National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Lord Leigh of Hurley and Lord Ashcombe

Report stage
Thursday 5th March 2026 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I will speak to my amendment in this first group. Needless to say, I agree with everything my noble friend Lady Neville-Rolfe said from the Front Bench. This Bill is a most unfortunate Bill. It clearly has come about because the Chancellor has said to her officials, “I need £5 billion, can you find it now?”, and out of the bottom drawer has come a Bill which has been rejected by so many others. I do not think it was in the manifesto; it is just an opportunistic grab of people’s savings.

The Bill has most unfortunate side effects. As we will show in later amendments, it will not raise the £5 billion that the OBR has been led to believe it will. It will fall far short of that. Proof of that, of course, is in the fact that even the OBR recognises that that £5 billion will fall by half the following year, as people work out what is going on and take evasive action. The reason it will not raise £5 billion is that people will work out, well in advance of it coming into 2029, that there are simple ways round this Bill that already have been identified, and therefore will take pre-emptive action. We are stuck with a Bill that does not work, is not needed and, workers having been penalised by the national insurance increase, penalises savers. In particular, for some bizarre reason, it penalises students who have taken out loans. This is not a good time to be making these proposals.

The Minister, a few minutes ago, suggested that the Chancellor believes that people will be £1,000 a year better off by the time of the next election. Will they really? The Joseph Rowntree Foundation—no friends of mine—has said that when housing costs from rent and mortgage payments were factored into those figures, total disposable income would have risen by just £40 a year. No pandemic to rely on, no Brexit, no nothing—that is just what it is: £40 a year.

This is not the time to impose further hardship on people, in particular students. One benefit of a pension salary sacrifice can be to reduce earnings liable to national insurance for student loan repayment purposes, as the liability to repay student loans is, for employees, based on their earnings liable to national insurance. Frankly, there remains a lack of clarity about how the policy interacts with student loan repayment calculations, which are based on national insurance definitions of earnings. If salary sacrifice pension contributions above the cap are treated as earnings for NIC purposes, this will have knock-on effects for graduate repayment levels. It will mean higher effective repayments for some borrowers, reduced disposable income and a further distortion of incentives around pension savings. The Government have not yet provided sufficient clarity. My amendments seek to address that situation.

I am grateful to the national press, in particular the Times, for its support of this amendment. I hope later to be able to test the opinion of the House on it, unless the Government feel inclined to agree to it.

[Lord Ashcombe (Con)]

My Lords, this is a very large group with a number of issues to address. First, I support my noble friends Lady Neville-Rolfe and Lord Altrincham in Amendment 1 in this group. I remind the House that the Department for Work and Pensions has acknowledged that, as of 2025, around 14.6 million working-age people are undersaving for retirement. Many of these individuals will be basic rate taxpayers, though certainly not all, and some will not have access to salary sacrifice arrangements. This amendment would ensure that only higher taxpayers are affected by the proposed £2,000 cap on salary sacrifice schemes. As a result, no basic rate taxpayer would be drawn into what might only be described as a new trap.

In Committee, the noble Lord stated more than once that 74% of employees who pay only the basic rate of tax—currently applicable up to £50,270—and who benefit from a salary sacrifice scheme would be unaffected by the £2,000 limit before the national insurance becomes payable. However, this necessarily means that 26% would be affected, and no figure has been provided for how many people that represents. Percentages alone can be extremely misleading without the underlying numbers. Therefore, I would be grateful if the minister could inform the House how many employees fall within that 26%, so that we may properly understand the scale of those who stand to be impacted.

This brings me directly to Amendment 7, in asking the Government what the definition of a high earner is. The answer given in Committee was totally noncommittal. May I therefore ask the Minister, as my noble friend Lady Neville-Rolfe has, to be transparent and provide a clear number? Is the threshold £30,000, £50,000, or is it some other number? I do not think this is too much to ask.

As for Amendment 5 in the name of my noble friend Lord Leigh of Hurley and others, there are already many students—including my sons—caught by the student loans repayment scheme. To fleece this cohort of individuals even harder seems extraordinary if salary sacrifice payments are considered as part of their income. They will never have a sufficient pension and, no doubt, some future Government will have to pick up the pieces.

Next, I would like to address the size of the cap, which currently would be £2,000. As I have mentioned, the proposed limitation is simply too low. Moreover, it fails to take account of those employees who may, on occasion, receive an unexpected windfall which they wish to contribute to their pension through a salary sacrifice arrangement. Amendment 12 from the noble Baroness, Lady Kramer, provides for a £5,000 cap, which would give employees the opportunity not only to save more towards their retirement but also to avoid a substantial national insurance liability on such a windfall. Provided inflation remains under control, this is a far more realistic and workable figure. While I would prefer the figure to be £10,000, as in amendments in the name of the noble Baroness, Lady Altmann, I fear that that is a step too far.

The amendments in the name of the noble Lord, Lord de Clifford, and those in the names of my noble friends Lady Neville-Rolfe and Lord Altrincham both address another issue: the quiet but persistent impact of fiscal drag. This is one of the most insidious ways in which Governments raise revenue without taking any overt action. With such a modest cap set out in the Bill, it risks being rapidly eroded by inflation, placing an unnecessary burden on basic rate taxpayers—precisely the group for whom pension saving is the most vital to support. I very much support those amendments.

Finally, Amendments 16 and 27 concern the SME and charity sectors. Last week in Committee, I mentioned many recent legislative changes that these entities have had to face, including the cost of energy, which now appears to be heading even further in the wrong direction. Between Committee stage and now, this has become very personal, as one of my children working in the retail industry was made redundant yesterday due to all these excessive costs. This Bill has not yet hit. I truly wonder if the company will survive. The Bill is, surely, another nail in the coffin for many more employees and, I suspect, a number of companies and charities themselves. They simply do not have the wherewithal to weather these storms, yet this Government insist on piling on ever more expenses, not only through greater national insurance payments but substantial additional associated administration costs. They will need to hire external resources to handle this difficult and pernicious legislation. It will not surprise noble Lords to know that I very much support these amendments.