance changes will add an extra £39,000 a year. However, for a charity like Mencap, which looks after 4,000 people with learning disabilities, the impact is huge, as my noble friend Lord Jackson of Peterborough has said. I spoke to Jon Sparkes, the CEO of Mencap, who told me that it has contracts with 80 local authorities, providing 650 different services. It has 5,000 staff, and large numbers of front-line care workers who are on the national minimum wage. Mencap’s income is £200 million a year. This is the bottom line, with no margin on the delivery of service. There is no way it can absorb these extra costs.

The impact of lowering the threshold will be £5 million, with a further £1 million due to increasing the headline rate to 15%. Jon told me that Mencap is having to give notice to 60 services and is working flat out to try to transfer them before 1 April to avoid the financial hit, but he does not think that it will be able to do that. Again, pause and think of the human cost of this: of the people who rely on these services, and of the families who thought they had found a safe haven for the people who they care most about and who are the most vulnerable. These are statutory services, so can the Minister give an undertaking that the public purse will pay for these public services?

Hospices are particularly impacted as most hospital charities have significant retail operations, employing many people close to the national living wage and people on short-term contracts. My colleague, Brian Duffy, CEO of the Watches of Switzerland Group, started the Watches of Switzerland Group Foundation. It supports a variety of charitable endeavours, most notably the King’s Trust and food banks. These organisations struggle to meet the demand for their services. They utilise volunteers where possible, but they also have permanent staffing and management costs. Brian told me that the message from the charities is that the increase in national insurance contributions can be funded only by cutting back on expenditure to those who need it most.

The outlook, frankly, is bleak. The optimistic entrepreneurial spirit will be stifled. Wealth creation will be stymied. This is a tax on employment, and the private sector is a sacrificial goat. Meanwhile, the state sector, which has decreasing rates of productivity, expands. Does the Minister agree that His Majesty’s Government should commit to the interests of wider society and not just the public sector?

During the election campaign, Keir Starmer declared:

“Small businesses are the beating heart of our economy, our communities and our high streets. Our Plan for Change will drive economic growth across the country so small businesses can thrive”.


How hollow that sounds now, and especially at Heathfield Ironmongers.