National Insurance Contributions (Secondary Class 1 Contributions) Bill

Viscount Chandos Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Viscount Chandos (Lab)]

It is a pleasure to follow the noble Baroness, Lady Bray, for the first time. I would suggest that she look back at the speech of the noble Lord, Lord Macpherson, who set out some notable former Conservative Chancellors who raised taxes early in their term of office. I should declare the interests set out in the register where I am a director or trustee of organisations that are in some cases losers and in other cases winners from these changes.

I support the Bill and thank my noble friend the Minister for his cogent introduction of it. I say that I support the Bill, rather than welcome it, because, unlike my good friend, the noble Lord, Lord Desai, who I am sorry is not speaking today, I am not in favour of increasing taxes unless absolutely necessary. Unfortunately, it was perfectly clear by the time my right honourable friend the Chancellor came to deliver her first Budget in October that tax rises were needed to restore credibility and stability to the public finances and to fund public services at a sustainable level—even if every department will still need increases beyond the level currently proposed, as soon as economic growth and resulting tax revenues increase.

I will not dwell on the black hole or debate its size, but I will repeat the quotation that I included in my contribution to the Budget debate two months ago, because it is worth repeating. It was the evidence given earlier last year by the chair of the OBR to the Economic Affairs Committee on the forecasts made by the previous Government. He said:

“Some people have referred to that as a work of fiction. That is probably generous, given that someone has bothered to write a work of fiction, whereas the Government have not even bothered to write down their departmental spending plans”.


The Labour Government have had to restore the integrity of the budgeting process and propose plans based on independently compiled and reviewed figures and assumptions. Tax rises were an inevitable consequence of that process, and the increase in employer NI contributions represents the largest part of these. I believe that it is the fairest and most constructive way of raising the necessary revenue, particularly in light of the point made by the noble Lord, Lord Macpherson, that it offsets the reduction in employee national insurance introduced by the last Government.

In election campaigns of the past few decades, an arms race has developed of ruling out specific tax increases over the life of the subsequent Parliament. Like the right reverend Prelate the Bishop of Southwark, I regret that, but, in the world in which politics is now conducted, I recognise that it is naive to think that that is likely to change.

Had my party not made the commitments that it did, would the Chancellor necessarily have chosen to increase employer NI rather than, as some economists and the noble Lord, Lord Macpherson, have argued, reverse the employee NI cuts introduced by the last Government in a desperate and vain attempt to curry favour with the electorate? Perhaps not, but, as I said in the Budget debate, there is a strong case for asking companies to make an increased contribution to the funding of public services on which the resilience of both their customers and employees is dependent.

During the dark days of the pandemic, my noble friend Lord Eatwell and I argued that the corporate sector could afford to pay for increased resilience not only in their own supply chains and operations but in society more widely. Over the past 30 or more years, the share of GDP attributable to corporate profits has significantly increased, which I largely celebrate where it has not been at the expense of labour’s reasonable share. That general increase in profitability gives the corporate sector the ability to contribute to a more resilient society, to say nothing of paying back some part of the furlough and other support provided by the Government during the pandemic.

I regret that many in the business community have been so critical of these measures, suggesting, like Chief Vitalstatistix in Asterix the Gaul, that the sky will fall in tomorrow. It was therefore heartening to read in the Financial Times today that James Daunt—whose turnaround of the bookselling industry here and in the US, in the teeth of Amazon’s ferocious competition, is a retailing case study—said that pay inflation was “really significant” for the business, but that he backed the UK Government’s move to increase national insurance costs. I am sure that the noble Baroness, Lady Neville-Rolfe, with her deep experience of retailing, would agree that this is a significant counter to the complaints of other, perhaps less dynamic, retailers.

As a brief digression, Mr Daunt also said that, in relation to the UK, another factor remains the biggest pain, adds to the cost and complexity and makes our labour situation worse. Would any noble Lords on the Benches opposite like to guess what that other factor is?

Of course, not all employers are profitable, or even for profit, and I recognise that, for those—if they are of a size that means the increase in the employment allowance does not offset the increase in the NI rate and the lowering of the threshold—this measure is harder to absorb than for profitable corporate employers. Other noble Lords, led by the noble Baroness, Lady Kramer, in her regret amendment, have highlighted the particular impact on health and social care providers. I am glad that there have not been many arguments—the noble Lord, Lord Scriven, I think was an exception—for exempting different categories of employers from the rise. The tax system is complicated enough without new distortions. However, I hope that the Government and, in the case of charities, donors will be open to targeted financial support where necessary. The grant-making foundation of which I used to be a trustee made an additional tranche of grants two years ago to support charities at the time of the inflationary spike.

The noble Lord, Lord Blackwell, suggested that the left does not understand how tax affects business. I have to say I find that both patronising and wrong. My noble friend Lord Eatwell this afternoon gave a more compelling analysis of how this measure raises necessary revenue while driving productivity improvements, and hence growth, than anything I have heard from the Benches opposite.

I end by strongly endorsing the advocacy by the noble Lord, Lord Macpherson, of a more fundamental review of the relationship between national insurance and income tax. In so doing, I join the noble Lord, Lord Forsyth, in the belief that the pretence of NI being anything other than a tax while quacking like a tax is long overdue for dissolution.

As the noble Lord, Lord Macpherson, demonstrated so well, the path to radical reform is long and rocky, with the noble Lord, Lord Hammond of Runnymede, bearing the scars of trying and failing to enact even quite a modest change. But it is hard to reconcile with fairness the partners of a Magic Circle law firm, earning on average £2 million a year, not only paying a lower rate of self-employed national insurance than employees would but, as partnerships, not being subject to any employer’s NI, saving £300,000 a year for every partner. That is neither fair nor a loss of revenue—hundreds of millions a year from that sector alone—that the country can afford. Will the Minister consider urgently establishing a task force to examine how income tax and national insurance can be integrated and all types of workers, employed and self-employed, equitably taxed?