Financial Services and Markets Bill [HL]

Lord Sharkey Excerpts

Report stage
Monday 7th September 2026 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak to my non-diminution Amendments 2 and 3, and to Amendments 4 and 5, which stem from them. In Committee, the Government made it clear that they wish to remove tail risk for firms—a theme running through the changes to the CCA and FOS. I agree that issues such as font sizes and business practices need updating—I would certainly prefer not to have to agree instantly to a garbled recitation of terms and conditions over the phone just to access basic service contracts—but the Consumer Credit Act is fundamentally about protecting consumers from bad corporate behaviour. Aside from the much-cited font issue, tail risk usually arises from bad behaviour that simply takes a long time to surface. There is no justifiable reason for remedy to disappear.

Although I see the attractions of using the FCA framework, I do not accept that there should be a time limit after which bad behaviour is insulated from rectification, or that protections requiring judicial remedy might fall away—over which there is no current certainty. That is the purpose of my non-diminution amendments: to allow modernisation, but not at the cost of significant consumer rights.

A long-standing defect in the CCA illustrates the point: the Act was drafted in 1974, before securitisation existed. As a result, consumer credit has been sold on in ways that mean that the statutory definition, and thus obligations, of the lender no longer apply. This was a happenstance of financial evolution, not intentional design, yet it seriously degrades a regulated product and directly created the modern mortgage prisoner problem that my noble friend Lord Sharkey has brought to this House more than once. One can foresee the same happening with student loans once they are sold off.

The solution is straightforward. Whenever any right stemming from lending or credit is exercised, including the setting, levying or collecting of interest, the corresponding obligations must travel with that right. That must hold even where responsibilities are split across multiple entities under securitisation structures that currently allow each actor to claim it is not the statutory lender. This is entirely consistent with the CCA’s original assignment provisions, and we have precedent, because the MCOB rules already require obligations to follow the exercise of rights in mortgage services.

This principle works. We explained it to the previous Minister and officials before the summer, providing copies of my first amendment and documentary explanation. I recognise there have been changes on the Government’s side, but it is regrettable that there has been no engagement since, especially as collaborative working on good ideas was a stated commitment of the new Prime Minister.

Some may ask: who loses? The answer is that no one suffers unjustified loss. When a regulated consumer product is transferred, the protections attached to it must remain intact rather than be severed, whether by design or accident. For consumer credit, this simply maintains existing rights or, in the case of mortgage prisoners, restores them prospectively. But they had those rights when they took the mortgages out.

Taking the same principle to student loans, once sold into the private financial system, they must carry with them the standards of respectable financial products. Borrowers must be protected from predatory interest rates and, under international accounting rules, when projected non-repayment exceeds 50%, the entire corpus of loans, not just the unpaid part, is pulled on to national debt metrics. Allowing predatory interest rates simply deepens that problem.

This is the logic behind this family of amendments. I urge the Minister to engage constructively as the Bill progresses. As he will know, when I have a principled solution in my sights, it does not go away, because it rests on my conscience, as it should on his.

[Lord Sharkey (LD)]

My Lords, I will speak to Amendment 5 in this group. Structurally, the amendment follows the approach used by my noble friend Lady Bowles in her previous amendment, and I am very grateful to her for the help and support in drafting. My amendment has a simple purpose, which is to bring relief to mortgage prisoners. As many of your Lordships will know, mortgage prisoners are people who are stuck with their existing mortgage holders—who are not active lenders—on very high interest rates and who cannot access a better deal, such as the normal market fixed-rate deals. As a result, mortgage prisoners continue to pay interest at around four percentage points over the normal market fixed-term rates. This costs them hundreds, and even thousands, of pounds extra per year.

According to the UK Mortgage Prisoners action group, there were originally around 195,000 mortgage prisoners. This number is declining slowly due to death, reaching the end of term and repossessions. The largest group of mortgage prisoners are former Northern Rock customers. After nationalisation in 2007, these mortgages were placed in a Government-owned company run by UK Asset Resolution—UKAR. When returning these mortgages to the private sector, the Conservative Government could have sold them to active lenders, which would have offered the prisoners a fair market deal. The Government did not do that. Instead, they sold the mortgages to non-active lenders and vulture funds; the consequences we continue to see.

It is not as though the Government were not warned about the problem this would cause. The risk to customers was clearly identified. In January 2016, the noble Lord, Lord McFall, wrote to the Treasury and UKAR, warning them that:

“Many of … those affected by these sales, will be mortgage prisoners and will be unable to switch lenders”.


He told the Government that the customers affected by the sales should be protected, offered a fair deal and given access to fixed rates. He warned that:

“Given the prospect of rising interest rates it is important that all mortgage customers are given the opportunity to achieve certainty over their payments by accessing a fixed rate”.


He told the Government that he was,

“concerned that some customers affected by these mortgages sales … will not be offered reasonable fixed mortgage rates”.

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Moved by

[Lord Sharkey]

5: After Clause 1, insert the following new Clause—
“Protection of consumers where regulated credit agreements or regulated mortgage contracts are transferred to inactive lenders (1) This section applies where rights under any regulated credit agreement or regulated mortgage contract are assigned, sold, securitised or otherwise transferred to a person who is an inactive lender or closed book owner.(2) Where subsection (1) applies, the consumer shall retain against the transferee all statutory and contractual rights, protections and avenues of redress that were available against the original creditor or lender.(3) Any variable interest rate, fee structure or other pricing term applied by an inactive lender or closed book owner must not exceed a reasonable market proxy determined by the Financial Conduct Authority.(4) Any person exercising rights of enforcement arising from an agreement or contract to which this section applies is treated as a creditor or lender for the purposes of this section.(5) For the purposes of this section, the exercise of rights of enforcement includes the setting, varying, applying or collecting of interest, fees or other pricing terms, whether undertaken directly or through an agent.(6) The duties in this section apply from the date on which this section comes into force—(a) to any regulated credit agreement or regulated mortgage contract in force on, or entered into after, that date, and(b) to any person who holds, or subsequently acquires, rights under any such agreement or contract, regardless of whether the assignment, sale, securitisation or transfer of rights occurred before, on or after that date.(7) For the avoidance of doubt, nothing in this section requires the reopening, invalidation or unwinding of any assignment, sale, securitisation or transfer effected before the date on which this section comes into force, but any exercise of rights, variation of interest rates or enforcement occurring on or after that date in respect of such a transfer is subject to the provisions of this section.(8) For the purposes of this section—“inactive lender” or“closed book owner” means a person who holds rights under a regulated credit agreement or regulated mortgage contract but does not actively offer new regulated credit agreements or regulated mortgage contracts to consumers in the United Kingdom;“regulated mortgage contract” has the meaning given by article 61 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544).”Member’s explanatory statement
This new Clause seeks to ensure that when regulated credit agreements or regulated mortgage contracts are transferred to inactive lenders or closed book owners, consumers retain their full statutory and contractual rights. It would allow the Financial Conduct Authority to cap variable interest rates and pricing terms at a reasonable market proxy.

[Lord Sharkey (LD)]

My Lords, I had hoped that the life-crippling injustice visited on mortgage prisoners by government would produce a more sympathetic approach. In fact, it is hard to tell what approach, if any, the Government are proposing. What are they proposing to do about this long-standing and obvious injustice? Let me point out one thing. There has been a lot of research in this area, much of it funded by Martin Lewis and Money Saving Expert. That report, three years old now, put forward six areas for discussion to arrive at a solution.

Martin Lewis has had no response from the Government at all to his report: more talk, but no action that would actually help. The difference between what the Government are saying and what the amendment is saying is that the Government are promising nothing, not even making a commitment to do something, or even think about it, and the amendment delivers something. I would like to test the opinion of the House.

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Moved by

[Lord Sharkey]

13: Leave out Clause 7
Member’s explanatory statement
This amendment would remove provisions relating to how the Financial Ombudsman Service may refer matters on complaints to the FCA.

[Lord Sharkey (LD)]

My Lords, I will speak to my Amendments 13 to 15 and 99. Clauses 7 and 8 propose radical reform of the relationship between the FOS and the FCA, and of the method of determining complaints to the FOS. These proposals will have a critical effect on consumer protection. They will turn the independent FOS into a subset of the FCA and make successful complaints harder to progress or achieve. Parliament designed and brought the FOS regime into being to provide accessible, no cost procedures for quickly determining complaints. At its heart is the “fair and reasonable” test. This test is abolished by the Bill, despite having been explicitly confirmed in July last year in the memorandum of understanding signed by the FOS and the FCA. The Bill will reduce access to free and impartial redress, introduce additional bureaucracy and costs, and ultimately risk damaging confidence in the financial services industry.

The Government have not supplied any meaningful hard evidence that might justify, or at least explain convincingly, the rationale for these reforms. They say only that the Government’s review found that,

“in a small but significant minority of cases, the FOS has acted as a quasi-regulator”.

They do not say how small or how significant these cases are, or how significance was defined and engaged, and they have completely ignored repeated requests from these Benches to provide a clear description of the problem being addressed and of the necessity for such radical changes.

Three months ago, at Second Reading, I asked for hard evidence. I got none, not even an acknowledgement of the request. I asked again on the first day in Committee, and again had no result. I asked again on the last day in Committee. This time, the then Minister—who is in his seat—apologised for not writing in answer to my questions and promised to get back to me

“as soon as we have that information to hand again”.—[Official Report, 8/7/26; col. GC 161.]

I have heard nothing since. This lack of response displays an almost contemptuous approach to parliamentary scrutiny, and it also makes obvious that the Government are unclear about the existence of any significant problem in the way that the FOS and the FCA operate under their current MoU.

I am grateful to Sarah Pritchard, FCA deputy CEO, for her attempts to persuade the Government to answer our questions in a meaningful way. In her letter to me and my noble friend Lady Kramer of 6 August, she said:

“We recognise that you have consistently sought further evidence from HM Treasury to support the case for reform, particularly the contention that uncertainty in FOS decision making may be constraining innovation. Following our meeting, we have formally re-iterated this request to HM Treasury and highlighted the importance of ensuring parliament has access to the evidence and analysis underpinning these proposals”.


HMT appears to deal with these things even-handedly; it has ignored her as well.

Her letter went on to say:

“One area where legislative change is being proposed concerns the interaction between our rules and the Ombudsman’s ‘fair and reasonable’ test. The aim is to provide greater consistency and alignment between regulatory requirements and complaint outcomes, while preserving the Ombudsman’s discretion to consider the wider circumstances of the case”.


This sounds like the arrangements currently in place under the MoU, but the Bill goes much further in practice. In effect, it reduces the scope of this discretion and reduces the FOS to a subset of the FCA, with the FCA rulebook being the determinator. It is very hard to see that this preserves the independence of the FOS and, of course, independence is desirable.

In evidence given to the Treasury Select Committee on 15 July, Nikhil Rathi said:

“From the FCA’s perspective, we want an independent Financial Ombudsman Service. That is a really important safeguard for your consumers”.


Both Mr Rathi and Mr Alder, the FCA chair, in the same TSC session, went on to express concern about the interaction between the FCA’s interpretation of rules and the FOS’s decision-making. Mr Rathi said that

“with a system where people can try to instrumentalise it so that everything that they disagree with can get pushed to us to try to deal with in 30 days because it is deemed ambiguous, you will gum up the system”.

His chair emphasised the point of this:

“To Nikhil’s point, if we get this wrong, the system will become gummed up … As a result, the main objectives of those changes in the legislation will not be met. It is very important that we get this right”.


This is the very real danger of a requirement for the FCA to respond to a referral from the FOS within 30 days. In the same session, Sarah Pritchard said:

“We have been clear that we want the Financial Ombudsman Service to deliver quickly for consumers. We do not want to turn into a backdoor appeal mechanism. Where there are important matters around the intention of our rules, absolutely we should be there to clarify. We are already taking referrals from the Financial Ombudsman Service that do that”.


The July 2025 MoU between the FOS and the FCA is in operation now. It seems clear that this blueprint has taken into account current and anticipated problems, but it differs radically from the FOS proposals in Clauses 7 and 8, including on the absolutely critical criterion of the FOS making a determination. If the MoU is working and if it is working with, as it says, the fair and reasonable test at its heart, why are the Government proposing to abolish that test and the FOS’s effective independence?

My Amendments 13 and 14 address these issues. Amendment 13 would remove Clause 7, with its referral method and four other pages of prescriptive micromanagement, including a kind of Henry VIII power on page 6. Amendment 14 seeks to restore the “fair and reasonable” test agreed in the MoU.

Consumer groups have noticed the proposed changes in the Bill and many are very strongly opposed. For example, Martin Lewis of Money Saving Expert strongly supports the removal of Clause 7 and the replacement of Clause 8 with the current “fair and reasonable” test. In all, 12 leading consumer organisations have written to us asking for support for Amendments 13, 14 and 15. I will not read out the whole list, but they have agreed a statement that says:

“At a time when the cost-of-living crisis is pushing household budgets to breaking point, the Government should not be altering the fairness test and introducing new bureaucratic hurdles in the very system that provides redress for financial loss”.


Finally, my Amendment 15 would create breathing space to enable a proper evidence-based review to take place, with a report to Parliament on its findings and recommendations. Amendment 15 sets out the proposed independent review process and its scope and timelines. It requires the review to take place not before the second anniversary of signing the MoU and then to report within 12 months. Amendment 99 would simply put the commencement of Clauses 7 and 8 on hold until the review’s report has been laid before Parliament. I beg to move.

[Lord Davies of Brixton (Lab)]

I congratulate the noble Lord, Lord Sharkey, on making a very powerful case for keeping the existing system under which the FOS operates. The problem here, expressed in the considerable representations that we have received from consumer groups, is a lack of clarity about the problem that this is meant to address, coupled with clear concerns about the loss of the fair and reasonable requirement. That is the central point. We have a system that works, in which there is a degree of consumer confidence. The reason for interfering in that system is not clear to the bodies representing consumers, so my Government have to do more to justify these changes.

Interestingly, I had some discussions with the previous Minister, who is now sharing the same Bench as me, and one of the points that came out is that it is quite difficult for the Government to point to cases in which they expect a different result following this change from what was happening before. It would be unreasonable for the Government to pick on individual cases and say, “Those people really should not have had that finding from the ombudsman”, but that is at the heart of what is being proposed here.

Before my noble friend the Minister’s elevation, I discussed this with him at length. He assured me at the time that the impact on the consumer would not be material—that the way that the legislation is worded, in particular the rules that the FCA would have to interpret for the FOS, would embrace the concept of “fair and reasonable”. It would certainly help a great deal in allaying my concerns if those assurances could be given to the House. The Minister probably cannot express it in these terms, but it would help if he could say that these changes are contingent and will be reviewed and judged on their effect. That would allay my continued concerns about what is being proposed here.

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The Bill makes important reforms to the redress framework to increase clarity and consistency while preserving the strengths and the independence of the FOS. I therefore ask the noble Lord not to press Amendments 13, 14, 15 and 99.

[Lord Sharkey (LD)]

My Lords, I thank the Minister and all the others who have spoken for the way in which they have covered the issue. But it is notable that a lack of evidence for the reform proposals still exists. We still have not seen what it is that is wrong with the current system. We have not seen any hard data. We have seen soft data that suggests there is a problem with the operation of the FOS. It is the case as well that the definition of the determinator contained in the memorandum of understanding contains direct references to the FCA rules in its book, and that is the expanded definition that is currently being worked on by the FOS and the FCA. But it is still the case that I cannot see a compelling problem that is addressed by the radical changes that the Government seem bent on making.

If possible, I would like at some stage to continue the conversation about the evidence. I feel that we are somewhat wide apart, perhaps unnecessarily when on the one hand we seem to have a system that works very well, and on the other hand we have a desire for fairly radical reform. I am not sure that that plays out happily together, but I would be happy to discuss that if the Minister is willing. Having said that, particularly my remarks about the evidence, I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

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Moved by

[Lord Sharkey]

14: Leave out Clause 8 and insert the following new Clause—
“Determination of complaints: matters to be taken into accountIn section 228 of the Financial Services and Markets Act 2000 (determination of complaints under the compulsory jurisdiction of the ombudsman scheme) in subsection (2), at the end insert “, having taken into account the relevant law and regulations, the relevant regulator’s rules, guidance and standards, the relevant codes of practice and (where appropriate) what the Financial Ombudsman considers to have been good industry practice at the relevant time”.”Member’s explanatory statement
This amendment would remove Clause 8 from the bill and insert a new clause requiring the Financial Ombudsman, when determining whether an outcome is fair and reasonable in all the circumstances of a case, to take into account various other points.

[Lord Sharkey (LD)]

My Lords, I would like to test the opinion of the House on Amendment 14.

Financial Services and Markets Bill [HL]

Lord Sharkey Excerpts

Committee stage
Wednesday 8th July 2026 Grand Committee

[Lord Massey of Hampstead (Con)]

That is right.

[Lord Sharkey (LD)]

My Lords, as the noble Baroness, Lady Neville-Rolfe, remarked earlier in our Committee discussions, we often agree about things, but not, I am afraid, about this amendment. There are three reasons for that: first, the amendment is not necessary; secondly, it probably would not work, although its lack of any real detail makes it quite hard to tell; and, thirdly, it would significantly bypass parliamentary scrutiny mechanisms. For example, proposed new subsection (1)(c) says that the determination of complaints will

“be determined by reference to such statutory requirements as may be specified”,

without actually specifying them. This does not make for proper scrutiny.

How complaints are determined is absolutely critical in how redress is obtained. The amendment tells us nothing about how that would be done, or on what criteria judgments would be made. Proposed new subsection (1)(g) contains what looks suspiciously like a Henry VIII power. None of these provisions is really necessary, and nor is the amendment as a whole. That is because there does not appear to be a convincing evidence base for the radical root-and-branch reform that abolishing the FOS would bring about. The nearest we have to evidence is in the assertion by the Minister that:

“The Government’s review found that, in a small but significant minority of cases, the FOS has acted as a quasi-regulator”.—[Official Report, 22/6/26; col. GC 260.]


That is all the government explanation there is for the proposed radical reform and, by extension, for the amendment before us.

I have repeatedly asked the Minister for more detail; I asked at Second Reading, and I asked again on the first day in Committee. I have had no response to what are essentially simple questions. How many cases are small? How was their significance assessed? How is the FOS, in this small number of cases, acting as a quasi-regulator? What we have currently is an assertion, but it certainly is not evidence. When he speaks, can the Minister tell the Committee what “small” means in this context? How many and what kind of cases were involved and how did they come to be characterised as significant? As for HMT’s rather bland consultation report, the frequent use of the phrase “broadly speaking” does not inspire a lot of confidence about the strength of its case.

The amendment before us is essentially skeletal and removes the complaints procedure to a wholly different legal arena. Given the grossly overstressed nature of our justice system, it is very hard to see any improvements being located there. The FOS is meant to be, and is, a quick, simple alternative to costly court processes for consumers. There is no hard evidence to support the proposals made in this amendment and, indeed, no clear sense of what kind of redress system and what criteria for determination are envisaged.

Last July, the FCA and the FOS signed a memorandum of understanding. Article 21(b) of the memorandum says that the two parties will

“seek to achieve a complementary and consistent approach, so far as that is consistent with their independent roles by consulting each other at an early stage (including on the interpretation of regulatory requirements where they are relevant to the resolution of disputes)”.

Article 24(c) says:

“For the Financial Ombudsman Service: seek a view from the FCA on the interpretation of its rules and how redress could potentially be assessed, as early as possible in advance of issuing a final determination, and provide the FCA with any relevant information and draft determinations it can share, to assist the FCA in formulating a view.”


The following article says that the FCA should try to respond to the FOS’ submission within 30 days.

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[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baroness for tabling this amendment and giving the Committee a further opportunity to discuss the FOS.

An effective ombudsman service ensures that consumers have quick and easy redress when things go wrong, improving customer confidence in, and engagement with, our financial services system. The FOS largely fulfils that vital role, and the reforms in the Bill will improve that further, ensuring that it provides a quick and informal route for resolving disputes in financial services.

The amendment would undermine this vital role entirely. We believe that replacing the FOS with a financial adjudication service alongside the new tribunal appeal structure would create a more formal, legalistic and adversarial system. That approach would move away from Parliament’s intention of providing consumers and firms with an accessible alternative to resolving disputes through the tribunal and courts system. The Government’s view is that this would not be the right outcome for consumers and firms. The Government’s reforms have been developed in response to issues identified through the review and consultation last year to stop the FOS acting like a quasi-regulator, to stop it taking the lead on mass redress events and to deliver a clearer, more consistent and predictable framework.

I thank the noble Lord for raising that issue and I apologise for not writing in answer to his question. I promise that I will get back to him as soon as we have that information to hand again.

[Lord Sharkey (LD)]

Perhaps the Minister could answer it now.

[Lord Stockwood]

I do not have it to hand. My apologies, I will bring it to the noble Lord. We are confident that the changes will improve trust and confidence that the FOS acts fairly and impartially, while ensuring that decisions are closely aligned with the high standards of conduct and consumer protection set by the FCA where relevant.

The right approach is this careful, targeted reform that preserves the core strengths and benefits of the FOS model—quick, informal and accessible dispute resolution—while delivering the necessary changes to improve the overall operation of the framework. I therefore ask the noble Baroness to withdraw her amendment.

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.

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[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.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Sharkey Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

[Lord Howard of Rising (Con)]

As my noble friend says, you get a knighthood—possibly even a barony. If you get something wrong, throw more money at it until it becomes an embarrassment that can no longer be hidden and hushed up. HS2’s original budget was £37.5 billion. Only when the estimated cost has risen to £90 billion—and counting—is the project being reined in. The idea of spending £100 million on a bat shelter defies the imagination. I mean: who could have thought of that one?

As economists are being quoted, might I quote Professor Milton Friedman? He said:

“If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand”.


What the Government should do is what anybody in this Room, faced with the same problem in their own life—too much spending and not enough income—would do: cut spending to solve the problem. Given that that is unlikely to happen, will His Majesty’s Government carefully consider what they are doing and try to reduce some of the negative consequences of this increase in national insurance for employers? A sensible first step would be to prepare a proper impact assessment for those small companies, often described as the engine of the economy.

[Lord Sharkey (LD)]

My Lords, we have a lot of sympathy for the amendments in this group. My noble friend Lady Kramer has added her name to Amendment 22.

It is absolutely right that we should be concerned about the effects of the proposed NICs rise on small businesses. These businesses are at the heart of our economy. As the noble Lord, Lord Ahmad of Wimbledon, said several Prime Ministers ago:

“There are over 5.7 million Small to Medium Enterprises in the UK. They are the engine of growth in our economy, driving innovation and greater productivity, finding solutions and creating jobs”.


In fact, our SMEs provide 16.6 million jobs—60% of the total number in the United Kingdom. Their total turnover is estimated at £2.8 trillion. They are in many ways more important than much larger businesses—certainly when it comes to providing jobs—but they are probably more vulnerable than large businesses to these NIC changes, with less ability to absorb increased costs. The SME landscape is very varied, but it seems vital for us to be able to assess the likely effects of the proposals before us on different sizes of SMEs.

That is why I note in particular Amendment 33, in the name of the noble Baroness, Lady Noakes. As she explained, this amendment proposes an impact assessment of the provisions in Clause 2 on employers with an annual turnover of less than £1 million, less than £5 million and less than £10 million before the changes in the clause can be brought about; these are probably the sizes of business that are most likely to have difficulty dealing with the additional costs imposed by this Bill. It would have been good to have had such an impact assessment before these debates, but Amendment 33 would go some way to putting that right, as the noble Lord, Lord Londesborough, remarked—pace the charge of underspecification from the noble Lord, Lord Eatwell. Perhaps the Minister could provide us with more granular estimates of the effects of Clause 2 on the smaller SMEs even if he cannot, or will not, provide us with the traditional, full and necessary impact assessment.

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These amendments would help to bring the Bill in line with government action in favour of young people. They would help the Government to stabilise the labour market, given other economic pressures, and of course help young people to develop a prosperous future. I ask the Minister to consider these amendments carefully.

[Lord Sharkey (LD)]

My Lords, these amendments address very important issues. As noble Lords who attended the Committee last week will be aware, we on these Benches have taken an approach to the Bill aiming to exclude certain sectors from the Government’s rise to employers’ national insurance contributions—sectors that we feel will be particularly impacted by the change.

The amendments in this group follow the same structure as our earlier amendments, exempting employers of young people in various age groups from the proposed rise in employers’ national insurance contributions. We touched at least tangentially on that and on some of the concerns raised about youth employment when we debated amendments last week, tabled by my noble friend Lady Kramer, relating to part-time workers and to the hospitality and tourism sectors. For many young people, part-time work is the entry point into the world of work. A career in hospitality is often the first step on the career ladder for many young people entering the job market.

According to data commissioned by that well-known authority, the British Beer & Pub Association, pubs currently provide jobs for more under-25s than they ever did, with 350,000 people in employment in that sector. The association estimates that, to keep employing that same number of under-25 year-olds, the NICs liability for employers will increase from £82 million to £153 million.

I shall not repeat the points made in our debate last week, but I urge the Minister to address further some of the possible unintended consequences that the measures in this Bill might result in, as employers in these sectors look at ways in which to offset the additional costs that they will have to endure—perhaps instituting hiring freezes or freezing pay rates—and especially and specifically the impact that will have on young people seeking to enter employment for the first time. An impact assessment would have been very helpful, as would the application of the mechanism contained in Amendment 33 from the noble Baroness, Lady Noakes, which we discussed earlier this evening.

In the regrettable absence of an impact assessment, it would be entirely proper to postpone the NIC provisions until the Government make more age threshold granular data available to help to assess the effect of the measure on young people. I heard the Minister’s unequivocal refusal to provide any more impact assessments, and I expect that we will hear it again in Committee and on Report.

[Lord Blackwell (Con)]

My Lords, I want to add to the comments made by my noble friend Lord Altrincham in introducing these amendments. He spoke of a large number of young people who are not in economic activity, full-time education or training. Labour market statistics are notoriously difficult to interpret, as we know, but, if you take the unemployment rate he quoted—around 14%—we know that, in addition, a worryingly large number of people in this age group are also on long-term sickness benefits. All of them could be in productive work, with the right support and encouragement.

A number of Members of this Committee are also members of the House of Lords Economic Affairs Committee, which recently did a review of this area. Some of the evidence that we took made the point that, once a young person moves on to long-term benefits without ever having had meaningful employment experience, it becomes increasingly difficult for them to get work. They become stranded in a benefit life, which is not only wasteful for them but a huge cost to the taxpayer.

In stressing the importance of making it economically attractive for employers to take on young workers such as these, I wonder whether the Government should consider going further than these amendments: not just retain the existing levels of national insurance contributions for employers for this age group but reduce the national insurance contributions of young workers to give an additional incentive to help them, at this early stage in their lives, into a meaningful working career.