National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Kramer Excerpts

Committee stage
Thursday 6th February 2025 Grand Committee

The Minister has frequently asked, not unreasonably, how it will all be paid for. I have made suggestions, including DST, a digital services tax. Interestingly, on the front page of the Times business pages today, and probably other journals as well, is the news that the Americans are going to put VAT on low-value consignments from the EU—bizarrely, two days after I mentioned it. There are opportunities to raise revenue elsewhere, apart from the NIC carve-out, which the Government might make. The purpose of having Bills reviewed in your Lordships’ House is to give the Government time to pause and consider. Are the Government really going to ask Peers of all parties and none to vote against such an amendment, knowing the damage this will do to people in the sector? I suspect that every constituency in the country has a care home that is going to suffer. This is the moment for the Government to think again and I very much hope they will be minded to do so. I beg to move.

[Baroness Kramer (LD)]

My Lords, I am speaking here as a winding speaker. The Committee will know that, on Monday, we discussed this whole sector in great detail, and the noble Lord, Lord Leigh, has echoed the numbers and essentially the substance of that first discussion.

We on these Benches take a very different conclusion about an impact assessment with a potential delay attached and £10,000 per institution. The noble Lord, Lord Leigh, gave an example of one of his particular interests facing a £1.1 million additional charge, so I do not think that £10,000 is going to make a ha’porth of difference to it. We think that the proposals are completely inadequate. We have always said that we need the exclusion of this whole sector from the changes in the NICs levies, and on that we stand our ground.

I shall say again to the Minister, who often replies that the Government have given an extra £600 million to this sector, that the noble Lord, Lord Leigh, and I have exactly the same figures, and the cost of the NICs Bill alone for this sector, according to the Nuffield Trust, is £900 million. So we are already £300 million behind, and that £600 million was meant to fill a whole lot of other cost gaps that continue for this sector, which is so crucial to our society.

I was interested to listen to the Conservatives on this issue. I was looking it up today: migrant workers make up 32% of care workers in England. Those figures are from November 2024. As I understand the policy announcement today, I am sure that the Conservative Party thinks that these are wonderful people to be able to look after our elderly and empty the bedpans, but they will be throwing them out of the country as soon as they have finished work, because they will not be permitted to become British citizens. So to me there is some interesting contradiction in this respect for the individuals and the assessment that they are not fit to be British. The noble Lord, Lord Leigh, sees no conflict in that, but I suspect that many others will see it, and I am sure that my party does: when we tell these people that they are valued and respected, we really mean it.

Once again, we do not think that these amendments are adequate to the need, and we stand our ground on the amendments that we first moved—but then, of course, under Committee rules, withdrew—on Monday.

[Lord Livermore (Lab)]

My Lords, I shall address the amendment tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lords, Lord Altrincham and Lord Leigh of Hurley, which seek to increase the value of the employment allowance for those providing social care, and the amendment tabled by the noble Lord, Lord Leigh of Hurley, which seeks to require the laying in Parliament of an impact assessment on social care providers 12 months after commencement and every 12 months subsequently.

As a result of the measures in this Bill, combined with wider Budget measures, the Government have provided a real-terms increase in core local government spending power of 3.5% in 2025-26, including £880 million of new grant funding provided to social care. This funding can be used to address the range of pressures facing the adult social care sector. Increasing the employment allowance for specific sectors would introduce new pressures that would require either higher borrowing, lower spending or alternative revenue-raising measures. It would also add complexity to the tax system.

The Government of course carefully consider the impacts of all policies, including the changes to employer national insurance. As I have said previously, an assessment of the policy has been published by HMRC in its tax information and impact note. Further, the OBR’s economic and fiscal outlook sets out the expected macroeconomic impact of the changes to employer national insurance contributions. The Government and the OBR have therefore already set out the impacts of the policy change. This approach is in line with previous changes to national insurance and taxation, and the Government do not intend to provide further impact assessments. In light of those points, I respectfully ask noble Lords not to press their amendments.

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In responding to the first group of amendments on our first day of Committee, the Minister made a virtue of this Bill simplifying the employment allowance. He said that any amendments trying to introduce sector-based exemptions were “incoherent”. The noble Lord, Lord Eatwell, has argued that exemptions from this Bill should not be made because they make more complex a tax system that is already noted for its complexity. My Amendments 55 and 56 would reduce complexity and introduce more simplification. I commend them to the Minister on that basis, and I beg to move.

[Baroness Kramer (LD)]

My Lords, I think that the amendments we discussed on Monday would have covered the public authorities issue but I am not absolutely sure, so clarification from the Minister would be extremely helpful. Can he also clarify for us the protections put in place for micro-businesses? The noble Baroness, Lady Noakes, is usually right when she identifies these issues. It is beginning to sound as though the sector is somehow not qualifying for that level of protection. It would be most helpful to understand that.

[Lord Altrincham (Con)]

I thank my noble friend Lady Noakes for her amendments in this group; for her extremely well-made case as to how we might look to soften the blow for public services and the private sector; and for drawing attention to so many areas on the edge of public services that will be affected, such as dentists and childcare jobs. This is where the impact will be widely felt across the country.

On Amendments 54 and 55, the Government have stated that the purpose of this Bill is to repair the public finances. A key aspect of this plan is to ensure that public authorities can continue to operate efficiently without being overly burdened by rising employment costs. By increasing the employment allowance for public authorities to £20,000, we would reduce the financial pressure on them to provide essential services. Increasing the employment allowance specifically helps offset rising staffing costs, which are expected only to grow as the Government invest more in public services.

As the Government focus on boosting public sector capacity to meet future challenges in depopulation, the higher allowance would support that goal. It would provide greater flexibility to focus on improving service quality and enhancing delivery without worrying about escalating employment costs. The proposal aligns with the Government’s goal of unlocking economic growth. The ability to support and maintain a strong and capable public sector workforce means that these services can continue to contribute positively to the wider economy. This tax increase will inevitably drive policy-driven unemployment, which we have talked about, as already evidenced in the recent jobs numbers.

I understand that the Minister believes that the Government had no flexibility when they produced their Budget and made these tax choices. However, as the months have passed, the economic situation has changed and there has been quite a bit of wage inflation. As such, these proposals to increase the employment allowance could be cost-neutral to the amount of money raised, and should certainly not be immediately dismissed as unfunded policy decisions.

[Lord Livermore (Lab)]

My Lords, the amendments tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, seek to expand the eligibility of the employment allowance to domestic workers and the public sector, and to increase the value of the employment allowance for organisations carrying out functions of a public nature.

As we discussed on the previous day in Committee, the employment allowance was introduced in 2014 by the previous Government. Currently, eligible small businesses with employer national insurance bills of £100,000 or less receive £5,000 of employment allowance, which means that they can deduct £5,000 from the total employer national insurance that they pay on their employees’ wages. This Bill increases that employment allowance to £10,500 from April 2025. It also seeks to expand the employment allowance to all eligible employers by removing the £100,000 eligibility threshold, which will simplify and reform employer national insurance so that all eligible employers now benefit. All of the remaining eligibility criteria remain unchanged.

As has been the case since the employment allowance was introduced in 2014, organisations operating wholly or mainly in the public sector are not eligible to claim it. As we discussed during the previous session in Committee, eligibility for the employment allowance is not determined by sector but depends on the make-up of an individual business’s work. The HMRC guidance explains that this is based on whether an organisation is doing 50% or more of its work in the public sector.

The noble Baroness, Lady Noakes, asked for some specific figures in relation to that. The number of those claiming the employment allowance varies from year to year because the amount of work done in the public sector varies from year to year. It is for individual businesses to determine the amount of work that they do in the public sector, therefore data is not collected in the way the noble Baroness asks for.

The noble Baroness also asked for specific additional assessments. As I have said many times before—she is no doubt sick of me saying so—the Government have provided the impact assessments that we intend to provide and do not intend to provide any further such assessments. I am not aware of any plans for a specific information campaign, in the way that she asks for, but I am very happy to take her suggestion back and discuss it with colleagues.

[Baroness Kramer (LD)]

I thought that the Minister was about to sit down, so I apologise if I moved too soon. I would just like to clarify something. In the situation described by the noble Baroness, Lady Noakes, where somebody employs a nanny, a carer or whatever else, I have always worked on the assumption that the employment allowance at £10,900 would, in effect, negate any employer’s national insurance on that individual. If that is not correct, it would be helpful for me to understand that. I thought that that was how the micro-business protection worked; if I have got it wrong, please let me know.

[Lord Livermore (Lab)]

I think that I have an answer for the noble Baroness but I would like to double-check it so, if she does not mind, I will write to her to be absolutely certain on this point.

[Baroness Kramer (LD)]

Thank you.

[Lord Livermore (Lab)]

In conclusion, the Government have provided £4.7 billion of funding to support public sector employers with increased employer national insurance. Expanding eligibility for, or increasing the value of, the allowance would come with additional costs and would reduce the revenue generated by this Bill; this would then require either higher borrowing, lower spending or alternative revenue-raising measures. In the light of these points, I respectfully ask noble Lords to withdraw or not press their amendments.

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[Lord Jamieson (Con)]

My Lords, I also support my noble friend Lord Fuller’s amendment. Local government finance is in a parlous state, with more than 70% of funding used for adult and children’s social care, which, due to demographic pressures, is growing substantially above GDP and inflation. In some places, this is exacerbated by housing costs due to the housing shortages across the country.

The latest local government finance settlement has not helped, as the additional government funding is the worst I can recall, after taking account of national insurance, since I became chair of the Local Government Association in 2019. I agree with my noble friends’ comments on this. Yet the financial pressures on local government continue, forcing many councils to put up council tax by the maximum of 5% and, in several cases, to seek additional rises above that. National insurance rises pose a particular burden on local councils. The LGA, as mentioned by my noble friend Lord Fuller, estimates that the cost is around £1.7 billion, of which around £1.2 billion is indirect. The Government have committed to fund the direct costs of the national insurance rise but, as my noble friend Lord Fuller mentioned, that does not even cover the full direct costs.

I emphasise that figure of £1.2 billion. There has been some commentary that it needs to be absorbed by suppliers. Frankly, that is not realistic. For instance, in one of the biggest areas—social care staff and care workers—you have agencies that just are not capable of absorbing that level of cost. They will have two options: get a price rise from the council, or stand away from their contracts. We councils cannot afford that so we will inevitably be forced to pay the extra amounts of money.

For example, in Central Bedfordshire Council—where I am a councillor and therefore declare an interest—the shortfall is around £2 million for the direct costs after the financial settlement. I talked to the finance director yesterday and he estimated indirect costs of around £10 million. To put that in context, that is more than a 5% council tax rise will generate. So, even after such a rise, we will not cover the national insurance rise.

That will inevitably mean that we will have to look at cuts to our essential services, the majority of which are statutory—the classic potholes, parks, libraries, et cetera. They are all up for grabs, so to speak. That is just not fair on our residents, who are paying additional council tax and seeing cuts to their services. I support the amendment, so that the impact of the national insurance rise can be truly worked out on a council basis and then properly funded.

[Baroness Kramer (LD)]

My Lords, I realise that I am very much in danger of becoming repetitive, but this is the last grouping that we will deal with today. If I may, I always feel like cheering on the noble Lord, Lord Porter, every time I hear him speak, which may put him in jeopardy, but it is probably reflected by voices across the Committee.

The issues being raised are crucial. I will not repeat the discussion that we had last Monday and Wednesday, which covered this same area in great detail. However, the amendments put forward then, which would basically exclude adult and child social care, housing associations, charities and others from the changes in the employers’ NICs threshold, would answer very many of the problems that local authorities are going to face. While I understand that this amendment seeks an impact assessment, we go for exclusion of these various necessary services and on that, once again, we stand our ground.

I thought that there might be some mention of town and parish councils in this group, which will get no protection at all from the increases in employers’ national insurance that they will face. We put forward an amendment last week that would exclude them from this. Once again, I ask that town and parish councils not be overlooked in the process of understanding that the public sector will be protected. With the changes that the Government are mooting in going to strategic authorities, town and parish councils will be the only real local government layer left, quite frankly, where somebody within a community knows that community, speaks to the people in it and acts on their behalf. Because they are funded purely through tax rather than through some government grant, the Government have not given them the off-set for the additional costs that they will have to carry. They amount to so little—£10 million a year. The Government would not even notice it. Without that, because they have no other sources of income, they will absolutely be required to increase their taxes by between 1.5% and 3.5%.

These councils should not be overlooked. They might be very small, but they are vital. For many people in this era, they are the connection to politics in a world where there is so much cynicism over politics and people do not feel the reality of it any more. I hope very much that the Conservatives, having made such strong statements on the effect of all these changes, will consider coming into the Lobbies with us on Report.

[Baroness Neville-Rolfe (Con)]

My Lords, I support Amendment 70. I am delighted that my noble friend Lord Fuller has joined the Committee today and spoken with such passion and eloquence, and I support his proposal for an impact assessment of the costs involved with this Act on local authorities. It was also good to hear from my noble friend Lord Porter; as a former civil servant many years ago, I was amused by his comment about policies hanging around in a drawer. I particularly remember that when I used to go to the Council in Brussels; there were a lot of proposals that used to hang around for a long time.

I agree that the jobs tax is the wrong approach, and I agree with my noble friend Lord Jackson that there are some tricky issues in parts of local government. I have to say that I have often been an admirer of local government, particularly councils, over a long career.

This week the Government confirmed £502 million of funding to help local authorities to cover the increased costs of directly employed staff due to the changes in the national insurance contributions. Ministers have also allocated £13 million separately to mayoral combined authorities, with some allocations to follow in due course. As we have heard, local authorities will need additional support in the face of the jobs tax. I welcome the fact that Ministers have brought this support forward, but we have heard from my noble friend Lord Fuller that that the allocation is totally inadequate. He called it a £1.226 billion headache, while my noble friend Lord Jamieson, also very experienced in this area, explained that it is just not possible to absorb these sorts of costs, for example, by reducing prices to suppliers. Services will inevitably have to be cut.

I shall highlight some examples where we believe the allocations will fall short. Hampshire County Council is facing a £10 million increase in costs due to the increase in NICs but the allocation it has received from the Government is just £7 million, leaving a £3 million shortfall, which I suspect is quite typical. My noble friend Lord Jackson talked of the likely demise of the lido in Peterborough and of libraries that are closing, although I am glad to say that, so far, we have kept our libraries open in Wiltshire. We are also hearing reports from Kensington and Chelsea and Harlow councils that they are facing a shortfall following the announcement of the allocations.

Clearly the Government’s additional allocations need to cover every penny of the increased cost to local authorities, otherwise they are going to have to cut services. It would therefore be helpful if the Minister could commit to engaging with MHCLG to seek assurances about what is happening and how that could be improved.

Councils, as we have heard from my noble friend Lord Fuller, have been treated a lot worse than sectors like the police, the Civil Service and the National Health Service. This is a case in point for the argument we have been making throughout Committee where the Government have failed to produce thorough and comprehensive impact assessments. Mistakes like this can be made. The new refusal of the Treasury to provide essential information in debates like this, when such major changes are taking place, is extremely disappointing, as my noble friend Lady Noakes said, in her usually trenchant way. The Minister needs to listen to the Opposition when we call for a proper assessment of the impact of this policy on our local authorities. We want to know about other sectors too, but local authorities are this particular group’s concern and we will be returning to the charge.

The truth is that the Bill is very damaging. It will have perverse effects that will reduce the expected national insurance and tax take, as we have heard from the OBR, and it will have a negative effect on jobs, prices and growth. I hope the Minister will think further in the light of these four days of debate before Report.

I should say that I have enjoyed this Committee because of the insights it has given into many sectors and their challenges. It has been an extraordinary cross-cutting debate, and I look forward to Report on 25 February after our much-needed winter break.