National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Grender Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Lord Sharkey (LD)]

My Lords, I have added my name to Amendment 4 in the name of my noble friend Lord Storey, which proposes to exempt universities from the NIC increase, among other things. I will speak to that exemption for universities. I am grateful for the extensive briefing provided by UUK, and I declare an interest as a member of council at UCL.

Even before the NIC increases proposed by the Bill, our university sector was in deep financial trouble. Funding per student has fallen to its lowest real level for 25 years and, because of an ongoing inability to recover the full economic cost of research—partly the fault of government—universities lost £5.3 billion on their research activities last year. A decline in overseas student numbers has made the financial problems worse. In the year ending last September, the number of visas issued to foreign students fell by 19% on the previous year, while the decline at master’s level was 25%.

All this has produced a situation where many universities face urgent and very serious financial problems. The OfS’s latest modelling suggests that 72% of our universities could be in deficit by 2025-26. It is not as though there are widespread reserves available to smooth the problem. In fact, 40% of our universities are predicted to have fewer than a month’s cash by the end of the next academic year. The proposed employers’ NIC rise will make an already fragile system more fragile and more precarious. The universities will have to find £372 million to fund this increase. There is a risk of real and hard-to-reverse damage to our higher education sector.

There has already been extensive media speculation about breaches of covenant, reluctance of lenders to lend, and even insolvencies. This sector is of critical importance to our future and to our prospects for growth. AI is an example. We are well placed to be world leaders because of our research and our research standing. But if we want to fulfil the Prime Minister’s aspirations, we need a healthy and sustainably funded university sector with strong connections to business. The higher education sector is critical in its liaisons with business and in its generation of spin-offs, start-ups and social enterprises, as well as in the generation of IP and in providing key public service workers. Every year, our universities train over 100,000 public service workers: around 42,000 nurses, 21,000 medics and 38,000 teachers. The total economic impact of the sector has been estimated at over £265 billion. This impact is widely spread around the country, not just confined to our largest cities and oldest universities.

In very many of our towns and cities, our universities are engines of growth and critically important supporters of the local economy. It is true in general that our universities are of exceptionally high quality and standing. According to the last QS survey, here in the UK we have four out of the world’s top 10 universities and 16 out of the top 100. These are astonishing figures and an astonishing advantage to be leveraged to help produce the growth we need. The figures demonstrate our international standing and our success in education and research, and this standing boosts our soft power. The HEPI 2024 soft-power index found that 58 serving world leaders received their higher education here in the United Kingdom.

Perhaps it is in research that our universities most obviously display their world-class quality and reach, but this kind of quality and reach is under severe financial pressures and increasing global competition. Our current financial arrangements rely on a high—disproportionately high—cross-subsidy from overseas students, which is an obviously unstable element in today’s geopolitical world.

If we want our international standing to remain at the highest levels, and our universities to continue to be engines of growth, then we need very urgently to do something about our funding system. What we do not need is to impose additional costs on an already overstressed system. We also should not discourage overseas students from coming to the UK, as the previous Government did. These students contribute at least £37 billion to the UK economy. That is important, but it is obviously not a substitute for sustainable funding. Increasing employers’ NIC will not help with any of that and may, in some cases, push some universities to the financial brink.

The Minister will be aware of the financial dangers faced by our higher education sector. He will be aware of the conversations in Whitehall and elsewhere about how to reform our funding system and of the urgency of producing a stable and sustainable funding system. He will also know that the employers’ NIC increase will damage universities’ finances, at least until we have a better funding system. The additional funds raised will be relatively small from a Treasury perspective, but relatively and dangerously large from the sector’s perspective.

Applying the NIC increases to our world-leading higher education system will inevitably damage its contributions to our leadership in research and in the production of IP. It will damage our prospects for growth. Can the Minister give us his assessment of the likely impact of this NIC rise on our university sector and its ability to operate? We need a proper impact assessment on this and many of the other things that we are discussing.

[Baroness Grender (LD)]

My Lords, I will speak to Amendment 5 in this group, which would amend Clause 1 to retain the original rate of 13.8% for both charities and housing associations. I refer to my interests as set out in the register. I also support Amendment 4 in the name of my noble friends Lord Storey and Lord Sharkey, and Amendment 8 in the name of my noble friend Lady Kramer. I thank the noble Lord, Lord Randall, for his support for my amendment.

Given the previous Government’s record and the legacy they left, charities and not-for-profit organisations, such as housing associations, will be a vital part of the Government’s future plans—for instance, to increase housing and end homelessness, which is an ambition that can and should be realised. I am going to use one case study to highlight what is going to happen to housing associations. I would really appreciate it if the Minister could respond to that case study, which is about the housing association Peabody.

For context, the recent government announcement of £500 million for the affordable homes programme for the whole of the UK is the equivalent of around £500 million that Peabody alone spent in the last financial year on bringing new homes into play and having a development pipeline. It is a very significant partner, I would say, in terms of some of the objectives that the Government have.

Peabody estimates that the additional cost for it is likely to be around £800,000 and would challenge the viability of some of its services, particularly supported housing and care services that rely so much on high levels of staffing. Those supported housing and care services are provided for more than 10,000 people, with a wide range of complex needs, from addiction to recovery from mental illness, as well as people at risk from homelessness, those with learning disabilities and young people, as well as people who are older and in need of specialist accommodation. For some housing associations, the proposed increase would wipe out much of the additional revenue generated from the Government’s proposed five-year rent settlement. Across London’s 15 largest housing associations, it is estimated that the increase will cost around £30 million, which could impact other key priorities such as new homes in development.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Grender Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

All those services will be thrown into turmoil because they cannot suddenly renegotiate the contracts. They are going to have to hand the contracts back, and that is really not acceptable. The noble Baroness, Lady Neville- Rolfe, has a stronger amendment than this later, and I hope we might put that to the vote. We really have to do something about SEND transport.

[Baroness Grender (LD)]

My Lords, I support Amendment 3, moved by my noble friend Lady Kramer and supported by my noble friend Lord Sharkey, and other amendments in this group, but I will not mention them so that we can speed through as quickly as possible and get to the vote. We discussed in some detail in Committee the plight of charities, with a view to moving an amendment of this nature at this point.

I have a plea around the simplification of the tax system. I think everyone would acknowledge that national insurance contributions will never be part of asking, “Would we start from here?”, and then simplifying the tax system. Perhaps there is culpability on these Benches: they were introduced by Lloyd George, but massively expanded by Clement Attlee, so I am looking at the Benches opposite to share a bit of the responsibility from some time ago.

Failure to retain charities at the current rate will cost the sector £1.4 billion in the next financial year according to the NCVO. This compounds levels of underfunding in the long term and threatens services for some of the most vulnerable in society. To take just one example, Homeless Link is a charity with 800 member organisations, all of which work on the front line of homelessness. It estimates that the national insurance changes alone could take between £50 million and £60 million out of the homelessness sector. That is peanuts when it comes to revenue raising but absolutely fundamental to services run by 800 different organisations.

Most charities do not function as profit-making businesses and cannot adapt to increased costs, as the private sector can, by putting up prices or recovering elsewhere. Instead, the increase in national insurance must be accounted for by cutting costs in staff, and therefore services to people in acute need, such as those who need a bed for the night. The Government’s very welcome objective to develop a cross-departmental homelessness strategy is undermined by this additional cost.

At Second Reading, the Minister defended the current UK tax regime for the charity sector, arguing that it is

“among the most generous of anywhere in the world”.—[Official Report, 6/1/25; col. 601.]

I ask the Minister to study with care the latest results of the Charities Aid Foundation’s World Giving Index, which has the UK now at number 22—its joint lowest position ever, having fallen out of the top 20 at the end of last year after a recent period of decline.

The charitable sector is a significant partner in many of this Government’s future plans. This change in national insurance directly harms charities and the people who they need to serve. We urge the Government to reconsider this additional financial burden.

[Lord Bruce of Bennachie (LD)]

My Lords, I will briefly speak to Amendment 40, which is in my name. It asks for an impact assessment of this Bill on Scotland, because of the differences that have been identified.

The Government have said that they will compensate the public sector, but we are all waiting for the detail of how they will do it. A figure of £4.7 billion as the global sum has been mentioned, but not the detail. There is a concern that the structure of the public sector in Scotland is significantly different from that in England and that it may not be sufficient to sustain public services at even the current level in Scotland, where they ae struggling, as they are everywhere else. My own health board, Grampian, has had to absorb a £20 million charge just for this Bill, on top of a £75 million deficit that it is currently running. It is in a substantial crisis.

I have questions for the Minister. He will have seen the Fraser of Allander review of the impact; it may not be definitive but it is independent. It suggests that the impact is something around £550 million in Scotland. If one applied the normal rules of the Barnett formula, £4.7 billion would presumably give Scotland something between £400 million and £450 million. However, government officials in Scotland tell us that the Treasury has said the Barnett formula will transmit £300 million, or just over that. How can the Minister justify a £300 million transfer through the Barnett formula against a £4.7 billion overall budget for compensation?

More to the point, how will the Government establish the criteria for what level of compensation they will give to which kind of public bodies? If they do that, can they ensure that the same conditions that apply in England will follow through in Scotland, and that the money will go with them? All I am asking for is equality of treatment, not special treatment.

As I have said before, there is quite a lot wrong with what is going on in Scotland. The Scottish Government are not known for their efficiency in management; I am not trying to defend them and I do not think the UK Government should compensate them for their incompetence. However, I do not think that the public sector and the people of Scotland should suffer because of that, when an additional measure brought by the UK Government has added insult to injury or misery to misery.

Will the Minister acknowledge that, if he is talking about compensation of just over £300 million, that falls a long way short of the comparable impact, pound for pound, in Scotland compared with England? What are the criteria? Will they be applied fairly and consistently across the UK?