National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Davies of Brixton Excerpts

Committee stage
Tuesday 24th February 2026 Grand Committee

[Baroness Coffey (Con)]

My Lords, I somewhat understand where the Government are coming from in trying to get rid of salary sacrifice entirely—by the way, it is still available for employees of the House of Commons or the House of Lords for the on-site nursery. One thing that the Government seem to have missed out is that they have not provided a lot of information on how they have reached the figure of £2,000. It feels as if they are looking for £4 billion or £5 billion to pay for things such as getting rid of the two-child limit on universal credit—not child benefit; every child gets child benefit. It feels like a short-term measure, as one of my noble friends has just pointed out, to hit certain policy objectives before the next general election. The challenge here is the long-term consequences of where people are putting into their pensions today. The other thing the Government do not seem to have considered is that it is not usually employees who decide the percentage that they are required to contribute to the salary sacrifice scheme. That is normally decided by the employer.

More generally, we are starting to see this awful approach of people on rather modest earnings reducing the amount of money they put into a pension for the future, with all the knock-on costs that other noble Lords have pointed to, but I would go further. How much money is paid towards housing costs and similar is increasing at a significant rate, so it becomes this odd sort of choice where people are trying to do the right thing. Admittedly, this may currently benefit lots of people. That is why Amendment 1 is so important, instead of “How can I take from Peter to pay Paul?” We know the other significant cost of pension tax relief is to make sure that we do not have doctors and consultants reducing their number of hours. So those sorts of policy changes have already been made, and this Government decided not to do that, even though it applies to bankers and all the other people who earn significant amounts of money.

Before Report, I think it is worth the Government setting out in more detail where they got their figures from and why they have ended up at this point instead of just, fairly glibly, saying this will not affect earners. We need more detail. The information put forward by HMRC is basically an insult to everybody reading it by trying to suggest that somehow it gives us a proper tax impact and information notice. It really does not. If we approached this in a more evidence-based way, there would start to be more support and understanding of what the Government are trying to achieve. The Government are trying to find some more money, but at the moment it feels as if they are hitting younger people, people still at certain parts of their career who are already stretched, and this is the way that they are able to make a contribution to their future. As has already been pointed out, it may not be so good for higher rate—and that is okay; people make policy choices when they vote for parties, although, as my noble friend Lord Leight of Hurley pointed out, this was not in the manifesto. I would be grateful to the Minister if he could commit to a more detailed assessment to share with the Committee before we return to this on Report.

[Lord Davies of Brixton (Lab)]

I support the Bill. It is an eminently reasonable approach to the difficult financial situation in which we found ourselves when the Labour Government took office. No one likes increases in taxation—it is easy to say “No, no, no”—but given the outcome of the election, some increase in taxation was required.

I listened to the debate with interest, including the points raised on student loans in relation to Amendments 3 and 16. I do not understand it, but I hope that my noble friend the Minister does and that he can give a satisfactory response.

I am a bit concerned when people talk about the Bill “penalising” people. Taking away an advantage struggles to be a penalty. The idea of salary sacrifice makes no sense; it is regulatory arbitrage and a sort of kludge that has no real justification. It is also unnecessary. The idea that the pension system will suffer greatly from the removal of this particular tax relief is fanciful. Some people regard the golden age of pensions as having been 10, 20 or 30 years ago; virtually no one then had salary sacrifice and yet schemes boomed and people saved for retirement. We cannot sustain an argument that providing an adequate pension for most people requires this form of salary sacrifice, particularly when £2,000 is being allowed.

As I said at Second Reading, I disagree with the idea that this is, in some way, a mortal blow to pensions— I may exaggerate slightly, but there was continual suggestion that this was a severe blow to people’s attempt to provide themselves with a decent pension. It is interesting that people who are arguing to keep this salary sacrifice are those who, at the same time, oppose the triple lock, and yet the triple lock is doing far more than this would do for people on low incomes to secure an adequate income in the future, so I do not accept that argument about impact.

The important issue is that this bit of tax relief on pensions should be seen in the context of the overall tax relief on pensions. What is the right level overall of providing relief through the tax system for pension provision? We all know it is substantial; it is enormous. If you count all the different forms it could take, it comes to about £90 billion. When the scheme has matured, this will take away £2.5 billion. That is why I said at Second Reading that it is marginal; it is not crucial for the future of pensions.

The issue of tax relief on pensions is controversial. Think tanks love a report on tax relief on pensions. None of them is proposing an increase in tax relief on pensions, yet this is the way that we are heading. The Government’s figures—which no one has disputed—suggests that more and more people will seek more and more salary sacrifice to get more and more tax relief on pensions. Yet when the think tanks look at these issues, they say, “Well, no, it should be targeted towards the lower paid”. If anyone thinks that this will cause problems—I am looking at the noble Baroness, Lady Kramer; I think the Liberal Democrats have supported, or toyed with, the idea of having a flat-rate tax relief on pensions—I suggest that moving to a flat-rate tax relief on pension contributions will cause an absolute nightmare.

There is one point here that I accept. My noble friend the Minister can take it as a helpful suggestion rather than a criticism, but the use of the term “higher earner” could have been judged better. Noble Lords will be pleased to know that I have a spreadsheet, which calculates the impact that people suggest this measure is going to have. Of course, the 2% and 8% feature means that there is a kink in the line of the relief that you get from salary sacrifice because, up to a certain level, you pay 8% contributions through national insurance and you are getting the relief at 8%. Then, after that, it is 2%. It is not that the Government are seeking out people to charge more money; it is the structure of the system.

Let us look at the figures. I sometimes have problems in these debates when other speakers quote figures because it is difficult to understand them without seeing them in writing with some explanation. I think that, in general, there should be a ban on quoting figures in these sorts of debate. However, I am going to quote some figures. The median level of contributions to a pension scheme is 5%—that is, between 4% and 6%—on median earnings below £40,000. Now let us take the higher figures: someone paying employee contributions of 6% with earnings of £40,000. They are using salaries in full on their contributions. For them, the change will be an extra £32 a year. Those are the figures we are talking about for those on median earnings and those on median contributions.

As has been mentioned, bonus sacrifice is clearly a separate issue. This is where the legislation is required. It is being exploited in these circumstances. The bonus should be enough. The bonus is of great value. Some people in the City get vast bonuses. The idea of using that money to exploit this illogical tax relief through salary sacrifice is abhorrent.

I support the legislation. The term “higher earnings” could have been handled better but the whole issue—people on median earnings paying very little more and complicating the system in order to remove basic rate taxpayers; perhaps my noble friend the Minister can tell us about the impact it would have on income—has been over-egged; that was, I think, the phrase I used before. This is an eminently reasonable measure to address the country’s financial problems.

[Lord Fuller (Con)]

My Lords, the noble Lord said that he cannot see the sense in this. Why do we have this incentive in the tax system? The answer is that it is the role of government to incentivise good behaviours, which include saving for your retirement, trying to climb the ladder and trying to do better for yourself, not least because, in so doing, you reduce your reliance on the state in later life. That is the sense of the salary sacrifice process.

This Government have perpetrated a series of attacks on youngsters at the start of their careers, graduates and people making a start in their working lives. The Renters’ Rights Act has driven up rents. The Employment Rights Act has made it harder for businesses to take a chance on somebody who may be unqualified or changing role. The Government are putting youngsters into unemployment with the jobs tax. Now this slim Bill will add many more cases—I am going to list them in a minute—of intergenerational unfairness. Let nobody say that Labour is on the side of the youngsters who want to get on.

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I ask the Minister to consider carefully not just the wording of these amendments themselves but what they are signalling to the Government about this policy and the Bill, and whether we really should be doing this and rushing it through at this time.

[Lord Davies of Brixton (Lab)]

I spend most of my time in these debates about tax relief on pensions defending the existing system, because the people I tend to mix with regard that tax relief as grossly unfair. It obviously gives far more to the higher paid than the lower paid, and that is why there is widespread discussion of having flat-rate tax relief on pensions. If we were starting from scratch, I think we could do that, but we are not. We have to start from where we are.

Where we are is in having extremely high levels of, effectively, government subsidy for people to save for retirement, but that begs the question: what is the right level of tax relief for pensions? Does it just happen to be that we have alighted at the correct level, or is that an issue we are not allowed to discuss? Putting words into the mouth of the noble Lord, Lord Fuller, he seems to be adopting the argument: “The more the merrier—let’s increase it by even more”. No, there is a genuine question here. What is the right level of tax relief to encourage people to save for their retirements? It is a reasonably practical debate and, on this side, we have come to the conclusion, possibly as an interim measure, that it should be a bit lower than it is currently. That certainly does not justify the doom and gloom about this particular change—I have made my point several times.

I am no longer a small business person, but for 30 years I was and I employed people who had multiple jobs. It is not a new issue. There is nothing new about the idea of employers having to cope with the complications of the national insurance system for people who have multiple jobs, particularly where, even with two jobs, their total income is more than the £1,250 that it is at present. It is not a new issue that employers are going to have to deal with. In principle, there is an additional complication; they have to sort out where the £2,000 limit applies. However, it is reasonable to expect employers to undertake those tasks. To be honest, I do not think that an ice-cream salesman is really a genuine example, but I may be wrong.

[Lord Fuller (Con)]

I take my territorial designation from Gorleston-on-Sea. When I was a boy, there was nothing better when the sun was out than going down to Della Spina’s, the ice-cream place. It is not just about ice cream; there are stately homes and all sorts of things that work with the weather. That is why I chose the example of the umbrella salesman or the ice-cream vendor. There is a whole part of the UK economy that depends on the weather. We have the most unpredictable weather, there are the most turbulent income and costs associated with that, and that boils down into variable emoluments. It is not just the market gardener or the farmer; it is the people involved in hospitality or whatever. To say that it is trivial demeans the pubs, the restaurants, the stately homes and that wider part of the visitor economy, which is particularly visited on the coast and in coastal communities. I wonder whether the noble Lord would like to reflect on the somewhat dismissive way in which he put that huge part to one side. Millions of people work in these sectors; they would be disadvantaged by the Bill and that needs to be recognised.

[Lord Davies of Brixton (Lab)]

I accept the noble Lord’s reprimand. I was actually making another point, which is about how many ice-cream salespeople are operating salary sacrifice arrangements. That may not be immediately germane. In fact, the remarks that the noble Lord just made support my point. Those part-time employees and part-time employers are already having to cope with the problems that arise from multiple employments and how the national insurance system is not, in truth, tailored very well for those circumstances. I accept that.

[Lord Mackinlay of Richborough (Con)]

I would like to assist the noble Lord, Lord Davies, on multiple employments. For an employer faced with an employee with multiple employments, which is not uncommon, it has no reference at all to the individual employer—it is of no interest. An employer runs a payroll scheme only for the amounts that that employer pays that employee. If there is a second employment, it is for that employer to deal with how much they are paying that employee. There is no interaction between the employers to say, “Do a management of NIC”. This goes to the heart of the problem with Amendment 33.

There is only one example where an employer has to take any notice of multiple employment, which is when their employee may have a second employment that is above the ceiling for paying the maximal national insurance. That is where you have a system of form CA72A, which is supplied by the employee to the DWP. The DWP may not actually do anything about it; I have found in most cases in my professional career that the DWP seems to lose the paperwork and the employee has to make an after-year claim for the excessive NIC that has been deducted. That is the only example where the second employment may receive advice from the DWP to say, “Ah, only deduct 2% from this employee because they are paying maximal amounts on a primary employment”. I wanted to clarify the current situation across national insurance administration for double or triple employments. I hope that is of assistance.

[Lord Davies of Brixton (Lab)]

Yes; I thank the noble Lord for his advice. As I said, I have operated the system myself, and so he is really just making my point: the structures are there to deal with multiple employments. It is not being introduced to the issue by this particular measure. Obviously it would be more complicated with this measure—I accept that, and I look forward to my noble friend the Minister’s response on that issue—but it is not a new issue.

[Baroness Kramer (LD)]

My Lords, as with the previous group, the noble Lord, Lord Davies of Brixton, made a comment on what he thought was Lib Dem policy; it might be—I am just not sure. We have discussed simply kicking out all this complexity and having a flat rate of relief on pensions. After listening to the last debate, I think that that has probably accumulated a lot of votes from around this Room, because the complexity that we have had described under this group of amendments is absolutely extraordinary. The noble Baroness, Lady Altmann, referred to the banana skins, and I think the noble Lord, Lord Leigh, talked about it being a nightmare. I am troubled that all of this is being left to consultation with the industry and to future regulation and future guidance, as if it can all be absolutely sorted with a bit of quiet attention. But we have heard the problems of how you deal with the many cases where people have multiple employers.

The noble Lord, Lord Mackinlay, made it clear that it is a relatively small handful of people who at present have to be dealt with through the Department of Work and Pensions to make sure that there is not a complexity. However, this would now apply to all kinds of people across a very wide range of activities and income. Trying to deal with the complexity of all these measures and delaying that has got us very disturbed. It is a bad principle for legislation. It is not that there is not a role for regulation and guidance, but that essentially should just be doing the finesse on a policy that has been clarified, whether it is in primary legislation, through evidence put before Parliament or through Statements made by the Ministers.

I think we have a real concern that this is going to turn out to be absolutely unworkable. The consequences of that, both for public finances and for individual decisions made by people, probably means that this legislation will collapse at some point. We ask the Minister to go back to the department and make it clear that clarity is absolutely necessary. If there are problems here that can never be reasonably and sensibly resolved, they should be recognised at this stage.

National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Davies of Brixton Excerpts

2nd reading
Wednesday 4th February 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

I thank my noble friend for presenting the Bill to the House. I speak as a friend of the Bill, although I suspect I will be its only friend apart from the Front Bench.

I do know something about the subject. I am a strong supporter of tax relief for pension provision—it is one of the foundations of a successful pension system—but that does not mean that we provide tax relief without limit. How much tax relief we provide is a question. You cannot logically adopt the line that every extra bit of tax relief is to be justified. The case has to be made.

I have listened to both speeches so far and read the articles in the press, and really the opposition to this change is all a bit overcooked. The total amount of tax relief granted to pension provision, occupational and contract based, is enormous, but the amount that is lost through this Bill is limited: it is marginal. It is obviously a significant amount to the individuals concerned but, looked at as an overall policy objective, the amount that is being reduced here is limited.

I have always regarded salary sacrifice as an illogical nonsense. It really makes no sense. It is a form of regulatory arbitrage and I have always thought that it was vulnerable to changes in government policy. What I had not realised, since I was active in advising members and employers, was how much it has grown in recent years. This is really the point: there was life before salary sacrifice became so popular. People still saved for their pensions and still received good pensions. The argument that this whole structure depends on salary sacrifice is nonsense.

The whole concept of salary sacrifice is based on a false dichotomy: that in some way, employer contributions are distinct from employee contributions. They might have a different label on them but they all come from the same employment package. It is fungible, to use a popular word. There is no real difference and to have one type, the employee contribution, which is subject to national insurance contributions and another form, the employer contribution, not subject to them is and always was nonsense, so I welcome this Bill.

There are practical problems to be addressed. We will have two days in Committee to look at those. Two days in Committee for what is effectively a one-clause Bill seems quite surprising, but maybe there are issues. How does it work for different periods of payment and people who have changing incomes during the year? How does it work for people with more than one job and how do we achieve confidentiality of an individual’s income from one employer rather than another?

There is also something that is a new term to me: optional remuneration arrangements—OpRAs. That appears in some way to limit the extent to which contracts can be changed. I think we will have to look at that carefully because, on the one hand, the way it is being done will lead to attempts to manoeuvre around the legislation; at the same time, we do not want it to cause problems with the jobs market. There will be behaviour change and, again, I would be interested in my noble friend’s views on how that will work.

I have run out of time. I support and welcome the Bill and I look forward to an interesting period in Committee when we will get the details right.

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[Lord Altrincham (Con)]

I thank the Minister for leading this debate and for his customary courtesy in listening to all the observations of noble Lords. There is a common observation that there is nothing new in tax. Maybe this Bill is a small Bill; the noble Lord, Lord Davies, says it is a trivial matter that does not really need our scrutiny. Nevertheless, it is a moment in taxation when we are taxing savings—

[Lord Davies of Brixton (Lab)]

I actually said that I was looking forward to discussing it further in Committee. It certainly does require our attention.

[Lord Altrincham (Con)]

I stand corrected.

This is a moment in taxation when we move towards taxing savings. It is against a backdrop in which policy has been relatively settled in this area in recent years. There was an understanding that we need to provide private sector pensions. Quite broadly, there was cross-party support for auto-enrolment; it has been quite successful. Against this background of a degree of consensus, we are now introducing—in a small but nevertheless important way—the taxation of savings. We made the changes towards auto-enrolment not just for social benefit reasons but to protect the state. It is important to remember that we are doing this also because the liability for retirement is falling on the state, and it became urgent to do something about this and to make sure that there was private provision to offset this rising cost.

With this Bill, we find ourselves at a moment when the tax system begins to eat itself. It would be illusory to suggest that there will be any gains from taxing savings, because the liability that will accrue to the state will likely be greater. That is because the returns to invested pensions over time will, in almost all cases, exceed the growth of the state, as the noble Lord, Lord Davies, knows from his time in pensions, and it is the growth of the state that provides the tax income that can support people. So the gap will be very wide if people do not save in private sector pensions.

That is the unfunded liability that stands behind this tax change. That liability could be very wide for the cohorts who are affected by this: middle-income earners who might have 30 more years of saving. Quite small amounts accumulating over 30 years can make an enormous difference to their retirement: it is enormously important. But, in the absence of those savings, regrettably, the state will be exposed. Therefore, the Government need to tread very carefully when making these changes, because the credit of the Government rests on securing some stability to future liabilities. Growth in this area of future liability is extremely important for investors in our bond market, and we need to make sure that they do not feel that there is a rebalancing here towards current taxation income against liabilities in the future.

I turn to the themes that have been raised so far, starting with fairness. As my noble friend Lady Neville-Rolfe explained, the Bill is, in practice, aimed not at higher earners but at earners around the middle of the income distribution. Among this group will be a large number of younger workers, already taxed quite heavily, and among them graduates required to repay the student loan. This initiative is a quite specific transfer from the young to the old. These groups are being encouraged to behave responsibly—as the noble Lord, Lord Londesborough, mentioned—and to put aside savings.

For employees, the Bill raises fundamental questions of fairness and coherence. Two individuals may arrive at precisely the same level of pension saving yet be treated very differently for national insurance purposes, depending solely on how that saving is structured. Direct employer contributions remain exempt, while salary-sacrificed contributions above the threshold do not. This difference undermines neutrality in the tax system and distorts incentives away from arrangements that many workers actively rely on to manage affordability and long-term planning.

Quite a few noble Lords mentioned complexity. We should also consider the burden on employers, particularly those operating within tight margins and employing large workforces. Professional advisers in the pensions and benefits sector have warned that increased payroll costs and added administrative complexity may prompt businesses to reconsider pension enhancements and lead to a contraction of workplace pension ambition itself. That was mentioned by my noble friend Lady Altmann.

Businesses that have structured remuneration packages in good faith around existing rules now face not only higher contribution costs but a new layer of administrative complexity. The introduction of a £2,000 cliff edge creates a compliance burden that is wholly disproportionate to the revenue that it is said to raise. For many firms, this is a material increase in payroll expenditure. There is good evidence that employer costs could account for a substantial share of the projected yield.

We have already seen the dampening effect of recent national insurance increases on recruitment and wage growth. To compound that pressure risks discouraging the forms of workplace pension generosity that public policy has long sought to encourage.

The distributional effects further complicate matters. For those earning above the higher earnings threshold, portions of what is, in essence, deferred income are drawn back into the national insurance net at marginal rates aligned with current earnings. The result is a reclassification of pension saving itself. Contributions made today attract national insurance, while withdrawals in retirement continue to attract income tax. Although these are different fiscal instruments, the policy makes pension saving resemble present consumption rather than deferred provision, creating the perception and often the reality of taxation both on entry and exit. This matters because the architecture of pension policy rests upon encouraging individuals to defer consumption, to assume responsibility for the later years. The messaging around this is sensitive, as my noble friend Lord Leigh mentioned.

The Government keep changing pension policy, so we might expect taxpayers to become better at adjusting behaviour. In this case, we have heard that some employers are encouraging employees to increase salary sacrifice now, which will of course reduce tax receipts in the short term and may reduce student loan repayments. The younger cohorts have learned to adjust their student loan repayments using the salary sacrifice scheme. Taxpayers may be hoping for a policy change later and would be rational in expecting some adjustment here, particularly for graduates. Given this uncertainty, we are asking for an independent assessment of the policy.

We have already witnessed the economic cost of uncertainty generated by repeated speculation and late clarification in fiscal policy. To proceed now with a measure that introduces fresh complexity and perceived inequity risks compounding that loss of confidence at precisely the moment long-term saving most requires reassurance.

Autumn Budget 2025

Lord Davies of Brixton Excerpts

Thursday 4th December 2025 Lords Chamber

[Lord Davies of Brixton (Lab)]

I strongly welcome this Budget, particularly the removal of the two-child limit. The remarks made by the noble Lord, Lord Bailey of Paddington, failed to change my mind on the issue. I took them as being the latest iteration of the age-old tactic of the immiseration of those who deserve social support.

Most of my remarks are devoted to the issue of pensions. I agree with my noble friend Lady Nichols of Selby, who is not in her place, about the action on the British Coal Staff Superannuation Scheme and the fact that members will get the full value of the contributions that have been paid on their behalf. I welcome the action being taken in relation to the Pension Protection Fund and the financial assistance scheme, where credit will be given for the increases that were guaranteed before 1997.

I welcome the action on salary sacrifice. The concern that has been expressed about the change is extraordinary. Private pensions get massive tax advantages, which, broadly speaking, I support. Perhaps there should be a proper review of how they work, but taking away less than 1/20th of those advantages in a way that targets that removal of support for those on higher incomes seems an entirely appropriate and reasonable measure.

I also welcome the action on the problems that arise when there are index-linked benefits and frozen tax thresholds. There is a clear potential problem, which I have been warning of since I entered the House about five years ago. This is the first time that any Government have formally acknowledged that this is an issue that needs to be tackled.

First, it is not that it becomes a problem when the new state pension overtakes the tax threshold. It is already a problem, because many pensioners have larger than that standard level of pension, on which they are already having to pay tax. That is entirely right; I am in favour of pensioners paying tax. However, at the moment, because the state pension is not included within the PAYE system, it creates difficulties. People get a brown envelope in the post saying that they must pay a certain amount of money, or their tax codes are adjusted in ways that cause them considerable problems. So this is already an issue and will increasingly become one; action was definitely needed.

My Government have not explained in detail how this simple assessment will work. I have some fears, because whenever a system is introduced as being a simplification, it all too often ends up making things a lot more complicated. So I welcome an assurance from my noble friend the Minister that this will be taken into account when we see what the appropriate solution should be.

Inheritance Tax: Pensions

Lord Davies of Brixton Excerpts

Monday 17th November 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question; I think the short answer is no. Let us be very clear: this is not a retrospective policy change. It takes effect for deaths on or after 6 April 2027, so that is in no way retrospective. As for the examples that the noble Baroness gives, it is important to be very clear that estates will continue to benefit from all the normal nil-rate bands, reliefs and exemptions available. An estate can pass on up to £1 million with no inheritance tax, and spouses are fully exempt from inheritance tax. More than 90% of UK estates will continue to have no inheritance tax liability following these changes.

[Lord Davies of Brixton (Lab)]

May I welcome my noble friend’s clear statement that the purpose of a pension fund is to provide pensions and not to assist the better-off in estate planning? Does he agree with me, given the frequent press comment that inheritance tax is, in many senses, a voluntary tax, that anyone will be able to avoid paying the higher rate of tax with a modicum of planning?

Economic and Taxation Policies: Jobs, Growth and Prosperity

Lord Davies of Brixton Excerpts

Thursday 13th November 2025 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, we must thank the noble Lord, Lord Elliott of Mickle Fell, for introducing this debate. I welcome the opportunity to have a debate on these important issues; my main question is on what has been missing from it, which is any reference to 14 years of Conservative government.

The economy is heavily path dependent. The economy we have now is the result of that 14 years of Conservative government. My Government have done much that is good in the 16 months that they have been in power, but it is wrong to suggest that there is some magic solution that can overcome the problems that were created, starting with the ill-judged move to austerity, for which the Liberal Democrats should accept their share of the blame. I could run through the whole litany, ending with the last Conservative Chancellor’s ill-judged decision to make the unfunded cut in national insurance contributions, leading to the black hole that I am sure my noble friend the Minister will mention in his reply.

Various issues have been raised that are worth addressing during this debate. The noble Lord, Lord Swire, made a particular point of how much tax was paid by the highly paid. There is a very simple reason why highly paid people pay so much tax: it is because they are so rich. The level of economic inequality in our society is and remains substantial. It is absolutely right that those with the broadest shoulders—whether that includes the noble Lord or not, I do not know—should pay their fair share, and that means they pay considerably more.

The noble Lord, Lord Skidelsky, is not in his place, but I was interested in the issue he raised of the bond vigilantes, saying they should be ignored. I agree with that. In truth, the restriction on what our economy can do is the economy’s productive capacity—not the attitude of the bond vigilantes, as he termed them.

Reference has been made a number of times to the so-called welfare burden. I suggest that everyone reads the recent column by Chris Giles in the Financial Times, in which he stated that there was no need to panic and the costs of welfare are not spiralling; in fact, they have been remarkably consistent over time. Many of the statistics that people quote about increasing numbers in one particular type of benefit are explained by the fact that other forms of benefits are reducing. The overall welfare spend—you can read the article from Chris Giles, not from me—remains constant, and it is actually less than it was when David Cameron was Prime Minister. This idea that we are facing some existential crisis because of the burden of welfare is nonsense. I invite my noble friend’s reply.

Pension Funds: Use of UK-listed Investment Companies

Lord Davies of Brixton Excerpts

Tuesday 9th September 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. I take this opportunity to pay tribute to her expertise and the consistency of her campaigning in this area. I fully understand the points that she is raising and recognise the important role that investment companies play in providing access to private markets. She talked about the recent Mansion House accord. I hope she agrees that the industry is moving in the right direction in diversifying its investments in the Mansion House accord, with 17 of the largest workplace pension providers having voluntarily committed to investing at least 10% of their defined contribution main default funds in private markets by 2030, with at least half of that invested in UK private assets.

I understand the noble Baroness’s concern about the scope of the proposed reserve power in the Bill. The approach that we have taken quite deliberately is to ensure that the powers are suitably targeted and contain guard-rails. They are not intended to be open-ended but should be capable of serving as a backstop to the commitments that pension providers themselves have made through the Mansion House accord and will be used only if we consider that the industry has not made sufficient progress on its own. None the less, I am grateful to the noble Baroness for her constructive engagement on this issue and happy to continue to discuss it with her. As we take the Bill through Parliament, her representations and those of the wider sector will be considered alongside our broader policy objectives. Our aim remains to ensure that the reserve power is effective and proportionate, and delivers for pension savers and for the UK economy.

[Lord Davies of Brixton (Lab)]

I express my support for my noble friend on the points made by the noble Baroness. There is an issue here that needs to be resolved. There is also a broader issue that I ask my noble friend to respond on: the use of private equity funds in pension schemes. To put it mildly, private equity has a mixed record. A blanket approval for the involvement of private equity in providing pensions has all the makings of a forthcoming disaster.

[Lord Livermore (Lab)]

I am grateful to my noble friend for his thoughts on that matter. I do not necessarily agree with him about private equity’s role in pension funds. It has an extremely important role in investing in the infrastructure and fast-growing companies that we want to see so that the UK economy can unlock that kind of investment. As for its inclusion in the Mansion House accord, he will be aware that this is an industry agreement and that the Government are not participants in it.

Financial Services Reform

Lord Davies of Brixton Excerpts

Wednesday 23rd July 2025 Lords Chamber

[Lord Livermore (Lab)]

As the noble Earl says, the Bank of England has operational independence to achieve the inflation target set by the Government. We absolutely support it in the work that it does to do that. However, it is absolutely the case that the Government’s fiscal policy has created the space for the Bank of England to cut interest rates. At the risk of repeating an old favourite of ours, if we still had a £22 billion black hole in the public finances, it would not have had the space to do that. It is obviously right that fiscal policy and monetary policy work together.

[Lord Davies of Brixton (Lab)]

I think it is worth reminding the House that I spent my entire working life in the financial services industry in one form or another, and I am afraid to say that my practical experience of the industry has made me a sceptic of much of the promotion provided by it telling us how it will do the economy a favour. Does my noble friend agree that there are potential downsides to the financialisation of the economy that seems to lie behind these proposals? We need to realise that there is a form of resource curse in overfinancialising the economy. There is also a dynamic within the industry driven in large part by the inevitable asymmetry of information. You can provide all the education and explanation that you wish, but there will still be this asymmetry of information leading to a succession of scandals. There is a dynamic in the industry—in personal pension scandals, endowment scandals and the Northern Rock scandal there was a dynamic that has to be recognised.

Finally, I am concerned that, in the Statement, the Government appear to be giving people financial advice. I am sure my noble friend will deny that that is what they are doing, but saying that the Government are going to get people better financial returns is a very dangerous path to go down. Does my noble friend the Minister accept that there is a need for robust safeguards for ordinary investors? I press him to accept that those appear to be contemplated by some of those commenting on these proposals. Significant weakening is a grave danger to the economy and individuals.

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question, and I pay tribute to his experience in the industry that he outlined. I do not agree with his view of the industry. I am incredibly proud of the financial services sector in this country: it makes a massive contribution to our economy, and it is incredibly important that we enable it to grow and that that growth feeds through to the real economy so we can see the investment in the real economy that we want to see.

My noble friend talks, perfectly correctly, about finding the right balance between risk and growth. As I say, we are not dismantling any of the architecture that was put in place in the aftermath of the financial crisis, and it is quite right that we do not do that, but we believe that the pendulum has swung too far towards regulating only for risk. It needs to regulate not just for risk but for growth, and that is the right thing to do.

I think my noble friend is wrong to say that we are in any way giving financial advice. We are trying to put in place what has been called a targeted support framework that enables people to access the help they need to make the right financial decisions for them, and that will be ready to support consumers by ISA season next year. It would enable authorised firms, not the Government, to proactively suggest appropriate products or courses of action, using limited information about a customer and their circumstances. That could include helping people to make decisions about how to access their pension, supporting people with excess cash savings to consider investing for the first time. I cannot believe that anyone would think that was anything but a good idea.

Winter Fuel Payment

Lord Davies of Brixton Excerpts

Thursday 12th June 2025 Lords Chamber

[Lord Livermore (Lab)]

One thing that was ill-thought-through was the Liz Truss mini-Budget and the £22 billion black hole in the public finances, which is why we had to take the action that we did. It might be nice if the noble Lord took some responsibility for what we inherited. As I said already, when we came into office, we had to take a number of very difficult and urgent decisions to put the public finances back on a firm footing. That involved difficult decisions on welfare, on tax and on spending, and one of those was means-testing the winter fuel payment. We have listened to the concerns about the level of the means test and we are now able—all the while still means-testing the winter fuel payment, because that is the right thing to do—to extend eligibility so that this winter, all pensioners with incomes up to and including £35,000 will receive it.

[Lord Davies of Brixton (Lab)]

My Lords, I start by wishing my noble friend the Minister best wishes for his birthday today. He has the special treat of an Urgent Question and a Statement on the spending review—what more could anyone ask for?

I very much welcome the decision to reintroduce the winter fuel payment. In answer to the Question, my noble friend said that anyone with income above £35,000 would not receive the payment. There is one problem with that, in that some forms of income are not taxed. Someone with a substantial cash ISA—I understand that there is a Member on the Liberal Benches who has £1 million in his ISA; he has made no secret of it, and presumably receives a very substantial income—with a taxable income of less than £35,000, would presumably still receive the winter fuel allowance, or is some step going to be taken to avoid that problem?

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question and for his birthday wishes—that was very kind of him. Obviously, we had to achieve the right balance between a simple system to administer and getting the support to those who need it most. The system that we have come up with sticks with the existing rules of the tax system and, I think, achieves the right balance, as I described.

Winter Fuel Payment

Lord Davies of Brixton Excerpts

Tuesday 10th June 2025 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, as someone who has spoken from these Benches against this proposal, I very much welcome the Government’s decision. The way the change has been characterised is a bit misleading. Does the Minister not agree that this represents a rejection of means testing and a return to universal benefits, with, quite rightly, the cost being handled for those on high incomes through a redistributive tax system?

[Lord Livermore (Lab)]

I am grateful to my noble friend for his support for the change—I was going to say in the means test, and that is obviously exactly what his question is about. I am not sure I am expert enough to engage in a debate with him about the definition of a means test. Clearly, we are raising the level at which pensioners are entitled to and benefit from this policy. As he says, it will be paid universally to all pensioners, and those with an income over £35,000 will have the winter fuel payment recovered by HMRC through the tax system.

Mansion House Accord

Lord Davies of Brixton Excerpts

Wednesday 14th May 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. This commitment is voluntary and led by the industry, because the industry knows and is choosing to do this—because the evidence shows that higher-growth assets can boost returns to savers over time, as the noble Baroness, Lady Neville-Rolfe, said, in line with international counterparts, such as in Canada and Australia. Their pension funds and the levels of private asset allocation in those schemes is far higher. Pension savers will benefit from this accord through diversified savings, with potentially higher returns.

[Lord Davies of Brixton (Lab)]

My Lords, I thank my noble friend for his replies and for the Statement in the Commons. I understand why my noble friend and the Minister in the Commons avoided tackling the issue of mandation, even though there was clearly a Treasury-inspired leak about the issue on Monday. Does my noble friend understand that with mandation of investment policies, should the Government consider it, comes responsibilities, with effectively the Government having to guarantee the returns or benefits on members’ benefits.

[Lord Livermore (Lab)]

I am shocked that my noble friend uses the word “leak”—I have no idea what he is talking about. As I have said, it is important that this is a voluntary commitment and that it delivers the investment promised for the UK economy. As I say, funds are voluntarily—it is industry led—choosing to do this because evidence shows that high-growth assets can boost returns over time, and we are confident that the schemes are now moving in the right direction. But equally, as I say, the pension schemes Bill will have more details in it about how these developments will be monitored over time to make sure that that change is delivered, because in the end what we all want to see is higher levels of investment.