National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Londesborough Excerpts

Thursday 5th March 2026 Lords Chamber

[Baroness Kramer (LD)]

On this issue of students, I really think this is unintentional, taking the Minister and others at their words. That is why accepting the amendment from the noble Lord, Lord Leigh, and correcting the issue now is something that I consider to be very important.

As I said, there is no need for me to keep speaking. I have made it clear that I will support quite a number of the other amendments in this group if they are moved, because collectively they address a fundamental problem. I appreciate all the comments that have been made in support of the amendments in my name.

[Lord Londesborough (CB)]

My Lords, I support broadly all the amendments in this group, but specifically Amendments 12 and 26 in the name of the noble Baroness, Lady Kramer, to which I added my name. I will be genuinely brief. These amendments, by raising the cap to £5,000 per annum, would address a core problem in the Bill: the limiting or deterring of the so-called moderate earners we have heard about from contributing sufficiently to their pension pots, which, as we already know, are nowhere near sufficient for the vast majority to fund their retirements. We are talking about retirement periods of 25 to 30 years if demographic trends continue. As we have heard, this includes many in the early stages of their working lives who need to get into the habit of contributing to pensions at the formative stages of their careers.

I remind the House of a stat that came out in Committee. On average, our current workforce will outlive their pension savings by eight to nine years, and this funding gap is widening year by year. Clause 1 is, in effect, raiding pensions to keep the Treasury within its fiscal rules in three years’ time. It is another crude example of kicking the can down the road, leaving another generation to sort out another widening deficit.

I was interested to hear the comments from the noble Lords, Lord Leigh and Lord Ashcombe. They raised some pertinent questions over the revenue-raising forecasts. I also fear that the Treasury has wildly underestimated the level of accelerated salary sacrifice over the next three years in the run-up to these measures. I have witnessed a number of business plans in companies that I am involved in; I should, of course, declare my interests as set out in the register.

To conclude, I fully endorse the excellent opening comments from the noble Baroness, Lady Neville-Rolfe, and the comments we just heard from the noble Baroness, Lady Kramer. I encourage your Lordships to support their amendments should they decide to test the opinion of the House.

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

My Lords, I am very grateful to all noble Lords who have contributed to this first group of amendments. I turn first to Amendments 1 and 17 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, which seek to exempt basic rate taxpayers from the Bill. As the noble Baroness, Lady Neville-Rolfe, noted, the vast majority—74%—of basic rate taxpayers using salary sacrifice will be unaffected by the changes in this Bill. Specifically, three-quarters of those earning up to £50,270 and using salary sacrifice will be entirely protected, and that rises to 95% when looking at those earning £30,000 or less who use this mechanism to save into their pensions. The minority 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 they receive on their pension contributions. Half of those basic rate taxpayers contributing above £2,000 will face an additional national insurance contribution liability of less than £50 a year.

Exempting basic rate taxpayers would also be exceptionally difficult to operate in practice and would add considerable additional administrative burden on to employers. That is because, unlike income tax, national insurance does not operate on an annual aggregated basis, nor does it determine liability by reference to an individual’s final tax position. An individual cannot be confirmed as a basic rate taxpayer until their full income position is reconciled at the end of the tax year, taking account of potentially multiple employments and other sources of income. To apply a tax band-based exemption, employers would be required to undertake year-end reconciliations across employments and account for other sources of income as well that sit wholly outside the design of the national insurance contributions system. This would represent a fundamental departure from established payroll processes, imposing significant complexity, cost and risk on to employers and payroll providers.

Amendments 16 and 29, in the names of the noble Baronesses, Lady Neville-Rolfe, Lady Kramer and Lady Altmann, and the noble Lord, Lord Altrincham, seek exemptions for small and medium-sized enterprises, charities and social enterprises. Exempting small and medium-sized enterprises and charities in the way proposed by the amendment would add considerable complexity to the tax system and would not be proportionate to the limited impact this policy is expected to have on those businesses. The changes in this Bill primarily affect larger employers, which are significantly more likely to operate salary sacrifice arrangements and to have employees contributing above the £2,000 cap.

Small businesses are significantly less likely to offer salary sacrifice than larger businesses. Only 28% of employees in SMEs use salary sacrifice for pension contributions, compared to 39% in larger firms. When it comes to contributions above the £2,000 cap, the difference is even clearer. Only 10% of employees in SMEs make pension contributions through salary sacrifice that exceed the value of the cap, compared to 18% of employees of larger firms. This underlines that the largest benefits from uncapped salary sacrifice are concentrated in bigger firms, not smaller firms.

In practice, the changes in this Bill will level the playing field between small businesses and their larger competitors, ensuring that the national insurance contribution advantages of salary sacrifice are not disproportionately concentrated among employees in big firms. More widely, the Government recognise the importance of supporting small businesses and charities alike.

This leads me to Amendments 7 and 23 in the names of the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham. These amendments 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 and how the contributions limit reflects that assessment. The Explanatory Notes for this Bill set out clearly that the Government’s objective is to limit the national insurance contributions relief available to higher earners on employer pension contributions made through salary sacrifice, while protecting lower-earning pension savers. These changes are about fairness and consistency across the labour market.

Additionally, 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 completely excluded from using salary sacrifice altogether. The cap we are introducing through this Bill will protect the majority of basic rate taxpayers using salary sacrifice and ensure that the cost of national insurance relief on pension salary sacrifice is put on a fiscally sustainable footing.

I now turn to Amendments 5 and 21 tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baronesses, Lady Altmann and Lady Kramer, which seek to exempt salary sacrifice pension contributions over the £2,000 limit from being included in the definition of earnings used to calculate student loan repayments for employees. Student loan repayments are calculated using the same earnings base as class 1 national insurance contributions. As a result, salary sacrifice currently reduces both national insurance contributions and the earnings used to calculate student loan repayments. Any change in student loan repayments arising from this measure is a mechanical consequence of restoring those earnings to the national insurance contributions base. It is not a change to student loan policy itself; rather, it flows from levelling the playing field between those who are able to use salary sacrifice arrangements to reduce their earnings for national insurance contributions and those who are not. Of those employees making pension contributions through salary sacrifice, younger people are far more likely to be protected by the £2,000 cap than those above the age of 30. Some 76% of those in their 20s—

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[Lord Davies of Brixton (Lab)]

I have just two points. First, I am perhaps the only person in the House who believes in the National Insurance Fund. I am in favour of the National Insurance Fund in principle. It is a fund into which people pay contributions and accrue entitlement to benefits. I am therefore against a detached look at a very small part of the overall operation of national insurance; that would clearly be a mistake. You have to look at the whole thing together. I am not necessarily against that. I suspect that the Treasury will not be keen but, in principle, it is time for it.

However, my second point is that that makes sense only if we look at the tax treatment of pension schemes, which is the electric third rail of pensions politics. There has been a lot of discussion in the think tanks about the tax treatment, and proposals such as flat rate relief have been made. It is a massive subject—one that it is time to review. For the same principle, it would be wrong to look at this tiny part of the overall structure. I am therefore against the amendments, but the general principle—that the issue needs to be looked at—is a good one.

[Lord Londesborough (CB)]

My Lords, I support Amendment 31 in the name of the noble Baroness, Lady Neville-Rolfe, to which I have added my name. I also add my vocal support for Amendment 32 from the noble Baroness, Lady Kramer, which I should have added my name to but did not. Both amendments concern the impact on SMEs. I am more concerned about the “S” part of that acronym, because medium-sized businesses with payrolls of over 100 staff are a lot better equipped to deal with the provisions of the Bill. I heard the Minister saying that only 10% of this group apply for salary sacrifice, which is a glass-half-empty argument. It is precisely because of that that we should be very concerned about the 90% who are missing out entirely on salary sacrifice.

When we go back to Amendment 31 and look at the impact, the employment data this year for SMEs is utterly dire—on vacancies, payroll and employment, part-time and full-time. I will not go through all the data, but I remind your Lordships that only 10 days ago, the Federation of Small Businesses wrote a letter to the Chancellor of the Exchequer warning that one-third of its members are planning either to shut down their business this year or to reduce their headcount, and that should send a real chill down the spine. I simply do not believe that the Government understand what it is to develop and foster a thriving SME ecosphere, on which, at the bottom of the pyramid, our economic growth utterly depends. I therefore throw my support behind these two amendments.

[Baroness Kramer (LD)]

My Lords, Amendment 32 is in my name. I realise that Amendment 31 is a broader amendment, and I have no objection to it whatever. It was written in response to a particular issue identified by the Federation of Small Businesses, which is that small businesses that use salary sacrifice regard it as one of the perks they can offer, in a very competitive market, for particular skill sets. Churn is a major problem for small businesses, so to be able to keep people and keep them happy really matters. It is tough for a small business, particularly when it is looking for a person with highly desirable skills, to compete against big businesses, which can offer perks of many different kinds. They may not offer salary sacrifice to the same degree, but they can offer other kinds of perks and advantages.

I am very concerned about the competitive impact on small businesses. I strongly agree with the noble Lord, Lord Londesborough, that this group is the foundation of our economy and its condition currently leaves us worried. At a time of a big push for growth, many of the unicorns will fall into a sector where they are in a battle for skills against large existing companies. My Amendment 32 would review within 12 months the impact very specifically on SME recruitment and retention. I hope the Government will pay serious attention to this area.

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[Lord Londesborough (CB)]

My Lords, I have added my name to Amendment 34 from the noble Lord, Lord Ashcombe, and I offer my support. It is entirely pragmatic. I would also throw into this documentation reservoir the OBR’s forecasts, which I found quite confusing in relation to the impact of the Bill. What is being suggested in this amendment does not apply only to the National Insurance Contributions Bill, and many of us as parliamentarians—certainly I as one—find the paperwork around Bills often baffling and confusing, and to bring this together in a far more coherent way would make us better legislators. But let us spare a thought for the CEOs, the finance directors and the CFOs, two of whom have come to me and asked me to explain how the Bill is going to impact their businesses, and I struggle to do so.

As many noble Lords know, I am a bit of a productivity disciple and our productivity in this area is really poor. Part of the reason for that is that the publication of relevant documents is so scattergun. If you do not have a legal training, as most of us do not, it is a challenge not just in terms of legal language but often in numeracy. In Committee, we often found that we did not know whether the Bill applied per person or per job. We now have a clarification, for which I thank the Minister. But that is pretty damning in itself, is it not?

So I wholeheartedly support this. There is no controversy. I think Governments of all colours need to do a far better job of explaining the thrust of their legislation.

[Baroness Altmann (Non-Afl)]

My Lords, I rise briefly to speak to my Amendments 35 and 40 in this group, which seek to do similar things in different ways from the other amendments in this group, all of which I support. I certainly think that the suggestion from the noble Lord, Lord Ashcombe, on the publication of relevant documents and reports makes significant sense, and having a repository of information would certainly be helpful.

This group of amendments is yet again trying to help the Government see that they are premature in laying the legislation and there is not enough understanding of what the impacts in practice will be for employers and workers. In Amendment 35, each area on which I ask for an independent report to be produced is itself a complex area of pensions administration that needs to be understood before we make the kind of change that sounds simple but in practice will be anything but.

It sounds as if it will not make much difference, but in practice, it could cost significant sums to employers, as well as having this significant potential impact on making pension provision worse across the country. At the very time when we are talking about perhaps making state pensions a bit less generous or delaying the age at which they will start, it makes private pensions even more important for anyone in poor health who cannot wait until the ever-rising state pension age. The idea is for them to have something to fall back on to bridge the gap, at least.

I hope the Minister, for whom I have enormous respect and who I know is very well intentioned and understands these issues, will take back to his department the deep unease across this House at the lack of preparedness and information that we have been given. Once again, could he help explain—and if not today, perhaps he will write to me—the seemingly inordinate rush, within just a few weeks, to bring in this legislation, which is not due to start until 2029, so that we have a better understanding of what the Bill’s impacts would be?

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Londesborough Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I start by thanking everybody who voted for the previous amendment. Such a powerful message is engaged with that statement.

I am here to move Amendment 2, which is different in character from Amendment 1. The amendments in this group are primarily mine. There are a couple there from the noble Lord, Lord Londesborough, which I also support and know that he will present very effectively. The amendments in my name and that of my noble friend Lord Bruce of Bennachie, in essence, deal with part-time workers.

While looking at the impact of the changes to employer NICs, we became conscious of the changed position of part-time workers as members of our workforce. There are now more than 8.4 million people engaged in part-time work, who are exceptionally hard hit by the changes proposed by the Government in the NICs Bill. People who typically worked 14 hours a week incurred employer NICs in the past; that now drops to individuals who work typically only eight hours a week. Suddenly, there is a huge group of part-time workers who have become far less attractive to the employers that have provided their opportunities in the past.

The impact is especially great on the hospitality industry—an industry that we know is already on its knees. Some 37% of employees in hospitality are part time, and I think there is a view in the Treasury—I think that the noble Lord, Lord Macpherson, expressed it unwittingly in Committee—that part-time work is a sort of rich person’s luxury; it is people working for pin money. That, frankly, is a completely outdated attitude.

Today, part time is concentrated in the lowest pay bands. It is an entry point to work for many people in disadvantaged communities or with difficult histories. It is an economic lifeline for carers who can work part time but not full time, for students, for many with disabilities and for those who are economically inactive. We have a Government who say they want to take 2 million people off benefits and get them into work: part-time work is the entry point and the obvious first step.

We also want employers to see part-time work as exceedingly attractive, so that they start to add additional support, such as training and career opportunity, to part-time work because of this far more fundamental role that it can play. Instead, we have seen with this Bill that many employers are now openly saying that they intend to outsource abroad rather than employ part-time workers or that they will require part-time workers to become self-employed, with all the complexities of IR35.

As we looked at our concerns for hospitality and the high streets—many in those sectors are the backbones of communities—and because we looked at the nature of the part-time workforce, we made the call to go further in this amendment than in our others and seek not just to exempt part-time workers from the increase in employers’ NICs but to reduce the rate of employers’ NICs to 7.5%. As the noble Baroness, Lady Barker, said in the debate on the previous set of amendments, we had it in our manifesto and have since identified other tax opportunities that are available for fundraising. None of them is easy but, frankly, we would close loopholes in capital gains tax, we have talked about taxes on share buybacks and we would reinstate the surcharge on the major banks.

In the previous set of discussions we had a whole series of proposals from the noble Lord, Lord Clarke, who of all people is very aware of the range of possible choices. They may not be ideal, but they are certainly much better than the choice of employers’ NICs, with the impact that is happening. In this case we made that decision, and that is the characteristic of this amendment. The other amendments in the group in my name are all consequential. The noble Lord, Lord Londesborough, also has amendments in this group, and I am fully supportive of them. I beg to move.

[Lord Londesborough (CB)]

My Lords, I rise to speak to my manuscript Amendment 15A and its consequential Amendments 17 and 24, both of which are supported by the noble Baronesses, Lady Neville-Rolfe and Lady Kramer. I am very grateful for their support. I will also speak to consequential Amendments 30A, 31A and 32A in my name. For clarity’s sake, I will not be pressing Amendments 30, 31 or 32.

In short, these exemption amendments seek to protect all small businesses and organisations that employ fewer than 25 staff, including charities, from Clause 2’s steep and sudden drop in the NICs threshold from £9,100 to £5,000 per annum—or, on a monthly basis, from £758 to £417 and, for those who are paid weekly, from £175 to £96 per week. By maintaining these existing thresholds, these amendments would particularly protect part-time workers and smaller organisations including charities, hospitality and retail, which in some cases face increases in their NICs bill per employee as high as 50% to 70%. For this reason, I support the noble Baroness, Lady Kramer, with her Amendment 2.

I should quickly declare my interests as set out in the register, specifically as an adviser and investor to a range of small businesses in the UK, including a community-owned public house.

I will come on to the impact of these amendments shortly, particularly in relation to the challenging and interesting comments from the noble Lord, Lord Eatwell. I certainly do not agree that my amendments are designed to reduce government revenue, and I will come on to that in a moment. Surely, this is our role. This is the most important economic policy that this Government have yet to produce. We are where we are, and surely we should be scrutinising, particularly if we feel that poor decisions or poor structuring of these national insurance increases are doing damage to the economy.

On that theme, I will quickly share this: the latest survey from the Federation of Small Businesses reported that the proportion of its members facing contraction in the last quarter, Q4, jumped to 24%, its highest-ever level outside the pandemic. That is up from 14% in Q3. The FSB has also reported that confidence among its membership has fallen to its lowest point in 10 years. Meanwhile, the Chartered Institute of Personnel and Development has reported that over a third of the 2,000 firms that it interviewed plan to reduce their headcount in 2025 through redundancies or recruiting fewer workers. Rather than taking a sectoral approach, for which many others have spoken passionately already, my exemption amendment applies to all small businesses and organisations, including charities with fewer than 25 staff, which, as the Bill stands, face sudden and steep drops—in fact, 45% drops—in their per-employee threshold at which employers become liable to pay NICs.

Just to illustrate this, employee NICs on a salary of £30,000 are set to increase by 30%, from £2,884 to £3,750, for those employing more than three staff. For part-time workers earning, say, £15,000, the employer NICs can increase by more than 50% per job. These are not trivial increases. While I salute the Government for increasing the employment allowance in Clause 3, it is from £5,000 to £10,500, and this typically washes out increases only for micro-businesses, those employing fewer than three staff. All told, the larger the business in terms of employees and the higher the salaries paid, the lower the increase in percentage terms to its NICs.

Of course, I understand why the Government are raising tax revenues—I have no issue with that—but, by placing this burden so disproportionately on small employers, the Bill threatens to do significant damage to jobs, pay and economic growth. Anecdotal evidence suggests that this is already happening.

My amendments would help to protect the jobs of some 6 million workers employed by about 1 million businesses and organisations across the UK. Many of these are nascent companies that operate on low margins and are at critical stages of their development—yet they grow at the fastest rate, create jobs at the fastest rate and, through their size and agility, can be great innovators. They are a vital component of GDP and our growth, with annual turnover of some £900 billion. But this group also includes a huge swathe of family and local businesses spread across the country, struggling to keep their heads above water in what have been five very difficult trading years. A fall of just 2% to 3% in employment levels or hours worked in this small business sector could cost the Treasury more in lost tax revenues and increased benefit payments than it would gain from this measure.

Incentivising employment by restoring the NICs threshold would be accretive to GDP growth, the Government’s number one priority. It would help boost income tax revenues and employees’ NICs, and it would bolster VAT revenues and corporation tax. Above all, it would lift business sentiment and stimulate investment.

I listened with interest to the noble Lord, Lord Eatwell, describing all these amendments as wrecking amendments. Because we do not have a proper detailed impact assessment, that is an unfair charge and I challenge it on behalf of these amendments. I look forward to hearing from the Minister but, with respect, I expect to press these amendments when the time comes.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Londesborough Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

Moved by

[Lord Londesborough]

15A: Clause 2, page 1, line 12, after “£96” insert “or,
(b) for businesses and organisations with fewer than 25 full-time employees, £175.”Member’s explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the secondary threshold at which employers become liable to pay national insurance contributions on employees’ earnings at £175 for businesses and organisations employing fewer than 25 staff.

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[Lord Londesborough (CB)]

I will not make another speech, but I thank all noble Lords for their thoughtful and supportive contributions when we debated this amendment. I welcomed the challenges, particularly from the noble Lord, Lord Eatwell, who is not in his place, which I listened to with great respect. However, I disagree with his analysis. The cliff edge threshold is there in the Bill for all to see, and Clause 2 has moved it in the wrong direction, to the detriment of small businesses, economic growth and jobs.

I thank the Minister for his patient and construction interactions, but I wish to test the opinion of the House. I beg to move.

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Moved by

[Lord Londesborough]

17: Clause 2, page 1, line 14, after “substitute” insert—
“(i) for businesses and organisations with fewer than 25 full-time employees, £758, and(ii) in all other cases,”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the monthly per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings at £758 for businesses and organisations employing fewer than 25 staff.

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Moved by

[Lord Londesborough]

24: Clause 2, page 1, line 15, after “substitute” insert—
“(i) for businesses and organisations with fewer than 25 full-time employees, £9,100, and(ii) in all other cases,”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the annual per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings at £9,100 for businesses and organisations employing fewer than 25 staff

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Moved by

[Lord Londesborough]

30A: Clause 2, page 1, line 15, at end insert—
“(c) in sub-paragraph (c), leave out “the figure in sub-paragraph (b)” and insert—“(i) for businesses or organisations with 25 or more full-time employees, £5,000, or(ii) for businesses or organisations with fewer than 25 full-time employees, £9,100,”.”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the existing £9,1000 annual per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings for businesses and organisations employing fewer than 25 staff. This amendment applies to earnings periods which are multiples of a week.

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Moved by

[Lord Londesborough]

31A: Clause 2, page 1, line 15, at end insert—
“(c) in sub-paragraph (d), leave out “the figure in sub-paragraph (b)” and insert—“(i) for businesses or organisations with 25 or more full-time employees, £5,000, or(ii) for businesses or organisations with fewer than 25 full-time employees, £9,100,”.”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the existing £9,1000 annual per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings for businesses and organisations employing fewer than 25 staff. This amendment applies to earnings periods which are multiples of a month.

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Moved by

[Lord Londesborough]

32A: Clause 2, page 1, line 15, at end insert—
“(c) in sub-paragraph (e), leave out “the figure in sub-paragraph (b)” and insert—“(i) for businesses or organisations with 25 or more full-time employees, £5,000, or(ii) for businesses or organisations with fewer than 25 full-time employees, £9,100,”.”Member's explanatory statement
This amendment is linked to others in the name of Lord Londesborough. It seeks to maintain the existing £9,1000 annual per-employee threshold at which employers become liable to pay national insurance contributions on employees’ earnings for businesses and organisations employing fewer than 25 staff. This amendment applies to earnings periods which are multiples of a day.

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[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the number of times that I have heard debates in this House calling for a greater degree of post-legislative scrutiny—seeing whether we got what we thought we were going to get—is legion. Any effort to try to make sure that our judgment of what the Government of the day were proposing is worth having because it starts to increase the sum of human knowledge.

I am sorry that the noble Lord, Lord Eatwell, took such a dim view of it all, and I rather regret he sullied his comments with an attack on the previous Conservative Government’s economic policy, but so be it. I was not clear whether he was saying that it is a bad thing to do in principle or that the drafting is defective in practice. I am sure that if he felt that, in principle, it was a good idea to do it, our Front Bench would be happy to work with him to make sure that the drafting reached the economic standards that he felt would make it useful and worth while. However, it is a mistake just to discard, without further thought, an attempt to see what happens after the event.

Therefore, which of these amendments is the best? I am not sure, but “there’s gold in them thar hills”, and we should be mining it.

[Lord Londesborough (CB)]

My Lords, I will briefly speak in support of Amendment 38, in the names of the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, to which I have put my name.

Given the enormity of the Bill, with its intention to raise £25 billion in NICs, and given the current broad-brush, macro impact note that came with it, it is surely incumbent on the Government to carry out sector-by-sector reviews and within six months. In particular, the impact on employment levels and hours worked in each of these sectors needs to be looked at, and there will be huge variations—anecdotally, we are getting evidence that variations are already there.

These reviews would also help the Government in shaping their industrial and sector strategies. I do not agree with the noble Lord, Lord Eatwell, that these studies are, in his words, “econometrically impossible”; yes, they are challenging, but not impossible. With the right will, suitable frameworks can be established for each of these sectors, and it is vital that this analysis is carried out.

[Baroness Kramer (LD)]

My Lords, I will be brief. I have some sympathy for the Minister, because, in providing the impact note—which, as the noble Lord, Lord Londesborough, said, had very thin content and was very high-level in general—he is merely following in Treasury tradition, which the previous Government, when in power, also pursued.

The time has come for us to make a stand and to say that we need detailed impact assessments of policy. As the noble Lord, Lord Londesborough, said, in a Bill as complex as this, and which affects many sectors, the impact note has to be far more granular than the kinds of documents we have received in the past. This is also valuable to the Government themselves, because I greatly fear that, within the Treasury, there is very limited understanding of what the consequences are for a wide range of sectors. This is a start in the right direction, making sure that both Parliament and the relevant government departments are informed and can act properly. We will support this.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Londesborough Excerpts

Committee stage
Tuesday 4th February 2025 Grand Committee

[Lord Londesborough (CB)]

My Lords, I rise to briefly support Amendments 31 and 49 in relation to the hospitality sector. As we have already learned in the two previous days of Committee, there is great resistance to having the full impact assessments we are calling for, specifically in relation to these national insurance contribution increases. Perhaps that is not surprising when you look at the impact on the hospitality sector.

I will simply share one anecdote on the experience of one independent publican, who is employing 20 part-time workers. They typically work 20 hours of shifts at £15 per hour, therefore earning £300 per week on average. This publican’s bill for national insurance contributions will increase by 73%. As we know, the real problem here is dropping the threshold so severely as to create not just a punishing but an excessively regressive tax, hitting hospitality and SMEs at the margin during their delicate stages of growth or survival.

In this case, how is the publican going to respond? These are his choices: reduce the headcount; reduce the number of hours worked by the part-time workers; reduce the number of hours that his pub can remain open; and, where possible, increase prices. All of those are very damaging to the Government’s No.1 economic mission of growth, and potentially damaging for inflation, but particularly damaging to jobs and part-time workers who rely on those jobs. Typically, we are talking about the young and the old. I again support others in saying that this is a reckless act. To push these measures through without conducting a proper assessment strikes me as economically ruinous.

[Baroness Neville-Rolfe (Con)]

My Lords, I shall speak to my Amendment 49, and I support Amendment 31 in the name of my noble friend Lady Monckton of Dallington Forest. The fact is that, as we have also heard from the noble Lord, Lord Londesborough, we need an impact assessment here as well so that we can assess where to make changes and what impact this jobs tax is having.

My Amendment 49, along with others that I have tabled, would increase the employment allowance from £10,500 to £20,000. This sector, which is so important to our day-to-day life and to our tourist industry, is full of part-time workers and the lowest paid will suffer a tsunami from the NICs changes. We need to find a way of alleviating the pain, and my amendment is one such proposal.

It is a particular pleasure to welcome the noble Baroness, Lady Fleet, to the Committee and to hear her evidence of the impact on the arts. She is right that the creative industries and hospitality are integrally linked, but I was equally concerned to hear about the impact on museums, theatres and other aspects of the creative arts. She is also right that, on this evidence, the Government are no friend of the arts; that should be of concern to the Committee.

My noble friend Lady Monckton was right to talk of the spiral of price increases, the diversionary pressure on management, the impact on capital investment and the effect on jobs, especially the lowest level jobs. They are particularly hit by the double whammy, as I have said already today, of the changes in NICs and the national minimum wage, which will particularly bite younger people. For good reasons, the national minimum wage for younger people has been increased, but that is making a particular difficulty in terms of hiring them, which I fear we shall see in the results in the coming months.

I have further evidence about hospitality, which I think some local papers may be interested in, so I will run through it because it is important. There have been calls from across the sector about how damaging the tax will be. Restaurateur Tom Kerridge, despite backing Labour at the election, has expressed concern that this tax raid will have “a catastrophic effect”. He said that it would cost,

“£850 extra per member of staff per year”

and have a reaction into a negative process in terms of employment. He also said:

“This is a very difficult time for hospitality, because the next few weeks are particularly busy. They give a false sense of feeling that everything is okay … it’s going to have a catastrophic effect, moving into the new year”.


He said that just before Christmas, and things have got worse.

On top of that, UKHospitality said that the national insurance increase at the Budget will lead to business closures and job losses within a year. It said that

“the changes to the NICs threshold are not just unsustainable for our businesses, they are regressive in their impact on lower earners and will impact flexible working practices which many older workers and parents rely on. Unquestionably, they will lead to business closures and to job losses within a year”.

I was particularly pleased to hear from the noble Lord, Lord Londesborough, about his new evidence on pubs. The British Institute of Innkeeping, which has warned that the Budget will see 75% of pubs cut hours, thinks that 40% will reduce opening times and that one in three will make staff redundant. It said:

“The Budget, billed to support working people, will pull the rug out from under these already fragile small businesses and significantly reduce the employment opportunities they can provide. 75% will cut staff hours, 40% will reduce opening hours and 1-in-3 will make staff redundant”.


This will have an extraordinarily damaging impact on the sector and the economy.

More than 200 leading restaurant, pub and hotel companies including Stonegate, Greene King, Wetherspoons and Young’s wrote to the Chancellor warning that the Budget will cost the industry £3.4 billion a year. They said:

“As leaders of hospitality businesses, we are compelled to highlight our grave fears about the impact of the Budget, particularly relating to the Employer NICs threshold. Alongside the changes to the national minimum wage levels this will cost hospitality—at a conservative estimate—£3.4 billion a year”.


I would be grateful if the Minister would provide an actual number.

Finally, Simon Emeny, chief executive of Fuller’s, which owns about 400 pubs and hotels and employs almost 5,000 people, said he was “just utterly disappointed” by the Chancellor’s choices. He claimed they “disproportionately” impacted hospitality, which is a big employer of young people and part-time workers.

These are real impacts and the Government’s changes are disproportionately affecting mainly small and vibrant businesses such as these. The biggest hit is from the decrease in the threshold, which could be phased in. Alternatively, the Government could help smaller businesses by increasing the employment allowance, as I have also suggested. I simply urge the Government to act.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Londesborough Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I rise to move Amendment 6 in my name and to speak to my Amendments 23 and 48, all on small business—a subject dear to my heart, as noble Lords will recall from our debates on the Procurement Act in the last Parliament, mostly in this very Room.

Small business is at the entrepreneurial heart of the economy. We need a constant stream of start-ups for an economy that is dynamic. The amount of regulation on such businesses is already discouraging. My own findings are that the imposition of additional employer NICs is leading some businesses towards despair, with more closed shops on the high street and busy insolvency practitioners. Others are not setting up. Their customers are affected by the chill created by the Budget and the enormous NICs hit in particular, which has a multiplier effect on confidence.

I acknowledge that the increase in the employment allowance is helpful and I congratulate the Federation of Small Businesses on its work on this with the Treasury and DBT. However, more needs to be done to drive growth. I believe that easing the strain of NICs on SMEs could play an important part.

My Amendment 6 would exempt micro-businesses with an annual turnover of less than £1 million from this jobs tax. I have tabled this amendment because I want to understand whether the Government would consider an exemption that would have a relatively low impact on the revenue that the Treasury receives from this policy. To exempt such small businesses would not come at a great cost to the Treasury, yet it would have a big impact on the businesses that it would protect and on attitudes to the Government’s plans. The Financial Conduct Authority defines “small businesses” as companies with an annual turnover of less than £1 million—hence my choice for the threshold. I add that even many of these businesses may not survive recent tax rates. The Government will be failing in their promise, I fear, to be the most pro-business Government ever.

My proposal would be a modest step in the right direction and would reduce the negative knock-on effect of the NICs changes, in terms of jobs, shop and business closures and the higher prices that follow reduced competition. You see that effect, when a couple of coffee shops close, on the price of your latte.

I was interested to hear the Chancellor this morning saying that

“growth isn’t simply about lines on a graph. It’s about the pounds in people’s pockets. The vibrancy of our high streets”.

Chance would be a fine thing for the hard-working domestic SMEs that I am talking about.

Amendment 23 in my name seeks to increase the per-employer threshold at which employers begin paying national insurance on employees’ earnings, from £5,000 to £7,500—sort of halfway. We know that Clause 2 is the most punitive part of the Bill, hitting small businesses and social enterprises hardest. As the OBR acknowledges, this jobs tax will have the indirect effect of stifling wages, as employers look to offset these increased costs.

Amendment 48 would increase the employment allowance for small businesses to £20,000. The increase in the allowance is very welcome, as I have said, as is the lifting of the EU-based limit on eligibility—ironically, a new Brexit freedom, on which I congratulate the Minister. However, many small businesses have more than three or four people, or so, which means that the increase in the allowance will be less than the additional NICs charge. We should debate in Grand Committee, as we did on procurement, how to improve matters.

I would be delighted to be able to congratulate the Minister on an entrepreneurial step by increasing the allowance and removing the threat and hassle of NICs for more employers. I know that he shares my passion for easing barriers to growth and I see this as a new barrier that he could mitigate.

I very much look forward to hearing my noble friends Lady Noakes and Lord Londesborough and I am sorry that my noble friend Lord Ahmad of Wimbledon cannot be here this afternoon. We all feel the same way about the importance of cherishing the enterprise spirit and will welcome a constructive discussion on what more can be done to ease the pressure on small businesses. The Chancellor’s speech today and the long-term nature of most of her growth drivers strengthen the case for a concession on this now. I beg to move.

[Lord Londesborough (CB)]

My Lords, I shall speak to Amendments 22, 39 and 53 in my name in this group, to which the noble Baroness, Lady Kramer, and my noble friend Lady Neville-Rolfe have added their names. I shall also speak to Amendments 6 and 33, tabled by my noble friends Lady Neville-Rolfe and Lady Noakes respectively.

Rather than taking a sectoral approach, about which others spoke passionately last week, my three amendments focus on the size of businesses and organisations impacted by the measures in the Bill, specifically those categorised as small businesses, which means that they employ between 10 and 50 full-time staff. I should again declare my interests as set out in the register, as I advise and invest in a number of businesses of this size, predominantly start-ups and scale-ups. These are the companies that grow and create jobs at the fastest rate and, through their size and agility, seize the nettle of productivity. If I may mix my metaphors for a moment, these are the acorns that seek to become unicorns or, at the very least, sturdy oaks.

The Department for Business and Trade reports that there are some 220,000 businesses across the UK that employ between 10 and 50 staff—that is 4.3 million of the 28 million jobs in the private sector and they generate £780 billion in annual turnover. However, this group involves not just fast-growing early-stage start-ups but a huge swathe of family and local businesses spread across the country and, indeed, businesses that have been struggling to keep their heads above water in what have been five very difficult trading years.

While the Government have sought to protect the majority of our micro-businesses, those employing between one and nine staff, from rising NICs, they have left all other small businesses exposed to these sudden and dramatic increases. In terms of impact, the Government tell us that 250,000 employers will see their NICs decrease, 940,000 will see theirs increase, while about 800,000 employers will see no change. This has allowed the Government to claim that the majority of employers will see no increase. With respect, that is deeply misleading. The question that matters is what proportion of jobs will attract increased national insurance contributions. I ask the Minister that question. Can he confirm, if he does not have the numbers at hand, that in fact the number is close to 80%?

I turn to the financial impact of Clauses 1, 2 and 3 to small businesses. For businesses of 25 staff paying the national full-time median salary, which is put at £37,000 by the ONS, their NICs bill will rise from £90,000 to £110,000. That is an increase of more than 20%.

However, most small businesses, given their nature and stage of development, pay less than the median national average. For them, the increases get even steeper. For those employing 25 staff and paying an average salary of £25,000, as is common out in the regions, their NICs bill will rise by no less than 30%. For those employing 50 staff at that salary, they face an eye-watering 33% increase. As we know, the main culprit for those outsized increases is Clause 2: the brutal and, in my view, economically illiterate drop in the per-employee threshold from £9,100 to £5,000. Ironically, this hits the lowest-paid jobs the hardest. In short, it is a regressive tax.

Then we come to retail and hospitality, with thousands of outfits that rely on part-time shift workers. For those employing 20 part-timers, typically earning £300 per week, their NICs bill goes up by an extraordinary 70%. I will stop there with the examples but noble Lords, including the Minister, will be delighted to know that I have here all the spreadsheets to prove it; I will happily share them out later. In the interest of transparency, on the impact for 5 April, I strongly suggest that the Government have the honesty to publish these figures.

These increases are of course bad news for the working person, especially the 4 million of them who work in small businesses. They rather grate against Rachel Reeves’s statement this morning about kick-starting the economy. Let me turn to my Amendment 22, which seeks to address this in what I hope noble Lords will agree is a measured, proportionate way to help protect our small businesses. In short, the per-employee threshold would remain at £9,100 for those employing fewer than 25 staff, while those employing fewer than 50 but more than 25 staff would see their threshold reduced to £7,500. Somewhat reluctantly, I have left the £9,000 threshold for all businesses employing more than 50 staff.

By my calculations, the nominal cost to the Treasury of this key amendment would be less than £2 billion—that is, to support and sustain 4 million jobs and almost £800 billion in turnover. I humbly suggest that this amendment would more than pay for itself in economic growth and increased revenues to the Exchequer. Commencing Clause 2 without undertaking a full impact assessment on small businesses—addressed by Amendment 33 in the name of the noble Baroness, Lady Noakes, which I fully support—strikes me as reckless.

I turn now, much more briefly, to my Amendment 53, which addresses the increase in the employment allowance. Clause 3 is designed to soften the increase in NICs from Clauses 1 and 2. It offsets the costs but, having crunched the numbers, it does so only for those employing seven staff or fewer. My Amendment 53 would raise the employment allowance from £10,500 to £15,000 for all small businesses employing fewer than 25 staff. This would help around 200,000 businesses across the country. I estimate that the cost to the Treasury would be less than £1 billion. Again, I argue that such an amendment would more than pay for itself in the medium term.

I hope that the Minister will carefully consider the amendments in this group, given the severity of these increases to SMEs and the potential damage to both jobs and economic growth. I have spoken to Amendments 22, 39 and 53.

[Baroness Noakes (Con)]

My Lords, I have Amendment 33 in this group; I thank my noble friends Lady Neville-Rolfe, Lord Ahmad of Wimbledon and Lord Howard of Rising for adding their names to it. As my noble friend Lady Neville-Rolfe said, my noble friend Lord Ahmad of Wimbledon is unfortunately unable to join us for the early part of this Committee. He very much regrets that he is not able to take part because he cares a lot about the fate of small and medium-sized businesses.

My amendment would delay the commencement of the Bill, and therefore the extra national insurance contributions, until the tax year after an impact assessment focusing on the impact of the Bill on smaller businesses has been published. My amendment is similar to Amendment 59, tabled by the noble Baroness, Lady Kramer, which was debated on our first day in Committee. Amendment 59 required an ex-post impact assessment, while mine is on an ex-ante basis. Amendment 59 also used a rather broad definition of SMEs, including those with employees of up to 250; my amendment is more granular and focuses on the smaller end of the SME spectrum, which is where most SMEs are.

--- Later in debate ---

[Lord Livermore (Lab)]

We have not changed the policy; we have made the policy easier to use. The policy is absolutely as it was at the Budget, as is the amount of revenue that we are scoring from it. An impact assessment was put out alongside that. My point is that what we are doing on impact assessments, on all the taxes that the noble Lord mentioned, is absolutely in line with what all previous Governments have done on impact assessments. We are content that that is a sufficient amount of information, and we do not intend to put out any further impact assessments.

Finally, I turn to the amendments tabled by the noble Lords, Lord Londesborough and Lord Altrincham, and the noble Baroness, Lady Neville-Rolfe, which seek to increase the employment allowance for small businesses. Again, the proposals in these amendments would create additional costs, necessitating either higher borrowing, lower spending or alternative revenue-raising measures.

The Bill already seeks to protect the smallest businesses and is significantly increasing the employment allowance from £5,000 to £10,500. This means that, next year, 865,000 employers will pay no national insurance at all, and more than half of employers will see no change, or gain overall, from this package. For the reasons I have set out, I respectfully ask noble Lords not to press their amendments.

[Lord Londesborough (CB)]

I thank the Minister for his comments, but I am disappointed and, frankly, baffled that the Treasury can tell us specifically—he repeated these figures—how many employers are impacted by the national insurance increase, yet there is a curious resistance to answering my specific and fair question: what percentage of jobs will attract an increase in national insurance contributions?

In October, the Department for Business and Trade helpfully provided a sectoral breakdown, by company size and number of jobs, under each category. It is fairly simple maths to come out with a reasonable estimate. This is in the interests of transparency; I am not trying to nail the Government here. Everyone should be able to understand across our economy, as we all share an interest in trying to generate economic growth, how many jobs are impacted. “Working people” is a favourite phrase that we keep hearing; how many of their jobs will be impacted?

If the Minister cannot produce the figures today, which I would respect, I request just a few minutes of research between the Treasury and the Department for Business and Trade. I believe that these figures could be produced very simply and that they would be very helpful in looking at the impact of this Bill. I cannot understand the resistance to it.

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his follow-up points. As I have said, we are not able to provide him with those figures and that remains the position.

--- Later in debate ---

To conclude, part-time workers and entry-level juniors will lose their jobs because of the lower threshold, and new jobs that might have been created will not be. Entrepreneurs have talked about stopping and stalling new outlets that they were proposing; there are many stories about and accounts of this. All this suggests that the reduction in productivity output will be less than the 0.1% estimated by the Government. In short, if the Bill as it stands becomes law, working people, their families, jobseekers and entrepreneurs—indeed, the whole economy—will suffer. With a more revealing and detailed economic analysis before and after it takes effect, it is my hope that the Government will think again about this disastrous move on tax rates, which will put so many jobs at risk.

[Lord Londesborough (CB)]

My Lords, I will speak briefly as I put my name down in support of Amendment 62 in the name of the noble Baroness, Lady Neville-Rolfe. I could have—indeed, I should have—done so for Amendments 61, 63 and 64 as well.

I continue to use the word “baffled” about the Government’s apparent resistance to impact assessments, which are so crucial if you are to have joined-up thinking on the Government’s economic growth strategy. As we know, rather worryingly, we lost 47,000 people off the payroll last month. I just raise this point in relation to the Government’s White Paper, Get Britain Working, which has some ambitious and laudable aims. Specifically, the headline bullet is that the aim is to take 2 million people out of welfare and into work. Put another way, the aim is to reduce the economic inactivity rate of our working-age population from the current 25% to 20%. Of course, the question is: where will those 2 million jobs come from? Who will create them? The answer is the private sector; that is the assumption.

When you come back to impact assessments, you have to ask how private sector employment will be impacted by not just the rise in national insurance contributions but the increase in the national minimum wage and the upcoming anticipated restrictions being brought in by the new Employment Rights Bill. All these factors boil down to the importance of assessment. If we have a lack of assessment, we greatly reduce the chances of the Government achieving their aims. So, again, I ask the Government to embrace accountability through Amendments 61, 62, 63 and 64.

[Lord Blackwell (Con)]

My Lords, I will make a brief comment on these amendments. In the Committee’s discussions so far, the noble Lord, Lord Eatwell, has made great play of the fact that the OBR suggested that the overall Budget measures would increase employment. The noble Lord is not in his place but, if he were, I am sure that, as an economist, he would agree that it is important to have the right counterfactual. Of course, what the OBR was not looking at in the Budget was the exact impact of taking the £20-odd billion from the national insurance rise and spending that money. It was looking at spending a lot more money; the Government are raising expenditure by £142 billion over the next five years, in excess of what they are raising in additional taxation.

UK Entrepreneurs

Lord Londesborough Excerpts

Wednesday 4th December 2024 Lords Chamber

Asked by

[Lord Londesborough]

To ask His Majesty’s Government what steps they are taking to encourage entrepreneurs to start up businesses in the United Kingdom.

[Lord Londesborough (CB)]

My Lords, in begging leave to ask the Question standing in my name on the Order Paper, I declare my interests as set out in the register.

[Lord Leong (Lab)]

My Lords, the Government continue to provide support for entrepreneurs, including through start-up loans via the British Business Bank and programmes such as growth hubs across England and the Help to Grow: Management course across the UK. The Government will also publish a small business strategy next year, which will outline our vision for boosting scale-ups and helping all types of small businesses to thrive and grow, empowering entrepreneurs to innovate, export and create jobs across their regions.

[Lord Londesborough (CB)]

I thank the Minister for his response and I am delighted to see a fellow entrepreneur on the Front Bench—unlike in the other place. Fundraising for start-ups, in the quarter to September, dropped by almost 50% to a six-year low. Both start-ups and scale-ups have been hit by the toxic trio of measures: hikes in capital gains tax, hikes in employers’ national insurance, and hikes in the minimum wage running at three times the rate of inflation. First, on behalf of entrepreneurs, I ask: when will we see meaningful measures to encourage, rather than punish, job creation and risk-taking? Secondly, whatever happened to the Chancellor’s pledge to run

“the most pro-growth Treasury in our country’s history”?

[Lord Leong (Lab)]

I thank the noble Lord for his kind words. We have something in common in that we both founded our respective publishing companies in the 1980s, in the tail-end of the recession and through very challenging economic times. The difference is that he went on to build a huge business empire, compared with mine.

There were definitely fewer funding rounds for start- ups in the last quarter. The age of FOMO—the fear of missing out—on investment, which caused a spike in the last couple of years, has to a certain extent come and gone. However, angel investment, such as EIS with tax rebates of 30% to 50%, remains robust and I am pleased that the Chancellor has now given certainty that this will stay in place until 2035.

The Government’s new modern industrial strategy—

Public Sector Productivity

Lord Londesborough Excerpts

Wednesday 9th October 2024 Lords Chamber

[Lord Londesborough (CB)]

My Lords, I salute the noble Baroness, Lady Neville-Rolfe, for securing this debate. It is a huge and complex subject to cover in five minutes but, in the spirit of productivity, I will do my best. As we have heard, measuring public sector productivity is challenging—it has a range of qualitative aspects, not simply outputs or revenues. That said, UK public sector productivity has barely moved since 1997, while our private sector productivity, which lags many other countries, has advanced by 30%. That is some gap.

I will focus on the workforce and management. For 30 years, I ran a publishing business with numerous teams across the world, with similar targets, pay scales and incentives. They shared the same technology and infrastructure, yet team productivity varied wildly. There turned out to be two key factors: first, rigorous and smart recruitment and, secondly, effective management. Middle and senior management was absolutely key— the difference between being 20% over target and 20% under.

However, here in the UK, we struggle with management. Across our 32 million workforce, 8 million have a managerial role. Of those, 6 million are deemed to be “accidental managers”, with little or no formal training, learning as they go. As the Policy Exchange points out in its excellent report on NHS productivity, it is not about the volume of managers but about their competencies, how their roles are defined and where they are placed.

Rigidity in our public sector means that promotion to management is too often correlated to the number of years worked rather than aptitude or, indeed, attitude, and management itself is often resistant to change. We struggle to incentivise public sector workers on productivity. It is not in the culture, but it should be. Productive organisations set ambitious targets, engage their workforce and reward performance. But Governments, when they talk about productivity, tend to focus on cost savings, efficiency and value for money—not very inspiring.

Chancellor Rachel Reeves says that she has “fired the starting gun” to drive greater productivity in the public sector. She said:

“I expect all levels of government to be run effectively and efficiently … a civil service delivering good value for the British taxpayer and reform of our political institutions, including the House of Lords, to keep costs as low as possible”.—[Official Report, Commons, 29/7/24; col. 1039.]


Yes, we in Parliament should set a better example, but it turns out that House of Lords reform means removing one of the most productive groups in this House: the 90 elected hereditary peers—I declare an interest—and leaving in place well over 100 life Peers who barely ever attend, vote or contribute in any way. I am looking at some rather deserted Benches. That is politics, not productivity.

There is a wider problem. If we do not recognise and reward performance, productivity suffers. The latest round of public sector pay increases for doctors, teachers and train drivers did not just add £9 billion to that infernal black hole, they were rewarded without any commitment to a plan to improve productivity.

We need a fundamental reset: setting up a non-partisan productivity council on a statutory footing would be a start. I have suggested this three times before and never got any response. This body would inform, co-ordinate and evaluate policies that impact productivity across all departments, including the excellent idea of the noble Baroness, Lady Neville-Rolfe, of productivity assessments, which I wholeheartedly endorse. I look forward to hearing the Minister’s thoughts.

UK Population Growth

Lord Londesborough Excerpts

Monday 4th March 2024 Lords Chamber

[Baroness Neville-Rolfe (Con)]

The figures are broken down in some of the analysis that has been done by the ONS. Of course, the ONS is independent and impartial, which is an important strength. On students, it is important that the number of dependants coming into the UK should be limited, although we do understand that those who are going to stay in the UK to do PhDs and so on need to have dependants contributing to our country and our economy.

[Lord Londesborough (CB)]

My Lords, the uncomfortable truth is that our economy appears to be incapable of growing without onboarding some 300,000 migrant workers each year. Even then, we are talking about miserly growth and, worse still, zero GDP growth per capita. Does the Minister agree that, until we tackle our abysmal productivity rates, such population growth is here to stay?

[Baroness Neville-Rolfe (Con)]

I agree that we must tackle our abysmal productivity rates. It is something I have focused on, I have to say, since long before I came to this House. There are things that we can do with skills. I look forward to the Budget on Wednesday and hope that the word “productivity” will feature in the speech by the Chancellor.

Economy: The Growth Plan 2022

Lord Londesborough Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Londesborough (CB)]

My Lords, first, I congratulate my noble friend Lady Gohir on her passionate and eloquent maiden speech. We look forward to hearing much more from her from the Cross Benches.

As we have heard, the Prime Minister’s economic strategy is, “Growth, growth, growth”. This has unfortunate echoes of her predecessor who, just five months ago, trumpeted the slogan, “Jobs, jobs, jobs”, at a time of record unfilled vacancies. Single repetitive word slogans often suggest oversimplified approaches, with wilful disregard for the consequences. Indeed, the Chancellor appears to have grabbed the helm of a vessel without consulting the crew on the weather or sea conditions and slammed down the throttle with the fuel tank on reserve and oil lights flashing. I will not prolong the nautical metaphor, but you get my drift.

Sustained economic growth requires a qualitative, not quantitative, approach, especially in a period of high inflation and supply side shortages—not least our shrinking workforce. We have economic inactivity levels not seen anywhere else in Europe, while our productivity remains in the doldrums. These are the issues that need to be addressed, and they will not be solved by tax cuts and escalating debt. If you think you can buy growth this way, the markets will find you out—indeed, they already have. Growth needs to be sustainable, balanced and, I suggest, broadly distributed. Achieving 2.5% is far from ideal if only 10% of the population benefit.

Let us reflect for a moment on the impacts of the proposed tax cuts, especially amid a cost of living crisis. Do we give a £20,000 tax break to one person—let us say a mid-ranking City lawyer earning £500,000 a year—or a £1,000 tax break to 20 people earning the median average salary of £26,000? The cost to the Treasury is the same but I argue, as an entrepreneur and business investor, that the impact on growth will be much more significant if you reward at the margins. I do not have time to preach the theory of marginal utility but I urge the Ministers to brief both No. 10 and No. 11 on its relevance in relation to taxation and growth.

So how do we engineer real economic growth? I have two suggestions. First, we now have a very competitive exchange rate, close to record lows against the US dollar. Remember what happened back in 1992 when we exited the ERM: sterling lost 20% of its value —a gift from the markets—and our economy grew by 3% per annum over the rest of the decade, fuelled by a boom in exports. I ask the Minister: what are the new Government’s plans to seize this opportunity?

Secondly, we must address the UK’s anaemic productivity, which in terms of output per hour still lags both France and the US by some 15%. This is where our political system serves us very poorly. We need to stick to targeted, long-term measures to spur productivity, addressing education and skills, and the chronic underinvestment in both the public and private sectors. Would the Government consider setting up a productivity task force, or at least an advisory board, that includes those at the cutting edge of the private sector, who build businesses, create jobs, balance the books, count the beans and have first-hand experience of what drives productivity, and indeed growth?

Budget Statement

Lord Londesborough Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Londesborough (CB)]

My Lords, I should like briefly to focus on four key areas of the economy, all of which are connected: wage inflation, labour shortages, productivity and, finally, education. By way of quick introduction, since I am relatively new to this place, I should say that I am drawing chiefly on my own experience in the private sector—30 years as an entrepreneur and employer and the last seven years as an adviser and investor in start-ups. It is a particular pleasure to follow the former Chancellor of the Exchequer, the noble Lord, Lord Lamont of Lerwick, and, in her heartfelt valedictory speech, the right reverend Prelate the Bishop of Newcastle, whose comments I found myself endorsing.

The Government’s aim to build back better and create a higher-wage economy sounds good in theory but, as many employers will tell you, wage inflation without genuine increases in productivity is something of a fool’s paradise and certainly not sustainable in the long term. Wage increases ultimately need to be earned rather than given, and that applies to the private and public sectors. There really is no magic money tree, to quote one of our former Prime Ministers. The CBI director-general, Tony Danker, put it very well last week:

“Ambition on wages without action on investment and productivity is ultimately just a pathway for higher prices”.


Taking the Treasury’s own forecast alongside those of the OBR, higher wages, as we have heard, will contribute to inflation rising to 4.4% next year, although in the statement the OBR admits to the risk that it might exceed 5%, while some independent economists are now talking about 6% or 7%. Given that GDP is expected to grow by 6% next year, still with very high levels of borrowing, there is a real danger of interest rate rises coming along just at the time when many will be facing an economic squeeze.

Added to that, we have serious supply shortages, not least in the labour market itself. Businesses across the country are struggling to recruit and retain staff, not just in care homes, hospitality and retail, or HGV drivers, but in many areas of skilled labour, including middle and senior management. One leading executive search consultant in the tech sector told me only yesterday that they had never seen such an imbalance between job vacancies and the pool of available talent. This tight labour market has been made worse by the absence of a comprehensive immigration policy post Brexit. Such shortages of both skilled and unskilled labour are resulting in employers having to pay higher wages to both attract and retain staff.

To boost living standards in real terms we need sustained growth and productivity, something that we have not seen in more than 10 years. Since 2010 the UK’s productivity, as measured by GDP output per hour, has grown by just 4%, according to the OECD. That seems extraordinarily low when you consider the huge advances in technology and communication over that period. Let us put it in context: France had an 8% gain in productivity in the same period, Germany almost 10% and the US more than 10%. This spells trouble for global Britain’s place in the world marketplace, and indeed for building back better.

Why we are lagging behind is a complicated question. I shall focus on the key area of education, to follow up the comments of the right reverend Prelate the Bishop of Newcastle. Yes, innovation and productive investment are crucial too, but there is no escaping the fact that if you do not educate and train your workforce sufficiently then productivity will suffer. It is here that, to me, the Budget Statement makes particularly disturbing reading. The Chancellor states, as the noble Lord, Lord Davies, mentioned, that per-pupil funding will return to 2010 levels in real terms by 2024-25. This follows more than a decade of austerity during which schools have suffered an 8% fall in real spending per pupil, so we are talking about 15 years to return to where we were in 2009. Yes, the Chancellor announced £1.8 billion extra for education recovery post pandemic, in addition to the £1.4 billion announced in June, but the total education recovery spend falls well short of the £15 billion that Boris Johnson’s own catch-up tsar, Kevan Collins, said was necessary before resigning from his post.

Perhaps the most striking contrast lies in the different paths for health and education spending. Since 2010, health spending has increased by more than 40%, while education overall will have seen a feeble rise of just 2%. I appreciate the huge health demands brought by an ageing population, the pandemic and the historic underfunding of the NHS, but this is not a balanced approach.

Education is not a short-term fix for productivity, but the longer we fail to invest in and develop the education and training of our workforce for the future, the longer it will take to achieve these badly needed productivity gains that ultimately underpin a higher wage economy. Without real economic growth, we run the risk of fuelling inflation and interest rates, inflicting further damage on living standards.

To give the Government credit where due, they have made some welcome announcements, notably the 7.5% real-term annual increase for business, energy and industry, with the aim of encouraging innovation and boosting investment in R&D. However, the economy faces a period of labour shortages, restricted immigration, very modest growth from 2023 onwards and rising inflation. I suggest that this is not a good environment for business. Add to that stagnant spending on education and the long-term prospects for productivity do not look bright. We need a spending strategy for education, productivity and sustainable real economic growth. Finally, I suggest that levelling up makes little sense without catching up.