National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Moyo Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Baroness Moyo (Non-Afl)]

My Lords, on a number of occasions in your Lordships’ House I have stressed that investors, be they domestic, foreign, international, private or institutional, are willing to tolerate high taxes or regulation, but not both. It is the Government’s job to calibrate and recalibrate this delicate balance in the pursuit of investment and growth.

On the rise in employer national insurance contributions, there are at least four reasons indicating that a rethink of this policy is urgently required. First, as has already been mentioned, there is the tangible impact that this tax rise will have on the economy through actual and forecast employment. The Confederation of British Industry, the CBI, expects higher employment costs to reduce jobs in the private sector by 176,000 at the end of 2026, and business investment to be down by £6 billion. Job creation in Britain is already falling, with data showing that in the three months to November 2024, job vacancies reached their lowest number since May 2021 at approximately 818,000, indicating low job creation in the United Kingdom’s economy. Clearly, a tax increase on employers will only worsen the prospects for job creation.

Secondly, this national insurance rise adds inflationary pressure. The Office for Budget Responsibility, the OBR, expects that in the near term, higher NI will add 0.2% to the consumer prices index as a result of firms passing on part of the cost to consumers. That is of particular concern as inflation, at 2.6% last November, remains above the 2% Bank of England target. Noble Lords will have seen today that Germany has already seen a rise in its inflation, which is very worrying for us. These factors make the prospects for economic growth worse, not better, particularly after the last two consecutive months of flatlining growth under this Labour Government.

Thirdly, over time and all being equal, this tax-induced low economic growth will reduce the Government’s tax take and bring real vulnerabilities around fiscal stability and the funding of public services—the very reason, we have been told, for this tax rise in the first place.

Fourthly, perhaps most damaging is the message that this tax rise sends to private sector investors and business. This tax adds to an already expanding list of reasons for investors not to see the UK as a serious destination for the levels of investment and business that could drive economic growth. Already, according to a June 2024 report by the IPPR, Britain has the lowest investment rate of any G7 country at 17% of GDP while the rest are above 20%. Worse still, this economy has trailed other G7 countries in investment for 30 years, since the 1990s. This is not making that situation better. It is worth stressing that, if the United Kingdom had maintained an average G7 investment level over the past 30 years, it could have added £1.9 trillion of investment or 80% of the country’s annual GDP.

The story gets worse. Recent reports state that the London Stock Exchange is on course for its worst year for departures since the 2008 global financial crisis. This tax does not help reverse that situation. According to the London Stock Exchange Group, in 2024 a net total of 70 companies delisted or transferred their primary listing from London’s main market. The number of new listings is on course to be the lowest in 15 years, as initial public offerings remain scarce. It is impossible to see a path to long-term sustainable economic growth without a vibrant capital market. Therefore, it is essential to make the UK more attractive to companies, employers and broader capital market formation, but this tax does not do that.

Meanwhile, as has already been intimated, small and medium-sized enterprises are the centrepiece of any country’s economic success and clearly of this economy too, yet more than 80% of Britain’s 5.5 million SMEs will be impacted by this tax. These trends underscore a more fundamental and structural point that the UK is in danger of being seen as a place where investment and risk-taking are inadvertently discouraged and where risk-takers face unlimited downsides but their upside is constrained by taxes and curtailed by what is seen as an unwelcoming business and investment environment. Furthermore, this tax will undermine efforts by the Government to boost the UK’s attractiveness through their proposed market reforms. If this Bill ultimately progresses it adds to the UK’s growing reputation as a place where you can certainly lose but not easily win.

I began my remarks today by stating that business can accommodate high taxes or high regulation but not both. The Government have spoken about reducing regulatory burdens, and this is to the point about what we should be doing instead. Reducing regulatory burdens is an obvious one. This is where the Government should focus their efforts and accelerate this process. The Government must reconsider this increase in employer’s NI, specifically looking at, for example, raising the threshold above £5,000. This alone will go some way to reducing the negative impacts that are clearly already being felt across this economy.