National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness O'Grady of Upper Holloway Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Baroness O'Grady of Upper Holloway (Lab)]

My Lords, I confess that I was intrigued by one former Conservative Prime Minister’s line of attack on the Bill. Liz Truss criticised what she described as “unfunded tax rises”. I am still trying to figure out what that means, but it is crystal clear that Liz Truss’s £45 billion-worth of unfunded tax cuts played a significant part in getting us into a mess in the first place. People will not forgive or forget that legacy: the NHS and prisons are at breaking point, mortgages are soaring and pay packets have been cut in real terms, resulting in the biggest wave of industrial strife on record in this country since the 1980s.

Turning around this sorry performance will take more than the six months Labour has had in office so far, but the new Government are already putting in place the foundations for a sustainable recovery: reform of planning and pension funds; an industrial strategy, with better education and skills; stronger trade relations with the EU; and a new deal to make work pay, which in turn will help boost consumer demand and so encourage business investment. Critically, the Bill provides for public investment to deliver fair growth in every corner of the country, to help close the prosperity and health gap. According to the Health Foundation, in 21st-century Britain, the chances are that, if you are born poor, you will die younger. I look forward to hearing from the Minister how the Bill will help tackle the obscene inequality of geography and class that Labour has inherited.

The Opposition are quick to criticise Labour’s programme to get Britain back on its feet but coy about what they would do instead. If the Conservative Party believes that a better way to balance the books is to raise taxes on working families, slash welfare for the sick, cut pay for public servants—the workers once patted on the back as Covid heroes—and usher in a new era of austerity for public services, the party should say so. In the absence of that, this debate on employers’ national insurance should at least be rooted in evidence.

I thank the House of Lords Library for its briefing. It cites HMRC figures that show, just as the Minister pointed out, that the number of employers that will see no change or that will benefit from these NI changes outstrips those that will pay more. The IFS confirms that, with the doubling of employment allowance and other support, smaller employers will be least affected. In the context of a historic squeeze on the living standards of working people, large employers are being asked to dig a little deeper to pay for a healthier, better educated and better skilled workforce, from which they will benefit too. Surely it is only right that big business pays its way.

One Conservative apparently once agreed with that principle. In 2021, Rishi Sunak announced that he would reverse previous Conservative corporation tax cuts in one leap, taking it from 19% to 25%. The then Chancellor said that it was

“fair and necessary to ask”

business

“to contribute to our recovery”.—[Official Report, Commons, 3/3/21; col. 256.]

I have heard the argument that, even in a relatively tight labour market, employers somehow will have no choice but to offload the extra NI costs on to customers and their own workforce, but there is no such automatic link between employer taxes and NI contributions on the one hand and prices and pay on the other. When previous Conservative Governments radically cut corporation tax, that did not, after all, automatically lead to lower prices in the shops or higher rewards for workers—far from it.

Businesses of course have choices about how to cover these NI increases. They can absorb them by raising productivity, they can invest in new skills, kit and technology, and they can restrain excessive top pay and profits. There is scope to do so. The latest ONS figures show that, for the service sector—the sector most affected by NI costs—the net profit rate has risen to 15.1%. Analysis of the accounts of 17,000 companies by the trade union Unite found that pre-tax profit margins were 30% higher in 2022 compared with the average across 2018 and 2019. Post-tax margins were, on average, 20% higher. Studies by the International Monetary Fund and the European Central Bank also concluded that rising corporate profits are contributing to higher inflation.

Everyone wants Britain to be a great place to work, to invest and to do good business, but to achieve that goal we need fairness and change. This country is undeniably in a dire state of disrepair. We desperately need to strengthen the NHS, schools, colleges and local communities. Businesses need cheaper, cleaner energy. Productivity and living standards must rise. To do all that we need investment, and that is what this Bill is about.

Over the Conservative Party’s 14 years in power, come rain or shine, the roof was never fixed. Now it is Labour’s responsibility—indeed, its duty—to get the job done.