Duty Relief Exemption: Small Parcels

Lord Livermore Excerpts

Thursday 26th February 2026 Lords Chamber

[Baroness Hoey]

To ask His Majesty’s Government what assessment they have made of the new tax on small parcels entering Northern Ireland from Great Britain as a result of the EU’s change to the duty relief exemption.

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

My Lords, the Government are committed to the smooth flow of goods from Great Britain to Northern Ireland under the Windsor Framework. The Government are aware of the EU’s plans to remove its relief for low-value imports from 1 July 2026. The facilitations under the Windsor Framework are unaffected by this change, meaning that goods moving between Great Britain and Northern Ireland can continue to move under the UK Carrier Scheme and the UK Internal Market Scheme without the need to pay duty.

[Baroness Hoey (Non-Afl)]

My Lords, I thank the Minister for that. Responding recently to two questions from me and the noble Lord, Lord Empey, he said that we would continue to engage with the EU. Now that the regulations have been published just two weeks ago—written in the normal EU way that is quite difficult to understand, but I am sure the Minister does—can he clarify for us whether the new rules will operate subject to EU regulation 2023/1128 such that any trusted trader on the UK Internal Market Scheme need not pay any duty? Can he also clarify whether the duty will be paid by the person sending the parcel in GB, the person receiving the parcel in Northern Ireland or both? Does he agree that we need detailed clarification on this? People are very worried about it—maybe wrongly, maybe rightly. Will the Minister make sure that there is clarification on exactly how this is going to work and how it will affect people in Great Britain sending parcels to their relatives in Northern Ireland?

[Lord Livermore (Lab)]

Yes, I can give the noble Baroness the clarification she seeks. The answer to the first question she asked is yes. As I said in my opening Answer, in May last year the Government introduced important new arrangements for freight and parcel movements to ensure that goods can continue to move smoothly from Great Britain to Northern Ireland. These facilitations under the Windsor Framework are unaffected by the EU’s change to its duty relief exemption. Goods travelling from Great Britain to Northern Ireland can continue to move under the UK Carrier Scheme and the UK Internal Market Scheme without the need to pay duty.

[Baroness Ritchie of Downpatrick (Lab)]

My Lords, I thank my noble friend the Minister for his detailed and clear response. Does he agree that one should be very careful about what you argue and campaign for, because sometimes you get what you want? Does he agree that those who argued for the hardest possible Brexit got the Windsor Framework? I agree with that.

[Lord Livermore (Lab)]

My noble friend is absolutely right that back in 2016, Sir John Major and Sir Tony Blair very clearly said that Brexit will present very specific challenges for Northern Ireland, given its land border with an EU member state and the importance of safeguarding the Good Friday agreement. Unfortunately, many of those concerns were dismissed, but now that the reality of Brexit does not match up to the fantasy version that other people imagined, they seek to blame others for the consequences of their own actions. My noble friend is equally right, though, that the Windsor Framework is the best possible solution to Northern Ireland’s unique circumstances.

[Lord Leigh of Hurley (Con)]

My Lords, the Minister will be pleasantly surprised to hear that I agree with him: the GB-NI movement of goods is covered by Article 5 of the Windsor agreement. The issue is about the movement of goods into Northern Ireland post 5 July, when the EU rules change. Can he clarify whether the €3 charge and the €2 handling charge will be applied from 1 July, and will that money go to the EU, not the UK? Furthermore, can he explain why France and Italy are bringing in these changes now, and the UK is having to wait until 2029 to implement this revenue-generating initiative?

[Lord Livermore (Lab)]

Yes, I can. The noble Lord asks about goods sent from the rest of the world; the EU has only just published its legislation—sorry, it was the EU handling fee that he asks about. Although the EU has published its legislation relating to the matters I was describing previously, it has not yet published its legislation relating to the EU handling fee. We are obviously aware that the EU is considering plans to introduce a handling fee for every consumer parcel imported by November this year. It has not yet finalised its plans or published final legislation, so we have not yet carried out an assessment of its implications at this point.

The noble Lord also asks about our own reforms, which I know he has championed for many years. As he knows, the Chancellor announced at the previous Budget that the Government will remove low-value import relief by March 2029 at the latest, but it is important that we consult on those arrangements and how they will affect retailers. That consultation will close next month, on 6 March.

[Lord Fox (LD)]

My Lords, the Minister has already agreed with our view that this situation is really caused by the appalling nature of the deal that the Conservative Party negotiated on Brexit. Does he also agree that it demonstrates that the rapid agreement of a customs union and other alignments with the EU would not only have huge financial benefits to the United Kingdom but smooth out issues like this that were caused by those in Northern Ireland who advocated for Brexit in the first place?

[Lord Livermore (Lab)]

The noble Lord knows that I absolutely agree with his analysis of the problem, and I greatly admire the consistency with which he has pursued his policy for a customs union. The points he makes are obviously factually correct. This Government are pursuing an EU reset. The UK and the EU have agreed to negotiate an SPS agreement, which aims to significantly reduce barriers to trade in agri-food goods, support simplified movements between Great Britain and Northern Ireland and the EU, and boost our exports. Negotiations that we are taking forward on electricity and emissions trading will have a similar effect on businesses trading with Northern Ireland and the EU.

[Lord Dodds of Duncairn (DUP)]

I thank the Minister for the answers that he has given thus far. He mentioned the EU reset negotiations. Can he tell us whether this issue is part of those negotiations and, more generally, what the timetable is for the outcome of the negotiations? Is the pursuit of free, untrammelled internal trade within the United Kingdom something that he and other Government Ministers have at the forefront of their consideration, given that the current restrictions are doing enormous damage to business and consumer confidence in Northern Ireland, as illustrated in the recent report by the Federation of Small Businesses, which I urge every Member of this House to read in detail?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for the points that he makes. As I said, the EU negotiations will cover an SPS agreement, which will have significant advantages for trade and the movement of goods between Great Britain and Northern Ireland and the EU, and help boost our exports. Similarly, the negotiations on electricity and emissions trading will have beneficial effects for businesses trading with Northern Ireland and the EU. On his question about the Windsor Framework, goods will continue to benefit from the Windsor Framework facilitations, including manufactured goods which are not within the scope of new agreements that we are taking forward with the EU. On the recent report on the Windsor Framework from the Federation of Small Businesses, as the noble Lord knows, the Government recently accepted all the recommendations made by my noble friend Lord Murphy in his Independent Review of the Windsor Framework. This included recommendations that align with the points raised by a wide range of stakeholders, including those set out by the Federation of Small Businesses.

[Baroness Neville-Rolfe (Con)]

Returning to the issue of small parcels, we must ensure that all those concerned are aware of the rules governing trade with Northern Ireland, including all exporters into Northern Ireland, families sending parcels and, of course, Northern Ireland businesses and consumers, who will bear the cost, with the revenue going to the EU. Can the Minister reassure us that the Government are on top of all this and will introduce the new sets of payments—the £3 duty or the £2 handling charge—alongside existing rules in a clear, unbureaucratic and timely manner? It is unclear for the individual just what they have to do.

[Lord Livermore (Lab)]

The Government are on top of it, perhaps slightly more so than the noble Baroness, given that her question was incorrect. I have already clearly said that these facilitations under the Windsor Framework are unaffected by the EU’s change to its duty relief exemption, and therefore there will be no need to pay duty.

[Lord Bew (CB)]

My Lords, what is ultimately at stake here is the stability of the institutions of the Good Friday agreement. The EU, to its credit, stretched itself in the lead-in to the Windsor Framework, opening negotiations with the Truss and Sunak Governments. A moment was reached that allowed the Windsor Framework to be part of that process and to return the functions of the institutions. Since then, the EU seems to have returned slightly to its older ways—a series of interventions that are causing destabilisation and strengthening the forces in Northern Ireland that are politically opposed to the Good Friday agreement. In dealing with the EU, will the Minister please make it clear that the survival of the institutions of the Good Friday agreement is fundamental, and that actions that strengthen the support of those hostile to the Good Friday agreement should be avoided at all costs?

[Lord Livermore (Lab)]

Absolutely. We are fully committed to implementing the Windsor Framework in good faith and protecting the UK internal market. The Windsor Framework is the best workable solution to Northern Ireland’s unique circumstances. We will work constructively with all stakeholders—the EU, the Northern Ireland Executive, businesses, political parties and civic society in Northern Ireland—to achieve this aim, taking into account the implementation deadlines.

National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Livermore Excerpts

Committee stage
Tuesday 24th February 2026 Grand Committee

[Lord Leigh of Hurley (Con)]

My Lords, prompted as I am by my noble friend Lord Mackinlay, may I just take a moment to remind the Committee that I am a member by qualification of the Chartered Institute of Taxation and have received very helpful briefings from it?

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

My Lords, it is a great pleasure to respond to the debate on this first group of amendments. I thank all noble Lords who have contributed.

This first set of amendments, in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, seeks to exempt basic rate taxpayers from the Bill. I have listened closely to the points raised and the concerns expressed during this debate. The Government have ensured that the measures in the Bill do not affect the majority of basic rate taxpayers. Around 74% of basic rate taxpayers currently using salary sacrifice will be protected by the £2,000 cap, and almost all—95%—of those earning £30,000 or less will be protected. The small number of basic rate taxpayers with contributions above £2,000 will continue to benefit from employee national insurance relief, worth £160 a year, in addition to the full income tax relief that they receive on their pension contributions. Of the small number basic rate taxpayers who are impacted, half will face an annual additional national insurance contributions liability of less than £50.

While we recognise the intention behind the amendments laid by the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, exempting basic rate taxpayers would, in practice, be operationally challenging and add significant further complexity to the tax system. That is because the tax system can confirm which band an individual is in only at the end of a tax year, when reconciliation of their income tax liabilities has taken place. Adding complexity to the system would also likely lead to an increase in costs for employers, as they would be required to bear the burden of identifying the full extent of their employees’ potentially multiple sources of income.

This leads me to the amendments in the names of the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, which seek clarity on the basis on which the Government consider certain employed earners to be “higher earners” for the purposes of the national insurance charge, as well as how the contributions limit reflects that assessment. The Explanatory Notes set out that the policy rationale is to limit

“the NICs relief available to higher earners on employer pension contributions made through salary sacrifice arrangements whilst protecting lower earning pension savers by introducing a £2,000 threshold. Most employees and their employers who make typical pensions contributions via salary sacrifice will be unaffected”.

This is indeed the effect of the Bill. Some 87% of pension contributions made via salary sacrifice above £2,000 are forecast to come from higher and additional rate taxpayers. Some 74% of basic rate taxpayers using salary sacrifice will be protected by the £2,000 cap, and almost all—95%—of those earning £30,000 or less will be protected.

Let me turn lastly to the amendments in this grouping tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baroness, Lady Altmann. They seek to exempt salary sacrificed pension contributions over the limit from being included in student loan repayments definitions to employees making student loan repayments. The salary sacrifice changes made through the Bill equalise the national insurance contributions treatment of salary sacrifice above the cap with other types of employee pension contribution, which are counted as earnings when calculating student loan repayments.

There may or may not be good arguments for or against that, but we do not consider this Bill an appropriate vehicle through which to amend the basis of student loan repayments. The basis of calculating income from student loan repayments is set out in separate regulations, and we do not believe that this Bill should seek to vary that. It is also the case that, of employees making contributions via salary sacrifice, younger people are much more likely to be fully protected by the £2,000 cap than those over the age of 30. Some 76% of those in their 20s who use salary sacrifice are protected by the cap, compared to half of those aged 30 and above.

In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

[Baroness Neville-Rolfe (Con)]

My Lords, I am pleased that we have begun Committee by addressing this issue and grateful to all noble Lords who have spoken. I am grateful to my noble friend Lord Leigh of Hurley, who seemed to be saying—I think with support from outside bodies—that the Treasury’s financial estimates were over-optimistic. That may, of course, be true of the figures that the noble Lord, Lord Livermore, has kindly given us, which we will obviously need to have a look at, on the effect of the change.

The difficulty as I see it is that the policy remains vague. Its impacts are largely unknown and the income group it is intended to capture is undefined. The Treasury’s assessment of how it will operate in practice has been inadequate. It is a complex mechanism by which to raise a relatively modest amount of revenue and does not take effect until 2029. It is a tool, if not a very sensible one, designed to make the Chancellor’s sums add up, rather than a longer-term policy. Even if the Government succeed in raising anything like the figure set out in the Treasury note, the projected yield declines sharply within just a few years of implementation.

There is also an issue of definition. I think the potential cost is greater. As the noble Baroness, Lady Kramer, said, there is a risk that middle and lower-income workers, and those paying basic rates of tax, will be drawn into scope. After all, this is a dynamic situation—we will come on to discuss whether there are ways of tackling that—but it could have serious consequences, and we would need to come back to the point about pension saving, long-term adequacy and, ultimately, future liabilities for the state. There is also an issue about irregular payments—“bonuses” was the word used by the noble Lord, Lord Londesborough. The majority of bonuses, in my experience, are small, as I know from my time at Tesco, but they can be used usefully to invest in pensions.

The absence of any safeguard in the Bill to prevent basic rate taxpayers being captured is a significant omission. If the Government are confident that such individuals will be protected, they should be willing to put that protection in the Bill. The noble Lord, Lord Ashcombe, rightly supported the need for transparency, and of course Amendment 2, which requires Ministers to define “higher earners”, would achieve just that. Even the noble Lord, Lord Davies of Brixton, agreed that there was a “kink in the line”.

Her Majesty’s Opposition are very concerned about the unfair impact on those struggling to pay their student loans at a rate of interest which is impossible to justify. The Government must look seriously at how to mitigate this, as my noble friend Lord Leigh of Hurley explained with his customary vim, and to do this in the Bill—not promise to do something elsewhere. This is a big issue that has been raised and it has to be solved. We are very sympathetic to those with big debts, which they will have to pay off under the loans scheme, so a way needs to be found to help them.

There is an ambiguity, as my noble friend Lord Mackinlay of Richborough said from his position as a tax expert, and we need to listen to him. He also warned of its damaging implications, on top of those already introduced for IHT on pensions. This is part of a wider attack on pensions which it is important to do something about if we are to tackle the problems of long-term pension sustainability.

I beg leave to withdraw my amendment, but I may need to come back to this on Report, as it is at the heart of the acceptability of this Bill.

--- Later in debate ---

[Baroness Neville-Rolfe (Con)]

My Lords, I shall speak first to the amendments in this group that stand in my name and then to those tabled by my noble friends. The noble Baroness, Lady Altmann, helpfully outlined a list of banana skins or uncertainties from her experience, such as the cost of changes in employment contracts and payroll software and of dealing with employees concerned about the change. She was right to ask whether we need to legislate so rapidly given the complexities that seem to be thrown up by today’s useful debate.

My amendments, Amendments 5 and 18, helpfully supported by the noble Baroness, Lady Altmann, chiefly concern the principle of parliamentary oversight. Nothing is more central to our work. Under Clauses 1 and 2, the Bill quite properly provides that regulations reducing the £2,000 contributions limit must be subject to the affirmative resolution procedure. That is right. If the Treasury lowers the cap, Parliament must be given the final say. What the Bill does not provide is affirmative scrutiny where the Treasury alters the methodology by which the cap is calculated or applied. That omission is significant because new subsections (6C) and (6D) do not deal with minor technical points but determine how the policy will operate in practice for thousands of earners whose pay patterns do not fit a neat monthly model.

Let us look at new subsection (6C). It permits regulations to prescribe an equivalent contributions limit for those paid weekly or at other intervals. That phrase “other intervals” is remarkably broad. It covers shift workers, contractors, seasonal workers, gig economy participants, those on irregular pay cycles and those with multiple employments. People in these forms of employment make up a large and growing segment of the modern labour market, yet the detail of how the limit will be translated for those individuals is not in the Bill. It is left entirely to regulations and consultation, as the noble Baroness, Lady Kramer, said. The annual cap is scrutinised in primary legislation, but, inconsistently, the translation of that cap into weekly, irregular or non-standard pay structures, the arrangements when an employee moves and other detail of importance to both workers and those operating payrolls, are to be set out later in regulations without the same degree of parliamentary approval. These points can be material in terms of compliance costs and fairness. In other words, those whose circumstances fit most neatly within the annual framework benefit from full parliamentary scrutiny, while those whose pay patterns are more complex do not. We submit that if the methodology by which the cap is applied to those workers is altered in a way that materially changes who pays and how much, that is a policy decision and one which requires greater scrutiny from your Lordships’ House and the other place.

The same concerns arise under new subsection (6D). There, the Treasury is given powers to determine by regulation when amounts treated as remuneration are deemed to be paid, in prescribed cases to treat a figure other than the amount foregone as remuneration and to calculate that alternative figure in such manner and on such basis as may be prescribed. These are extremely broad powers. They allow the Treasury not merely to administer the cap but to redefine how remuneration is attributed and calculated for NICs purposes. If such methodological changes can be made without returning to Parliament for affirmative approval, the House will have ceded oversight of important mechanisms that determine the real-world effect of this new policy.

My amendments simply make the point that where the method by which the contributions limit is calculated or applied is altered, Parliament should have the opportunity to approve the change. The Committee is currently scrutinising the Bill line by line. We are examining the consequences. It would be inconsistent if, once enacted, substantial changes could be introduced through regulations subject only to the negative procedure. If the Government are confident that any such changes would be technical and uncontroversial, they should have no objection to subjecting them to affirmative scrutiny.

These provisions will affect real employers and real employees. They will determine compliance burdens, payroll calculations and the effective tax treatment of pension saving. They are not trivial matters. In short, where the substance of the policy shifts, Parliament should be asked to approve that shift. I hope the Minister will recognise that this is a sound and serious constitutional point and give it proper consideration.

Amendments 4 and 17, tabled by my noble friend Lord Leigh of Hurley, make an interesting case. The Government’s policy intent, as set out in the Explanatory Notes, is to apply a national insurance change where pension contributions are made pursuant to optional remuneration arrangements—in other words, where an employee has chosen to forgo cash pay in return for an employer pension contribution. However, there are some workplace pension arrangements where no such option exists: the employee is not offered a cash alternative, there is no choice between salary and pension, and the employer contribution is simply part of the structured remuneration package.

In these circumstances, it is difficult to see how the arrangements can properly be described as optional. There is no alternative compensation available and there is no optionality. The amendment therefore makes clear that where no cash alternative is offered, the arrangement should not be treated as an optional remuneration arrangement for the purposes of the new NICs charges. I would therefore be grateful if the Minister could clarify whether arrangements with no genuine cash alternative are intended to fall within the scope of the Bill. If not, I hope he might look favourably on this clarification.

My noble friend Lord Leigh’s Amendment 33 makes a further important point that the Bill should not come into force until the Treasury has published clear guidance setting out how the contributions limit will apply in cases of multiple concurrent employments. This is a matter of basic administrative clarity and fairness. The question about two caps for two jobs came from my noble friend himself, and it would be interesting to know the answer.

My noble friend Lord Mackinlay doubts whether guidance is the right route, and wants to know what the arrangements will be today, with amendments to the Bill if we believe—in the light of the answers—that that is needed. We certainly need clarity, a change to the scrutiny of regulations to the affirmative, and perhaps guidance when we have the answers.

Finally, I turn to Amendment 4A in the name of my noble friend Lord Fuller. As drafted, the Bill introduces a flat £2,000 annual limit, above which salary sacrifice to employer pensions will attract national insurance. It is a hard cap. But real earnings do not operate in neat annual instalments; for many people, remuneration fluctuates significantly from year to year. Without any carry-forward mechanism of the kind well articulated by my noble friend Lord Mackinlay, which is apparently not very costly, the Bill creates a cliff edge. An individual who sacrifices modestly for several years but has a single high-earning year will be treated as if that year existed in isolation. That is not how pension saving works elsewhere in the tax system.

The pensions annual allowance regime already provides a three-year forward framework. Amendments 4B and 17B would align the national insurance treatment with that established precedent. The alternative amendments, Amendments 4A and 17A, simply provide the Treasury with a permissive power to introduce such a mechanism. They offer flexibility should Ministers be concerned about immediate fiscal implications.

Amendment 29A would require an independent review within 18 months of implementation. The Bill introduces a new compliance framework affecting payroll systems, remuneration design and pension planning. Therefore, it is entirely reasonable that Parliament should require evidence of its real-world impact, particularly on fluctuating earners and on employer administrative burdens. I do not agree with the noble Lord, Lord Davies of Brixton, that the extra burden of complexity on employers can be dismissed, particularly now we have heard that currently there is so little interaction between second and third employers. We want fewer burdens, not more. Enough is enough, and I look forward to a proper and detailed response on these very important technical points.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords who have spoken in this debate. I begin by addressing Amendments 4 and 17, tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baroness, Lady Altmann. These amendments relate to the technical and operational detail of the legislation, including the definition of “optional remuneration arrangements” and procedure. I fully understand the concern underlying them, which is to ensure that the Bill operates in a targeted, proportionate way and does not inadvertently affect ordinary employer pension contributions. The Government share this objective and I am grateful for this opportunity to clarify our intent.

The Bill before the Committee already relies on the established definition of “optional remuneration arrangements” set out in the Income Tax (Earnings and Pensions) Act 2003; this is the same framework that has applied since the optional remuneration arrangement rules were introduced in 2017. Under that definition, the rules apply only where an employee is given a choice—for example, a choice between receiving earnings or receiving employer pension contributions instead. This includes salary sacrifice arrangements, where an employee agrees to a lower cash salary in exchange for a pension contribution, or situations where an employee chooses pension contributions in place of a cash allowance.

Importantly, the Bill does not affect employer pension contributions where no such choice exists. Where an employer makes pension contributions as a standard part of the remuneration package and there is no alternative of cash or earnings available to the employee, those arrangements do not fall within the definition of “optional remuneration arrangements” and are, therefore, outside the scope of the Bill. In those cases, standard employer pension contributions will continue to be fully exempt from national insurance contributions, exactly as they are now. Nothing in this legislation changes that position.

[Baroness Altmann (Non-Afl)]

May I ask for some clarification? The Government’s intention is to try to encourage higher pension contributions. If an employer decides to increase their pension contributions, how would one know that that had not been at the expense of some salary they might otherwise have paid? Would it just never be caught? Can we safely assume that increased employer pension contributions will not be caught unless there is some official paper that says, “This was instead of salary”?

[Lord Livermore (Lab)]

I suppose I would ask the noble Baroness: who does she mean when she asks, “How would one know”? Who is “one” in that instance? HMRC? That would be reported to HMRC, would it not?

[Lord Mackinlay of Richborough (Con)]

HMRC.

[Baroness Altmann (Non-Afl)]

As what? It would just be an increase in pension contributions because the employer has decided to increase the amount they will provide for their staff from, say, 6% to 8%. It is nothing to do with what they are paying the staff; it is not the result of negotiation. Their standard contribution was 6% and is, perhaps, going to 8%. Some people might be concerned that that would be considered by HMRC as an optional arrangement because the pensioning contribution has gone up, although that may not have been intended. The Government’s intention is, I hope, to get employer contributions to increase.

[Lord Livermore (Lab)]

The example given by the noble Baroness is not a salary-sacrificed pension contribution. What she is describing is exactly what you would want to happen. Surely you want the pension contribution to go from 6% to 8%.

[Baroness Altmann (Non-Afl)]

Yes, absolutely.

[Lord Livermore (Lab)]

I do not understand where the problem is, because that is a good thing.

[Baroness Altmann (Non-Afl)]

The issue is that there seems to be a risk. Can we somehow—I am not quite clear how—clarify in the Bill in case HMRC might decide that that is caught by the Bill?

[Lord Livermore (Lab)]

I am happy to take this away and look at it, but I cannot see any way in which that would be the situation. Employers presumably increase their pension contributions all the time. That is a good public policy outcome. There is no way in which that would be caught by these regulations. I have made that extremely clear in what I am saying.

--- Later in debate ---

[Lord Livermore (Lab)]

It is a perfectly good outcome if the employer increases their contribution into an employee’s pension. That is something we want to achieve. On specifically how HMRC would view that, I am very happy to take that away, but I do not believe in any way, in what I am saying, that that is the intention of what we are doing.

I will finish what I was saying. In those cases, standard employer pension contributions will continue to be fully exempt from national insurance contributions, exactly as they are now. Nothing in this legislation changes that position. For these reasons, the Bill already draws the correct boundary by relying on a well-established and familiar legal definition. It targets only those arrangements where an employee is given a choice between cash and pension provision, and it does not interfere with ordinary, non-optional employer pension contributions.

I turn to Amendments 5 and 18 in the name of the noble Baroness, Lady Neville-Rolfe, and supported by the noble Baroness, Lady Altmann, and the noble Lord, Lord Altrincham. These amendments relate to parliamentary scrutiny and procedure. I agree with noble Lords about the importance of maintaining strong parliamentary scrutiny, particularly where changes could affect individuals’ national insurance liabilities. That is an important principle and one that the Government share. That is why the Bill contains a series of safeguards to protect scrutiny and transparency.

The Bill explicitly provides that, where regulations are used to reduce the generosity of the £2,000 limit—that is, where changes would lower the contribution limit and thereby increase the amount of earnings subject to class 1 national insurance contributions—those regulations would be subject to the affirmative procedure. This ensures that any change which tightens the policy or increases liability is brought before Parliament for full scrutiny and approval.

By contrast, where regulations are made simply to implement the policy, to set out administrative arrangements or to increase the £2,000 limit, thereby resulting in less national insurance being payable, it is standard practice for those regulations to be subject to the negative procedure. That approach reflects the well-established distinction between substantive policy changes and regulations which deal with administration or confer additional relief.

This is not a new or novel approach. It follows the established precedent for regulations made under the existing powers in Section 4(6) and Section 4A of the Social Security Contributions and Benefits Act 1992 and the corresponding Northern Ireland legislation. In those cases, regulations of an administrative or beneficial nature have routinely been subject to the negative procedure.

I also note that the Delegated Powers and Regulatory Reform Committee has carefully scrutinised the powers in the Bill, including the proposed level of parliamentary scrutiny. The Committee has confirmed that there is nothing in the Bill that it wished to draw to the special attention of the House.

Taken together, these provisions ensure an appropriate and proportionate balance: robust parliamentary oversight where the policy is made less generous, and a well-established, efficient procedure for setting out administrative detail and making changes that operate in favour of contributors.

[Baroness Neville-Rolfe (Con)]

Before the Minister moves on, would he consider making an affirmative regulation on the very first occasion? The discussions that we have had this evening show that there is quite a bit of complexity here, and that has compliance costs for employers and employees. It seems odd to take the precedent of the social security Act on something new and difficult. I wonder whether that would be worth considering. Perhaps the Delegated Powers and Regulatory Reform Committee did not have the benefit of the experts here who have explained some of the problems. I am sure the Minister cannot say anything today, but could he at least have a look at whether the first such regulations could be by affirmative resolution, which is a practice that I have encountered with lots of other Bills that we probably worked on together?

[Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)]

Can we just let the Minister reply to that?

[Lord Livermore (Lab)]

I have set out very clearly which will be approached with the negative procedure and the affirmative procedure, and I do not think it is our intention to deviate from that very clear precedent.

Amendment 33, tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baroness, Lady Altmann, relates to the operability of the contributions limit for those with multiple concurrent jobs. Amendments 4A, 4B, 17A, 17B and 29A, tabled by the noble Lord, Lord Fuller, also relate to operability of the contributions limit, with a focus on those with fluctuating earnings and their employers.

I fully understand the concerns that noble Lords have raised about how this measure will operate in practice, particularly for those with more complex employment arrangements and irregular patterns of remuneration. While the Bill provides the necessary powers, the full operational detail of the £2,000 cap will be set out in regulations that are yet to be published. The purpose of this two-stage process is to ensure that when the cap is introduced, it operates effectively across a wide range of real-world circumstances, including for individuals with multiple jobs, complex payroll arrangements, changing employment or fluctuating remuneration patterns over the course of a year.

[Lord Mackinlay of Richborough (Con)]

Is the Minister’s understanding of the Bill that the £2,000 threshold will be in the entirety of a single employee or across each employment? At the moment, with NI regulations the employee benefits from different thresholds in each employment that is held. That means that with less than £12,570 in each multiple employment no employee national insurance is paid at all. Is the intention for it to be £2,000 in total across any number of employments, or £2,000 per employment?

[Lord Livermore (Lab)]

That intention will be set out in the regulations once we have fully consulted relevant employers.

[Lord Fuller (Con)]

There is a transfer of risk, of prejudice, from the individual, who is responsible under the current arrangements, to the employer. That has not been fleshed out at all. If you have a salary sacrifice that is processed by the employer, all of a sudden that employer trespasses on the duty at the end of the tax year for the employee to put in his tax return. There has been a muddying of the water here between the employee and the employer. I know we are going to come back on Report, and I hope we will get it done in a day, but the Government should lay out their approach to this and state where the liability sits and where the penalties may be applied for honest mistakes made in that interface between the employer and the employee. That is not at all clear, and it should be.

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his further thoughts. The carryover feature—

[Baroness Kramer (LD)]

I do not want to be problematic here, but I wonder whether the Minister can understand that we are looking at a very different Bill and very different implications if the £2,000 contribution limit is per individual across a range of employments, or per job, and perhaps they have three or four. It is a fundamental difference, and while the details of how things would be done in the future and the operational issues may well have to wait for regulation, guidance and consultation, it seems to me that that core issue defines this Bill, and we should know that before we complete its passage.

[Lord Livermore]

Obviously, I hear what the noble Baroness says.

The carryover feature of the pensions annual allowance, referenced in the justification for the amendments tabled by the noble Lord, Lord Fuller, sets the maximum amount of tax-relieved pension savings an individual can build up in a tax year without triggering a tax charge, which for most people is £60,000. The carryover feature is intended to accommodate one-off irregular spikes in pension saving or defined benefit accrual. The annual allowance carry-forward requires individuals to hold or obtain accurate records to track usage and eligibility and is not intended for day-to-day retirement planning. The Government do not consider it suitable to introduce a similar mechanism in the context of the cap on national insurance contribution-free pension saving in the Bill.

Before the detailed regulations that support the introduction of this change are finalised, HMRC will work closely with employers, payroll providers and software developers to ensure the policy operates smoothly for businesses and individuals. This engagement is not a formality. It is a necessary step to ensure that we collaboratively identify the best and most workable way to apply the £2,000 national insurance contributions-free limit, minimise administrative burdens and avoid unintended consequences, particularly for those whose earnings are spread across more than one employment.

Taking the time to engage properly and test implementation options is the best way to ensure that the policy works as intended from the outset. That is why the Government have committed sufficient time to work with stakeholders, up to and including the preparation of the important guidance for operation that the noble Lord, Lord Fuller, has raised in Amendment 29A.

On Amendment 29A, which proposes a reporting provision on the administrative cost borne by employers, I note that, upon the introduction of the Bill to Parliament, a tax information and impact note was published by the Government, setting out the impact of this policy’s operationalisation on employees and their employers. Supporting those who will implement this change within their organisations is vital, but we do not agree that that support should take the form of additional reporting requirements.

In light of all the points I have made, I respectfully ask noble Lords not to press their amendments.

[Lord Leigh of Hurley (Con)]

My Lords, this debate has been very helpful because it has sort of blown a hole in the Bill. The noble Baroness, Lady Altmann, summed it up rightly: what has happened is that the Government started with the answer and then tried to find the question. In other words, they were desperately looking to find £4 billion from somewhere and came up with this random salary sacrifice idea. Why salary sacrifice? Why not say that NI on pensions does not apply over X amount and limit it that way? I am afraid that the Bill just does not work.

For example, in the case I raised about a new employee where an employer is negotiating over X amount of salary or Y amount of pension, is that a salary sacrifice? The Minister could not answer that. On the £2,000 cap, the Minister could not answer. He could not answer on the collective bargaining point or whether a bonus applies. On how we deal with multiple employments, I do not think that was satisfactorily answered. I also think that the spreading point was not satisfactorily answered.

I take the point that this provision is not scheduled to come in until April 2029. I respectfully make the point that we might all be busy then on other matters but, given that the earliest is April 2029, is it not right now to pause the Bill, work constructively with us and many others who have much greater knowledge, certainly than people on this Bench, and to think through how we might find a constructive way forward? Just hoping that we might get it right in regulation is bypassing democracy. It is the purpose of the House of Lords to examine Bills, make constructive suggestions, identify and highlight holes and issues, and seek to amend them. It is fair enough that this is what the Government want to do, but they have to be clear as to how it works before the Bill goes through.

I suspect the Government will find fierce opposition to the Bill as it is on Report from a large number of people in the House, so one would hope that the Government will pause, reflect, consider and consult—on the Bill, not in regulations—to enable us to get this right. The Minister is very good at putting himself in our shoes and has done so to some extent, and I hope that he will do so again in respect of these amendments. I particularly hope that Amendment 29A comes in, so that a future Chancellor can produce a report. I beg leave to withdraw Amendment 4.

--- Later in debate ---

[Lord Leigh of Hurley (Con)]

My Lords, it is worth reminding ourselves that this legislation was prompted by a document published in May last year with this eye-catching title: Understanding the Attitudes and Behaviours of Employers Towards Salary Sacrifice for Pensions. It concluded:

“All the hypothetical scenarios explored in this research”,


including the £2,000 cap, were “viewed negatively” by those interviewed. It said that the changes would cause confusion, reduce benefits for employees and disincentivise saving for a pension. The report came to the conclusion that, of the three proposed hypothetical options for change, the £2,000 cap was no more than the least bad option.

As has been discussed here, even the OBR has stated that, in the first year in which this measure bites, there will be an estimated revenue of £4.48 billion from the Bill, but it will drop in the next year to £2.6 billion. That is a massive fall in revenue. Should HM Treasury not be worried about this? Should it not be asking itself, “How can we bring in something that leads to a drop in revenue of 50% in year 1?”? The taxpayer wants to know. Could an assessment be done of whether this is likely to be the case in some of the scenarios set out in these amendments—in particular, the £5,000 and the £10,000? I do not know this, because I do not have the resources to do that, but I suspect that, although bringing the cap in at £5,000 and £10,000 would not lead to the £4.48 billion in year 1, it would lead to a much more consistent figure in the subsequent years, for the long-term benefit of the country. As my noble friend Lord Mackinlay said, it will be a bit of a sugar rush and will force people to make most unfortunate changes in their patterns of savings, which the Government cannot be keen to see happen.

[Lord Livermore (Lab)]

My Lords, I am grateful to noble Lords who have spoken in this debate.

First, I will address Amendments 6, 10, 11, 13, 19, 22, 23 and 25 in the names of by the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham and Lord Londesborough. These amendments seek to uprate the cap by the percentage change in the consumer prices index or the retail prices index. The Government agree on the need to keep the level of the cap under review to ensure that it continues to meet its policy objective: keeping the cost of salary sacrifice tax reliefs on a fiscally sustainable footing while protecting ordinary workers. However, we disagree with the approach set out in these amendments because it would be inconsistent with the approach taken in respect of other pension tax reliefs, which are not routinely indexed with inflation.

For example, in 2023, when the previous Government made changes to the annual allowance, they increased it by a set amount rather than indexing it; the annual allowance was otherwise not routinely uprated or index-linked. The Government are taking a pragmatic, balanced approach to ensuring that the cost of tax relief on salary sacrifice pension contributions remains fiscally sustainable. The future level of the cap in the next decade and beyond is for future Budgets in those decades.

This leads me on to Amendments 7 to 9, 20 and 21 in the names of the noble Baronesses, Lady Neville-Rolfe, Lady Kramer and Lady Altmann, and the noble Lords, Lord de Clifford and Lord Londesborough. These amendments seek to increase the cap beyond £2,000. It is important to consider the level of the cap in the wider context of the objectives of this change, which are about keeping the tax system on a sustainable footing while protecting ordinary workers. Without reform, the cost of this tax relief is now set to almost treble in cost, from £2.8 billion to £8 billion, with the vast majority of the benefit going to higher earners because around 62% of salary sacrifice contributions come from the top 20% of earners. Although some tax experts have called for pension salary sacrifice to be abolished entirely, the Government are taking a more measured and pragmatic approach.

As I said earlier this afternoon, the £2,000 cap protects 74% of basic rate taxpayers using salary sacrifice. This means that three-quarters of those earning up to £50,270 a year who use salary sacrifice will be protected by the cap. Almost all—95%—of those earning £30,000 or less who use salary sacrifice will be entirely unaffected by the changes. Some 87% of salary sacrifice contributions above the cap are forecast to be made by higher and additional rate taxpayers. Increasing the level of the cap in the way proposed by these amendments would cost additional money and would undermine the objective of putting this tax relief on a sustainable footing for the future. Such changes should also be considered in the wider context of pension tax relief, which amounts to more than £70 billion each year; that spend will be entirely unaffected by this legislation.

In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

[Lord Altrincham (Con)]

My Lords, as many noble Lords have made clear in their remarks on this group, the policy as currently drafted operates as a rather untargeted tax. Introducing indexation by RPI or CPI—described by the noble Baroness, Lady Kramer, as the goose and gander amendment—would be a straightforward and proportionate step that the Government could take now to mitigate what I can only assume is an unintended consequence. We on these Benches would also support the higher limits proposed by noble Lords and noble Baronesses today to mitigate behavioural changes that may undermine the objectives of this initiative or the Bill entirely.

The Minister has heard a range of constructive proposals this afternoon as to how this issue might be addressed. I very much hope he has listened carefully to the strength of feeling across the Committee and that he will give serious consideration to adopting one of these solutions. I beg to withdraw the amendment.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, as we discussed at Second Reading, the Federation of Small Businesses has warned that the impact of the Bill could meaningfully disadvantage small businesses. In a way, I look at social enterprises and charities as, essentially, a subset of the SME sector. Big businesses can often devise ways and perks to reward people that are simply not available to SMEs, so they can dampen the impact of the Bill on their workforces and widen that competitive gap.

As a consequence of that, I thank the noble Lord, Lord de Clifford, for signing Amendment 27 in my name, and the noble Lord, Lord Londesborough, for saying that he would have signed it. Frankly, when these noble Lords give warnings on what will happen and what is happening in the small business sector, I really hope that the Government are listening because, unfortunately for our economy, their track record has a real history of being correct, and those warnings need to be taken seriously.

As other noble Lords have said, SMEs are already under pressure. I am not going to repeat the saga of the burdens on them, but we have to recognise that this is a time when we absolutely need small businesses to accelerate their hiring, especially of young people, and make serious investment in productivity and growth. Once again, this is another measure where I can see no alignment between the Bill and the Government’s industrial strategy or growth policy. It seems to pull in completely the wrong direction.

Amendments 12 and 24 would straightforwardly exempt SMEs. Amendment 27 in my name would give the Government a chance to make their case, in a sense, because it would require a detailed review within 12 months of the Act being signed, which is obviously long before the Act will come into force. The review would target the two issues that we have said are so critical—SME recruitment and retention—and would also look at this matter in the context of the cumulative impact, particularly of NICs changes since this is a NICs Bill. It seems wise to encompass a look at these two NICs changes as being linked and entangled in the way they impact on small businesses.

I do not want to take up much more of the Committee’s time, but it is important to stress that this is not the time for uninformed decision-making; that has been echoed through group after group of amendments. I am not rejecting the other amendments but Amendment 27 would be a relatively modest way for the Government at least to do something that begins to put evidence before Ministers and Parliament.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords who have spoken in this debate. First, I will address Amendments 18 and 24 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, which would exempt small and medium-sized enterprises, charities and social enterprises from the Bill.

The Government agree on the importance of supporting small businesses and ensuring that they are not unduly impacted by these changes. Small and medium-sized enterprises are far less likely to offer pension salary sacrifice than larger businesses. According to Nest Insight, around 33% of small businesses offer pension salary sacrifice to their employees, compared with 83% of large businesses. In addition, employees of small and medium-sized enterprises are far less likely to have contributions exceeding the £2,000 cap; only 10% of employees in SMEs have pension contributions through salary sacrifice exceeding the cap. Exempting small and medium-sized enterprises in the way suggested by the amendment would therefore introduce significant additional complexity into the tax system and would be disproportionate given the limited impact that this policy is expected to have on these businesses. The Government are engaging with employers and other industry stakeholders ahead of these changes coming in.

Similarly, Amendments 26 and 27 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham, Lord Londesborough and Lord de Clifford, would require a review of the impact of the Act on small and medium-sized enterprises. As I have already said, the Government agree about the importance of supporting small businesses. The changes in the Bill will mainly impact larger employers, which are much more likely to use salary sacrifice and to have employees who are contributing above the £2,000 cap.

More widely, the Government are delivering the most comprehensive package of support for small and medium-sized businesses in a generation through the small business strategy, unlocking billions of pounds in finance to support businesses to invest and removing unnecessary red tape. Ahead of the cap coming into operation, the Government will continue to work closely with employers, payroll administrators and other stakeholders to ensure that the changes are implemented in the least burdensome way for businesses of all sizes currently using salary sacrifice.

In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

[Baroness Neville-Rolfe (Con)]

My Lords, if the Government truly wish to support SMEs and charities, they should not press ahead with a measure that those enterprises have told us—I gave a great deal of evidence, and we have heard this from others as well—will damage them, increase their operating costs and complexity and reduce their ability to offer options to their employees. The noble Baroness, Lady Altmann, put the case well.

The noble Lord, Lord Londesborough, with his unique experience of SME businesses, reminded us of the dire situation facing SMEs, with significant numbers closing down, as one can see on almost any high street. My noble friend Lord Ashcombe emphasised the cumulative effect and rightly added energy prices to the problems that SMEs and charities are facing. The Bill will raise employment costs at a time when companies are already stretched to boiling point.

The noble Lord, Lord de Clifford, illustrated the problem with information drawn from the impact of NICs on his business, which I found particularly compelling. He is very keen to have the hope—I think that is the right word—that will arise from the proposed review. My noble friend Lord Mackinlay reminded us of the large number of NEETs who are out of work, as well as of how we now have higher youth unemployment than the EU, generating what he referred to as a tipping point.

My noble friend rightly raised—I hope that the Minister will come back on this—the key unanswered question of whether the £2,000 cap will apply per employee across multiple employments. We must have an answer on that because it will make a great deal of difference, especially to smaller operations. I am impressed by the fact that, for the first time, my noble friend has agreed to support a carve-out for SMEs and charities, on which I have campaigned for the past 11 years.

The Minister and I have often exchanged views on SMEs, but this is an opportunity for him to make a concrete change to the Government’s policy on this matter, do something to show that the Government listen to SMEs and small social enterprises and provide them with a bit of relief from the mountain of complexities piled on them. I urge the Government to think again and make a positive change to the Bill in this area. It would not be expensive, but it would protect jobs and businesses, help our economy and, above all, reduce compliance costs for both this vital sector and the officials who are taxed with policing the changes and gathering revenue.

Lastly, I reiterate my support for the review of SME recruitment and retention proposed by the noble Baroness, Lady Kramer, in the light of the cumulative NICs changes that we have seen over the past 18 months. Like her, I hope that the Government are listening. For now, I beg leave to withdraw the amendment, but we will, I think, want to revert to the position of SMEs and charities when we come back on Report later in the spring.

--- Later in debate ---

[Lord de Clifford (CB)]

My Lords, I added my name to Amendment 29 in the name of the noble Baroness, Lady Altmann. She has just summed up a lot of my issues, so I will keep this brief because it is late.

I will come from the perspective of one limited experience: my business. The success of auto-enrolment is fantastic, and the salary sacrifice scheme has really helped. I have 18 and 19 year-olds saving for a pension; it is only small amounts, but it really helps them. The other thing is that those who are slightly better paid find it so easy to increase their pension contributions and then pull them down again when they need their funds. I believe this Bill will be a disincentive to those people who are trying to save a bit more.

Therefore, I support this amendment, which seeks to check that we do not lose the advantages that auto-enrolment has brought to SMEs and has forced employers like me—I think back when we instigated ours—to bring in pension schemes. There is real value to that. The experience of the noble Baroness, Lady Altmann, in pensions is a lot greater than mine, so I welcome a review, especially an independent one. It is so important that we start saving for our pensions. My noble friend Lord Londesborough came up with some statistics earlier and the report from his committee is important.

Those are the reasons why I support this amendment. It is essential that we continue to review how people save for their pensions.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords for their contributions to this debate.

I turn first to Amendment 28, tabled by the noble Baroness, Lady Kramer, which seeks the publication of illustrative projections of lifetime pension saving values before and after this change. The Government do not agree that this amendment is necessary to provide the required information on personal pension saving outcomes. The impacts of the measures in the Bill, including on employees and employers, are already set out in the tax information and impact note published alongside the Bill’s introduction.

Additionally, the Government published a policy costing note, which includes detail on the tax base and static costing as well as a summary of the behavioural responses expected by individuals and employers. The Office for Budget Responsibility has set out impacts in its economic and fiscal outlook, making it clear that it does not expect a material impact on savings behaviour as a result of the tax changes made in the Budget. Similarly, there are already a number of existing tools and services that individuals can use to understand their personal financial position and estimate their potential retirement income.

Amendments 29 and 30, tabled by the noble Baronesses, Lady Altmann and Lady Neville-Rolfe, and the noble Lords, Lord Altrincham and Lord de Clifford, would require the Government to take advice examining the impact of this change on employers, pension adequacy and workers’ pay. They also seek to make commencement of the Act conditional on the publication of an independent review of its effects, including on pension adequacy. The impacts of this measure have already been set out across the range of usual publications for changes to national insurance; these include the published tax information and impact note and policy costings note, as well as the Office for Budget Responsibility’s economic and fiscal outlook.

These amendments raise a wider point about the role of salary sacrifice in the pension salary saving system, particularly in relation to incentivising saving and improving pension adequacy. It is important to place this measure in context. Salary sacrifice existed in the 2000s and early 2010s, yet, during this period, there were falls in private sector pension saving. The key factor that has led to an increase in saving in recent years, as many noble Lords have noted in this debate, is automatic enrolment. As a result of automatic enrolment, more than 22 million workers across the UK are now saving each month.

Although all of us here share a commitment to improving pension adequacy, many groups at higher risk of under-saving—including the self-employed, low earners and women—are not the most likely to benefit from salary sacrifice. Only one in five self-employed people save into a pension, but they are entirely excluded from salary sacrifice. Low earners are most likely not to be saving, but higher earners are more likely to be using salary sacrifice. Many women are under-saving for retirement, but many more men use pension salary sacrifice.

The pensions tax relief system remains hugely generous, and there remain significant incentives to save into a pension. The £70 billion of income tax and national insurance contribution relief that the Government currently provide on pensions each year will be entirely unaffected by these changes.

Given the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

[Baroness Kramer (LD)]

I beg leave to withdraw my amendment.

--- Later in debate ---

[Lord Londesborough (CB)]

I will very briefly add one question about the OBR forecast. I think that the noble Baroness, Lady Kramer, said at Second Reading that she found the timing “weird”. I certainly find it extraordinary that we have a five-year forecast of which the first three years are irrelevant—they are zero—and then we have a 48% fall in the second year. This begs the question: where are the forecasts for years three, four and five? If we are following this trend, we have a fireworks display. As the noble Lord, Lord Altrinchan, said, the Government should not be indulging in short-term fiscal levers. Where are the forecasts for those years? These measures do not actually come into effect until the financial year 2030.

[Lord Livermore (Lab)]

My Lords, I will first address Amendment 31, tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham. I agree on the importance of transparency on the impact of this policy, including on employers. However, an additional publication is not necessary to achieve that objective. A number of documents have already been published in line with the usual practice for national insurance contribution changes, which comprehensively set out the impacts of this measure, including on employers.

The tax information and impact note was published alongside the introduction of the Bill. This sets out the number of employers expected to be impacted by this measure, the one-off costs—including familiarisation with the change, the training of staff and updating of software—and the expected continuing costs, including performing more calculations, and recording and providing additional information to HMRC, where salary sacrifice schemes continue to be used. This equates to a one-off £75 and an ongoing £99 per business per year. The Government also published a policy costing note, which includes detail on the costing of the measures, including the tax base, static costing and a summary of the behavioural responses expected by individuals and employers.

The Office for Budget Responsibility published its economic and fiscal outlook, which provides the OBR’s independent scrutiny of the Government’s policy costing. The OBR also published a supplementary forecast note, which provided additional information that it received in last year’s Budget to further increase the transparency of this measure. Taken together, these publications already provide an appropriate and comprehensive assessment of employer impacts.

On Amendment 32, the OBR’s economic and fiscal outlook and its supplementary forecast—

[Lord Ashcombe (Con)]

I thank the Minister for giving way. He has mentioned up to five different publications where this information may be found. Is it not possible for the Government to bring it into one place, so that we can actually see what the information is?

[Lord Livermore (Lab)]

My Lords, as I have already said, it has been published in various places, and I do not see the need to bring that into one place, as the noble Lord asked.

On Amendment 32, the OBR’s economic and fiscal outlook and its supplementary forecast publications set out how behavioural responses have been considered in certifying the costing. Some of these behavioural assumptions were also published in the policy costing note accompanying the Budget. The supplementary forecast information was drawn from analysis and data supplied to the OBR by the Government ahead of Budget 2025, in line with the standard process by which the OBR scrutinises and certifies costings. The Government’s published costings therefore already reflect these behavioural effects, and the OBR has certified these costings in the usual way. Given that the material reference is already publicly available and has been fully reflected in the certified policy costings, it is not necessary to review the OBR’s supplementary forecast.

If the noble Lord, Lord Londesborough, will forgive me, I will write to him with the answer to his specific question. In the meantime, given the points I have made, I respectfully ask noble Lords not to press their amendments.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to all noble Lords who have spoken in this debate—a shorter debate than we probably needed—and I am particularly grateful to the noble Baroness, Lady Kramer, and the noble Lord, Lord de Clifford, for drawing out so clearly the scale of the uncertainty that we are facing here.

The Minister has referred to various costings and has described them as conventional, but the truth is that the tax impact notes that have been published are inadequate, as indeed were parallel information notes published last year when we were discussing the national insurance changes of £25 billion. As a result, the consequences we are now seeing in the economy were not, to my mind, adequately flagged up.

However, where a policy is acknowledged by the OBR to carry medium to high uncertainty, and where almost half of the projected yield depends on a behavioural response that is not known in advance, I think the data that we have is incomplete. It is therefore reasonable to pause and require an independent assessment, and we have time for that. The alternative is that the Government legislate blind and then ignore the impact of the measures they take, as they did last year. In this case, of course, it will be a long time before we know the impact, because the measures will come into play in 2029-30.

In matters of pension saving and employment costs, stability and predictability are essential. If the Government are confident in their policy, they should have nothing to fear from the independent scrutiny that we have proposed. But time is late; we have reached the witching hour, and I beg leave to withdraw the amendment.

Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2026

Lord Livermore Excerpts

Wednesday 11th February 2026 Lords Chamber

Moved by

[Lord Livermore]

That the draft Regulations laid before the House on 7 January be approved.

Relevant document: 48th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument). Considered in Grand Committee on 10 February.

Motion agreed.

Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2026

Lord Livermore Excerpts

Tuesday 10th February 2026 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2026.

Relevant document: 48th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)

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

My Lords, this debate will also consider the take-note Motion tabled by the noble Lord, Lord Clement- Jones, on the Non-Domestic Rating (Definition of Qualifying Retail, Hospitality or Leisure Hereditament) Regulations 2025.

These statutory instruments form part of a wider package of legislation that gives effect to the new business rates multipliers for qualifying retail, hospitality, leisure and high-value properties. I thank the Secondary Legislation Scrutiny Committee for the detailed and thoughtful consideration of these statutory instruments in its 40th and 48th reports. Business rates are based on a property’s rateable value and a multiplier for each tax year. In the Autumn Budget 2024, the Government announced a comprehensive set of reforms to the business rates system in England, including the introduction of three additional multipliers from April 2026.

The three new multipliers are: a small business retail, hospitality and leisure multiplier for qualifying retail, hospitality and leisure properties with rateable values below £51,000; a standard retail, hospitality and leisure multiplier for qualifying retail, hospitality and leisure properties with rateable values of £51,000 to £499,999; and a high-value multiplier for properties with rateable values of £500,000 and above. In the Budget last November, the Government announced the rates for these new multipliers. These new rates will deliver permanently low multipliers for eligible retail, hospitality and leisure properties with rateable values below £500,000.

The Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2026 prescribe the circumstances in which the new multipliers will apply. The new multipliers will replace the pandemic-era retail, leisure and hospitality reliefs that currently apply. These reliefs were introduced on a temporary basis in 2020, recognising the exceptional circumstances of the time. Continuing these reliefs would cost around £1.7 billion per year. The new multipliers will benefit over 750,000 retail, hospitality and leisure properties. However, unlike the existing relief, they are permanent, thereby providing businesses with greater certainty and support. They are also not subject to a cash cap, meaning that all qualifying properties in a retail, hospitality and leisure chain can benefit. Taking into account the upcoming business rates revaluation, the tax rate that retail, hospitality and leisure properties on the small business multiplier will pay next year will fall by nearly 12p overall. Similarly, the rate for retail, hospitality and leisure properties on the standard multiplier will fall by 12.5p compared with what they are paying now.

To ensure that support for the high street is sustainable, the Government will fund these new multipliers through higher rates on the top 1% of properties, those with rateable values of £500,000 and above. From April, the most valuable properties, such as large distribution warehouses occupied by online giants, will pay a tax rate that is 33% higher than that paid by small high street properties.

I turn to the Motion laid by the noble Lord, Lord Clement-Jones, which relates to the Non-Domestic Rating (Definition of Qualifying Retail, Hospitality or Leisure Hereditament) Regulations 2025. These regulations set out the eligibility for the new multipliers and passed into law last year. The Government’s objective in setting these regulations was to reflect the same definition for eligibility as the existing retail, hospitality and leisure relief. We want sectors that benefited under the previous relief to continue benefiting under this new relief. For example, under the existing relief, businesses benefit if they are wholly or mainly used for retail, hospitality or leisure purposes. That includes the sale of most goods, services, food and drink or entertainment as well as accommodation to the public. These requirements are the same under the new relief.

Similarly, under the existing relief, businesses benefited only where they were used for in-person activity. The same principles apply under the statutory instrument that we passed last year. The Government have retained the same approach to ensure continuity in our support for the sector while making this support permanent and uncapped.

The new multipliers are being introduced alongside a revaluation of non-domestic properties, which the Valuation Office Agency carries out independently every three years. Currently, property values are based on values from 2021, during the pandemic. Values were generally lower at this time due to the unusual economic situation that the pandemic created. Many properties are therefore seeing their rateable values increase at this revaluation, reflecting post-pandemic recovery.

To support affected businesses, the Government announced in the Budget a significant support package worth £4.3 billion over the next three years. First, we are implementing transitional relief, which will cap increases next year by 5% for the smallest properties and up to 30% for the largest properties. Secondly, we are expanding the supporting small business scheme. Currently, the scheme caps the bill increases of those losing some or all their small business rates relief or rural rates relief. We are expanding it to those which are currently eligible for the 40% retail, hospitality and leisure relief. The supporting small business scheme will cap bill increases at the relevant transitional relief cap or £800 per year, whichever is higher.

Together, these schemes will mean that the majority of properties facing increases will see them capped at 15% or less next year, or £800 for the smallest. Even after the revaluation, around a third of properties will pay no business rates at all as they receive 100% small business rate relief. A further 85,000 properties will benefit from reduced business rates as this relief tapers. We have also extended the small business rate relief second property grace period from one year to three years, to support small businesses as they grow.

Following the Budget, concerns were raised about how the valuation methodology for pubs was applied. We have listened and responded to those concerns by launching a review into how pubs are valued for business rates. This review will also cover how hotels are valued and will include extensive engagement from valuation experts, businesses and their representatives. It will report in time for any decisions that follow to be implemented for the 2029 revaluation.

In the meantime, we are taking steps to support pubs for not only next year but the next three years. From April, pubs and live music venues will receive 15% off their new business rates bill on top of the support announced in the Budget. Bills will then be frozen in real terms for a further two years. This support is worth around £1,650 to the average pub and will mean around three-quarters of pubs seeing their bills either falling or remaining the same next year. This decision will mean that the amount of business rates paid by the pub sector as a whole will be 8% lower in 2028-29 than it is today.

The Government are also committed to going further to reform the business rates system to incentivise more investment. That is why we published a call for evidence on the next phase of business rates reform in November last year; that consultation will close later this month, and the Government will respond in due course. We recognise that transforming the business rates system is a multi-year process, and we are committed to working with stakeholders throughout this process to achieve meaningful change.

The reforms being delivered through these statutory instruments will benefit over 750,000 properties across England while ensuring that the top 1% most expensive properties, including those used by online giants, pay their fair share. They will support investment and create a fairer business rates system. I beg to move.

[Lord Clement-Jones (LD)]

My Lords, I wish to speak to the Motion standing in my name on the Order Paper.

I have not secured this debate to oppose the Government’s ambition to support the high street. Permanent lower multipliers for retail, hospitality and leisure are, in principle, a welcome step towards stability. Instead, I have tabled this Motion to highlight a critical flaw in the definition of who qualifies for this support. By drawing the lines of eligibility too narrowly, these regulations inadvertently exclude the engine room of our £8 billion music industry and the R&D hubs of our visual arts sector, threatening the very existence of the UK’s grass-roots creative infrastructure.

Our recording studios face a perfect storm and I know that the noble friends of the Minister, the noble Lord, Lord Brennan, and the noble Baroness, Lady Keeley, are both very supportive of what we are trying to highlight today and regret that they unavoidably cannot be here to say so. I know that the noble Lord, Lord Berkeley of Knighton, would also want to say something if he were able and did not have other engagements. Under the 2026 revaluation, which coincides with these new multipliers, these businesses face an average increase in rateable value of 45%, with some seeing hikes of nearly 100%. Simultaneously, because Regulation 3 excludes them from the retail, hospitality and leisure RHL category, they are denied the lower tax multiplier that their neighbours on the high street will receive.

The Music Producers Guild has provided alarming evidence that 50% of studios surveyed are considering closure within the next year. These businesses operate on ultra-thin margins, often requiring 85% occupancy just to break even. They compete in a global market. If it becomes too expensive to record here, artists will simply move to eastern Europe or the United States. We are already seeing top UK artists recording major projects abroad. The urgency cannot be overstated. I have seen correspondence from the Music Venue Trust highlighting a terrifying reality: directors of these businesses are running their figures for April and realising they will be insolvent. Under HMRC rules, to continue trading would constitute what is called fiscal recklessness, risking personal liability. This means we risk a wave of closures before the first bills even land, simply because the Government have failed to provide certainty.

Let me draw the Committee’s attention to the 40th report of the Secondary Legislation Scrutiny Committee. The committee explicitly noted the submissions from UK Music and the Music Producers Guild regarding this exclusion. The committee highlighted a glaring inconsistency in government policy. Film and TV studios currently benefit from a specific 40% business rates relief, which the Treasury confirmed will continue. The SLSC invited this House to question the Minister on this matter, so on what basis does the Treasury protect the infrastructure of our film industry while the infrastructure of our music industry, facing identical economic pressures, is left to face what the sector describes as an existential threat?

The Government’s justification for excluding these studios is that they are not reasonably accessible to visiting members of the public. I must challenge this, using the Government’s own guidance. Paragraph 22 lists funeral directors, shoe repairers and key cutters as eligible because they constitute the provision of a service. Recording studios are functionally identical: they provide a specialist service accessible to any member of the public willing to pay for it, be that a professional band, a local choir or a community group. Do the public browse a funeral parlour? No, they book a specific service. A recording studio is no different. If a key cutter qualifies, surely a recording studio does too.

We know that the Government can act when the system creates anomalies. Just weeks ago, following concerns regarding pubs, the Chancellor announced a 15% reduction in bills and a freeze for two years. The Minister in the other place, referring to music venues, said:

“It would not be right to seek to draw the line in a way that includes some and not others”.—[Official Report, Commons, 27/1/26; col. 771.]


Yet that is exactly what these regulations do: they support the venue where music is performed but tax the studio where music is created out of existence. The music ecosystem is a pipeline: if you destroy the creation phase, you eventually starve the venues. The Chancellor justified the pub relief by calling pubs “community assets”. If that is the test, studios that host community choirs, youth education projects and amateur bands must surely pass it.

Reports suggest that the Chancellor is resisting wider relief for hotels and restaurants because she cannot afford to support every business. I understand that constraint, but we are not talking about thousands of hotels; we are speaking of roughly 500 recording studios. The cost must be negligible compared with the £300 million package announced for pubs, yet the value to the £8 billion music industry is existential.

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[Baroness Neville-Rolfe (Con)]

My Lords, I rise to speak to these two closely related sets of regulations, which together established the new tiered system of business rates for the 2026 financial year. One determines which hereditaments fall into each multiplier band, and the other fixes the resulting liabilities for larger premises. I thank the Minister for his clear and careful introduction to the new rules.

Although I plan to focus elsewhere today, I am very grateful to the noble Lord, Lord Clement-Jones, and others for drawing our special attention, so eloquently, to the second instrument, to the anomalous position of the recording studios and to the hikes in rates that they face. This could lead to unwelcome closures and to the expected moves of some studios abroad. I have visited Abbey Road Studios as a private citizen. Those studios are an important part of our rich art and cultural heritage, which has been referenced so many times today—indeed, I have walked across the famous zebra crossing, made of worldwide importance by the Beatles.

I am also grateful to the Secondary Legislation Scrutiny Committee for its, I have to say, critical report. It was disappointed that the Government had not seen fit to publish any of the wide range of evidence and analysis it considered on the effects of the new multipliers, other than high-level data. It also sought a proper explanation of why the Government consider it fair that, apparently without advancing evidence, a low multiplier should apply to smaller RHL premises compared to non-RHL properties. I look forward to a full response from the Minister on that report.

Prior to the election, the now Prime Minister promised a regime of permanently lower business rates multipliers. Since then, the Chancellor has claimed that, on this basis, business rates are at their lowest level since 1991, yet many businesses now face substantial increases in their bills. That is why it is so profoundly misleading to characterise these changes as record low taxation by reference to multipliers. Multipliers are not the tax rate. Bills are, and it is bills that businesses have to pay and real people have to bear.

Turning to the substance of the regulations, in their first Budget, this Government chose to cut back retail, hospitality and leisure relief, a tax rise worth £1.1 billion a year. At the same time, they have locked in automatic, inflation-linked increases every year. Can the Minister explain, in specific terms, what the Government believe the cumulative effect of these decisions will be by the end of this Parliament? What modelling has the Treasury done on business closures, employment losses and investment being deferred? For SMEs, the challenge is acute. Shops, hotels and restaurants face even steeper rises. Does the Minister seriously believe that this trajectory is sustainable?

Under the new system set out in these regulations, combined with the revaluation, businesses across retail, leisure and hospitality will face higher bills and fewer businesses will benefit from relief than under the previous 40% scheme. As the Explanatory Memorandum makes clear, local authorities previously had greater discretion over which premises benefited. Can the Minister tell the Committee what estimate the Government have made—the Valuation Office Agency will undoubtedly have provided one—of how many businesses will lose out because that discretion has now been removed?

I turn now to the Non-Domestic Rating (Definition of Qualifying Retail, Hospitality or Leisure Hereditament) Regulations, which I have looked at in combination with the draft Local Government Finance Act 1988 (Calculation of Non-Domestic Rating High-Value Multiplier) (England) Regulations. As confirmed in the letter sent by MHCLG to the chief finance officers of English billing authorities this very day, these set the new high-value multiplier at 50.8p, compared to a standard multiplier of 48p—an extra 2.8p in the pound.

The Government’s intention is for these measures to be directed at large online warehouses with rateable values of around £500,000 or above. However, as the provision currently stands, a greater number of retail premises will in fact be captured by the higher rate, including many of the anchor stores that play a central role in sustaining footfall and economic activity in our high streets. I remember these so well from my time at Tesco, since they were at the heart of a regeneration strategy in poorer areas that provided jobs for the unemployed and fresh fruit and vegetables, which Southampton University found materially improved health locally. The study was actually paid for by Sainsbury’s, but the outcomes were very positive.

It appears to be difficult to reconcile hitting such stores hard with the commitments made prior to the election, when it was said that business rates would be replaced with a fairer system intended to address disparities between large online operators and physical retailers. Will the Minister say why the Government are choosing to target anchor retail stores? What assessment has been made of the knock-on effects on surrounding businesses in the same development or high street when these anchors are weakened or lost?

The higher rates are being introduced alongside rising employment costs, NICs, national minimum wages, especially for the young, increased alcohol duties, high energy costs and the proposed tourist levy on hotels and bed-and-breakfast accommodation. UK Hospitality has warned that should mayoral authorities choose to exercise these new powers, the additional cost to consumers could amount to £518 million. Layering new fiscal burdens, even where individually justified, can in aggregate undermine the very sector that the Government wish to support.

At what point do the Government consider the cumulative impact of these measures, taken together, and reflect on whether the overall burden risks becoming counterproductive? Of course, I understand the challenges the Government face, but it is this cumulative effect that is such an acute problem. What consideration has been given to the impact on consumer prices and demand, especially at a time when households remain under significant financial pressure?

We would take a different approach. We would provide permanent 100% business rates relief for retail, hospitality and leisure businesses with rateable values of up to £110,000, supporting around 250,000 small businesses across the country. That support would be funded through a more disciplined and focused approach to welfare spending, as set out clearly at our party conference last year.

In these circumstances, I was pleased to hear from the Minister during his Statement on 29 January that the Government were looking at the adverse effect of the changes on hotels and that the wider review of business rates was ongoing. We heard that any changes to business rates would be considered at the Budget in the usual way. Can the Minister confirm that we are talking about the 2026 Budget and comment on the budgetary position? Is there new money for pubs and music venues—and, if need be, for hotels—or does everything have to come out of the £4.3 billion announced in the previous Budget?

Can the Minister please confirm that the wider review of business rates, which currently has an ongoing call for evidence due to close in a few days’ time, as he mentioned, will address not only large infrastructure businesses and premises such as airports, but small and medium-sized businesses in the context of the current economic and tax environment? Will he take a good look at incentives and anomalies in the VOA rules and at the need to align Treasury and local government thinking, as mentioned by my noble friend Lord Fuller? Will he look in particular at the problem facing recording and artist studios, raised so eloquently by my noble friend Lord Parkinson of Whitley Bay, the noble Lord, Lord Clement-Jones, who has led with his Motion, the noble Earl, Lord Clancarty, the noble Lords, Lord Freyberg and Lord Watson of Wyre Forest—and UK Music? Discussions with DCMS could, it seems, also be helpful to the VOA.

Noble Lords will know that we believe in backing those who take risks, create employment and invest in the productive economy. In our view, these regulations move in the opposite direction. For that reason, I urge the Government to reflect carefully on their approach and on the conclusions that they reach from the review that they are undertaking.

[Lord Livermore (Lab)]

My Lords, I am grateful for all the comments and questions raised throughout the debate. Let me start with the Motion tabled by the noble Lord, Lord Clement-Jones, and the comments made on that. The Motion he has laid relates to the Non-Domestic Rating (Definition of Qualifying Retail, Hospitality or Leisure Hereditament) Regulations 2025. These regulations set out the eligibility for the new multipliers, and they passed into law last year. As I said at the outset, the Government’s objective in this statutory instrument was to reflect the same definition for eligibility as the existing retail, hospitality and leisure relief. We want sectors that benefited under the previous relief to continue benefiting under the new relief. We have therefore retained the same approach to ensure continuity and fairness in our support for the sector while making this support permanent and uncapped.

I have heard clearly in the course of this debate the strong views expressed and the passion for the sector. There were comments from the noble Lords, Lord Clement- Jones, Lord Freyberg and Lord Parkinson of Whitley Bay, the noble Earl, Lord Clancarty, and my noble friend Lord Watson of Wyre Forest, who I was sorry to see is not sitting on this side of the Committee. I hope there is nothing for the Whips to worry about in that.

Noble Lords asked in the course of the debate many questions around recording studios. As I have said already, our objective in setting these regulations was to reflect the same definition for eligibility as the existing retail, hospitality and leisure relief. I suspect noble Lords will not like my answer here, but that existing relief is centred around retail, hospitality and leisure properties which are

“reasonably accessible to visiting members of the public”.

If a recording studio forms part of a single property with a qualifying hospitality or retail business, and the hospitality or retail aspect is the main purpose of the property, it will qualify for the lower multipliers. It is only if a property is wholly or mainly used as a recording studio that it will not qualify for the lower multipliers, as these are generally not open to the public.

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[The Earl of Clancarty (CB)]

I do not know whether the noble Lord, Lord Clement-Jones, is going to leap up to ask some questions as well, but the Minister did not mention film studios. A number of us talked about the possibility that recording studios could be treated in the same way as film studios and have that exemption. Is that something the Government are prepared to look at, please?

[Lord Livermore (Lab)]

As I said, I cannot commit to introducing any specific targeted relief, but we keep all taxes under review.

[Lord Fuller (Con)]

I raised the issue that this year there was a misalignment between the Treasury and MHCLG regarding some of the changes that were made to the business rates. Will the Minister commit to at least having advanced discussions between MHCLG and the Treasury in future years? There has been a temporary sticking plaster—I might characterise it as that—and the sector is very grateful for that, but it is for one year only. Having got out of the fire this year, can we be clear that we will not accidentally stumble back in on a future occasion, otherwise we will be standing here in 12 months’ time having the same debate?

[Lord Livermore (Lab)]

I listened carefully to the noble Lord’s remarks and do not think he asked a specific question, which is why I did not give him a specific answer. Of course, the Treasury and MHCLG talk regularly on all matters and will continue to do so.

[Lord Watson of Wyre Forest (Lab)]

I sincerely apologise to the Minister for my location here today. In studio terms, I have accidentally ended up on the B-side, not the A-side.

[Lord Livermore (Lab)]

As my noble friend knows, some of the best songs are often on the B-side.

[Lord Freyberg (CB)]

Artists’ studios find dealing with the Valuation Office Agency very frustrating because when they approach it, it will not give them a model answer about how the square footage of their studios is calculated. It would be very helpful if the Valuation Office Agency could give a model or examples that other councils could follow, so that there is guidance on a national basis.

[Lord Livermore (Lab)]

I will put that to it. I have also committed to ask it to attend the meeting. If the noble Lord would like to attend that meeting as well, I am more than happy for that to happen.

Motion agreed.

National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Livermore Excerpts

2nd reading
Wednesday 4th February 2026 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

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

My Lords, it is a pleasure to open this Second Reading debate on the Bill. It legislates for reforms announced in the Budget in November. That was a Budget to build a stronger, more secure economy that had at its heart three deliberate pro-growth choices. First, by choosing to maintain economic stability, getting inflation and interest rates down, we helped to give businesses the confidence to invest and our economy the room to grow. Secondly, by choosing to reject austerity, we protected £120 billion of additional investment in growth-driving infrastructure. Thirdly, by choosing to back the fast-growing companies of the future, we supported the investment, innovation and economic dynamism that will increase growth in the next decade and beyond.

But these are choices that need to be paid for. That is why the Budget contained a series of reforms to the tax system to ensure that it keeps pace with a fast-changing economy. Those reforms include changes to pension salary sacrifice, contained in the Bill we are debating today. The Government spend over £500 billion each year on various reliefs within the tax system. That is more than double the entire annual NHS budget and nearly five times the annual budget for education. The size of this spend means the Government must always keep the effectiveness and value for money of tax reliefs under review. This Bill addresses just one of these reliefs: pension salary sacrifice, the cost of which was set to treble to £8 billion a year by the end of this decade.

That increase has been driven most by higher earners, with additional-rate taxpayers tripling their salary sacrifice contributions since 2017. This includes individuals sacrificing their bonuses without paying any income tax and national insurance contributions on them. But while those on the highest salaries are most likely to take part in salary sacrifice, others are completely excluded. For example, the majority of employers do not offer salary sacrifice, including many small businesses. Groups who are most likely to be undersaving for retirement, such as those on the national minimum wage and the UK’s 4.4 million self-employed workers, are also completely excluded from using salary sacrifice.

The status quo is neither fair nor fiscally sustainable. We cannot afford to allow the cost of pension salary sacrifice to balloon, benefiting predominantly higher earners. In this, we agree with the approach taken by the previous Government. In their 2015 Summer Budget, the then Government said:

“Salary sacrifice arrangements … are becoming increasingly popular and the cost to the taxpayer is rising”.


Two years later, the previous Government introduced reforms to salary sacrifice. The Finance Act 2017 removed the tax advantages of salary sacrifice for the majority of benefits in kind—for example, living accommodation or private medical insurance. The noble Lord, Lord Hammond of Runnymede, told the other place:

“The majority of employees pay tax on a cash salary, but some are able to sacrifice salary … and pay much lower tax … That is unfair”.—[Official Report, Commons, 23/11/16; col. 907.]


The previous Government commissioned research in 2023, which included a proposal to cap pensions salary sacrifice at £2,000. This Government are now taking forward that reform to ensure that the tax system is kept on a sustainable footing.

Although some tax experts have called for pension salary sacrifice to be abolished entirely, the Government are taking a more measured and pragmatic approach. The Bill contains two main elements. First, it introduces a cap of £2,000 under which no employer and employee national insurance contributions will be charged on any pension contributions. The cap protects ordinary workers using salary sacrifice and limits the impact on employers while ensuring that the system remains fiscally sustainable. The majority of those currently using salary sacrifice will be unaffected. Indeed, 95% of those earning £30,000 or less who currently make pension contributions through salary sacrifice will be entirely unaffected. It is forecast that 87% of salary sacrifice contributions above the cap will be made by higher rate and additional rate taxpayers. Individuals can also continue to save as much as they wish into their pensions, either through salary sacrifice or outside of it, both of which will be fully relievable of income tax.

Secondly, we are introducing this change with a long implementation period so that it will come into effect in 2029-30. This gives employers and employees over three years to prepare and to adjust. I am pleased that business and industry bodies have already welcomed this lengthy implementation period. HMRC is also engaging with industry stakeholders to ensure this change operates in the most effective way. That will continue as we approach implementation.

Saving into a pension, including via salary sacrifice, will remain hugely tax advantageous under these changes. The Government currently provide over £70 billion of income tax and national insurance contributions relief on pension contributions each year. That spend will be entirely unaffected by these changes. Employees’ pension contributions, including those made via salary sacrifice, will continue to be fully relievable from income tax at the employee’s marginal rate. For example, if a basic rate taxpayer were to put £100 into their pension, it would cost them just £80 of their take-home pay, with the Government providing the remaining £20 in tax relief. For a higher rate taxpayer, that same £100 pension contribution can cost them as little as £60 because they also receive relief at their marginal rate of tax.

For employers, all pension contributions they make for their employees outside of salary sacrifice will remain exempt from both income tax and national insurance contributions. This makes pensions one of the most tax-efficient ways to invest in their workforce. For example, if an employer contributes £1,000 to an employee’s pension, this is worth £150 in forgone employer national insurance contributions.

Since the Budget in November, it has been suggested by some that these changes will negatively impact the overall level of pension saving. We do not believe this to be the case. Salary sacrifice existed in the 2000s and early 2010s, yet there were significant falls in private sector pension saving during this period. In 2012, only one in three private sector workers saved into a pension.

The key factor that has led to an increase in saving in recent years is not the complicated national insurance reliefs available to some employees, but rather automatic enrolment, introduced in 2012, which has reversed the collapse in workplace pension saving. As a result of automatic enrolment, over 22 million workers across the UK are now saving each month.

Evidence also shows that pension contributions have risen in line with regulatory requirements, not with the growth of salary sacrifice. The majority of employers reducing their tax bill by offering pension salary sacrifice did not use the savings to increase pension contributions. Overall, the Office for Budget Responsibility has made it clear in its economic and fiscal outlook that it does not expect a material impact on savings behaviour as a result of the tax changes made in the Budget.

These are fair and balanced reforms. They protect lower and middle earners, give employers many years to prepare, preserve the incentives that underpin workplace pension saving, and ensure that the tax system is kept on a sustainable footing. The Bill builds on reforms by the previous Government to the salary sacrifice system and legislates for proposals first put forward in 2023. It also forms part of a wider package of reforms to ensure that the tax system keeps pace with our fast-changing economy. As a result of these and other reforms, the Government were able to take a series of pro-growth choices at the Budget last year to maintain economic stability, to reject austerity, to protect investment and to back the fast-growing companies of the future. These are the right and responsible choices to strengthen our economy for the long term. I beg to move.

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[Lord Livermore (Lab)]

My Lords, it is a pleasure to close this Second Reading debate. I am grateful to all noble Lords for their expertise, their contributions and questions, particularly at this late hour.

The Bill before your Lordships’ House legislates for reforms announced in the Budget last November. It was a Budget to build a stronger, more secure economy that had at its heart three deliberate pro-growth choices: to maintain economic stability, to protect £120 billion of additional investment in growth-driving infrastructure, and to back the fast-growing companies of the future, but, as I have said previously, these choices need to be paid for. That is why the Budget contained a series of reforms to the tax system to ensure it keeps pace with a fast-changing economy. Those reforms include the changes that we are debating today.

As several noble Lords mentioned this evening, the Government spend over £500 billion each year on tax relief. The size of this spend means they must always keep the effectiveness and value for money of tax reliefs under review. This Bill addresses just one of these reliefs, pension salary sacrifice. The cost of that was set to treble to £8 billion a year between 2017 and the end of this decade. That growth has been fastest among higher earners, with additional rate taxpayers tripling their salary sacrifice contributions since 2017. But while those on the higher salaries are most likely to take part in salary sacrifice, others are completely excluded. For example, the majority of employers do not offer salary sacrifice, including many small businesses. Groups who are most likely to be undersaving for retirement, such as those on the national minimum wage and the UK’s 4.4 million self-employed workers, are also completely excluded from using salary sacrifice. The status quo is therefore neither fair nor fiscally sustainable. We simply cannot afford to allow the cost of pension salary sacrifice to balloon, benefiting predominantly higher earners.

The Bill therefore contains two main elements: first, to introduce a cap of £2,000 under which no employer and employee national insurance contributions will be charged on any pension contributions. Some 95% of those currently making pension contributions to salary sacrifice earning £30,000 or less will be entirely unaffected. Secondly, we are introducing this change with a long implementation period so that it comes into effect only in 2029-30. This gives employers and employees over three years to prepare and adjust.

The noble Lord, Lord Leigh of Hurley, asked about the Government’s commitment not to increase taxes on working people. As he knows, the Budget in November kept our manifesto promise not to increase income tax, national insurance or VAT. It contained a series of reforms to the tax system to ensure it keeps pace with our fast-changing economy. The cost of pension salary sacrifice was set nearly to triple to £8 billion between 2017 and the end of the decade—as I said before, benefiting mainly higher earners.

The noble Baroness, Lady Neville-Rolfe, spoke extensively about the impact on employers. The Government are taking a pragmatic, balanced approach by introducing a cap which protects ordinary workers and limits the impact on employers while ensuring that the system remains fiscally sustainable. The majority of employers—some 61%—do not offer this kind of salary sacrifice arrangement. Of the employers which do, most sectors, including retail, hospitality and leisure, have salary sacrifice contributions well below the £2,000 cap and are largely protected. Everyone using salary sacrifice will still benefit from the tax advantages available up to the £2,000 cap, this includes employers, which can make up to £300 of employer national insurance contribution savings through salary sacrifice per employee. These changes will not be implemented for over three years. In comparison, the previous Government gave just one year’s notice from announcing their changes to salary sacrifice in 2016 to implementing them from 2017.

The noble Baroness, Lady Neville-Rolfe, also spoke about employers potentially stopping offering salary sacrifice schemes. The Government do not expect significant numbers of employers to stop offering salary sacrifice arrangements. Everyone using salary sacrifice will still benefit from the tax advantages available up to the £2,000 cap.

The noble Baroness, Lady Altmann, asked about the cost to employers. The majority of employers do not offer salary sacrifice arrangements, and most sectors, including retail, hospitality and leisure, have salary sacrifice arrangements well below the cap. Everyone using salary sacrifice can still benefit from up to £300 employer national insurance contribution relief under the cap, and the full national insurance contributions relief is available on employer pension contributions outside of salary sacrifice. The Government are working closely with employers and the payroll industry to operationalise the change in the most effective way.

The noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lord, Lord de Clifford, spoke about the impact on small businesses. Small businesses are far less likely than larger businesses to offer pension salary sacrifice. Only 10% of employees in SMEs have pension contributions through salary sacrifice exceeding the cap, compared with 18% of employees in larger firms. The noble Baroness, Lady Neville-Rolfe, also spoke about the impact on retail, hospitality and leisure businesses. As I have said already, most firms in this sector have salary sacrifice contributions well below the £2,000 cap and are therefore largely protected.

The noble Lords, Lord Londesborough and Lord de Clifford, spoke about the impact on low earners. Higher earners are most likely to be using salary sacrifice and the majority of those currently using salary sacrifice will be unaffected by the changes. The Bill impacts only employees who use salary sacrifice to make pension contributions, which is around 35% of employees. Those earning at or near the national living wage cannot use salary sacrifice at all. The noble Lord, Lord Londesborough, also asked about basic rate taxpayers. The £2,000 cap is worth up to £160 a year for basic rate taxpayers. Those earning below £30,000 making pension contributions through salary sacrifice are overwhelmingly protected, with only 5% making pension contributions above the cap.

The noble Baroness, Lady Neville-Rolfe, asked about individuals earning around the £50,000 mark. The Government are taking a pragmatic, balanced approach by introducing a cap which protects ordinary workers and limits the impact on employers, while ensuring that the system remains fiscally sustainable. Everyone can still save up to £2,000 via salary sacrifice free of national insurance contributions. Amounts sacrificed above £2,000 will continue to be fully relievable from income tax, but we must continue to ensure that the £500 billion of tax reliefs provided each year are effective and provide value for money.

The noble Lord, Lord Leigh of Hurley, asked about the profile of the costings, also mentioned by the noble Lord, Lord Ashcombe. The costings reflect independent OBR scrutiny and use the best available data on current salary sacrifice and bonus sacrifice behaviour. Employees will respond to the changes in a number of ways. One way is that many employees will switch to making ordinary pension contributions, some of which will be to relief at source schemes. Where an employee contributes to a relief at source scheme, they will initially pay higher rate and additional rate income tax on their pension contributions and then reclaim this through their self-assessment tax return in the next year. This creates a temporary timing effect. Beyond the forecast period, this effect becomes very small.

The noble Baroness, Lady Maclean of Redditch, asked about indexing the £2,000 cap. The Government have no plans to index the cap, but we will keep the £2,000 level under review to ensure that it continues to meet its objectives and remains fair across the labour market. This is consistent with the approach to other pension tax reliefs, including the annual allowance.

The noble Baroness, Lady Altmann, and the noble Lord, Lord Londesborough, asked about the costings of this policy and about the savings generated from this change. The costings for this policy have been scrutinised and certified by the Office for Budget Responsibility in its economic and fiscal outlook. They already account for changes in employer behaviour, including employers providing higher employer pension contributions to replicate the national insurance contribution benefits of salary sacrifice. We remain confident of these costings.

The noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lord, Lord Leigh of Hurley, suggested that this was designed only to meet the fiscal rules in 2029-30. The reality is that the Government are giving employers sufficient time to prepare and adjust their systems by implementing the changes from April 2029. That is over three years’ notice before the changes take effect. We are also engaging with employers, payroll administrators and other stakeholders on the administration of the cap to provide certainty ahead of implementation.

On that specific point, also raised by the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lords, Lord Leigh of Hurley and Lord Fuller, about the administration of this policy, HMRC is engaging with a wide range of stakeholders in the payroll, employer and software developer industries to work through exactly how the cap will be implemented. This will be vital to ensuring it is implemented in the least burdensome way possible for employers. Engagement will also help inform the secondary legislation, in which the detail of the operability will be set out and further consulted on.

My noble friend Lord Davies of Brixton spoke about how salary sacrifice is just one part of the pension landscape, and I say that to the noble Baroness, Lady Neville-Rolfe, who did not mention during her contribution that saving into a pension, including via salary sacrifice, will remain hugely tax advantageous even under these changes. The Government currently provide over £70 billion of income tax and national insurance contribution relief on pension contributions each year. That spend will be entirely unaffected by these changes. Employees’ pension contributions, including those made via salary sacrifice, will continue to be fully relievable from income tax at the employee’s marginal rate. For employers, all pension contributions remain exempt from both income tax and national insurance contributions. This makes pensions one of the most tax-efficient ways to invest in their workforce.

The noble Baronesses, Lady Neville-Rolfe, Lady Altmann and Lady Kramer, spoke about the impact on pension savings. The Government do not believe that these changes will negatively impact the overall level of pension saving. Salary sacrifice existed in the 2000s and early 2010s, yet there were significant falls in private sector pension savings during this period. In 2012, only one in three private sector workers saved into a pension.

As I said in my opening, the key factor that led to an increase in saving in recent years is not the complicated national insurance reliefs available to some employees but rather automatic enrolment, which the noble Baroness, Lady Neville-Rolfe, spoke about, and which has reversed the collapse in workplace pension savings. As a result of automatic enrolment, over 22 million workers across the UK are now saving each month. The Office for Budget Responsibility has also made it clear in its economic and fiscal outlook that it does not expect a material impact on savings behaviour as a result of the tax changes made in the Budget.

The noble Baronesses, Lady Altmann and Lady Kramer, spoke about the impact on individuals who are currently undersaving. The groups that we know are undersaving for their pension, including low earners, women and the self-employed, are the least likely to use salary sacrifice. Workers on the national living wage are excluded entirely from salary sacrifice, and so are the 4.4 million self-employed people across the UK. By contrast, these changes overwhelmingly affect higher and additional rate taxpayers. In 2030, 87% of affected salary sacrifice pension contributions made from earnings will be from higher and additional rate taxpayers.

The noble Baroness, Lady Altmann, also mentioned the Pensions Commission. There is cross-party agreement on the importance of the work of the Pensions Commission as it examines questions of adequacy and fairness. The Government will not prejudge the commission’s work.

The Budget in November contained pro-growth choices to maintain economic stability, reject austerity, protect investment and back the fast-growing companies of the future, but these are choices which need to be paid for. That is why this Bill reforms pension salary sacrifice to ensure that our tax system is kept on a sustainable footing. The Bill protects lower and middle earners, gives employers many years to prepare, and preserves the incentives that underpin workplace saving. These are fair and balanced reforms. They build on the steps already taken by the previous Government to reform salary sacrifice and strengthen our economy for the long term. I beg to move.

Bill read a second time and committed to a Grand Committee.

Business Rates

Lord Livermore Excerpts

Thursday 29th January 2026 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I start with perhaps a modicum of welcome because the combined impact of the Budget and the business rates revaluation prior to this announcement, frankly, left the pub industry on the verge of a crisis, with up to 50% of pubs under the threat of closure. Some relief has now been offered for many pubs, and I am glad that this lifeline has been extended to live music venues, which are the birthing ground of our very important music industry.

Do the Government recognise that the relief that they have just announced amounts roughly to only £1,650 per pub, which will still leave many in a critical financial hole? Do they recognise that pubs with a rateable value of over £100,000 are, in effect, not eligible, and that restaurants, cafés and soft-play areas—so many of those hospitality and leisure operations that lie at the heart of our high streets and communities—will get no relief from these changes whatsoever?

The chaos that has surrounded the announcement of the review—the change and uncertainty that has gone with it and the impact on the sector—surely points to the fact that we need to stop trying to fix the business rates system at the fringes. We need to take a proper step back and review the whole way in which business rates are structured, which, I would say, should head in the direction of land value. There is so much to be done around this area. It is time that the Government see that, rather than get into continuous messes by attempting to ameliorate a system that, frankly, is broken.

Do the Government also accept that the chaotic process that we have seen deeply underscores the need to include hospitality in the industrial strategy? At the very least, one would hope that the effect of that would be to force the Treasury to align tax policy with the economic goal of strengthening our high streets and our hospitality and leisure sectors, and to determine that they are a source of growth, not of constant crisis and constraint. Does the Minister accept that, until the Treasury gets aligned with that agenda, we will have constant issues like that? Frankly, that is not the best way to go.

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

I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their comments and questions, and for their cautious welcome of what we have announced.

The noble Baroness, Lady Neville-Rolfe, ignored what we announced in the Budget: the £4.3 billion of support for those experiencing increases in business rates. As she knows, the previous valuation was based on property values during the Covid pandemic, which meant that rateable values were much lower. As a result of that valuation, some businesses, including the retail, hospitality and leisure venues that we are discussing, are now seeing an increase.

At the Budget, we announced three elements of support at a cost £4.3 billion, which neither noble Baroness mentioned in their comments. We are implementing transitional relief that will cap increases at 5% for the smallest properties and at up to 30% for the largest. For any business whose value increase has meant that they are no longer eligible for small business rates relief, we are capping their increase. We have expanded the supporting small business relief scheme, to provide specific support to those who are currently eligible for the 40% RHL relief.

The noble Baroness, Lady Kramer, said that the wider system needs reform; we absolutely agree on that and have begun that. We are reforming the business rates system by introducing permanently lower tax rates for over 750,000 retail, hospitality and leisure properties. The noble Baroness, Lady Neville-Rolfe, said that what we are doing is temporary, but those new lower rates are permanent—unlike what the previous Government did—and they will be funded by higher rates on the most valuable properties, including those of online giants.

I remind the noble Baroness, Lady Neville-Rolfe, that the previous Government’s plans were to scrap entirely the temporary Covid-era retail, hospitality and leisure relief in 2025—but she now says that more support should be offered. If they had won the last election, their plans clearly show that they would have removed it overnight in April last year. They now claim that they would extend it, so why did they not say so or include that in their forecasts or projections?

I am grateful to the noble Baroness, Lady Kramer, for what she described as her cautious welcome of what has been announced. We have of course been listening to the industry. We have announced that, from April, every pub in England will get 15% off its new business rates bill, on top of the support announced at the Budget. Their bills will then be frozen in real terms for a further two years. The noble Baroness noted that the support will be worth £1,650 for the average pub next year, but that means that three-quarters of pubs will see their bills either fall or stay flat next year. This decision will also mean that the amount of business rates paid by the pub sector as a whole will be 8% lower in 2028-29 than it is today.

The noble Baroness, Lady Kramer, said that pubs with ratable values of over £100,000 would not benefit, but we are clear that this will apply to all pubs. I am grateful for what she said about this applying to music venues too. Many live music venues are valued as pubs, and many pubs are grass-roots live music venues, so it would not be right to seek to draw the line so tightly as to include some but not others.

The noble Baroness, Lady Neville-Rolfe, also talked about the structural issues that many of these businesses are facing, and she will know that the sector has raised concerns about the way that they are valued. The Government agree that this needs to be looked at. We are therefore launching a review that will examine how pubs are valued for business rates, and we will set out more detail on that in due course.

The noble Baroness, Lady Neville-Rolfe, spent a lot of her statement telling us about what businesses need. What they need most is stability; they did not need the previous Government, with the Liz Truss mini-Budget, Brexit and austerity, and all the consequences that they had. The noble Baroness commented on what we are doing for business. She will know that, under the previous Government, business investment was the lowest in the entire G7, and that, since the election, business investment has increased faster in this country than in any other G7 country. I am more than happy to compare her record with ours.

The noble Baroness will know that we are pressing ahead with wider regulatory reforms to help businesses, as well as carrying out licensing reform, and that we are looking at loosening planning rules to benefit pubs more generally. She will also know that we are doubling the hospitality support fund with £10 million of funding over three years.

The noble Baroness, Lady Kramer, talked about the importance of the sector for growth, and the noble Baroness, Lady Neville-Rolfe, talked about the challenges faced by the wider sector. I understand the challenges that many other retail, hospitality and leisure companies are facing. We have already taken significant steps to support businesses, including, as I said, the £4.3 billion of business rates support.

As we all know, consumers have changed their habits over the past decade and are increasingly working from home and shopping online. Combined with the pandemic and the increase in energy costs since Russia’s invasion of Ukraine, these trends have continued to make it harder for high street businesses. Therefore, later this year the Government will bring forward a high street strategy, and we will work with businesses and representative bodies to look at what more the Government can do to support our high streets.

[Lord Watts (Lab)]

My Lords, is it not the case that the previous Government wrecked the economy and gave us Brexit, which reduced our ability to pay for public services? The Opposition now seem to be calling for greater public expenditure and tax cuts. It sounds as though they have found not just one money tree but an orchard. Can the Minister explain how someone can call for more expenditure and less tax?

[Lord Livermore (Lab)]

I very much agree with everything that my noble friend said. Among the long litany of the previous Government’s failures, their failure on growth was one of their most significant. We saw Brexit and the Liz Truss mini-Budget, and we know what business thought of that. We saw business investment across the whole economy fall to the lowest level in the entire G7. My noble friend is also absolutely correct to point out that, every time we debate the economy in the Chamber, the noble Baroness opposite supports every single piece of spending that we announce but opposes every single piece of revenue raising. It is quite clear that those two things do not add up.

On the Tory record more widely, we should note that 7,000 pubs have closed in the past 14 years, and that the previous Government’s plans were to scrap entirely the temporary Covid retail, hospitality and leisure relief in 2025. Their plans show that they would have ended it overnight. We have chosen a different path by extending that support with the help of £4.3 billion of additional support.

[Baroness McIntosh of Pickering (Con)]

My Lords, it would be churlish not to welcome the measures—so far as they go—that the Chancellor has introduced. However, does the Minister accept that it is small family businesses—the hair salons, cafés and restaurants, among others, to which my noble friend on the Front Bench referred—that will be directly affected by the lack of support? Does he accept that, if these small family businesses do not get support, it will damage their programme for growth and lead to a lack of growth and a loss of jobs?

[Lord Livermore (Lab)]

I respectfully say to the noble Baroness that she must take what has been announced this week in the round with what was announced in the Budget. We spent £4.3 billion supporting exactly the type of businesses the noble Baroness mentions. We have expanded the supporting small business scheme to provide specific support to those who are currently eligible for the 40% RHL relief. Around one in three businesses continues to benefit from small business rates relief and does not pay anything at all. We have extended the second property grace period to support small businesses as they grow. So, I do not accept that we are not supporting those businesses. But equally, I absolutely understand the challenges that many retail, hospitality and leisure businesses are facing, which is exactly why, later this year, the Government will bring forward a high street strategy and work with businesses and representative bodies, looking at what more the Government can do to support our high streets.

[Lord Fox (LD)]

My Lords, I am sure the Minister will agree that one of the things that will drive growth is consumer confidence. It is very hard for consumers to be confident when they see their high streets putting up shutters and “closed” signs. The Minister also talked about changed behaviour and the driving of online sales. Beneath that is a real inequity, in that the out-of-town warehouses which have been driving those digital sales have a rates square foot rate about a tenth, if not less, of that of the high street stores with which they compete. When the Minister is having this review, can he review not only the high streets but how the out-of-town warehouses are eroding those high streets?

[Lord Livermore (Lab)]

I agree with the noble Lord on the importance of consumer confidence—and six interest rate cuts since the election is very important to bolstering that consumer confidence. It is the fastest pace of interest rate cuts for 17 years, and the action we took in the Budget to further cut inflation and bear down on borrowing will support the Bank of England in the work it is doing to reduce interest rates. I also agree with what the noble Lord says about out-of-town online giants, and that is why we are reforming the business rates system. As I said, we are introducing permanently lower tax rates for over 750,000 retail, hospitality and leisure properties, and we are funding that with higher rates on the most valuable properties, including the warehouses used by online giants. But I absolutely understand what the noble Lord is saying, and I am more than happy to look at that as part of the work to develop the high street strategy.

[Lord Bridges of Headley (Con)]

My Lords, can the noble Lord shed some light on when the review of hotels is likely to report and conclude, and when hoteliers might be able to see some relief on their business rates?

[Lord Livermore (Lab)]

Hotels will continue to benefit from the support for business rates announced at the Budget. As I have already said, this latest package needs to be seen in the round with the £4.3 billion that we announced at the time of the Budget, including the transitional relief scheme, which will cap increases for those seeing the largest increases. The noble Lord is right, though, to mention hotels, and we recognise that hotels have expressed concerns about how they are valued for business rates. Hotel valuations are undertaken in a different way from some other sectors, so we will review the way hotels are valued as part of our wider valuation review. The methodology used is well established, but as with pubs, specific concerns have been raised with us, and it is right to review this to ensure it accurately reflects the rental value for these sectors. Any potential changes to business rates as a result of that review will be considered at the Budget in the usual way.

[Lord Gove (Con)]

Of all the U-turns that have been executed since the Minister joined the Treasury team, whether on the family farm tax, business rates or the winter fuel payment, which is his favourite?

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[Lord Livermore (Lab)]

I am very happy to tell the noble Lord what my least favourite policy of the previous Government was, and that was Brexit.

[Lord Forbes of Newcastle (Lab)]

My Lords, does my noble friend the Minister agree with me about the importance of certainty and security for businesses in the payment of business rates in particular? While local authority funding is predicated on the retention of business rates at a local level, as well as council tax rates, there is regional variation in the deployment of the collection of those rates, based on differential bandings according to the nature of properties in those areas. Will he consider the challenge that many small businesses face in having to pay business rates, compared to the longevity of property owners? Will he consider looking at the payment of business rates in future by business owners rather than businesses themselves as a way of smoothing out some of these challenges?

[Lord Livermore (Lab)]

I am grateful to my noble friend for that question, which obviously comes from a position of deep expertise in this matter. I am more than happy to look at all the issues he raises and take them back to my Treasury colleagues to discuss them further.

[Baroness Foster of Oxton (Con)]

My Lords, 3.5 million jobs are dependent on a successful hospitality industry in this country—that is obviously the entire supply chain. I spent a lot of my life in the airline industry, which is at one end of that. Notwithstanding that, when we look at tourism, which encompasses hotels, taxis, restaurants and cafes, this Government have a complete lack of understanding of the impact of what they are doing. They are under pressure because they will not take steps to address the welfare bill, so they are taking moneys and taxes from areas that often cannot afford it. We know that will cause long-term damage, despite this sop of the slight reduction for pubs in the next couple of years.

As we look at the welfare bill, will the Government please reconsider what they are doing, and instead of making another U-turn—well, we would like a really big U-turn on this one: we would like it to be abolished—take a real look at what else they can do to raise revenue where we know expenditure is wholly excessive and cannot be carried on?

[Lord Livermore (Lab)]

I agree with the first thing the noble Baroness said, on the importance of the sector and jobs; I did not agree with anything else she said. She said that we have a lack of understanding: I just wonder what she would have done. We spent £4.3 billion in the Budget supporting these businesses: she did not acknowledge that. She did not acknowledge that the previous Government, whom she presumably supported, would have ended Covid relief overnight and had absolutely no plans to extend it, as we have. She said she would abolish business rates. Well, she had 14usb years to do that, and she did not. I wonder how she would now fund the abolition of business rates, and what other services she would cut to do that.

The noble Baroness mentioned airlines. The Government have redesigned the 2023 transitional relief scheme to provide generous support for large properties such as airports and those in other industrial strategy sectors. That is extremely important. She mentioned hotels, and I have answered that question already. As I say, I fundamentally disagree with her. The Government she supported would have ended this relief overnight; we have extended it.

[Lord Fox (LD)]

My Lords, following the moderately good reception to my last question, I am going to push my luck. Following on from the from the noble Lord, Lord Forbes, when this review is under way, can the Treasury review a commercial landowner levy rather than a straight business rate? That does not penalise investment, and it puts the onus on the people who actually own the land. If the Minister is not 100% au fait with the Liberal Democrat policy on this, I would be very happy to arrange a briefing for him and colleagues.

[Lord Livermore (Lab)]

I may not have read all the Liberal Democrat policy documents as thoroughly as perhaps I should have. I cannot commit the review to considering specific things right now, but I am more than happy to take those thoughts back to the Treasury.

[Lord Hunt of Wirral (Con)]

Although my experience of government is now over 30 years old, the one message I remember from being in Cabinet is that on matters of taxation and investment, the Government have to get it right first time. That is the only way to establish a pro-growth, pro-business strategy. So, what I would love to hear from the Minister, having heard the messages from all sides of the House, is that the relief announced—one of what his noble friend the Minister admitted is 14 U-turns—is probably a little late and not enough. Therefore, the future must rely on a better strategy. Is the Minister confident that the consultation the Government are having right across the business sector is sufficient to ensure that they get that pro-business, pro-growth strategy right?

[Lord Livermore (Lab)]

I say, with the greatest respect to the noble Lord, that I am being lectured by Conservatives on stability and investment when we had 14 years of instability and chronic underinvestment. We saw underinvestment in the public sector and the lowest rates of private sector investment in the entire G7 so, as I said, with the greatest respect, I may not take all those lectures. Obviously, investment is vital to our economy. Stability is vital to that, as are the reforms that we are taking, not least in terms of planning, for example, to get more investment into our economy.

The noble Lord says that the measures we have taken are a little late. Of course, we spent £4.3 billion in the Budget, and it was vital that we did that. He says that they are not enough. As I said, the previous Government, if they had won the election, would have done absolutely nothing. It is important to contrast that, but I agree with what he said about consulting and working hand in hand in partnership with business, so that we absolutely understand and get the most pro-growth, pro-business policies that we possibly can.

[Lord Watts (Lab)]

My Lords, has the Minister noticed that the Opposition say that the private sector does not like U-turns, they say they do not like U-turns, and then they call for more U-turns? What is their strategy for dealing with our current problems?

[Lord Livermore (Lab)]

I cannot answer for the strategy of the party opposite—I am sure we would all like to know—but what matters most is that we get to the right policy and I believe that we have done so in this case.

[Baroness Neville-Rolfe (Con)]

My Lords, the Official Opposition have actually come forward with plans for the high street, which we would be very glad to share with the Minister as he does his high street review. I think we should have not only Lib Dem ideas but Conservative ideas. We have a new Opposition now. We are looking forward, not backwards. We are very keen to see the country grow and the high streets flourish.

[Lord Livermore (Lab)]

I am sure the noble Baroness would like to look forwards and not backwards, but I am not sure the country shares that view. The country remembers the past 14 years and the damage that party opposite did to the economy, the public services and the fabric of our nation. As I said already, the noble Baroness cannot wriggle out of the fact that, had her party won the election, it would have ended this relief overnight entirely in 2025. It was in her plans—the plans that we inherited from her. If she now claims that she would have extended the relief, why did her party not say so and include it in their forecasts or projections? We have to take what her party says now with a huge pinch of salt. As I have said, the party opposite always supports the spending that we are doing but does not support a single one of the measures we are taking to raise the revenue for that spending. I suspect that its plans are equally uncosted.

Grass-roots Music Venues

Lord Livermore Excerpts

Monday 26th January 2026 Lords Chamber

[Lord Bassam of Brighton]

To ask His Majesty’s Government what assessment they have made of the impact of the 2025 Budget on grassroots music venues.

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

My Lords, we are introducing permanently lower tax rates for eligible retail, hospitality and leisure properties, including grass-roots music venues, worth nearly £1 billion a year. As part of the changes to business rates, we announced a £4.3 billion support package to protect those facing higher bills after revaluation. We have also more than doubled funding to support independent artists and grass-roots music venues as part of the music growth package, building on the UK’s strength as a world-leading creative industries destination.

[Lord Bassam of Brighton (Lab)]

My Lord, that is a very welcome response from the Minister, but I wonder what assessment His Majesty’s Government have made of forecasts that increased business rate valuations could result in a closure of between 80 to 120 grass-roots music venues and place a further 120-plus at risk. How do the Government square this with their welcome commitment to high street regeneration, creative sector growth, the night-time economy and protecting cultural infrastructure? Will the Minister agree to meet representatives from the sector to discuss the issue further?

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[Lord Livermore (Lab)]

I am grateful to my noble friend for the question. I am very happy to meet the groups that he mentioned. He is absolutely right to say that the creative sector is extremely important to the UK economy. It is a major employer and a significant part of our economy. It has been included as a priority sector in our industrial strategy, recognising its high growth potential, particularly through the development and adoption of new technologies.

On business rates, which my noble friend raised, as I have said before in your Lordships’ House, I acknowledge that the revaluation means that sectors such as pubs and music venues will struggle in relation to the business rates applicable to them. That is why we are working with the sectors involved to ensure they get the support they need. Noble Lords will have heard what the Prime Minister and Chancellor said on this in recent days. I will not add to that or comment on any speculation, but where there are further comments to be made I will of course come back to your Lordships’ House to discuss them.

[Lord Clement-Jones (LD)]

My Lords—

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[Lord Clement-Jones (LD)]

My Lords, given that the Music Producers Guild reports that 50% of recording studios are considering closure within the year, with rateable value increases of up to 100%, will the Minister commit to urgently reviewing their exclusion from the retail, hospitality and leisure multiplier, and their misclassification as office space by the Valuation Office Agency, particularly given that film studios, which are similarly not public-facing, already benefit from 40% targeted relief?

[Lord Livermore (Lab)]

The Government have been very clear that the lower multipliers will broadly reflect the scope of the current retail, hospitality and leisure business rates relief, which is centred around retail, hospitality and leisure properties that are reasonably accessible to visiting members of the public. If a recording studio forms part of a single property with a qualifying hospitality or retail business, and the hospitality or retail aspect is the main purpose of the property, it will qualify for the lower multipliers.

[Lord Vaizey of Didcot (Con)]

My Lords, the whole House will agree that music venues are a vital part of our cultural ecosystem. Music venues are now benefiting from a voluntary grass-roots levy levied on concert tickets, which I understand the Government are keeping under review with a view to introducing a statutory levy. The Government are also talking about a tourist tax. I suspect I know what the Minister’s answer will be, but would it make sense to roll up consultation on a tourist tax and a ticket levy into one single tax?

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[Lord Livermore (Lab)]

I do not think so. I shall repeat what my right honourable friend Ian Murray, the Culture Minister, said on the industry levy:

“My ambition is to see the voluntary levy in place for as many concerts as possible and, as a milestone in that progress, for at least 50% of tickets on sale for stadium and arena shows in 2026”


to have adopted the levy by 31 December.

“Following this, I would like to see this target brought as close to 100% as possible”.

[The Earl of Clancarty (CB)]

My Lords, further to the question asked by the noble Lord, Lord Clement-Jones, is the Minister aware that as well as the possibility of closures, there is the danger that our recording studios may up sticks and move abroad? With the continuing effect of Brexit on the music industry, unfortunately, they will not need a great deal of encouragement.

[Lord Livermore (Lab)]

As noble Lords will know, I am very happy to agree with the noble Earl on the last point he raises: the incredibly damaging effect of Brexit on that sector in particular. He will like to know that, along with the EU, we have jointly recognised the value of travel and cultural artistic exchanges, including the activities of touring artists, and we will continue our efforts to support travel and cultural exchange. We will explore how best to improve arrangements for touring across the European continent with the EU and other EU member states.

[Lord Brennan of Canton (Lab)]

My Lords, the Minister will be aware that I am leading a fan-led review of live music as commissioned by the Culture Committee in the House of Commons. One of the things that comes clearly from fans’ voices is that they are happy to pay a levy if they know it is going to grass-roots music venues in order to support them, unlike the obscure levies they sometimes have to pay, or other service charges on top of ticket prices. With that in mind, will the Government commit in the forthcoming ticketing legislation to include taking powers for a statutory levy just in case the voluntary levy does not work out?

[Lord Livermore (Lab)]

I am very grateful to my noble friend for the work he is doing in the review he mentions. I do not think it is for me to commit the Government to that specific point, but I will of course take it back and discuss it with colleagues in other departments as well.

[The Lord Bishop of Hereford]

My Lords, I thank the Minister for his answers. Across the country, churches provide the largest network of performance spaces available to professional and amateur groups for music making and other artistic endeavours, so I thank him for the recent announcement regarding the new places of worship renewal fund. But I am sure he will be aware that there are thousands of churches and other faith communities across the country waiting to know how that scheme will operate. Will the Minister let us know when the details of the scheme will be published and whether the Government will work with us to ensure the scheme is workable, consistent and fair, especially in the levying of VAT?

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[Lord Livermore (Lab)]

I am grateful for the support that the right reverend Prelate set out in his question. I assure him that that will be responded to very shortly.

[Baroness McIntosh of Pickering (Con)]

The Minister will be aware that music venues contribute hugely to growth, particularly in market towns and cities, and that the night-time economy suffered greatly during Covid. Will he discuss with his colleagues the impact that the agent of change principle is having, especially when it is not followed to the letter, where poorly soundproofed residential developments are built in close proximity to an existing music venue? It can force a music venue to close down, despite it being very popular.

[Lord Livermore (Lab)]

I will absolutely do what the noble Baroness asks. The Government have heard exactly what she said: that the existing policy to mitigate the impact of development on existing activities, including live music, is not always applied effectively. The creative industries sector plan committed to improving the implementation of the agent of change principle. MHCLG’s current consultation on the National Planning Policy Framework proposes that the policy be more explicit about the matters to be considered, such as both the current and permitted levels of activity within existing uses, which includes licensing for music and cultural venues. This will enable decision-makers to consider the right information early on, addressing the conflict between new and existing development.

[Lord Parkinson of Whitley Bay (Con)]

My Lords, live music venues are the R&D incubators for our creative industries. Some 53% of venues made no profit last year, and the Government’s choices on national insurance contributions and business rates have given them an additional tax bill of £7 million. At a recent helpful meeting with the noble Baroness, Lady Twycross, a number of noble Lords met representatives of music venues who said that one of the difficulties is hearing different things from the Treasury and from the Valuation Office Agency. So regarding the meeting the Minister’s kindly agreed to on behalf of the noble Lord, Lord Bassam, may I encourage him to bring along somebody from the Valuation Office Agency to help clarify the situation for these vital parts of our grass-roots music sector?

[Lord Livermore (Lab)]

I am not in a position to promise who specifically will attend the meeting, but I will absolutely take that representation back to the department to see if it is possible. I agree with the noble Lord on the importance of music venues; as he says, they are the R&D incubator for the rest of the sector. As part of the industrial strategy, the Government have recognised music and performing and visual arts as a priority sub-sector, and we have recognised the potential for growth. The UK is the third biggest music market globally. As you all know, as part of the music growth package, we are backing the next generation of British talent by doubling funding to support independent artists and grass-root music venues.

[Lord Spellar (Lab)]

My Lords, can the Minister take back to Whitehall the very clear message on the importance of the music industry, including for Britain’s place in the world, that he has identified? No one starts their career playing the O2; they learn their trade—particularly how to relate to an audience—by playing the small venues, night after night. This is hugely important for our soft power but also for a significant part of our economy. Is that understood in Whitehall?

[Lord Livermore (Lab)]

I hope it is understood. I agree with much of what my noble friend says. He will know that we have provided £2.5 million of funding this year for Arts Council England’s Supporting Grassroots Music Fund, enabling grass-roots music venues, recording studios, promoters and festivals to apply for grants to develop new revenue streams, make repairs and improvements, and enhance live music experiences.

Crown Estate (Wales) Bill [HL]

Lord Livermore Excerpts

3rd reading
Tuesday 20th January 2026 Lords Chamber

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

My Lords, while the Government’s position on this matter has been made clear during earlier stages of both this Bill and the recent Crown Estate Act, I congratulate the noble Lord, Lord Wigley, on his Bill. As this House has heard previously, the Government do not support the devolution of the Crown Estate to Wales, as we believe the way it currently operates provides the best outcomes for Wales and the wider United Kingdom. The addition of two new Crown Estate commissioners with special responsibility for Wales and Northern Ireland respectively is a positive step and will ensure that the Crown Estate board continues to work in the best interests of Wales. In answer to my noble friend Lord Berkeley, we have no such plans that he asks about.

While I commend the noble Lord, Lord Wigley, on his Bill, the Government’s position is clear that we do not support devolution of the Crown Estate to Wales. Therefore, I must express reservations on behalf of the Government on this Bill.

[Lord Wigley (PC)]

My Lords, I am grateful to the two noble Lords for contributing and making the points that they have. I believe that these principles could well apply further afield in due course, though perhaps not immediately. I noted well the points made by the Minister; I only hope that the opportunity will now be given for colleagues from Wales in the House of Commons to make their voices heard from all sides of the House, and perhaps the Government could then think further about it on that basis.

Business Rates: Retail, Hospitality and Leisure

Lord Livermore Excerpts

Tuesday 20th January 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, we have more bad news this morning from the ONS on job numbers in hospitality. That makes it even more important that we receive clear answers to the following questions. Why did the Government not get the new rating arrangements right first time in the Budget, when we now know that they already had the relevant information on pubs from the Valuation Office Agency? Following briefing to the FT last week, not only pubs but also restaurants and hotels do not know where they stand from 1 April. This is agony for them. When will the Government make a clear statement of their intentions?

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

As the noble Baroness knows, and as I have said before, the previous revaluation was based on property values during the Covid pandemic, which meant that rateable values were much lower. That means that some businesses, including retail, hospitality and leisure venues, are now seeing an increase as a result of this valuation. At the Budget we therefore announced three elements of support at a total cost of £4.3 billion. We implemented transitional relief; we have capped the increase for any business whose value has increased so that they are no longer eligible for small business rates relief; and we have expanded the supporting small businesses scheme.

But, as the noble Baroness quite rightly says—and as I have acknowledged in your Lordships’ House before—the revaluation means that pubs and others will struggle in relation to the business rates applicable to them. That is why we are working with the sector to ensure that it gets the support it needs. Noble Lords will have heard what the Prime Minister and the Chancellor have both said on this in recent days. I will not add to that now or comment on speculation. When there are further comments to be made, I am sure I will be back here to discuss them with noble Lords.

[Lord Freyberg (CB)]

My Lords, given that grass-roots music venues and recording studios do not qualify for RHL relief because of the way “visiting members of the public” is defined, will Ministers commit to reviewing or amending the eligibility criterion so that businesses integral to the creative economy are not excluded?

[Lord Livermore (Lab)]

I absolutely hear what the noble Lord says, and I understand the points he is making. As I said, noble Lords will have heard what the Prime Minister and Chancellor have said in recent days. I will not add to that now, but when there are further comments to be made, I am sure I will be able to discuss them with the noble Lord.

[Baroness Buscombe (Con)]

My Lords, when we are talking about business rates, are any of the many thousands of Turkish barbers, as they are so called, vape shops and nail bars—which are all cash only and which have infected our villages, towns and cities—paying any business rates? Are any of them paying tax? We know that most of them are about money laundering, organised crime and county lines drugs. They are getting away for free. The whole thing seems to be for free, and they are laughing at us. Meanwhile, our pubs and our hospitality as a whole are on a knife-edge of existence. How is that fair?

[Lord Livermore (Lab)]

I agree with a great deal of what the noble Baroness says. HMRC has announced substantial measures to crack down on some of the businesses she mentioned, and I think she will have seen several of them closing in recent months. She is quite right that more needs to be done. She is absolutely right to talk about the importance of the hospitality industry, and we completely recognise that. It plays an incredibly important role in the UK economy, employing more than 2 million people. It is vital to the life of high streets across the UK, and we will do what we can to support it.

[Baroness Kramer (LD)]

My Lords, I will repeat the adage I used formerly: measure twice, cut once. Does the Minister understand that there is real urgency to get response and relief now within the hospitality industry and for pubs, as they face uncertainty? Many, believing that the blows had ended, went ahead and hired or invested and are now unsure whether they are economically viable. Has the Minister looked at the impact of this uncertainty, particularly on the independents, which I understand are disproportionately affected?

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[Lord Livermore (Lab)]

I understand and agree with a lot of what the noble Baroness says. It is important that we are able to create certainty for those businesses, but we did spend £4.3 billion at the time of the Budget in support of exactly the businesses she described. We are implementing transitional relief to cap the amount that bills increase for businesses that would otherwise have seen big increases. For any business whose values increase so that they are no longer eligible for small business rates relief, we are capping that increase, and we have expanded the supporting small businesses scheme. As I say, that is at a total cost of £4.3 billion, so we absolutely recognise the issues facing those businesses. The revaluation means that pubs and others will struggle in relation to the business rates applicable to them, which is exactly why we are working with the sector to ensure that it gets the support it needs.

[Baroness Wheatcroft (CB)]

My Lords, the retail and hospitality industries are often where youngsters who find it difficult to get into the workplace get their first foothold. Understandably, there have to be increases in the overheads that these organisations are paying, but can the Minister look at ways in which these organisations might be helped to bring some of those people who really need their first job into the employment market?

[Lord Livermore (Lab)]

The noble Baroness is absolutely right about the important role that those businesses play in giving young people their first jobs, and I agree with her. We are taking significant measures to help the UK hospitality sector, which employs more than 2 million people and is vital to high streets across the UK. Based on recommendations from the licensing taskforce, we published a new National Licensing Policy Framework for the hospitality sector at the time of the Budget. We are exploring planning reforms to help pubs and hospitality to expand, and the hospitality support fund has helped pubs in rural areas to diversify, ensuring that they can continue in their role as vital community hubs.

[Lord Watts (Lab)]

My Lords, on pub companies, there is no doubt that the tenants are facing major problems in the UK, but does the Minister agree with me that, although those pubs are struggling, brewers and pub companies are making record profits? Is it not time they passed that on to the pubs themselves?

[Lord Livermore (Lab)]

My noble friend is correct to say that pubs have been struggling in this economy for a long time. In the previous 14 years under the last Government, 7,000 pubs closed in the UK, so this is a long-standing issue. On his wider question, I am more than happy to look into that.

[Lord Hayward (Con)]

My Lords, as the former chief executive of the British Beer & Pub Association, I am only too conscious of the problems that the hospitality industry has faced over a large number of years. I listened to the Minister’s answers from the Peers’ Gallery in the Commons yesterday, and the unwillingness to give any indication to the industry as to when decisions will be given to it, whichever fields may be covered, means that it is totally unable to plan. The Minister’s answer today yet again gave no indication of whether there will be a response soon, at some time in the next few weeks or before the next financial year starts.

[Lord Livermore (Lab)]

I do not think I heard a question at the end there. As I have said, we are working with the sector to ensure that it gets the support it needs.

[Lord Evans of Rainow (Con)]

My Lords, given my noble friend’s question, and given the importance of hospitality for employment—and the reference in a previous question to the number of young people who are unemployed—why is hospitality not included in the Government’s industrial strategy?

[Lord Livermore (Lab)]

That is an excellent question. Of course, we have separate strategies for the retail, hospitality and leisure sector. With the industrial strategy, we are trying to do something different from what that strategy is doing. Just because a sector is not in the industrial strategy, that does not mean we do not value that sector extremely highly and do all we can for it.

[Baroness Foster of Oxton (Con)]

My Lords, there are many charity shops in the high streets across this country. They receive 80% mandatory relief and often up to 100% discretionary. Many of these charities are actually multimillion-pound businesses. Notwithstanding the pressures on the high street and the pressures on small businesses, obviously, with these forthcoming increases, does the Minister agree that perhaps it is about time that we looked into this issue to make sure that those on the high street are paying a fair rate for their business rates?

[Lord Livermore (Lab)]

I do not disagree with what the noble Baroness says. It is very important to say that we are fundamentally reforming the business rates system by introducing permanently lower business tax rates for more than 750,000 retail, hospitality and leisure properties, funded by a higher rate on the most valuable properties. I think that is absolutely the right thing to do.

Public Sector Productivity

Lord Livermore Excerpts

Wednesday 7th January 2026 Lords Chamber

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what assessment they have made of the United Kingdom’s capacity to increase productivity, particularly in the public sector.

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

My Lords, in the decade from 2010, the UK economy saw the lowest productivity growth since the Napoleonic Wars. This led to the lowest growth in living standards ever recorded. This Government inherited a situation where public sector productivity was 5.6% below pre-pandemic levels. Reversing that performance is the number one mission of this Government. As part of our growth strategy, we have set out measures to increase productivity, including reforms to planning and skills, record levels of investment in R&D, new investment in transport connectivity, and a modern industrial strategy.

[Baroness Neville-Rolfe (Con)]

My Lords, here is another statistic: the ONS has reported that total public service productivity in the UK fell by 0.7% in Q2 of 2025 compared with the previous year and that healthcare productivity fell by 1.5% over the same period. Public service productivity continues to lag behind that of the private sector, yet this Government have overseen a surge in the number of civil servants, with many still working from home; inflationary public sector pay deals, without specific and direct productivity links of the kind that are common in business; more state-controlled activity; and more regulation and taxes on business. Does the Minister agree that this is actually eroding the prospect of UK per capita growth, which is essential for the success of the Government’s ambitions?

[Lord Livermore (Lab)]

I do not agree with that. On a point of fact, the noble Baroness mentions NHS productivity. The latest figures from the NHS show that NHS productivity has grown by 2.4% in April to July 2025 compared to the same period last year. Once again, the noble Baroness criticises the fact that we are seeking to pay the public sector workforce properly. She will be aware that a workforce that is efficient and well rewarded is essential to increasing productivity—she always talks about the need for increased productivity, but she never backs the measures that actually go to deliver it. I hope that the noble Baroness will recognise some of the measures that this Government are taking. At the spending review, the Government established a programme of public service reform to drive greater productivity. As part of that, the Office for Value for Money worked closely with departments to identify £14 billion of efficiencies. The noble Baroness did not mention that in her question. At the Budget, the Chancellor announced that we will deliver a further £2.8 billion of efficiencies and savings in 2028-2029.

[Lord Kakkar (CB)]

My Lords, much of the future improvement in productivity in the NHS is predicated on the adoption of innovative technologies. Is the Minister content that there is sufficient investment in the continuing development of the NHS workforce to facilitate the adoption of that technology and deliver that improvement in productivity?

[Lord Livermore (Lab)]

I am. We are investing £10 billion in digital technologies within the NHS. We have introduced a 2% efficiency and productivity target in the NHS for each year of this Parliament. That is supported by the Government’s 10-year health plan for England, which will improve outcomes for patients and deliver better value for money for taxpayers. The noble Lord is absolutely right that digital technologies and their adoption is vital to that. As I say, that is why we have invested £10 billion in it. We are moving more healthcare into the community and we are focusing more on the prevention of illnesses.

[Lord Woodley (Lab)]

My Lords, in a recent pilot of private sector companies which were working a four-day week, over 90% chose to keep these arrangements because of seriously increased productivity. Does the Minister agree that this should be expanded to the public sector, as called for by the trade unions?

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[Lord Livermore (Lab)]

I do not believe that that is government policy right now.

[Lord Leigh of Hurley (Con)]

My Lords—

[Baroness Kramer (LD)]

My Lords, this Question caused me to take a look at how the Government measure productivity. It strikes me as extraordinarily quantitative, taking into consideration almost no issue of quality. I am concerned that if AI is trained on these existing models, we are going to dig ourselves into a worse hole rather than make things better. Are the Government looking at how productivity is measured to give us something far more useful and valuable?

[Lord Livermore (Lab)]

I agree with a great deal of what the noble Baroness said. I noticed the noble Lord, Lord Leigh, who is very interested in this point as well, was on his feet. We have discussed it before in previous debates. We recognise the challenges in measuring public sector productivity, given the diversity of inputs and outputs in public services. The ONS recently published a review of its metrics. It has done a wide-ranging review into how productivity is measured and set out improvements that are now under way in many areas, such as healthcare, education and social security administration. It has included new quality adjustments, which better account for outcomes. I will take back to the Treasury the point the noble Baroness makes about the future adoption of AI.

[Lord Leigh of Hurley (Con)]

It is fair to say the ONS has a particular problem measuring NHS and public sector productivity because of the difficulty in measuring the outputs and inputs. None the less, the ONS reckons that public sector productivity has dropped 4.2% since 2019 and that, if it was at the same level as private sector productivity, the UK economy would have grown by 3%. Part of the problem is the measurement and part of the problem is the employment policies in the public sector. Will the Minister recognise the OBR’s warning that the Employment Rights Act will

“likely have material, and probably net negative, economic impacts on employment, prices, and productivity”?

[Lord Livermore (Lab)]

No. As the noble Lord says, public sector productivity has dropped significantly since 2019. This Government inherited a situation in which public sector productivity was 5.6% below pre-pandemic levels. That is clearly unacceptable and there are far greater issues going on than those that the noble Lord raises. I hope, as I have said before, that he will acknowledge some of the things this Government are doing to drive greater productivity in the public sector. We are working with the Office for Value for Money to identify £14 billion of efficiencies. We have gone further than that and identified a further £2.8 billion of efficiencies. We are investing in digital and AI transformation, workforce reform, rationalising the Government estate and improving procurement processes.

[Lord Londesborough (CB)]

My Lords, there is growing support for a social media ban for all those under the age of 16. In the interests of public sector productivity, would the Minister consider a similar ban during working hours for all government officials and civil servants under the age of 60?

[Lord Livermore (Lab)]

I do not think I would. I suspect social media, when used correctly, can help enhance productivity.

[Lord Howell of Guildford (Con)]

My Lords, does the Minister recall that, under both parties at the end of the last century, we attempted to beat this problem of productivity in the public sector by developing the private finance initiative idea? For a time, it was quite successful, although it did not end happily. Is he aware—perhaps he is not—that seven or eight of the most advanced countries in the world use developed and expanded versions of PFI that are much more sophisticated than ours? As they learned from us in the first place, perhaps we can learn a bit from them.

[Lord Livermore (Lab)]

The noble Lord is absolutely right. Partnerships with the private sector have an important part to play in the public sector. Obviously, the public sector can learn a great deal from the private sector, and, I hope, vice versa. That is why we announced in the spending review that we will be carrying out more public/private partnerships. Clearly, there is a lot to learn from the previous experience of PFI; we must make sure that we learn those lessons, and we should also learn the lessons from other countries and their experiences in that regard.

[The Earl of Devon (CB)]

My Lords, productivity in rural Britain is just 82% of its urban counterpart— a number that is estimated to fall to 79% by 2040. Making up this difference would add over £40 billion to the UK’s GDP. What efforts are His Majesty’s Government taking to improve this disparity?

[Lord Livermore (Lab)]

We talked before about AI and digital adoption. Digital adoption is incredibly important when it comes to rural communities—ensuring that they have access to extremely fast broadband, for example, will be important. Working from home has been mentioned. There are interesting studies that show that, particularly in rural areas where it is more difficult to travel to work, working from home can significantly improve productivity.

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

My Lords, my noble friend the Minister is absolutely right that the big impact on investment, and therefore productivity, in the UK came as a result of austerity policies, a poor Brexit deal and a failure of industrial policy. However, I want to ask about quality of management in the UK. We know that that is key to workforce engagement, health and well-being, and job design and satisfaction, which, in turn, impacts on productivity. Will my noble friend consider convening a discussion with business schools about whether our education system for managers is fit for purpose and whether we can make improvements to improve workforce engagement?

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[Lord Livermore (Lab)]

My noble friend asks a really interesting question and I am very happy to consider the point that she raises. The quality of management makes a massive difference in both the private and the public sector. We talked before about working from home. It is well documented that the better the quality of management, the more productivity comes from working from home. I am happy to consider my noble friend’s point.