National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Eatwell Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

[Lord Howard of Lympne (Con)]

My Lords, I am afraid that I too was unable to be present at the earlier stages of the Bill, but I rise to support this amendment—in particular, the provisions relating to hospices. These would have the same effect as later amendments in the name of my noble friend Lady Neville-Rolfe, to which I have also put my name. I draw attention to my entry in the register as vice-president and past chairman of Hospice UK.

The added burden that the increased contributions will place on the hospice sector are considerable. The extra cost has been estimated at no less than £34 million a year. St Christopher’s Hospice in south London has said that it will face increased costs of around £450,000 a year—equivalent to the cost of nine specialist nurses. Dorothy House hospice in Wiltshire estimates additional costs of £422,000 a year. The Kirkwood Hospice has had to put 33 roles at risk of redundancy, citing the increased national insurance costs as one of the drivers. Nottinghamshire Hospice is also proposing redundancies, again citing these extra costs as one of the factors.

These are just some of the examples of the devastating effect that these measures will have on hospice care. This is all so short-sighted. We all know that one of the major challenges facing the NHS is bed-blocking. As I have told your Lordships before, hospices can make a huge contribution to overcoming this challenge by looking after patients in the community, either in hospices or looked after by hospices at home. To make that contribution, hospices need more resources, not fewer, so this change will add to the challenges facing the NHS, not only directly in respect of its own employees but indirectly by diminishing the capacity of hospices to help.

The Minister will no doubt refer to the Government’s recent announcement that £100 million would be made available to hospices, and that is indeed welcome. But that money is for capital projects. Not a penny of it is available to defray the extra costs of the increase in national insurance contributions, which we are debating today, so it will have little or no effect on the crisis in hospice care that I have described.

I urge the Government to think long and hard about this amendment and to come up with a constructive solution.

[Lord Eatwell (Lab)]

My Lords, I find some difficulty in addressing this group of amendments, specifically because these amendments are but a part of 38—out of the total of 44—amendments in the Marshalled List that are essentially all the same. The 38 amendments all propose exemptions to the changes proposed in the Bill, or variations in the various thresholds at which employers’ national insurance is charged. All the amendments have the same internal logic: they are designed to reduce revenue. All 38 are the same; they vary only in the individuals, firms or groups that are to be exempted. The House will, of course, deem many of the individuals and groups not just worthy but really deserving of support.

I wish to address the 38 amendments collectively because they are the same. The Liberal Democrat Benches, notably with amendments associated with the noble Baroness, Lady Kramer, seek to exempt providers of care homes or domiciliary care, primary care providers, dentists, pharmacists, charitable providers of healthcare, hospice care, carers and part-time workers. She adds providers of education or childcare to children under five years of age, universities, providers of further or higher education, registered charities, housing associations, small or micro businesses, town councils, parish councils and businesses in the hospitality sector.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have not spoken on the Bill before but I add, very briefly, my support to the proposals from the noble Lord, Lord Londesborough. I have spent a lifetime in the city helping businesses grow—funding them, looking after them and developing them. They are vulnerable throughout, but they are particularly vulnerable in their early stages, which is the point of the noble Lord’s amendment.

With 25 people or fewer, it is easy to forget just how difficult it is, and how persistent an effort is needed, to get a business going, keep it going and to eventually grow it, hopefully, to a great size where it will employ people and increase the prosperity of the country. It is our feedstock—this is where I take issue with the noble Lord, Lord Eatwell, who served with me on a City regulatory body many years ago—and if you cut down the trees in any one year, those trees will never reappear. We shall have a smaller number of growing companies from the years when this proposal has its impact.

It is also surprising, when I hear debates in your Lordships’ House, how many Members cannot conceive of circumstances when the pay cheque will not turn up at the end of the month. A lifetime in public service insures you against that. But, if you run a business, you have to think every day about will happen at the end of the month. Will there be a call from the bank manager saying, “I’m very sorry, I’m not going to be able to meet your payroll”? When you have responsibility for other people, that ghastly pressure is increased by the sorts of measures the Government propose to take here.

I say to the Minister, very gently, that the phrase is: revenue is vanity, profit is stability, but cash is reality. In this Bill the Government are proposing to undermine the reality of the cash that is desperately needed by the very smallest among our companies.

[Lord Eatwell (Lab)]

My Lords, the amendments proposed by the noble Baroness, Lady Barker, are a classic example of how to distort a market. She wishes not only to exempt part-time employees from the measures in the Bill but to reduce the national insurance charge on part-time employees. She does not appear to have reflected on what would be the impact on full-time employees. How many full-time employees will, as a result of this measure, lose their jobs and be replaced by two or three part-time employees? How many companies will reach a cliff edge with respect to their employment policies that will ensure they develop only part-time employees, who often have fewer opportunities, and certainly fewer opportunities for promotion, than full-time employees? What has the noble Baroness got against full-time employment? We need an answer to that. Why is she so content to distort the labour market in this way?

With respect to the amendments proposed by the noble Lord, Lord Londesborough, I have greater sympathy with what he says, but he too is creating a cliff edge. The cliff edge is at 25 employees and it will considerably distort the operations of the market at that stage. It will discourage companies from growing above 25 employees. It will encourage the break-up of structures, so that units employ only 25 employees.

Most interestingly, the noble Lord asked for an impact assessment of the overall impact on employment of the measures in the Bill. There have been at least three—one by the National Institute of Economic and Social Research, another by the OBR and another by the Treasury. They all demonstrate that, taking the measures in the Budget as a whole, employment in the next year will increase, not diminish. The error which, I am afraid, the noble Lord made in his argument is that, yes indeed, because of higher employment costs, there may be a reduction in employment per unit output, but, because of the stimulation of aggregate demand in the Budget, there will be more units of output. So, not only will these measures encourage the growth of labour productivity by reducing the input of labour per unit output but the expenditure of these measures, through a technical device called a balanced budget multiplier, will increase the level of employment in the coming year. The impact assessment is there for all to see.

[Lord Blackwell (Con)]

My Lords, the noble Lord, Lord Eatwell, is a distinguished economist and I defer to his expertise, but I have to challenge him on the assertion that the measures in this Bill which raise national insurance are job creating. The Budget as a whole does not spend only the money raised through this tax; it spends another £40 billion a year, I believe—a total of £70 billion extra over each year of the course of the Parliament. Now, you have to assume that any measure that increases public spending by £70 billion a year will increase employment. It would be a strange measure that increased public expenditure without increasing employment. The difficulty is that all that employment increase will be in the public sector. The fact that this Government have to understand is that you have to earn wealth before you spend it and that compressing the wealth-creating part of the economy in order to spend on the public sector leads to financial disaster in the long run. So I do think his argument on that point needs to be challenged.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Eatwell Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

[Baroness Lawlor (Con)]

My Lords, I support my noble friend Lady Neville-Rolfe and will say a few words about my Amendment 42 on reviewing the impact of the Act one year on in respect of the different categories of employers in the business sector—small, medium and large.

This is needed given the worsening outlook for the UK economy and employment, which has been going from bad to worse month by month since, and in response to, the Budget. Unemployment figures are up. In the quarter ending December 2024, 1.56 million people of working age were unemployed and the UK unemployment rate was 4.4%. Unemployment levels have increased by 210,000 over the last year. Economic inactivity is also up. At the end of the last quarter of 2024, 9.29 million people aged 16 to 64 were economically inactive; the inactivity rate was 21.5%.

Jobs are being cut, as this month’s figures from S&P Global indicate. Data reveals that the decline in staffing numbers in February was the sharpest since November 2020. The chief business economist at S&P Global Market Intelligence explained that the data revealed that

“business activity remained largely stalled for a fourth successive month, with job losses mounting amid falling sales and rising costs … One in three companies reporting lower staffing levels directly linked the reduction to policies announced in last October’s Budget”.

The number of vacancies fell in the last quarter too, although they remain slightly above pandemic levels.

We want the Government to take responsibility for their actions and face up to the costs they have imposed on growth, productivity and employment and the impact on businesses, be they small, medium or large. I echo the comments of my noble friends throughout Committee that what we had on 14 November and the figures presented at the time of the Budget were inadequate in detailing the sort of impact this country is already facing. Employees’ lives and livelihoods are at stake.

[Lord Eatwell (Lab)]

My Lords, Amendment 38, as written, is econometrically impossible. This cannot be done unless we have further specification of what is to be done. For example, are we to look at the effect of these changes assuming that the Budget had not changed or to look at their effect taking into account the consequential effects of the Budget which were also dependent on the national insurance changes?

Then, there were other tax changes that took place at the time which were also dependent on the national insurance changes. Are they to be taken into account or not? At the moment, the amendment does not tell us. Any serious economist faced with this would say, “Sorry, I can’t do this unless you tell me what I have to take as the underlying conditions”.

Amendment 38 is seriously defective and cannot really be taken seriously as it stands because it simply does not specify the underlying circumstances within which the particular consequences of the changes in this Bill are to be assessed. Without that framework, it is simply not possible to do in any way—or, if you like, anybody could produce any result they like by assuming different background circumstances. So, I am afraid that Amendment 38 is underspecified and, as a piece of serious econometrics, impossible, because the framework is not specified for the amount of information required to perform the studies.

On Amendment 42, I was very struck by the request of the noble Baroness, Lady Lawlor, that the Government face up to their responsibilities. It would be really helpful if the Conservative Party faced up to the damage it has done to the British economy over the past 14 years and to the disaster it has inflicted on the British people, which the Labour Party is now desperately trying to repair in very difficult circumstances indeed.

Once again, the issue of the impact of employment and productivity depends on a whole series of other factors. Are they to be taken into account or not? How is the particular effect of the national insurance change to be examined? If they were independent, then you could do that by saying that the national insurance change has no relationship to other changes taking place in the economy and therefore we can isolate it. But that is not true; the national insurance change has direct effects on the other components of the Budget and has effects which are interdependent. Without specifying the framework in which this amendment is to be considered, it is a false exercise. You could sit down, make any assumptions you like and get any result you like, to be frank.

Although it would be very interesting to perform this exercise, I am afraid that these amendments are so defective that they cannot actually give the guidance as to the exercise to be performed. Therefore, it is entirely inappropriate for amendments such as these to be in the Bill.

[Lord Davies of Brixton (Lab)]

I have to confess a smidgen of support for the amendments in this group—but not nearly enough to make me vote for them. I am going to complain about a different lack of information that has been presented to this House in relation to the Bill.

The point is that it is a contribution Bill—a contribution to the National Insurance Fund. I pursue a somewhat quixotic and lonely quest to persuade people of the importance of the National Insurance Fund, the whole point of which is that it receives contributions, has reserves and pays benefits. Somewhat oddly, simultaneous to discussions of the money coming in, in the earlier stages of Report, there was a discussion in Grand Committee of the money going out. My complaint is that there has been no discussion of the state of the National Insurance Fund. I am very much in favour of such a discussion because it is a crucial element of our welfare state.

The problem is that the information is available. I have it in my hand: the Report by the Government Actuary on: The Draft Social Security Benefits Up-rating Order 2025; and The Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments, National Insurance Funds Payments and Extension of Veteran’s Relief) Regulations 2025. Noble Lords might ask, “What’s that got to do with the Bill?” It says on page 7:

“This report also includes the expected effect on the Fund of the National Insurance Contributions (Secondary Class 1 Contributions) Bill”.


This is information germane to our current discussions, but at no stage—I am sorry to complain to my noble friend the Minister—has this been adequately, or in any sense, discussed as part of an overall consideration about the state of the National Insurance Fund. That is my complaint, and I have got it off my chest.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Eatwell Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

We need a lot of questions answered about what is happening in those segments of the business community. If the Government have that sort of analysis, they really ought to share it with Parliament. Indeed, if they have the analysis, and if they get their skates on and publish it fairly promptly, my amendment would not even delay the implementation of the national insurance changes. If they cannot provide the analysis, however, the Government need to ask themselves whether they are right to pursue this policy choice without understanding the detailed impacts—and Parliament needs to consider whether the Bill should come into effect in an information void.

[Lord Eatwell (Lab)]

My Lords, with respect to all the amendments in this group, with the exception of that of the noble Baroness, Lady Noakes, I repeat what I said last time: these amendments are designed to increase the complexity of the system and that is a very bad idea. I can assure noble Lords that, right now, tax-avoidance accountants are sharpening their pencils with glee at the possibility of more complexity being introduced into this structure. It is a very bad idea and we should not be doing it.

If we want to support small business, we should do it directly by deciding what subsidies or benefits should be given. Playing around with the tax system or, in this case, the national insurance system, is a bad idea. I will not say this again, because we have a series of other attempts to increase complexity coming in later amendments—so, please, let us not do this. It is bad for the tax system, bad for the national insurance system and a bad way to achieve the goals set out.

I now turn to the important amendment from the noble Baroness, Lady Noakes. The problem with it is that it is seriously underspecified. She does not say whether the examination of the effects of the national insurance changes should take place in the context of the pre-government Budget situation, or should take account of some measures in the Budget or of the Budget as a whole. If we take the Budget as a whole, the examination by the OBR shows that employment will increase over the relevant period. What the noble Baroness is doing is taking just one part of the actual economic package represented by the Budget and saying, “Let us look at this in isolation, even though this part funds the other part”—the expenditure decisions of the £26 billion injection of demand into the economy in the next fiscal year.

In that context, this amendment is seriously under- specified and impractical. We need to understand whether she wishes to look at just one side of the equation, how revenue is raised, or the other, how revenue is spent. Surely the correct thing to do is to put both together to see the overall impact of the policy represented by the Budget. I am afraid that the amendment is unsatisfactory, in that it is seriously underspecified.

[Baroness Noakes (Con)]

I will briefly respond to that. I am asking for an impact assessment of the Bill. The Bill does not incorporate the whole Budget; it incorporates one policy decision, which is the focus of my amendment. It is clear that I am open to drafting suggestions. I have already spent some time with the noble Lord today in another committee on drafting improvements and I am sure that, between us, we could come up with some better words.

Economic Growth

Lord Eatwell Excerpts

Thursday 23rd January 2025 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, in principle, the growth problem is straightforward: invest in the quality of labour via education and training, and in the quality of capital via research and development and innovation. On the one hand, the state is the main investor in education and skills and plays a crucial role in providing efficient infrastructure and much of the budget for fundamental research. The funding of research is particularly important because the state is able to invest in areas that only yield an uncertain return in the long term. Consider, for example, the fact that all relevant innovations embodied in the iPhone were developed in public sector institutions. It was the genius, then, of Steve Jobs to put them all together.

On the other hand, business investment requires incentives and means. The incentive is clear: the expectation that the investment will be profitable. That depends on the prospective demand for the goods and services that the investment is designed to produce. It does not matter if interest rates and taxes are low or even zero; if you cannot sell the product due to a lack of demand then investment is a waste of money, so the maintenance of a high level of effective demand is the vital precondition for the stimulation of competitive investment. Even if demand is there, though, the means are required—namely, the finance. Much investment is financed by retained profits, but truly innovative investment—the investment that changes the world—requires the medium-term to long-term support of financial institutions.

That is where Britain fails. Our major financial institutions define the concept of investment peculiarly: they claim they are investing billions in Britain, but what they mean is that they spend billions in the purchase of financial assets in secondary markets. They do not finance the creation of new, real, productive investment—investment in national accounting terms. It used to be argued that liquid secondary markets were a necessary complement to primary investment, but the relationship is declining, with an increasing proportion of investment being funded through private vehicles.

There are exceptions to the non-real investment and non-growth stance of UK finance. Some of the larger institutions have small real investment divisions. However, investment is usually confined to fintech. There are some specialist small and medium-sized banks that spread their investment outside fintech into other growth areas, often with a real estate content. Some private equity firms promote organic growth in their target companies, and venture capital trusts are a valuable source of SME funding. Unfortunately, however, it is clear from the overall lack of second-stage SME funding in the UK that these exceptions do not add up to the scale required to transform the growth prospects of the economy.

For example, the entire assets of the venture capital trust sector amount to around £6.2 billion. This compares to the £1.5 trillion size of Barclays’ balance sheet alone; that is 250 times greater than the entire venture capital sector. This suggests that we cannot simply look to the financial services industry as it is currently structured to do more. More of the same will simply not be good enough.

The structure of financial services must be changed. The new National Wealth Fund will contribute to that change, but for scale we need the private sector, so carrots and sticks are required. On the carrot side, there are already significant tax advantages associated with innovative investment, but these do not achieve what is necessary. The reform of pension funds will be very important. The US pension reform in 1978, which enabled investment in alternatives, gave rise to the professional venture capital industry in that country. It is striking how many successful UK SMEs raise their secondary funding in the United States—another indicator of the failure of UK financial services.

How about the stick? Well, how about requiring appropriate financial institutions of over a certain balance sheet size to devote a given proportion of their assets to real investment, either directly or indirectly via funding organisations such as venture capital funds? We must also find a way of weaning the banks off algorithm-driven lending and get back to old-fashioned relationship banking. For how that is done, see Handelsbanken: the point being that real investors need a close advisory relationship with their funders, where advice flows in both directions.

It is a remarkable paradox that our wonderfully successful financial services industry is one of the main reasons for our growth failure. But until fundamental reform, by carrot and stick, induces greater flows of finance into real investment, that sad paradox will remain.