National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Sharkey Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

Moved by

[Lord Sharkey]

3: Clause 1, page 1, line 1, at end insert—
“(A1) In section 9(1A) of the Social Security Contributions and Benefits Act 1992, after paragraph (aa) insert—“(ab) if the employer is a specified employer under subsection (1B), the specified employer secondary percentage;”.(A2) After section 9(1A) of that Act insert—“(1B) A “specified employer” means—(a) a provider of education or childcare to children under five years of age—(i) registered in England in the early years register maintained by the Office for Standards in Education, Children’s Services and Skills,(ii) registered in Wales with Care Inspectorate Wales, or(iii) registered in Scotland with the Scottish Care Inspectorate;(b) a university;(c) a provider of further or higher education;(d) a registered charity;(e) a housing association;(f) a small or micro business, as defined by section 33 of the Small Business, Enterprise and Employment Act 2015; (g) a town council;(h) a parish council;(i) a business in the hospitality sector.(1C) For the purposes of this Act, the specified employer secondary percentage is 13.8%.””Member's explanatory statement
This amendment provides that certain specified employers would continue to pay contributions at the current rates. The specified employers include early years settings, universities, charities, and small businesses.

[Lord Sharkey (LD)]

My Lords, this amendment, in the names of my noble friend Lady Kramer and myself, adds to the list of exemptions from the proposed increase in employer national insurance contributions. I thought I would make that clear at the outset, although I see that the noble Lord, Lord Eatwell, is temporarily not in his place.

The arguments in favour of the nine proposed exemptions in this amendment were discussed in some detail in Committee. What the nine exemptions have in common is that they protect services that are vital to community life and are likely to suffer grave damage if the higher employer NIC is introduced. These services include early years education, charities, housing associations and town and parish councils. Each of these organisations makes a vital contribution to our communal life, and they also have in common the fact that most have no—or no significant—money. The proposed ENIC increase will inevitably reduce the critical services they provide, in many cases to the most disadvantaged in our communities.

The list of exemptions in our amendment also includes further and higher education, and I declare an interest as a member of council at UCL. Both our FE and HE institutions are in grave financial difficulties. This has been true for many years for our somewhat neglected FE sector and is now also obviously true for our higher education sector. The country’s future prosperity and its prospects for growth depend very largely upon these sectors being properly and sustainably funded. If we want a skilled and upskilled workforce, then FE colleges have a vital and irreplaceable role to play, but to play that role they need adequate funding.

I did ask, in Committee, about the funding arrangements for the FE sector. The Minister replied last week. He noted, by way of preamble, that the Government would

“provide support for departments and other public sector employers for additional employer national insurance contributions”.

He does not say what “support” means. He does say that the Autumn Budget provided an additional £300 million in revenue for funding for FEs for the financial year 2025-26

“to ensure young people are developing the skills this country needs”.

He does not say to what extent this will mitigate the imposition of the higher employer national insurance contribution. Could I therefore ask him again to tell us, when he replies: what percentage of the increase in the employer national insurance contribution will be mitigated by the allocation of funds from this £300 million, both in the short term from April to July this year and in the academic year 2025-26?

The Minister’s reply to my Committee stage question also includes a mention of the rise of £285 per annum in student fees chargeable by HEIs from the academic year 2025-26. This will not be enough to sustain our higher education sector. As I mentioned in Committee, our universities are already showing signs of deep financial distress. I noted then that nearly three quarters of institutions are expected to run deficits in the next academic year, and 40% have less than a month’s liquidity. I also noted that three Russell group research-intensive universities—Cardiff, Durham and Newcastle—had joined the long list of universities cutting jobs and costs. Now, Edinburgh has joined them in also announcing cuts, and I hear that at least one eminent university is close to breaching its banking covenants, with all the usual consequences. It is no surprise that it is estimated that 10,000 jobs will go this year.

This is a genuine crisis and it is made worse by the proposed increase in employer national insurance contributions. This new ENIC levy completely wipes out and more any net increase arising from the increase in student fees. The UK has four of the world’s top 10 universities and 16 of the world’s top 100 universities. We absolutely need to have our universities prosper and to be sustainably funded if we are to continue to be a world-class centre for education and research and to contribute to the growth that we so obviously need. Our amendment would, at least, prevent the already perilous situation from getting worse while the Government devise a new and sustainable funding arrangement.

Our amendment also excludes any SMEs and the hospitality sector from the rise in ENICs. SMEs are the wellspring of our economy and of its future. Some 60% of all jobs are provided by SMEs and these companies, almost by definition, are those that will have most difficulty absorbing the proposed rise in the ENIC rates. Significant job losses are inevitable. This matters not only because any job lost is regrettable but because SMEs are the engines of growth, renewal and innovation in our economy, and they create the jobs. Large corporations may be easier for government and Whitehall to deal with, but they are, and have been for a long time, net destroyers of jobs.

Many of the jobs created by SMEs will, of course, be in the hospitality sector, which this amendment also excludes from the proposed rise in contributions. Many of those jobs in the hospitality sector—currently around 350,000—are held by people under 25. For many, this will be their first job and the first step on a career ladder. To keep all these young people in employment after the proposed ENIC rise would nearly double the employers’ costs from £82 million to £153 million. We should protect these young entry-level employees from job losses by exempting their employers from the proposed NIC rise. I beg to move.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I will speak to Amendment 8 in my name and Amendment 41 in my name and that of the noble Lord, Lord Alton of Liverpool. This is the first time I have taken part on Report but I sat and listened carefully to the entire debate on the first group, which covered a lot of the issues that relate particularly to Amendment 8.

Amendment 8 has a very simple and clear purpose, even though the technicalities are quite technical. It aims to delay for one year the introduction of the raised level of national insurance for all registered charities. Other amendments in this group deal with smaller charities and others with groups of organisations, many of which may be charities, but this is an exemption for one year for all charities.

I want to take on a couple of points made by the noble Lord, Lord Eatwell. I am not quite sure which amendments he was counting in his 38, but I strongly assert that neither Amendment 8 nor Amendment 41 could in any way be described as a wrecking amendment, because they do not affect the Government’s long-term economic policy or plans. They mean that for one year the Government would not receive, in their own estimate, £1.4 billion.

I tabled the same amendment in Committee and did not get an answer from the Minister to my question; I would be interested to hear any response tonight. It was on a point raised in the first group of amendments. If charities go under or are forced to slash their services, how much are the Government going to have to fund through other means—through social care, government provision or whatever mechanisms? I do not have the capacity to put a figure on that, but it seems likely that there may not be very much difference between those two figures.

I tabled this in Committee because of the CEO of a fairly large charity with whom I happened to be having dinner. We were not having a deeply political, detailed discussion. She simply said to me, “If I just had one year to sort this out, I would have half a chance”. It is interesting that the noble Lord, Lord Clarke of Nottingham, who is not currently in his place, said in the debate on the first group that so many organisations— I think he was specifically referring to charities—were encountering this unexpected expense. It is the suddenness and the lack of a chance to think, “Can we shift some money into fundraising to increase the funding stream so that we can cope with this down the track?”. That is what this amendment seeks to do.

I find myself in quite an unusual position as a Green, saying that I have put forward this really moderate, reasonable amendment that is quite small in scale compared with some of the other things we are discussing here. But it is a really practical step to attempt to protect charities and all the essential services.

We heard so much passion from people who are directly involved in delivering these services from charities. I am not going to repeat that long list now, but I will just raise one point—I do not think it has been raised up to now—on the place of charity shops on our high streets. They are already struggling. We are already seeing significant closures of charity shops, faced with rising energy costs and—no one is complaining—rising staff costs due to the increase in the minimum wage. If we further hollow out our high streets by losing those charity shops, that too will have all sorts of costs that in one way or another the Government are going to have to pick up.

So that is Amendment 8. I gave notice that I was going to see how this evening went. I am currently feeling inclined to test the opinion of your Lordships’ House on it.

--- Later in debate ---

[Lord Livermore (Lab)]

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

I will first address the amendment from the noble Baroness, Lady Neville-Rolfe, which seeks to increase the employment allowance for early years providers. The Government recognise that early years providers have a crucial role to play in driving economic growth and breaking down barriers to opportunity. We are committed to making childcare more affordable and accessible. That is why we committed in our manifesto to delivering the expansion of Government-funded childcare for working parents and to opening 3,000 new or expanded nurseries through upgrading space in primary schools to support the expansion of the sector. Despite the challenging fiscal circumstances the Government inherited, in the October Budget the Chancellor announced significant increases to the funding that early years providers are paid to deliver Government-funded childcare places. This means that total funding will rise to over £8 billion in 2025-26.

The amendment tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, would exempt providers of higher and further education from changes in the Bill. The Government of course recognise the great value of UK higher education in creating opportunity, as an engine for social mobility and growth in our economy and in supporting local communities. We will provide support for departments and other public sector employers for the additional employer national insurance contribution costs. This funding will be allocated to departments, with the Barnett formula applying in the usual way. In answer to the noble Lord, Lord Bruce, it is for devolved Governments to make their own decisions on how that money is allocated.

I say to the noble Lord, Lord Sharkey, that all additional cost pressures will be considered as part of the spending review. The Autumn Budget provided an additional £300 million of revenue funding for further education for the financial year 2025-26, to ensure that young people develop the skills this country needs. This funding will be distributed specifically to support 16 to 19 student participation. Approximately £50 million of this funding will be made available to general further education colleges and sixth-form colleges for the period April to July 2025. This one-off grant will enable colleges to respond to current priorities and challenges, including workforce recruitment and retention. The remaining £250 million of funding will be made available in 16 to 19 funding rates in the academic year 2025-26, with the aim of ensuring that all 16 to 19 providers are funded on an equitable basis from 2025 to 2026. Furthermore, the Budget provided £6.1 billion of support for core research and confirmed the Government’s commitment to the lifelong learning entitlement, a major reform to student finance which will expand access to high-quality flexible education and training for adults throughout their working lives.

I turn to the amendments tabled by the noble Baronesses, Lady Kramer, Lady Neville-Rolfe, Lady Bennett and Lady Sater, and the noble Lords, Lord Sharkey and Lord Leigh of Hurley, which seek to exempt charities from the changes in this Bill and increase the employment allowance for them. The Government of course recognise the important role that charities play in our society and the need to protect the smallest businesses and charities. That is why we have more than doubled the employment allowance to £10,500. This means that more than half of businesses, including charities, with national insurance liabilities will either gain or see no change next year.

As I have noted previously, it is important to recognise that all charities can benefit from the employment allowance. The Government also provide wider support for charities via the tax regime, with tax released for charities and their donors worth just over £6 billion for the tax year to April 2024. The noble Lord, Lord Leigh of Hurley, again asked me to cost his amendment; as I said in Committee, it is not for the Government to cost amendments that do not reflect government policy.

I turn to the amendments and proposed new clause tabled by the noble Baroness, Lady Neville-Rolfe, exempting providers of transport for special educational needs children to and from their place of education from the changes in this Bill and requiring the Government to publish an impact assessment on this topic. In the Budget and the recent provisional local government finance settlement, the Government announced £2 billion of new grant funding for local government in 2025-26, which includes £515 million to support councils with the increase in employer national insurance contributions. This additional funding has been determined based on a national assessment of the costs for directly employed staff across the public sector. However, this funding is not ring-fenced and it is for local authorities to determine how to use it across relevant services and responsibilities.

Furthermore, the Government are providing a real-terms increase in core local government spending power of 3.5% in 2025-26. To support social care authorities to deliver these key services, we announced in the provisional local government finance settlement a further £200 million for adult and children’s social care. This will be allocated via the social care grant, bringing the total increase of this grant in 2025-26 to £880 million. This means that up to £3.7 billion of additional funding will be provided to social care authorities in 2025-26.

On the amendment tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, seeking to exclude town and parish councils from the employer national insurance rate change, the Government have no direct role in funding parish and town councils and are therefore not providing further support to them for the employer national insurance changes.

Finally, on the proposed new clause tabled by the noble Lord, Lord Bruce of Bennachie, requiring the Government to publish an assessment of the impact of the Bill on the Scottish public sector, as I have set out previously, the Government have published an assessment of this policy in a tax information and impact note. This clearly sets out that around 250,000 employers will see their secondary class 1 national insurance liability decrease and around 940,000 will see it increase. Around 820,000 employers will see no change.

The OBR’s economic and fiscal outlook also sets out the expected macroeconomic impact of the changes to employer national insurance contributions on employment growth and inflation. The Government and the OBR have therefore already set out the impacts of this policy change. The information provided is in line with other, similar tax changes and the Government do not intend to publish additional assessments. We will of course continue to monitor the impact of these policies in the usual way.

In light of the points I have made, I respectfully ask noble Lords to withdraw their amendments.

[Lord Sharkey (LD)]

I thank all noble Lords who have spoken in this debate. I was particularly taken by Amendments 4 and 5 in the name of the noble Baroness, Lady Neville-Rolfe, and I am glad that she will divide the House. We will support her when she does. I was less taken by the Minister’s response, and still I note the lack of a definitive answer to my question on the percentage relief to FE funding.

Having listened to speeches from all parts of the House, rescuing vital and vulnerable sectors from the increase in employers’ national insurance contribution seems to me almost a duty. I would like to test the opinion of the House on Amendment 3.