National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Bray of Coln Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Baroness Bray of Coln (Con)]

My Lords, it is a pleasure to follow my noble friend Lord Howard. I am delighted to participate in this important debate. I should say straightaway that I am absolutely opposed to any rise in employer’s national insurance contributions, especially at this time when we need to get the economy growing, which we have heard a lot about this evening.

This increase stems, I think, directly from an outdated political stance that has always failed to recognise that there are inevitable costs for employees that come from raising the cost of their employment. In April, the rate is to rise by 1.2% to 15%, and payment kicks in at a much lower threshold of £5,000, down from £9,100, which is a significant rise in employers’ costs.

Looking back, it was rather misleading, to say the least, of the Government to try to soothe nerves in their election manifesto by telling us that there would be no rise in national insurance contributions, and it was not made clear during the following election campaign that this was actually only ever a commitment not to raise employees’ contributions. Instead, job numbers and wages will doubtless fall because of the increased cost to employers. How is that helpful to the working people who our Prime Minister is always talking about as being so important? The answer, of course, is not at all. This is indeed a tax on working people as well as their employers.

We are already seeing in advance the damaging effect kicking in. The number of jobs on offer across the country has already sunk, as we have been hearing. The Institute of Directors recently reported that business confidence has nosedived to levels last seen in April 2020, along with employer hiring intentions, and that 43% of businesses facing higher national insurance contributions are planning to reduce employment as a direct result.

The Chartered Institute of Taxation has raised concerns that businesses may turn to alternative employment models such as outsourcing, offshoring or increasing reliance on self-employed contractors. Indeed, James Reed, chairman of a major recruitment company, has warned that some companies are to his knowledge already planning to relocate tens of thousands of employee roles to countries such as India where employment is cheaper.

So, the effect of this extra cost has been immediate even before it kicks in, in April. This is to be expected when politicians eye up business finances that are finely balanced; it is an inexperienced Government who do not understand that. A Government more mindful of business needs, including the welfare of employees and financial realities, would consider measures that encouraged economic growth right across the business world rather than sticking glue-like to the old left-wing style of government which always seems to believe that higher taxes are the solutions to most problems.

Even before the Budget Statement in October, businesses were grappling with inflationary pressures, rising energy costs and wage increases. Now, these higher national insurance contributions on top will simply increase the problem of absorbing the added costs, leading to more job losses and fewer job opportunities. Higher employment costs will certainly disincentivise investment in labour-intensive industries, and businesses operating in globally competitive sectors such as manufacturing or technology may find it harder to remain competitive. That is likely to lead to reduced exports and lower foreign investment in the UK, weakening the country’s position in the global market.

As we have been hearing, there is also considerable concern beyond the business world about the impact of the rise in national insurance contributions. Charities and the voluntary sector are in line for the increased national insurance contributions and are already expressing deep concern about their ability to continue their essential work in the community. They struggle hard already to fund all the work that they do. If the all-important donations on which they depend now have to be stretched to fund increased taxes on those they employ—as they will be—they will have to cut back on the services and support that they can deliver to the community.

Many GP practices, which are businesses in their own right, are also facing these higher contributions. They say that they may need to reduce services or limit patient access to meet them. The Government have introduced additional funding to support GP practices, but the specific issue of reimbursing the increased national insurance contributions in full, which GPs are demanding, remains unresolved.

I appreciate that, for the smallest businesses, there is to be an increased employment allowance to offset the increase in their national insurance contributions, which means that some will no longer have to pay contributions at all; this will, of course, be very good news for the approximately 800,000 employers who qualify. However, smaller and medium-sized businesses will still be hit, along with all the bigger, and the biggest, employers.

The rise in national insurance contributions poses a real threat to our economy and to the best interests of our workforce: fewer secure jobs, lower pay, fewer charities with less reach and GP practices under greater pressure. How does this in any way benefit this country or its working people? The answer must be that it does not.