National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Noakes and Lord Altrincham

Report stage
Tuesday 25th February 2025 Lords Chamber

[Baroness Noakes (Con)]

My Lords, we come to an exciting part of this Report stage, having had several debates on this Bill.

The Bill will have significant impacts on: some types of employers; some business sectors and sizes of business; some types of employees; and some types of the provision of public services by bodies which are not themselves in the public sector. More broadly, we have heard that businesses will face the double whammy of the minimum wage increases and the national insurance increases together in just a few weeks’ time, and they are likely to respond by taking actions to reduce their workforce and the hours that their workforce can work and reduce wages where they are not constrained by the national minimum wage. Prices are likely to go up, and profits are likely to go down. All this will have negative impacts on the economy. It is difficult to avoid opening a newspaper nowadays without seeing one or more campaign groups, industry representatives and charity representatives making their case for the harmful impacts of this Bill, but to date the Government have been completely deaf to all these entreaties. All this is bearing down on the economy, which is already flatlining.

I can understand why the Government do not want to make any changes to a centrepiece of their growth-destroying Budget last October. We know there is almost no room left in their fiscal rules for any changes. There are lots of downside risks to the economy, and there are precious few upsides. These are all the results of choices that the Government have made in the last seven months, so I understand why the Minister’s response to every issue presented to him in Committee, and indeed again today, was that the Government reject the cases being made.

My Amendment 39 provides for a very simple power for the Treasury to issue regulations that exempt categories of employer from the national insurance changes that this Bill introduces. There is not even a parliamentary process attached to the regulations. My amendment would therefore allow the Treasury to act quickly, once it faces up to the fact that it really has created some problems. There are no downsides to the Government accepting this amendment, as they need never use it, but it would be a useful backstop if things turn out as badly as many of us believe they will.

It is not often that the Opposition Benches offer an unrestricted power to a Government to do things, but I and others are so alarmed by the potential impacts of this Bill that I think it is the right thing for the Government to take this kind of power in the interests of the country.

We have passed some amendments today that have taken some of the roughest edges off this Bill, and I hope they will survive their passage through the Commons, but this has not made the Bill completely harm free. My sincere hope is that the Government will support this amendment, if not in its current form then in a reworded form to their own taste at Third Reading. I beg to move.

[Lord Altrincham (Con)]

My Lords, I support Amendment 39 in the name of my noble friend Lady Noakes. I thank all noble Lords for their courage and grace in staying all the way through to group 7.

Amendment 39 would give the Treasury the power to exempt sectors that would suffer significantly under the Government’s national insurance rise. The amendment introduces a degree of flexibility that Ministers can use to protect the most vulnerable of British businesses; by allowing the Treasury to introducing specific exemptions when required, we can exempt them from the additional financial burden of the national insurance increase.

I am grateful to my noble friend for bringing forward Amendment 39. It is clear that we share many of the same concerns. The amendment in her name is closely aligned with those in the name of my noble friend Lady Neville-Rolfe that seek to exempt specific sectors, such as the social care or charity sectors. So many sectors need exemption from this policy, and we hope the Government will give the arguments thoughtful consideration.

[Lord Livermore (Lab)]

My Lords, Amendment 39, tabled by the noble Baroness, Lady Noakes, seeks to include powers as part of this Bill to exempt certain groups in future. As I have already set out, the revenues raised from the measures in this Bill play a critical role in repairing the public finances and rebuilding our public services. Clearly, any future changes that exempt certain groups from paying national insurance would have cost implications, necessitating either higher borrowing, lower spending or alternative revenue-raising measures. I would therefore respectfully ask the noble Baroness to withdraw her amendment.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Noakes and Lord Altrincham

Committee stage
Tuesday 21st January 2025 Grand Committee

[Baroness Noakes (Con)]

My Lords, the whole Committee has, I know, great respect for the immense knowledge and expertise in economics of both the noble Lord, Lord Eatwell, and his colleague, the noble Lord, Lord Layard. Laying out a theoretical argument about what happens to employment and demand in the economy is entirely valid, but it ignores what actually happens at the level of the individual enterprise, employer or employee.

In her amendment, the noble Baroness, Lady Smith, talks about the impact on a specific group of employees. There is nothing in what the noble Lord had to say about the overall macroeconomic impact, which will affect the attractiveness of continuing to employ veterans if the cost of employing them is going to go up. In debating the previous group, we talked about whether community pharmacies could stay in business, given the additional costs that would arise for those businesses. We have to remember that this is not a highly theoretical exercise: the imposition of these massive national insurance changes is going to have a huge impact at the micro level. That is what we are trying to explore in many of the amendments we will look at in Committee, today and next week. They are not answered by theoretical answers at a macro level.

[Lord Altrincham (Con)]

My Lords, I rise to speak to this group of amendments surrounding the exemption of veterans’ salaries from this NI jobs tax; the lead amendment was moved by the noble Baroness, Lady Smith of Newnham. This is a helpful group of amendments to remind us—just as my noble friend Lady Noakes has reminded us—that the social costs of this taxation initiative will fall on individuals. Although we talk about economics in an aggregate manner and debate it in the aggregate, there are social costs, and they are very real.

In the aggregate, the Treasury may do quite well from this rise because of wage inflation. Wage inflation is a tremendous friend to the Treasury and will more than make up for the gap that the noble Lord mentioned at the start, which is that we need to find other sources of revenue. Wage inflation is going to support the Government quite nicely through this, but that cuts both ways: obviously, it has an aggregate and fiscal benefit, but it hits hard because the cost of employment goes up a lot. There is a double effect and we are probably seeing that right now.

Putting aside the theory about whether we lose jobs in one place and offset them somewhere else, we know that we were down 50,000 jobs in December; the OBR number is an aggregate loss of 50,000 through this initiative. That is a tremendous estimate, of course—who is to say that it has any better insight than anybody else?—but it is already down by 50,000 in December. It is probably a combination of wage inflation and expected tax rises, but that is 50,000 people who are out of a job. As we look through these amendments, we might pause and reflect. Who are these vulnerable employees? Who is actually going to bear the social cost of this change?

These amendments perfectly encapsulate the problem, which is that these changes will fall on people who are, and have already been identified as, vulnerable in one form or another. Observations about tax complexity may have been well made by the noble Lord, Lord Eatwell and, by the way, it is not just tax avoidance that is a burden to the economy. Tax compliance is a burden to the economy, as all forms of taxation in this country have become very complex and are a tremendous drag on the economy as things stand. However, that is how we manage our affairs.

While we look at this issue, we might pause and think about where the costs fall on individuals—in this case, on veterans. The previous Conservative Government ensured that veterans were a priority. They guaranteed that the funding was sufficient to support veterans in securing highly paid and skilled employment in key sectors across our economy, utilising the skills that they developed in the military.

In April 2024, veteran employment was at an all-time high of 89% owing to various initiatives, including the 12-month national insurance relief for employers hiring a veteran into their first role out of military service. This tax incentive was highly beneficial for veterans and business. Following its introduction in 2022, this relief was extended in 2023 and again in the following year, 2024. Following the Government’s decision to impact business through this tax decision, will the Minister at least confirm that they intend to continue this business relief to ensure that our veterans are able to find employment after their service and that businesses are able to benefit from their unique skills and experience?

Our military deserve the utmost respect for the service they provide to our country and, as such, the veterans deserve that same level of respect. This tax will be harmful to these people, and if the Government are unwilling to exempt them, at the very least they must explain how they have arrived at the conclusion that it will not be exceptionally detrimental to the employment rate of veterans.