Spring Forecast Statement

Lord Sikka Excerpts

Tuesday 17th March 2026 Lords Chamber

[Lord Sikka (Lab)]

My Lords, what a heroic task this Chamber has undertaken in us having seven minutes to explore 560 pages of the Finance (No. 2) Bill, 481 pages of Explanatory Notes, 131 pages of related OBR analysis and 152 pages of Treasury statements and related policies. On top of that, there is a Spring Statement and its related documentation—and if you can get through the legalistic jargon, you are doing very well.

I welcome the abolition of the two-child benefit cap but would like to see greater emphasis on lifting parents and families out of poverty. Sustained economic growth cannot be achieved without good purchasing power for the masses.

The perpetuation of the Conservative policy of freezing annual income tax personal allowances for another three years will actually create more poverty. The number of basic rate taxpayers has increased from 26.6 million in 2021 to 30.4 million in 2025-26. These are the very people facing a cost of living crisis. The number of people over state pension age paying income tax has jumped from 6.47 million to 8.72 million. Some 25.3 million individuals live below the minimum living standard. There is no such thing as trickle-down economics. The rich have gobbled it all up and people at the bottom just buy worry beads; that is about all they can do. Some 120,000 people a year die in fuel poverty. Despite the triple lock and pension age benefits, almost one in six pensioners die in poverty. It would be helpful to hear the Government’s plans for the equitable distribution of income and wealth.

It is also disappointing that a regressive tax system remains in place. Wages are taxed at the marginal rates of 20% to 45%. In addition, national insurance contributions are levied, starting at the rate of 8% on eligible wages. In contrast, despite the changes, dividends are taxed at the rate of 8.75% to 39.35% and capital gains at rates of 18% to 32%, and the super-rich do not pay any national insurance on either of those elements. The poorest 20% pay a higher proportion of their income in direct and indirect taxes than the richest 20%. Can the Minister explain why the poorest are paying a higher proportion of their income in taxes than the richest? Is that equitable?

The student loan system remains a maze of confusing interest rates, repayment thresholds and repayment rates. It is disappointing that the repayment threshold for plan 2 student loans will remain frozen at £29,385 until April 2030, or maybe even longer. By then it will be closer to the minimum wage and way below the median wage. More graduates will be forced to repay earlier, leaving less for those wanting to buy a home or start a family or a business. Graduates with modest earnings of £31,000 a year, which is way below median wage, face a deduction at the marginal rates of 42% at the moment. That is 20% in income tax, 8% national insurance, a 9% loan repayment on income above the repayment threshold and a modest 5% contribution to a pension scheme. Does the Minister think that this rate of marginal taxation is conducive to economic growth? Would it not really be better to stimulate people’s purchasing power by abolishing tuition fees and finding a way of writing off the student debt?

HMRC’s own estimate of tax gaps suggests that between 2010 and 2024, it failed to collect around £500 billion in taxes, while alternative models put the figure at £1,400 billion. It is therefore good to see that the Government are focusing on tax avoidance. However, at the same time the Government are creating opportunities for tax avoidance: by taxing capital gains and dividends at lower rates than wages, the Government are perpetuating tax avoidance opportunities. The tax avoidance industry will inevitably arbitrage, helping the super-rich to convert income to dividends and capital gains.

I welcome the national insurance and related tax relief changes on employer salary sacrifice pension contributions and urge the Government to crack down on employer national insurance avoidance, especially by limited liability partnerships. Companies pay employer national insurance on directors’ salaries. The role and position of LLP partners is no different from that of a company director, but they receive a share of profits instead of salaries. Therefore, the firm does not pay employer national insurance. This perk enables a firm—effectively its partners—to dodge around £148,000 of national insurance for every £1 million of profit shared by partners. In 2024 the big four law firms in the City of London dodged £4 billion of employers’ national insurance. Billions more are dodged by other LLPs.

Drivers and other staff at companies such as Amazon, Evri and eCourier are treated as self-employed, even though they receive almost all their income from one source and instructions from that same source as well. As self-employed workers, they are responsible for their own tax and national insurance but one consequence is that through such arrangements, companies escape paying employers’ national insurance altogether. Can the Minister explain why the Government tolerate this kind of organised national insurance avoidance and when a crackdown will begin?