National Insurance Contributions: Hospitality Sector

Lord Altrincham Excerpts

Thursday 13th February 2025 Lords Chamber

Tabled by

[Lord Altrincham]

To ask His Majesty's Government what assessment they have made of the impact on the hospitality sector of the cost of the increase in employer National Insurance contributions, and the savings from the increase in employment allowance for the smallest businesses.

[The Earl of Effingham (Con)]

My Lords, on behalf of my noble friend Lord Altrincham and at his request, I beg leave to ask the Question standing in his name on the Order Paper.

Mortgage Prisoners Inquiry Bill [HL]

Lord Altrincham Excerpts

2nd reading
Friday 7th February 2025 Lords Chamber

[Lord Altrincham (Con)]

My Lords, I begin by recognising the work of the noble Lord, Lord Sharkey, in bringing forward the Bill, and bringing this issue to this House on multiple occasions on behalf of thousands of families who are affected by this issue. I also commend his efforts in his role as co-chair of the APPG on Mortgage Prisoners.

I declare my recent interest as a director of the Co-operative Bank, which has been mentioned, and indirect involvement in the events of 2008 and 2009 that saw the creation of UK Asset Resolution, which in turn sold on the mortgage books that concern the Bill. The Government were able to sell on the mortgage books because UK domestic mortgages were, for the most part, very secure. So many issues flowed from the financial crisis that there can be confusion as to the source of the solvency and liquidity problems, but for the large part, domestic mortgages were well managed, with low defaults, and that includes Northern Rock, which we just heard about.

Mortgage prisoners are individuals and families unable to secure better mortgage deals due to various factors, often through no fault of their own. Indeed, many endure financial hardship and live in fear of rising interest rates. This problem arose from a mixture of poor credit quality, pricing and inertia. Typically, mortgage prisoners are unable to switch mortgages to a better deal even if they are up to date with their payments. Most mortgage prisoners have a mortgage in a closed book of an inactive firm.

These mortgage borrowers were much more likely to have got a mortgage without proof of income or with an impaired credit history. They still, even today, have relatively high loan-to-value ratios after many years of house price inflation. They often have unsecured debt as well. Many have interest-only mortgages with no repayment plan. Ultimately, they tend to have to have higher risk characteristics than borrowers with active lenders.

The problem of mortgage prisoners is well documented. Mortgage prisoners are primarily a legacy issue stemming from the 2008 financial crisis and subsequent regulatory changes. Some lenders were forced to deleverage and they sold mortgages to third parties. They were under regulatory obligation to do so. Additionally, a significant number of mortgage prisoners are tied to inactive or unregulated lenders. These lenders do not offer new mortgage products, thereby leaving borrowers with few options to escape high rates even if they have a strong payment history.

The FCA implemented stricter affordability rules under the mortgage market review of 2014. Those changes were designed to prevent reckless lending and ensure that borrowers could afford their mortgages. Although the reforms were necessary to stabilise the market and were widely thought to be an appropriate regulatory response, it is understood that they may have may have inadvertently trapped some home owners into high interest deals.

I fully acknowledge the challenges these families face and share their frustration at this very long-running situation but I do not believe that an inquiry into the events surrounding the creation of mortgage prisoners, their consequences and any other relevant matters is necessary. That does not mean that inquiries are not important in exceptional circumstances. However, in this instance, an inquiry risks delaying meaningful progress, misallocating resources and offering little in the way of new insights.

Some progress has been made. The FCA has relaxed affordability checks for mortgage prisoners, allowing lenders to assess applicants based on their payment history rather than rigid affordability criteria. Under the previous Government, in 2019, the FCA introduced modified mortgage assessment criteria in an effort to allow certain groups of mortgage holders to switch to better deals. Inactive lenders and unregulated firms had to inform their mortgage holders of the possibility of moving elsewhere.

We have emphasised the role of the FCA in resolving this issue and have publicly acknowledged the challenges faced by mortgage prisoners. There were ongoing discussions about how to how to support borrowers trapped with inactive or unregulated lenders. We explored options to transfer these mortgages to active lenders or create mechanisms that allowed borrowers to access competitive rates. While there is more work to be done, the mechanisms for addressing the problem are already in place. Launching an inquiry risks diverting attention and resources away from those practical efforts.

The noble Lord, Lord Sharkey, has in the past proposed a price cap, and that could still be a way forward, perhaps by asking the banks to agree a price for a higher rate borrower and then allow the price to be a cap on any transfer—ideally, of course, at a competitive lower price. The FCA could, again, ask companies to write to mortgage holders with good credit history to jog them into applying for a standard mortgage, because there is inertia in this problem as well.

To conclude, an inquiry may seem constructive, yet it is a lengthy process and can often take months, if not longer, to complete, and requires significant resources. We do not want to risk delaying progress. Targeted interventions can provide relief to those affected without requiring an inquiry. By focusing on practical measures, we can ensure that resources are used efficiently and effectively. The previous Government understood the difficulties faced by borrowers who are not able to switch to a new mortgage deal. We continue to work with the FCA and the sector on this issue and carefully consider practical and proportionate solutions put forward. We hope that the present Government will do the same.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Altrincham Excerpts

Committee stage
Thursday 6th February 2025 Grand Committee

Moved by

[Lord Altrincham]

35: Clause 2, page 1, line 16, leave out “2025-26” and insert “beginning after the tax year in which an impact assessment is published assessing the impact of the provisions in this section on schools and universities”
Member’s explanatory statement
This amendment would prevent commencement of this section until a full impact assessment is published for schools and universities.

[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.

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[Lord Livermore (Lab)]

I am not sure that I would share that characterisation from the noble Lord of the VAT policy. We have published an impact assessment for both that policy and this policy. We have no intention of publishing further impact assessments.

[Lord Altrincham (Con)]

I thank noble Lords who have spoken on this group. I thank my noble friend Lady Lawlor for reminding us that education is a public good and for her little history lesson on the delicacy of our educational settlement, not just in the 19th century but going all the way back to Queen Elizabeth I and before; it was most helpful. I also thank the noble Lord, Lord Sharkey, who reminded us that, for this section of the Bill and more broadly, the consequence of these tax rises is policy-driven unemployment. We already know that jobs are going to come out. The noble Lord pointed out that 10,000 jobs may come out of higher education; with 10,000 here or there, the numbers could build up quite quickly.

It is in that context that we ask the Government to approach this area with great caution. The Minister has responded that they have looked very carefully and are aware of the issues, and they are, in their judgment, proceeding with great care. In the light of the Minister’s comments, I thank him and beg leave to withdraw.

Amendment 35 withdrawn.

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[Baroness Kramer (LD)]

My Lords, I think that the amendments we discussed on Monday would have covered the public authorities issue but I am not absolutely sure, so clarification from the Minister would be extremely helpful. Can he also clarify for us the protections put in place for micro-businesses? The noble Baroness, Lady Noakes, is usually right when she identifies these issues. It is beginning to sound as though the sector is somehow not qualifying for that level of protection. It would be most helpful to understand that.

[Lord Altrincham (Con)]

I thank my noble friend Lady Noakes for her amendments in this group; for her extremely well-made case as to how we might look to soften the blow for public services and the private sector; and for drawing attention to so many areas on the edge of public services that will be affected, such as dentists and childcare jobs. This is where the impact will be widely felt across the country.

On Amendments 54 and 55, the Government have stated that the purpose of this Bill is to repair the public finances. A key aspect of this plan is to ensure that public authorities can continue to operate efficiently without being overly burdened by rising employment costs. By increasing the employment allowance for public authorities to £20,000, we would reduce the financial pressure on them to provide essential services. Increasing the employment allowance specifically helps offset rising staffing costs, which are expected only to grow as the Government invest more in public services.

As the Government focus on boosting public sector capacity to meet future challenges in depopulation, the higher allowance would support that goal. It would provide greater flexibility to focus on improving service quality and enhancing delivery without worrying about escalating employment costs. The proposal aligns with the Government’s goal of unlocking economic growth. The ability to support and maintain a strong and capable public sector workforce means that these services can continue to contribute positively to the wider economy. This tax increase will inevitably drive policy-driven unemployment, which we have talked about, as already evidenced in the recent jobs numbers.

I understand that the Minister believes that the Government had no flexibility when they produced their Budget and made these tax choices. However, as the months have passed, the economic situation has changed and there has been quite a bit of wage inflation. As such, these proposals to increase the employment allowance could be cost-neutral to the amount of money raised, and should certainly not be immediately dismissed as unfunded policy decisions.

[Lord Livermore (Lab)]

My Lords, the amendments tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, seek to expand the eligibility of the employment allowance to domestic workers and the public sector, and to increase the value of the employment allowance for organisations carrying out functions of a public nature.

As we discussed on the previous day in Committee, the employment allowance was introduced in 2014 by the previous Government. Currently, eligible small businesses with employer national insurance bills of £100,000 or less receive £5,000 of employment allowance, which means that they can deduct £5,000 from the total employer national insurance that they pay on their employees’ wages. This Bill increases that employment allowance to £10,500 from April 2025. It also seeks to expand the employment allowance to all eligible employers by removing the £100,000 eligibility threshold, which will simplify and reform employer national insurance so that all eligible employers now benefit. All of the remaining eligibility criteria remain unchanged.

As has been the case since the employment allowance was introduced in 2014, organisations operating wholly or mainly in the public sector are not eligible to claim it. As we discussed during the previous session in Committee, eligibility for the employment allowance is not determined by sector but depends on the make-up of an individual business’s work. The HMRC guidance explains that this is based on whether an organisation is doing 50% or more of its work in the public sector.

The noble Baroness, Lady Noakes, asked for some specific figures in relation to that. The number of those claiming the employment allowance varies from year to year because the amount of work done in the public sector varies from year to year. It is for individual businesses to determine the amount of work that they do in the public sector, therefore data is not collected in the way the noble Baroness asks for.

The noble Baroness also asked for specific additional assessments. As I have said many times before—she is no doubt sick of me saying so—the Government have provided the impact assessments that we intend to provide and do not intend to provide any further such assessments. I am not aware of any plans for a specific information campaign, in the way that she asks for, but I am very happy to take her suggestion back and discuss it with colleagues.

Non-domicile Status

Lord Altrincham Excerpts

Tuesday 28th January 2025 Lords Chamber

[Lord Livermore (Lab)]

I am very grateful to my noble friend for his comments. The Government are absolutely committed to addressing unfairness in the tax system so that everyone who makes their home in the UK pays their taxes here. It is absolutely right that we have the most competitive tax regime that we possibly can.

[Lord Altrincham (Con)]

Following the original question of the noble Lord, Lord Leigh, we should wish the Minister and the Government well in running after taxpayers who have left the country, many of whom, of course, are non-doms who are not British and who will be very hard to recover or bring back. But many of the departures at the moment are British: they are UK-domiciled tax residents who are leaving. Therefore, can the Minister share with us the Treasury’s best estimate for the departure of all higher-rate taxpayers during this tax year?

[Lord Livermore (Lab)]

I am slightly confused about what underlies the noble Lord’s question, given that, as I say, the previous Government introduced this party’s policy on this issue. The OBR had migration assumptions associated with that policy, as it does with this one. The OBR has factored in the potential behavioural response of affected non-domiciled individuals into its costings. It accounts for an assumed level of migration from this group, just as it did for the previous Government’s groups. So, as I understand it, the migration assumptions for the previous Government’s reforms were 10% and, for this Government’s reforms, they are 12%.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Altrincham Excerpts

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.

[Lord Livermore (Lab)]

My Lords, I am very grateful to all noble Lords who have spoken in this debate. I will address the amendments tabled by the noble Baronesses, Lady Smith of Newnham and Lady Kramer, and the noble Lord, Lord Randall of Uxbridge, which seek to exempt veteran salaries from the employer national insurance changes. These amendments would create a different employer national insurance rate and threshold set at the current levels for salaries of veterans. The Government of course recognise the huge contributions made by the UK Armed Forces and veterans in this country, and I completely understand the intention behind these amendments.

As some noble Lords have mentioned, there is already an employer national insurance relief available for the earnings of veterans, meaning that employers are not required to pay any national insurance contributions up to £50,270 for the first year of civilian employment. At the Budget, the Government decided to extend the national insurance contributions relief for employers who hire veterans to support veterans in their first year of civilian employment for a further year. Despite the challenging fiscal inheritance this Government face, this means we are maintaining this relief and it is not changing as a result of this Bill.

Further to this, we have more than doubled the employment allowance to £10,500, meaning that more than half of businesses with national insurance liabilities either gain or see no change next year. Businesses and charities will still be able to claim employer national insurance reliefs, including those for under-21s and under-25 apprentices, where eligible.

On veterans more widely, this Government have taken action to demonstrate our commitment to renew this nation’s contract with those who have served. We have awarded £3.7 million in veterans housing grants, veterans will be exempt from the local connection test for social housing in England and veteran cards are now accepted ID for elections. We are progressing veterans support programmes at pace, including a centralised referral pathway designed to support veterans who are homeless or at risk of homelessness, an NHS mental health specialist service designed to help veterans and their families in England and an NHS physical health specialist service designed to help veterans and their families in England.

Before I sit down, I shall also address the questions raised by the noble Baroness, Lady Neville-Rolfe, about dentists, which I was unable to answer during the debate on the previous group. As I said, the criteria have not changed, including the exclusion of those doing 50% of their work in the public sector. The eligibility is down to individual businesses, and the proportion of their work in the public sector may vary year to year. All charities can claim, including hospices.

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[Lord Altrincham (Con)]

My Lords, I will speak to Amendments 4, 5 and 8 in this group. It is an unusual group, as the noble Lord, Lord Forsyth, mentioned, because it covers such a diverse range of services. But they are all public services, which is why I agree with the comment from the noble Lord, Lord Davies, which I may have misheard, that this special pleading does not really fit well with the concept of hurting public services. These all have in common the semi-independent provision of public service. That is the essence of the dissonance in government policy for this area, which is that the Government are protecting direct public services but have not really thought through what to do about indirect public services, of which the charity sector is a huge provider and has been now for 20 years. It is almost as if we have fooled ourselves by saying, “Well, it’s in the charity sector now so it’s not a public service”—but large charities deliver public services, as do universities. To imagine that they are entirely private and away from the Government is obviously not in line with other areas of policy.

So, that is the essence of why, in an unusual way, these amendments have been gathered. But they have this feature in common and, as we address this, we are trying to find a way through that protects public services. In her very good comments at the start, the noble Baroness, Lady Grender, used the expression “vital partner in public services”. That is what these are: they are vital partners. In essence, sectors of the economy that provide public services—which, certainly within this debate, we should assume are appropriate and are needed—will be affected and, again without a proper impact assessment or proper analysis, the cost of those impacts will almost certainly be taken by the Government. That is the essence of this area of public service delivery, which is that the Government are ultimately on the hook for all this. They are hoping that the services can be provided away from any greater demands on the Treasury, but the truth is that, when it goes wrong, it will go straight back up to the Government.

The noble Lord, Lord Sharkey, spoke so well about universities. What is going on in the university sector cannot be anything but bad news for the Treasury. It must be hoping and praying that the whole situation can just be kicked along without a huge hit coming back to the Treasury one way or another, because the sector is in trouble at the moment. But everybody knows that, when it goes wrong, it will go back up to the Treasury. So let us be careful in putting through changes that make vulnerable public service provision more vulnerable. Surely that is the essence of this area of dissonant policy that is coming out from the Bill.

Specifically on each amendment, Amendment 4 in the name of the noble Lord, Lord Storey, seeks to exempt both early years providers and universities, and indeed it is fair to say that the Government have not fully considered the impact on the education system. I look forward to further discussion on the individual aspects of the education system later in the debate. There have been calls from across the sector, from early years providers to universities, that costs will be far too much for the sector to bear, so if the Government could appropriately explain their evidence that indicates the opposite, it would be most appreciated.

Amendment 5 in the name of the noble Baroness, Lady Grender, seeks to exempt charities, and it certainly seems as though the sentiment across the sector is that this tax will leave many charities in a position where they are forced to reduce services and limit headcount, preventing them offering the same excellent services that they currently do. This tax cannot be seen as anything another than a tax raid that will damage charities across the country.

We also support Amendment 8 in the name of the noble Baroness, Lady Kramer, as the Government have contradicted themselves in regard to local councils. When publishing their local government finance policy for 2025-26, they claimed to understand the issues that councils faced and recognised that, in recent years, the costs of providing services had increased, yet the Bill completely contradicts that and highlights the Government’s chosen direction that does not react to the current situation.

The Local Government Association has claimed that councils will face a shortfall of £637 million next year as a direct result of this poorly thought through tax change. On top of that, it has estimated that it may cost up to another £1.13 billion through indirect costs on suppliers. Neither of these numbers will be offset by the £515 million compensation the Government intend to give. Will the Government say how they reached such a number and whether they will publish the data they used?

These are early questions around these areas of public services. The impacts could be quite large and quite burdensome—ultimately and unluckily, for the Government themselves.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords. I will address the amendments and proposed new clauses proposed by the noble Baronesses, Lady Grender and Lady Kramer, and the noble Lords, Lord Storey, Lord Sharkey and Lord Randall of Uxbridge, which seek to exclude early-years settings, universities, charities, housing associations and town and parish councils from the new employer national insurance rate. I have listened very carefully to all contributions made in this debate and, of course, I understand the points raised.

The Government recognise that 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 circumstances the Government inherited, in the Budget in October 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. It is very likely that many private nurseries will be able to claim the employment allowance, as receiving public funds does not necessarily mean that work is of a public nature, and they should check HMRC guidance.

On universities, I of course recognise the great value—

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Altrincham Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Altrincham (Con)]

I wish the Minister a happy new year and offer him our blessing in his role for this year as well. The Chief Secretary to the Treasury has suggested that the impact of the measure we are discussing is limited, but we have heard today that the impacts are likely to be quite widespread. Indeed, the HMRC estimate referenced by several Peers this evening, that some 900,000 businesses would lose out with an average annual increase per employee of £800, is not a limited impact.

Some of these issues may not come as a surprise to the Government. They would not surprise the OBR. At the time of the Budget, when general expectations were low—albeit not as low as today—the OBR modelled a tax take for this policy of £24 billion before its own estimate of mitigating actions. It notes in Chapter 3, on long-run impacts of Government policy, that the increase in NICs will have

“a persistent negative effect on work incentives and both labour demand and labour supply”,

which is why the £24 billion tax take falls to £18 billion in the first year and £15 billion in the second. As my noble friend Lady Neville-Rolfe set out in detail and my noble friend Lady Monckton spoke about so movingly, the Government’s jobs tax will have an impact on sectors all across the UK, including retail and hospitality businesses as well as charities, including hospices.

The policy, right at the start, was pushing at the likely limits of tax receipts. The OBR gives semi-official estimates from which government policy is partly made, so it is reasonable to ask the Minister whether he agrees with the estimates for tax yield in 2025-26 and 2026-27. Most of the OBR reduction to tax is based on a reduction in wages and a reduction of 50,000 people in employment. Should we assume that the Government accept that 50,000 job-loss number? It is already quite meaningful in an overall increase in employment between now and 2029 of 900,000, which itself is de minimis in a workforce of 33 million to 34 million—and that is based on higher economic growth numbers from a few weeks back. The eroding tax receipts and declining employment numbers expected by the OBR need a careful government response. Perhaps the Minister could confirm that there will be no need to raise tax further this year.

There is dissonance between the Prime Minister’s commitment to growth and the Chancellor’s guidance to the contrary and approach to tax. The NIC increase is part of a set of policies, including the lower threshold, the minimum wage and auto-enrolment, which put burdens on the labour market that make employers reluctant to take on staff. It is this mixture that was noticed immediately during the Chancellor’s October Statement, and which may have contributed to the apparent economic slowdown over recent weeks. The tax increase has become the break point between the Government’s guidance and their actual tax-raising approach. We might need the help of the eminent Belgian detective Hercule Poirot and his “little grey cells”, as well as the Minister, to help us understand and unravel an economic strategy that talks about growth and reducing barriers but sets tax policy with known job-reduction impacts and likely economic contraction.

Perhaps the Minister could help us understand the economic approach. Are the Government sensitive to the move of jobs in life sciences away from the UK? The tax system provides tax breaks for capital equipment that would likely support automation, as referenced earlier this evening. Are we expecting a reduction in employment, with fewer jobs for young people and more automation? That may bifurcate the employment market and increase even further the tax dependency and tax concentration we have on mobile and highly paid people.

The Minister has been very respectful to our debate but, as we enter 2025, the real debate around this topic has become much broader, with the Bank of England, the CBI and the Institute for Fiscal Studies all weighing in. The OBR is one thing, but the Bank is another—surely no better a forecaster than the Government, but aligned in its concerns with Peers today.

For now, the Government, through this tax rise in particular, have created a stagnant economy in which businesses do not grow, young people struggle to find work and professional jobs move to other countries, creating enormous fiscal risk for the future. As such, we on these Benches cannot support the Bill.

Before I conclude, I should address the amendment in the name of the noble Baroness, Lady Kramer. It does not go far enough. As the House has heard today, there is an almost endless list of businesses and charities that will be hit hard by this policy. Given the appalling impact that the increase in NIC contributions is going to have, we will be tabling a Motion to ensure that the Bill is debated on the Floor of the whole House, giving it the proper scrutiny it deserves. Only by scrutinising the Bill to the fullest possible extent can we hope to improve it, to the benefit of businesses and charities across the country. The Liberal Democrats will have taken the first step in voting for this amendment today, but if they really care about the damage the Bill will do, they might consider voting with us on Wednesday.

National Insurance: GDP

Lord Altrincham Excerpts

Thursday 19th December 2024 Lords Chamber

Asked by

[Lord Altrincham]

To ask His Majesty’s Government what assessment they have made of the impact of the increase in National Insurance contributions for employers on gross domestic product growth.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the £22 billion black hole left by the—

--- Later in debate ---

[Lord Livermore (Lab)]

The £22 billion black hole left by the previous Government meant we had to make very difficult decisions to repair the public finances, rebuild public services and restore economic stability. Following the Budget, the Office for Budget Responsibility has revised up its growth forecasts for the next two years, as has the Bank of England. The OECD now expects the UK to be the fastest-growing European G7 economy. The OBR has also said that there will be significant increase in growth as a result of the Budget over the longer term.

[Lord Altrincham (Con)]

I wish the Minister a happy Christmas, even with the reminder of the schwarzes Loch.

Memories of Christmas past and the story of A Christmas Carol remind us that extracting the most amount of money from a business can have surprising consequences. In this case, can the Minister comment on whether increasing employment costs will lead to an increase in prices or a reduction in jobs, and can he specifically comment for us on the impact on the hospice sector?

[Lord Livermore (Lab)]

I wish the noble Lord a merry Christmas and a happy New Year in return. As I said, we did have to clear up the mess that we inherited, and that did mean taking some very difficult decisions. I of course understand and respect the legitimate concerns that have been raised, and we have consistently acknowledged that there will be wider impacts as a result of the decisions that we have taken. But I do genuinely say that not to act and not to repair the public finances and restore economic stability was simply not an option. As I have said, let us be clear: following the Budget, the OBR, the Bank of England and the OECD have all revised up their growth forecasts.

Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024

Lord Altrincham Excerpts

Monday 2nd December 2024 Grand Committee

[Baroness Kramer (LD)]

My Lords, the more times I read this statutory instrument—even after writing myself a cheat sheet on its alphabet soup of acronyms—the more I realise that I lack the expertise in the digital financial services and crypto space to really understand what is happening, the context and the implications. However, I have always supported the sandbox approach as a creative way for the regulator to understand innovations in financial services and how to appropriately regulate them.

This is a high-level SI that will, as the Minister said, be followed by detailed—although negative—SIs to address specific cases. I am a bit concerned that we will need to spot these cases in order to question them, but I have no intention of opposing the regulations before us today. PISCES is a slightly different issue but, frankly, without seeing the new prospectus regime, I have absolutely no idea how to comment on the changes contained in this SI.

I do, as always, have a few questions. First, I want to understand how this SI and what lies behind it ties in with the competition and growth objective. Are the Government taking the view that future growth in financial services is largely linked to digital business models, including blockchain infrastructure and crypto assets, and that shaping the FCA to be a benign regulator will make the UK a leading player in designing, holding, trading and marketing new instruments? Or are the Government concerned that digital and crypto create a new potential for market manipulation, mis-selling and money laundering, such that the FCA needs to find ways to counter, with different approaches to monitoring supervision enforcement? In other words, are the Government playing offence or defence? I would like to hear the Minister’s view.

Secondly, and related to that, with this instrument and the related activities, are we ahead of the curve, with the curve or behind the curve compared with other international regulators? I am afraid I do not have the global reach to understand, and it would be helpful if the Minister could tell us.

My lack of knowledge in this area led me to contact a friend in the industry to seek advice, and I was stunned by the response. In summary, I was told that the innovators who bring new and innovative models to the regulator’s sandbox are the smartest people in the room, but the regulator views the sandbox as a means to decide on monitoring procedures, compliance algorithms and approaches to enforcement. The innovators, by contrast, use the sandbox to identify the regulator’s points of weakness and then build them into their models to escape regulatory control. Innovators in the sandbox explore the regulatory perimeter, for example, to design products that will fall just outside; the mini-bonds are an example. They identify transaction sizes that will slip under the radar and coding approaches that will prevent multiple transactions that are essentially identical to be linked together and therefore escape both supervision and action. Those are just examples, but, increasingly, the industry seems to regard observing the intent of the regulator as purely voluntary. Does the Minister have any concerns that the regulator is outmanoeuvred, underpowered and underresourced?

I will end on my hobby-horse, which applies very much in these circumstances. Does the Minister recognise that, in this very fast-changing world, when so much is global and so much is digital, an effective whistleblowing system is absolutely vital, and our current system is a serious weakness?

[Lord Altrincham (Con)]

My Lords, it is a privilege to address the Committee on the Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024. These regulations serve to bring various legislation under the remit of the financial market infrastructure—FMI—sandbox. The sandbox regime is an important part of the Financial Services and Markets Act, giving expression both to good prudential regulation and economic growth by supporting innovation.

As we heard, the regulations being transferred to the FMI sandbox are: the STRs, or stock transfer gilt-edged securities regulations 1985—the digital gilt area that is likely to be an enormous focus of the government team in the coming months; the GSRs, or Government Stock Regulations 2004; the MLRs, or Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017; and the UK prospectus regulation, Regulation (EU) 2017/1129 of the European Parliament and of the Council.

Since our departure from the European Union, the British Government have pursued an ambitious programme of reform to establish a regulatory framework that is better tailored to the strengths and opportunities in UK financial services. These regulations further enhance our ability to adapt and thrive in a competitive global financial environment. The instrument is more than a technical adjustment; it is a demonstration of our commitment to dynamic regulation in financial services and support for innovation. The instrument ensures that our laws continue to reflect the highest standards of probity and innovation while giving the financial services sector clarity and confidence.

As Conservatives, we believe in the power of free markets, tempered by fair rules and effective oversight. These regulations are a testament to that philosophy, and they ensure that the UK remains the jurisdiction of choice for global financial institutions and investors, which in turn helps the country secure tax revenues needed to fund public services. By updating and expanding the scope of the Act, we are aligning our regulations with emerging opportunities including advances in financial technology, green finance and digital assets—areas in which Britain has already established itself as a global pioneer.

The FMI sandbox scheme commenced under the previous Conservative Government and was a success, with the digital securities sandbox—the DSS—proving useful to business. Three of the pieces of legislation being brought into scope would facilitate activity in the first FMI sandbox, known as the DSS: the STRs, the GSRs and the MLRs. Bringing the GSRs and the STRs into the scope of the FMI sandbox powers under the Financial Services and Markets Act 2023 would facilitate the possibility of sovereign debt issuance, using distributed ledger technology, under the DSS.

Autumn Budget 2024

Lord Altrincham Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Altrincham (Con)]

I thank the Minister for hosting this debate, for listening so carefully to so many speakers one by one, and for his good grace. I also thank the Treasury officials who have pulled together this Budget in extremely difficult circumstances, and the many other officials who contributed, including at the OBR. They managed to produce, yet again, an extremely good report, written in that almost unknown language of plain English and the related dialect of plain maths that we can all understand.

The OBR—to which the Government tied themselves very tightly, as we know, in their very first Bill of this Parliament—has been somewhat unhelpful to the Government. The Chancellor’s Statement was well received by the markets in the opening minutes, until the OBR report landed, when there was a sell-off in the 10-year rates almost immediately because its statements were quite strong. Maybe the Minister can comment on whether the Government will review the overall financial framework in which they are operating, some of which was set up long ago in different times. The Bank of England was made independent when tax to GDP was fully 10 points lower than it is today, and the OBR was set up in 2012, when debt to GDP was around 70%. In fact, debt to GDP has been moving up 2% a year since our Office for Budget Responsibility was set up, so, as we have discussed before, it is a rather unaffordable kind of budget responsibility.

The overarching framework is not that ideal, and other agencies, such as the financial agencies, are also somewhat autonomous of the Treasury. The noble Lord, Lord Eatwell, referenced bank investment, but of course, that is under the PRA and the FCA, and is again at one remove from the Government. Can the Minister comment on the overarching framework in which the Government are currently operating as they pull this Budget together?

The extraordinarily sensitive number in the Budget is the 38% of tax to GDP. The noble Lord, Lord Desai, believes that it could go to 44%. Just for a moment, let us hope that it gets to 38%, as it is extraordinarily important that we can fund the state on the basis of these forecasts. Getting to 38% is sort of unknowable; that is one year sooner than the previous forecast. The reason it is unknowable—to challenge what the noble Lord, Lord Desai, said—goes back to a comment made by the noble Lord, Lord Lamont: the tax system in this country is remarkably concentrated. We are resting our tax system on around 3 million people, and they are doing half of all income tax and a good deal of the rest of the tax raised by HMRC. This tax concentration has come about because our economy has changed so much, and we are now an economy of services. Britain was the world’s first industrial nation, and we are becoming the world’s first services nation. That concentration into high-value services is creating quite a bit of difficulty with our public finances. We need those services and employees in this country to keep going to support the kind of state we have—which has not been ideal even recently, as we have heard during the debate.

There is a good deal of evidence that those jobs are moving. For example, thousands of jobs have gone from the London Insurance Market, which were high-paid jobs in the economy. The commonplace observation that the graduate entry of big accounting firms has been restricted means that it is limiting high-paid jobs in 10 or 15 years’ time in accounting services. They are jobs that will not happen in this country; they may be in Atlanta or somewhere else.

The Government are quite rightly focusing on life sciences, which I will pause on for a moment. AstraZeneca has four worldwide research bases; it has only one in the UK. GSK has five worldwide research bases; it has one in the UK. Both companies employ fewer than 20,000 people in the UK; AstraZeneca employs below 10,000. The noble Lord, Lord O’Neill, referenced obesity. There has been an enormous miss in obesity wonder drugs in life sciences, which are accruing tremendous value creation in the US, Denmark and elsewhere, but not in the UK.

Then, there is the issue of tax migration. We hope that tax migration is not going on. It is very hard to measure, because sometimes the person moves and sometimes the person does not. The US is seeing tremendous internal tax migration, and that could easily come to us. One of the reasons why the US matters so much is that we have so many citizens already in the US, making it easy for people to travel. Maybe we should take a look at that.

I will turn briefly to one other point. We should thank Jessica Pulay at the Debt Management Office, who has done such a superb job in raising debt for the Government so consistently in all markets—but the DMO could also do with a little help. Pension funds have been buying gilts because they have been de-risking, and, as noble Lords know, foreign investors buy 30% of the market. Maybe this Government should look at incentivising domestic savers to hold gilts. Can the Minister comment on that too?

School Fees: VAT

Lord Altrincham Excerpts

Thursday 10th October 2024 Lords Chamber

[Lord Livermore (Lab)]

The answer to the noble Baroness’s first question is no and the answer to her second question is that that is a matter for the spending review. I disagree fundamentally with her characterisation of this policy. I want to see excellence in education for children in places like where I grew up, whose parents will never be able to afford to pay for their education. They are every bit as ambitious for their children as any other parent.

[Lord Altrincham (Con)]

Will the Minister confirm that any gains from this policy will accrue to the education budget and that any shortfall will be met by the education budget? Will he commit to sharing with this House the OBR’s impact assessment of the number of pupils moving from the private sector to the state sector and the number where the overall policy would be at a fiscal cost to the Exchequer?

[Lord Livermore (Lab)]

There were several questions there. Yes, this money will go to the state sector; I do not accept that there will be any loss from this policy; and yes, the OBR will publish the impact assessment alongside the Budget.