National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Fraser of Craigmaddie Excerpts

Committee stage
Tuesday 4th February 2025 Grand Committee

[Lord Leigh of Hurley (Con)]

My Lords, I rise to support these amendments. It occurs to me—I would be interested to know whether it is true—that this must be the first series of amendments where the three signatories have all been directors of FTSE 100 companies. That must tell us something. I think it is the first time, but I will be happy to be proven wrong.

It is a great pleasure to speak after one of my role models—she does not know it, but it is true—my noble friend Lady Noakes, as well as my noble friend Lady Neville-Rolfe and, particularly, my noble friend Lord Wolfson of Apsley Guise, who is widely regarded as one of the leading businessmen of his generation. I say that because he is from a younger generation than me, perhaps. He has an outstanding business career that has created thousands of jobs and tremendous value for shareholders. Thankfully, he still has time to contribute to your Lordships’ House and other communal activities, so when he speaks I think we should listen carefully. He is right to say that there is some truth that more expensive labour leads to greater productivity, mainly because productivity is measured as output per hour so, by definition, productivity improves, but it is not necessarily a good thing in and of itself. He mentioned the food sector. Certainly, in the hospitality sector I know of companies that are just closing down. This increase has led them to say that they are going to give it up, which cannot be what the Government want.

On 6 January, Next reported anaemic growth as the result of the tax measures. On the very same day, S&P Global’s Purchasing Managers’ Index came out and said that nearly 25% of British businesses reduced their workforce following the Budget specifically. The index indicated that the private sector has experienced its weakest growth in 14 months, with firms shedding jobs at the fastest pace in more than 15 years, other than during the pandemic. HMRC released its payroll data on 21 January. Employees in the UK declined by 47,000 to 30.3 million in December alone, the biggest drop since November 2020, which again was pandemic-related. As my noble friend Lord Wolfson mentioned, Sainsbury’s came out on 23 January with cuts to head office of 3,000 and an ambition to reduce senior management roles by 20%. Recently, on 27 January, the Confederation of British Industry reported that private sector firms expect a significant decline in activity over the next three months with a weighted balance of 22% negative. It said that this pessimism is widespread across sectors including services, distribution and manufacturing. The downturn was mainly due to the Budget.

With the assistance of someone who is much smarter than me on spreadsheets, I have tried to calculate the effect of all this. Although I am an economist by background, this is not a specialist area for me, so I would be extremely grateful if the Minister would ask the Treasury to comment on the numbers that I am going to give him. I think that they are right, but I would be more than happy to be challenged if they are not.

My premise is that the average UK earnings per full-time employee is £33,280. The number of full-time equivalents in the UK is bang on 30 million. If you increase the existing employers’ NI rate of 13.8% to 15% and reduce the existing NI threshold of £9,100 to £5,000, you get an increase in total NI take from £100 billion to £127.2 billion, giving you a total employers’ NI increase of £27.2 billion—or, to be precise, £27.154 billion—which is the sum that the Chancellor seeks. Fair enough. But, given all that we have heard today, what happens if employment reduces? You can put in any variable you like. I have taken what I regard to be a most reasonable suggestion of 3%. Let us say that, as a result of this, there is a 3% reduction in employment. Personally, I think it would be much more, but let us say 3%. At that point, the number of UK full-time equivalents becomes 29.1 million. The employers’ NI take goes to £123 billion, which is a reduction of £3.8 billion. But, at the same time, there is universal credit for those redundant full-time equivalents of £20,000 a head, which costs the Treasury £18 billion. If you add the loss of that universal credit to the reduction in NI take that I have just mentioned, you get a net loss of—guess what—bang on £27.05 billion. So, the 3% reduction in employment that I reckon will happen leads to absolutely no gain to the Treasury whatever.

I present those figures because I would like to be challenged on them and proven wrong, but I do not think that I am. Along with the signatories to the amendment, I hope that the Government will take this opportunity to reflect carefully, in the spirit of co-operation, as to whether it is wise to bring this measure in so harshly, so quickly.

[Baroness Fraser of Craigmaddie (Con)]

My Lords, I apologise to the Committee that this is my first intervention on the Bill. I am not a FTSE 100 director, nor am I the chief executive of a great company like Next. I am the chief executive of a small charity in Scotland and the reason why I have not been able to participate on this Bill is that we are going through a consultation process to reduce our employee numbers at this very moment as a direct result of the cliff edge and shock to us of the increases in national insurance.

I rise merely to say that everything that my noble friends Lady Noakes, Lord Wolfson and Lord Leigh have just said is my daily life at the moment. While businesses can potentially put up their prices, charities cannot. What also concerns me is that because this cliff edge, which is what these amendments are trying to smooth out, is happening at the same time as the rise in national minimum wage, we are facing a double whammy in trying to make our books balance.

What finally concerns me is that this will lead not only to a reduction in the number of those in employment but to a reduction of skills in these organisations. These things cannot easily be built up again, should the situation change. Give us time to implement and do the things that we need to do. I urge the Minister to listen to my colleagues and do all that he can to soften this terrible blow.

[Baroness Kramer (LD)]

My Lords, we on these Benches are not in the same place as those on the Conservative Benches in taking the position outlined by the noble Lord, Lord Swire, to seek a delay before these measures are introduced. We are opposed to their introduction. We supported a regret Motion at Second Reading and those on the Committee who were present in the first two days will know that we moved a series of amendments essentially to halt the increase in employers’ NICs, and the related changes, in its tracks. In the case of part-timers, we went beyond that and sought to have employers’ NICs halved from their current level because of the importance of dealing with disadvantaged people, the hospitality industry and other reasons. In the first two days of Committee, I and my colleagues talked extensively and made our substantive and detailed arguments. I know that the Committee will not want to hear me repeat all those, so I merely say that we stand our ground.