National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Kramer Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

I think the Minister, certainly as far as this debate in this House is concerned, is defending an indefensible position.

[Baroness Kramer (LD)]

My Lords, I shall be very brief as the leader of the winding speeches. I just join the noble Lord, Lord Leigh, in saying to the noble Lords, Lord Hogan-Howe and Lord Macpherson, that Parliament has given us the responsibility under the national insurance contributions legislation, to come forward with amendments and press them. I am not going to walk away from that responsibility simply because it looks rather difficult.

I say to the noble Lord, Lord Eatwell, who talks about simplification, that it is very easy to have a high-level issue such as that, but I am not going to put simplification ahead of what will basically be the cancellation of something like 2 million GP appointments because of the additional costs on GPs. I am not going to sit by and watch dental practices cut back their services, so that we have much more of this DIY dental care that people are carrying out. I am shocked by the rise in dental sepsis alone. I am not going to sit here while pharmacies basically cut their hours and services. I am not going to sit here while adult social care—we have heard about so many cases—basically has to work out how it sets aside the most vulnerable in our society, because that is the implication.

We have heard also from hospices. People are being told now that their jobs are at risk. This is not a hypothetical or some exaggerated claim; this is a process that is under way across the community healthcare and social care sectors to absolutely cut back in response to this increase in employers’ national insurance contributions. We are trying to stop a disaster. When they came forward with their proposals, the Government did not absorb the fact the National Health Service does not work in isolation. It is part of a much more holistic, complex landscape, and if you undermine the private elements of both social care and community healthcare, you undermine the NHS, and that surely is not what the Government want to be doing under these circumstances.

I could go on because there is so much to be said, but it has been brilliantly said by so many across this House. If the Government were to stand up and say that they accepted this amendment, I think there would be a hallelujah, quite frankly. Will they please understand the problems we are trying to deal with? This is not hypothetical or playing party-political games; this is dealing with a really difficult and serious problem that our society is facing. I do not know quite what I can do in a winding speech, but if I can move anything, I will.

[Baroness Neville-Rolfe (Con)]

My Lords, I echo much of what has been said by the noble Baronesses, Lady Barker and Lady Kramer, what my noble friend Lord Ahmad said about it being a pity that the Minister had not engaged more with all those affected, and the plea for fairness from the noble Lord, Lord Leigh. This Bill is the most important economic measure the Government have put forward since they took office and, as has become apparent from our debates, especially the detailed examination in Committee, it is a misguided measure with numerous defects. It will hit hardest those sectors that employ more labour, such as care homes and hospices, but there will also be flow-through to SMEs and bigger businesses as they seek to cut costs and staff. We have seen this in action with big names such as Sainsbury’s shedding staff and the Federation of Small Businesses and the Chartered Institute of Personnel and Development recording collapsing confidence and planned headcount cuts in the surveys.

During our debate today, the Opposition are proposing amendments to reduce some of the Bill’s most egregious effects. That is the answer to the noble Lord, Lord Eatwell. We have to find a way to limit the impact of this ill-thought-out jobs tax. The tax system is not simple and we are where we are because of the choices the Government have made. The changes are having real impacts on real people in their everyday lives: on charities, small businesses, nursery schools, special needs drivers, pubs, young people and—the specific subject of this amendment—care homes, pharmacies, dentists, GP surgeries and hospices. That is why we are supporting the amendment from the noble Baroness, Lady Barker, and will be voting in favour.

At every stage throughout the progress of this Bill, we have raised the plight of these sectors because of the decisions the Government made in the Budget. They are facing these changes in a very short timescale, as the noble Baroness, Lady Barker, has rightly said. At every stage, the Government have remained unmoved. The Minister has been stony-faced and utterly unreceptive to the genuine and deeply felt concerns of millions of businesses and charity trustees across the country.

We have heard from the noble Lord, Lord Hope, about the Cyrenians, from my noble friend Lady Stedman- Scott about the sheer scale of the impact on charities, and from my noble friend Lady Fraser about the loss of jobs and skills and the difficulties of deciding what to do. These organisations and others are facing a financial cliff edge in April and that is thanks to the Government, who have chosen to put them in this position while at the same time choosing to give a £9.5 billion pay rise to their friends in the public sector, to pledge £8.3 billion to the amorphous GB Energy project and to increase day-to-day spending by £23 billion this year.

These were all choices, and it is hospices, charities, healthcare providers, early years settings and small businesses that will pay the price. That is what my noble friend Lord Clarke of Nottingham was saying: he felt that it was the wrong choice.

In November last year, the Nuffield Trust predicted that the Government’s jobs tax would cost the independent sector’s social care employers in the region of £940 million in 2025-26, and that is on top of around £1.85 billion more that they need to meet the new minimum wage rates from April. These are all relevant to this amendment.

I am particularly concerned about the hospice sector, and that is why I have tabled my own amendment with the support of my noble friends Lord Leigh of Hurley and Lord Howard of Lympne. Both my noble friends spoke with great eloquence, as did the noble Baroness, Lady Kramer, so I will not repeat any of that, but I will say that Hospice UK has confirmed to us that the sector is headed for a £60 million deficit this year. The Health Secretary announced £100 million to make sure we are protecting our hospices, but last week the Prime Minister was forced to admit that that is capital funding and will not have a direct impact on the day-to-day costs. Further to that, I understand from boring into the detail that the £26 million that the Minister mentioned in Committee on day 3 represents almost no new money at all; so, we have a big problem.

Finally, it was reported that the National Pharmacy Association has taken the unprecedented step of voting for collective action in protest at a £250 million hike in business costs that pharmacists face under the Government. If the Minister will not listen to the Official Opposition, perhaps he will listen to the experts, the GPs, the hospices and the charities, which are all telling us that the Government must think again. We agree with the noble Baroness, Lady Barker: the Government must act urgently to protect our health and care providers, our GPs and our hospices before it is too late. Should the noble Baroness choose to test the opinion of the House, we will be with her in the Lobby.

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Moved by

[Baroness Kramer]

2: Clause 1, page 1, line 1, at end insert—
“(A1) The Social Security Contributions and Benefits Act 1992 is amended as follows.(A2) In section 9(1A) after paragraph (aa) insert— “(ab) if section 9AA applies to the earnings, the part-time worker secondary percentage;”.(A3) After section 9A insert—“9AA Part-time worker secondary percentage(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b), this section applies to the earnings paid in the tax week, in respect of the employment in question, where the earner is a part-time worker.(2) For the purposes of section 9(1A)(ab), the part-time worker secondary percentage is 7.5%.(3) For the purposes of this section, a “part-time worker” has the meaning given in Regulation 2 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.”(A4) The Social Security Contributions and Benefits (Northern Ireland) Act 1992 is amended as follows.(A5) In section 9(1A) after paragraph (aa) insert—“(ab) if section 9AA applies to the earnings, the part- time worker secondary percentage;”(A6) After section 9A insert—“9AA Part-time worker secondary percentage(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b), this section applies to the earnings paid in the tax week, in respect of the employment in question, where the earner is a part-time worker.(2) For the purposes of section 9(1A)(ab) above, the part-time worker secondary percentage is 7.5%.(3) For the purposes of this section, a “part-time worker” has the meaning given in Regulation 2 of the Part-time Workers (Prevention of Less Favourable Treatment) (Northern Ireland) Regulations 2000.””Member's explanatory statement
This amendment sets a new National Insurance Contributions rate for part-time workers.

[Baroness Kramer (LD)]

My Lords, I start by thanking everybody who voted for the previous amendment. Such a powerful message is engaged with that statement.

I am here to move Amendment 2, which is different in character from Amendment 1. The amendments in this group are primarily mine. There are a couple there from the noble Lord, Lord Londesborough, which I also support and know that he will present very effectively. The amendments in my name and that of my noble friend Lord Bruce of Bennachie, in essence, deal with part-time workers.

While looking at the impact of the changes to employer NICs, we became conscious of the changed position of part-time workers as members of our workforce. There are now more than 8.4 million people engaged in part-time work, who are exceptionally hard hit by the changes proposed by the Government in the NICs Bill. People who typically worked 14 hours a week incurred employer NICs in the past; that now drops to individuals who work typically only eight hours a week. Suddenly, there is a huge group of part-time workers who have become far less attractive to the employers that have provided their opportunities in the past.

The impact is especially great on the hospitality industry—an industry that we know is already on its knees. Some 37% of employees in hospitality are part time, and I think there is a view in the Treasury—I think that the noble Lord, Lord Macpherson, expressed it unwittingly in Committee—that part-time work is a sort of rich person’s luxury; it is people working for pin money. That, frankly, is a completely outdated attitude.

Today, part time is concentrated in the lowest pay bands. It is an entry point to work for many people in disadvantaged communities or with difficult histories. It is an economic lifeline for carers who can work part time but not full time, for students, for many with disabilities and for those who are economically inactive. We have a Government who say they want to take 2 million people off benefits and get them into work: part-time work is the entry point and the obvious first step.

We also want employers to see part-time work as exceedingly attractive, so that they start to add additional support, such as training and career opportunity, to part-time work because of this far more fundamental role that it can play. Instead, we have seen with this Bill that many employers are now openly saying that they intend to outsource abroad rather than employ part-time workers or that they will require part-time workers to become self-employed, with all the complexities of IR35.

As we looked at our concerns for hospitality and the high streets—many in those sectors are the backbones of communities—and because we looked at the nature of the part-time workforce, we made the call to go further in this amendment than in our others and seek not just to exempt part-time workers from the increase in employers’ NICs but to reduce the rate of employers’ NICs to 7.5%. As the noble Baroness, Lady Barker, said in the debate on the previous set of amendments, we had it in our manifesto and have since identified other tax opportunities that are available for fundraising. None of them is easy but, frankly, we would close loopholes in capital gains tax, we have talked about taxes on share buybacks and we would reinstate the surcharge on the major banks.

In the previous set of discussions we had a whole series of proposals from the noble Lord, Lord Clarke, who of all people is very aware of the range of possible choices. They may not be ideal, but they are certainly much better than the choice of employers’ NICs, with the impact that is happening. In this case we made that decision, and that is the characteristic of this amendment. The other amendments in the group in my name are all consequential. The noble Lord, Lord Londesborough, also has amendments in this group, and I am fully supportive of them. I beg to move.

[Lord Londesborough (CB)]

My Lords, I rise to speak to my manuscript Amendment 15A and its consequential Amendments 17 and 24, both of which are supported by the noble Baronesses, Lady Neville-Rolfe and Lady Kramer. I am very grateful for their support. I will also speak to consequential Amendments 30A, 31A and 32A in my name. For clarity’s sake, I will not be pressing Amendments 30, 31 or 32.

In short, these exemption amendments seek to protect all small businesses and organisations that employ fewer than 25 staff, including charities, from Clause 2’s steep and sudden drop in the NICs threshold from £9,100 to £5,000 per annum—or, on a monthly basis, from £758 to £417 and, for those who are paid weekly, from £175 to £96 per week. By maintaining these existing thresholds, these amendments would particularly protect part-time workers and smaller organisations including charities, hospitality and retail, which in some cases face increases in their NICs bill per employee as high as 50% to 70%. For this reason, I support the noble Baroness, Lady Kramer, with her Amendment 2.

I should quickly declare my interests as set out in the register, specifically as an adviser and investor to a range of small businesses in the UK, including a community-owned public house.

I will come on to the impact of these amendments shortly, particularly in relation to the challenging and interesting comments from the noble Lord, Lord Eatwell. I certainly do not agree that my amendments are designed to reduce government revenue, and I will come on to that in a moment. Surely, this is our role. This is the most important economic policy that this Government have yet to produce. We are where we are, and surely we should be scrutinising, particularly if we feel that poor decisions or poor structuring of these national insurance increases are doing damage to the economy.

On that theme, I will quickly share this: the latest survey from the Federation of Small Businesses reported that the proportion of its members facing contraction in the last quarter, Q4, jumped to 24%, its highest-ever level outside the pandemic. That is up from 14% in Q3. The FSB has also reported that confidence among its membership has fallen to its lowest point in 10 years. Meanwhile, the Chartered Institute of Personnel and Development has reported that over a third of the 2,000 firms that it interviewed plan to reduce their headcount in 2025 through redundancies or recruiting fewer workers. Rather than taking a sectoral approach, for which many others have spoken passionately already, my exemption amendment applies to all small businesses and organisations, including charities with fewer than 25 staff, which, as the Bill stands, face sudden and steep drops—in fact, 45% drops—in their per-employee threshold at which employers become liable to pay NICs.

Just to illustrate this, employee NICs on a salary of £30,000 are set to increase by 30%, from £2,884 to £3,750, for those employing more than three staff. For part-time workers earning, say, £15,000, the employer NICs can increase by more than 50% per job. These are not trivial increases. While I salute the Government for increasing the employment allowance in Clause 3, it is from £5,000 to £10,500, and this typically washes out increases only for micro-businesses, those employing fewer than three staff. All told, the larger the business in terms of employees and the higher the salaries paid, the lower the increase in percentage terms to its NICs.

Of course, I understand why the Government are raising tax revenues—I have no issue with that—but, by placing this burden so disproportionately on small employers, the Bill threatens to do significant damage to jobs, pay and economic growth. Anecdotal evidence suggests that this is already happening.

My amendments would help to protect the jobs of some 6 million workers employed by about 1 million businesses and organisations across the UK. Many of these are nascent companies that operate on low margins and are at critical stages of their development—yet they grow at the fastest rate, create jobs at the fastest rate and, through their size and agility, can be great innovators. They are a vital component of GDP and our growth, with annual turnover of some £900 billion. But this group also includes a huge swathe of family and local businesses spread across the country, struggling to keep their heads above water in what have been five very difficult trading years. A fall of just 2% to 3% in employment levels or hours worked in this small business sector could cost the Treasury more in lost tax revenues and increased benefit payments than it would gain from this measure.

Incentivising employment by restoring the NICs threshold would be accretive to GDP growth, the Government’s number one priority. It would help boost income tax revenues and employees’ NICs, and it would bolster VAT revenues and corporation tax. Above all, it would lift business sentiment and stimulate investment.

I listened with interest to the noble Lord, Lord Eatwell, describing all these amendments as wrecking amendments. Because we do not have a proper detailed impact assessment, that is an unfair charge and I challenge it on behalf of these amendments. I look forward to hearing from the Minister but, with respect, I expect to press these amendments when the time comes.

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[Lord Livermore (Lab)]

My Lords, I am very grateful to all noble Lords who have spoken in this debate. I will address first the amendment tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Bruce of Bennachie, which seeks to set a reduced rate of employer national insurance for part-time workers at 7.5%. As I have said before, the difficult decisions contained in this Bill were necessary both to repair the public finances and rebuild our public services. This amendment would reduce the revenue raised from this Bill, and therefore would reduce the Government’s ability to achieve these objectives. Reducing the rate of employer national insurance for part-time workers only would also create additional complexity in the tax system and, as my noble friend Lord Eatwell said, create distortions in the labour market. The Government have taken action to support those on lower pay by increasing the national living wage. Employers will also continue to benefit from employer national insurance reliefs, including for hiring under-21s and under-25 apprentices, where eligible.

I turn to the amendments tabled by the noble Lord, Lord Londesborough, and the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, which together seek to maintain the current rates and thresholds for businesses employing fewer than 25 staff. These amendments would also have cost implications, again necessitating higher borrowing, lower spending or alternative revenue-raising measures. I stress that the Government are taking action as part of this Bill to protect the smallest businesses by increasing the employment allowance from £5,000 to £10,500. This means that, next year, 865,000 employers will pay no national insurance. More than half of employers will see no change or will gain overall from this package, and employers will be able to employ up to four full-time workers on the national living wage and pay no employer national insurance.

The Government have also taken steps to strengthen small businesses’ ability to invest and grow. This includes freezing the small business multiplier, permanently reducing business tax rates for retail, hospitality and leisure properties from 2026-27 and publishing the Corporate Tax Roadmap to provide stability and certainty within the tax system for businesses across the economy.

The new clause tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Bruce of Bennachie, would require the Government to produce an impact assessment on the effect of the Bill on SMEs, hospitality, tourism and seasonal workers. The Government of course consider the impacts of all policies, including the changes to employer national insurance. As we discussed at length in Committee, an assessment of the policy has already been published by HMRC in a tax information and impact note.

The OBR’s Economic and Fiscal Outlook also sets out the expected macroeconomic impact of the changes to employer national insurance contributions on employment growth and inflation. The Government and the OBR have therefore already set out the impacts of this policy change. The information provided is in line with the approach taken for other similar changes, and the Government do not intend to publish additional assessments.

Finally, I turn to the amendment tabled by the noble Baroness, Lady Neville-Rolfe, that seeks to increase the employment allowance for farms. This amendment would again reduce the revenue raised from the Bill, necessitating either higher borrowing, lower public spending or new revenue-raising measures. The Government of course recognise and greatly appreciate the vitally important role of the farming sector. Despite the Government’s challenging fiscal inheritance, the farming and countryside programme budget has been protected at £5 billion across the next two years. This includes the largest ever proportion of the budget directed at sustainable food production and nature recovery in our country’s history. This will accelerate the transition to a more resilient and sustainable farming sector, supporting investment in farm businesses and boosting Britain’s food security.

Ultimately, this Bill is necessary to fix the public finances and to fund the public services. Many of the amendments in this group would reduce the Government’s ability to do these things, so I respectfully ask noble Lords not to press their amendments.

[Baroness Kramer (LD)]

My Lords, I will be extremely quick. This has been a short but very useful debate. On the impact assessment, I think I acknowledged that the noble Baroness, Lady Neville-Rolfe, has tabled Amendment 38, which covers the scope more effectively than the amendment we have tabled. That is one which I hope we will have an opportunity to support later on today.

I say to the noble Lord, Lord Eatwell, that there is already a cliff edge—the Minister has set it at three employees. The amendment tabled by the noble Lord, Lord Londesborough, moves this to a far more sensible 25 employees. That is a significant improvement that I hope the House will accept, and that we will certainly be supporting.

Returning to our Amendment 2 that deals with part-time workers, this is an issue which we are going to continue to pursue; we have begun to realise how significant the change is in the structure of the workforce. If the noble Lord, Lord Eatwell, were to look at that, I think he would be very surprised and begin to think rather differently over the kind of measures we are looking at here. Providing this additional support for part-time work is very much pro-growth. It ought to appeal to the Prime Minister; he has positioned himself as the pub champion. Of all the sectors that need the support of part-time workers, and that are going to be impacted by the way this increase in employer’s NICs has been drafted, it is going to be the pubs sector—it is already seeing six pubs close per week. I hope we can look to the Prime Minister for a champion who can try and provide us with some support around this issue.

Because of the importance of the sectors and the changing nature of the workforce, I wish to test the opinion of the House.