National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Bennett of Manor Castle Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

[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 Leigh of Hurley (Con)]

My Lords, I will speak to Amendment 9, which is in my name. I suspect that it may have been subject to pre-emption, along with Amendment 8. If the noble Baroness, Lady Bennett of Manor Castle, is surprised, I am equally surprised that I think I agree with all of her remarks. That means that I would like to focus on Amendment 4, dealing with charity revenues of less than £1 million, which I believe is not subject to pre-emption.

According to the Charity Commission website, there are about 170,000 charities in the UK, with about £100 billion of income in aggregate and 1.3 million employees. My noble friend Lady Neville-Rolfe wants us to concentrate on those charities with an annual revenue of below £1 million.

There is different terminology that can be used by the Charity Commission, because it talks about gross income. On average, charities’ donations and legacies are about one-third of their total income, as was the case with the Thames Hospice, which I described earlier. The rest of the income is grants, investments and so on. A charity with £1 million of revenue will probably raise only some £350,000 in donations. I calculate from the available information that the sums raised by charities with revenues of less than £1 million total some £12 billion, which is 12% of total charity income. But there are 162,000 charities with an income of under £1 million, which means that we are talking about 95% of all UK charities.

As for their spend on national insurance, it is hard to determine, because we do not know exactly how much they spend on employment. We do know how much they spend on total expenditure, which is some £12 billion. If we assume that 50% of that—it is a very generous assumption—is on employee costs, and if we assume a salary of around £25,000, because it is a low-paid sector, then my noble friend Lady Neville-Rolfe’s amendment would impact only 240,000 people.

To try to answer the criticisms from the noble Lord, Lord Eatwell, I calculated that my noble friend’s amendment would cost the Government around £480 million—half a billion pounds. Is the Minister going to tell us that he is not prepared to protect 95% of charities for just £500 million? Does he recognise my figure? If not, what is the cost of the amendment? I invite him to join us in pausing the hike until we work out what it is, so that we can then have a meaningful discussion.

I remind the Minister that in a speech to the civil society summit last year, hosted by Pro Bono Economics, Sir Keir Starmer promised to reset the relationship between civil society and government. Is this what he meant? He said that

“for too long, your voice has been ignored”.

I have read the full speech, and he also said,

“we know it’s people on the ground, people with skin in the game, who understand the problems best and have the best answers”.

He continued in his speech to civil society leaders, which largely rubbished Tory policies, by saying,

“let’s be honest, for too long, your voice has been ignored between the shouts of the market and the state”.

Are the Prime Minister and his Ministers listening now? Those leaders are calling for this national insurance hike to be dropped.

Why would the Government want to penalise 162,000 charities, where our fellow citizens give so much of their time freely, and in many cases their cash, simply for the betterment of fellow citizens at home and abroad? It is a shameful imposition.

[Baroness Bennett of Manor Castle (GP)]

My Lords, on a point of clarification, I have received information that my Amendment 8 has not been pre-empted and still stands.